Michalopoulos v Perpetual Trustees Victoria Limited & Ors

Judgment 1HIS HONOUR : This judgment concerns the second cross-claim between Permanent Custodians Limited ("Permanent") and The Mortgage Group. 2In my reasons for judgment published on 16 December 2010 ( Michalopoulos v Perpetual Trustees Victoria Limited & Ors [2010] NSWSC 1450) I held that Permanent did not have authority from the plaintiffs to pay $100,000 of the loan proceeds to Australian Secured Fund. I also held that The Mortgage Group contravened s 52 of the Trade Practices Act 1974 (Cth) by submitting the loan application to Permanent on 9 March 2006 and that Permanent was entitled to recover damages from The Mortgage Group of $100,000 together with interest at the lower rate under the loan contract with the plaintiffs (at [175]-[181], [213]). I rejected a submission made by counsel for The Mortgage Group that damages should be apportioned pursuant to s 87CD of the Trade Practices Act on the ground that The Mortgage Group's defence to Permanent's cross-claim did not include a defence of proportionate liability for apportionable claims (at [182]-[185]). I rejected a defence of contributory negligence (at [186]). 3Orders to give effect to these reasons have not yet been made. By notice of motion filed on 9 February 2011 The Mortgage Group seeks orders that judgment not be entered to give effect to those reasons and that it be permitted to file an amended defence to Permanent's second cross-claim which had been served prior to the hearing. That amended defence did invoke a defence of a proportionate liability for apportionable claims. The Mortgage Group submits that that defence should be determined. 4The proceedings were before me for directions on 17 November 2009. I then directed that by 4 December 2009 the parties were to notify my associate whether any party opposed leave for the filing of any proposed pleadings and if so, to make arrangements with my associate, in liaison with the other parties to arrange a suitable time to deal with the question of leave to file amended pleadings. 5On 1 December 2009 Gilchrist Connell, the solicitors for The Mortgage Group, served a proposed amended defence to the second cross-claim on Permanent's solicitors. Paragraph 18 of that document invoked a defence of proportionate liability. It was alleged that if The Mortgage Group was liable to Permanent for any loss or damage, its liability was limited to the amount reflecting a proportion of the loss or damage claimed which the court considered just having regard to the extent of The Mortgage Group's responsibility for Permanent's damage. The amended defence named Stefan Allan and James Michalopoulos as concurrent wrongdoers. 6On 4 December 2009 Hicksons, the solicitors for Permanent, advised Gilchrist Connell that it did not oppose leave for the filing of the proposed amended defence to the second cross-claim. On 11 December 2009 Gilchrist Connell advised my associate that they understood none of the parties sought to oppose the amended pleadings, including the amended defence to the second cross-claim. They provided my associate with an unverified version of the amended defence to the second cross-claim and advised that they would arrange to have verified copies filed shortly. In fact, the defence was not filed. No application was made at the hearing to file the amended defence. However, it is clear from the submissions made by counsel for The Mortgage Group shortly prior to the hearing that counsel was proceeding on the assumption that the defence had been filed and that the issues raised in the defence were properly raised. Counsel's outline of submissions included the following paragraphs: " 39. In the event that TMG or Jeremy Allan is held to have any liability under any of the cross-claims against it then the principles of proportionate liability apply pursuant to Part IV of the Civil Liability Act 2002, Part VI(A) of the Trade Practices Act 1974 and Subdivision GA of Division 2 of Part 2 of the ASIC Act 2001. 40. In the circumstances, TMG's liability is limited to the amount reflecting such proportion of the loss and/or damage claimed which the court considers just having regard to the extent of its responsibility for the damage and/or loss. 41. Cases of apportionment where fraudsters have been involved demonstrate that the substantial proportion of blame is attributed to the fraudster. 42. In the circumstances of this case substantial responsibility ought to be attributed to Stefan Allan and, subject to the findings of fact, James Michalopoulos. " (citations omitted) 7Permanent opposes the application. It contends that its case was framed, prepared and run at trial on the basis that the pleadings were as filed and that it would be irretrievably prejudiced if a proportionate liability defence were now entertained. Ms Tatyana Virgara, was the solicitor having the carriage of the matter for Permanent. She gave evidence that following the directions hearing on 17 November 2009 when the question of proposed amendments to the defence were raised, her partner, Mr Cameron, wrote to Permanent and advised that a proportionate liability defence if raised by The Mortgage Group had the potential to decrease the amount of damages recoverable by Permanent from The Mortgage Group " such that [Permanent] may need to amend the Second Cross-Claim to join James Michalopoulos and Stefan Allan as cross defendants ". Advice to that effect was given at the time by counsel. On 3 December 2009 Mr Cameron advised Permanent that " as a result of TMG's proposed amended defence to Permanent's second Cross Claim it might be considered prudent for Permanent to cross claim against James Michalopoulos and Stefan Allan. " Ms Virgara deposed that had she received a filed version of The Mortgage Group's amended defence to the second cross-claim she would have sought instructions from Permanent in respect of seeking leave to amend the second cross-claim to include a claim against James Michalopoulos and Stefan Allan. She deposed that to the best of her recollection the hearing was run on behalf of Permanent on the filed version of the defence and not the proposed amended defence. She was not cross-examined. Counsel for Permanent advised in the course of argument that for his part the trial was not conducted on the basis of the amended pleading and that the pleading that he had in his " pleadings folder " was the old pleading. (Transcript, 14 February 2011, page 3). 8Permanent also submits that evidence was not adduced which would be relevant to the defence of proportionate liability because that was not an issue. Counsel for Permanent cross-examined Jeremy Allan about his knowledge of the plaintiffs' defaults under the Perpetual loan. I queried the relevance of the cross-examination having regard to the issues between the plaintiffs and Permanent and the issues raised on Permanent's cross-claim against The Mortgage Group (T428-429). When counsel returned to the topic, counsel for The Mortgage Group objected and I rejected further questions as not being relevant to a case that Permanent had pleaded (T431). The questions rejected would have been relevant to rebutting a defence of proportionate liability. The evidence may have established that The Mortgage Group deliberately did not disclose to Permanent prior defaults of the plaintiffs of which it was aware. Cross-examination may have established that The Mortgage Group had acted fraudulently towards Permanent. I rejected the cross-examination as not being relevant to an issue raised on Permanent's cross-claim against The Mortgage Group. I accept the submission for Permanent that the line of cross-examination could have been justified as relevant to rebut the defence of proportionate liability by seeking to show that The Mortgage Group acted fraudulently towards Permanent had Permanent understood proportionate liability to be an issue. 9I made adverse credit findings against Jeremy Allan, but made findings generally favourable to him and The Mortgage Group as to whether he had knowledge of the falsity of statements on the loan application forms. 10The prejudice to Permanent arising from the rejection of a line of cross-examination which could have been supported had Permanent's counsel appreciated that the issue of proportionate liability was a live one would not be adequately cured by allowing further cross-examination of Jeremy Allan. It would not be possible to recapture the dynamics of the trial. There would also be a risk that further evidence Jeremy Allan might give might affect issues already decided. 11I think that the legal representatives for Permanent ought to have appreciated that The Mortgage Group was proceeding on the basis that the issues for trial were in accordance with the proposed amended defence, to the filing of which Permanent had consented, particularly given the content of counsel's opening submissions. However, this was only one of a myriad of issues that the legal representatives for Permanent faced. Counsel for Permanent said that The Mortgage Group's opening submissions did not alert him to the fact that The Mortgage Group was proceeding on the basis that proportionate liability was an issue in relation to Permanent's cross-claim against The Mortgage Group. 12I accept that Permanent could, and probably would, have approached the trial somewhat differently had it been served with a filed amended defence. 13It was submitted for The Mortgage Group that I should discount the submission for Permanent that it could have sought to join Stefan Allan and James Michalopoulos as further cross-defendants had the proposed defence been filed, because a similar defence of proportionate liability had been raised by National Lending Solutions ("NLS") in defence to the cross-claim brought by Permanent against it and this had not led to any such joinder. That defence was raised in a pleading filed on 7 August 2009. NLS pleaded that Permanent's claim against it was an apportionable claim and that it was a concurrent wrongdoer with The Mortgage Group, the plaintiffs, James Michalopoulos, Jeremy Allan and Stefan Allan. This pleading did not prompt Permanent to join Stefan Allan or James Michalopoulos. But it is clear from the evidence read on this application that the possibility of the joinder of those persons was considered by Permanent's legal representatives as a result of being provided with the proposed amended defence by The Mortgage Group. 14The Mortgage Group's application is to be considered having regard to ss 56, 57 and 58 of the Civil Procedure Act 2005. My initial view was that the interests of justice required that The Mortgage Group should be permitted to rely upon the defence of proportionate liability as Permanent had consented to the filing of a defence raising the issue, and it should have appeared from the submissions made by counsel for The Mortgage Group that it conducted the hearing on the assumption that the issue had been raised. My initial view was that I ought to allow Permanent to make submissions on the issue and deal with that defence on its merits. However, I am persuaded that Permanent conducted the hearing on the basis that the issues were only as identified in the pleadings that had been filed. Counsel for Permanent did not address the question of proportionate liability in his submissions. More pertinently, further cross-claims were not brought that might otherwise have been brought and other evidence would have been adduced through cross-examination. 15These are not matters capable of being cured by allowing new cross-claims to be filed now and by allowing further evidence to be called. Not only would that course not be consistent with bringing litigation to a finality, but it would not be practicable. No cross-claim could be brought now against Stefan Allan as he was made bankrupt shortly after the hearing. That is a potential source of prejudice. Had a cross-claim been filed and dealt with at the hearing it might have been possible to obtain leave to proceed to judgment after he became bankrupt. James Michalopoulos was already a party to a cross-claim brought by The Mortgage Group. A new cross-claim could be filed by Permanent against him now if The Mortgage Group were given leave to file its amended defence. It would not be statute-barred. That would open up the possibility that James Michalopoulos might call evidence in defence of the cross-claim that would be relevant to the issues already decided. Moreover, the adducing of further evidence, even if only through further cross-examination of Jeremy Allan, could affect issues already decided. There would also be the practical problem in dealing with that evidence in that I have already made credit findings in relation to Jeremy Allan. Moreover, it could not be said that the evidence that would emerge if further cross-examination were permitted would necessarily be the same as if the cross-examination had proceeded at the trial. As I have said, it would not be possible to recapture the dynamics of the trial. 16In these circumstances I do not consider that the interests of justice permit recalling that part of the judgment and dealing with the proportionate liability defence. It remains the position that the defence is not open to The Mortgage Group because it was not filed and Permanent conducted its case on the basis of the defence that was filed. 17For these reasons I order that The Mortgage Group's notice of motion filed on 9 February 2011 be dismissed. I will stand the proceedings over to a convenient date to hear any argument on costs and for Permanent to bring in short minutes of order including a calculation of the amount for which judgment should be entered against The Mortgage Group and the amount for which judgment should be entered on The Mortgage Group's cross-claim against James Michalopoulos in accordance with my reasons. 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: 27 May 2011