Momentum Mortgages Ltd & Equity Trustees v Elmowy & Meehan

Momentum Mortgages Ltd & Equity Trustees v Elmowy & Meehan - [2010] NSWSC 950 - NSWSC 2010 case summary — Zoe

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(j) In paragraph 4 it is denied that the amounts allegedly advanced to the mortgagor were advanced. 28 Thus far the pleadings indicate an identity in issues for each of the plaintiffs. 29 However the defence then goes on to assert in paragraph 7 that the first plaintiff procured the defendants' execution of the DGI by its misleading and deceptive conduct, breaching ss 51A, and 52 of the Trade Practices Act 1974 (Cth). It is asserted that the first plaintiff failed to disclose at or around the time that it induced the guarantors to enter into the DGI that it was insolvent or that it was about to become insolvent, and that it was unlikely to be in a position to meet in full its contractual obligations to the mortgagor under the mortgage and loan facility or to the guarantors under the DGI. This assertion of misleading and deceptive conduct is directed only at the first plaintiff and not Equity Trustees. Mr Carroll nevertheless submits the two plaintiffs were joint promisees and that a defence available against one joint promisee would defeat the claim brought by the other. Mr Carroll cited the dicta of Finkelstein J in Financial Industry Complaints Service Limited v Deakin Financial Services Pty Limited (2006) FCA 1805 at [67] in support of this submission. Mr Condon who appeared before me in the interests of the second plaintiff submitted otherwise, relying upon the decision of Branson J in Krambousanos v Jedda Investments Pty Ltd (1996) 64 FCR 348. Mr Condon referred me to the decision in Brewer v Westminster Bank Ltd [1952] 2 All ER 650 which may tend to support Mr Carroll's submission, but Mr Condon also referred to later cases in which Brewer was not followed: Ardern v Bank of New South Wales [1956] VLR 569 and Catlin v Cyprus Finance Corporation (London) Ltd [1983] QB 759. 30 The competing submissions advanced by Mr Carroll and by Mr Condon give rise to an issue of some complexity and it would be altogether inappropriate to attempt to determine this issue in the present application for security for costs. The issue will require determination having regard to the matters arising on the pleadings. The outcome should be determined at a final hearing after all the evidence in point has been introduced and assessed by the Court as then constituted. 31 Nevertheless it is necessary to consider the significance of this issue, raised discretely against the first plaintiff only, for the purposes of the present application. 32 The allegation of misleading and deceptive conduct is again raised in the cross claim the defendants intend to bring. It is convenient to address its content, not only because it throws light on the issue arising by reason of paragraph 7 of the defence, but also because the pursuit of the cross claim is a factor to be considered in any event in the exercise of the Court's discretion to order security for costs. 33 In the proposed cross claim the cross claimants seek:

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(2) Orders as against the first cross defendant Momentum, inter alia setting aside the DGI, the Loan Agreement and the Mortgage. 34 The cross claim adds as a defendant Brett Gilbert who it is alleged was a director of Momentum who engaged in misleading and deceptive conduct. 35 It is pleaded that the mortgagor intended to develop land creating 33 lots and common property and that it entered into an agreement with Artone as the builder to undertake the necessary building work. A document described as a tripartite deed was allegedly executed, a term of which was that Momentum would continue to make available money at the request of the mortgagor to enable the mortgagor to fund its obligations under its contract with the builder so as to allow Artone to complete the work. It is alleged that in May or June 2007 Momentum represented to the mortgagor that it would provide finance to the mortgagor to complete the works. Whilst it could only provide finance to borrowers for 12 months at a time, it is alleged that a further representation was made by Momentum in August 2007 that it would provide financial accommodation to the mortgagor to enable the completion of the work and that the term of the loan would be rolled over on 26 June 2008. These representations it is pleaded enliven s 51A of the Trade Practices Act. It is pleaded that Momentum did not have reasonable grounds for making the representations having regard to its financial position at times relevant to the making of the representations. 36 It is unnecessary for present purposes to refer to the detail of the pleading against the third cross defendant. 37 Where substantially the same issues are likely to arise on an action brought by an impecunious company against a defendant as on a cross action brought by the defendant against the impecunious company, the Court should be slow to order security: see Sydmar Pty Ltd v Statewise Developments Pty Ltd (supra) and Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd [1998] NSWSC 472; and [1999] NSWCA 16. 38 In his judgment at first instance in Dalma Rolfe J said at page 9:

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He added that it would be quite wrong to preclude a party from litigating matters by way of defence to a cross-claim merely because that party was the initial institutor of the proceedings. I entirely agree with what Rolfe J has said. He concluded this part of his judgment by saying that it was a somewhat arid exercise to be considering an application for security for costs if the plaintiff could be cast in the role of a defendant and could litigate the very matters the subject of its claim by way of defence. Plainly he would have taken a different view if there had been an undertaking given on behalf of Concrete not to prosecute its cross-claim." 40 There is here an overlap of the issues that will arise on the cross claim and on the defence to the plaintiffs' action, a common factor in both matters being the allegations of misleading and deceptive conduct pleaded in both the defence and the cross claim. However, unlike the situation in Dalma, the defendants in this case gave instructions to Ms Georgiou that they would not pursue their cross claim against Momentum if an order for security for costs was made in their favour and not satisfied (see the affidavit of Ms Georgiou sworn 3 May 2010). On the hearing of this application Mr Carroll gave an undertaking to the Court to the same effect. Absent such an undertaking I would not have been minded to order any security in this case. However upon that undertaking being given I am not disposed to refuse to make an order for security for costs against Momentum by reason of the cross claim which the defendants seek to pursue. 41 Nevertheless Equity Trustees is well able to satisfy any order for costs made against it should the plaintiffs' claim against the defendants fail. If Mr Carroll's submission is correct, the defence to the plaintiffs claim based upon the alleged misleading and deceptive conduct of Momentum, would if successful defeat not only its claim under the DGI but also the claim of Equity Trustees, because, it is contended, joint claims cannot be split and a joint promisee has no several right of action. The issue this contention raises must be determined at trial, but whether Mr Carroll is correct or not, should the defendants obtain the benefit of a security for costs order against Momentum when they are contending the claim of Equity Trustees as well as that as Momentum will be defeated by Momentum's misconduct? If the defence prevails, and if Mr Carroll's submission is successful, both plaintiffs would fail and costs would ordinarily follow the event. Hence the defendants could look to Equity Trustees to satisfy a costs order in their favour unless an order is made following trial which would make the impecunious plaintiff solely responsible for the defendants costs. 42 Mr Carroll submitted that since it is not alleged by the defendants that Equity Trustees was engaged in any wrongdoing as it did not mislead or deceive, the Court having made a finding to that effect may very well order that Momentum only should pay the defendants costs. Mr Condon for Equity Trustees supported that submission. 43 Of course costs need not necessarily follow the event. This is specifically recognised in the expression of r 42.1 of the Uniform Civil Procedure Rules 2005:

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"Subject to this part, if the Court makes any order as to costs, the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs." 44 It is not possible to predict the outcome of this litigation or the costs order that will ultimately be made. It is possible if the outcome is determined by a finding that Momentum did mislead and deceive that Momentum alone would be ordered to pay the defendants' costs of the proceedings. 45 I have concluded that I should make an order for security for costs in this case. However the alleged misleading and deceptive conduct by Momentum is not the only defence raised to the claim by the plaintiffs. If the plaintiffs' claim fails by reason of defences pleaded in paragraphs 3-6 of the defence filed, then the defendants could expect to obtain an order for costs against both plaintiffs, and I consider that I should bear this in mind when determining the amount for which security ought to be given. I am mindful too of Mr Pritchard's submission that the Court may ultimately make differing orders for costs against the first and the second plaintiffs should they lose. It may for instance order the first plaintiff to pay x% of the defendants' costs, and the second plaintiff to pay y%. 46 In his affidavit filed in support of the defendants' application Mr Levitt opined that the likely recoverable costs incurred in these proceedings would be around $200,000. In his affidavit filed on behalf of the first plaintiff, Mr Miller opined that the "reasonably likely costs" of the defendants in these proceedings would be $84,296.25. During the hearing of this application, the parties agreed that the defendants' party and party costs for defending the proceedings against both plaintiffs would amount to $140,000, which sum does not include any costs incurred in prosecuting the cross claim. In the circumstances of this case I consider it appropriate that the first plaintiff should provide security only for a proportion of that sum and that the first plaintiff should be required to give security for 60% of that figure. 47 Costs of this application should be costs in the cause.

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