Mongey v Demetriou and Anor

The Principal Proceedings

1. It is appropriate to refer to the nature of the claim brought by Mr Mongey.
2. By Statement of Claim filed 3 April 2018, Mr Mongey sued Mr Demetriou and Ms Ashley in debt and for breach of contract. It is alleged that on or about 8 October 2010, Mr Mongey loaned the Defendants the sum of $600,000.00 and that only $100,000.00 of the principal was repaid (in 2012-2013) with no interest payment being made since August 2012.
3. On 16 May 2018, Ms Ashley filed a Defence to the claim. The Defence stated that Ms Ashley was "a 59 year old widow who was commercially unsophisticated" who had been a homemaker until the death of her husband in 2007, and had worked in general administration and reception after then but that "her work has not included dealing with any commercially sophisticated matters" (paragraph 7).
4. The Defence states that Mr Demetriou "had a long-standing friendship" with Ms Ashley's late husband so as to place Mr Demetriou "in a position of trust and confidence" (paragraph 9).
5. Paragraph 10 of the Defence states that, in about 2000 to 2005, the late husband of Ms Ashley and Mr Demetriou were involved in an investment group that owned a golf course. In circumstances alleged in paragraphs 11-13 of the Defence, it is said that Mr Demetriou registered SPC to take an assignment, and to ultimately become the registered proprietor of the golf course property by way of foreclosure of mortgages.
6. Paragraph 14 of the Defence alleges that immediately after the registration of SPC, the directors of the company were Mr Mongey, and Mr Demetriou's daughter, Maria Demetriou. It is alleged that Mr Mongey and Maria Demetriou also held shares in SPC, which were given in consideration of Mr Mongey's agreement to fund the assignment and acquisition of the property and mortgages.
7. It is said that Ms Ashley is the beneficial owner of 25 per cent of the shares issued by SPC, which are legally held by her daughter Elly Ann Ashley (paragraph 15).
8. In paragraphs 16 and 17 of the Defence, it is asserted that Ms Ashley attended a meeting at the premises of Mr Mongey's then solicitors on 8 October 2010 at the request of Mr Mongey. It is alleged that, amongst other things, Ms Ashley was presented with a document which she was asked to sign without an opportunity to review it (paragraph 17(b)). It is asserted for Ms Ashley that she was told that the loan agreement was for the purpose of Mr Mongey's loan to SPC in connection with the assignment and acquisition, even though Mr Mongey knew that this was not true and that Ms Ashley had a mistaken belief in this respect (paragraph 17(c)).
9. It is asserted in the Defence, amongst other things, that Ms Ashley was not given time to read the loan agreement and that she felt pressured to sign it (paragraph 17(d)-(g)).
10. Thereafter, it is asserted that Mr Mongey loaned the sum of $600,000.00 to SPC and that Ms Ashley at no time had the benefit, custody or control of the loan process (paragraphs 18-20).
11. Other matters are alleged in the Defence which it is not necessary to repeat in this judgment.
12. The Defence raises affirmative defences in paragraphs 28-34 that the loan agreement was void ab initio or void ab initio by virtue of non est factum. Other affirmative defences include a claim for rectification and claims that the loan agreement be set aside because of misrepresentation, unconscionability at general law or as being unjust under s.7 Contracts Review Act 1980.

The Proposed Amendment

1. The proposed amendment to the Defence is contained in paragraphs 36-39 of the draft Amended Defence, which states: "36 The Plaintiff and the First Defendant agreed that: (a) The Loan Proceeds advanced by the Plaintiff would be applied as subscription money for shares to be issued to the Plaintiff by SPC; (b) the Plaintiff would be appointed a director of SPC; (c) by reason of such application of the Loan Proceeds the obligations of the First Defendant and the Second Defendant under the Loan Agreement would be satisfied and discharged. 37 On or about 24 September 2010: (a) The Loan Proceeds were applied as subscription money for shares issued to the Plaintiff by SPC; (b) the Plaintiff was appointed a director of SPC; and 38 By reason of the application of the Loan Proceeds as subscription money for shares issued to the Plaintiff by SPC, the obligations of the First Defendant and the Second Defendant under the Loan Agreement were satisfied and discharged. 39 Further in the alternative, on or about or after 24 September 2010 the Plaintiff was aware that the Loan Proceeds had been applied as subscription money for shares issued to the Plaintiff by SPC and the Plaintiff accepted, adopted and ratified that application of the Loan Proceeds as an application for his benefit which had the effect of satisfying and discharging the obligations of the First Defendant and the Second Defendant under the Loan Agreement. Particulars The acceptance, adoption and ratification was by conduct by accepting the allocation of the shares in SPC and consenting to act and acting as director of SPC representing his interests as a shareholder of SPC."

Background to the Amendment Application

1. The origin of the proposed amendment springs from evidence given by Mr Demetriou on 14 November 2018 during an examination before Senior Deputy Registrar Flaskas in Equity Division proceedings Damcevski v Demetriou (2016/163514), in particular at pages 23-24 and 29-31.
2. The solicitor for Ms Ashley, Mr Rosenblatt, stated that he was unaware of the evidence of Mr Demetriou in this examination until he received a copy of the transcript on 19 November 2018. That evidence relates to dealings between Mr Mongey and Mr Demetriou concerning the application of the proceeds of the loan as subscription money for shares in SPC issued to Mr Mongey. Ms Ashley stated that she also was unaware of these matters prior to November 2018.
3. Mr Rosenblatt stated that he delayed in writing to Mr Mongey's solicitors concerning this development (being the transcript of Mr Demetriou's examination) until the service by Mr Mongey of any evidence in reply, then due by 19 December 2018. He stated that he did not want Mr Mongey's legal representatives to use this material as a "road map" for the preparation of reply evidence.
4. In fact, Mr Mongey did not serve his evidence in reply until 30 January 2019. That same day, Mr Rosenblatt wrote to Mr Mongey's solicitors annexing the transcript of Mr Demetriou's examination and indicating what was said to be the significance of this material to the proceedings.
5. The proceedings were listed for directions before the Registrar on 4 February 2019. Mr Rosenblatt stated that he understood the proceedings were to be stood over by consent to allow Mr Mongey's legal representatives to consider the transcript of Mr Demetriou's examination. A junior solicitor attended on 4 February 2019 for Ms Ashley in these circumstances. However, a hearing date was sought by the legal representatives for Mr Mongey, and the junior lawyer for Ms Ashley consented to this course. Thus, the hearing date of 30 September 2019 was fixed.

Submissions on the Amendment Application

1. Mr Gray submitted that the amendment should be permitted, relying upon s.64 Civil Procedure Act 2005 and Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27, in particular at paragraphs [68], [82], [97], [103] and [114]. He submitted that Ms Ashley had a reasonably arguable case with respect to the proposed amendment and that related aspects were already to be found in the present Defence. He submitted as well that there were no other factors which operated against allowing Ms Ashley to proceed upon the Amended Defence.
2. Mr Sneddon submitted that the proposed amendment was being raised too late, that there had been a tactical delay by Ms Ashley's solicitor in raising the issue and that there was, in any event, no reasonably arguable case in support of the proposed amendment. Reliance was placed upon Photios v Photios [2019] NSWCA 158 at [53]-[54] with respect to the tactical delay issue.
3. Mr Sneddon submitted as well that Mr Mongey was prejudiced, as Ms Ashley proposed to subpoena Mr Demetriou to give evidence at the trial without an affidavit or proof of evidence. He noted that the evidence given at Mr Demetriou's examination was not admissible in the proceedings.
4. Mr Gray submitted on this issue that the transcript of Mr Demetriou's evidence provided notice of what he would say, and that steps would be taken in any event by Ms Ashley's legal representatives to give notice of the thrust of the evidence expected to be given by Mr Demetriou.

Decision

1. Subject to s.58 Civil Procedure Act 2005, s.64(2) of that Act provides that all necessary amendments are to be made for the purpose of determining the real questions raised by the proceedings. I accept that Ms Ashley and her solicitor were unaware of Mr Demetriou's examination on 14 November 2018 until 19 November 2018 and that they were unaware of the matters referred to in evidence, which are relied upon with respect to this application.
2. It is true that there was a delay in the solicitor for Ms Ashley corresponding with the opposing solicitors concerning Mr Demetriou's examination. This was originally to be a delay of about one month but it stretched to over two months because of the failure of Mr Mongey to comply with the Court order concerning service of evidence in reply. I do not consider that the tactical delay in corresponding on this issue provides any real assistance to Mr Mongey. It was reasonable for Mr Rosenblatt to wait the expected short period for Mr Mongey to serve his evidence in reply on the issues as then identified. I do not think that anything said in Photios v Photios assists Mr Mongey in this regard.
3. It is the fact that Mr Mongey's legal representatives have been aware of the evidence given by Mr Demetriou on the 14 November 2018 examination since 30 January 2019. The further delay in the bringing of the present amendment application may be explained at least in part by Ms Ashley's successful application for security for costs against Mr Mongey ordered by Harrison J in Mongey v Demetriou & Anor [2019] NSWSC 444, and the further time taken by Mr Mongey to provide security for costs.
4. I accept that the present Defence contains some features of the additional defence contained in the proposed Amended Defence. What is proposed is a further limb which assists Ms Ashley in her effort to resist the claim made against her.
5. Insofar as submissions were made with respect to the arguability of the proposed Amended Defence, the Court must be cautious in considering factual submissions of that type at this interlocutory stage. There is room for argument about the outcome of the Amended Defence, but I am well satisfied that the proposed amendment is reasonably arguable.
6. In my view, the hearing date may be maintained with appropriate orders to be fashioned to progress preparation for the hearing after leave to amend the Defence is granted. Further orders to be made would include provision for further evidence to be put on by Ms Ashley and Mr Mongey, in particular in circumstances where Ms Ashley's Defence is to be amended. Mr Mongey must have a proper opportunity to put on evidence.
7. Mr Gray accepts that Ms Ashley must bear the costs of Mr Mongey thrown away by the amendment.
8. I make the following orders: 1. The Second Defendant is granted leave to file an Amended Defence in the form of Annexure A to the Notice of Motion filed on 5 July 2019. 2. The Second Defendant is to pay the Plaintiff's costs thrown away by the amendment which the Court has allowed. [Submissions were made concerning further orders and costs].
9. The Court has heard submissions with respect to further orders which ought be made given the outcome of the Notice of Motion. It is appropriate to make orders (as foreshadowed at [37]) to progress the litigation given that the amendment has been allowed.
10. There has been debate as to whether the Court should say something further with respect to the order already made that the Second Defendant is to pay the Plaintiff's costs thrown away by reason of the amendment. It has been submitted for the Plaintiff that the Court should order, or at least note, that the thrown away costs order should extend to any further evidence to be prepared and served by the Plaintiff in relation to the amendment.
11. I am not prepared to add that rider. It will be a matter ultimately for a costs assessor (if costs cannot be agreed) as to what should be included in the thrown away costs order. I do not propose to add any rider or note to the order I have already made.
12. With respect to the costs of the Notice of Motion itself, the Second Defendant submits that there should be an order that the Plaintiff pay the Second Defendant's costs of the Notice of Motion. It is submitted for the Plaintiff that the appropriate order would either be costs in the cause or the Second Defendant's costs in the cause.
13. It is true that the Plaintiff determined to resist the application to amend. There were issues raised which were reasonable to litigate, although in the end the issues have been determined adversely to the Plaintiff for the purpose of the Notice of Motion.
14. In my view, the appropriate order with respect to the costs of the Notice of Motion is that the costs of the Notice of Motion should be the Second Defendant's costs in the cause.
15. Accordingly, I make the following additional orders: (c) The Plaintiff is to file and serve a Reply, if any, to the Amended Defence by 29 July 2019. I note that the Second Defendant is to file and serve the Amended Defence forthwith, given the order of the Court today.
16. (d) The Second Defendant is to serve any further evidence upon which she relies by 29 July 2019.
17. (e) The Plaintiff is to serve any further evidence upon which he relies by 12 August 2019.
18. (f) The costs of the Notice of Motion are to be the Second Defendant's costs in the cause.

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: 22 July 2019