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[2010] NSWSC 1053
procedural. (1) The defendant's notice of motion filed 2 December 2009 is dismissed. (2) The first and second cross claims filed 2 December 2009 are struck out. (3) The cross claimant is to pay the proposed...
The defendant sought leave to file two cross-claims against the mortgage manager and a solicitor, claiming losses arising from Amadeus's failed property sales. The court held those cross-claims impermissibly sought relief that belonged to Amadeus, a non-party, and in any event failed to disclose a cause of action and were embarrassing. The notice of motion was dismissed, both cross-claims were struck out, and costs were ordered against the cross-claimant.
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1,773 words · generated 15/07/2026
Permanent Mortgages Pty Limited commenced proceedings against Sibylle Ulrike MacFadyen seeking possession of her Floraville property and judgment for monies owing under a loan secured by that property (statement of claim filed 22 December 2008) after two related loans and securities were given in 2007: one to Amadeus Building & Design Pty Ltd (Amadeus) secured by four Fassifern strata units, and one to Ms MacFadyen secured by her Floraville property (see [5]–[6], [12]–[13]). Reya Holdings, the purchaser of the Fassifern units, defaulted and the mortgagee (Permanent Mortgages) entered possession and sold three of the units in 2009 for amounts less than the contract prices, resulting in shortfalls (see [9]–[10]).
No linked legislation citations have been extracted yet.
Ms MacFadyen, defendant in those proceedings and sole director of Amadeus, filed an amended defence (2 December 2009) alleging, among other things, negligence, departure from lending guidelines, reckless indifference and unconscionability by La Trobe Financial Services (the mortgage manager) and sought relief under s 7(1) of the Contracts Review Act 1980 (see [14]–[16]). On the same date she filed a notice of motion seeking leave to serve two cross-claims: one against La Trobe (first cross claim) and one against Harry Foteades Legal Pty Ltd (second cross claim). Both proposed cross-claims sought amounts equal to losses arising from the default and sale of the Fassifern units, and other charges and interest, effectively seeking to recover losses suffered by Amadeus (see [17]–[19]).
At the hearing, the proposed cross defendants challenged the cross-claims as filed contrary to earlier orders, improperly pleaded, embarrassing, and disclosing no cause of action (see [28], [31]). Harrison AsJ dismissed the defendant's notice of motion and struck out both cross-claims on 16 September 2010, ordering costs against the cross claimant (see [34]–[35]).
The decision rests on statutory and rule-based limits on who may make a cross-claim, and on basic pleading requirements.
Statutory and rule limit on cross-claims (central point)
Pleading sufficiency and embarrassment
Leave and timing
Referral for separate proceedings considered and rejected
Those considerations led to the straightforward orders dismissing the motion, striking out the two cross-claims and awarding costs (see [34]–[35]).
Before this judgment:
After this judgment:
The judgment does not create new law but reinforces and applies existing limits on cross-claims, particularly where the proposed cross-claimant seeks relief that is fundamentally the non-party's.
Quotation: s 22 of the Civil Procedure Act (reproduced at [26]) Plain English: The court can allow a defendant to claim relief against another person, but only if that relief is connected to the matter already before the court; you cannot obtain relief against someone who is not a plaintiff unless the relief is connected to the first proceedings.
Passage: Interpretation of r 9.1(1) with s 22 and authorities (at [30]) Plain English: Rule 9.1 must be read with section 22. The 'party' who may make a cross-claim is the defendant in the first proceedings. The rule does not let someone who is not a party turn up and make a cross-claim. In this case, by asking for what belonged to Amadeus, the defendant was effectively trying to make Amadeus a cross-claimant through her, which is not permitted.
Passage: Pleading deficiencies and striking out (at [31]–[32]) Plain English: The proposed cross-claims just repeated parts of Ms MacFadyen's defence, were unclear and did not show any proper legal claim against the proposed cross defendants. Because of that, and because they were filed without the necessary leave, the cross-claims had to be removed from the case.
Passage: Consideration of referral certificate for Amadeus (at [33]) Plain English: The court thought about telling Amadeus to consider bringing its own separate legal action, but after considering things, the court did not think Amadeus had any real legal claim to bring.
This decision is relevant when:
Practitioners should be cautious where a corporate entity (not a party) has the direct loss: defendants should either properly plead a cause of action against proposed cross defendants that seeks relief attributable to the defendant's own loss, or else arrange for joinder of the affected non-party or advise that separate proceedings by the non-party may be necessary.
This decision is an application of established rules and authorities; it is procedural and fact-specific. It will be cited in later cases where courts consider whether cross-claims properly seek relief against non-parties or whether a defendant is attempting to litigate a non-party's cause by means of a cross-claim. The judgment reinforces the interpretation of s 22 and r 9.1 that cross-claiming is constrained to claims connected to the subject of the first proceedings and that the cross-claimant must in reality be a proper party.
Because Harrison AsJ grounded her decision directly in s 22, r 9.1 and earlier NSW Supreme Court authorities, later courts will treat this case as confirming the practical application of those provisions rather than as changing the law.
Degree of connection required between cross-claim relief and the subject of the first proceedings:
Scenarios where a defendant may properly assert derivative or reflective loss:
Use of referral certificates and the role of the court in prompting non-parties to litigate:
Pleading proper causes of action against professional advisers:
Practical takeaways for practitioners: ensure cross-claims do not purport to litigate a non-party's causes; if relief is to be sought that primarily belongs to a non-party, either join that non-party, seek leave and show a sufficient connection to the subject matter of the first proceedings, or advise the non-party to commence separate proceedings. Plead clearly and identify distinct causes against proposed cross defendants to avoid being struck out as embarrassing or failing to disclose a cause of action (see [31]–[32]).
Background 4 La Trobe had at all times acted as mortgage manager for loans made by nominated credit providers with the La Trobe Group of companies. One of the nominated credit providers is Permanent Mortgages. 5 Ms MacFadyen says that she applied to Permanent Mortgages through its intermediary La Trobe Financial, for loan finance for the purpose of enabling Amadeus to undertake the development and sale of four strata title units at Fassifern, NSW ("Fassifern units"). Originally she sought loans to be advanced to Amadeus and then she sought to be the guarantor of the loan. But ultimately, the parties entered into two loan agreements, one with Amadeus as the borrowers, the other with Ms MacFadyen as the borrower. 6 By loan application dated 20 April 2007, Amadeus and Ms MacFadyen applied for a loan offering two properties as security. By letter dated 25 May 2007, Permanent Mortgages, as nominated credit provider, offered to loan Amadeus the sum of $1,000,000 secured by the Fassifern units. By letter of offer dated 25 May 2007, Permanent Mortgages offered to loan Ms MacFadyen the sum of $672,000, secured by Ms MacFadyen's property located at Floraville, NSW ("the Floraville property"). The mortgage securing the Floraville property was cross collateralised to the mortgage secured over the Fassifern units. Each loan has defaulted and in respect of the loan to Amadeus, Permanent Mortgages has previously taken posses and sold the properties for a shortfall. The present proceedings were commenced by Permanent Mortgages seeking possession of the Floraville property arising from a default under the loan. 7 The contracts for sale of the Fassifern units were sale of land contracts entered into between Amadeus as vendor and Reya Holdings Pty Ltd as purchaser on 3 May 2007. The four properties are described in the sale contracts as 1A, 1B, 2A and 2B at xxx xxxxx Fassifern, NSW. The sale price for each of the properties was $395,000. 8 As a 3 May 2007, the date of exchange of contracts, the land at Fassifern was undeveloped. In about June 2007, building of the four dwellings commenced and was completed sometime in April 2008. Completion of the contracts was due, in accordance with Special Condition 51, 21 days after registration of a strata plan and the issue of final occupation certificate in respect of the Fassifern units. 9 In 2008 Reya Holdings defaulted on the purchase of the Fassifern units. The four units were sold between January and August 2009. Amadeus achieved the first sale but the mortgagee, Permanent Mortgages, entered into possession and sold each of the three remaining properties. 10 On 27 January 2009, 2/SP81111 was transferred by Amadeus for $325,000. On 3 July 2009, 2/SP81110 was transferred under mortgagee's power of sale for $247,500. On 13 July 2009, 1/SP81111 was transferred under mortgagee's power of sale for $325,000. On 6 August 2009, 1/SP81110 was transferred under mortgagee's power of sale for $279,000. 11 In respect of the three units sold by the mortgagee, the transfers each indicated that Amadeus remained the registered proprietor up until the date of transfer. The pleading framework 12 By statement of claim filed 22 December 2008 Permanent Mortgages sought possession of the Floraville property and judgment in the sum of $698,573.70 plus fees and interest. Permanent Mortgages alleges that Ms MacFadyen obtained a loan from it on 30 May 2007 and the moneys the subject of that loan were advanced on 19 July 2007. Permanent Mortgages claims that if Ms MacFadyen defaulted under the loan it could take possession of her Floraville property and obtain a judgment against her for the amount owed to it. 13 The statement of claim alleges that Ms MacFadyen was in default due to a failure to pay the amount of $3,177.00 due on 20 July 2008 and seeks judgment for possession of the Floraville property, the full amount of the loan being $698,573.70 as at 5 December 2008, continuing interest and fees in accordance with the loan and costs.
The amended defence 14 By amended defence filed 2 December 2009 Ms MacFadyen says that Permanent Mortgages finance broker and intermediary La Trobe applied to Permanent Mortgages for loan finance for the purpose of enabling the defendant's company, Amadeus, to undertake the development and sale of the Fassifern units and also for refinancing of the loan on the Floraville property. 15 Ms MacFadyen says that when considering the eligibility of her and Amadeus for the loan, La Trobe was aware or ought to have been aware that while she had sufficient income to support and repay the loan, neither Ms MacFadyen nor Amadeus had sufficient income to support or repay the loan in the event that the Fassifern units were not sold. 16 Ms MacFadyen also pleads that in the circumstances La Trobe on behalf of Permanent Mortgages knew or ought to have known that neither she nor Amadeus had the capacity to repay the loan; that La Trobe acted with reckless indifference as to the capacity of herself and Amadeus to repay the loan in approving and proceeding with the loan, and further by securing the loan by a first mortgage over the Floraville property, La Trobe on behalf of Permanent Mortgagees:
(a) acted negligently and in breach of the duty of care it undertook in relation to its inspection and assessment of the contracts thereby exposing the defendant to an unreasonable and excessive risk of losing the Floraville property and further loss and damages;
(b) substantially departed from its own lending guidelines and further has departed from normal prudent and appropriate lending practices; and
(c) acted unjustly, harshly and unconscionably towards and in relation Ms MacFadyen;
thereby entitling the defendant to relief pursuant to s 7(1) of the Contracts Review Act 1980 including relief from the relevant loan agreement and the associated mortgage over the Floraville property.
The proposed first cross claim 17 In the first cross claim Ms MacFadyen cross claims against La Trobe the mortgage manager. The relief that she is seeking is an amount equal to the total of the loan including the specific amount secured by Ms MacFadyen's home and any losses incurred by the resulting sale of the Fassifern units by Permanent Mortgages due to the default, plus any fees and charges from La Trobe, Permanent Mortgages and any other parties involved, including legal charges and interest on the loan amounts, including and up until the date of this court's decision. 18 Ms MacFadyen pleads that bearing in mind the lack of income of Amadeus and Ms MacFadyen to support the loan, La Trobe approved the loans placing sole or principal reliance upon the end market value of the completed units and that Amadeus had exchanged binding contracts for sale of the Fassifern units. Ms MacFadyen pleads that La Trobe placed little or no reliance upon her being able to service repayments on the loan, in the event of the purchaser under the contracts defaulting. She says that prior to finally approving the loan La Trobe should have inspected and assessed the contracts of sale to ensure that they were enforceable and of satisfactory commercial value so as to enable repayment of both loans. Ms MacFadyen has already raised the Contracts Review Act 1980 in her defence.
The proposed second cross claim 19 Likewise, in the second cross claim, Ms MacFadyen cross claimed against Harry Foteades Legal Pty Ltd ("Mr Foteades") seeking an amount equal to the total of the losses incurred by the contracts of sale of the four Fassifern units defaulting, and therefore consequent possession and sale by Permanent Mortgages of the four units at a shortfall to the original contract amounts, including any fees and charges and interest charges incurred in the defaults of the loan amounts by Ms MacFadyen, up to and including the time of this court's final decision.
20 In oral submissions, Ms MacFadyen stated that Mr Foteades had a conflict of interest in that he knew that although he acted for Amadeus she had exposed herself to a personal loan and that he did not give her any advice in relation to it. Mr Foteades does not dispute that he acted for Amadeus from 2006 onwards in relation to Amadeus' intention to enter into a joint venture with a single purchaser whereby Amadeus would retain and pay a builder to build four units, and on completion, the purchaser would pay for and obtain title to the four units. 21 Mr Foteades became involved in this matter in the following circumstances. Robert Webbe, solicitor, contacted him in about October 2006 and asked Mr Foteades to assist him in the drafting of joint venture documentation for Amadeus in respect of the Fassifern units. On about 24 October 2006, Mr Foteades forwarded a draft joint venture agreement to Mark McKenzie, a solicitor at Fiddes McKenzie Lawyers who he understood to be a lawyer acting generally for Amadeus and Ms MacFadyen. At around that time Amadeus proposed to enter into a joint venture with a company known as Armada Real Estate Pty Ltd to develop the land. Armada was the intended purchaser but also a joint venturer. 22 Mr Foteades says by early February 2007 it became clear that Armada Real Estate was not interested in proceeding with the joint venture or purchase. In April 2007, Ms MacFadyen became involved in negotiations with another third party regarding an agreement with a completely different purchaser. Contracts were exchanged between Amadeus and Reya Holdings Pty Ltd on 3 May 2007. Mr Foteades recollection is that exchange took place in May or early June 2007. Foteades Legal acted for Amadeus in respect of the sale contracts at this time and into June 2007. Mr Foteades heard nothing further in relation to the matter between July 2007 and January 2008. Sometime in 2008 Reya Holdings defaulted on the purchase of the Fassifern units. 23 On 27 January 2009, 2/SP81111 was transferred by Amadeus for $325,000. On 3 July 2009 2/SP81110 was transferred under mortgagee's power of sale for $247,500. On 13 July 2009 1/SP81111 was transferred under mortgagee's power of sale for $325,000. On 6 August 2009 1/SP81110 was transferred under mortgagee's power of sale for $279,000. 24 Mr Foteades has not been paid in respect of work undertaken in respect of the four sales and prior work for Amadeus. In March 2007, Mr Foteades issued an invoice to Amadeus which was not paid. He then issued a statutory demand. 25 Foteades Legal did not act for Amadeus or Ms MacFadyen in respect of their obtaining finance from La Trobe or Permanent Mortgages. On 3 May 2007 Foteades Legal sent the cover pages of the four sale contracts to La Trobe as they were in Foteades Legal's possession.
The Act and Rules in relation to cross claims 26 Section 22 of the Civil Procedure Act 2005 reads: "22 Defendant's right to cross-claim
(1) Subject to subsection (2), the court may grant to the defendant in any proceedings ("the first proceeding s ") such relief against any person (whether or not a plaintiff in the proceedings) as the court might grant against that person in separate proceedings commenced by the defendant for that purpose.
(2) Relief may not be granted under this section against a person who is not a plaintiff in the first proceedings unless the relief relates to, or is connected with, the subject of the first proceedings.
(3) A person against whom a defendant makes a claim for relief under this section: (a) has the same rights in respect of his or her defence against the claim as he or she would have in separate proceedings commenced against the person by the defendant, and
(b) if not already a party to the first proceedings: (i) becomes a party to the first proceedings, and (ii) unless the court otherwise orders, is bound by any judgment (including a judgment by consent or by default) or decision (including a decision by consent) on any claim for relief in the proceedings (including a claim for relief in any cross-claim in the proceedings)." 27 Part 9, Rule 9.1 of the Uniform Civil Procedure Rules 2005 relevantly reads:
"9.1 Making of cross-claim (1) A party ("the cross-claimant") may make a cross-claim: (a) in proceedings commenced by statement of claim, within the time limited for the party to file a defence, or …" 28 On 27 October 2009, La Trobe's solicitors wrote to Ms MacFadyen setting out objections to her filing of cross claims contrary to the orders made by McCallum J on 1 October 2009 Ms MacFadyen filed the cross claims on 2 December 2009.
29 In Comin Enterprises Pty Ltd v Dayroll Pty Ltd [2007] NSWSC 1440, Price J at [14] stated: When any provision of the Civil Procedure Act or any of the Uniform Civil Procedure Rules are to be interpreted, the court must give effect to the overriding purpose of the Act "to facilitate the just, quick and cheap resolution of the real issues in the proceedings": s 56 of the Civil Procedure Act . …" 30 Part 9, r 9.1(1) of the Uniform Civil Procedure Rules is to be read in conjunction with s 22 of the Civil Procedure Act. A "party" where it appears in that rule means to my mind the defendant in the first proceedings. Rule 9.1(1) does not permit a person not a party to the proceedings to make a cross claim: see Comin Enterprises v Dayroll at [15] and State Bank of NSW Ltd v White & Anor [1999] NSWSC 887 at [11]. While Ms MacFadyen does not name Amadeus as a party to the cross claim, in effect, this is what she is seeking to do. 31 Both cross defendants submitted that the cross claim is embarrassing in that it merely repeats the contents of the further and final defence discloses no cause of action its face and is ambiguous in respect of the matter it does plead to. 32 In both cross claims the relief that Ms MacFadyen is seeking are losses made in respect of Amadeus. She is not being sued as a guarantor of the loan made to Amadeus but she is being sued as a borrower in a separate loan agreement. As the rules and cases cited above show, Amadeus cannot be a cross claimant. In my view the cross claims are not properly pleaded. They do not disclose causes of action and seek some sort of relief that may be afforded to Amadeus be give to her. The cross claims were inadvertently filed without leave and should be struck out.
33 At the hearing, this court expressed concern that Amadeus may be able to bring proceedings. Consideration has been given to making an order that Ms MacFadyen receive a referral certificate under Part 7 Rule 36 of the Uniform Civil Procedure Rule in relation to whether separate proceedings should be brought by Amadeus. On further reflection, it does not appear that it has a viable cause of action. 34 The defendant's notice of motion filed 2 December 2009 is dismissed. The first and second cross claims filed 2 December 2009 are struck out. 35 Costs are discretionary. Costs usually follow the event. The cross claimant is to pay the cross defendants' costs as agreed or assessed.
(1) The defendant's notice of motion filed 2 December 2009 is dismissed.
(2) The first and second cross claims filed 2 December 2009 are struck out.
(3) The cross claimant is to pay the proposed cross defendants' costs as agreed or assessed. **********
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.
Permanent Mortgages Pty Ltd
Sibylle MacFadyen
CITATION : Permanent Mortgages Pty Ltd v Sibylle MacFadyen [2010] NSWSC 1053
CASES CITED : Comin Enterprises Pty Ltd v Dayroll Pty Ltd [2007] NSWSC 1440 State Bank of NSW Ltd v White & Anor [1999] NSWSC 887
(1) The defendant's notice of motion filed 2 December 2009 is dismissed. (2) The first and second cross claims filed 2 December 2009 are struck out. (3) The cross claimant is to pay the proposed cross defendants' costs as agreed or assessed.