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Representation: Counsel:
T O’Connor (Plaintiff/First Cross-Defendant)
K E Holcombe (Second Cross-Defendant)
Solicitors:
Dentons Australia Limited (Plaintiff/First Cross-Defendant)
Moray & Agnew (Second Cross-Defendant)

File Number(s): 2023/00182505

JUDGMENT EX TEMPORE (Revised)

1. As originally framed, these proceedings were brought in the Possession List by way of a claim by a secured lender for orders for possession of real property provided as security for a promise by seven guarantors to guarantee a loan to a corporate borrower. Default is alleged to have been made by the borrower in January 2023 and, shortly thereafter, by the guarantors.

2. For a short period, six of the guarantors have had legal representation and participated in the proceedings, sufficiently so to file a Defence and a Cross-Claim by which their erstwhile solicitor is joined as an additional party. However on 24 October 2024 their solicitor in these proceedings formally ceased to act. Since that date, the six guarantors have been inactive.

3. The Plaintiff and the Cross-Defendant each now seek to have the proceedings brought to an end, primarily for lack of progress.

4. Not much needs to be said about the background to the dispute beyond that which has been stated above. One additional fact is that the Eighth Defendant, Valentina Colevski, is the sole director of the corporate borrower. She personally guaranteed the loan and gave security over a property, of which she is one of the three registered proprietors. The other six guarantors are all close relatives of Valentina. They evidently comprise three couples, namely, Valentina's parents, her parents-in-law and her sister and brother-in-law. Valentina's parents-in-law are the two other registered proprietors of the property referred to above and gave security over their interest as well as Valentina's. Each of the other couples gave security over a property of which they are registered proprietors, with the ultimate result that the Plaintiff holds security over three separate properties. Apart from Valentina's interest, one property is referable to each couple.

5. As at June 2023, the loan amount was approximately $3.5 million. The debt will be larger today.

6. In terms of the procedural history of these proceedings, the Plaintiff filed the Statement of Claim by which the proceedings were commenced on 7 June 2023.

7. On 21 July 2023, the Court entered a default judgment against all the Defendants; namely, the corporate borrower, Valentina and the six other guarantors.

8. On 28 July 2023, the Court made orders issuing Writs of Possession for the three properties over which the Plaintiff holds security.

9. On 28 June 2024, approximately a year later, the Second to Seventh Defendants filed a Notice of Motion, seeking to set aside the orders made on 21 and 28 July 2023 to the extent that those orders applied to the Second to Seventh Defendants, and seeking leave to file a defence. At that point in time, the Second to Seventh Defendants were represented in these proceedings by a solicitor. Without precision, but for the sake of convenience, I will refer to the Second to Seventh Defendants as "the Guarantors", noting that that term does not include Valentina even though she was also a guarantor.

10. On 8 July 2024, the Court made orders by consent setting aside the orders made on 21 and 28 July 2023 as against the Guarantors only and granted them leave to file a defence. The result was, and still is, that default judgment endures as against the corporate borrower and Valentina. The corporate borrower and Valentina have been inactive throughout the entire proceedings and remain so today.

11. On 22 August 2024, the Plaintiff filed an Amended Statement of Claim.

12. On 27 September 2024, the Guarantors filed an Amended Defence.

13. On 10 October 2024, the Guarantors filed a Cross-Claim. There were two Cross-Defendants: first, the Plaintiff and, secondly, an incorporated legal practice, which I will refer to as "the Solicitor". The Solicitor was the solicitor who gave advice to the Guarantors at the time they entered into the guarantees.

14. On 25 October 2024, about two weeks after the Cross-Claim was filed, the solicitor acting for the Guarantors in these proceedings filed a Notice of Ceasing to Act. There has been no activity by, or on behalf of, the Guarantors since that date.

15. It is appropriate to say something about the content of the pleadings filed by the Guarantors. First, the Defence to the Plaintiff's Statement of Claim is a very lengthy document. It admits the existence of the guarantees and the mortgages but contends that they are "invalid and liable to be set aside" for a number of reasons, including unconscionable conduct, the documents being unfair, oppressive, unjust and containing exploitative terms, the documents being unjust contracts and/or unjust credit contracts. By their Defence, the Guarantors do not admit the default by the corporate borrower and they deny default under the guarantee.

16. As I have said, the Guarantors have also filed a Cross-Claim against the Plaintiff, by which they seek corresponding relief reflective of their complaints in the Defence about the guarantees and mortgages.

17. In view of the challenge to the guarantees and mortgages in the Defence, the Plaintiff subsequently filed an Amended Statement of Claim, in which it adds additional arguments based on the fact that the money advanced by the Plaintiff was used to repay a loan from another lender and which the Guarantors had also guaranteed. By way of subrogation and/or a restitutionary money claim, the Plaintiff seeks to recover from the Guarantors nonetheless.

18. In addition to seeking reciprocal relief against the Plaintiff, the Cross-Claim filed by the Guarantors raises new claims against the Solicitor. The pleading against the Solicitor is overly elaborate. There are claims for negligence, breach of the contract of retainer and breach of fiduciary duty. The burden of the alleged breaches is that the Solicitor gave negligent advice to the Guarantors, failed to obtain proper instructions and/or provided inaccurate information to a broker, which permitted the loan to be advanced in circumstances where it would not otherwise have been advanced. It is also alleged that the Solicitor acted with a conflict of interest. Very extensive particulars are given about the dealings between the Solicitor and a mortgage broker, by which it is alleged that the Solicitor undertook the relevant negotiations on behalf of the Guarantors. These particulars reveal that the activity it is alleged the Solicitor undertook was undertaken almost entirely by Christopher Cole. Christopher Cole was an employee of the Solicitor for part of the relevant time. There is no dispute, at least as it is revealed in the Guarantors' own Cross-Claim, that Christopher Cole is a son of Valentina and thus the grandson of four of the Guarantors and the nephew of the other two.

19. In its Defence to the Cross-Claim, the Solicitor admits a limited retainer by the Guarantors and say that it performed all of its obligations to the Guarantors through a different employed associate. The Solicitor accepts that Christopher Cole was an employed solicitor for part of the relevant time but disputes the authority of Christopher Cole in relation to much of his alleged conduct, saying that his involvement with the loan was generally beyond the scope of his employment.

20. These brief summaries of the pleadings do not descend to the considerable detail of each document, but they are sufficient for the purpose of giving a flavour of the issues in the case. Suffice it to say for current purposes that the issues raised by the Statement of Claim originally filed by the Plaintiff were confined issues, as one would expect in a case by a secured lender seeking to enforce the security upon default by the borrower, which have now expanded into a broad range of complicated issues.

21. The following is a summary of the inactivity of the Guarantors in these proceedings since 24 October 2024. These matters are proved by the evidence adduced by the Plaintiff and the Cross-Defendant on this application.

22. On 1 November 2024, the Plaintiff's solicitors sent a letter to the Guarantors requesting further and better particulars of the Cross-Claim. The Guarantors failed to provide the requested particulars, either at the time or at any subsequent time. The letter remains unanswered today.

23. On 21 November 2024, the proceedings were listed for directions before me. The Plaintiff put the Guarantors on notice of this directions hearing, but there was no appearance by them on the day.

24. Also on 21 November 2024, the solicitors acting for the Solicitor issued to each of the Guarantors a Notice to Produce, which notice sought the documents referred to in the Cross-Claim. No response was received at the time, nor was any response received when it was subsequently pressed in correspondence, and the notices remain unanswered today.

25. On 12 December 2024, the proceedings were listed for directions before me. Again, the Plaintiff put the Guarantors on notice of the directions hearing, on this occasion via an email to Christopher Cole, who at that stage was communicating with the Plaintiff's solicitors about the proceedings. The Guarantors did not appear at the directions hearing on 12 December 2024.

26. On 14 February 2025, the proceedings were listed for directions before me. The Plaintiff put the Guarantors directly on notice of the directions hearing, but there was no appearance. At the directions hearing, I relevantly made orders granting the Plaintiff leave to file and serve a Notice of Motion seeking such relief as it might think appropriate. The Plaintiff's solicitors informed the Guarantors of those orders. The Plaintiff also put the Guarantors on notice that if the Guarantors did not appoint a solicitor to act for them by 5pm on 25 February 2025, the Plaintiff would proceed to file a Notice of Motion pursuant to the orders which I made on 14 February 2025.

27. On 18 February 2025, the solicitors acting for the Solicitor wrote letters to each of the Guarantors informing them of the Solicitor’s proposed application, to which no response was received.

28. On 7 March 2025, the current Notices of Motion were filed together with Affidavits in support.

29. On 10 March 2025, the Guarantors were served with a copy of the Plaintiff’s Motion and the Affidavit in support on the Guarantors, to which there has been no response.

30. On 19 and 28 March 2025, the Guarantors were served with a copy of the Solicitor's Motion and supporting Affidavit, to which there has also been no response.

31. On 1 April 2025, the proceedings were listed for directions before the Registrar. The Plaintiff put the Guarantors on notice of that directions hearing. The Guarantors did not appear.

32. On 4 April 2025, the solicitors acting for the Solicitor wrote to the Guarantors, informing them of the listing today.

33. On 14 April 2025, the solicitors acting for the Plaintiff wrote to each of the Guarantors in order to provide them with a copy of the Plaintiff's Written Submissions for today's application and in that letter specifically referred to the hearing today.

34. Also on 14 April 2025, the solicitors acting for the Solicitor wrote to each of the Guarantors and sent them a copy of the third Affidavit relied upon by the Solicitor for today's application, together with the exhibit referred to in that Affidavit.

35. On 15 April 2025, the solicitors acting for the Solicitor wrote to each of the Guarantors and sent them a copy of the Written Submissions relied upon by the Solicitor and specifically referred to the hearing of that application today.

36. The solicitors acting for the Solicitor sent a further email on 15 April 2025 to an email address which it evidently was believed by the solicitors might be connected with one or other of the Guarantors. In the email, the solicitors acting for the Solicitor referred to the hearing of the matter today, informed the Guarantors of the letters that had been recently sent, providing the third Affidavit in support, providing another copy of the Written Submissions relied upon by the Solicitor and requesting the recipient of the email to inform the other five Guarantors.

37. As I have noted above, all six Guarantors are closely related within one family.

38. The matter was listed today at 10am. There was no appearance for the Guarantors. The matter was called outside, but it remained the position that there was no appearance.

39. On 7 March 2025, the Plaintiff filed the Notice of Motion to which I have referred above. In that Notice of Motion, it seeks the following orders:

“1. The Amended Defence filed on 27 September 2024 by Goce Talevski, Keti Talevski, David Dragi Trifunovski, Lena Trifunovska, Boka Colevska and Krste Colevski (Second to Seventh Defendants) is struck out pursuant to:

a. r 12.7(2) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); alternatively

b. r 14.28 of the UCPR; alternatively

c. the Court’s inherent power.

2. The Statement of Cross-Claim filed on 10 October 2024 (Cross Claim) by the Second to Seventh Defendants (being the First to Sixth Cross Claimants) is:

a. dismissed pursuant to r 12.7(1) or r 13.4 of the UCPR; alternatively

b. struck out pursuant to r 14.28 of the UCPR or the Court’s inherent power.

3. In the alternative to Order 2, the proceeding so far as it concerns the Cross-Claim against the Plaintiff (being the First Cross-Defendant) is permanently stayed pursuant to s 67 of the Civil Procedure Act 2005 (NSW)

4. To the extent necessary, the Plaintiff has leave to apply for default judgment against the Second to Seventh Defendants.

5. Such further or other order that this Honourable Court thinks fit.

6. Costs.”

40. By its Written Submission, the Plaintiff placed primary reliance upon Uniform Civil Procedure Rules 2005 (NSW) r 12.7.

41. On 7 March 2025, the Solicitor filed a Notice of Motion, to which I have also referred above, in which it seeks the following orders:

“1. The Statement of Cross-Claim filed on 10 October 2024 be dismissed as against the second cross-Defendant pursuant to Uniform Civil Procedure Rules rule 12.7(1).

2. The cross-claimants to pay the second cross-Defendant’s costs of this motion.

3. Such further or other orders as the Court sees fit to make.”

42. UCPR 12.7 provides as follows:

(1) If a Plaintiff does not prosecute the proceedings with due despatch, the court may order that the proceedings be dismissed or make such other order as the court thinks fit.

(2) If the Defendant does not conduct the defence with due despatch, the court may strike out the defence, either in whole or in part, or make such other order as the court thinks fit.

43. By reason of UCPR 9.1(3) and/or s 22(3)(a) of the Civil Procedure Act 2005 (NSW), UCPR 12.7(1) also applies to a cross-claimant's prosecution of proceedings constituted by the filing of the cross-claim, whether it be filed against the plaintiff or a third party.

44. UCPR 12.7 provides a judicial discretion. The discretion is one where the Court must strike a balance between the parties to decide whether or not, on balance, justice demands that the action should be dismissed: Stollznow v Calvert (1980) 2 NSWLR 749 at 751 (Moffitt P). The overriding purpose set out in s 56 of the Civil Procedure Act 2005 is of fundamental importance in determining an application for the dismissal of proceedings for want of due dispatch: Ghosh v Nine**MSN Pty Ltd (2015) 90 NSWLR 595 at 602; [2015] NSWCA 334 at [42] and [43] (Mcfarlan JA with whom Leeming JA and Adamson J agreed)).

45. Section 56 of the Civil Procedure Act 2005 relevantly provides:

(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

(2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.

(3) A party to civil proceedings is under a duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court.”

46. The following matters are to be observed. First, that which is to be facilitated by the overriding purpose is the "resolution" of the real issues in the proceedings, nor merely progress. Secondly, the requirement on the Court to give effect to the overriding purpose when it exercises any power given under the rules and when it interprets any provision of the rules obviously extends to UCPR 12.7. Thirdly, the statutory duty imposed by s 56(3) is imposed on a "party", it is not limited to a plaintiff and it includes a defendant. It should be emphasised in this case that for the vast majority of issues raised by the pleadings, the Guarantors are in substance the moving party. The short point is that when the Guarantors filed their Defence and their Cross-Claim, if not before, they became subject to the statutory duty set out in s 56(3). They have a duty to assist the Court to further the overriding purpose (i.e., facilitation of the resolution of the real issues in the proceedings) and they have a duty to participate in the processes of the Court and to comply with directions and orders of the Court.

47. Section 57 of the Civil Procedure Act 2005 provides:

(1) For the purpose of furthering the overriding purpose referred to in section 56(1), proceedings in any court are to be managed having regard to the following objects—

(a) the just determination of the proceedings,

(b) the efficient disposal of the business of the court,

(c) the efficient use of available judicial and administrative resources,

(d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties.

48. In relation to the requirement that proceedings are to be managed having regard to the timely disposal of proceedings, the failure by the Guarantors to participate in these proceedings has meant that that object has not been achieved. For example, there have been multiple directions hearings when one directions hearing alone ought to have been required, and in fact nothing has been achieved at the directions hearings that have occurred.

49. Section 58 of the Civil Procedure Act provides:

(1) In deciding—

(a) whether to make any order or direction for the management of proceedings, including—

(i) any order for the amendment of a document, and

(ii) any order granting an adjournment or stay of proceedings, and

(iii) any other order of a procedural nature, and

(iv) any direction under Division 2, and

(b) the terms in which any such order or direction is to be made,

the court must seek to act in accordance with the dictates of justice.

(2) For the purpose of determining what are the dictates of justice in a particular case, the court—

(a) must have regard to the provisions of sections 56 and 57, and

(b) may have regard to the following matters to the extent to which it considers them relevant—

(i) the degree of difficulty or complexity to which the issues in the proceedings give rise,

(ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities,

(iii) the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties,

(iv) the degree to which the respective parties have fulfilled their duties under section 56 (3),

(v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings,

(vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction,

(vii) such other matters as the court considers relevant in the circumstances of the case.

50. Matters referred to in these provisions which are relevant to this application include a comparison between the simplicity of the Plaintiff's case and the complexity of the cases raised by the Guarantors and the fact that there is no explanation provided by the Guarantors for their failure to participate. It also needs to be appreciated that any prejudice to which the Guarantors will be exposed is a matter that is relevant to the dictates of justice, although in this case there will only be prejudice to the Guarantors by dismissing their Defence and the Cross-Claim if they genuinely wish to prosecute the allegations made in their pleadings.

51. Section 59 of the Civil Procedure Act 2005 provides:

In any proceedings, the practice and procedure of the court should be implemented with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination beyond that reasonably required for the interlocutory activities necessary for the fair and just determination of the issues in dispute between the parties and the preparation of the case for trial.

52. I will also observe that s 59 also refers to the final determination of the proceedings and not merely their progress. The evidence in this case is that the interlocutory activities have extended well beyond that which is necessary for the fair and just determination of the issues in dispute.

53. In Udowenko v Chief Executive Officer and Board of Directors of St George Bank [2011] NSWSC 1122 at [121], Johnson J specifically recognised that the complex of statutory provisions in ss 56-61 of the Civil Procedure Act 2005 means that it is within the specific intent of the statutory framework in which the Court conducts its business that it can on occasion be appropriate to dismiss proceedings even though there has not been a hearing on the merits, in circumstances where there has been a failure to comply with directions.

54. In the light of those principles, I make the following particular observation. First, these proceedings have been on foot for a very lengthy period of time. They arise out of a default which occurred in January 2023, as alleged in the Statement of Claim. The Statement of Claim was filed almost two years ago.

55. Secondly, the Guarantors' history of noncompliance with the Court orders and non-participation is fairly described as prolonged and chronic.

56. Thirdly, as I have mentioned above, no explanation has been given by the Guarantors for their failure to participate. Often in the case of an application to have proceedings dismissed for want of due dispatch, the respondent to that application comes before the Court with an explanation for the delay and a concrete proposal for the progression of the proceedings in order to remedy the situation. That is not this case. The non-participation by the Guarantors extends to the hearing of this application.

57. I also observe, as the Solicitor points out quite correctly, that the allegations made against the Solicitor in the Cross-Claim include serious allegations about breach of fiduciary duty by virtue of a conflict of interest. It is unsatisfactory in the extreme for the Solicitor to be required to meet those allegations other than in proceedings which are conducted with due dispatch by the party making those allegations.

58. Finally, I observe that on this application the Guarantors have had every opportunity to be heard. The solicitors acting for the Plaintiff have assiduously kept the Guarantors informed of the progress of the proceedings. Both the solicitors acting for the Plaintiff and the solicitors acting for the Solicitor have done everything required of them to ensure that the Guarantors have a full opportunity to be heard. The Guarantors are entitled to have an opportunity. Whether or not they take that opportunity is a matter for them.

59. I order that:

60. To the extent necessary, evidence on the Plaintiff’s Motion be evidence also on the Cross-Defendant’s Motion and vice versa.

61. On the Plaintiffs action, the Court makes the following orders:

62. The Amended Defence filed on 27 September 2024 by Goce Talevski, Ket Talevski, David Dragi Trifunovski, Lena Trifunovska, Boka Colevska and Krste Colevski (Second to Seventh Defendants) is struck out pursuant to UCPR 12.7(2).

63. The Statement of Cross-Claim filed on 10 October 2024 (Cross-Claim) by the Second to Seventh Defendants (being the First to Sixth Cross-Claimants) is dismissed as against the First Cross-Defendant pursuant to UCPR 12. 7(1).

64. To the extent necessary, the Plaintiff have leave to apply for default judgment against the Second to Seventh Defendants.

65. The Second to Seventh Defendants pay the costs of these proceedings to date, including the Plaintiff’s costs of the Cross-Claim.

66. On the Second Cross-Defendants action, the Court makes the following orders:

67. The Statement of Cross-Claim filed on 10 October 2024 be dismissed as against the Second Cross-Defendant pursuant to UCPR 12.7(1).

68. The Cross-Claimants to pay the Second Cross-Defendant’s costs of this Motion and these proceedings to date.

**********

Amendments

23 April 2025

Name of Seventh Defendant corrected on cover sheet.

28 April 2025

At [61]: Orders amended to include the second cross-defendant's costs of the entire proceedings to date.