QBE Insurance (Australia) Limited v Kalead Etri

9The List records "Nil" documents in respect of any claim for privilege and "Nil" documents in the possession of other persons. In those circumstances paragraphs 5 and 6 of this affidavit appear to rather meaningless. 10The third defendant's solicitor provided copies of the documents in the List to the solicitors for the plaintiffs. Those documents included a letter dated 24 June 2009 headed "To whom it may concern" in relation to the Berala property, recording that the approximate selling price would be in the range of $720,000. There is attached to that letter a document that is headed "Market Appraisal" which is stated to have been "Prepared on 29 June 2009", which appears to be the document in support of the letter dated 24 June 2009. 11The third defendant's solicitor also produced a copy of the Transfer of the Berala property from the first and second defendants to the third defendant. That document is dated 1 July 2009 and the imprint for duty is dated 1 July 2009, on a dutiable amount of $26,990 on $700,000. There are various other documents produced by the solicitor, including a valuation dated 22 June 2009 said to be for the client Sid Hawach & Associates, Solicitors, in respect of borrowers identified as the first and second defendants. The market value listed in this valuation is $700,000. 12The mortgage referred to earlier in this judgment in favour of Ausgrow Pty Limited (Ausgrow) was not listed in the third defendant's List of Documents, however the mortgage is in evidence on this application. It was registered on 29 July 2009. It is not dated. It was purportedly lodged by Ausgrow. Ausgrow is recorded as the mortgagee and Hanan Etri, the third defendant, is recorded as the mortgagor. It is signed for Ausgrow by a person identified as the sole director, Faddoul Faddoul, and by the third defendant. 13Annexure A to the mortgage includes the following: In consideration of the principal sum of Seven Hundred Thousand Dollars ($700,000.00) lent to the Mortgagor by the Mortgagee at the request of the mortgagor. ... (F) the Mortgagor will make equal monthly principal repayments of $58,333.33 and will pay interest on all monies secured by this mortgage at the rate of 7.5% per anum (the higher rate) on the first day of each month until the principal sum shall be fully paid, the first of such payments calculated from 1 August 2009 to be made on 1 August 2009... 14The plaintiffs have issued subpoenas and obtained documents from various entities in support of their applications. They rely upon Exhibit D, which is an affidavit of Joseph Faddoul sworn on 10 December 2010. Mr Faddoul makes claims that : Ausgrow was incorporated on 5 July 2004; he was a director from its date of incorporation to 23 July 2009, when he became ill; on 23 July 2009 Faddoul Faddoul was appointed as the director of Ausgrow; on 23 November 2010 he was well enough to resume his appointment as the sole director; Ausgrow has never traded; it has no record of the mortgage; Joseph Faddoul knows the third defendant to be a mortgage broker, but has had very limited dealings with her or agents acting on her behalf; there are no records or correspondence in Ausgrow's possession showing any communication with the third defendant regarding the mortgage; he was not aware of anyone at Ausgrow executing the mortgage; he made enquiries of Faddoul Faddoul who apparently claims he did not execute the mortgage; Ausgrow has no record of any loan to the third defendant; and there are no records of any transfer of funds to the third defendant. 15The plaintiff also relied upon a Statutory Declaration (Ex B) of the first defendant, the terms of which are as follows:

1. On 25 June 2009, I received a telephone call from my solicitor Tom Zreika (of Queen Street Chambers) advising me words to the effect: a. " Your matter [sale of 351 Chisholm Rd Auburn] has settled but Suncorp has sent me the title over 16 Kingsland Rd Berala. Have you done a deal with them?
2. I responded as following (using words to the effect): a. "Yes. Don't worry. Just register the discharge and ill come and pick up the title. I have made an agreement with Craig [Stitt] that he will take the rest of his money [full proceeds] from the sale of the Elm Road properties. Craig is happy that we have exchanged on 29 Elm Road."
3. On 26 June 2009, I contacted Tom and asked words to the effect: a. "Has it registered?" He replied: b. "I don't know, I haven't done a search yet."
4. On 27 June 2009, I received a sms text from Mr Zreika stating that my house is unencumbered.
5. Today, I attended Mr Zreika's office, terminated his retainer and uplifted all my personal files from him. 16The plaintiffs obtained bank statements (Ex C) on subpoena that show that on 2 July 2009 the third defendant purchased two bank cheques, one for $300,000 and the other for $200,000 both payable to the first and second defendants. The bank statement of the first and second defendants show a deposit into their account of $500,000 on 2 July 2009. 17The first and second defendant's bank statements show that in the period 4 July 2009 through to 28 July 2009 the whole of the $500,000 is withdrawn in dollops of $5,000, $9,000, $7,000, and $1,000. The other bank statements of the third defendant show that between 15 July 2009 and 30 December 2009 there is deposited into her account in cash and cheques an amount of $525,800. 18The plaintiffs submit that the irresistible inference to be drawn from the evidence relied upon in this application is that there are further documents that have not been discovered and that the defendants have not complied with the orders of McDougall J. It is important in this application to delineate between the entitlement of the plaintiffs to obtain preliminary discovery for the purpose of deciding the nature of the claim to be brought against the defendants and the entitlement of the plaintiffs to press for compliance with the order made by McDougall J for preliminary discovery. It is the latter matter with which I am dealing. 19Part 5.3 of the Uniform Civil Procedure Rules provides relevantly as follows: 5.3 Discovery of documents from prospective defendant (1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief. 20The policy reasons behind such a rule include that there should be an orderly process of litigation and to provide parties and their lawyers an opportunity to ensure that litigation is not commenced and costs not incurred, where such process would not be justified. In many cases, where there are complex transactions and multiple prospective parties, the process of preliminary discovery assists with ensuring efficient, cost effective and civilised processes in the court. 21In this instance, on one view of the documents already produced and/or subpoenaed, the plaintiff could well be in a position to know that it is entitled to make a claim for relief against the prospective defendants. However Mr Lucarelli submitted that it is the contemplation of a fraud claim, as that expression is used in s 42 of the Real Property Act 1900, that concerns his clients and his solicitors. Notwithstanding that the plaintiff may well be able to identify a cause of action on the documents that it has now gathered from a number of sources, the question on this application is whether the irresistible inference from the evidence is that there are probably further documents to be discovered and the defendants have yet to properly comply with their preliminary discovery obligations under McDougall J's orders. 22Mr Rickard submitted that the plaintiffs have misconstrued McDougall J's orders in complaining that the bank statements, to which I have referred, demonstrating the apparent round-robin of payments, were not discovered. Mr Rickard submitted that those bank statements do not properly fall within orders 2.14, 2.15 and 2.16 referred to above. He submitted that McDougall J's orders refer to documents referring to the payment of any deposit or any purchase price by the third defendant and documents referring to the receipt by the first and second defendant of the amounts of the deposit or the purchase price. Technically it seems to me that Mr Rickard is correct. The bank statements of the third defendant's account showing the receipt of $525,800 in the six months after she paid $500,000 to the first and second defendants, are not documents referring to the payment of the purchase price or the payment of the deposit. Certainly the bank statements showing the receipt by the first and second defendants of the $500,000 should have been discovered, because it clearly falls within the terms of 2.16. 23The Ausgrow mortgage is another matter. Mr Rickard was critical of the plaintiffs for failing to subpoena Ausgrow for its documents. He submitted that Ausgrow would have all the relevant records in relation to the Ausgrow mortgage and therefore to seek to establish an inference that there would be more records without taking the forensic step of pursuing Ausgrow was inappropriate. It would appear that Joseph Faddoul claims that there are no records and that evidence tends to suggest that there would not be any records with the third defendant and thus there should not be an inference drawn that there has been a failure to comply with McDougall J's orders. 24However, on the assumption that Mr Faddoul's evidence is accurate, it would appear that the third defendant has manufactured the mortgage and signed it and gone to the length of calculating monthly repayments to the extent of some thousands of dollars each month and then, it would appear, has had the mortgage registered. If Mr Faddoul's evidence is not accurate and the mortgage was created by Ausgrow the inference is that there would be more documents than have been discovered. The plaintiff would be entitled to subpoena the records of Ausgrow, but I do not see its failure to do so prior to this application as an impediment to its application. 25It is to be noted that the third defendant, as a mortgage broker as described by Mr Faddoul and/or as a loans officer as she describes herself in her affidavit, must have known that the mortgage document was a relevant document to be produced. The irresistible inference is that if on one view of the evidence the third defendant manufactured the mortgage document and signed it, there would have been records associated with that creation, either on her computer or elsewhere. On another view of the evidence, if the mortgage was created by Ausgrow, there would most likely be applications and correspondence in, or previously in, the third defendant's possession. There is no evidence before me from the third defendant other than the affidavit verifying the List of Documents. 26Mr Rickard submitted that his instructions are that the third defendant accepts that it is her signature on the mortgage. The valuation of $700,000 and the mortgage of $700,000 and the Transfer of $700,000 suggest a purchase price of $700,000. The only transactions that the plaintiffs thus far has been able to track down is for $500,000. A Contract for Sale of the Berala property to the third defendant has not been produced. 27The withdrawals identified in the third defendant's bank statement that were made for the purpose of obtaining the two bank cheques are peculiar entries. The account is entitled "Nab FlexiPlus Mortgage". The debit amount on 1 July 2009 was $105.17. The debit amount on 2 July 2009 was $300,213.17. The irresistible inference is that there must be other documents relating to that amount relevant to the payment of the purchase price. It would appear that the National Australia Bank, the third defendant's employer, provided funds to the amount of $300,000 on 2 July 2009. That transaction and any documents relevant to it, would fall within paragraph 2.15, on the presumption that the third defendant would have obtained funds for the "purchase price". No such documents have been produced or referred to in the affidavit of discovery. The same can be said in respect of the entry in the account for the withdrawal of $200,000 on 2 July 2009. 28I am satisfied that the irresistible inference to be drawn from this evidence is that there are further documents that must be available, or alternatively were available and are no longer available, to the first, second and third defendants. I am satisfied that in those circumstances the defendants have not complied with their obligations to produce the documents pursuant to the preliminary discovery orders. 29Having regard to the fact that it is now 6 months since McDougall J made his orders, I am satisfied that the most efficient process, consistent with the overriding purpose of the rules for the just, quick and cheap resolution of the proceedings, is to grant leave to the plaintiffs to cross-examine the defendants on their affidavits of preliminary discovery on the issue of whether they have complied with their obligations to provide discovery, as ordered by McDougall J. 30I grant leave to the plaintiffs to cross-examine the first, second and third defendants on their affidavits verifying their lists of documents filed pursuant to the order made by McDougall J. 31I dismiss order 2 sought in the third defendant's Notice of Motion filed on 4 April 2011.

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: 31 May 2011