Reliance Leasing Pty Ltd v Smith

The Applicable Law

1. Rule 9.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) provides that a party may make a cross claim in proceedings commenced by a Statement of Claim, within the time limited for the party to file a Defence, or within such further time as the court may allow. The Notice of Motion is based on the power given to the court by r 9.1(1) to allow further time for the filing of a cross claim.
2. Mr Smith is well out of time to file a cross claim. Rule 14.3 UCPR provides that the time limited for a defendant to file a Defence is 28 days after service on the defendant of the Statement of Claim.
3. Section 22 of the Civil Procedure Act 2005 (NSW) (CPA) provides as follows: "(1) Subject to subsection (2), the court may grant to the defendant in any proceedings ('the first proceedings') 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."
4. Mr Steinberg is not a plaintiff in the proceedings, so relief may not be granted against him unless "the relief relates to, or is connected with, the subject of the first proceedings". It is not obvious from the Statement of Claim, or from the rather spartan wording of the Defence, that the relief sought in the proposed cross claim relates to, or is connected with, the action brought by Reliance against Mr Smith. However, counsel for Mr Smith relied upon the affidavit of Mr Smith dated 26 May 2020 (PX 1, Tab 5) to establish a factual basis for the proposed cross claim against both Reliance and against Mr Steinberg.
5. The discretion to grant leave to file a cross claim out of time must be exercised judicially and in such a way as to ensure that no prejudice is suffered by the potential cross defendants as a result of the late joinder: International Advisor Systems Pty Ltd v XYYX Pty Ltd (No. 3) [2008] NSWSC 430 at [4]. The judicial discretion whether or not to extend the time for filing of a cross claim is to be considered in the context of ss 56-60 of the CPA: Juul v Northey [2010] NSWCA 211 at [247].
6. In any application for extension of time, the party seeking an indulgence must provide an explanation for the failure to comply with the time limits prescribed by the rules and for the delay in bringing forward the application for an extension. In this regard counsel for the defendant relied upon the affidavit of Mr Smith dated 26 August 2022 (PX 1, Tab 8).

The Proposed Cross Claim

1. The proposed cross claim is to be found at CB 389-401. It pleads that a partnership was entered into orally between Mr Smith on the one hand, and Reliance and Mr Steinberg on the other hand. While it is not entirely clear from the pleading, the allegation appears to be that the parties carried on a partnership in relation to litigation lending, described in par 7 as "a business together recovering monies pursuant to various choses in action". The allegation is that bodies corporate related to the partners were used for litigation lending, and the profits and losses from that business were to be shared between the partners. The various bodies corporate which were related to the parties were said to have accounted for the monies obtained in four out of six transactions entered into by the partnership, described as monies received from various choses in action.
2. The proposed cross claim pleads that there was a breach of the partnership agreement in relation to two of the choses in action, known as the Paligaru chose in action and the Pidgeon chose in action. Mr Smith seeks damages against the proposed cross defendants, arising out of the failure by the cross defendants to properly share between the partners the monies due in relation to the Paligaru chose in action and the Pidgeon chose in action.
3. Part of the relief claimed in the proposed cross claim is an order for the taking of accounts between the partners. When the court raised concerns about whether the District Court had jurisdiction to order the taking of accounts, counsel for the defendant indicated that he did not seek to file a cross claim claiming the relief set out in par 2 in the Relief Claimed at CB 390. In relation to the Relief Claimed in par 3, counsel indicated that he was seeking common law damages and not equitable damages, and thus the words "as being just and equitable" were to be excised from par 3 of the Relief Claimed. Consequently, any cross claim would not contain par 35 of the proposed cross claim (CB 398), which sought an account of profits between the partners. That left intact the remedy of damages pleaded in pars 36-38 of the proposed cross claim (CB 398).
4. The court also raised with counsel for the defendant the pleading in pars 30 and 36 of the allegation that the cross defendants had caused loss and damage "to the Cross Claimant and/or his related bodies corporate in respect of the breach of the Partnership Agreement". It was plain from the pleading that the related bodies corporate were not partners, but rather were vehicles used by the partners to carry out litigation lending activities. Counsel indicated that if leave were granted, the words referring to "related bodies corporate" in pars 30 and 36 were to be excised.

Evidence Concerning Factual Basis for the Cross Claim

1. The parties have already filed affidavits setting out their evidence in relation to the plaintiff's claim as pleaded in the Statement of Claim. The first affidavit of Mr Smith (PX 1, Tab 5) is his evidence in the proceedings. That affidavit was also tendered on the Notice of Motion, to establish what was said to be a factual underpinning for the proposed cross claim against Mr Steinberg and Reliance. In that affidavit Mr Smith deposes that he and Mr Steinberg were in partnership in relation to the Pidgeon chose in action (par 9). The affidavit refers to Mr Smith and Mr Steinberg using their related companies to carry out the partnership (par 13). The affidavit sets out evidence in relation to the creation of the partnership (pars 26-27), the partnership activity (pars 28-35), the dealings of the partners with each other (pars 36-66) and the partnership costs (pars 67-101). Much of this evidence concerns the Pidgeon chose in action, but the Paligaru chose in action is also mentioned, although not in detail.
2. It is difficult to see how any of this evidence has any relevance to the pleaded Defence, but it does form a factual basis for, at least, the alleged partnership between Mr Smith and Mr Steinberg pleaded in the proposed cross claim. The evidence in the affidavit does not assert that Reliance was part of the partnership, but counsel for the defendant indicated in oral submissions that if leave were granted to file the cross claim, there would be additional affidavit evidence.
3. Mr Smith was cross-examined extensively in relation to his evidence concerning delay contained in his second affidavit (PX 1, Tab 8). There was no cross-examination in relation to the first affidavit (PX 1, Tab 5).
4. I find that the first affidavit of Mr Smith provides some factual foundation, although not complete, for the allegations made in the proposed cross claim. I find that the relief sought in the proposed cross claim relates to, or is connected with, the subject of the present proceedings. Clearly, the dealings between the parties were much more complicated than a simple loan agreement containing a guarantee clause.

Evidence Concerning Delay

1. At the very latest, the cross claim should have been filed together with the Defence, which was filed on 26 November 2021. Mr Smith has to provide an explanation for the delay between 26 November 2021 and 26 August 2022 when he filed the present Notice of Motion.
2. In PX 1, Tab 8 Mr Smith says that he lived on a rural property near Orange. Between July 2021 and November 2021, because of the pandemic travel restrictions, he was unable to travel from Orange to Macquarie Park, where he had an archive of documents held in storage. He described the documents as "many tens of thousands of pages of books and records containing possible evidence". Mr Smith said that he needed to access the physical documents, as tens of thousands of pages of documents had been "purged from an electronic file storage facility".
3. Between 1 October 2021 and 5 October 2021 Mr Smith was admitted to hospital "suffering a life-threatening heart attack". He was advised by his cardiologist not to catch COVID-19 as he was in a high-risk group for health complications. For the balance of 2021 he received care and treatment in order to recover from his heart attack. He was ordered by doctors not to perform any work or engage in strenuous or stressful activities as he recovered from the heart attack. He was referred for psychological counselling.
4. Mr Smith said that in late 2021 and early 2022, due to his absence from business activities, and the travel restrictions, he had serious business-related issues "further affecting my mental, financial and physical health and wellbeing".
5. In February 2022 Reliance served a Creditors Statutory Demand (CSD) upon one of his companies. This company was the registered proprietor of the farm near Orange. Mr Smith caused Supreme Court proceedings to be commenced to set aside the CSD. In February and March 2022 he sought the assistance of the Rural Assistance Authority in relation to a Farm Debt Mediation, as the alleged debt was owed by the registered proprietor of his farm at Orange. To satisfy the requirements of the Rural Assistance Authority he had to put together extensive documentation, which he said "caused me a great deal of stress, cost and negatively affected by health and my marriage".
6. The financial difficulties caused strain in his marriage of 32 years. He continued to consult doctors in the early months of 2022. There was a caveat lodged on the farm property, and this led to further proceedings in the Supreme Court.
7. At this time Mr Smith perceived that his former lawyer was acting against him and had a conflict of interest. He filed a Notice of Motion in March 2022 seeking to restrain the former lawyer from acting for Reliance in relation to the present District Court proceedings. In late March 2022 that lawyer voluntarily ceased to act. Around that time Mr Smith and his wife separated, which left him "deeply in shock and grief". He required counselling and medication.
8. From April 2022 much of the time of Mr Smith was occupied with the CSD proceedings, the Rural Assistance Authority, and an attempt to obtain refinancing. He was engaged with his accountant to prepare financial documents. He described this as "an overwhelming period of time for me in which I suffered anxiety and required counselling services".
9. In late April 2022 the refinance was complete and Mr Smith was able to satisfy the CSD in accordance with an agreement made. Mr Smith alleges that he had to pay an additional $69,000 over what was owed, which led to proceedings in May 2022 in the Supreme Court seeking to recover that additional payment.
10. There were further proceedings in the Supreme Court at that time in relation to the Paligaru chose in action. Mr Smith found himself named as a respondent in a motion in those proceedings.
11. In mid-2022 Mr Smith continued to receive treatment for anxiety as well as insomnia, high blood pressure, and chest pains which he perceived were caused by strain and stress resulting from the litigation and the breakdown of his marriage.
12. On 8 July 2022 a Proposed Verified Cross Claim was served upon Reliance. On 12 August 2022 the solicitor for Reliance advised Mr Smith's solicitor that Reliance did not consent to the filing of the cross claim. Mr Smith then brought the present Notice of Motion.
13. Annexed to Tab 8 of PX 1 were medical reports from the general practitioner, the cardiologist and other people who had treated Mr Smith's various conditions.
14. Mr Smith was cross-examined concerning a podcast which he disseminated on 26 October 2021. A transcript of that podcast was tendered and is to be found at PX 1, pp 451-465. The title of the podcast is "Many R's Podcast - S1, E8". The reference to "Many R's" is explained at the start of the transcript as follows: "rogues, rascals receivables rorts rip-offs receivers real estate agents and much much more this is the many r's podcast season 1 episode 8 our final episode for season 1".
15. Counsel for Reliance put to Mr Smith that while he said that he could not, because of the many issues in his life, give proper instructions concerning a cross claim, he found time to broadcast the episode 8 podcast, and in particular, to attack Mr Steinberg in the podcast.
16. Mr Smith was also cross-examined about a subsequent podcast of 30 December 2021 (PX 1, pp 476-488), which contained photos of Mr Steinberg and some of his associates, together with disparaging descriptions of some of those associates. Once again, it was put to Mr Smith that he found time to record and distribute that podcast, but said that he could not find the time or the focus to deal with his proposed cross claim.
17. Mr Smith answered such propositions by emphasising his poor health and the many distressing events in his life which were occupying most of his time. Certainly it can be said that the period of delay in filing a cross claim in this matter was a time in Mr Smith's life when just about everything was going wrong and when he was dealing with problems on multiple fronts.
18. I have read the transcript of the two podcasts. My impression is that they are both little more than a stream of consciousness diatribe about Mr Steinberg, the former lawyer who Mr Smith thought was acting in a conflict of interest, and the dealings in relation to the litigation lending business. The first podcast was a video podcast, and the transcript sounds like someone who is simply unburdening themselves about their problems and frustrations, rather than putting together a coherent narrative or a logical argument. In short, there is a world of difference between looking into a camera and ranting, as opposed to gathering documents and giving detailed instructions in relation to what appears to be a relatively complicated business arrangement and partnership dispute.
19. I do not think that the cross-examination, although thorough and vigorous, detracts from the detailed explanation given in PX 1, Tab 8 to explain the delay in bringing forward the cross claim. I find that Mr Smith has satisfactorily explained his delay.

Evidence Concerning Separate Proceedings

1. Counsel for Mr Smith tendered an email dated 11 October 2022 (DX 1). In this email the solicitor for Reliance said, inter alia: "My client will not object to your client commencing the claim the subject of the proposed cross claim by way of separate proceedings".
2. Counsel for the defendant submitted that this was an indication that Reliance had no problem with the form of the proposed cross claim. With respect, I am of the view that that is an overreading of the concession in the email. The separate proceedings refer to "the claim the subject of the proposed cross claim", and not to the particular pleading put forward. However, the email does show that, subject to the form of a pleading, Reliance was content for Mr Smith to bring his claim in separate proceedings. Of course that is no great concession to make as Mr Smith was free, with or without the blessing of Reliance, to bring separate proceedings.
3. Rule 28.5 of the UCPR: "28.5 Consolidation etc of proceedings If several proceedings are pending in the court and it appears to the court-- (a) that they involve a common question, or (b) that the rights to relief claimed in them are in respect of, or arise out of, the same transaction or series of transactions, or (c) that for some other reason it is desirable to make an order under this rule, the court may order those proceedings to be consolidated, or to be tried at the same time or one immediately after another, or may order any of them to be stayed until after the determination of any other of them. Note-- See also Division 5 of Part 6 with respect to joinder of causes of action and joinder of parties."
4. If separate proceedings were brought in this court, I have no doubt that an application would be made under r 28.5 to order that they be tried at the same time. The rights claimed by Reliance and the rights claimed by Mr Smith in his proposed cross claim "are in respect of, or arise out of, the same transaction or series of transactions". Further, since Mr Smith has put on evidence concerning the alleged partnership in PX 1, Tab 5, it would be desirable to make an order under the Rule for both actions to be heard together, as the evidence is common to both.
5. In my view, if Mr Smith is going to bring a claim, it would be better to bring it as a cross claim in the current proceedings, particularly as the evidence already filed can be read as evidence on his cross claim. It would be incurring unnecessary costs to insist upon separate proceedings being brought, but then for those proceedings to be the subject of an application under r 28.5.

Submissions for Reliance Leasing Pty Ltd

1. Counsel for the plaintiff filed helpful written submissions (MFI 3) which were amplified in oral submissions. Counsel put forward four reasons why leave should be refused.
2. Firstly, it was submitted that Mr Smith had not provided an adequate explanation for the nearly year-long delay in seeking to file his cross claim. I have already indicated my view that, in spite of the matters raised in cross-examination, the explanation for delay is adequate.
3. Secondly, it was submitted that the cross claim would be struck out as embarrassing or failing to disclose a reasonable cause of action, because it seeks to sue under an alleged partnership agreement on behalf of corporate entities who were not parties to the partnership. That is quite so, but that submission was met by counsel for the defendant indicating that his final cross claim would seek to excise the words which could be interpreted as alleging that the related bodies corporate were partners in the partnership.
4. Thirdly, it was submitted that the filing of a cross claim at this stage would cause significant prejudice to the plaintiff. Counsel submitted that the Statement of Claim discloses "a simple dispute over whether the defendant has honoured a guarantee over a loan". That is so, but the evidence already filed (PX 1, Tab 5) shows that there is a lot going on underneath the surface of this "simple dispute". The plaintiff has never made an application for summary judgment or to strike out the Defence, but instead has engaged with the defendant in putting on evidence concerning the partnership between, at least, Mr Smith and Mr Steinberg. There was no evidence of actual prejudice to the plaintiff and nothing to suggest that there was likely to be any presumptive prejudice.
5. Fourthly, it was submitted that the defendant "has the ability to commence his claim elsewhere". While this is so, I have expressed the view above that this would be a triumph of form over substance, and there is no utility in forcing Mr Smith to bring separate proceedings, only to have them joined to the present proceedings.

Conclusion and Orders

1. For reasons set out above, I find that Mr Smith should be granted leave to file a cross claim, with the changes outlined by counsel for the defendant in oral submissions.
2. The parties agreed that I should deliver judgment in the matter and grant liberty to the parties to approach my Associate to further argue the costs of the Notice of Motion.

Orders

1. The orders of the court are: 1. Grant leave to the defendant to file a cross claim in the form of PX 1, pp 389-401, subject to the following: 1. Paragraph 2 of the "Relief Claimed" shall be deleted. 2. The words "as being just and equitable" in paragraph 3 of the Relief Claimed shall be deleted. 3. The words "and/or his related bodies corporate" in paragraph 30 shall be deleted. 4. Paragraph 35 shall be deleted. 5. The words "and his associated entities" in paragraph 36 shall be deleted. 1. Grant leave to the parties to approach my Associate to obtain a further hearing in relation to costs of the Notice of Motion, either by oral argument or to be dealt with on the papers.

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: 27 October 2022