CIVIL PROCEDURE - hearings - adjournment - inadequate time estimates - late retention of legal solicitors and counsel - costs
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CIVIL PROCEDURE - hearings - adjournment - inadequate time estimates - late retention of legal solicitors and counsel - costs
Judgment (4 paragraphs)
[1]
Judgment - EX TEMPORE
Revised and reissued on 10 February 2020
The trial in these proceedings was fixed last year to commence before me today with an estimate that the hearing would last for one day. As I will describe in more detail in a moment, when the proceedings were called on for hearing it became apparent that the case would not finish, or at least was highly unlikely to finish, in one day. Due to my commitments there was no alternative but to vacate the hearing date so that a fresh trial date can be fixed in due course. When this became apparent counsel for the plaintiff applied for an order that the first, second and third defendants pay the plaintiff's costs thrown away as a result of the adjournment. Meanwhile, shortly before the hearing the second and third defendants had made an application to amend their defences. This judgment deals with these two applications.
The plaintiff in these proceedings is a company controlled by Mr Zoltan Tomanovic. It operates as the trustee for his superannuation fund. In these proceedings the plaintiff seeks to recover amounts which allegedly remain due pursuant to a loan made in 2011.
It appears that the loan was made in response to a request made by Mr Miroslav Mudri who is the fourth defendant. There had previously been business dealings between Mr Tomanovic and Mr Mudri who was a builder and property developer but the loan was made to the first defendant, Interlux Projects Pty Ltd. This is a company controlled by Mr Daniel Mudri and Ms Jessica Mudri who are the second and third defendants. Mr Daniel Mudri is the son of Mr Miroslav Mudri and Ms Jessica Mudri is his wife.
The obligations of Interlux as borrower were guaranteed by Mr Daniel Mudri and Ms Jessica Mudri and (in a separate document) Mr Miroslav Mudri. A guarantee was also obtained from Ms Brenda Smart who was originally the fifth defendant, she is bankrupt and proceedings have not been pursued against her.
The amount of the loan was $300,000 and its term was for one year. The loan agreement (which was in the form of a deed) required that Interlux repay at the expiry of the loan period the sum of $830,000. This was made up of the principal amount ($300,000) and a further sum of $530,000 which represented the plaintiff's return. That amount was to be satisfied by a transfer of one of four lots in a proposed redevelopment to be carried out by Interlux at Moranbah in Queensland. The loan agreement provided that prior to repayment the lot in question was to be valued and that if its valuation was less than $500,000 the cash amount equal to the deficit would be paid. Alternatively, if for some reason the transfer of the property could not be achieved at the satisfaction of the lender by the due date or within some other time frame agreed by the lender then the amount of $530,000 was to be paid in cash. It hardly needs to be said that a return of $530,000 on a one year loan of a principal sum of $300,000 seems an extraordinarily high one; it has been calculated as an effective rate of interest of 176 per cent.
It appears that the loan was not repaid on the due date although the sum of $300,000 was subsequently paid. In addition, a property or properties were transferred to the plaintiff at an undervalue, this is agreed to have amounted to a further repayment of $150,000. In these proceedings the plaintiff claims the remainder of its return together with interest from 2012. The amount claimed is approximately $760,000.
The defendants have pleaded numerous defences to the plaintiff's claim. These include misleading and deceptive conduct; unconscionable conduct (based in part on what is alleged to have been the unfavourable nature of the transaction); and, in the case of the first, second and third defendants, a further defence that the transaction was procured through undue influence on the part of Mr Miroslav Mudri.
Affidavits have been filed from Mr Tomanovic for the plaintiff and from each of Mr Daniel Mudri, Ms Jessica Mudri and Mr Miroslav Mudri for the various defendants. Initially Interlux was represented by a firm of solicitors, Doyles Construction Lawyers, but none of the individuals were represented. Doyles ceased to act for Interlux but shortly before the trial was due to commence Doyles went back on the record for Interlux and also went on the record for Mr Daniel Mudri and Ms Jessica Mudri.
When the matter was called on before me the first, second and third defendants were represented by counsel instructed by Doyles. The plaintiff was also represented by counsel, Mr Gray, who has been acting since the beginning of the proceedings. Mr Miroslav Mudri was unrepresented but appeared in Court intending to conduct his defence in person.
The situation I therefore faced at the beginning of the trial was that the defences raised issues of fact concerning the circumstances in which the loan agreement and associated documents were entered into; there were four witnesses of fact all of whom were to be cross-examined by one party or another; among the defendants there was a divergence of interest with the interests of the first, second and third defendants being in important respects opposed to those of Mr Miroslav Mudri; and one of the parties namely Mr Miroslav Mudri, was unrepresented.
It seemed to me in these circumstances unrealistic to think that the case could be completed in one day. Indeed it seems to me questionable whether the evidence could even be completed within that period given that numerous objections have been made and the cross-examination of the plaintiff alone was estimated by counsel for the first, second and third defendants to be likely to take between one and two hours. Counsel for both the plaintiff and the first, second and third defendants made it clear in answer to questions from me that they too doubted that the hearing could be completed within time.
I should say that when I looked at the file and the Court Book last week I was concerned about whether the case could be finished in one day and counsel for the parties raised the issue in correspondence with my Associate. I would have been prepared to consider the question at a directions hearing earlier this week but I was informed that Mr Miroslav Mudri was not available and that he opposed any adjournment. It appears today that he may have been available but he confirmed at today's hearing that he was opposed to an adjournment. I took the view that as he was unrepresented and it did not seem possible to secure his attendance by consent that I would have to deal with the matter when it was called on for hearing today.
Mr Miroslav Mudri, as I have just indicated, took the position that the proceedings should be dealt with and that there should be no adjournment. This was perfectly understandable from the point of view of any litigant, particularly an unrepresented litigant who finds himself embroiled in litigation of this character, but I did not think, for the reasons that I have given, that it was realistic. As I have said, I considered that there was no alternative but to adjourn the proceedings so they could be refixed for a proper length of time, I would think that would be at least two and possibly more days.
[2]
Costs thrown away by adjournment
Mr Gray took me through the history of the proceedings as disclosed by the file and by his recollection of the course of the various interlocutory hearings. There was no objection to this course and the facts stated by Mr Gray may be taken as having been established for the purposes of the application.
The Statement of Claim was filed in August 2018. Doyles went on the record and Interlux's defence was filed on 4 October. As I have mentioned, at that stage Doyles was acting for Interlux only; no defences were filed at that point by the individual defendants.
The first directions hearing took place on 26 October but on 12 November Doyles filed a Notice of Ceasing to Act. Nevertheless the case management procedures continued. It appears that Mr Daniel Mudri as second defendant appeared on a number of occasions in effect representing the interests of himself, his wife Jessica and the company, Interlux. Some of these appearances seem to have taken place by telephone as Mr Mudri is, as I understand it, based in Queensland. Mr Miroslav Mudri appeared at some but not all of these hearings.
The preparation of the case for hearing proceeded in the ordinary way. In January 2019 defences were filed for each of the individual defendants. Their affidavits were filed in May 2019 (the plaintiff's affidavit had previously been filed in March). The defendants' defences effectively picked up the defences which had been set out in the defence of Interlux which had been filed by Doyles before they went off the record. A quick review of those defences and of the affidavits suggests that the defendants were receiving some assistance from someone with some experience of the legal system. This was confirmed by counsel for the first, second and third defendants in the course of the hearing.
On 17 June the proceedings were listed for the purpose of fixing a hearing. I was told that Mr Daniel Mudri and Ms Jessica Mudri were present by telephone and that Mr Miroslav Mudri was also present. The Registrar fixed the hearing to take place on 23 August with an estimate of one day which as I understand it, was provided by Mr Gray. This listing was subject to a reservation that the defendants might notify if it was unsuitable and they later did. The proceedings were then relisted on 4 July before the Registrar. The 23 August date was vacated and today's date was fixed as the hearing date. Again the estimate given was one day.
Mr Gray explained that the Registrar specifically asked whether the defendants intended to retain lawyers to act for them and was told that they did not. That position changed as I have said when Doyles came onto the record (or back onto the record) for the first, second and third defendants. This happened in mid-December. I was told that it resulted in a flurry of activity involving some notices to produce and also the notification of objections to affidavits.
Mr Gray said that his instructing solicitors had some difficulty in finding out who had been retained as counsel. The fact that Mr Ball had been retained only emerged when the informal approaches were made to the Court last week as I have described.
Against this background Mr Gray submitted that the need for the adjournment should be seen as a consequence of the retention of Doyles to act for the first, second and third defendants. He said that at the time the one day estimate was given in June last year it would have been a reasonable one for a case where none of the defendants proposed to have legal representation. In his submission, at that point it would have been reasonable to suppose that there would not be extensive objections to evidence or extensive cross-examination of the plaintiff's witnesses. According to Mr Gray, if the first, second and third defendants chose to alter their course and retain lawyers at the last minute they should be financially responsible for the delay which, so Mr Gray submitted, had resulted from that.
I am against this argument for two reasons. In the first place, I do not accept the premise to Mr Gray's submission that the retainer of Doyles to represent the first, second and third defendants is the reason why the estimate has proved inadequate.
The defendants may have indicated that they did not propose to retain lawyers but they never gave any indication that they were not going to defend the proceedings. At the time the proceedings were listed for hearing there were pleaded defences which raised factual issues as I have described and these defences were supported by affidavits. It had to be assumed that those defences as pleaded would be pursued by reference to that evidence. In my view the fact that the defendants were unrepresented was a reason to think that the proceedings would take a longer rather than a shorter period of time.
I appreciate that sometimes unrepresented defendants put up only a token defence but that does not always happen. Rather the Court cannot proceed on the basis that it will happen, instead the Court must proceed on the basis that unrepresented litigants must be given every proper opportunity to put their defences forward. As I have said, the process of doing so is likely to be longer in the case of unrepresented litigants because the Court will need inevitably to explain matters to such litigants and to give them latitude which would not be required if they were represented.
I appreciate that the first, second and third defendants have changed course from what they told the Registrar, however, I do not think that any criticism should attach to them for doing that. In fact the retainer of counsel is likely to make the conduct of the proceedings more efficient.
The second reason I am against Mr Gray's submission is that even if he was justified in arguing that the estimate was appropriate at the time it was made the usual orders made on the fixing of a hearing include a specific requirement that the legal representatives monitor the estimate for trial and notify the Court within 48 hours of becoming aware of any change to the estimate. This is an obligation of all parties to the proceedings, not just the party whose conduct either causes, or arguably causes, a change to the estimate. It is quite clear from the chronology of events that I have recited that Mr Gray's instructing solicitors were aware from mid-December of Doyles' involvement in the proceedings. More than a month passed before any approach was made to the Court about the adequacy of the hearing date. I appreciate that much of this period was during the vacation but in my view it was the responsibility of both represented parties to raise the hearing date estimate well before it was raised.
In a sense both parties are to blame but I do not propose to award costs to the plaintiff in circumstances where the plaintiff's representatives could have raised concerns about the adequacy of the estimate (which was their estimate, and was based upon their supposition that the defendants would not be represented) and they did not do so.
For these reasons I refuse the plaintiff's application for a special order as to the costs thrown away by reason of the vacation of the hearing date.
[3]
Amendment application
As pursued before me the only amendment sought on behalf of Mr Daniel Mudri and Ms Jessica Mudri was an amendment to rely upon the Contracts Review Act 1980 (NSW). I was informed by counsel that if the amendment is permitted no further evidence will be required. Counsel observed that, as I have already noted, there were existing pleaded defences which put the circumstances in which the loan agreement and guarantees were given in issue, including defences as to the "fairness" of those guarantees. Counsel characterised the amendment as simply adding an additional legal string to the second and third defendant's bow. The purpose of the amendment is evidently to seek to challenge the "fairness" of the giving of the guarantees without being constrained by limitations or perceived limitations in the doctrines of unconscionability and undue influence.
In response to the application Mr Gray raised three points. First he relied upon s 6(2) of the Contracts Review Act which provides:
A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales.
Mr Gray took me to parts of the loan documentation and in particular declarations signed by Mr Daniel Mudri and Ms Jessica Mudri that the money borrowed was to be applied wholly or predominantly for business or investment purposes. Mr Gray submitted that the transaction obviously fell within s 6(2) and this precluded any grant of relief. Accordingly any amendment would be futile.
In evaluating this submission it is essential to note that s 6(2) is a prohibition on a person obtaining relief if the contract was entered into in the course of or for the purposes of a trade business or profession carried on by that person. Here I am concerned with applications for relief by Mr Daniel Mudri and Ms Jessica Mudri personally in relation to a contract which so far as they are concerned is a contract of guarantee.
It may be that the loan aspect of the contract between the plaintiff as lender and Interlux as borrower could be characterised as having been for the purpose of Interlux's business (although even this appears to be doubtful having regard to the facts asserted by the defence) but even if that were so it would not necessarily have the consequence that there was a relationship with some trade business or profession being carried on by Mr Daniel Mudri or Ms Jessisa Mudri personally. In my view, on the material I have seen, there is a live factual issue as to the application of s 6(2) and the defence is not futile.
The second point taken by Mr Gray was originally raised by me when I asked whether it was clear that the Act applied. It seems that the documents in question, although prepared by solicitors in New South Wales for the plaintiff, were actually signed in Queensland and there was a Queensland solicitor acting. Moreover, the development was to take place in Queensland and it seems that is where the defendants, or at least Mr Daniel Mudri and Ms Jessica Mudri, are based. In the circumstances there is a real question about whether the Contracts Review Act applies. But on balance I think there is sufficient room for debate about that question to say that the defence is not hopeless.
Mr Gray's third point relied upon the decision of the High Court in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175. Mr Gray pointed out, correctly with respect, that this application to amend is an application made under s 64(1) of the Civil Procedure Act, not s 64(2). There is no question in this case of there being a right to amend as there was in some of the previous authorities analysed in Aon. It is simply a question of whether the Court should permit the amendment. Mr Gray pointed out with some justification that the amendment came at the last minute without any real explanation. He also said that although the plaintiff would not need to call any further witnesses, the Contracts Review Act would expand the scope of the debate and would lead to more extensive cross-examination.
I have some reservations about how much practical difference the amendment will make given the fact that the defences already raised factual points about the circumstances in which the loan was entered into. But the point of the amendment is to widen the scope for debate and I accept it is theoretically possible that it may therefore expand the scope of the cross-examination which Mr Gray had planned to undertake.
Overall in ordinary circumstances this would not be a good case for an amendment. Mr Gray's criticisms are, with respect, justified. However, given that an adjournment is inevitable I think I must take that into account. The reality is that this case will not be heard for months, if indeed it is heard this year at all. I do not consider that any additional cross-examination which may be required as a result of the Contracts Review Act will result in a lengthening of the proceedings to any appreciable extent given that I think the hearing will take at least two days in any event.
In those circumstances, I propose to allow the amendment although I will require as a condition of allowing it that the second and third defendants pay the costs thrown away by reason of the amendment and also the costs of the amendment application itself.
The orders of the Court are:
Order that the hearing fixed for 6 February 2020 be vacated.
Order that the plaintiff's application for an order that the first, second and third defendants pay the costs thrown away by reason of the vacation of the hearing date be dismissed.
Grant leave to the second and third defendants to amend their defences substantially in accordance with the form of the two defences accompanying their Notice of Motion filed 3 February 2020 as amended by counsel in the course of the hearing.
Order that the second and third defendants pay the plaintiff's costs:
(a) thrown away by reason of the amendment; and
(b) of the defendant's Notice of Motion.
[4]
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Decision last updated: 10 February 2020