Capital Securities Xvii Pty Ltd v Yusofzai (No 2)

[2019] NSWSC 501

Supreme Court

New South Wales

Medium Neutral Citation:	Capital Securities XVII Pty Ltd v Yusofzai (No 2) [2019] NSWSC 501
Hearing dates:	15 March 2019
Date of orders:	15 March 2019
Decision date:	03 May 2019
Jurisdiction:	Common Law
Before:	Walton J
Decision:	For the reasons given in this judgment, the Court granted the adjournment sought by first and second defendants and subsequently made the orders and directions aforementioned in this judgment.
Catchwords:	CIVIL PROCEDURE – adjournment application – granted
Legislation Cited:	Contracts Review Act 1980 (NSW) Real Property Act 1900 (NSW)
Category:	Procedural and other rulings
Parties:	Capital Securities XVII Pty Ltd (Plaintiff) Zahra Yusofzai (First Defendant) Zia Yusofzai (Second Defendant) Waise Yusofzai (Third Defendant)
Representation:	Counsel: A Rose (Plaintiff) S Lees (First and Second Defendants)   Solicitors: QBM Lawyers (Plaintiff) Gupta and Co (First and Second Defendants)
File Number(s):	2018/196119

reasons for judgment

1. By a statement of claim filed on 25 June 2018, Capital Securities XVII Pty Ltd (“the plaintiff”) sought possession of land described as 9 Beazley Street Ryde (“the property”). The defendants to the proceedings were Zhara Yusofzai, the first defendant; Zia Yusofzai, the second defendant; and the son of the first and second defendants, Waise Yusofzai, the third defendant.

2. A defence to that claim was filed on 14 August 2018, which pleaded, inter alia, that the Court should decide that the loan and mortgage upon which the possession proceedings were based were unjust and/or unconscionable and void pursuant to s 7(1)(b) of the Contracts Review Act 1980 (NSW). Notwithstanding the connection to earlier aspects of the pleading, the plaintiff was correct to contend that the defence lacked specificity.

3. By an amended notice of motion filed on 27 February 2019 (“the motion”), the plaintiff sought the following orders:

a. That the First and Second Defendants’ Defence filed on 14 August 2018 be struck out pursuant to s 61(3)(c) of the Civil Procedure Act 2005 (CPA) and for judgment to be entered for the Plaintiff; or

b. Summary judgement for the Plaintiff for possession of the land situated at 9 Beazley Street, Ryde (Beazley Property) pursuant to r 13.1 of the Uniform Civil Procedure Rules 2005 (UCPR); and

c. Costs of the motion and proceedings.

4. In support of the motion the plaintiff relied upon the following affidavits:

1. the affidavit of Simon Heathcote, Chief Financial Officer for the plaintiff, affirmed 13 December 2018; and

2. the affidavits of Paul Raymond Box, solicitor for the plaintiff, sworn 14 and 26 February 2019, respectively.

5. The motion was referred to the Court as part of the Common Law Duty List. When the matter was called, counsel for the first and second defendants sought that the motion be adjourned upon the basis of orders and directions which had the effect of amending directions in the primary proceedings including self-executing orders, in the event of default by the defendants, and making costs orders against the first and second defendants.

6. The proposed orders and directions were as follows:

1 The First and Second Defendants are to serve their proposed amended defence and proposed cross-claim on the Plaintiff by 29 March 2019.

2 If the First and Second Defendants fail to comply with Order 1 then:

a. the First and Second Defendants’ defence (filed 14 August 2018) will be struck out automatically pursuant to r 12.7(2) UCPR; and

b. judgment is to be entered for the Plaintiff on the substantive proceedings pursuant to s 61(3)(c) of the Civil Procedure Act 2005.

3 The First and Second Defendants are to pay the Plaintiff’s costs thrown away for the direction hearings on 28 August 2018, 25 September 2018, and 7 November 2018, as agreed or assessed.

4 If the First and Second Defendants fail to comply with Order 1, then they are to pay the Plaintiff’s costs of the amended motion filed 27 February 2019, as agreed or assessed.

5 If the First and Second Defendants comply with Order 1, the Plaintiff is to inform the First and Second Defendants whether it consents to the filing of the proposed amended defence and proposed cross claim by 12 April 2019.

6 If no consent is provided, the First and Second Defendants are to file a motion seeking leave to file the proposed amended defence and proposed cross claim by 17 April 2019.

7 The First and Second Defendants are to serve their evidence in reply to the Plaintiff’s evidence on the Statement of Claim by 5 April 2019.

8 If required, the First and Second Defendants’ motion seeking leave to file the proposed amended defence and proposed cross claim is to be heard before the Common Law Duty Judge on 24 April 2019.

9 If required, the Plaintiff has liberty to restore the amended motion filed 27 February 2019 to be heard before the Common Law Duty Judge on 24 April 2019 on 3 days notice.

7. The absence of an appearance for the third defendant, is explained by orders made by her Honour Justice Lonergan on 21 February 2019 that the third defendant give possession of the property to the plaintiff. It may be noted, that her Honour made further orders and directions to which I will return.

8. It was common ground that the Court should first hear the adjournment application and, subject to that ruling, deal with the motion.

9. On 15 March 2019, the Court granted the adjournment sought by the first and second defendants and indicated that it would provide reasons in due course. These are the reasons for judgment.

10. In moving on the adjournment application, the first and second defendants relied upon the affidavit of Saurabh Gupta affirmed 13 March 2019. Mr Gupta was appointed as the new solicitor for the defendants. A notice of change of solicitor to that effect was filed on 14 March 2019. The defendants also relied upon the two affidavits of Nick Khosh affirmed on 27 February and 14 March 2019. Mr Khosh was the former solicitor for the first and second defendants.

11. The counsel for the plaintiff provided written submissions setting out background circumstances relevant to the motion which are broadly applicable to the determination of the adjournment application. What follows principally relies upon those submissions:

12. The Defendants are shareholders of Y Corp Developments Pty Ltd ACN 163 917 084 (“Ycorp”).

13. The Third Defendant is a joint owner-operator of First National Real Estate Woolloomooloo.

14. The first and second defendants are the parents of the third defendant and they have an equitable interest in the third defendant’s business and the business debt. Although they are not actively involved in the day-to-day operations of the business, they are involved in the larger strategy and planning.

15. The defendants approached the plaintiff in December 2017 to refinance an existing commercial loan Ycorp had with another lender, which was a consolidation of business debts.

16. In the loan summary overview provided to the Plaintiff by the defendants’ broker on 17 December 2017 it noted that:

1. the defendants sought the loan to pay out the existing mortgage and use the remaining cash to sub-divide the property (which is where the first and second defendants live);

2. the defendants own the property in equal shares; and

3. “all three of the clients are extremely articulate and aware of the funding strategy and the long term strategic position” and “are extremely well informed as to the property market and their future strategies”.

17. The defendants are the registered owners of the property.

18. Pursuant to a loan, a security and guarantee deed dated 22 December 2017 (“the Deed”), the plaintiff lent Ycorp $1,120,000 in exchange for a mortgage over the property. The defendants also agreed to be guarantors for the loan.

19. Each of the defendants signed a statutory declaration stating that they had received independent legal advice and independent financial advice regarding the Deed and were entering into the Deed freely and voluntarily. Each of the defendants stated they did not need an interpreter.

20. The defendants failed to pay the amounts payable to the plaintiff under the loan. On 11 May 2018, the plaintiff sent the defendants a notice demanding payment of $76,938.46 to remedy their default under the Deed and a notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) in respect of the property. The defendants failed to comply with the notice of demand.

21. On 20 June 2018, the plaintiff sent the defendants a letter notifying them that it had terminated the Deed and demanded payment for the full amount of the loan being $1,212,463.90, or possession of the property.

22. The defendants have not paid the monies due in response to these demands and remain in possession of the property.

23. On 25 June 2018, the plaintiff filed a statement of claim in this Court seeking possession of the property.

24. On 14 August 2018, the first and second defendants filed their defence.

25. On 29 August 2018, the plaintiff filed a reply to the defence.

26. On 26 September 2018, the plaintiff filed a motion seeking default judgment for possession against the third defendant who has not filed a defence in these proceedings.

27. On 7 November 2018, her Honour Justice Lonergan made orders directing the plaintiff and the first and second defendants to engage in mediation by 7 December 2018.

28. The plaintiff contended the first and second defendants failed to respond in any meaningful way to the plaintiff’s repeated attempts to find a suitable date for mediation. There appears to be substance to that submission.

29. On 13 December 2018, the plaintiff filed its evidence in respect of its possession application.

30. The first and second defendants failed to file any evidence in reply by 1 February 2019, as directed by her Honour Justice Lonergan on 7 November 2018.

31. On 21 February 2019, orders were made that the third defendant to give possession of the property to the plaintiff and that he pay $4528.00 in costs.

32. The plaintiff has not received any communications from the first and second defendants in respect of the current motion.

33. As at 26 February 2019, the amount owing on the loan is $1,472,807.43.

34. Mr Khosh is the former solicitor of the first and second defendants. He deposed he is a sole practitioner and does not have any staff other than his partner, Ms Tegan Kelly.

35. Mr Khosh deposed that on 27 October 2018, he and his partner were involved in an incident that resulted in their hospitalisation. Ms Kelly was stabbed. She suffered a traumatic small bowel injury requiring surgical repair. There was a loss of blood. Mr Khosh received an injury to his hand requiring tendon repair. He stated that after the incident he had not been in a position to prosecute the defence because of his personal health and wellbeing to attend to his obligations to his clients and the Court. He offered an apology accordingly. He indicated that he had briefed Mr Simon Lees of counsel to settle a defence and cross-claim. Mr Lees appeared on the adjournment application and the amended motion.

36. Mr Gupta gave evidence that the first and second defendants will file a cross-claim seeking a declaration that the deed and the mortgage were unjust and void pursuant to s 7(1)(b) of the Contracts Review Act.

37. In summary, the plaintiff made the following submissions in opposing the adjournment application:

1. The matter has not progressed since 14 August 2018, when the first and second defendants filed their defence. This is notwithstanding the occurrence of five directions hearings, which set out timetables for, inter alia, the filing of evidence and mediation. Whilst the plaintiff has complied with the Court’s directions, in particular with respect to the filing of evidence, it was contended that the first and second defendants had not complied with any direction since August 2018. (The plaintiff also noted that on one occasion, “they didn't even appear at the directions hearing”).

2. As to the evidence before the Court in support of the adjournment application, the plaintiff submitted that the evidence is “wholly inadequate” to explain the delay. Reliance was placed upon the absence of medical evidence to support the evidence of Mr Khosh as to “the incident”.

3. Further, in relation to the first and second defendant’s newly appointed legal representation, it was contended that the information before the Court, in that respect, is also inadequate: “[t]here's no explanation for their own default or delay”.

38. In my view, the first and second defendants have made out a basis for an adjournment for the following reasons:

1. Whilst I do not consider the circumstances affecting the first and second defendants’ solicitor wholly explain delinquencies with respect to the defence to the statement of claim for possession (or the filing of a cross-claim), they do represent a substantial explanation for the failures, particularly those arriving after 27 October 2018. I do not consider it would be just to sheet home to the first and second defendants failures that lie in substantial measure at the feet of their solicitor. It is not suggested that they were personally responsible for those failure, even though there was a suggestion that there were difficulties in obtaining instructions by virtue of language deficiencies.

2. The prejudice falling upon the first and second defendants if the adjournment application was refused (and the amended motion upheld) is high. The evidence is that the property in question is the family home. The first and second defendants are elderly with no prospect of obtaining another property.

3. That consideration needs to be measured against the modest prejudice to the plaintiff. It is true that the repayment due is reaching a point of equivalence with equity in the home, but the adjournment sought is a relatively short one. More significantly, there are conditions attaching to the adjournment, which arise by virtue of the orders and directions proffered by the first and second defendants, which have the effect of ensuring that the proceedings will move forward with certainty and stability lest they be struck out. There are costs orders made in favour of the plaintiff for costs thrown away.

4. There is an apparent overlap between the proposed amended defence or cross-claim and that which was pleaded in the defence, but, as was submitted by the plaintiff, the defence lacks specificity and there is little before the Court as to the merit of pleadings under the Contracts Review Act.

39. For those reasons, the Court granted the adjournment sought by first and second defendants and subsequently made the orders and directions aforementioned in this judgment.

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Decision last updated: 03 May 2019