Citadel Property Group (Rockdale No 1) Pty Ltd v Capital Financial Australia Ltd

[2016] NSWSC 890

Supreme Court

New South Wales

Medium Neutral Citation:	Citadel Property Group (Rockdale No 1) Pty Ltd & Ors v Capital Financial Australia Ltd & Ors [2016] NSWSC 890
Hearing dates:	3 June 2016
Date of orders:	29 June 2016
Decision date:	29 June 2016
Jurisdiction:	Equity - Commercial List
Before:	Bergin CJ in Eq
Decision:	1.   The plaintiffs’ applications for an order lifting the stay and for leave to file the proposed pleadings are dismissed.  2.   The proceedings are dismissed for want of due despatch. The Cross-Claim is dismissed.
Catchwords:	PRACTICE AND PROCEDURE – where plaintiffs amend pleadings twice between 2008 and 2010 – where proceedings stayed by reason of plaintiffs’ non- compliance with Order for provision of particulars in respect of second amended pleadings – plaintiffs relist matter in 2016 to seek lifting of stay – defendants bring application for dismissal of proceedings for want of prosecution
Legislation Cited:	Civil Procedure Act 2005 Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005
Cases Cited:	Baffico v YMCA of Great Lakes Inc [2014] NSWCA 61 Bi v Mourad [2010] NSWCA 17 Bishopsgate Insurance Australia Limited (in liquidation) v Deloitte Haskins & Sells [1999] 3 VR 863 Halpin v Lumley General Insurance Ltd [2009] NSWCA 372; (2009) 78 NSWLR 265 Marino Casauria & Ors v John Charles De Kever, Supreme Court of Victoria (unreported, 21 November 1994) Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465; (2013) 93 ACSR 693
Category:	Procedural and other rulings
Parties:	Citadel Property Group (Rockdale No 1) Pty Ltd (1st Plaintiff) Antonio Maiolo (2nd and 3rd Plaintiff)   Capital Financial Australia Limited (1st Defendant) Murray Campbell Smith (2nd Defendant) Joseph David Hayes (3rd Defendant) Steven John Sherman (4th Defendant) Peter James Gothard (5th Defendant) Paul Andrew Billingham (6th Defendant) Peter Grealish (7th Defendant)
Representation:	Counsel: BW Walker SC/AR Vincent (Plaintiffs) A Leopold SC/E Holmes (Defendants)   Solicitors: Salim Rutherford Lawyers (Plaintiffs) Gadens (Defendants)
File Number(s):	2008/290508
Publication restriction:	Nil

Judgment

1. These are competing applications brought in proceedings which were dormant for five years between late 2010 and late 2015.

2. The plaintiffs seek an order lifting a stay of the proceedings and leave to further amend their pleadings.

3. The defendants seek an order that the proceedings be dismissed for want of due despatch pursuant to rule 12.7(1) of the Uniform Civil Procedure Rules 2005 (UCPR).

4. The applications were heard on 3 June 2016 when Mr BW Walker SC, leading Mr AR Vincent, of counsel, appeared for the plaintiffs and Mr A Leopold SC leading Ms E Holmes, of counsel, appeared for the defendants.

Background

5. The plaintiffs, Citadel Property Group (Rockdale No 1) Pty Ltd (Rockdale), Citadel Property Group (Berala) Pty Ltd (Berala) and Shellbridge Pty Ltd (Shellbridge) (together the Companies), were property developers. Berala and Shellbridge are now in liquidation. Antonio Maiolo has been assigned the rights to their causes of action and is named as a plaintiff.

6. Capital Financial Australia Ltd (CFAL) provided loan facilities to the plaintiffs between 2005 and 2007 for the development of the properties in Liverpool, Berala and Rockdale.

The loan facilities

7. CFAL provided a facility of $18,162,000 to Shellbridge in September 2014 (the Shellbridge Facility) for the refinancing of an existing loan and the funding of the construction of 54 residential apartments, 2 commercial units and car parking for 67 vehicles at 572-578 Princess Highway, Rockdale NSW. The Shellbridge Facility was secured by a mortgage over the Rockdale property and a fixed and floating charge over the assets of the company. There was also a guarantee provided to CFAL by Mr Maiolo.

8. CFAL provided two facilities (one for $29,707,000 and another for $3,750,000) to Berala in August 2005 (the Berala Facilities) for the refinancing of an existing facility and the development of 90 residential apartments and nine commercial/retail units at 1-20 Woodburn Road, Berala NSW. The Berala Facilities were secured by two mortgages over the Berala property, a fixed and floating charge and a guarantee by Mr Maiolo.

9. CFAL provided two facilities (one for $5,800,000 and another for $32,203,155) to Rockdale in March 2006 and January 2007 respectively (the Rockdale Facilities) for the funding of the acquisition and development of a mixed commercial, retail and residential site at 311 Hume Highway, Liverpool NSW. The Rockdale Facilities were secured by a mortgage over the Liverpool property, a fixed and floating charge and a guarantee by Mr Maiolo.

10. As at January 2007 CFAL had provided Facilities totalling about $90 million to the Companies. These facilities were cross-collateralised under a Deed of Cross-Collateralisation (DCC) dated 1 February 2007, so that each Company was liable for the repayment obligations of the other Companies under their respective Facilities.

11. On 29 August 2007 (and on two subsequent occasions) CFAL gave each of the Companies a Notice of Default alleging that Events of Default had taken place under the relevant Facilities. CFAL refused to provide any further funding and refused all drawdown attempts by the Companies. CFAL then sought to exercise its rights under the securities that had been provided by the Companies to it in respect of the Facilities. On 29 September 2008 CFAL appointed Receivers and Managers in respect of the assets of each of the Companies. The Receivers and Managers are the second to seventh defendants.

Proceedings commenced – 3 October 2008

12. On 3 October 2008 the plaintiffs commenced the proceedings by the filing of a Summons and Commercial List Statement (CLS).

13. The plaintiffs claimed that they were not guilty of any Events of Default and made various claims in support of an application for a declaration to that effect. The plaintiffs claimed that CFAL was in breach of its contracts with each of the Companies in failing to provide the funding as agreed. The plaintiffs also alleged that CFAL had made numerous representations upon which each of the plaintiffs had relied to their detriment. The plaintiffs further claimed that CFAL was estopped from relying upon its legal rights in respect of each of the Facilities.

14. The plaintiffs made claims for specific performance of the Facility agreements. They alleged that CFAL had made misleading and deceptive representations, both orally and in writing and claimed damages for alleged breaches of the Trade Practices Act 1974 (Cth) (TPA) and the Fair Trading Act 1987 (FTA). The plaintiffs also claimed that the appointment of the Receivers and Managers was invalid and that they had taken possession of the securities without an entitlement to do so. They also claimed that CFAL had prevented Shellbridge from reducing the amount owed under its Facility to $7.8 million.

Security for costs – November 2008

15. CFAL promptly sought security for costs. On 12 November 2008 McDougall J declined to make an order for security for costs. CFAL appealed that refusal and the Court of Appeal allowed CFAL to seek security for costs for the plaintiffs’ claims which were not defensive (ie, the damages arising from the plaintiffs’ inability to pursue future development projects).

Cross-claim – 13 February 2009

16. CFAL filed a First Cross-Claim on 13 February 2009 seeking entry of judgment against Mr Maiolo pursuant to the guarantees that he had provided. On 9 April 2009 Mr Maiolo filed a Defence to the First Cross-Claim denying the indebtedness of the Companies and reasserting the contentions made in the CLS.

First amendment – 4 May 2009

17. On 4 May 2009 the plaintiffs filed an Amended Summons and an Amended Commercial List Statement. The relevant amendments included a contention that the plaintiffs were in a position of vulnerability and/or special disadvantage and that CFAL’s conduct in the circumstances was unconscionable. The plaintiffs also pleaded additional representations upon which they relied in respect of their estoppel claim. They also introduced a claim that the parties were in a fiduciary relationship and that the conduct pleaded against CFAL was in breach of its fiduciary obligations to the plaintiffs. The plaintiffs also claimed that CFAL impeded the settlement of some of the sales of lots in the property developed by Shellbridge. A separate claim was raised in respect of Shellbridge in relation to the DCC.

18. The plaintiffs also introduced a very serious claim alleging that a CFAL employee had developed an intense and/or personal dislike for Mr Maiolo which motivated the employee to act against each of the plaintiffs to terminate the Facilities.

Second amendment – 23 February 2010

19. On 23 February 2010 the plaintiffs filed a Further Amended Commercial List Statement. On 7 May 2010 they filed a Further Amended Summons. It is apparent that by this time Berala was in liquidation. It was at this time that Mr Maiolo was made second plaintiff in respect of Berala’s causes of action.

20. The plaintiffs’ amendments included an express claim for loss or damage in relation to the breach of contract claim. The plaintiffs made an alternative claim that the CFAL employee against whom they had made allegations of misconduct in the First Amendment had also misconducted himself by deliberately bringing about (or seeking to bring about) the termination of the Facilities with the plaintiffs for his own financial benefit. The plaintiffs alleged that such conduct was unfair and unconscientious and it would otherwise be unconscionable for CFAL to refuse to allow the plaintiffs to draw on the Facilities and to refuse to take steps to facilitate the settlement of the sales of the various properties as developed.

Service of evidence

21. In October and November 2009 the plaintiffs filed and served their lay evidence consisting of the affidavits of Antonio Maiolo sworn on 3 October 2009 and 21 October 2009; Anthony Mizzi sworn on 19 October 2009; and David Brodie sworn on 6 November 2009. Mr Mizzi was the CFAL account manager for the plaintiffs until July 2007 when Mr Robert Lemon took over that role. Mr Mizzi reported to Mr Lemon and Mr Brett Lennane.

22. In November 2009 the plaintiffs served an expert report of Walter Dobrow, a registered valuer, in respect of the loss that the plaintiffs claimed they had suffered as a result of CFAL’s conduct. This report quantified the alleged loss of profits on sales of residential and commercial units in respect of each development at about $126.2 million.

23. In November 2009 the plaintiffs also served an expert report of Mr Stephen Batger, a quantity surveyor, dealing with the costs that the plaintiffs would have incurred in completing the Liverpool and Berala developments.

24. In late 2009 and early 2010 CFAL retained Mr Wayne Wotton, a registered valuer, and Mr John Meredith, a quantity surveyor, to review Mr Dobrow’s report and Mr Batger’s report.

25. In February 2010 the plaintiffs served a second report of Mr Dobrow which quantified the plaintiffs’ alleged loss of opportunity to enter into or pursue three new projects at about $138.8 million.

26. CFAL served evidence in reply consisting of Mr Lemon’s affidavit sworn on 17 May 2010 and Peter Grealish’s affidavit sworn on 31 August 2010.

The stay order – May 2010

27. On 19 April 2010 the defendants filed a Notice of Motion seeking, inter alia, discovery, security for costs and the provision of particulars in respect of CFAL’s conduct allegedly preventing Shellbridge from reducing its debt under the Shellbridge Facility to $7.8 million.

28. On 12 May 2010 orders were made staying the proceedings until the plaintiffs provided security, particulars and discovery. Those orders included the following:

7.   The Plaintiffs are to produce to the defendants by 14 May 2010 copies of all documents in the possession, custody or control of the plaintiffs or [various Citadel Companies] relating to the proposed development of the land referred to in the report of Walter Dobrow dated 18 February 2010 and paragraph 257 of the affidavit of Antonio Maiolo sworn 21 October 2009 including, but not limited to, all applications for finance; all offers of finance; all option agreements, evidence of the exercise, extension, lapsing, assignment or transfer of the options, and all contracts, settlement sheets, transfers and evidence of payment of option fees, deposits or sale prices and all documents relating to proposals for the development of the land and any work done in respect of the development of the land and any sale or proposed sale of the land.

8.   The Plaintiffs are to provide by 14 May 2010 in respect of each unit/lot number at the Shellbridge Property which is the subject of any of the claims made in paragraphs 219(a), 226, 239D(q) and 239G(q) of the Further Amended Commercial List Statement particulars of:

(a)   when it is alleged each of the sales were to settle;

(b)   when it is alleged that the first defendant refused to settle each sale;

(c)   what constituted each refusal and who from the first defendant is alleged to have engaged in the conduct;

(d)   whether any of the sales identified are alleged never to have occurred;

(e)   how the conduct is said to have prevented the third plaintiff [Shellbridge] from reducing the loan balance down to $7.8 million; and

(f)   the loss and damage alleged to flow from the conduct.

…

10.   The proceedings be stayed pending the provision of the documents referred to in paragraph 7 of the particulars referred to in paragraph 8.

29. On 14 May 2010 the plaintiffs’ solicitors wrote to CFAL’s solicitors advising as follows:

In accordance with Order 7, the documents relating to the proposed development of land referred to in the report of Walter Dobrow dated 18 February 2010 and paragraph 257 of the affidavit of Antonio Maiolo sworn 21 October 2009 are available for inspection in our offices.

Could you please let us know when you wish to attend our offices to inspect the documents.

30. On 18 May 2010 the plaintiffs provided security in the sum of $130,000.

31. On 1 June 2010 CFAL’s solicitors wrote to the plaintiffs’ solicitors in terms that included the following:

I refer to orders 7 (future projects documents) and 9 (security) from 12 May 2010.

In relation to the documents, it would be inappropriate to review them until the stay has been lifted.

32. On 1 June 2010 the plaintiffs’ solicitors wrote to CFAL’s solicitors in response to their email of 1 June 2010 in terms that included the following:

The documents have been available for inspection since 14 May 2010. It is not ‘inappropriate to review them until the stay is lifted’. You will need to review the documents and form your own view as to whether they have been make (sic) available for inspection previously.

Security has been lodged. Attached is a copy of the bank guarantees.

We note that you have previously indicated that your clients’ evidence has been commenced and nearing completion. There is no reason for your client not to be finalising its evidence. Our client reserves its right to seek orders that your client to file and serve its evidence within 1 week of receipt of the particulars.

Purported compliance with Order 8

33. On 29 October 2010 the plaintiffs’ solicitors wrote to CFAL’s solicitors purportedly providing the particulars the subject of Order 8 made on 12 May 2010. The particulars provided in relation to Order 8(c) in respect of each of the properties the subject of the litigation was as follows:

The refusal was constituted by the First Defendant’s refusal to permit the settlement of the sale. Those whom it is alleged engaged in the conduct included Brett Lenane of the First Defendant.

34. On 4 November 2010 CFAL’s solicitors wrote to the plaintiffs’ solicitors contending that the particulars were incomplete and did not fully comply with the orders made on 12 May 2010.

35. On 10 November 2010 the plaintiffs’ solicitors purported to provide a further response in respect of Order 8(c) as follows:

As concerns Order 8(c), proper particulars have been provided to your client to enable it to understand the case it has to meet. The information which you seek is evidence. In any event, and without prejudice to our clients’ assertion that the information you seek does not constitute a proper request for particulars, we are instructed that:

(a)   The conduct which constituted each refusal to permit the settlement of the sales was that no contact was made by CFAL to arrange for the booking of the settlements in respect of each sale at the earliest possible date for settlement under the relevant sale contract or in respect of the sales advice.

(b)   Mr Maiolo, on behalf of the Third Plaintiff, was informed by Mr Mizzi on a number of occasions that Brett Lennane at the First Defendant was not permitting sales of units at the Shellbridge Property to settle. There were ongoing discussions between Mr Maiolo and Mr Mizzi about the fact that settlements were not occurring and there is email correspondence to this effect, of which we are sure that you are aware.

(c)   After Mr Mizzi left the employ of the First Defendant it was usually Mr Bob Lemon or other representatives of the First Defendant who informed Mr Maiolo or the Plaintiffs’ representatives that a relevant settlement was not to occur or was to be delayed. Our client is presently unable to identify who beyond Brett Lennane may have been involved in the relevant refusal to settle property however such information is entirely within the knowledge of the First Defendant.

36. On 16 November 2010 CFAL’s solicitors wrote to the plaintiffs’ solicitors making no complaint about the information provided in respect of Order 8(c) but seeking clarification of the basis upon which the plaintiffs alleged the loan balance could have been reduced to $7.8 million. That letter included the following:

Pursuant to order 8(e) of the orders made by Einstein J on 12 May 2010, your clients were required to provide particulars of how the conduct is said to have prevented the third plaintiff from reducing the loan balance down to $7.8M.

You allege that Capital is aware of the sale price of each unit and that, accordingly, it should be “more than capable of doing the relevant mathematics”.

We deny that this is the case. Since the sale contracts being put forward by your client at that time had rebates, it is not clear to us how much your client maintains the loan balance would have been reduced down to $7.8M in the absence of the alleged conduct.

Further our preliminary view is that using the figures you provided, the loan balance in fact will not be reduced to $7.8M.

Accordingly, our client presses for the calculations of how it is alleged the loan balance would have been reduced down to $7.8M. Further our client also seeks confirmation that it is still your client’s case that based on those sales set out in your letter of 29 October 2010 settling when your client alleges they ought to have – the result would have been a reduction of the loan balance to $7.8M.

37. There was no response to CFAL’s solicitors’ letter of 16 November 2010.

2011 to 2015

38. By May 2011 CFAL had prepared draft affidavits from Mr George Prokojes, Mr Lennane, and Mr David Murray-Knobs. However there was no communication of this fact to the plaintiffs.

39. On 7 January 2013 CFAL’s solicitors wrote to the plaintiffs’ solicitors referring to the fact that they had not received a response to their letter of 16 November 2010; maintaining their claim that the plaintiffs had not complied with Order 8; and contending that “the position remains that the proceedings are stayed”. There was no response to this letter.

40. On 18 December 2015 the plaintiffs’ solicitors wrote to CFAL’s solicitors referring to the orders made on 12 May 2010 and the correspondence between the parties in October and November 2010. The plaintiffs’ solicitors advised that they had become aware that further sales had been delayed and purported to provide further particulars in respect of those delayed sales. The particulars purportedly provided in accordance with Order 8(c) were in similar terms to the earlier particulars. They included the following in respect of Order 8(c):

The refusal was constituted by the First Defendant’s refusal to permit the settlement of the sale. Those whom it is alleged engaged in the conduct included Brett Lenane of the First Defendant.

41. The plaintiffs’ solicitors advised that they would have the matter relisted for orders to “further progress” the matter.

Revival of the matter - 2016

42. On 1 February 2016 the plaintiffs’ solicitors wrote by email to the Associate to the List Judge with a copy to CFAL’s solicitors referring to the history of the matter. The email also included the following:

That correspondence continued until recently (mainly the end of 2015) at which time the plaintiffs sought to have the matter re-listed for argument on the lifting of the stay.

The delay in re-listing the matter has also arisen from the admitted impecuniosity of the plaintiffs where the plaintiffs have only recently been in funds to be able to address further concerns of the defendant in respect of the particulars and have thus now sought to re-list the matter.

43. The matter was relisted on 19 February 2016 when orders were made for the plaintiffs to file and serve any evidence relevant to the issue of whether the stay should be lifted. It is apparent that no formal Motion was filed for an order lifting the stay. An order was made that the defendants file and serve the present Notice of Motion for the dismissal of the proceedings.

Proposed further amendments

44. During the hearing on 3 June 2016 the plaintiffs handed up a Draft Second Further Amended Summons (Draft AS) and a Draft Second Further Amended Commercial List Statement (Draft CLS). Although the plaintiffs propose to maintain their allegations in the Draft CLS in respect of the alleged Events of Default and their claims that CFAL is estopped from relying upon those Events of Default, they propose an abandonment of their claims for declarations that they had not committed the alleged Events of Default.

45. The plaintiffs also propose to abandon the claims of special disadvantage, the existence of a fiduciary relationship and alleged breaches of fiduciary obligations. They also propose to abandon the very serious claims in relation to the CFAL employee acting for personal gain and the claim that CFAL impeded or refused to allow the settlements of various sales. Although it is proposed in the Draft AS to abandon the declaration that the Receivers and Managers were not validly appointed, the Draft CLS still contains a contention that the Receivers and Managers had no entitlement to take possession of the companies’ assets. As Shellbridge is now in liquidation the Draft CLS names Mr Maiolo in its place.

Evidence on the applications

46. In support of their applications the plaintiffs relied upon the affidavit of Antonio Maiolo sworn on 22 April 2016. In support of its application CFAL relied upon the affidavit of Justin Bates sworn on 24 March 2016.

47. Mr Maiolo’s affidavit includes a claim that in the period following the orders made in May 2010 he was not aware that CFAL asserted that the proceedings should be dismissed for want of prosecution until 4 February 2016. He also claimed that he was not aware that CFAL asserted that they were suffering from any prejudice in the preparation of the proceedings until that time.

48. Mr Maiolo expressed the concern that if the proceedings were to be dismissed the issues raised by the plaintiffs in the dismissed proceedings would be litigated in CFAL’s Cross-Claim on the mortgages including claims against him as surety. Mr Maiolo claimed that the plaintiffs would not have the ability to agitate their damages claims by virtue of the expiration of the relevant limitation periods despite CFAL being able to agitate the claims under the mortgages. This is no longer an issue because CFAL has undertaken that if the proceedings are dismissed they will not proceed with any claims against the plaintiffs or Mr Maiolo in respect of the mortgages (tr 15).

49. Mr Maiolo gave no explanation for the delay of almost 6 years before seeking to revive the proceedings.

50. In his affidavit Mr Bates dealt with the evidence CFAL had proposed calling from Mr Prokojes, Mr Lennane and Mr Murray-Knobs. Mr Prokojes’ proposed evidence is in relation to the period after the Notices of Default were issued to the plaintiffs in August 2007 and in particular the decision to allow the plaintiffs until March 2008 to refinance the Facilities. It is suggested that his evidence is important because it concerns the commercial compromise that was put by CFAL to the plaintiffs in early to mid-2008 and the decision to appoint Receivers.

51. Mr Prokojes is apparently retired and lives in Perth. He has indicated that his present recollection of the matter is not strong and would need to re-familiarise himself to be in a position to provide the evidence that CFAL seeks. He has also indicated that he will require payment for his time at a rate commensurate with other principal witnesses.

52. The evidence of Mr Lennane is said to be important because he played a significant role in CFAL’s decision to call the defaults under the respective Facilities and to allow the period of time for refinancing and the ultimate decision to appoint the Receivers. His proposed evidence also relates to the decision that CFAL took in deciding not to continue its funding of the Berala and Liverpool developments.

53. Mr Lennane is now working for BRI Ferrier. He has indicated that he would be willing to provide evidence so long as he is paid at an hourly rate of between $300 and $400 and that two other payments are made in respect of his previous relationship with CFAL.

54. The proposed evidence from Mr Murray-Knobs, who is a partner at Kemp Strang in Sydney, relates to the preparation of the security documents and the review of the pre-sale contracts. It is apparent that Mr Murray-Knobs would provide mainly documentary evidence.

55. CFAL claims that the prejudice that has resulted from the delay and the failure of the plaintiffs to prosecute the proceedings with due despatch is that a number of important witnesses no longer recall or have a good recollection of relevant events and that significant costs will be incurred by it as a result of having to compensate witnesses for their time, re-familiarising themselves with the files, instructing new counsel and re-instructing experts. One of the reasons that CFAL would have to instruct new counsel is that its previous silk has retired from the Bar.

56. Mr Bates arranged for a solicitor within his firm to attend the plaintiffs’ solicitors’ offices on 15 March 2016 to conduct a preliminary inspection of the documents that had been available for inspection since 14 May 2010. The documents apparently comprise six boxes each containing four to five folders. In addition there are five electronic folders of documents on a USB stick relating to locations at Caringbah, Fairfield, Kogarah and Kurnell.

57. Mr Bates claims that these documents will need to be reviewed in the light of Mr Dobrow’s report and will then have to be provided to CFAL’s experts. Mr Bates candidly concedes that until he or his firm has had an opportunity to review the documents he cannot say whether or not CFAL is prejudiced by this lengthy delay on this particular aspect of the matter. However Mr Bates makes the point that there are examples of documents in the material that suggest that further enquiries would have to be made. For instance the Caringbah future project was dependent upon the local council selling land to the plaintiffs. It is not known whether six years later the documents relating to this aspect of the matter still exist. A further example in relation to the Fairfield Heights future project involved the redevelopment of a shopping centre. Mr Bates claims that CFAL may wish to test whether the leases for the existing tenants had demolition clauses and whether those tenants with unexpired fixed term leases were in negotiations to bring the lease to an end prematurely.

58. Mr Bates also gave evidence that it is important to CFAL’s defence to investigate the extent to which any equity in the Rockdale, Liverpool and Berala developments would have been available for any future projects. This may involve issuing subpoenas to third parties (such as the unit holders or shareholders of the plaintiffs and their respective accountants) for records relating to their own financial circumstances and whether any equity could in fact be used for the other projects. Mr Bates expressed the view that it was reasonably likely that such lines of inquiry would no longer be available as a result of the destruction of documents over the course of time and the inevitable memory lapse which potential witnesses are likely to have experienced.

59. Mr Bates also addressed the plaintiffs’ allegations that CFAL impeded settlement of the sales of various parts of the projects. CFAL identified that Shellbridge was using rebates in its sale contracts which had not been disclosed to CFAL at the time its solicitors vetted the presale contracts. CFAL was concerned that this practice may have misled prospective purchasers and their financiers. CFAL requested that Shellbridge provide written confirmation from the purchasers’ solicitors that the rebate had been disclosed to the incoming financier. Mr Bates claimed that to the extent that Shellbridge may be able to demonstrate that CFAL failed to attend any scheduled settlement, it will be necessary to investigate whether the delay was due to the sale contract containing a rebate clause and whether CFAL had requested, but not received, the written confirmation from the purchasers’ solicitors. Mr Bates claimed that at this stage CFAL is unable to properly investigate this matter until Shellbridge provides details of the communications relating to the setting up of the various settlements and what is alleged to have occurred in respect of the settlements going off.

60. Mr Bates also made the point that it will be important for CFAL to have access to the files of the various solicitors who acted for the purchasers of the properties the subject of the plaintiffs’ claims to ascertain whether they were ready to proceed on the settlement dates for the sales; and if CFAL did in fact refuse to attend settlement, the reasons for such conduct including whether it was justified in doing so because the contracts contained a rebate clause. Mr Bates expressed concern about CFAL’s capacity to pursue this line of inquiry because the relevant files are no longer located with the various solicitors with whom contact has been made. Mr Bates’ evidence establishes that two of the files in respect of 14 sales have now been destroyed.

61. Mr Bates also calculated the costs that have been paid in the proceedings since May 2010. He claimed that much of the work that was done for which CFAL has had to pay will be lost because new counsel will have to be briefed and CFAL will have to re-acquaint itself with the issues and pursue lines of inquiry which will be far more difficult so many years later. Mr Bates claimed that $124,000 will be thrown away if CFAL has to now defend the proceedings.

Consideration

62. The plaintiffs’ description of the proceedings as being of “striking antiquity” does not expose the reality of unexplained and inexcusable breaches of an order of the Court over a period of five and a half years. The plaintiffs made very serious allegations against CFAL and one of its employees. They claimed that CFAL had refused to settle sales of the properties developed by the plaintiffs. In purported compliance with Order 8 the plaintiffs claimed that CFAL’s “refusal was constituted by their refusal to permit the settlement of the sale”. This was not proper compliance with the Order and a stay was therefore in place as and from 12 May 2010.

63. The proceedings were commenced in 2008 in respect of conduct and conversations that allegedly occurred in 2006 and 2007. Ten years after the alleged conduct and conversations and six years after the order staying the proceedings was made, the plaintiffs have decided that they wish to drop some of the very serious claims against CFAL and its employee and seek the exercise of discretion in their favour to lift the stay, dismiss CFAL’s application for dismissal for want of due despatch and allow the proposed amendments. The proposed amendments in what the plaintiffs have described as their “stripped down” case would obviate the need for the particulars and would bring an end to their continuing breach of Order 8. This is all done without any evidence of why it has taken them so long to make this decision and without any evidence of the existence of any impediment to the making of this decision earlier.

64. These are rare circumstances in the context of modern litigation, where there is a statutory expectation of the speedy resolution of commercial disputes. The courts and the parties have an obligation to conduct litigation to achieve the objective of the just, quick and cheap resolution of the real issues in dispute between the parties whilst ensuring that the substantive rights of the parties are recognised: Halpin v Lumley General Insurance Ltd [2009] NSWCA 372 (2009) 78 NSWLR 265 per Sackville AJA at [90]-[91], with whom Tobias JA and Basten JA (writing separately) agreed: Civil Procedure Act 2005 s 56 (CPA); Practice Note SC Eq 3. An application for dismissal of proceedings for want of due despatch must be considered within the statutory framework of ss 56 to 61 of the CPA. Compliance with these provisions of the CPA is “vital for the provision of timely individual justice”: Bi v Mourad [2010] NSWCA 17 per Allsop P, at [47]. However there must be a proportionate response to non-compliance and consideration should be given to possible alternatives before deciding as “the last resort” to dismiss the proceedings: Baffico v YMCA of Great Lakes Inc [2014] NSWCA 61.

65. Although the present circumstances are rare under this modern regime, CFAL referred to a decision in a case heard well before the enactment of the CPA. In Marino Casauria & Ors v John Charles De Kever, Supreme Court of Victoria (unreported, 21 November 1994), an appeal from the decision of a Master that proceedings be dismissed for want of prosecution, Hayne J identified “delay; reasons, if any, for the delay and prejudice” as matters that required attention. In that case the delay was described as having been “very long” and it was not in issue that the proceedings could not have been heard until more than twelve years after the events in question and six and a half to seven years after the action was first instituted. His Honour noted that a plaintiff may wait until close to the end of a limitation period before instituting proceedings and that such delay “of itself” cannot constitute inordinate delay.

66. Hayne J also noted the observation of the Full Court of the Supreme Court of Victoria in Bishopsgate Insurance Australia Limited (in liquidation) v Deloitte Haskins & Sells [1999] 3 VR 863 that where a plaintiff has waited until close to the end of the limitation period to commence proceedings “they are obliged to move with greater speed”; and to justify dismissal of an action for want of prosecution some prejudice additional to that inevitably flowing from such delay must be shown. In this regard Hayne J said that the Court should look to prejudice, not only past, but also present and future (at 11) and said (at 14):

It is however inevitable, in my view, that memories fade over time and that 11 or 12 years after the events occurred evidence to be given at trial is less reliable than it would be had it been given closer to the events concerned. I am of the view therefore that it is inevitable that there is some prejudice to the defendants in the conducting of their case at trial which follows from the bare fact of the passage of the time that has gone.

67. His Honour also said (at 16):

There is prejudice at trial occasioned by the bare fact of the effluxion of so much time as has passed. But there is also prejudice, prejudice which in my view is severe, from the bare fact of a long delay in bringing to trial a claim of professional negligence, leaving serious allegations of incompetence over the heads of the defendants for so long. Especially is this so where the action arises from events so long ago.

68. In the present case the plaintiffs made a very serious allegation against a CFAL employee that he had not only taken a personal dislike to Mr Maiolo but had also acted for his own personal financial gain. That claim has hung over the head of that person, albeit not a separate party to the proceedings but named in the pleadings, for the last six years. There are also allegations of improper conduct (taking possession of assets without an entitlement to do so) hanging over the heads of the Receivers and Managers named as defendants.

69. Mr Maiolo provided no explanation as to why he did not cause the plaintiffs to make an application to have the stay lifted or to comply with Order 8 prior to February 2016. Nor was there any explanation for the plaintiffs’ capitulation in respect of the claims that are no longer in the proposed pleading. CFAL submitted that in the absence of any explanation there should be an inference drawn that there is no adequate reason for the delay. CFAL also relies upon the fact that during this period of delay Mr Maiolo was litigating in this Court in respect of a development of a property in Liverpool, seeking to have a winding up of the company that owned the property terminated: Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465; (2013) 93 ACSR 693. In reliance on passages in the judgment, CFAL pointed out that Mr Maiolo negotiated funding so that $2.78 million was paid into his solicitors’ trust accounts allowing bank cheques and trust cheques to be drawn which would, after termination of the winding up, be provided to the existing creditors for specified amounts (at [12]). It appears that Mr Maiolo gave evidence that if the Court made an order terminating the winding up the company he would be reinstated as trustee of the trust that owned the property and would either sell the property or seek to develop it. The application to terminate the winding up was unsuccessful.

70. CFAL submitted that the absence of any explanation for the delay is compounded by the plaintiffs’ conduct in “snubbing” the process of the Court in this litigation whilst finding time to conduct the Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) proceedings. It was submitted that this shows a contemptuous attitude towards the processes of the Court undeserving of a favourable exercise of discretion.

71. Mr Maiolo sought to take advantage of CFAL’s inactivity in failing to make an application to have the proceedings dismissed until the plaintiffs made their application for the stay to be lifted in February 2016. The statutory framework within which these applications are to be decided does not endorse success for a plaintiff who sits on its hands for six years simply because a defendant also sits on its hands.

72. The question of whether an explanation is called for will depend upon the nature of the application and the circumstances of the particular case. I am satisfied that in the circumstances of this case there should have been an explanation of why the plaintiffs left the proceedings in abeyance for so many years. None was given and I agree with CFAL’s submissions that it should be inferred that there is no explanation available to the plaintiffs that could justify such a delay.

73. It is necessary to consider the prejudice to the respective parties should an order be made against them. If CFAL’s application succeeds the plaintiffs lose their rights to bring their action to Court because the claims will be statute-barred. If the plaintiffs’ applications succeed CFAL then has to attempt to meet a case with all of the problems that have been identified in Mr Bates’ evidence. I am satisfied that these are not matters that can be cured by a costs order. The loss of documents and the diminishing memories of the proposed witnesses, who provided affidavit evidence seven years ago and by the time the trial gets on, possibly eight years ago, are matters of severe and in my view irreparable and unfair prejudice.

68. I am not persuaded by the plaintiffs’ submission that the “stripped-down case” reduces the prejudice to a tolerable level. The forensic strategy of abandoning numerous claims in the proposed pleading does not ease the burden placed on CFAL or the prejudice to which Mr Bates referred. True it is that it will not be necessary to review the various files relating to the purchases that were said to have been impeded or prevented by CFAL. However the claims that the plaintiffs propose to bring in the amended pleading, if permitted, still depend upon alleged representations made many years ago. Some are oral, others are in writing. Some of those oral representations were allegedly made in late December 2006. Others were allegedly made in early 2007. Witnesses will have to recall what was said and done at least eleven or twelve years ago. They will have to revisit the circumstances of the events relied upon in the plaintiffs’ estoppel claims and make inquiries where the trail has gone cold with the real prospect of documents having been destroyed.

69. I do not regard the fact that CFAL may have a costs burden in respect of the proposed witnesses that was not present in earlier years as a strong factor in favour of acceding to its application. I am also conscious of Mr Bates’ candour in expressing his uncertainty about the documents that have been made available for inspection.

70. Mr Maiolo made a point in his affidavit that notwithstanding the plaintiffs making the documents available for inspection pursuant to Order 7 in May 2010, CFAL refused to inspect them whilst the stay was in place. It seemed that this was a point made in criticism of CFAL’s solicitors’ conduct. I do not regard such conduct as warranting criticism. The forensic strategy that the plaintiffs adopted in refusing to comply with Order 8 and compounding that refusal by the repetition of non-compliant particulars some years later entitled CFAL to take the protection of the stay of the proceedings. It was entitled to deploy the existence of the stay to attempt to persuade the plaintiffs to comply with their obligations under Order 8. This of course was in vain.

71. One of the matters that the plaintiffs were to rely upon in resisting CFAL’s application for dismissal was the prospect that the plaintiffs would be shut out from litigating matters that CFAL would then be entitled to litigate in its favour in the Cross-Claim. However the plaintiffs accepted that this very strong argument was forensically reversed when CFAL announced its undertaking not to pursue the Cross-Claim, if the main proceedings are dismissed. The outstanding loans have not been repaid. CFAL’s undertaking will release Mr Maiolo from any liability under the guarantees.

72. The manner in which the plaintiffs have approached this litigation is inconsistent with the objects of the CPA. As parties to the litigation, they owed a duty to the Court under the CPA to comply with the orders of the Court. Their conduct in failing to comply with Order 8 and in turning their backs on the litigation for nearly six years causing serious, irreparable and unfair prejudice to the defendants, combined with an expectation that the Court will allow them to proceed in circumstances where no explanation is given for the continued breach or the delay is undeserving of an exercise of discretion in their favour. Such conduct is unacceptable for litigants who have obligations under s 56(3) of the CPA owed to this Court.

73. Breaches of court orders and failures to comply with duties to litigate with the objective of achieving the just, quick and cheap resolution of the real issues in dispute cannot in this case be assuaged by the payment of money in the form of a costs order where irreparable and unfair prejudice has been caused by those breaches and failures. It is imperative that public confidence in the judicial system be maintained by making sure that there is justice for all parties.

74. I am satisfied that justice to all parties in these circumstances is best served by the dismissal of the proceedings including the Cross-Claim.

Conclusion

81. The plaintiffs’ applications for the lifting of the stay and for leave to file the proposed pleadings are dismissed.

82. The proceedings are dismissed for want of due despatch. The Cross-Claim is dismissed. If the parties are unable to agree on a costs order they may file written submissions with my Associate by no later than 11 July 2016 and the issue of costs will be determined on the papers.

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Decision last updated: 29 June 2016