QBE Insurance (Australia) Limited v Kalead Etri
[2011] NSWSC 510
•27 May 2011
Supreme Court
New South Wales
Medium Neutral Citation: QBE Insurance (Australia) Limited v Kalead Etri [2011] NSWSC 510 Hearing dates: 27 May 2011 Decision date: 27 May 2011 Before: Bergin CJ in Eq Decision: Leave granted to cross-examine
Catchwords: [Practice and Procedure] - applications to cross-examine defendants in respect of affidavits of discovery filed pursuant to orders for preliminary discovery - policy behind Uniform Civil Procedure Rules for preliminary discovery - whether evidence establishes probability that there are additional documents - prospect that plaintiff in a position to decide to bring proceedings in any event - contemplation of "fraud" claim under s 42 of the Real Property Act 1900 - whether allowing cross-examination consistent with the overriding purpose of the Rules Legislation Cited: Real Property Act 1900
Uniform Civil Procedure Rules 2005Cases Cited: QBE Insurance (Australia) Limited v Kalead Etri [2011] NSWSC 468 Category: Interlocutory applications Parties: QBE Insurance (Australia) Limited (First Plaintiff)
Suncorp-Metway Limited (Second Plaintiff)
Kalead Etri (First Defendant)
Zeina El Sadik (Second Defendant)
Hanan Etri (Third Defendant)
Ausgrow Pty Ltd (Fourth Defendant)File Number(s): 2010/00396682
Judgment - Ex Tempore
The plaintiffs, QBE Insurance (Australia) Limited and Suncorp-Metway Limited, by Notice of Motion filed on 1 March 2011, seek leave to cross-examine the first, second and third defendants (Khaled Etri, Zeina El Sadik and Hanan Etri) on their affidavits verifying Lists of Documents filed pursuant to orders made by McDougall J on 15 December 2010. There was no appearance of the first and second defendants on this application. I am satisfied that they were served with the Notice of Motion.
The third defendant defends the Motion and moves on a Motion filed on 4 April 2011, seeking an order that the preliminary discovery process be terminated forthwith. There are other orders sought in the third defendant's Notice of Motion, but they are not being pressed today. The two motions have been heard together. Mr G Lucarelli appears for the plaintiffs and Mr T Rickard appears for the third defendant.
The background to these applications is set out conveniently in QBE Insurance (Australia) Limited v Kalead Etri [2011] NSWSC 468 as follows:
2 The context in which this application is made is that in December 2010 McDougall J made orders for preliminary discovery against the first, second and third defendants. The third defendant is the sister of the first defendant and the second defendant is the wife of the first defendant. The first and second defendant borrowed money from the second plaintiff, Suncorp-Metway Ltd, and in securing that loan Suncorp-Metway obtained mortgages over two properties that have been referred to in the proceedings as the Berala property and the Auburn property.
3 In June 2009 the loan was in arrears and the amount outstanding was approximately $1.2 million. Negotiations took place between the the first and second defendants and Suncorp-Metway via the solicitors for the first and second defendants, Queen Street Chambers Solicitors & Barristers.
4 The proposal was that Suncorp-Metway would accept either $1.2 million and discharge the mortgages over both the Berala and Auburn properties, or approximately $350,000 in exchange for a discharge of the mortgage over only the Auburn property. It is apparent that agreement was reached whereby $347,000 was to be paid by the first and second defendants for the discharge of the mortgage on the Auburn property but the mortgage would remain on the Berala property.
5 On settlement of the loan in respect of the Auburn property on 24 June 2009, the payment was made by the first and second defendants' agents and the discharge of mortgage was handed over to the defendants' agents by Suncorp-Metway. Unfortunately, and it would appear prima facie inadvertently, the discharge of the mortgage in respect of the Berala property was also handed over to the defendants' agents. The relevant Certificates of Title were also handed over to the first and second defendants' agents. Thereafter the unencumbered Berala property was transferred to the third defendant and a mortgage was registered in the name of Ausgrow Pty Ltd, the fourth defendant. For various reasons that mortgage has now been discharged (it being suggested that the director of Ausgrow knew nothing about that mortgage).
The orders for preliminary discovery that were made by McDougall J relevant to this application include the following:
2.14 All documents referring to the payment of any deposit by Hanan in relation to the purchase of the Property, including (but not limited to) banking records, trust account receipts, copy cheque butts, bank guarantee or deposit bond.
2.15 All documents referring to the payment of any purchase price by Hanan for the purchase of the Property, including (but not limited to) banking records, trust account receipts, settlement statements, copy cheque butts, bank cheque receipts, directions to pay.
2.16 All documents referring to the receipt by the Borrowers of any amount of deposit or purchase price in relation to the sale of the Property to Hanan including (but not limited to) banking records showing funds being deposited, trust account receipts, settlement statements, directions to pay.
...
3. Documents relating to the Ausgrow Mortgage
3.1 All loan applications received by Ausgrow from Hanan or from any broker or other agent acting for Hanan.
3.2 The loan agreement or agreements including letters of offer and any other document referred to therein between Hanan and Ausgrow.
3.3 Any guarantee given by any person or company as security for any loan between Ausgrow and Hanan.
3.4 All documents referring to the intended purpose of any loan by Ausgrow to Hanan.
3.5 All documents relating to the drawdown of any loan from Ausgrow to Hanan including (but not limited to):
(a) loan account statements;
(b) draw down notice or letters confirming drawdown.
3.6. All documents referring to the payment of loan monies to any third person at the direction of Hanan, including (but not limited to):
(a) directions to pay;
(b) settlement instructions;
(c) settlement sheets or reports.
3.7 All documents referring to any repayments made by Hanan or by any person on Hanan's behalf to Ausgrow including (but not limited to):
(a) loan account statements;
(b) arrears notices or demands;
(c) banking records showing deposits.
3.8 All documents containing or referring to any instructions sought from or given by Ausgrow to any solicitors or agents relating to the safe keeping of the certificate of title for the Property.
3.9 All documents containing or referring to any instructions sought from or given by Ausgrow to any solicitors or agents relating to the registration of the Ausgrow Mortgage.
In purported compliance with the orders made by McDougall J, the first defendant filed an affidavit sworn on 28 January 2011 in the following terms:
I say on oath:
1. I am the First defendant.
2. I have made reasonable enquiries as to the existence and location of the documents referred to in the order.
3. I believe that there are no documents (other than excluded documents) falling within any of the classes specified in the order that are, or that within the last 6 months before the commencement of the proceedings have been, in my possession.
4. I believe that the documents in Part 1 of the list are in my possession.
5. I believe that the documents in Part 2 of the list are within the possession of the persons respectively specified in that part.
6. As to documents in Part 2 of the list in respect of which no person is specified, I do not know who possesses these documents.
Part 1 of the List is headed "Documents in possession of First Defendant" and includes two items: two Bank Statements for the period 1 July 2009 to 1 January 2010 and two Council Rate Notices for the period 1 July 2008 to 30 June 2009. The documents in respect of which privilege is claimed are recorded as "Nil". The "Documents in possession of other persons" are also recorded as "Nil". In those circumstances paragraphs 5 and 6 of the affidavit appear to be rather meaningless.
The second defendant swore an identical affidavit on 28 January 2011. However the List records the documents in the possession of the second defendant and the documents in respect of which privilege is claimed as "Nil". It records the documents ("Rates Notices") in the possession of other persons as being with Khaled Etri, the first defendant.
The third defendant swore an undated affidavit. It is in the same terms as the affidavits of the first and second defendantas. The documents in the possession of the third defendant are listed as follows:
Item no.
Nature of document/s
Number of documents in group (if applicable)
Date/period
1
Transfer
1
1/07/2009
2
Bank Statements
1
11/08/07-10/09/07
3
Bank Statements
2
11/06/09-10/07/09
4
Bank Cheque vouchers
2
2/07/2009
5
Bill of Costs - Naef & Associates
1
12/12/2000
6
Settlement Statement
1
15/12/2000
7
Valuation
1
27/06/2009
8
Notice of Sale
1
1/07/2009
9
Certificate of Title
1
26/06/2009
10
Valuation
1
22/06/2009
11
Council Rate Notices
The List records "Nil" documents in respect of any claim for privilege and "Nil" documents in the possession of other persons. In those circumstances paragraphs 5 and 6 of this affidavit appear to rather meaningless.
The third defendant's solicitor provided copies of the documents in the List to the solicitors for the plaintiffs. Those documents included a letter dated 24 June 2009 headed "To whom it may concern" in relation to the Berala property, recording that the approximate selling price would be in the range of $720,000. There is attached to that letter a document that is headed "Market Appraisal" which is stated to have been "Prepared on 29 June 2009", which appears to be the document in support of the letter dated 24 June 2009.
The third defendant's solicitor also produced a copy of the Transfer of the Berala property from the first and second defendants to the third defendant. That document is dated 1 July 2009 and the imprint for duty is dated 1 July 2009, on a dutiable amount of $26,990 on $700,000. There are various other documents produced by the solicitor, including a valuation dated 22 June 2009 said to be for the client Sid Hawach & Associates, Solicitors, in respect of borrowers identified as the first and second defendants. The market value listed in this valuation is $700,000.
The mortgage referred to earlier in this judgment in favour of Ausgrow Pty Limited (Ausgrow) was not listed in the third defendant's List of Documents, however the mortgage is in evidence on this application. It was registered on 29 July 2009. It is not dated. It was purportedly lodged by Ausgrow. Ausgrow is recorded as the mortgagee and Hanan Etri, the third defendant, is recorded as the mortgagor. It is signed for Ausgrow by a person identified as the sole director, Faddoul Faddoul, and by the third defendant.
Annexure A to the mortgage includes the following:
In consideration of the principal sum of Seven Hundred Thousand Dollars ($700,000.00) lent to the Mortgagor by the Mortgagee at the request of the mortgagor.
...
(F) the Mortgagor will make equal monthly principal repayments of $58,333.33 and will pay interest on all monies secured by this mortgage at the rate of 7.5% per anum (the higher rate) on the first day of each month until the principal sum shall be fully paid, the first of such payments calculated from 1 August 2009 to be made on 1 August 2009...
The plaintiffs have issued subpoenas and obtained documents from various entities in support of their applications. They rely upon Exhibit D, which is an affidavit of Joseph Faddoul sworn on 10 December 2010. Mr Faddoul makes claims that : Ausgrow was incorporated on 5 July 2004; he was a director from its date of incorporation to 23 July 2009, when he became ill; on 23 July 2009 Faddoul Faddoul was appointed as the director of Ausgrow; on 23 November 2010 he was well enough to resume his appointment as the sole director; Ausgrow has never traded; it has no record of the mortgage; Joseph Faddoul knows the third defendant to be a mortgage broker, but has had very limited dealings with her or agents acting on her behalf; there are no records or correspondence in Ausgrow's possession showing any communication with the third defendant regarding the mortgage; he was not aware of anyone at Ausgrow executing the mortgage; he made enquiries of Faddoul Faddoul who apparently claims he did not execute the mortgage; Ausgrow has no record of any loan to the third defendant; and there are no records of any transfer of funds to the third defendant.
The plaintiff also relied upon a Statutory Declaration (Ex B) of the first defendant, the terms of which are as follows:
1. On 25 June 2009, I received a telephone call from my solicitor Tom Zreika (of Queen Street Chambers) advising me words to the effect:
a. " Your matter [sale of 351 Chisholm Rd Auburn] has settled but Suncorp has sent me the title over 16 Kingsland Rd Berala. Have you done a deal with them?
2. I responded as following (using words to the effect):
a. "Yes. Don't worry. Just register the discharge and ill come and pick up the title. I have made an agreement with Craig [Stitt] that he will take the rest of his money [full proceeds] from the sale of the Elm Road properties. Craig is happy that we have exchanged on 29 Elm Road."
3. On 26 June 2009, I contacted Tom and asked words to the effect:
a. "Has it registered?"
He replied:
b. "I don't know, I haven't done a search yet."
4. On 27 June 2009, I received a sms text from Mr Zreika stating that my house is unencumbered.
5. Today, I attended Mr Zreika's office, terminated his retainer and uplifted all my personal files from him.
The plaintiffs obtained bank statements (Ex C) on subpoena that show that on 2 July 2009 the third defendant purchased two bank cheques, one for $300,000 and the other for $200,000 both payable to the first and second defendants. The bank statement of the first and second defendants show a deposit into their account of $500,000 on 2 July 2009.
The first and second defendant's bank statements show that in the period 4 July 2009 through to 28 July 2009 the whole of the $500,000 is withdrawn in dollops of $5,000, $9,000, $7,000, and $1,000. The other bank statements of the third defendant show that between 15 July 2009 and 30 December 2009 there is deposited into her account in cash and cheques an amount of $525,800.
The plaintiffs submit that the irresistible inference to be drawn from the evidence relied upon in this application is that there are further documents that have not been discovered and that the defendants have not complied with the orders of McDougall J. It is important in this application to delineate between the entitlement of the plaintiffs to obtain preliminary discovery for the purpose of deciding the nature of the claim to be brought against the defendants and the entitlement of the plaintiffs to press for compliance with the order made by McDougall J for preliminary discovery. It is the latter matter with which I am dealing.
Part 5.3 of the Uniform Civil Procedure Rules provides relevantly as follows:
5.3 Discovery of documents from prospective defendant
(1) If it appears to the court that:
(a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and
(b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and
(c) inspection of such a document would assist the applicant to make the decision concerned,
the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.
The policy reasons behind such a rule include that there should be an orderly process of litigation and to provide parties and their lawyers an opportunity to ensure that litigation is not commenced and costs not incurred, where such process would not be justified. In many cases, where there are complex transactions and multiple prospective parties, the process of preliminary discovery assists with ensuring efficient, cost effective and civilised processes in the court.
In this instance, on one view of the documents already produced and/or subpoenaed, the plaintiff could well be in a position to know that it is entitled to make a claim for relief against the prospective defendants. However Mr Lucarelli submitted that it is the contemplation of a fraud claim, as that expression is used in s 42 of the Real Property Act 1900, that concerns his clients and his solicitors. Notwithstanding that the plaintiff may well be able to identify a cause of action on the documents that it has now gathered from a number of sources, the question on this application is whether the irresistible inference from the evidence is that there are probably further documents to be discovered and the defendants have yet to properly comply with their preliminary discovery obligations under McDougall J's orders.
Mr Rickard submitted that the plaintiffs have misconstrued McDougall J's orders in complaining that the bank statements, to which I have referred, demonstrating the apparent round-robin of payments, were not discovered. Mr Rickard submitted that those bank statements do not properly fall within orders 2.14, 2.15 and 2.16 referred to above. He submitted that McDougall J's orders refer to documents referring to the payment of any deposit or any purchase price by the third defendant and documents referring to the receipt by the first and second defendant of the amounts of the deposit or the purchase price. Technically it seems to me that Mr Rickard is correct. The bank statements of the third defendant's account showing the receipt of $525,800 in the six months after she paid $500,000 to the first and second defendants, are not documents referring to the payment of the purchase price or the payment of the deposit. Certainly the bank statements showing the receipt by the first and second defendants of the $500,000 should have been discovered, because it clearly falls within the terms of 2.16.
The Ausgrow mortgage is another matter. Mr Rickard was critical of the plaintiffs for failing to subpoena Ausgrow for its documents. He submitted that Ausgrow would have all the relevant records in relation to the Ausgrow mortgage and therefore to seek to establish an inference that there would be more records without taking the forensic step of pursuing Ausgrow was inappropriate. It would appear that Joseph Faddoul claims that there are no records and that evidence tends to suggest that there would not be any records with the third defendant and thus there should not be an inference drawn that there has been a failure to comply with McDougall J's orders.
However, on the assumption that Mr Faddoul's evidence is accurate, it would appear that the third defendant has manufactured the mortgage and signed it and gone to the length of calculating monthly repayments to the extent of some thousands of dollars each month and then, it would appear, has had the mortgage registered. If Mr Faddoul's evidence is not accurate and the mortgage was created by Ausgrow the inference is that there would be more documents than have been discovered. The plaintiff would be entitled to subpoena the records of Ausgrow, but I do not see its failure to do so prior to this application as an impediment to its application.
It is to be noted that the third defendant, as a mortgage broker as described by Mr Faddoul and/or as a loans officer as she describes herself in her affidavit, must have known that the mortgage document was a relevant document to be produced. The irresistible inference is that if on one view of the evidence the third defendant manufactured the mortgage document and signed it, there would have been records associated with that creation, either on her computer or elsewhere. On another view of the evidence, if the mortgage was created by Ausgrow, there would most likely be applications and correspondence in, or previously in, the third defendant's possession. There is no evidence before me from the third defendant other than the affidavit verifying the List of Documents.
Mr Rickard submitted that his instructions are that the third defendant accepts that it is her signature on the mortgage. The valuation of $700,000 and the mortgage of $700,000 and the Transfer of $700,000 suggest a purchase price of $700,000. The only transactions that the plaintiffs thus far has been able to track down is for $500,000. A Contract for Sale of the Berala property to the third defendant has not been produced.
The withdrawals identified in the third defendant's bank statement that were made for the purpose of obtaining the two bank cheques are peculiar entries. The account is entitled "Nab FlexiPlus Mortgage". The debit amount on 1 July 2009 was $105.17. The debit amount on 2 July 2009 was $300,213.17. The irresistible inference is that there must be other documents relating to that amount relevant to the payment of the purchase price. It would appear that the National Australia Bank, the third defendant's employer, provided funds to the amount of $300,000 on 2 July 2009. That transaction and any documents relevant to it, would fall within paragraph 2.15, on the presumption that the third defendant would have obtained funds for the "purchase price". No such documents have been produced or referred to in the affidavit of discovery. The same can be said in respect of the entry in the account for the withdrawal of $200,000 on 2 July 2009.
I am satisfied that the irresistible inference to be drawn from this evidence is that there are further documents that must be available, or alternatively were available and are no longer available, to the first, second and third defendants. I am satisfied that in those circumstances the defendants have not complied with their obligations to produce the documents pursuant to the preliminary discovery orders.
Having regard to the fact that it is now 6 months since McDougall J made his orders, I am satisfied that the most efficient process, consistent with the overriding purpose of the rules for the just, quick and cheap resolution of the proceedings, is to grant leave to the plaintiffs to cross-examine the defendants on their affidavits of preliminary discovery on the issue of whether they have complied with their obligations to provide discovery, as ordered by McDougall J.
I grant leave to the plaintiffs to cross-examine the first, second and third defendants on their affidavits verifying their lists of documents filed pursuant to the order made by McDougall J.
I dismiss order 2 sought in the third defendant's Notice of Motion filed on 4 April 2011.
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Decision last updated: 31 May 2011
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