Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd (No 2)

[2023] NSWSC 141

Supreme Court

New South Wales

Medium Neutral Citation:

Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd (No 2) [2023] NSWSC 141

Hearing dates:

25 November 2022

Date of orders:

27 February 2023

Decision date:

27 February 2023

Jurisdiction:

Equity

Before:

Robb J

Decision:

(1) The plaintiffs’ notice of motion filed on 8 April 2022 is dismissed.

(2) The plaintiffs must pay the eighth and ninth defendants’ costs as respondents to the notice of motion.

(3) The parties who will contest the separate question the subject of order 7 made by the Court on 27 April 2021 are directed to confer and to submit draft short minutes of order to the Associate to Robb J to deal with the future case management of the separate question.

Catchwords:

CIVIL PROCEDURE — pleadings — amendment — late application for amendment — where

plaintiff’s application for leave to file amended pleadings and join tenth defendant made unjustifiably late

Legislation Cited:

Land Titles Act 1925 (ACT), ss 94 and 95

Cases Cited:

Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27

Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44

Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd [2022] NSWSC 519

Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25

Category:

Procedural rulings

Parties:

Reliance Financial Service Pty Ltd (First Plaintiff)
Nancy Morvillo (Second Plaintiff)
Marginata Securities Pty Ltd (Third Plaintiff)
Accolade Advisory Pty Ltd (Fourth Plaintiff)

Antalija Developments No 4 Pty Ltd (First Defendant)
Antalija Constructions Pty Ltd (Second Defendant)
Dennis Katavic (Third Defendant)
Jocelyn Katavic (Fourth Defendant)
Sue Price-Arcidiacono (Fifth Defendant)
Westpac Banking Corporation (Sixth Defendant)
Commissioner for Australian Capital Territory Revenue (Seventh Defendant)
Altair Investments Pty Ltd (Eighth Defendant)
Xi He (Ninth Defendant)

Representation:

Counsel:
D Allen (Third Plaintiff)
M Karam/L Cavell (Eighth and Ninth Defendant)
-br-Solicitors:
McEvoy Legal (Third Plaintiff)
Gilchrist Connell (Eighth and Ninth Defendant)

File Number(s):

2019/00372019

JUDGMENT

1. The issue before the Court is whether it should make the following orders as sought in a notice of motion filed by the plaintiffs on 8 April 2022:

“1.    Leave be granted to the plaintiffs to file and serve a Fifth Further Amended Statement of Claim in the form annexed to this Notice of Motion as Annexure "A".

2.    Order that Mr Bernard Mark Gulan be joined as the tenth defendant to these proceedings.

3.    Costs”.

2. Although the relief has been claimed in the name of all four plaintiffs, it is apparent from the terms of the proposed amendment and the submissions that were made in support of the notice of motion that leave to further amend the plaintiffs' statement of claim is sought for the benefit of the third plaintiff, Marginata Securities Pty Ltd (Marginata). For convenience, I will henceforth refer to the applicant on the notice of motion as Marginata.

3. The context in which the notice of motion was filed includes order 7 made by the Court on 27 April 2021 in the following terms:

“7. The relief sought by [Marginata] in the Further Amended Statement of Claim filed 6 April 2021 insofar as it relates to the eighth and ninth defendants be determined as a separate question pursuant to rule 6.22 of the Uniform Civil Procedure Rules 2005 (NSW)”.

4. The significance of this order is that it had the effect that Marginata’s claim against the defendants referred to would be determined separately from all other claims made by the plaintiffs.

5. The eighth defendant, Altair Investments Pty Ltd (Altair) and the ninth defendant, Xi He (Dr He) are therefore the effective respondents to the notice of motion.

6. Although prayer 2 of the notice of motion seeks an order that Mr Bernard Mark Gulan be joined as the tenth defendant to the proceedings, Mr Gulan was not made a party to the notice of motion and was not served with it. Accordingly, Mr Gulan was not represented at the hearing of the notice of motion. I will return to consider the significance of Mr Gulan’s absence below.

Relevant history of proceedings

7. The present version of the statement of claim is the fourth further amended statement of claim, filed on 11 March 2022. There are four plaintiffs and nine defendants. The pleading contains a number of relatively discrete claims.

8. On 14 to 18 and 25 February 2022 and 2 to 3 March 2022, I heard that part of the claim made in an earlier pleading, being the third further amended statement of claim, in which the plaintiff with the primary interest was the first plaintiff, Reliance Financial Services Pty Ltd (Reliance), and the relevant defendants were the first four defendants. I delivered judgment on 2 May 2022: Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd [2022] NSWSC 519. I was told that the plaintiffs would proceed separately on the claim against the fifth defendant, who was called Ms Price in the earlier judgment. I was not told anything about Marginata's claim against Altair and Dr He beyond the claim as outlined in the third further amended statement of claim.

9. The claim that is made in the fourth further amended statement of claim that is relevant to the determination of Marginata’s notice of motion is distinct from the other claims made in the proceedings so that it is not necessary to consider those other claims.

10. At the time of the amended statement of claim that was filed on 14 January 2020, Reliance was making a claim against Altair and Dr He for an account and equitable compensation in the sum of $1,034,699.52 plus interest. Marginata made no claim against those defendants. The position changed when the further amended statement of claim was filed on 6 April 2021. Marginata was substituted for Reliance in the claim against Altair and Dr He. The only claim made by Marginata against Altair and Dr He was for an unquantified amount of equitable compensation. An account was no longer sought. The equitable compensation was no longer specified as being $1,034,699.52 plus interest. I will explain below the reason for the change in the relief sought.

11. For the purpose of dealing with this application for leave to further amend the statement of claim and to join Mr Gulan as a defendant, it is sufficient to note that the equitable compensation now sought by Marginata is not for the substantial sum previously sought, but is for an unquantified but relatively small amount for expended legal costs and interest on the amount of $1,034,699.52 for a brief, closed period of up to about six months.

12. Altair and Dr He filed their defence on 3 May 2021 and Marginata filed its reply on 30 July 2021.

13. On 22 October 2021, Marginata advised the Registrar that Marginata had served its evidence in reply on 21 October 2021 and requested that the matter be listed for a three-day hearing. The Registrar gave Altair and Dr He leave to file any affidavit in reply to the affidavit of Marginata’s witness, Sam Cassaniti, sworn 21 October 2021 on or before 12 November 2021.

14. The Registrar made an order on 23 November 2021 that Marginata, Altair and Dr He attend a court annexed mediation. The mediation was conducted by a Registrar on 21 February 2022 and was not successful.

15. By 11 March 2022, the claim by Marginata against Altair and Dr He was ready to be set down for hearing, and on that date, Altair and Dr He asked the Registrar to fix the claim for hearing with an estimate of 4 days. They advised the Registrar of the outcome of communications between the parties as to suitable dates, and on that basis suggested that a date post 4 October 2022 would be suitable.

16. On 11 March 2022, Marginata advised the Registrar that it was also seeking that the claim against Altair and Dr He be set down for hearing. Marginata did not oppose the hearing being set down for four days although it advised that the hearing should only be set down for two days "considering the quantum”.

17. On 21 March 2022, Altair and Dr He renewed their request to the Registrar for an order setting down the claim for hearing with an estimate of four days.

18. On 21 March 2022, Marginata advised the Registrar that it intended to amend its pleadings and had sent its proposed amended statement of claim to Altair and Dr He, "which may require additional parties to be joined to these proceedings". Marginata requested that that the matter be adjourned for a week.

19. As I have stated above, the notice of motion that is now before the Court was filed on 8 April 2022.

20. The primary consequence of this history is that it shows that Marginata did not apply to file a fifth further amended statement of claim and to join Mr Gulan as a party until a time some three and a half years after the commencement of the proceedings on 26 November 2019, at a time when the separate question of Marginata’s claim against Altair and Dr He had been prepared for hearing and was ready to be given a hearing date.

Marginata’s claim against Altair and Dr He

21. As the claim that Marginata wishes to make against Mr Gulan springs out of the claim that it has pleaded against Altair and Dr He, it is necessary to begin by providing an outline of the way that the latter claim is pleaded in the fourth further amended statement of claim.

22. The claim is that in September and October 2019, Altair exercised a power of sale over certain property called the Campbell Land (par 244). Dr He was the sole director of Altair (par 245). Marginata and Reliance had caveats registered on the Campbell Land which gave notice that they both claimed equitable mortgages (pars 248 and 249). In order to complete the sale of the Campbell Land, Altair removed the caveats pursuant to ss 94 and 95 of the Land Titles Act 1925 (ACT), and they did not inform Marginata or Reliance (par 250). Upon completion of the sale, Altair held a surplus of $1,034,699.52 (par 252). As I have explained above, only Marginata has proceeded with the claim.

23. Marginata then pleaded, at par 253, that Altair owed a fiduciary duty to it in respect of the surplus, relying upon Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 and Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44. Dr He, as the sole director of Altair had notice of both Marginata's and Reliance's claims (par 259). Marginata then alleged in par 260:

“In the circumstances, [Dr] He, procured and was a knowing participant in Altair Investment's breach of fiduciary duty and he acted dishonestly in that he undertook a course he knew would deprive Marginata and Reliance of money to which both had a claim in priority to that of Price”.

24. Marginata pleaded that in breach of the duty, Altair paid the surplus to Ms Price, the mortgagor (par 255), as a result of a decision made by Dr He (par 257), and that If Altair had not breached the duty, Marginata would have received the sum of $1,034,699.52 instead of that sum being paid to the mortgagor, Ms Price (par 261).

25. At the time when this claim was originally pleaded, Marginata had not received the $1,034,699.52.

26. Marginata's claim was amended after the commencement of the proceedings because, as pleaded in par 261A to 261C, on 18 April 2020, Marginata recovered the sum of $1,035,692.52, which included the sum of $1,034,699.52 paid by Altair to Ms Price. That is the explanation for the change in the claim between the amended and the further amended statements of claim that has been described above.

27. In recovering the sum of $1,034,699.52, Marginata incurred a liability to pay legal costs, being the costs related to Marginata's obtaining injunctions in the ACT Supreme Court to prevent dissipation of the money paid to Ms Price, and in recovering the money from ACT Revenue that ACT Revenue had obtained by an order in the nature of a garnishee against Ms Price (par 261D).

28. If I understand the balance of Marginata's pleaded claim against Altair and Dr He correctly (pars 263A to 263PP), it claims that the interest rate that should be payable to it as compensation is 22% per annum compounding daily for the period 18 October 2019 (the day the surplus ought to have been received from Altair) to either 18 April 2020 (the day the surplus was released from Court to Marginata) or 1 May 2020 (the day a company called Raphis Securities Pty Ltd sold a property referred to as the Somersby Land). The allegations in relation to this latter matter are complicated, but in essence, Marginata pleaded that, as a result of the failure of Altair to pay the surplus, it was unable to benefit from an entirely different transaction with other parties, under which it would have earned a right to receive interest at 22% per annum compounding daily from an advance to an entirely different borrower. There is no allegation that Altair or Dr He had any knowledge of this proposed transaction.

29. There is no change to Marginata’s presently pleaded claim against Altair and Dr He in the draft fifth further amended statement of claim.

Proposed claim by Marginata against Mr Gulan

30. The claim that Marginata seeks the Court's leave to make against Mr Gulan by filing the draft fifth further amended statement of claim is pleaded in pars 379 to 449. Strangely, from the heading to this claim, it is said to be made by Marginata and Reliance against Mr Gulan and the firm of solicitors known as Mills Oakley. Mr Gulan is apparently a partner of that firm. However, notwithstanding the wording of the draft, Marginata does not seek leave to join Mills Oakley as a defendant to the proceedings. Accordingly, despite the draft fifth further amended statement of claim naming both Mr Gulan and Mills Oakley in relation to certain retainers and transactions, I refer only to Mr Gulan.

31. In short, in pars 379 to 385, Marginata alleges that Mr Gulan was retained for various purposes by the first four defendants and the fifth defendant, Ms Price, as well as Altair and Dr He, to act for them in relation to various transactions. This included the documenting of a loan agreement between Altair and Ms Price in relation to the purchase of the Campbell Property by Ms Price and the registration of a mortgage to Altair over the Campbell Property to secure the loan. The proposed additional paragraphs in the draft fifth further amended statement of claim refer to the “Campbell Property”, as compared to the “Campbell Land”, the term defined and used in the current pleadings. I have assumed for the purposes of this judgment that this is an oversight and that the land referred to as the Campbell Property is, in fact, the Campbell Land. Accordingly, the extracts and this judgment may use one or the other of the terms interchangeably.

32. Paragraph 386 contains an allegation that Mr Gulan was aware that Ms Price would borrow an amount from Marginata pursuant to a second ranking mortgage for the purpose of the purchase of the Campbell Property, that would rank below Altair's first ranking mortgage, and that the amount of the advance was $1,390,000, and that Marginata provided a further advance of $200,000 to Ms Price.

33. Paragraphs 388 to 390 allege that Mr Gulan knew that Marginata claimed a secured interest in the surplus, and that Altair owed a fiduciary duty to Marginata.

34. Paragraphs 391 to 394 contain allegations concerning the usual conveyancing practice in the Australian Capital Territory when there is a dispute between a mortgagor and a caveator as to who is entitled to be paid a surplus from a mortgagee sale to the effect that the surplus would be paid into court.

35. There follow a number of allegations of fact, the most material of which is that on 16 October 2019, Mr Gulan “agreed with [a Mr] Ian Marsden that the surplus would be paid to Ms Price”. The particulars given are: "Paragraphs [42] to [44] of the affidavit of Ben Gulan of 24 September 2021." I will return to the significance of this affidavit below.

36. The draft fifth further amended statement of claim then makes the following allegations against Mr Gulan. Mr Marsden was the solicitor for Ms Price in respect of the settlement of the Campbell Property:

“401.    In the making of the agreement with Ian Marsden, Ben Gulan knew that if it was performed it would cause Altair to breach its fiduciary duty to Marginata.

402.    In the alternative, in the making of the agreement with Ian Marsden, a competent solicitor in Ben Gulan's position would have known that if it was performed it would cause Altair to breach its fiduciary duty to Marginata.

403.    Ben Gulan did not tell Marginata of the agreement.

404.    Ben Gulan did not tell Marginata of the agreement because he wanted the agreement kept secret from Marginata.

405.    Ben Gulan made the agreement so that Marginata's claim to the Surplus would be hindered, delayed or defeated.

406.    Ben Gulan made the agreement because:

a. he was actuated by animosity towards Marginata and its agents;

b. of his loyalty to Price; and

c. of his loyalty to Mr and Mrs Katavic [the third and fourth defendants].

407.    The making and performance of the agreement with Ian Marsden involved moral turpitude on the part of Ben Gulan in that it was made and performed in order to hinder, delay and defeat Marginata's claim to the Surplus.

408.    The making and performance of the agreement with Ian Marsden involved moral turpitude on the part of Ben Gulan in that it was made and performed in order to hinder, delay and defeat Marginata's claim to the Surplus, with knowledge that this would involve a breach of Altair's fiduciary duty to Marginata.”

37. The draft fifth further amended statement of claim then makes a number of repetitive allegations related to Mr Gulan causing a cheque in the amount of the surplus to be delivered to Ms Price without informing Marginata. Marginata then repeats allegations of moral turpitude against Mr Gulan in relation to his non-response to requests for information made by Marginata.

38. The final allegation, in par 449, is that by reason of Altair's breach of fiduciary duty, Marginata suffered loss and damages as pleaded and Mr Gulan is liable for that loss and damage as he procured the breach.

39. As I have noted above, the basis of the claim that Marginata seeks leave to make against Mr Gulan is pars 42 to 44 of Mr Gulan's 24 September 2021 affidavit filed in these proceedings in support of the defence of Altair and Dr He to the claims made by Marginata against them. Accordingly, Marginata waited from about 24 September 2021, when the affidavit was served, to 8 April 2022 in applying for the leave to amend and join Mr Gulan.

40. Marginata did not notify Altair and Dr He of its intention to amend its statement of claim to make a claim against Mr Gulan until an email sent on 18 March 2022.

41. The relevant parts of Mr Gulan's affidavit, including the paragraphs upon which Marginata seeks to rely, are as follows:

“Discussions leading up to settlement

41.    In the days leading up to the Settlement Date, I engaged in several telephone conversations with Mr Ian Marsden (Mr Marsden) of Kardos Scanlan Lawyers (Kardos Scanlan), who informed me that he was the solicitor for Ms Price in respect of the settlement of the Campbell Property.

42.    On or about 16 October 2019, I had a telephone discussion with Mr Marsden which comprised words to the following effect:

Mr Marsden:    "As you know, we have settlement coming up. You may or may not be aware that there is a dispute between our client and Reliance".

Me:    "We are aware of some caveats registered on title, but I am not fully apprised of the nature of the dispute".

Mr Marsden:    "It would seem sensible that the settlement go ahead, but provided the surplus funds are secured while the dispute is ongoing. We would propose that the funds be held by us in a controlled monies account until that dispute is resolved."

Me:    "This seems reasonable. I will give it more thought on behalf of my client prior to settlement."

43.    Subsequently, on the morning of the Settlement Date, I had a further discussion with Mr Marsden during which I stated words to the effect of:

Me:    "Altair is happy to deal with the surplus money on the basis you have proposed. We will convey this to the paralegal handling settlement today".

44.    It is my opinion and belief that the conversations which I had with Mr Marsden as referred to in paragraphs 42 and 43 above formed an agreement in respect of the surplus money from the sale of the Campbell Property (Agreement).

…

47.    To the best of my recollection, I regarded treatment of the surplus proceeds on settlement as a matter within my standing instructions to act on behalf of Altair in relation to the conveyance and consequently did not seek express instructions in relation to the proposal.

48.    [The settlement took place on 18 October 2019 and the balance payable to Ms Price was $990,449.52].

…

51.    [On settlement a cheque made out to Ms Price for $990,449.52 was given to Ms Price for the purpose of the agreement in pars 42 and 43]

…

57.    On 1 November 2019, Ian Marsden of Kardos Scanlan confirmed that Kardos Scanlan held the surplus settlement proceeds in respect of the Campbell Property…

58.    On the same day, Marginata filed and served an application in the ACT Supreme Court… seeking, inter alia, freezing orders in respect of the surplus proceedings [sic] from the sale of the Campbell Property…”

42. Whatever may be thought about the prudence of the agreement made between Mr Gulan and Mr Marsden (given that Ms Price was handed a cheque drawn in her favour for the amount of the surplus received by Altair from the mortgagee's sale of the Campbell Property) the effect of the agreement was that Ms Price would hand the cheque to her solicitors to be held in a controlled monies account pending the resolution of the dispute between Ms Price and Marginata concerning their entitlement to the surplus on the basis of Marginata’s claimed equitable mortgage over the Campbell Property. That agreement would in fact have protected Marginata, were it not for the fact that ACT Revenue claimed that Ms Price had a liability to it. That led to the issue of an order whereby the amount held by Kardos Scanlan was garnisheed in favour of ACT Revenue. Although Marginata moved to obtain a freezing order against Ms Price, in fact such an order was not necessary because Kardos Scanlan could have been relied upon to retain the surplus in a controlled monies account until Marginata's entitlement to the surplus was determined.

43. Apparently, in due course, ACT Revenue accepted that it was not entitled to retain the surplus that had been garnisheed, and paid the money that it had received from Kardos Scanlan into Court. An order was subsequently made that the surplus plus accumulated interest be paid to Marginata. That receipt had the effect of limiting Marginata’s claimed loss to the legal costs of its proceedings in the Supreme Court of the ACT and interest on the surplus for the period between the date of sale of the Campbell Property by Altair and the receipt of the surplus from the Court.

44. The draft fifth further amended statement of claim contains no allegation that Mr Gulan was aware of any circumstances that might make the surplus in the hands of either Ms Price or Kardos Scanlan susceptible to an order in the nature of the garnishee order issued by ACT Revenue.

Threats by Marginata of proceedings against Mr Gulan

45. Marginata wrote a letter to Mr Gulan on 1 November 2019, in which it stated its claim to be paid money by Ms Price, and added:

“…

In all of the above circumstances, it is impossible to conceive that Altair was not fully cognisant that we were the second-priority secured creditor, and entitled to be paid after Altair on settlement. What is worse is that it appears settlement occurred after our 22 October 2019 letter (although our interest was flagged by our caveat).

As a matter of urgency, please:

1. Provide us with a copy of the final settlement sheet;

2. Confirm whether any moneys were paid to Ms Price or at her direction, and, if so, to where those moneys were paid, how much and when;

3. Confirm whether any moneys were dispersed after satisfaction of Altair's entitlements and, if so, on whose direction, to where those moneys were paid, how much and when.

We confirm that to the extent, on account of your acting for Ms Price's daughter and son-in-law in relation to another matter, you have caused proceeds to be advanced to Ms Price, Jocelyn Katavic, Dennis Katavic, any of their related entities, or at any of their direction, we will be reporting this matter to the Law Society of the ACT, apart from holding Altair liable for loss resulting from its breach of the trust of the proceeds of sale. We reserve all rights against everybody involved.

If there are funds in your trust account, you would be well advised to ensure they are not dispersed without our permission. We are preparing an application for orders against all those we are aware were involved in this transaction, including your firm…”

(Emphasis added)

46. A further letter dated 4 November 2019 from Marginata to Mr Gulan included:

“…

We reserve all rights against you in respect of your admission that you knowingly paid the funds into someone else's hands for Ms Price's benefit, disregarding the interests of the caveators in the funds.

…

In light of the matters above, we consider that your actions were a wilful destruction of our interests in security for which you will be held personally responsible – we will not just look to your client…”

(Emphasis added)

47. Finally, Marginata's 6 November 2019 letter to Mr Gulan included:

“…

We look forward to your response to address our concerns regarding the above matters in a timely matter [sic] but in any case by Close of Business Friday, 8 November 2019. Obviously, your answers will greatly influence the next steps we take which may include seeking damages against you...”

(Emphasis added)

48. These demands clearly show that Marginata was aware in November 2019 that on the facts known to it Marginata had a claim against Mr Gulan personally.

Altair’s and Dr He’s response to the claim involving Mr Gulan

49. As Mr Gulan is not a party to Marginata's notice of motion, and the Court has not heard from him, the Court does not know what Mr Gulan's response to Marginata's proposed claim will be. However, the following response in Altair’s and Mr He's defence filed on 3 May 2021 is material. In par 32 of the defence, Altair and Dr He pleaded the agreement between Mr Gulan and Mr Marsden that is referred to in Mr Gulan's affidavit as considered above. The defendants continued:

“32 …

(f)    on 4 November 2019, Kardos Scanlan informed Marginata that it was holding the Surplus Funds in a controlled monies account and offered, on behalf of Price, to pay those sums into Court pending agreement or Court order;

(g)    Marginata did not accept the offer made by Kardos Scanlan on 4 November 2019 and consequently arrangements were not made between Price and the plaintiffs for the Surplus Funds to be paid into Court;

(h)    on or around 4 December 2019, the ACT Revenue garnisheed the Surplus Funds from the controlled monies account operated by Kardos Scanlan;

…

(j)    on around 9 March 2020, pursuant to an order of Ward CJ in Eq of 3 March 2020, ACT Revenue paid (inter alia) a sum equivalent to the Surplus Funds into Court;

(k)    on or about 18 April 2020, Marginata received payment out of Court in a sum equivalent to the Surplus Funds…”

50. I have looked in vain in the evidence and submissions for the evidence of how Kardos Scanlan informed Marginata on 4 November 2019 that it was holding the surplus in a controlled monies account as pleaded in par 32(f) of the defence. If this allegation is correct, and if the subsequent allegations that Marginata did not accept the offer and that ACT Revenue did not garnishee the surplus until about 4 December 2019 are correct, then these circumstances would probably have reduced the quantum of Marginata's claim against Mr Gulan to a trivial amount.

51. Marginata filed a reply on 30 July 2021 for the sole purpose of responding to par 32 of the defence. The most notable feature of the reply is that it ignores the allegations in par 32(f) and (g) of the defence and does not deny or otherwise respond to those allegations. Given the detail of the response in its reply, Marginata would be expected to have made the denial if the allegations were not true.

52. Certain exchanges between the Bench and counsel for Marginata that occurred at the hearing appeared to support my conclusion that Marginata accepts that it did not respond to an offer by Kardos Scanlan to pay the surplus into Court before ACT Revenue required the money to be paid to it. At Tcpt, 25 November 2022, p 20(27), after I asked what the significance of par 32(f) and (g) of the defence was, counsel said: "That is well after the event, because the event was 18 October, and it's more damning of Mr G[ulan], because it was Price's solicitor who told Marginata of the alleged arrangement." That appears to be a concession of the truth of the allegations in par 32(f). When I pressed counsel as to what was wrong with Mr Gulan making an arrangement with Mr Marsden with the result that Mr Marsden came to hold this surplus in a controlled monies account pending the resolution of the dispute between Ms Price and Marginata, counsel responded by saying: "The evidence is that my client was pretty outraged when it found out and went to get relief immediately in the Supreme Court of the ACT. My client didn't consent to that and the breach is when the money is paid to Ms Price" (Tcpt, 25 November 2022, p 20(50)).

Marginata’s reply to Altair’s and Dr He’s response

53. Marginata alleged in par 1(e) of the reply that the allegation that there was an agreement between Mr Gulan and Mr Marsden "is a false allegation". Marginata alleged that the assertion that there was an oral agreement was "dishonest in that a reasonably acting and honest solicitor would have had the agreement recorded or evidenced in writing". Marginata alleged that Mr Gulan knew that the ultimate intention was not to pay the surplus to Marginata. Marginata alleged that Mr Gulan did not inform it of the alleged agreement: "because there was no agreement". Further, Marginata alleged that if Mr Gulan said there was an agreement, "he is not telling the truth”.

54. These matters were alleged by Marginata without any apparent basis, as they are put as bare assertions. Marginata did not allege that the surplus was not paid into a controlled monies account by Kardos Scanlan. Accordingly, Marginata made serious allegations of dishonesty in the face of the fact that the events that occurred were entirely consistent with performance of the agreement between Mr Gulan and Mr Marsden that was alleged in the defence.

55. This is a significant matter for the determination of the notice of motion the subject of these reasons, because Marginata was prepared on 30 July 2021 to make serious allegations of dishonesty against Mr Gulan, although Mr Gulan was not a party to the proceedings at that time. As will be seen, when an explanation was given by Marginata for its delay in applying for leave to join Mr Gulan as a party to the proceedings, it was that Marginata stayed its hand until it had the benefit of the evidence given by Mr Gulan in pars 42 and 43 of his affidavit filed in the proceedings.

Marginata’s evidence in support of its notice of motion

56. Marginata's 8 April 2022 notice of motion was supported by an affidavit of the same date by a solicitor in the employ of Marginata's solicitors. The affidavit annexed only three pieces of correspondence between the solicitors for Marginata and the solicitors for Altair and Dr He, and included, at par 5, the statement "I am not aware of any genuine reasons why the eighth and ninth defendants would oppose the joinder of Mr Gulan to these proceedings or the filing of the amended pleadings."

Communications between Marginata and Altair and Dr He

57. On 18 March 2022, Marginata's solicitors sent an email to the solicitors for Altair and Dr He attaching a proposed fifth further amended statement of claim and requesting consent to the pleading being filed within three days.

58. The solicitors for Altair and Dr He responded on 22 March 2022. The consent sought by Marginata was rejected on grounds consistent with the grounds for opposition to the relief sought by Marginata in the notice of motion. In essence, Altair and Dr He noted that the claim against Mr Gulan was not "new", Marginata was aware of the relevant facts from the time it made its initial claim against Altair and Dr He, no reason was given for the delay, and the application had only been foreshadowed immediately before the call over at which the Court would have set the claim down for hearing.

59. Marginata's solicitors replied on 29 March 2022 by a letter that included:

“…

The proposed further pleading relates to a claim against Mr Gulan which arises from the evidence in his affidavit which your client served in its defence. The affidavit seems to say that there was a breach of fiduciary duty and it is Mr Gulan who caused the breach and, because of Mr Gulan's conduct, your clients are not liable.

Your clients ought to have pleaded the material facts set out in Mr Gulan's affidavit in their defence, your clients did not.

It is entirely appropriate for our client to amend in light of the information in Mr Gulan's affidavit and it was appropriate for the amendments to be sought after the failed mediation on 21 February 2022…”

60. In the first of the paragraphs extracted above, Marginata appears to refer to that part of Mr Gulan's affidavit, at par 47, in which he said that he made the alleged agreement with Mr Marsden as he thought it was within his inherent retainer to do so and he did not obtain specific instructions from Altair. It does not follow that Altair and Dr He will rely upon that fact as a defence to Marginata's claim against them, and the significant matter is not that Altair and Dr He ought to have pleaded the issue in the defence, but that they did not do so. Altair and Dr He have not raised a defence on the basis that Mr Gulan entered into the agreement without their specific instructions. In any event, it is hard to see how that fact could provide a defence, as Altair and Dr He have not asserted that Mr Gulan acted beyond his authority, and if he acted within his authority Altair and Dr He will be liable for Mr Gulan's conduct.

61. This is therefore not a case where Marginata discovered when Mr Gulan’s affidavit was served that Altair and Dr He had an unexpected defence to the effect that they were not bound by Mr Gulan’s conduct because it was not authorised by his retainer. Altair and Dr He have not pleaded that defence. Consequently, Altair and Dr He will be liable for any wrongful conduct engaged in by Mr Gulan for the purposes of his retainer. The proposed claim against Mr Gulan is not an alternative claim, it is additional. Marginata has not suggested that Altair and Dr He do not have the resources to meet any relatively small judgment for equitable compensation that may be made against them because of Mr Gulan’s conduct.

Marginata’s justification for delay in making application

62. Marginata relied upon brief written submissions filed on 18 November 2022. The material submissions made by Marginata were:

“8.    The complaint seems to be that there is no explanation as to why the amendments were sought to be made in March 2022. The explanation is that the amendments were made only after evidence was served from Mr Gulan. This evidence was served on about 24 September 2021. It was only after that evidence was served that the case against Mr Gulan could be pleaded.

9.    There is complaint that there is still delay between 24 September 2021 and 18 March 2022. The explanation of this delay is that Marginata awaited the outcome of the mediation on 21 February 2022 prior to making a decision whether to proceed against Mr Gulan.”

63. Marginata's asserted justification that it was entitled to delay until after the mediation failed is not persuasive. The explanation suggests that Marginata had a formed intention to seek to join Mr Gulan before the mediation took place. Marginata's delay in notifying its intention to sue Mr Gulan simply had the effect that the mediation took place on a false basis.

64. At the hearing, counsel for Marginata said that it was Marginata's case that Mr Gulan's claim that his agreement with Mr Marsden was that Mr Marsden would hold this surplus in a controlled monies account pending the resolution of the dispute between Ms Price and Marginata was "…not true at all, it's false. It was deliberately done to prejudice my client" (Tcpt, 25 November 2022, p 21(43)). Earlier, counsel said that it was Marginata's case that “…the money was held in the controlled moneys account to secure fees that Ms Price would come to owe to Kardos Scanlan" (Tcpt, 25 November 2022, p 5(31)).

65. However, at the end of the day, Marginata's explanation for the delay in seeking leave to file the draft fifth further amended statement of claim and join Mr Gulan as a party to the proceedings was that "…it was entirely reasonable for my client to only bring the claim once it knew what Mr G[ulan]'s position actually was, because there’s a grave allegation that's been said to make against a solicitor, that is, procured a breach of fiduciary duty, and the allegation is that he's proven the breach by his own evidence. And, indeed, I'll put it so high, he’s shown his own moral obloquy in his own evidence." (Tcpt, 25 November 2022, p 9(20)). See also Tcpt, 25 November 2022, p 21(46).

66. I do not accept that in any real way any part of Mr Gulan's 24 September 2022 affidavit was necessary information for Marginata to have before it could justify making an application to join Mr Gulan as a party and to make the proposed claim against him. Even if Mr Gulan acted contrary to some conveyancing practice in the ACT, as alleged by Marginata, it is not reasonably arguable that the evidence given by Mr Gulan in his affidavit was a disclosure of dishonesty on his part. In any event, in argument at the hearing on 25 November 2022. Counsel for Marginata put its case in the following terms at Tcpt, 25 November 2022, p 18(23):

“The argument is simply, if Mr G[ulan] made an agreement with Mr Mars[de]n for there to be a breach of fiduciary duty, i.e., because he knew it would involve a breach of fiduciary duty, he procured Altair to breach the fiduciary duty. It doesn't matter whether Altair’s breach of fiduciary duty was a dishonest and fraudulent design or not.

…

Indeed, it's not pleaded that Altair acted dishonestly and fraudulently, though it is pleaded that Dr H[e] did so. So, my client, when it comes to the case against Mr G[ulan], doesn't say that he knowingly participated in a dishonest and fraudulent design, because it can't be said that Altair's breach was Altair's fraudulent and dishonest design”.

67. This submission does not sit neatly with any explanation that Marginata was justified in waiting until it had received Mr Gulan's affidavit, because the content of the affidavit justified the making of allegations of dishonesty against Mr Gulan.

Altair’s and Dr He’s response to Marginata’s application

68. In their written submissions filed on 23 November 2022, in which they opposed the relief sought in the notice of motion, Altair and Dr He elaborated the responses provided by their solicitors in their 22 March 2022 letter to the solicitors for Marginata, and referred particularly to the correspondence that Marginata sent to Mr Gulan on 1, 4 and 6 November 2019 that is referred to above, in which Marginata made threats to join Mr Gulan as a defendant to any proceedings that it instituted against Altair. Altair and Dr He also relied upon the principles set out in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27.

Consideration

69. In my judgment, Marginata's application for leave to file the draft fifth further amended statement of claim and to join Mr Gulan as a defendant to these proceedings has been made at an unjustifiably late time, and the making of the orders sought in the notice of motion would impose an unjustifiable unfairness on Altair and Dr He by depriving them of a final hearing at a time that they were reasonably entitled to expect.

70. First, I am satisfied that Marginata became aware of the essential facts that might support its claim against Mr Gulan at the time of the relevant events in October and November 2019. In reality, there has never been a serious contest as to what happened, and the only real issues concern the legal significance of the conduct of Mr Gulan engaged in in the course of his retainer by Altair.

71. Marginata's correspondence with Mr Gulan in November 2019 establishes that it was clearly aware that it had a claim against Mr Gulan, in addition to the claim against his clients.

72. As noted above, Altair and Dr He have not pleaded the defence that they are not liable to Marginata because Mr Gulan acted outside the authority conferred on him by his retainer. Marginata is not justified in seeking leave to amend to avoid the possibility that it has sued the wrong defendants. The proposed claim against Mr Gulan is an additional claim and not an alternative one. Although Marginata has not explained the quantum of its claim, the amount of the claim cannot be great when compared to the costs and inconvenience that Altair and Dr He may suffer as a result of the late amendment. If Marginata succeeds, it will be entitled to some amount for the legal costs that it incurred in obtaining freezing orders, before it was discovered that the surplus was safely in the hands of ACT Revenue, and the only issue was whether Marginata could recover the surplus. Marginata would also be entitled to compensation for lost interest for a short period. At the hearing, Marginata did not support the improbable claim that the applicable interest rate would be 22% per annum compounding daily.

73. Marginata has waited until the separate question involving its claim against Altair and Dr He was ready to be set down for hearing, and the parties had taken all steps necessary to prepare the matter for the call over. The filing of the notice of motion by Marginata has unfortunately caused a substantial delay in the matter being set down for hearing, but granting the relief sought in the notice of motion will cause a more significant and unwarranted delay in the claim against Altair and Dr He being determined.

74. It is also a valid concern that Marginata has alleged dishonesty against Mr Gulan which gives rise to the possibility that issues may arise between Mr Gulan and his professional indemnity insurer concerning his entitlement to indemnification. The Court cannot speculate on that issue, but it is a material consideration that if Marginata had advanced its claim against Mr Gulan in a timely manner any concern of that nature that materialised could have been dealt with in the period up to the time when the claim was ready to be set down for hearing.

75. It is also problematic in this case that Mr Gulan was not served with the notice of motion and has not been given an opportunity to be heard on whether the orders sought should be made. The Court was informed by counsel for Marginata that Mr Gulan was not served with the notice of motion or made a respondent to it in conformity with a practice of the Court that Marginata understood exists that where leave is sought to amend a pleading to make a claim against a party who is not already a party to the proceedings, the application is made in the absence of that party. I am aware that the Court sometimes entertains amendment and joinder applications on that basis, although it is not clear that the procedure will always be appropriate or convenient.

76. If the Court grants leave to an existing party to amend a pleading to join an absent party without that party being given an opportunity to be heard on the application, that party once joined will be entitled to file a further notice of motion seeking an order that the claim be dismissed against that party. Whether or not that course is taken will depend upon the circumstances of the case, but it is obvious that it will often be more convenient for the Court to hear any objection to joinder by the new proposed party at the same time as the original application is made. In the present case, the passage of time after Marginata threatened to make a claim against Mr Gulan may well have lulled him into a false belief that Marginata had decided to only prosecute its claim against Altair and Dr He. Mr Gulan provided an affidavit in support of those parties’ defence, but in doing so he has been deprived of the opportunity to consider how his evidence might properly be expressed to defend the claim that is now sought to be made against him personally.

77. The case that Marginata wishes to pursue against Mr Gulan seems relatively straightforward insofar as the basic facts are concerned. The issue of liability may be more complex. It is unlikely that inconsistent results would flow from separate proceedings being pursued by Marginata against Mr Gulan.

Orders

78. The orders of the Court are:

1. The plaintiffs’ notice of motion filed on 8 April 2022 is dismissed.

2. The plaintiffs must pay the eighth and ninth defendants’ costs as respondents to the notice of motion.

3. The parties who will contest the separate question the subject of order 7 made by the Court on 27 April 2021 are directed to confer and to submit draft short minutes of order to the Associate to Robb J to deal with the future case management of the separate question.

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Decision last updated: 27 February 2023