The Recyclers (NSW) Pty Ltd v Ayoub (No 3)

[2016] NSWSC 576

Supreme Court

New South Wales

Medium Neutral Citation:	The Recyclers (NSW) Pty Ltd v Ayoub (No 3) [2016] NSWSC 576
Hearing dates:	5 May 2016
Decision date:	09 May 2016
Jurisdiction:	Equity - Expedition List
Before:	Stevenson J
Decision:	Defence and cross-claim dismissed
Catchwords:	PRACTICE AND PROCEDURE – persistent failure to comply with orders – failure to comply with costs order – no explanation for failure offered - whether defence and cross-claim should be dismissed
Legislation Cited:	Civil Procedure Act 2005 (NSW) Real Property Act 1900 (NSW)
Cases Cited:	In re Ellenborough; Towry Law v Burne [1903] 1 Ch 697 Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 The Recyclers (NSW) Pty Ltd v Ayoub (No 2) (Supreme Court (NSW), Stevenson J, 11 April 2016, unrep) The Recyclers (NSW) Pty Ltd v Ayoub [2016] NSWSC 144
Category:	Principal judgment
Parties:	The Recyclers (NSW) Pty Limited (Plaintiff) Michael Ayoub by his tutor Paul Joseph Donnelly (First Defendant) Aus Wide Recycling Pty Ltd (Second Defendant) Illawarra Motor Auction Pty Ltd (Third Defendant) Milana South Coast Pty Ltd (Fourth Defendant)
Representation:	Counsel: M K Condon SC with K Josifoski (Plaintiff) G E McGrath SC with S Haddad (First, Third & Fourth Defendants) A J McInerney SC (Second Defendant)   Solicitors: Access Law Group (Plaintiff) Pelosi & Associates (First, Third & Fourth Defendants) MJF Legal Pty Ltd (Second Defendant)
File Number(s):	SC 2015/299325

Judgment

1. The plaintiff, The Recyclers (NSW) Pty Limited and the second defendant, Aus Wide Recycling Pty Ltd seek an order pursuant to s 61(3) of the Civil Procedure Act 2005 (NSW) that the defence of the first defendant, Mr Ayoub, and the first cross-claim (by Mr Ayoub and Illawarra Motor Auction Pty Ltd) be dismissed by reason of their failure to comply with orders I made on 4 March 2016.

2. I am satisfied that I should make those orders.

3. Aus Wide accepts that, in that event, its second cross-claim should also be dismissed.

Background

4. Between 1 December 2011 and 3 May 2016 Aus Wide was the registered proprietor of a property at Kembla Grange.

5. On 6 August 2015 Aus Wide entered into a lease of the property with Recyclers. The lease was registered on 18 November 2015 and is for a term of three years, with options to renew.

6. On 7 August 2015, Aus Wide exchanged contracts for the sale of the property with CRKG Pty Ltd. That sale was completed recently and the transfer from Aus Wide to CRKG was registered on 3 May 2016.

7. Mr Ayoub was in occupation of the property from, at least, 6 August 2015 until on or about 30 March 2016. He then vacated the property pursuant to an order I made on 4 March 2016.

8. Recyclers commenced these proceedings on 13 October 2015 seeking, amongst other orders, an order that Mr Ayoub give it possession of the property.

9. On 19 October 2015, Darke J appointed Mr Paul Donnelly, solicitor, to act as Mr Ayoub’s tutor for the purpose of these proceedings. That appointment was by reason of what was said to be Mr Ayoub’s then mental state.

10. On about 27 October 2015, Mr Ayoub filed a defence in which he asserted that he, or Illawarra or Milana South Coast Pty Ltd (which became the fourth defendant) had an equitable interest in the Property.

11. On 19 October 2015, Mr Ayoub, Illawarra and Milana were ordered to file any cross-claim by 27 October 2015. Those parties failed to comply with that order, as well as several subsequent orders.

12. On 30 October 2015, the Court ordered Mr Ayoub to file his lay evidence by 18 November 2015. That order was not complied with. Several further orders were made extending the time for Mr Ayoub, as well as Illawarra and Milana to serve their lay evidence.

13. On 20 November 2015, Sackar J ordered that the proceedings be expedited and listed for hearing before me for three days commencing 2 March 2016.

14. On 12 February 2016, I made a guillotine order that any lay evidence from three named witnesses be served by 16 February 2016. Only one affidavit was served from one of those witnesses.

15. On 15 February 2016, Mr Ayoub (by his tutor) and Illawarra filed a cross-claim in which they sought (amongst other things):

1. a declaration that Aus Wide held the property on trust for Mr Ayoub or Illawarra;

2. an order that Aus Wide transfer the property to Mr Ayoub or Illawarra; and

3. a declaration that the registration of the lease was obtained by fraud and was a nullity.

16. The cross-claim is partly based on a document called “Declaration of Trust” dated 1 December 2011, said to have been executed by a Mr Miroslav Davidovic, then director of Aus Wide. The purported effect of the document is that Aus Wide declared that it held the property on trust for Illawarra.

17. Mr Ayoub relies on a further document dated 1 December 2011, entitled “Minute Book”, which purports to be signed by a Mr Stephen Telenta, on behalf of Illawarra, and which purports to assign to Mr Ayoub “all companies [sic] books, shares and all assets that relate to [Illawarra].”

18. The “Declaration of Trust” recites that Aus Wide exchanged contracts to purchase the property (from Arab Bank) on 1 December 2011.

19. However, the cross-claimants have adduced no evidence that, in fact, Aus Wide did exchange contracts to purchase the property on that date. Aus Wide has adduced evidence from a solicitor, Mr Rick Mitry, who was acting for Aus Wide for the purchase of the property. Mr Mitry’s evidence is that contracts were exchanged on 9 December 2011, not 1 December 2011. On that state of the evidence, the position appears to be that Aus Wide had no interest in the property on the date of the Declaration of Trust document; 1 December 2011.

20. It is Aus Wide’s position that, in those circumstances, and assuming that the Declaration of Trust is genuine, it amounts to a purported declaration of a trust as to future property that, absent valuable consideration, is not valid. In that regard Aus Wide has foreshadowed, in submissions, that it relies upon In re Ellenborough; Towry Law v Burne [1903] 1 Ch 697 and Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 20-21. It is Aus Wide’s position that this is sufficient to dispose of Illawarra’s claim to have an equitable interest in the property, and that Mr Ayoub cannot be in a better position by reason of the “Minute Book” document. However, for the purposes of this application, it is not necessary to assess the merits of that argument.

21. On 25 February 2016 I heard evidence and argument as to whether Mr Ayoub was competent to give evidence at the 2 March 2016 hearing.

22. On 26 February 2016 I found that Mr Ayoub was competent to give evidence: The Recyclers (NSW) Pty Ltd v Ayoub [2016] NSWSC 144.

23. On 2 March 2016, on Mr Ayoub’s application, I vacated the March hearing dates and, on 4 March 2016 fixed the matter for hearing for five days commencing 6 June 2016.

24. On 4 March 2016 I also:

1. noted the admission made by Mr Ayoub, Illawarra and Milana that the lease was indefeasible for the purposes of the Real Property Act 1900 (NSW), and that those parties had not since 18 November 2015 had any equities against Recyclers which affected its indefeasible interest under the lease;

2. by consent ordered that part of the cross-claim which sought a declaration that the registration of the lease was obtained by fraud be dismissed;

3. by consent ordered that Mr Ayoub give Recyclers possession of the property by 30 March 2016;

4. ordered that Mr Ayoub, Illawarra and Milana serve any further evidence, and an outline of any evidence expected to be called from witnesses to be subpoenaed, and an outline of submissions by 29 April 2016;

5. ordered that Mr Ayoub, Illawarra and Milana produce specified documents by 11 March 2016 (which date was, on 16 March 2016 extended to 15 April 2016);

6. ordered Mr Ayoub, Illawarra and Milana pay the costs of Recyclers and Aus Wide thrown away by the vacation of the hearing date;

7. ordered that such costs be specified pursuant to s 98(4) of the Civil Procedure Act; and

8. made directions concerning submissions as to that matter; and granted Recyclers and Aus Wide leave to apply to strike out Mr Ayoub’s defence, and the cross-claim if those costs were not paid in accordance with the preceding order.

25. On 15 April 2016, after having heard extensive submissions from the parties about what the quantum of those costs should be and following delivery of my judgment of 11 April 2016, The Recyclers (NSW) Pty Ltd v Ayoub (No 2) (Supreme Court (NSW), 11 April 2016, unrep), I made an order specifying such costs at $20,000 for each of Recyclers and Aus Wide.

26. Mr Ayoub, Illawarra and Milana have not complied with any of the 4 March 2016 orders (except (c)).

27. Such explanation as has been given for that failure is contained in an affidavit sworn by Mr Ayoub’s solicitor, Mr Justin Restuccia, as follows:

“2.   In the days following the previous hearing in this matter on 2 March 2016, Mr Ayoub advised me that he would be going away for about one week, which he believed would assist with his mental health condition and enable him to properly provide instructions as to the factual matters relevant to the preparation of his affidavit and the evidence to be filed by the first, third and fourth defendants in the proceedings.

3.   Between about 14 March and 21 March 2016, I communicated with Mr Ayoub by telephone and email regarding the preparation of his affidavit and the evidence to be filed by the first, third and fourth defendants in the proceedings.

4.   On 22 March 2016, I attended a conference with Mr Ayoub and Junior Counsel to take instructions regarding the factual matters relevant to the preparation of his affidavit and the evidence to be filed by the first, third and fourth defendants in the proceedings. That conference went for more than three hours in duration. Mr Ayoub found it impossible to continue the conference beyond three hours, as he felt his head was ‘scrambled’. However, substantial progress was made during the conference. Following that conference, I was very confident that Mr Ayoub would provide the information required for the first, third and fourth defendants to file their evidence before 29 April 2016.

5.   Arrangements were made for a further conference on 24 March 2016 for the same purpose. Unfortunately, that conference did not proceed.

6.   Between about 28 March 2016 and 7 April 2016, I spoke with Mr Ayoub on a number of occasions in relation to the equipment on the Kembla Grange property and evidence.

7   From 11 April 2016 there were discussions with Mr Ayoub in relation to the matters he needed to address in relation to his evidence. From this time Mr Ayoub indicated in words to the effect of: ‘Some days I cannot get out of bed. I will try to seek the assistance of a friend to help me provide a draft statement’.

8   I spoke with Mr Ayoub on about 12 April 2016, at that time he said words to the following effect:

‘I am not well.’

9   Continued, attempts were made to make arrangements with Mr Ayoub to progress the matter until the time that Mr Ayoub was admitted to Wollongong South Coast Private Hospital private psychiatric unit on or about 20 April 2016.

10   In late 19 April 2016, Mr Ayoub advised me that he was unwell, he seemed confused and was difficult to speak to. He said words to the following effect:

‘I am not well. My head is confused.’

11   On 20 April 2016, I was informed that Mr Ayoub was being admitted to hospital.

12   Annexed hereto and marked ‘A’ is a true copy of a report dated 26 April 2016, from Dr Wijesinghe. Dr Wijesinghe has indicated that Mr Ayoub must stay in hospital for a period of 3 weeks to be effectively treated.

13   Mr Ayoub is the person with first hand knowledge of the matters relevant to this dispute and relevant to the cases of [Mr Ayoub, Illawarra and Milana] in these proceedings.

14   Without instructions and evidence from Mr Ayoub as to the factual matters relevant to this dispute, the cases of the first, third and fourth defendants cannot be progressed.

15   Mr Ayoub is unable to provide instructions and evidence during the estimated 3 week period of treatment in hospital.

16   As a consequence, [Mr Ayoub, Illawarra and Milana] seek an extension of up to 4 weeks to file and serve their evidence.”

28. Annexed to Mr Restuccia’s affidavit was a report from a consultant psychiatrist, Dr Wijesinghe.

29. Dr Wijesinghe said that in September 2015 he had diagnosed Mr Ayoub as suffering from an acute distress disorder, and that Mr Ayoub was reviewed by Dr Benjamin “on numerous occasions who felt that his diagnosis was of a bipolar disorder with mixed affective symptoms.”

30. Dr Wijesinghe referred to a “mental state examination” he had made of Mr Ayoub. Dr Wijesinghe did not say when that examination took place.

31. Dr Wijesinghe said:

“…he may have some cognitive deficits suggestive of a delirium or a psychosis as part of his bipolar disorder. He has a vague idea of the charges but aware that millions of dollars are at stake and he is therefore unable to instruct any solicitor.”

32. Dr Wijesinghe concluded:

“He is likely to stay in hospital for the next three (3) weeks and he is unable to instruct any solicitor or give evidence from hospital.”

33. What that evidence fails to explain is why none of Mr Ayoub, Illawarra or Milana has complied with my order concerning the costs thrown away by reason of the vacation of the 2 March 2016 hearing date.

34. That order was, in effect, the price I required the Ayoub interests to pay in order to secure the adjournment.

35. There is no evidence from Mr Ayoub’s tutor, Mr Donnelly, about Mr Ayoub’s financial position or otherwise to explain why he did not comply with the order. This is notwithstanding the fact that Mr Donnelly has otherwise been active in promoting Mr Ayoub’s interests. Thus, according to submissions made on 5 May 2016 on Mr Ayoub’s behalf by Mr McGrath SC, as recently as last Monday, 2 May 2016, Mr Donnelly, on Mr Ayoub’s behalf arranged “for a hired fleet of trucks and heavy equipment…to attend [at the property]” to collect chattels that Mr Ayoub had evidently left there.

36. Nor is there any evidence from either Illawarra or Milana as to why they have not complied with the order. Mr Ayoub is but one of two directors of Illawarra. The other is Mr Brian White. Mr Ayoub is not a director of Milana; its director is Mr Kenneth Sampson.

37. Not only is there no evidence from Messrs Donnelly, White or Sampson as to why my order has not been complied with, there is no evidence or suggestion on behalf of Mr Ayoub, Illawarra or Milana that it ever will be. No statement was made on behalf of any of these parties as to if, and when they propose to comply with the order. I can only assume they do not intend to do so.

38. Further, despite Mr Restuccia’s description of his dealings with Mr Ayoub since 2 March 2016, and Mr Ayoub’s admission to the Wollongong South Coast Private Hospital Psychiatric Unit on or about 20 April 2016, it appears that Mr Ayoub has been able to attend to some matters that he appears to consider to be in his interests.

39. Thus the solicitor for Recyclers, Mr Ellicott, has deposed that on 14 April 2016, Mr Ayoub “attended on and was given access to the property with a male person who was described as a ‘mechanic’”, evidently for the purpose of making arrangements to remove chattels which were left at the property.

40. Further, the solicitor for Aus Wide, Mr Fitzgerald, gave evidence that he was instructed “that Mr Ayoub in or about the last month travelled to Lebanon”. In par 2 of Mr Restuccia’s affidavit he stated that Mr Ayoub had told him that “he would be going away for about one week, which he believed would assist with his mental health condition and enable him to properly provide instructions”. There was no suggestion there of an overseas trip.

41. During argument on 5 May 2016, I asked Mr McGrath whether it was true that Mr Ayoub had travelled to Lebanon. Mr McGrath told me that he was instructed that this was true.

42. Mr Restuccia’s evidence gives some explanation as to why it has not been possible to prepare a statement for Mr Ayoub to sign. However, Mr Restuccia said that at the conference of 22 March 2016 “substantial progress was made” to prepare a statement. Further discussions took place between Mr Restuccia and Mr Ayoub “to progress the matter”, evidently without a final statement being prepared.

43. Nonetheless, Mr Ayoub was able to attend at the property on 14 April 2016, and, at some point between 2 March 2016 and now, travel to Lebanon.

44. Mr Ayoub, Illawarra and Milana now seek an extension of “up to four weeks” to serve their evidence.

45. However, based on the material now before me, I see no basis upon which it could confidently be predicted that any evidence would be forthcoming from Mr Ayoub within that period.

Should the defence and cross-claim be struck out for non-compliance with the orders of 4 March 2016?

46. Section 61(3) of the Civil Procedure Act provides that if a party to whom the direction has been given fails to comply with the direction, the court may, amongst other things, strike out a defence filed by or a claim made by such a person.

47. In exercising this power the Court must have regard to the overriding objective in s 56 of the Civil Procedure Act.

48. In Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388, Wilcox and Gummow JJ (at 395-6) considered an equivalent provision and stated:

“[T]he power given by this rule is conditioned on one circumstance only: the failure of a party to comply with an order of the Court directing that party to take a step in the proceeding. There is no requirement of intentional default or contumelious conduct, although the attitude of the applicant to the default and the Court's judgment as to whether or not the applicant genuinely wishes the matter to go to trial within a reasonable period will usually be important factors in weighing the proper exercise of the discretion conferred by the rule. There is no requirement of ‘inordinate and inexcusable delay’ on the part of the applicant or the applicant's lawyers, although any such delay is likely to be a significant matter. There is no requirement of prejudice to the respondent, although the existence of prejudice is also likely to be significant.

…

The discretion…is unconfined, except for the condition of non-compliance with a direction. …two situations are obvious candidates for the exercise of the power: cases in which the history of non-compliance by an applicant is such as to indicate an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period and cases — whatever the applicant's state of mind or resources — in which the non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the respondent.”

49. To strike out the defence and cross-claim would, of course, be a drastic step.

50. There are a number of competing factors at play. The first is the injustice that may be caused to the Ayoub interests if, despite the difficulties that Aus Wide contends lie in their way (see [16] to [20] above), they are denied the opportunity to defend the proceedings and prosecute the cross-claim.

51. However, the Ayoub interests have had every indulgence in the proceedings. There is a history in this case of non-compliance with court orders; most significantly in relation to the costs order of 4 March 2016.

52. There is no evidence as to why that order has not been complied with or whether it will ever be complied with.

53. Mr Ayoub’s undisclosed trip to Lebanon suggests to me that he considers whatever benefit that trip brought him to be more significant than his obligation to comply with the Court’s orders.

54. It does appear that there is an issue in relation to Mr Ayoub’s mental health. However, he has a tutor who continues to act in his interests and I have found he is competent to give evidence. There has been no suggestion that I should revisit that issue.

49. I must also consider the position of the other parties. If the defence and cross-claim are not struck out, it appears to me to be probable that no evidence will be forthcoming from the Ayoub interests in time for the hearing commencing on 6 June 2016 to be preserved. The likely result is that the hearing date will, again, be vacated with no reasonable prospect of resolution of the outstanding issues in the foreseeable future.

50. Recyclers and Aus Wide were ready to proceed at the hearing scheduled for 2 March 2016 and are ready to deal with the cross-claim at the hearing now fixed for 6 June 2016. They have obviously expended considerable funds preparing the evidence needed to deal with the cross-claim.

51. Enough is enough.

52. I order that the amended defence of the first, third and fourth defendants, and the first cross-claim, be dismissed with costs.

53. As a consequence, and for no other reason, I order that the second cross-claim be dismissed.

54. I will now invite submissions as to what further orders should be made in the proceedings.

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Decision last updated: 09 May 2016