Woolf v 52 Birriga Road Pty Ltd
[2012] NSWSC 921
•09 August 2012
Supreme Court
New South Wales
Medium Neutral Citation: Woolf v 52 Birriga Road Pty Ltd [2012] NSWSC 921 Hearing dates: 9 August 2012 Decision date: 09 August 2012 Jurisdiction: Common Law Before: Beech-Jones J Decision: 1. That the report of Mr R. Smith dated 1 May 2012 be adopted save for so much of that report that purports to determine the entitlement of the Plaintiffs to recover default interest and legal costs as opposed to the quantum of those costs.
2. The Plaintiffs' notice of motion filed 11 May 2012 be otherwise dismissed.
3. The Defendant's notice of motion filed 18 June 2012 be dismissed.
4. The Defendant pay the Plaintiffs' costs of both notices of motion.
5. The Plaintiffs' costs of the reference to Mr R. Smith be the Plaintiffs' costs in the cause.
6. The proceedings be stood over before the Registrar on Monday 20 August 2012 at 9.00am for directions.
Catchwords: REFERENCE - adoption of report - breach of natural justice - dictates of justice - scope of adoption - costs. Legislation Cited: Civil Procedure Act 2005 - s 56
Limitation Act 1969
Uniform Civil Procedure Rules 2005 - r 20.24Cases Cited: - Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 72; 225 CLR 88
- Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784
- Rhodes, Julie Dawn v Christine Elizabeth Fletcher & Quasar Professionals ACT Pty Ltd [2000] NSWSC 797
- SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs [2006] HCA 63; 228 CLR 152Category: Interlocutory applications Parties: Kenneth Woolf (First Plaintiff)
Nita Woolf (Second Plaintiff)
52 Birriga Road Pty Ltd (Defendant)Representation: Counsel:
P. Cutler (Plaintiffs)
A.R. Vincent (Defendant)
Solicitors:
Michie Shehadie & Co (Plaintiffs)
Salim Rutherford Lawyers (Defendant)
File Number(s): 2010/113933
EX TEMPORE Judgment
Before me are two notices of motion filed by each of the parties. Leaving aside costs, the plaintiffs only press prayer 1 of their notice of motion which seeks the adoption of the entirety of a report of a referee, Mr R. Smith dated 1 May 2012. The defendant resists that order and by its own motion seeks the remittal to Mr Smith of various matters for further enquiry and report.
Background
It is common ground that in the late 1990's the plaintiffs' solicitor, Mr Shehadie, conducted a contributory mortgage scheme. The entity which undertook the lending was a company owned by himself and his wife, Guarantee and Agency Corporation Pty Ltd ("Guarantee and Agency"). Guarantee and Agency advanced sums to Mr Maroun Taouk. It appears that Mr Taouk regularly bought and sold properties. From time to time he repaid the sums advanced and then drew upon further funds from Guarantee and Agency. Thus the amount outstanding moved up and down.
On or about 15 January 2003 a mortgage was registered on a unit in Bellevue Hill. The mortgagee was Guarantee and Agency. The mortgagor was a company, namely 52 Birriga Road Pty Ltd, which is associated with Mr Taouk. It is the defendant in these proceedings. The mortgage purports to bear Mr Taouk's signature and that of the company secretary, as well as the defendant's corporate seal. The plaintiffs allege that this mortgage secures the entirety of the amounts advanced to and owing by Mr Taouk and his related entities. The circumstances in which that mortgage came about appear to be contested. There is no need for me to resolve any such contest on this application.
The plaintiffs further allege that on 23 December 2003 the benefit of the mortgage was transferred to them and the defendant was given notice of the transfer. The defendant disputes receiving any such notice.
The proceedings on the reference
It does not appear that much happened in the next six years. On 7 May 2010 the plaintiffs filed a statement of claim against the defendant. They sought judgment for possession of the mortgaged property and a monetary sum of $81,261.88.
On 20 October 2010 default judgment for possession and a monetary sum was entered. Subsequently the defendant applied to set aside the default judgment. The judgments were stayed until that application was heard.
On 8 February 2012 consent orders were entered setting aside the default judgment and any writ of possession that had been issued and granting the defendant leave to file a defence in a form attached to one of Mr Taouk's affidavits. Order 5 of those consent orders provided that:
"The question of the quantum, if any, of the amount loaned to the Defendant by Guarantee & Agency Corporation Pty Ltd and/or Michie Shehadie & Co and/or of the amount, if any, owing by Guarantee & Agency Corporation Pty Ltd and/or Michie Shehadie & Co to Maroun Taouk or any related entities be referred for determination pursuant to UCPR 20.14 to Robert Smith of Vincents Chartered Accountants."
The reference to the possibility that an amount was owing by Guarantee and Agency or by Michie Shehadie & Co to Mr Taouk followed from an assertion made by Mr Taouk that he in fact had repaid the amounts that had been advanced and interest, and that there was a balance owing to him. Thus, the short minutes include an undertaking given by Mr Shehadie personally to the Court that he would repay any moneys that were found by the referee to be owing by either himself, Guarantee and Agency or any other entities associated with himself.
Consistent with the above order, orders were subsequently made appointing Mr Smith as referee. The question posed for the referee reflected the order that I have extracted. The orders provide for the referee to submit his report by 1 May 2012. In circumstances in which I will further explain, on 1 May 2012 the referee submitted his report to the Court. In paragraph 1.1 of his report he recorded:
"In my opinion, based on the evidence available to me, the quantum of the defendant's debt to the plaintiffs is $91,453.89 in principal and accrued interest as at 2 May 2012."
Subsequent to the filing of a referee's report, both parties filed the motions to which I referred at the commencement of the judgment.
As foreshadowed by the orders made when the default judgment was set aside, a defence was filed. A number of issues were raised by the defence. The defence disputed the extent of any indebtedness, that being the topic that was being referred to the referee. The defence also contains what appears to be a denial that the mortgage is binding on the defendant. It includes a defence based on the Limitation Act 1969; a denial of the effectiveness of the transfer of the mortgages to the plaintiffs in December 2003; as well as a contention that the entry into, and reliance upon, the mortgage is, in all the circumstances, unconscionable. Further, although it is not expressly referred to in the defence, it is clear from the correspondence that there is a dispute on the part of the defendant as to whether it is obliged to pay any default interest both in respect of the period prior to the entry of the mortgage and after it.
The Referee's Report
I have already described paragraph 1.1 of the referee's report. The report is comprised of some fourteen pages with a number of schedules. Schedule A to the report is a reconciliation that has been prepared by the referee, reflecting his findings. It is appropriate to note two matters about the referee's report. First, consistent with what the parties intended, the substance of the report only addresses "quantum" issues. The referee does not purport to address any aspect of the defence that denies that the mortgage is binding upon the defendants, that the plaintiffs received the benefit of the transfer of the mortgage in December 2003 or that reliance on the mortgage is unconscionable. Further, the report does not address whether the plaintiffs are entitled to recover default interest but instead calculates what that default interest would be if they were so entitled. If the report is to be adopted, it is important that those limitations upon its scope are noted.
Second, with the exception of one particular area, the referee exclusively relied upon the contemporaneous documentary material concerning the loan and any repayments to support his findings. I describe that area of exception below.
The referee was also provided with the affidavits that have been sworn by the parties in support of the application to set aside the default judgment. They clearly revealed a contest between Mr Shehadie and Mr Taouk over a number of matters, including a number of disputed conversations. The referee did not purport to resolve any of those disputes except to the extent that it was demonstrated by the contemporaneous records concerning advances and repayments. It seems that the one matter that was of particular significance to him was the trust account ledger maintained by Mr Shehadie's firm.
Adoption of the Report
Rule 20.24 of the Uniform Civil Procedure Rules 2005 ("UCPR") provides as follows:
"Proceedings on the report
(1) If a report is made under rule 20.23, the court may on a matter of fact or law, or both, do any of the following:
(a) it may adopt, vary or reject the report in whole or in part,
(b) it may require an explanation by way of report from the referee,
(c) it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report,
(d) it may decide any matter on the evidence taken before the referee, with or without additional evidence,
and must, in any event, give such judgment or make such order as the court thinks fit.
(2) Evidence additional to the evidence taken before the referee may not be adduced before the court except by leave of the court."
The parties were not in dispute as to the principles that are to be applied in considering the exercise of the power conferred by this rule. In particular I was referred to the decision of McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784, especially at [7]. I adopt his Honour's analysis. The defendant's opposition to the adoption of the report was based upon what it contended was a breach of procedural fairness on the part of the referee. To address its complaints, it is necessary to set out the course of the reference in some more detail.
On 27 February 2012, orders were made referring the relevant question to Mr Smith. Mr Smith adopted a process whereby at various times he met with the parties separately. On 27 March 2012 he attended a meeting with Mr Taouk and his solicitors. During that meeting Mr Taouk explained that Mr Shehadie had provided him, that is Mr Taouk, with a number of ledgers. Mr Taouk took the opportunity to explain his concerns with those ledgers. Mr Smith was provided with the two affidavits of Mr Taouk and an affidavit of Mr Shehadie all of which had been sworn in relation to the application to set aside the default judgment.
On 27 March 2012 Mr Smith sent an email to Mr Taouk's solicitors seeking a spreadsheet which was an appendix to Mr Taouk's affidavit. It was provided the next day.
On 4 April 2012 Mr Shehadie delivered a number of documents to Mr Smith. These included a document entitled "Taouk's Points of Difference" which was, in effect, a submission, as well as a number of supporting documents, including extracts from various ledgers.
On 12 April 2012 the defendant's solicitor wrote to Mr Smith enquiring whether they had met with Mr Shehadie, and seeking copies of any documents that had been provided by Mr Shehadie. Mr Smith responded on 20 April 2012 enclosing copies of the documents he received from Mr Shehadie and advising that he met with Mr Shehadie on 30 March 2012.
On 24 April 2012 Mr Shehadie sent Mr Smith a letter which was copied to the defendant's solicitors. It stated that he had completed a spreadsheet setting out all quotes, advances, accrual of interests and payments of interest, and requested a meeting for it to be provided, along with the supporting documents. It does not appear that the material was provided. Mr Smith advised by email of the same date that he was working to complete a report by 1 May 2012 and that he had made significant progress. Mr Smith advised Mr Shehadie that, if he wanted him to consider further material, it should be provided as a matter of priority. This email was copied to the defendant's solicitors. In effect, it was providing them with the same opportunity.
The last piece of correspondence to Mr Smith, prior to the provision of his report, was a letter that was emailed from Mr Shehadie at 12.14pm on Monday, 30 April 2012. It was copied to the defendant's solicitors. The letter stated:
"We refer to previous correspondence and the document headed 'Points of Difference' sent to you by us.
Whilst it is implied in the document, we wish to confirm that the only payments of interest made by Mr Taouk are those identified in the Trust ledger sent to you with the said document. It is apparent from the trust ledger that on occasion interest was paid (at the direction of Mr Taouk) from funds that had accumulated in his account.
We wish to clarify this point as we have not seen the final spreadsheet provided to you by Mr Taouk, however in previous spreadsheets that he provided to us he showed payments of interest that had not in fact been made."
Consistent with the Court's orders, on the next day Mr Smith filed his report.
In May 2012, there was further email correspondence between the defendant's solicitors and Mr Smith. The defendant's solicitors had taken up various concerns they had with Mr Smith's report, and Mr Smith had responded. In his responses, Mr Smith appears to accept that he was prepared to reconsider the question of the indebtedness if further material was provided to him. I mean no criticism of Mr Smith, but whether he was authorised to undertake that reconsideration depended upon whether the orders of the Court were to be amended to allow that to occur. As at 17 May 2012 they had not. That said, I read Mr Smith's emails as merely him expressing politely his preparedness to assist the parties if they required it. Mr Smith's emails are not, however, evidence that there was some form of relevant error in his report of 1 May 2012.
Grounds for opposition to the adoption of the Report
In a careful argument, Mr Vincent of counsel for the defendant, identified three matters which he contended - individually or collectively - warranted a conclusion that there was a breach of procedural fairness on the part of the referee with the result that the report should not be adopted. First, he contended that the referee received communications from the plaintiffs at times the defendant was not present and was not later apprised of. Second, he pointed to the fact that the referee received the letter of 30 April 2012 and maintained that there was insufficient time for his client to provide any meaningful response prior to the issue of the report. Thirdly, he relied upon a failure by the referee to disclose an aspect of his reasoning in his report and which I will later describe.
Mr Vincent referred to the decision of Bergin J, as her Honour then was, in Julie Dawn Rhodes v Christine Elizabeth Fletcher & Quasar Professionals ACT Pty Ltd [2000] NSWSC 797 and especially to the analysis of her Honour at [11]-[19]. After reviewing various authorities, her Honour stated at [18]:
"I am satisfied that Mr Hollands [the referee] was required to afford natural justice to the parties, giving each the opportunity of putting before him the relevant matters for which they contended and giving each the opportunity to comment upon the relevant information adduced from the other party and to comment upon information on contentious matters otherwise gathered by him."
In Rhodes, important information was imparted to the referee when he conferred with one of the parties and it was not later communicated to the other side (see Rhodes at [39].) It is clear that that information played a role - perhaps a significant one - in the referee's reasoning and analysis (Rhodes at [57]).
The circumstances of an administrative decision-maker receiving information which is not disclosed to an affected party but which does not appear to have played a part in their ultimate decision-making, and whether that constitutes a breach of procedural fairness, was considered in Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 72; 225 CLR 88.
However, a motion for the adoption of a report is a qualitative different context to judicial review of an administrative decision. There are significant limitations upon the Court's function in judicial review. In particular, the Court does not have power to determine the ultimate merits of the dispute. In this context and unlike judicial review, the question for the Court is not the legal validity of the referee's report but whether the ultimate interests of justice would be served by its adoption in whole, in part, or its rejection. Thus a conclusion that the report involved a breach of natural justice in some sense, does not necessarily lead to a finding that the report should be rejected in whole or in part, although it is obviously a strong start. There would still need to be considered the overall dictates of justice, including the principles set out in s 56 of the Civil Procedure Act 2005. Thus, if I were satisfied that a matter imparted to the referee by one party without the knowledge of the other played no role in his overall decision and that the matters that did play a role were sufficiently disclosed to the parties, that would be a strong factor in favour of the adoption of the report. This would be the case notwithstanding that a strict analysis of those circumstances might warrant a finding of a breach of a procedural fairness. A further factor of particular relevance to this case is that the amounts in dispute are relatively modest and there is therefore a consequential risk that further fragmentation and delay will increase the cost of the dispute out of all proportion to the amount being litigated.
I turn to the specific matters raised by Mr Vincent said to constitute a breach of procedural fairness. It is clear from the above recitation of events that each of the parties spoke with the referee in private conference. It is also clear that the referee did not provide either a line by line recitation or even a summary of what was stated to him by the other parties. This was not a desirable course.
In paragraph 3.4 of his report the referee stated:
"I note that in undertaking my enquiry and report, I have had the benefit of discussions with Mr Taouk and Mr Shehadie. In addition, Mr Taouk and Mr Shehadie have provided me with the information on which the conclusion and opinions expressed in this report are based."
I read the reference to the "information" in the second sentence of this extract as a reference to the documentary material that was provided. Read in that way, the paragraph suggests that the conclusions and opinions were based upon the documentary information that was provided, and not the discussions. While this might be considered a strained reading of the paragraph, it is confirmed by the balance of the report with one area of exception. In paragraph 4.4 Mr Smith sets out what Mr Shehadie instructed him were the terms of the loan facility. However, as I stated earlier, Mr Smith was not embarking upon an exercise of determining what the terms of any loan facilities were, and both parties understood that. No decision by me to adopt any aspect of his report, in whole or part, is to be taken as an adoption of Mr Smith's description of those terms. The clear view that I have formed about the balance of the report, however, is that in determining quantum, Mr Smith exclusively relied upon the contemporaneous records that were provided by the parties. Mr Smith evaluated for himself whether or not the parties established the making of the various payments that were in issue. There is nothing in that material which supports a suggestion that anything that was orally imparted by Mr Shehadie - which Mr Taouk was not aware of - played any role at all in relation to the relevant findings in Mr Smith's report.
I have referred earlier to the affidavits that were exchanged in support of the application to set aside the default judgment. Those affidavits, amongst other things, debated the amount that was owing, and did so by reference to the documents that were retained by the deponents. To both parties' knowledge Mr Smith received those affidavits. In my view, the parties could not have been under any real misunderstanding that Mr Smith's reconciliation exercise would be undertaken by reference to those contemporaneous documents. Consistent with the observations that I have made above, I do not consider the fact that Mr Smith received information orally from Mr Shehadie at a meeting at which neither Mr Taouk nor any other representative of the defendant was present, to be a matter that warrants the rejection of the report.
The second matter relied on by Mr Vincent was what was said to be the absence of any opportunity on the part of his client to respond to the letter of 30 April 2012. I have set out the terms of that letter above. The only point being made in the letter was Mr Shehadie's assertion that, if there was no interest payment recorded in his ledgers, it was not made. Mr Shehadie said that that was to be "implied" in that document. I do not accept the defendant did not have a proper opportunity to respond to that letter by the next day. The letter was, after all, only nine lines long (in its original format). All it did was restate a position that the parties had debated with each other for a considerable period. Further, nothing in Mr Smith's report reveals that Mr Shehadie's assertions in his letter of 30 April 2012 played any part in his ultimate decision. It is the case that Mr Smith inferred from the absence of entries in the trust ledger that there was no interest paid. However, that conclusion was based upon his experience as an accountant in reading a ledger, not because of anything that Mr Shehadie stated. I reject this contention as a basis for not adopting the report.
The third matter relied on by Mr Vincent concerned paragraphs 4.32-4.37 of the referee's report:
"INTEREST PAYMENTS
4.32 With respect to interest payments, there is agreement between the parties concerning the amount of those payments, with the exception of the following matters.
4.33 Mr Taouk has credited an interest payment of $3,238.39 on 1 August 1997. I assume Mr Taouk relied upon an entry in Mr Shehadie's Appendix J to Mr Shehadie's Affidavit of 20 April 2011 (attached as Appendix 4 to this report).
4.34 In my opinion, Mr Taouk made an interest payment of $258.39 on 25 August 1997. I rely upon Michie, Shehadie & Co's Ledger 1824 attached as Appendix 5 which records a payment of $258.39 on 25 August 1997.
4.35 I can only speculate as to why Mr Shehadie and Mr Taouk each added an additional $3,000 in their reconciliations. It may have something to do with the reduction in principal borrowed by Mr Maroun Taouk and on lent to Mr Gabriel Taouk / LGT Concrete as discussed at paragraph 4.12 above.
4.36 Mr Taouk has credited an interest payment of $3,681.78 on 1 November 1997. I cannot locate any record of that payment and accordingly I have excluded it from Schedule A.
4.37 Mr Taouk has credited an interest payment of $4,875.00 on 6 November 1998. I cannot locate any record of that payment being received by Michie, Shehadie & Co among the records available to me and accordingly I have excluded it from Schedule A. I note that Mr Taouk provided a copy of a cheque butt alleged to be a record of the interest payment. In my opinion, that evidence does not independently establish that Michie, Shehadie & Co received the interest payment. In the circumstances, Mr Taouk's bank statement, recording presentation of the cheque, and a copy of the original cheque would be adequate evidence to establish that the payment had been made to Michie, Shehadie & Co." (emphasis added)
Mr Vincent submitted that so much of paragraph 4.37 which involves a reasoning process that the referee would not accept a cheque as independent evidence but might accept a bank statement and an original cheque, was not disclosed but should have been. The short answer to this contention is that it was not incumbent upon the referee to disclose in advance his mental processes in evaluating the documentary material (SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs [2006] HCA 63; 228 CLR 152 at [48]). I have described the battleground that was established by the parties, namely that they were putting forward their respective documents as demonstrating the amounts advanced and amounts repaid. The referee decided the matter completely within that battleground. Within it he did not have to provide the parties with his thinking in advance of his actual reasons. On an issue as to whether an interest payment was made, the defendant had to satisfy Mr Smith that it was paid. It had the reasonable opportunity to do so and this included the opportunity to put forward whatever evidence it wished. It took up that opportunity but the referee was not satisfied. Such a process does not reveal a breach of procedural fairness.
It follows that, considered individually or collectively, the matters relied on by Mr Vincent do not warrant the rejection of the report.
I note two further matters. First, the defendant produced a list of a number of either factual errors or factual complaints concerning Mr Smith's report. Mr Vincent properly conceded that, of themselves, none of those complaints rose to the level of either perversity or unreasonableness which would warrant interference with the referee's report in accordance with the principles set out by McDougall J in Chocolate Factory at [7]. As the grounds upon which the defendant contend did warrant interference have not been successful, it is unnecessary to consider those further.
Second, there was an attempt by the plaintiffs to tender a document concerning the interest payment referred to in paragraph 4.37 of the referee's report that I have extracted above. The purpose of the tender was to demonstrate that there was an interest payment, but that it related to something completely different. Not surprisingly, Mr Vincent seized upon this as a matter that warranted further referral of the issue concerning at least this interest payment. In my view, that is not justified. What this exchange reveals is the necessity to pay regard to the dictates of s 56 of the Civil Procedure Act. The debate that occurred over this tender reinforced my apprehension that, if this matter was to be returned to Mr Smith, there would be attempts to re-agitate the factual issues he has already determined and which only involve modest amounts of money. The inevitable likelihood is that the costs involved would far outweigh the amount in dispute. I reject the tender.
Conclusion
It follows that I will order the adoption of the report, although it will be necessary to express my orders so that they do not convey any suggestion that the defendant is precluded from arguing that it is not obliged to pay default interest. As I have said earlier, it should also be understood that the adoption of the report does not affect the determination of those issues in the defence that do not attack the quantum of the amount owing, such as those concerning the identity of the plaintiffs, the terms of any loan granted prior to the mortgage, whether time has expired to sue on these causes of action and whether the mortgage is not enforceable by reason of any unconscionability on the part of the plaintiffs or any other person. It will also be incumbent upon the parties to now prepare the balance of the proceedings on the basis that the issues of quantum have been determined.
The only remaining issue between the parties concerns costs. In light of my findings, it is accepted that an order for the defendant to pay the plaintiffs' costs of the plaintiffs' motion and the defendant's motion must follow. The plaintiffs also seek their costs of the reference. They do so on the basis that the figure calculated by the referee represents the figure that they have always asserted was the correct amount. In fact it appears to be slightly higher. The defendant opposed such an order on the basis that the ultimate outcome may be that these amounts may prove not to be owing by reason of the remaining issues raised by the defences. In one sense, what has occurred in this case is the inversion of the usual process of litigation whereby the substantive defences are determined first and issues of quantum are determined later. However, the opposite course was taken by the parties and no doubt they did it for good reason.
Bearing in mind that the plaintiffs might ultimately not be successful in recovering these amounts, I think the appropriate order in respect of the costs of the reference is that they be the plaintiffs' (and the plaintiffs' alone) costs in the cause. Accordingly, the orders I make are as follows:
1. That the report of Mr R. Smith dated 1 May 2012 be adopted save for so much of that report that purports to determine the entitlement of the Plaintiffs to recover default interest and legal costs as opposed to the quantum of those costs.
2. The Plaintiffs' notice of motion filed 11 May 2012 be otherwise dismissed.
3. The Defendant's notice of motion filed 18 June 2012 be dismissed.
4. The Defendant pay the Plaintiffs' costs of both notices of motion.
5. The Plaintiffs' costs of the reference to Mr R. Smith be the Plaintiffs' costs in the cause.
6. The proceedings be stood over before the Registrar on Monday 20 August 2012 at 9.00am for directions.
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Decision last updated: 16 August 2012
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