Eliopoulos v Sher

1. [1]

   This application to set aside a default judgment (and to be granted liberty to file a defence) was before me in the Duty List on 22 November 2024. Whilst there is no dispute about the existence of a debt underpinning the default judgment, the defendant, Halina Gilla Sher, contends that she is not the correct defendant and she should be permitted to attempt to make good that contention in a substantive hearing.

2. [2]

   The plaintiff, Chris Eliopoulos, brought an action against Ms Sher personally by way of a Statement of Claim filed on 4 April 2023 for the sum of $1,425,000.00 plus interest. The default judgment of $1,848,109.00 inclusive of costs was entered against the defendant on 3 August 2023.

3. [3]

   The application is brought pursuant to r 36.16(2) of the Uniform Civil Procedure Rules 2005 (NSW). In order to succeed, Ms Sher needs to show there is a bona fide defence on the merits, must adequately explain the default in filing a defence, and the Court should take into account the length of any delay. It is relevant to consider whether Mr Eliopoulos would be prejudiced if the default judgment were set aside: see Pham v Gall (2020) 102 NSWLR 269; [2020] NSWCA 116 at [95]–[103].

4. [4]

   In assessing whether the defendant has a bona fide defence on the merits, the court does not embark upon a full hearing. It is necessary to consider whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits. In exercising the power under r 36.16(2), the Court is under a duty to give effect to the “overriding purpose” identified in s 56(1) of the Civil Procedure Act 2005 (NSW) to facilitate the “just, quick and cheap resolution of the real issues in the proceedings”: Dai v Zhu [2013] NSWCA 412 at [83]–[93].

Background

1. [5]

   The Statement of Claim alleges Mr Eliopoulos lent Ms Sher two sums of money ($650,000 in October 2021, and $150,000 in November 2021) on the understanding that the sums would be repaid by 3 December 2021, together with additional amounts of $120,000 and $15,000 representing interest. The monies were placed into bank accounts nominated by Ms Sher.

2. [6]

   Ms Sher relies upon two affidavits prepared by her, one filed 30 July 2024 and one filed 8 October 2024, and an affidavit affirmed by her solicitor, Mark Cerne, on 21 November 2024 (the day before the hearing).

3. [7]

   Mr Eliopoulos relies upon an affidavit prepared by him, affirmed 13 September 2024, and an affidavit of Rebecca Salib, affirmed 15 May 2023.

4. [8]

   In her affidavit filed on 30 July 2024, Ms Sher claims she did not appear nor file a defence because of “personal health and financial reasons”. She claims she suffered from “physical, mental and financial, issues, anxiety and necessitousness at the times relevant to the Supreme Court claim and had been the subject of threats by the plaintiff in relation to the debt owed purportedly by [her].” She claims she has “a genuine defence to the default judgment entered against [her] relevant to the Supreme Court claim” and that she “is not personally indebted in the sum alleged to the Plaintiff, or in any sum at all”.

5. [9]

   Ms Sher is the 71-year-old sole director and shareholder of two companies which own properties at Bondi Junction in Sydney, U & G Properties Pty Ltd (“U & G Properties”) and Aharon Investments Pty Ltd (“Aharon Investments”). These companies will together be referred to as “the property companies”. Each generated earnings from leases to residential tenants.

6. [10]

   Ms Sher claims that the COVID-19 pandemic, in 2020 and 2021, put her business under severe stress as tenants struggled to pay rent while her businesses still had to pay mortgages. Further hardship occurred in mid-late 2022 when interest rates began to rise. On 4 March 2023, receivers and managers were appointed to U & G Properties and Aharon Investments. As a result, Ms Sher says she suffered physical health and psychological impacts “namely acute anxiety and chest pains that led [her] to have diminished mental capacity to deal with the new set of problems”. On 29 January 2024, another receiver and manager was appointed to Aharon Investments.

7. [11]

   Ms Sher stated that as the assets of the companies produced her only income, she had insufficient money to support herself following the appointment of the receivers and managers in 2023. She states:

8. [12]

   In relation to her contended defence, she claims that she first met Mr Eliopoulos, a solicitor, in a professional capacity in about August 2016 when he acted for her as a lawyer in relation to a personal matter. After that, they would meet in Bondi Junction from time to time and he would assist with legal tasks, including the witnessing of documents as well as providing Ms Sher, on at least one occasion, with a lawyer’s certificate in relation to Ms Sher’s role and responsibilities for one of her companies.

9. [13]

   She claims that over the years, Mr Eliopoulos became familiar with the substantial asset holdings of her companies and the location of those assets, namely, in Bondi Junction.

10. [14]

    Ms Sher deposes that she believes she has a genuine defence, claiming that:

11. [15]

    There is some objective evidence including the following:

12. [16]

    Also included in the material relied upon by Ms Sher is a copy of the proposed Defence.

13. [17]

    In addition to Mr Eliopoulos’s affidavit of 13 September 2024 summarised below, Mr Eliopoulos also relied upon an affidavit in relation to service of the Statement of Claim affirmed by Rebecca Salib on 15 May 2023. As noted above, it is not in issue that Ms Sher became aware of the existence of the Statement of Claim during mid-2023.

14. [18]

    Mr Eliopoulos relied upon an affidavit affirmed by him on 13 September 2024 setting out, to the best of his recollection, conversations with Ms Sher, as well as SMS text messages and email correspondence.

15. [19]

    He set out his account of the loan discussion in late September 2021 which included that Ms Sher wanted to discuss a “new matter”. Ms Sher asked Mr Eliopoulos to lend her $400,000 on the basis that he would receive $430,000 back at the end of October 2021. The account included the following:

16. [20]

    On or about 19 October 2021, Mr Eliopoulos received a call from Ms Sher asking to borrow a further $250,000. They agreed verbally as to the loan of this amount such that the total principle became $650,000 and she would pay this plus $120,000 in interest by no later than 3 December 2021.

17. [21]

    This was confirmed by an SMS message sent from Mr Eliopoulos to Ms Sher on 21 October 2021.

18. [22]

    There was a further oral request from Ms Sher to borrow an additional $150,000 from Mr Eliopoulos. That was agreed such that the total principal became $800,000 and interest would be $135,000 with the total of $935,000 to be paid on or before 3 December 2021. Mr Eliopoulos sought confirmation of the total amount by text on 11 November 2021.

19. [23]

    Accounts of further interactions were set out by Mr Eliopoulos, setting out details of delays and Mr Eliopoulos’ requests for repayment.

20. [24]

    Included in the SMS messages was one from Mr Eliopoulos to Ms Sher on 24 March 2022 asking: “Do I have to sue you Gilla?” She responded later that day by SMS stating: “There is no need to panic. I cant come out I am still sick” and “So far we have had 3 serious interested parties with plenty of money”.

21. [25]

    In response to an SMS message relating to potential legal action Ms Sher replied: “I wasn’t worried about you suing me. You have no written agreement. You would loose [sic]”.

22. [26]

    Included in the correspondence was an SMS message on 11 January 2023, in the course of Ms Sher attempting to refinance the loan, requesting Mr Eliopoulos to write up a formal loan agreement showing the total amount she had borrowed and the total amount owing. She sent a further message asking him to keep the loan agreement clean, with today’s date (being, at that time, 11 January 2023) and added that the lawyers knew the loan was “a hand shake agreement”. Mr Eliopoulos drafted and sent such a loan agreement by email to Ms Sher, and she confirmed she had received it and forwarded it to the proposed lender. It was never signed by either party as Mr Eliopoulos said that Ms Sher informed him that it did not need to be signed. The draft loan agreement was between Mr Eliopoulos and Ms Sher personally.

23. [27]

    Following the filing of the Statement of Claim, amongst the messages exchanged was one by Ms Sher sent by SMS message on 24 June 2023 stating “I cant talk about your loan, as you are a lawyer and I am not, and you initiated proceedings in the supreme court” and “It has always been my intention and still is to pay you back”.

24. [28]

    On 3 August 2023, Mr Eliopoulos sent Ms Sher an SMS message that he was going to serve her with a bankruptcy notice the following day and an image of the default judgment obtained in these proceedings. Ms Sher responded that she felt sad and that she would pay him back.

25. [29]

    On 1 September 2023, after being served with the bankruptcy notice, Ms Sher sent an email to Mr Eliopoulos’ lawyers stating that her properties were in the hands of the receiver and that she did not have any other assets that could satisfy the debt if he proceeded to bankrupt her. The letter includes the following:

26. [30]

    Mr Eliopoulos contends that Ms Sher has always maintained that the debt was owed personally and at no time contested that the debts were that of her companies. Further, he contends that in all correspondence with him and his solicitors, she has made representations that the properties owned by U & G Properties were her properties and her assets, not that of the company.

27. [31]

    Mr Eliopoulos also provided information about criminal proceedings against him which arose out of his interactions with Ms Sher. On 9 October 2023, Mr Eliopoulos was charged by police with an offence of use carriage service to menace/harass/offend between 1 January 2022 and 18 August 2023, with the victim named as Ms Sher. The police facts included:

28. [32]

    In Ms Sher’s police statement dated 17 August 2023, she states that Mr Eliopoulos “lent me a large amount of money which I partly paid back leaving a balance [of] $500,000 owed by myself to him”, and other statements indicating the loan was to Ms Sher personally.

29. [33]

    This affidavit was prepared following receipt of Mr Eliopoulos’ affidavit. She provided further detail and clarified certain matters, some of which are now set out.

30. [34]

    Ms Sher clarified that after the property companies were put into receivership, the leases with the residential tenants were terminated by the receivers.

31. [35]

    She used the U & G Properties bank account to receive income from each of the tenancies and always ran the financial side of the companies using this account. Mr Sher explained that the Aharon Investments bank account does not really operate. She only used that account when there are very large transactions related to the company such as loans and loan repayments, which occurred in this case.

32. [36]

    The portfolio of property owned by her companies is valued at $60 million including all the family titles. Other properties in the same precinct as her properties are owned by her family members.

33. [37]

    As to Mr Eliopoulos’ contention that he had only certified one document for her in March 2021, Ms Sher believes that occurred more often in respect of loans to her companies. She contended:

34. [38]

    Ms Sher also produced SMS messages between her and Mr Eliopoulos indicating he was available to assist her son with loan documentation or financials.

35. [39]

    Ms Sher strongly disagreed that Mr Eliopoulos did not know the extent of the holdings of her companies. She stated that they had spent a lot of time together when he acted for her on a personal matter in 2018. She talked about her family history and her business interests. Prior to the loans they had a close professional and personal relationship.

36. [40]

    As to the first loan agreement, Ms Sher stated that “at a later stage” she sent Mr Eliopoulos a copy of a document called a Term Sheet she received from Merricks Capital listing the properties and the companies related to them. Ms Sher claimed she asked him “How much do you want for the loan?” and “What security do you want?” She recalls that he knew the properties. Ms Sher annexed to her affidavit an email sent to Mr Eliopoulos dated 11 November 2021, attaching a copy of the Term Sheet on a “Merricks” letterhead and addressed to “Gilla Sher, U&G Properties, Aharon Investments Pty Ltd, Via Email” with the “Borrower” listed as U&G Properties Pty Ltd and Aharon Investments Pty Ltd ATF Aharon Investments Family Trust.

37. [41]

    She denied stating that she would guarantee the loan from Mr Eliopoulos.

38. [42]

    Ms Sher set out that the transfers out of the U & G Properties bank account set out above at [15(g)] were to Rasko Investments, the vendor of the property she was purchasing, for the deposit, and that the purchaser of the property was Aharon Investments.

39. [43]

    Ms Sher also stated she asked Mr Eliopoulos to direct payment of the second loan of $150,000 to the vendor Rasko Investments Pty Ltd.

40. [44]

    Ms Sher annexed the text of the SMS exchanges from the beginning of the negotiations in 2021 to up to the messages apparently the subject of the criminal charge in 2023. There are many. I have included those which appear most relevant to the purported defence.

41. [45]

    Amongst them include a message on 28 November 2022 from Mr Eliopoulos:

42. [46]

    On 2 December 2022, Mr Eliopoulos sent a message including the following:

43. [47]

    On 5 December 2022, Mr Eliopoulos sent a message:

44. [48]

    On 8 December 2022, Mr Eliopoulos sent the following messages:

45. [49]

    On 10 December 2022, Mr Eliopoulos sent a message:

46. [50]

    On 15 December 2022, Mr Eliopoulos sent a message:

47. [51]

    On 22 December 2022, Mr Eliopoulos sent a message:

48. [52]

    On 17 January 2023, Mr Eliopoulos sent a message:

49. [53]

    On 18 January 2023, Mr Eliopoulos sent a message:

50. [54]

    On 2 February 2023, Mr Eliopoulos sent the following extracted messages:

51. [55]

    On 3 February 2023, Mr Eliopoulos sent a message:

52. [56]

    On 9 February 2023, Mr Eliopoulos sent a message:

53. [57]

    On 12 February 2023, Mr Eliopoulos sent a message:

54. [58]

    In reply to a request from Ms Sher for an itemised statement of money she was lent, amount repaid, and the balance of the principal loan, Mr Eliopoulos sent a message on the same day:

55. [59]

    Following a series of further messages, in response to Ms Sher stating she was “very close to a solution”, Mr Eliopoulos sent a message later that day asking: “How close because I’m literally going to lodge a winding up.”

56. [60]

    On 15 February 2023, Mr Eliopoulos sent a message stating:

57. [61]

    On 20 February 2023, Mr Eliopoulos sent a message stating:

58. [62]

    On 24 February 2023, Mr Eliopoulos sent a message stating:

59. [63]

    On 16 August 2023, Mr Eliopoulos sent a message stating:

60. [64]

    Later that day, Mr Eliopoulos sent a message stating:

61. [65]

    Mr Cerne updated some details relating to the current status of the property companies. He stated that at the time of swearing her affidavits dated 30 July 2024 and 8 October 2024, Ms Sher understood that all titles owned by the property companies were under the external control of receivers, managers and controllers. Relevantly, a review of the documentation showed that no receivers or controllers were currently registered in relation to two of the properties owned by Aharon Investments. Ms Sher has now retaken possession of one of those properties and was leasing rooms, thus generating income for the companies.

62. [66]

    Mr Cerne also annexed medical records recently located by Ms Sher which indicated that on 15 March 2023, a mental health treatment plan was prepared by a General Practitioner noting she was suffering from “[g]eneralised anxiety/stress”, that she “needs stabilisation” and that she would be referred to a psychologist.

63. [67]

    Mr Cerne stated that Ms Sher received an income of approximately $1000 a month from a relative for whom she manages tenants, and that she does not have assets in her name.

64. [68]

    Mr Cerne also attached the court record from Waverley Local Court in relation to the criminal case against Mr Eliopoulos indicating that he pleaded guilty to the charge against him and received a good behaviour bond without conviction on 25 October 2024. I note that the facts upon which the plea of guilty was entered are not within the material produced.

Consideration

1. [69]

   Not only are the rights and liabilities to a contract to be determined according to the principle of objectivity, so too is the identification of the parties to a contract which is the issue underpinning the proposed defence in this case.

2. [70]

   The New South Wales Court of Appeal in Hadden v Inline Partners Pty Ltd [2024] NSWCA 42 (Gleeson JA, White and Stern JJA agreeing) at [40] endorsed as correct the following statement of principle:

3. [71]

   Having set out above a summary of the material to be relied upon by Ms Sher (including, as permitted, evidence of post-contract conduct), I am of the view that there is a bona fide defence on the merits. Whilst I acknowledge there is evidence going both ways in terms of who is the appropriate defendant, there is sufficient evidence to sustain a bona fide submission that the defendant is properly Ms Sher’s company or companies, rather than her personally. This evidence (of varying weight) includes:

   1. (1)

      the multiple references by Mr Eliopoulos to commencing winding up proceedings;

   2. (2)

      that the loan monies were mostly paid into the U & G Properties bank account and were then paid out to the vendor of the property being purchased (Rasko Investments), and in relation to the $150,000 sum, that sum was paid directly to the vendor;

   3. (3)

      the length and nature of the relationship between Mr Eliopoulos and Ms Sher is consistent with Ms Sher’s contention that Mr Eliopoulos knew about the structure of her business interests, and relatedly, on at least one occasion Mr Eliopoulos certified a document for Ms Sher relating to one of her companies; and on at least one occasion a terms sheet was sent to Mr Eliopoulos which listed the companies as the borrowers; and

   4. (4)

      that Aharon Investments made two repayments to Mr Eliopoulos (of $50,000 and $200,000 on 11 and 13 January 2022 respectively).

4. [72]

   As noted, there is evidence pointing the other way. This includes the evidence, as well as an acknowledgement by Ms Sher, that she habitually used the first person pronoun (that is, “I”, “my”, “me” and the like) when discussing the loan and her liability to repay the loan monies, including in her statement to the police in 2023. There is also evidence of the bankruptcy proceedings taken against Ms Sher. That the evidence points in both directions is not novel in this kind of factual scenario: see, for example, Davies cited in the extract above at [70].

5. [73]

   Further, I also acknowledge the additional argument, as submitted on behalf of Ms Sher, that the allegation (which is denied) that she agreed to guarantee the loaned monies implicitly admits that Ms Sher was not the borrower in the mind of Mr Eliopoulos. In any event, it is pointed out that the Statement of Claim does not plead a guarantee.

6. [74]

   In short, I am of the view that there is a bona fide defence available on the merits.

7. [75]

   It is then necessary to turn to the reasons proffered by Ms Sher to account for her default in filing a defence, and to consider the length of the delay, keeping in mind any prejudice to be suffered by Mr Eliopoulos if the default judgment were to be set aside.

8. [76]

   Ms Sher acknowledges there has been substantial delay by noting the Statement of Claim was filed on 4 April 2023 and the default judgment was obtained on 3 August 2023. Ms Sher acknowledges she became aware of the Statement of Claim in mid-2023. She also acknowledges that the more egregious the delay in seeking to set aside an undefended judgment, the greater the burden of persuasion required of the applicant: Pham at [98].

9. [77]

   Ms Sher points to a combination of factors including the companies’ financial difficulties and the flow-on effects to her physical and psychological health, as well as its adverse effect on her ability to afford legal assistance. She also points to the threatening, harassing and aggressive conduct of Mr Eliopoulos which she claims exacerbated her stress and caused withdrawal from engagement with him and communications generally. Ms Sher claims there is evidence that Mr Eliopoulos sued her personally for a “vengeful purpose”, pointing to some of the text messages in which he expected Ms Sher to obtain family assistance to repay the debt “and thus in some sense use the proceedings to exert collateral pressure to secure payment or to ruin [her] with bankruptcy.” Ms Sher submits that if Mr Eliopoulos “was truly sincere about debt recovery he would have sued the Property Companies as well.”

10. [78]

    Mr Eliopoulos urges the Court to dismiss the Notice of Motion. He submits that Ms Sher was aware of a Bankruptcy Notice issued in reliance on the default judgment by no later than 1 September 2023. Further, he submits that on 1 February 2024, he caused a Creditor’s Petition to be presented in respect of Ms Sher and obtained orders for substituted service of the Creditor’s Petition on Ms Sher on 4 June 2024. He claims that it was only after service was effected (and it can be inferred, because of the service), that Ms Sher engaged with any of the curial processes commenced by Mr Eliopoulos and for “the very first time” alleged that the contract had been with the corporate entities rather than herself personally.

11. [79]

    Mr Eliopoulos points to Ms Sher’s correspondence with him up to at least mid-July 2023 and further contends that it is “frankly devastating” to Ms Sher’s assertion of being unable to conduct her affairs at the relevant time that she sent “cogent and informed correspondence” to his solicitors on 1 September 2023 set out above at [29]. He contends that there is no evidence in support of Ms Sher’s “bare assertion” that there were physical and psychological impacts of the difficulties the companies were in at the time.

12. [80]

    The written submissions on behalf of Mr Eliopoulos also included this:

13. [81]

    Mr Eliopoulos further submits that there is no explanation for the length of the delay, and further that he will be prejudiced by an order setting aside the default judgment because he has incurred substantial costs in commencing perfectly valid bankruptcy proceedings in relation to a judgment debt of which Ms Sher was aware, to which she proffered no defence or objection and stated that she could not meet.

14. [82]

    In considering the rival submissions of the parties, certain matters can be noted.

15. [83]

    There is undisputed evidence that Ms Sher represented to an unrelated party that she was unwell prior to being served with the Statement of Claim (as set out at [15(c)]). In addition, the mental health treatment plan referred to by Mr Cerne in his affidavit was dated 15 March 2023; a date prior to the filing of the Statement of Claim on 4 April 2023. This undermines Mr Eliopoulos’ contention that there is no evidence to support Ms Sher’s “bare assertion” of her physical and mental struggles. Further, such evidence cannot be said to be manufactured as a result of her being served with the Statement of Claim.

16. [84]

    Further, as to the length of delay, although the statement made to the police leading to Mr Eliopoulos being charged was made after the entry of the default judgment, Mr Eliopoulos has now admitted, (notably previously denied in written submissions filed on his behalf) by his plea of guilty, to a course of harassing conduct against Ms Sher (albeit the details of the facts on which he was sentenced is not known, and it is noted that the plea of guilty was entered on “an amended indictment” so that the dates of the charge as pleaded is not known). It can also be noted that the tone of some of the communications from Mr Eliopoulos even prior to the filing of the Statement of Claim, (not all of which have been reproduced in this judgment), would have compounded the stress Ms Sher was already under. A plea of guilty to a criminal harassment charge involving Ms Sher (together with the text messages which are also before the Court) is also evidence the Court can properly take into account in assessing the length of the delay and Ms Sher’s claim that for a period of time she withdrew from her engagement with Mr Eliopoulos because of his conduct towards her.

17. [85]

    As to prejudice to Mr Eliopoulos from setting aside the default judgment, whilst he would suffer from the prejudice of additional costs, in my view, that is insufficient to outweigh the other matters which point in Ms Sher’s favour.

18. [86]

    Accordingly, I am of the view, on the basis of the evidence before me, that Ms Sher has a bona fide defence. Even though, as noted, there is some evidence that Ms Sher was apparently well enough to compose certain business-related correspondence on at least some occasions, on balance I accept Ms Sher’s explanation for her failure to file a defence based on stress and ill health arising from her financial problems, together with her lack of funds. Further, these factors, together with the deteriorating relationship with Mr Eliopoulos which culminated in a criminal charge of harassment, provide a sufficient reason to account for the length of the delay.

19. [87]

    In all of the circumstances, I am of the view that it is in the interests of justice to set aside the default judgment.

20. [88]

    As to the question of costs, there are a number of factors to consider in the exercise of my discretion. I acknowledge the prejudice to Mr Eliopoulos in having the default judgment set aside. However, Ms Sher currently claims to be impecunious, although there are indications in the material before me that her situation may improve. I also note the allegations of lack of good faith on both sides. In all of the circumstances, I consider it appropriate to order that Ms Sher pay the costs of Mr Eliopoulos obtaining the default judgment, but that those costs should not be recoverable until the completion of the whole proceedings. As to the costs of the Notice of Motion to set aside the default judgment, I am of the view that they should be costs in the cause.

Orders

1. [89]

   Accordingly, I make the following orders:

   1. (1)

      The default judgment entered against the defendant on 3 August 2023 be set aside.

   2. (2)

      The defendant is to file and serve her defence on or before 7 March 2025.

   3. (3)

      The defendant is to pay the plaintiff’s costs of his application for default judgment.

   4. (4)

      The costs referred to in Order 3 are not recoverable until the completion of the whole proceedings.

   5. (5)

      Costs in respect of the notice of motion filed by the defendant to set aside the default judgment be costs in the cause.