Prime Capital Securities Pty Ltd v Boikov

1. [1]

   By Amended Notice of Motion filed in court on 21 October 2021, the defendant, Mrs Boikov, seeks leave to file an Amended Cross Claim annexed to the motion and marked with the letter “A”. The plaintiff, Prime Capital Securities Pty Ltd (“Prime”), objects to leave being granted substantially on the basis that if permitted, the amended cross-claim will serve to join two additional cross-defendants. Those additional cross-defendants are Karma Investments Pty Ltd as fifth cross-defendant, and Myer Solomon and Patrick Tudhope, trading as Solomon Tudehope solicitors, as sixth cross-defendants. Mrs Boikov moves on the affidavit of her solicitor, Mr Tihomar Novakovic, affirmed on 28 October 2021, which was read without objection.

Background to the application

1. [2]

   By Statement of Claim filed on 16 October, Prime seek judgment for the possession of land at Canley Heights of which Mrs Boikov is the registered proprietor. The property is her home of some decades. Prime sues as the registered first mortgagee named in the mortgage granted by Mrs Boikov over the property to secure her obligations as a guarantor, guaranteeing the performance by her grandson, Simeon Boikov, of his obligations under a loan agreement pursuant to which the sum of $450,000 was advanced to him on 19 December 2019. The borrower defaulted on the terms for repayment and by letter dated 9 October 2020, Prime demanded payment by Mrs Boikov of the sum of $518,574.20 then due under the terms of the guarantee. On the same date notice was given pursuant to s 57(2)(d) Real Property Act 1900 (NSW).

2. [3]

   By a proposed further amended defence dated 2 November 2021, Mrs Boikov denies that she is indebted to Prime and challenges its title to possession by pleading that her entry into the guarantee was procured by the undue influence of her grandson, that Prime ought to have been aware of her special disability or vulnerability such that it would be unconscionable for it to enforce the mortgage and, that the mortgage and related financial agreements are unjust within the meaning of the Contracts Review Act 1980 (NSW).

3. [4]

   By the proposed amended cross claim, Mrs Boikov seeks relief against Prime under the general law and the Contracts Review Act setting aside the loan security guarantee deed and the mortgage as between her and Prime, and damages or other compensation. Proceedings against her grandson and company controlled by him as second and third cross-defendants have been discontinued. She also seeks damages against the solicitors who acted for her as fourth cross-defendant for professional negligence and breach of fiduciary duty. Those solicitors are already parties to the cross-claim, although Mrs Boikov seeks to amend her averments against them.

4. [5]

   It is common ground that part of the proceeds of the loan to the grandson, viz $232,500, was used to discharge a mortgage previously granted to Karma Investments to secure Ms Boikov’s obligations under a guarantee of her grandson’s obligations under that previous loan. She also seeks to have the loan security and guarantee deed and mortgage with Karma Investments set aside under the same general law principles and Contracts Review Act provisions. Karma Investments is the proposed fifth cross-defendant. Solomon Tudehope Solicitors were the solicitors who purported to advise Mrs Boikov in respect of the Karma Investments loan. She claims damages from that firm for breach of its professional duty to exercise reasonable care and skill and compensation for breach of fiduciary duty.

Prime’s objection

1. [6]

   Prime objects to the joinder of the fifth and sixth cross-defendants. It argued that the joinder is impermissible as it contravenes the requirements of Rule 16.19 Uniform Civil Procedure Rules 2005 (NSW) and there is no factor properly engaging an exercise of the residual discretion permitted by that rule for their joinder to the proceeding in the absence of satisfaction of the conjunctive conditions established by Rule 16.19(1)(a) and (b). In summary, Mr P Jammy of Counsel who appeared for Prime argues:

Cross-claimant’s submissions

1. [7]

   Mr Ashhurst SC, who appeared with Mr McEnaney for Ms Boikov, submitted that the common question of fact arising for the purpose of rule 6.19(1) (a) is indeed Mrs Boikov’s personal circumstances relevant equally to each of the Prime and Karma Investment guarantees and mortgages. He emphasised for the purpose of Rule 6.19(1)(b) that the emphasis is upon the relief sought, and whether it could be said to be in respect of, or arising out of, the same series of transactions. Mr Ashhurst submitted that as a substantial part of the proceeds of the Prime loan were used to discharge the Karma Investments mortgage, absent a successful challenge to Mrs Boikov’s obligations under that guarantee and mortgage, if otherwise successful against Prime, she would have to account to Prime for that part of its loan monies and interest. He submitted that this was sufficient to engage in the provisions of Rule 6.19(1)(b). So far as the averments concerning the unsuccessful application to a third financier were concerned, those matters were relevant to demonstrate that the cross-defendants had at least constructive notice of the undue influence of the grandson and Mrs Boikov’s special disability and vulnerability.

2. [8]

   Concerning the utility of the claim against Karma Investments, Mr Ashurst pointed out that by dint of s 14 Contracts Review Act, relief may be granted notwithstanding that the contract has been fully executed. However, he reminded me that prima facie under s 16, proceedings for relief under the Contracts Review Act must be brought during the period of two years after the time for the exercise of any obligation under the impugned contract. As Mrs Boikov’s liability was discharged by payment of the sum of $232,500 on 19 December 2019, proceedings against Karma Investment must be commenced, in practical terms, by 17 December 2019. The ancillary relief available against Karma Investments under s 8 of that Act includes, by reference to Schedule 1 to the Act, the payment of money (whether or not by way of compensation) to a party to the contract. These considerations indicate, Mr Ashhurst submitted, that proceedings against Karma Investments were not futile.

Relevant statutory provision

1. [9]

   Section 64 Civil Procedure Act 2005 (NSW) provides an ample power for the Court to amend any document in the proceedings. Section 64(2) is in the following terms:

2. [10]

   Rule 66.19 of the Uniform Civil Procedure Rules is in the following terms:

3. [11]

   Rule 6.24(1) is also relevant. It provides:

Consideration

1. [12]

   I am satisfied given the nature of the relief sought in respect of each of the Prime guarantee and the Karma Investments guarantee, common questions of fact and law do arise which are capable of affecting the “validity of each Deed of Guarantee and mortgage”. That those matters relate, in a sense, to Mrs Boikov’s “background” does not diminish their significance. Indeed, given that Mrs Boikov’s cross-claim raises species of unconscionability both under the general law and under statute those matters are likely to be of central, if not determinative, significance.

2. [13]

   The real question relates to the satisfaction of the second, conjunctive limb expressed by Rule 6.19(1)(b): are “all rights of relief claimed … in respect of, or arise out of, the same … series of transactions”? The focus of Mr Jammy tended to be on, “series of transactions”. Mr Ashhurst, however, emphasised that the focus was on the rights of relief claimed and whether they were in respect of or arise out of the same series of transactions.

3. [14]

   Although the argument was put in various ways, Mr Ashhurst argued that all rights of relief sought arose either in respect of or out of the same series of transactions. In written submissions (page 3 [14]) he referred to “the series of transactions by which the prime funds were advanced and the Karma (Investment) loan repaid and the associated mortgage discharged”. In oral submissions, he submitted that absent the claim for relief against Karma Investments, even if otherwise successful against Prime, given that a significant proportion of the funds advanced by Prime were used to pay out Karma Investments, Mrs Boikov would have to account to Prime at least for that portion of the advance. He submitted (7.15T):

4. [15]

   In answer to a question of mine in oral argument, Mr Jammy said (13.15T):

5. [16]

   Counsel for Mrs Boikov took me to my own previous decision in the matter of the Hughes v Fong [2016] NSWSC 1451, where having reviewed the authorities including Payne v Young (1980) 145 CLR 609; [1980] HCA 54 at 614 (Barwick CJ) and 618 Mason J and Deane-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64; [2002] NSWSC 521 at [21] – [27], I said (at [33]):

6. [17]

   I am satisfied that were I wrong in this conclusion the general or residual discretion conferred by Rule 6.19 is properly engaged. In coming to this conclusion, I have had regard to the decision of Wilcox J in Bishop v Bridgeland Securities (1990) 25 FCR 311 at 314.

7. [18]

   The factors I have taken into account include the considerations that: even if I am wrong about Rule 6.19(1)(b), Rule 6.19(1)(a) is satisfied; joinder is the course “most conducive to a just resolution of the disputes between [all of] the parties”; joinder will avoid a multiplicity of proceedings and therefore will be the more efficient use of the resources of the parties and also of the Court; and I am “affirmatively satisfied that joinder is unlikely to result in unfairness to any party”.

8. [19]

   In regard to that last-mentioned consideration, I have borne in mind that Prime commenced its proceedings in October 2020 to enforce a secured obligation. Joinder of Karma Investments to the proceedings will to some extent complicate them and prolong the time necessary to bring the proceedings to trial and the trial itself. This will result in increased costs for all parties. However, from Exhibit A, a valuer’s certificate in relation to the current value of the property, Ms Boikov appears to have sufficient equity in the property to accommodate the increased costs if she is ultimately unsuccessful.

9. [20]

   As Mr Jammy acknowledged, Mr Novakovic’s affidavit provides an explanation for the delay and it is apparent, certainly since he has been able to retain Mr Ashurst and Mr McEnaney, the proceedings have been prosecuted with all due dispatch. I regard the explanation as satisfactory in the circumstances.

10. [21]

    The difficulty from Ms Boikov’s point of view is, if I decline joinder in the current proceedings, she runs the risk of falling between two stools if inconsistent findings are made in separate proceedings against different parties. In my view that would not be in the interest of justice.

11. [22]

    Although not argued before me, I have had regard to r 6.24 which for the same reasons I have given supports the joinder of the additional parties. I am also of the view that my decision covers a grant of leave to file, serve and rely on the proposed further amended defence dated 2 November 2021.

12. [23]

    For these reasons, I make the following orders:

    1. (1)

       Extend the time for the defendant/cross-claimant to file the motion seeking leave to amend the cross claim to 21 October 2021;

    2. (2)

       Under Rules 6.19 and 6.24 Uniform Civil Procedure Rules 2005 (NSW) the defendant/cross claimant has leave to file an amended statement of cross-claim in the form annexed to the amended notice of motion filed in court on 21 October 2021 and marked “A” extending to the joinder of Karma Investments Pty Ltd as fifth cross-defendant and Meyer Solomon and Patrick Tudhope Trading as Solomon Tudhope Solicitors as sixth cross-defendant;

    3. (3)

       The parties’ costs of the motion are costs in the cause;

    4. (4)

       The legal representatives of the parties to confer to agree on a timetable for taking such further steps in preparation of the matter as may be conveniently taken pending the appearance of the fifth and sixth cross-defendants including agreeing on a date for further directions before Justice Campbell in February 2022;

    5. (5)

       Short Minutes of Order encompassing any agreement made pursuant to Order 4 may be submitted to the associate to Justice Campbell by email. In default of agreement, liberty to approach the associate to Justice Campbell to obtain a date for mention;

    6. (6)

       Grant leave to the defendant to file, serve and rely on the proposed further amended defence dated 2 November 2021.