New South Wales Supreme Court CITATION : Perpetual Trustee Company Ltd v Markos [2007] NSWSC 908 HEARING DATE(S) : 30 May 2007 JURISDICTION : Equity Division JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 30 May 2007 DECISION : Grant leave to defendant to amend defence and file second cross-claim CATCHWORDS : PROCEDURE – Amendment – Late amendment which would if granted jeopardize hearing – where amendment would raise arguable complete defence. - PARTIES – joinder – where defendant surety wishes to take advantage of a defence by way of set off or counterclaim that would be available to principal – whether principal may be joined as co-defendant – preferable course to allow cross-claim to be brought. LEGISLATION CITED : (NSW) Conveyancing Act 1919, s 55(2A) CASES CITED : Cellulose Products Pty Limited v Truda & Ors (1970) 93 WN(NSW) 561 Socratous v Koo (1993) 6 BPR 13,226 Perpetual Trustee Company Ltd (plaintiff) PARTIES : George Markos (first defendant) George Nahed (second defendant) FILE NUMBER(S) : SC 4717/06 COUNSEL : Mr P O'Loughlin (plaintiff) Mr E Finnane (first defendant) SOLICITORS : Jones King Lawyers (plaintiff) George Mallos (first defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST BRERETON J Wednesday, 30 May 2007 4717/06 Perpetual Trustee Company Pty Ltd v George Markos & 1Or JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiff Perpetual Trustee Company Pty Ltd sues the first defendant George Markos and the second defendant George Nahed on guarantees given by each of them of the obligations of a company, Five Dock Developments Pty Limited, of which each was then a director and Mr Markos is now the sole director, under a Contract for Sale, dated 31 May 2004, between Perpetual as vendor and Five Dock Developments as purchaser of land at 134 Great North Road, Five Dock Developments for a price of $7 million. 2 The contract, which was in the 2000 edition of the standard form, provided for payment of a deposit of $700,000 to the agent as stakeholder and investment of the deposit. Clause 48.1.2 of the contract required payment of the balance of the deposit of $699,500 by 10 June 2004. On that date, Five Dock Developments apparently paid $50,000 and Perpetual agreed to extend time for payment of the remaining $649,500 to 18 June 2004. A further $50,000 was paid on 21 June 2004, but, the balance not having been paid, Perpetual instituted proceedings against the guarantors to recover the balance of the deposit, by statement of liquidated claim filed in the District Court on 29 July 2004. 3 Subsequently, those proceedings were removed into this Court after a somewhat unhappy procedural history. One of the reasons for removal of the proceedings into this Court was that Mr Markos wished to plead as a defence that Five Dock Developments would be entitled to relief under (NSW) Conveyancing Act 1919, s 55(2A), in respect of the deposit, had it been paid [see Socratous v Koo (1993) 6 BPR 13,226, at 13,228]. 4 Section 55(2A) confers on the Court a discretion to order the repayment to the purchaser of any deposit under a contract, but in Socratous v Koo, McLelland J explained how the provisions of 55(2A) might be indirectly relevant by way of a defence. In any event, an amendment to raise s 55(2A) has already been made. 5 The proceedings are set down for hearing before Rein AJ next week, commencing on 6 June. By Notice of Motion originally filed on 25 May 2007 and amended today, Mr Markos claims orders joining Five Dock Developments as a defendant, alternatively granting leave to file a cross-claim against Five Dock Developments, and thirdly, granting leave to further amend the defence by raising as a defence that the guarantee has been avoided or discharged by material alteration of the principal contract to the detriment of Mr Markos and without his consent. It is common ground that the agreement apparently made on 10 June 2004 in respect of the deposit – which, as well as extending time for its payment, also authorised its immediate release to Perpetual – gives rise to an arguable defence on that basis. 6 Opposing the application for leave to amend, Mr O'Loughlin in his submissions identified, as relevant discretionary factors which favoured refusing the amendment, the absence of an adequate explanation for its being raised at this late stage (the only explanation being that it seems not to have occurred to anyone in Mr Markos' camp, nor to any of his advisors, until very recently), the inadequacy of a costs order to take account of the disruption caused by the prolongation of the litigation (but there is no evidence that Mr Markos will be unable to meet a costs order, and it is of some significance that the plaintiff is a corporation that is always involved in many lawsuits), the proximity of the hearing date (a weighty factor, given that the hearing is to commence next week), the time that the proceedings have been on foot (since mid 2004, but this really does little more than emphasise the absence of an adequate explanation for failing to raise this defence earlier), the fact that the defendant has already changed his case once in a major way (by raising the s 55(2A) defence), and the disadvantage to other litigants and the public generally (a relevant case management consideration, but one which ought not ordinarily prevail over the interests of justice between the parties). 7 The countervailing argument is the circumstance that the admittedly arguable defence if made good is a total defence to the plaintiff's claim against Mr Markos. That it is a somewhat technical one ought not be allowed to mask the significance of the fact that if Mr Markos' contention is right, the law gives him a total defence to the plaintiff's claim. While, in terms of case management and procedural justice, there is much to be said for the plaintiff's position, I do not think that this case has reached the stage where those considerations should be allowed to override the object of doing substantive justice between the parties. 8 Accordingly, I will accede to the application for leave to amend the defence by adding the additional matter of defence relating to material alteration of the contract. 9 It is common ground that if I do so the hearing will have to be vacated. I have not been significantly influenced in reaching this decision by the alleged procedural default of the plaintiff in the service of some of its evidence which, as presently advised, seems at the margins rather than at the heart of the case. 10 However, the accepted inevitability of the vacation of the hearing once leave is granted to amend the defence casts the application for leave to add a defendant or file a cross-claim in a different light. In the present circumstance, interesting as the issues are, I do not propose to examine in any detail the conflict of authority as to whether it is permissible for a defendant to have another defendant joined in proceedings such as the present, for the purpose of invoking a cross-claim or set off that might be available to the proposed additional defendant as principal, upon which the existing defendant as surety wishes to rely. The safer course, in any event, and one which occasions no prejudice in the present circumstances, is that explained by Isaacs J in Cellulose Products Pty Limited v Truda & Ors (1970) 93 WN(NSW) 561, 588, namely, that the existing defendant may bring a cross-claim against the principal, permitting the principal to bring a second cross-claim if so advised against the plaintiff, claiming relief under s 55(2A). 11 That course is preferable where there is doubt as to the permissibility of the alternative course (of joining the principal as an additional defendant), and that alternative course is opposed by the plaintiff. I do not say that it cannot be done, and there are hints in some of the authorities that it may be permissible in some circumstances, but as the hearing must be vacated in any event, there is no difficulty in taking the surer, if it be somewhat lengthier, course. 12 My orders are: (1) Grant leave to the first defendant to amend its defence by filing an amended defence in the form of Annexure A to the Notice of Motion filed on 25 May 2007, but subject to deletion therefrom of all references to the third defendant. (2) Grant leave to the first defendant to file a second cross-claim against Five Dock Developments Pty Limited in the form of the draft second cross-claim initialled by me, dated this day and placed with the papers. (3) Order that the hearing appointed to commence on 6 June 2007 before Rein AJ be vacated. (4) Order that the first defendant pay the plaintiff's costs of the motion, and the costs occasioned or thrown away by the vacation of the hearing, such costs to be assessed on the indemnity basis. (5) Grant leave to the plaintiff to proceed to assessment of those costs forthwith. (6) Adjourn the proceedings to 8 June 2007 at 9.30am before the Registrar for further directions. (7) Order that exhibit AX01 be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.