New South Wales Supreme Court CITATION : New Capital Finance Ltd (Receiver & Manager Appointed) v Lindsay McNeill Cogill & ors [2009] NSWSC 806 HEARING DATE(S) : 9 July 2009 JURISDICTION : Equity Division Duty Judge List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 9 July 2009 DECISION : Give summary judgment for principal and interest at contractual (not default) rate. CATCHWORDS : PROCEDURE – Summary disposal - Application under UCPR, r 12.7, to strike out defences and cross-claims of the first and second defendants – loan agreement with 72% interest rate and 144% default interest - where first and second defendants have not complied with Notice for Discovery – where discovery not necessary - where plaintiff's application would otherwise be dismissed – where defendants indicate that they do not intend to defend proceedings – where defendants admit indebtedness for principal and some interest - where defendants have brought cross-claim contending that transaction ought to be set aside for unconscionable conduct – where seriously arguable that default interest is penal - where in light of defendants admissions and indication that they do not intend to defend dismissal of present application would only defer inevitable – where plaintiff does not press for default interest LEGISLATION CITED : (NSW) Uniform Civil Procedure Rules 2005, r 12.7 CATEGORY : Procedural and other rulings New Capital Finance Ltd (Receiver & Manager Appointed) (plaintiff) Lindsay McNeill Cogill (first defendant) PARTIES : Maree Ann Cogill (second defendant) Hymix Pty Ltd (third defendant) Perpetual Ltd (fourth defendant) FILE NUMBER(S) : SC 4777/08 Mr A Gruzman (plaintiff) COUNSEL : Lindsay & Maree Cogill (in person - via telephone) Mr B Ilkovski (third defendant) SOLICITORS : DLA Phillips Fox (plaintiff) Patane Lawyers (third defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST BRERETON J Thursday 9 July 2009 4777/08 New Capital Finance Ltd (Receiver and Manager Appointed) v Lindsay McNeill Cogill and Ors JUDGMENT (ex tempore) 1 HIS HONOUR: By a Notice of Motion filed on 3 June 2009, the plaintiff New Capital Finance Pty Ltd (Receiver and Manager Appointed) seeks orders striking out the defences and cross-claims of the first and second defendants Lindsay McNeill Cogill and Maree Ann Cogill, and judgment against them in the sum of $70,000 plus interest, pursuant to a loan agreement said to have been entered into between the Cogills as borrowers and New Capital as lender. The loan agreement provided for the advance by New Capital to Mr and Mrs Cogill of a principal sum of $70,000 on 16 August 2007, repayable by 14 October 2007 with interest at the rate of 6 percent per month (that is, 72 percent per annum), compounded monthly. The loan agreement also provided that in the event of default, the borrowers would pay interest at a rate of 144 percent per annum. Associated with the loan agreement was a mortgage dated 16 August 2007 of land comprised in Folio Identifier 45/792238, of which the Cogills are the registered proprietors, situate at and known as 14 Market Parade, Terranora, in the State of New South Wales. 2 The interest of $8,400 for the two month term, and the borrowing costs payable under the loan agreement, were paid in advance. However, the Cogills defaulted in repayment of the principal sum of $70,000. I appreciate that in their defence and cross-claim they say that there was some agreement or understanding as to extending the time for repayment, but there is no evidence of it before me, and given the Cogills' indication that they are in no position to defend the proceedings and do not intend to do so, it seems there will never be any such evidence. 3 By Statement of Claim filed on 18 September 2008, New Capital sought judgment for the outstanding sum and interest, and - by way of specific performance of the mortgage, which was never registered - possession of the land. Also joined as defendants were the third defendant Hymix Australia Pty Limited, which had lodged a caveat claiming an interest in the land, and the fourth defendant Perpetual Ltd, which is the registered first mortgagee of the land. The Cogills filed a defence on 27 October 2008 in which they denied having executed the mortgage; admitted having executed the loan agreement; admitted that the principal sum of $70,000 had been lent to them; asserted (as I have already mentioned) that there was some arrangement for extension or rewriting of the loan; but denied the claims for interest and administration charges. They also served a cross-claim, dated 23 October 2008 - which was, however, not filed until 2 April 2009 - in which they asserted that they had been induced to enter the loan agreement by various representations; that New Capital knew that they were in a desperate position and were forced to accept unconscionable terms, and took unconscionable advantage of their position by imposing an interest rate of 72 percent and a default rate of 144 percent per annum "and other penalty provisions"; and that the transaction ought to be set aside in equity by reason of that unconscionable conduct. New Capital filed a reply - which also appears to have been intended to serve as a defence to the cross-claim - but which put in issue only a very small part of the cross-claim; accordingly, on the pleadings, most of the allegations in the cross-claim stand admitted. 4 On 2 April 2009, the Registrar made directions that the parties agree on categories of discovery by 24 April, exchange lists of documents by 8 May, and complete inspection by 22 May. On 27 April, New Capital's solicitors forwarded proposed categories of documents for discovery to the solicitors then acting for the first and second defendants; those solicitors have since ceased to act. The Cogills did not respond to the proposal. On 11 May, New Capital's solicitors sent to the Cogills' former solicitors another letter requesting that a list of documents be provided in accordance with New Capital's proposed categories of documents. There was no response to that request. On 19 May, the Cogills' former solicitors gave notice they were ceasing to act. 5 The categories of documents requested were as follows: 1. All documents evidencing or recording the terms of the loan agreement dated 16 August 2007 between the plaintiff and first and second defendant. 2. All documents evidencing or recording the terms of the plaintiff's mortgage dated 16 August 2007 over the land described as Lot 45 in Deposited Plan 792238 in the County of Rous, Parish of Terranora also known as 14 Market Street, Terranora in the State of New South Wales. 3. All documents evidencing the first and second defendant's default under the loan agreement referred to in paragraph 1. 6 Given the issues in the case as they appear at present from the pleadings, and as emerged in the course of argument today, it seems that discovery of the documents in those categories could not be said to be "necessary" for the purpose of attaining justice for New Capital in these proceedings. 7 The Cogills are in a difficult – practically impecunious - financial position. They have been unable to pay their lawyers. Indeed, they were unable to afford to travel to Sydney to be present at the hearing today, having participated by a telephone link. 8 The present Notice of Motion invokes r 12.7, which authorises the Court to strike out a defence where a defendant is not conducting its defence with due dispatch. It is a discretionary power. It is not ordinarily resorted to on the first occasion of a default, although I appreciate there have been some other delays and default in connection with the defence of these proceedings. I am amply satisfied that such default as has been involved in not giving discovery, when such discovery was not necessary, would be sufficient to justify the radical remedy of striking out the defence and cross-claim. That is all the more so when, on the pleadings as they presently stand, very large parts of the cross-claim have not been traversed and, therefore, stand admitted for the purpose of the proceedings. Had the Cogills given some indication that they intended to participate further in the proceedings, maintain their defence and prosecute their cross-claim, then I would not have granted a summary remedy. 9 However, the Cogills have frankly indicated they are in no position to participate in the proceedings and, therefore, do not intend to do so. They have also frankly admitted that they are indebted to New Capital for the principal sum of $70,000. Thus while, if I were to consider it only on the basis advanced, namely default in respect of the giving of discovery, I would dismiss New Capital's present motion, that result would no doubt be followed in due course by an application for summary judgment, or even a trial which would proceed ex parte with New Capital proving what it had to prove to obtain a final judgment. That would involve a waste of time and costs for all parties, and for the Court. 10 At first sight, it seems to me, there is a strongly arguable case that the provision for default interest at 144 percent is a penalty. After some discussion, counsel for New Capital has indicated that New Capital would accept, in satisfaction of its claim, judgment for the principal sum and simple (as opposed to compound, as the contract provides) interest at the lower rate of 72 percent per annum. The practical effect of that is to reduce the claim of $811,000 to one of about $157,000. 11 In view of the circumstance that the rate of 72 percent was contractually agreed, and though disadvantageous does not savour of a penalty, and of the further circumstance that the Cogills are not and will not be in a position to adduce evidence - including any evidence that might establish unconscionability - it seems to me that the appropriate course in the interests of all parties is to give summary judgment, on the more limited claim for interest at the contractual rate of 72 percent. Of course, although such an interest rate is in a sense astonishing, there are judgments of the Court in which they have been upheld. 12 For those reasons I will, rather than striking out the defences and cross-claims, give summary judgment on the basis that, insofar as the claim is now limited to $157,000, I am satisfied that there is not, and - given what the Cogills have said about their inability to defend the matter - will not be at trial, a viable defence. 13 I give judgment that the first and second defendants pay the plaintiff the sum of $157,268. I order that the first and second defendants pay the plaintiff's costs. 14 So far as the third defendant is concerned, it is a party because of what is, in effect, a potential dispute as to priority between New Capital and it. The first and second defendants bear no responsibility for that. It is true that, at least to some extent, procedural defaults on the part of the first and second defendants may have increased the costs of the third defendant. If so, that is an incident of litigation between the third defendant and New Capital, and can be addressed if and when any question of costs as between those parties falls to be resolved. 15 I, therefore, make no order as to costs as between the first and second defendants and the third defendant. ********** 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.