Solicitors:
Aqua Law (Plaintiffs)
David Legal (Second Defendant)
File Number(s): 2019/237326
[2]
Background and pleadings
By Originating Process filed on 31 July 2019, the Plaintiffs, Mr Zerafa and others, brought applications under ss 180-183 and 232 of the Corporations Act 2001 (Cth), which deal with breach of director's duties and oppression respectively. I pause to note (although I did not address this question in my oral reasons for judgment), that there is an obvious question as to whether the Plaintiffs have standing to bring the claims for breach of director's duties. The Plaintiffs also bring claims under ss 12CA and 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and ss 18 and 20 of the Australian Consumer Law. The claims are summarised in the Originating Process as:
"Application for breach of directors duties, shareholder oppression, unconscionable conduct and misleading and deceptive conduct, for funds invested and taken from [Coastal Beaches Pty Ltd], without the Company's authority, that should be taken to be assets of the Company and/or shares that should be transferred to the Company."
Agar v Hyde [2019] NSWSC 1681 | Case summary | Zoe
The Originating Process identifies a range of relief sought, part of which is directed to the First Defendant, Mr Dennis Krilic, other parts of which are directed to seeking orders for transfer of shares in particular entities, and which, in a sixth paragraph, seeks judgment in favour of the Plaintiffs in the amount of $500,406 as against the First and Second Defendants. The Second Defendant is Ms Rachel Krilic, the former wife of Mr Krilic. A seventh paragraph in turn seeks damages, without identifying against who they were sought, leaving open the possibility that they are sought against Ms Krilic as well as Mr Krilic.
The application was supported by an affidavit dated 29 July 2019 of the First Plaintiff, Mr Zerafa, which outlined the nature of his relationship with Mr Krilic and his involvement in property development, initially in a somewhat informal arrangement, then through Coastal Beaches Pty Ltd ("Company") and, it appears, arrangements involving the parties' respective trusts. It was notable that that affidavit referred only to the Second Defendant, Ms Krilic, at two points. The first reference was to Ms Krilic's involvement as the registered owner of the first property purchased under the alleged arrangement in about 2001. No complaint is made in respect of that transaction, which appears to have been profitable and where any complaint would be well outside the relevant limitations period. The second reference was in paragraph 29, which indicates that the directors and shareholders of a company associated with Mr Krilic, Express Air Electrical Pty Ltd ("EAE"), were Mr and Mrs Krilic. It is now common ground between the parties that that statement was not correct and Ms Krilic was not a director or shareholder of that company. That, on the face of it, is the entirety of the evidence currently led against Ms Krilic in the proceedings.
By Notice of Motion filed 4 October 2019, Ms Krilic sought an order that the proceedings against her be dismissed. That application was supported by an affidavit dated 3 October 2019 of her solicitor, Mr David, which referred to the circumstances in which Ms Krilic had left the former matrimonial home in 2014 and, subsequently, commenced divorce proceedings. It appears that that divorce has been finalised. However, Mr David's affidavit also refers to ongoing issues as to compliance with orders made by the Family Court of Australia, in respect of financial assistance and support, and notes that Ms Krilic has a direct interest in only one asset, the former matrimonial home which was purchased in 2010. He also notes that Ms Krilic is a school teacher by profession and indicates, by way of assertion, to which no objection was taken, that Ms Krilic did not have any knowledge of any alleged misappropriation of funds by Mr Krilic until the proceedings were commenced.
On 14 October 2019, the Court made orders that the matter proceed by way of pleadings and, on 8 November, 2019, the Plaintiffs filed a Statement of Claim. Mr Kirby, who appears for Ms Krilic, rightly points out that that Statement of Claim was not, as it should have been, verified and that issue would have had to be addressed if that Statement of Claim were otherwise to survive this application. The absence of verification may be of particular significance in any further Statement of Claim that is to be filed, given real questions as to the basis of the allegations that may properly be made against Ms Krilic, which will emerge below.
The Statement of Claim repeated the allegation in Mr Zerafa's affidavit now accepted to be incorrect, that Ms Krilic was a director of the Third Defendant, EAE. It itemised certain unauthorised transactions over a long period which are alleged to have been made by Mr Krilic from the Company's bank account, and claims a further unauthorised transaction in December 2014 totalling $106,461.16. Mr Polese, who appears for the Plaintiffs, indicates that the total claim is much larger. Paragraph 29 pleads a relationship of trust between Mr Zerafa and Mr Krilic, which it appears is intended to establish, not a fiduciary duty, but the existence of a trust. Paragraph 30, in turn, pleads that in breach of trust, Mr Krilic had made a profit or received a benefit without Mr Zerafa's consent.
Paragraph 31 then pleads that in breach of the trust, Ms Krilic had knowingly, or by acquiescence, been involved in Mr Krilic's breach, and had received profits or benefits. That appears to be an allegation for knowing involvement or knowing receipt in respect of a breach of trust. That allegation is particularised by the fact that Ms Krilic was a director of EAE, which, as I noted above, is now recognised to be incorrect. It is particularised, second, by the proposition that she was married to Mr Krilic, which would only be correct, in respect of the period prior to their divorce, and that she received trust moneys or other funds from Mr Krilic. Plainly the fact of marriage to a wrongdoer is not, of itself, sufficient to give rise to a claim for knowing involvement or knowing receipt against the spouse in respect of the wrongdoers' conduct, and the allegation of receipt of funds or moneys or other benefits from Mr Krilic does not identify the material facts said to give rise to such a receipt, or the relevant transactions involved. A further particular is provided that Ms Krilic was, at all material times, residing at the registered address of the Company, which appears to amount to the proposition that she resided at the matrimonial home prior to the separation. That, it seems to me, adds nothing to the proposition that she was formerly the wife of Mr Krilic. A further allegation is put, also by way of particular rather than pleading, that Ms Krilic was, between 2006 and 2014, responsible for bookkeeping and managed the accounts of the Company. That particular has two difficulties. The first, to which Mr Kirby points, is that there is no evidence to support it in Mr Zerafa's affidavit. The second, which is equally significant, is that neither the evidence nor the pleading identifies how access to the books of the Company would, in itself, disclose any wrongdoing in respect of transactions which might or might not be recorded in those books. The pleading then contains, in paragraph 32, a conclusory assertion, that, on the basis of these matters, the Plaintiffs are entitled to equitable compensation for an account of profits in a substantial sum against Ms Krilic.
A second claim is possibly made against Ms Krilic, which it is not all together easy to follow, that Mr Krilic "and/or" Ms Krilic have invested into a particular trust, the Ocean Street Trust, on trust for the First and Second Plaintiffs and the Company and received benefits or profits from that trust that should be paid to the First and Second Plaintiffs and/or the Company. There seem to me to be significant difficulties with that pleading. The first, and most fundamental, is that the language "and/or" means that it is unclear whether it is alleged that Ms Krilic had, in fact, invested into the relevant trust, so as to support the suggested cause of action against her. The second is, that, if in fact it is alleged that Ms Krilic had invested into the relevant trust, there is no further pleading of material facts, and no identification of any principled basis, on which it follows that amounts should be paid by Ms Krilic to the Plaintiffs. That paragraph is followed by another conclusory allegation, that the Plaintiffs are entitled to equitable compensation or an account of profits in the sum of $140,000 and, possibly additionally, a profit share in respect of the sale of a particular property. Again, there is no pleading of material facts or further identification of why that is alleged to be so.
Finally, paragraph 47, under the heading "Relief", pleads an apparently additional cause of action for misleading and deceptive conduct in breach of s 18 of the Australian Consumer Law, which is cross-referenced to several earlier paragraphs, one of which is the pleading of knowing assistance and knowing receipt against Ms Krilic. That pleading of misleading and deceptive conduct, includes a further conclusory pleading as to a scheme, the details of which are unidentified, to deceive the Plaintiffs, or as to the fact of deception by the Plaintiffs by way of unauthorised transactions. Once again, there is no pleading of material facts as to how Ms Krilic is said to have either made the relevant representations, or to have been involved, still less knowingly involved, in the making of those representations.
[3]
The parties' submissions
With this background, it is perhaps not surprising that Ms Krilic brought an application for summary dismissal, particularly at a point prior to the filing of the Statement of Claim. Mr Kirby made clear, in the course of submissions, that an application is also sought to strike out the Statement of Claim in its present form, in the alternative, although that is not Ms Krilic's preferred outcome. Mr Kirby referred to the principles applicable to summary judgment, and emphasised the limits of the evidence led by Mr Zerafa and the limits to the particulars of Ms Krilic's involvement in matters alleged, to which I have also referred above. Mr Kirby submitted that, in this case, the evidence-in-chief had been served, comprising Mr Zerafa's affidavit, and it contained only the limited evidence to support a claim against Ms Krilic to which I referred above. He submitted that, in these circumstances, Ms Krilic would not give evidence, because there would be no evidence to which she would consider it necessary to respond. He submitted that there was no evidence that would support the Plaintiffs' case against Ms Krilic and it should be summarily dismissed.
Mr Polese, in response, also referred to the principles applicable in a summary judgment application, and referred to the evidence in Mr Zerafa's affidavit, which I have noted above, which is largely directed to the position against Mr Krilic, and otherwise to the fact that Ms Krilic was Mr Krilic's wife or former wife. Mr Polese also referred to allegations in the Statement of Claim that Ms Krilic was aware of the Company, the business and the ongoing understanding, which are said to be supported by Mr Zerafa's affidavit at paragraph 26, which does not in fact support that proposition. Even if that proposition was supported by that evidence, it is not apparent how a general knowledge of the Company, the business or the ongoing understanding would support allegations of knowing involvement or knowing receipt in respect of the specific transactions that are alleged to be wrongful.
Mr Polese also refers to the allegation that Ms Krilic managed the books and records for the Company, which I have noted is not presently supported by evidence, and the fact that she is a beneficiary of a trust, which is in turn said to have benefitted from the unauthorised transactions. Again, of course, the mere fact of a receipt is not sufficient to establish a case of a knowing receipt. Mr Polese points to the possibility that, following the filing of the Statement of Claim, there will be further evidence. I accept, as a matter of possibility, that evidence might emerge on subpoena or if the Plaintiffs were able to obtain orders for disclosure, which might advance the Plaintiffs' case as to Ms Krilic's knowledge. That depends, however, upon the existence of a proper pleading which, as Mr Kirby points out, would have to be such that there was a legitimate forensic purpose in pursuing allegations that were properly made against Ms Krilic. To put that proposition another way, the basis for the allegation must come first, before it can properly be made, and only then can documents be sought to support it.
Mr Polese also referred to matters which it might be thought did not advance the Plaintiffs' position, including the fact that the Plaintiffs could not presently prove their claims, unless they could test the evidence of the Defendants, which would not assist them if Ms Krilic does not consider it necessary to give evidence, or obtain evidence from presently unidentified third parties. Mr Polese also pointed to a further difficulty, which also does not necessarily assist the Plaintiffs, namely that they did not know what had happened to the money they allege was taken from the Company. Again, as Mr Kirby rightly pointed out, that proposition did not seem to advance a claim for knowing receipt against Ms Krilic in particular.
[4]
Applicable principles and determination
The relevant legal principles are well established. Dealing first with the application for summary dismissal, I must apply the approach set out in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129; Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at [57] and Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 at [24]. In Agar v Hyde above at [57], the plurality of the High Court observed that:
"Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way." [footnote omitted]
That formulation was in turn been adopted in Spencer v Commonwealth above at [24]. In Shaw v New South Wales [2012] NSWCA 102 at [30]-[32]; Barrett JA noted that the relevant question was:
"whether the claims in question are so obviously untenable or groundless that there is a high degree of certainty that they will fail if allowed to go to trial; and whether this is one of the clearest of cases in which the Court may accordingly intervene to prevent the claims being litigated."
A similar approach was adopted by the Court of Appeal in Ren v Jiang [2014] NSWCA 388; (2014) 104 ACSR 149 at [49]; and by Walton J in Renshaw v New South Wales Lotteries Corporation Pty Limited [2018] NSWSC 1954 at [140]-[143], and I in turn followed that approach in Guo v Song [2018] NSWSC 12. These principles have once again been addressed by the Court of Appeal, in Ugur v Attorney General for New South Wales [2019] NSWCA 86 at [71].
The question, then, is whether the Court can properly find that the Plaintiffs' claim against Ms Krilic is so obviously untenable that it cannot possibly succeed, or manifestly groundless, or is so manifestly faulty that it does not admit of argument, or discloses a case which the Court is satisfied cannot succeed. It seems to me, as I have noted above, that there are very substantial difficulties with the Plaintiffs' Statement of Claim, and, as presently formulated, it does not disclose the facts, matters or circumstances on which the Plaintiffs' claim against Ms Krilic is based. However, that is not the test for summary dismissal, and a case can be repleaded. It does not seem to me that I could presently be satisfied that a case against Ms Krilic, in particular by way of accessorial liability or knowing receipt in respect of a breach of trust, could not succeed, with the significant qualification that the relevant facts would need to be identified and would need to be capable of proof by evidence. It may be that those facts cannot presently be identified, because the Plaintiffs have no proper basis to allege them, and will not be able to be established by evidence, because no evidence will be available to support them. However, it does not seem to me that I could presently reach that conclusion with sufficient certainty to summarily dismiss the proceedings, in a way that shuts out the Plaintiffs from the opportunity of a hearing against Ms Krilic.
I am, however, comfortably satisfied that the Statement of Claim in its present form does not properly plead a case against Ms Krilic. It is, of course, well established that pleadings should state with sufficient clarity the case that must be met by a defendant and must do so in a way that defines the issues for decision and ensures the basic requirements of procedural fairness are met: Banque Commerciale SA (en liqn) v Akhil Holdings Limited [1990] HCA 11; (1990) 169 CLR 279; Gunns Ltd v Marr [2005] VSC 251 at [57], approved by Garling J in Young v Hones [2013] NSWSC 580 at [82], and by Ferguson J in Taylor v Lederman [2013] VSC 99 at [3]. Rule 14.28 of the Uniform Civil Procedure Rules 2005 (NSW) in turn permits the Court to order that the whole or any part of a pleading be struck out, if the pleading, relevantly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or is otherwise an abuse of the process of the Court. The reference to "embarrassment" includes a pleading that is ambiguous, vague or too general, so that the other party will not know the case brought against it.
It seems to me that the Plaintiffs' present Statement of Claim is embarrassing, in the sense that it does not plead the material facts which support the claim against Ms Krilic, in respect of the allegation of knowing involvement or knowing receipt in respect of a breach of trust, the allegation in respect of the Ocean Street Trust or the allegation as to misleading and deceptive conduct, or sufficiently articulate the claim that Ms Krilic has to meet in order to allow her to respond to it. For these reasons, I am comfortably satisfied that the Statement of Claim should be struck out, with leave to replead. The matters to which I have referred above suggest that the Plaintiffs and their legal advisers will need to give careful attention to whether, on the presently available evidence, the allegations presently put against Ms Krilic could be properly pleaded, in a manner that is likely to survive a further application to strike them out. That, however, is a matter which will no doubt become apparent if the Plaintiffs seek to pursue the case against Ms Krilic.
Mr Polese accepted that in the present circumstances, if I reached that conclusion, the Statement of Claim should be struck out as a whole, because its present structure is such that there is no distinct pleading against Ms Krilic which could be struck out, without striking out the balance of the Statement of Claim.
Accordingly, I order that the Statement of Claim filed on 8 November 2018 be struck out. In the ordinary course, the Plaintiffs must pay the costs of this application, as agreed or as assessed. I am inclined to think that this is a distinct application, as to which an order for payment of costs forthwith should be made. However, I will hear the parties in that respect.
[5]
Costs
I then heard the parties further as to costs. Mr Kirby supports an order that costs should be paid forthwith, on the basis that this is a distinct application, separate from anything that may follow in the balance of the proceedings. Mr Polese made somewhat wider submissions, including as to the question of costs generally. He submitted that the Plaintiffs had to meet an application for summary dismissal, and have survived that application, although the Statement of Claim will be struck out with leave to replead. I did not understand Mr Polese to go so far as to say that, in those circumstances, the Plaintiffs could be said to be successful, or Ms Krilic could be said to be unsuccessful, particularly given the observations that I have made above as to the challenges which are likely to face the Plaintiffs in respect of any adequate repleading. It seems to me that little turns on that matter here, because the application for summary dismissal plainly raised issues as to the adequacy of the pleading, and Mr Polese did not suggest at any point in the course of the application that the criticisms of the Statement of Claim had caught the Plaintiffs by surprise.
On balance, it seems to me that this is a discrete application, in which Ms Krilic has had substantial success. Although she has not obtained the relief that she sought by way of a summary dismissal, she has obtained relief that involves the striking out of the pleading in its present form. It seems to me that it is likely that these proceedings will continue for a significant period into the future, including potentially against Ms Krilic, if the Plaintiffs are ultimately able to articulate an adequate claim against her. I am satisfied that, in these circumstances, this is a proper case to order that costs be paid forthwith. I was not asked to go further, and do not consider that I should go further at this point, to stay any aspect of the proceedings against Ms Krilic until such costs are paid. I therefore make a further order that the costs payable to Ms Krilic in respect of this application be paid forthwith.
[6]
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Decision last updated: 29 November 2019