Casella v Salfinger

Supreme Court of NSW|2011-10-04|Before: Hislop J

Introduction 1HIS HONOUR : The plaintiff, by Notice of Motion filed on 2 August 2011, sought: 1 An order pursuant to UCPR Rule 14.28 that the Statement of Defence and Cross Claim/Set off be struck out and the cross claim dismissed and; 2 An order pursuant to UCPR r 13.1 that judgment be given for the Plaintiff in accordance with paragraph 9 of the Summons herein. 2The defendant, by Notice of Motion filed on 31 August 2011, sought: 1 An Order that the Defendant be granted leave to amend his Defence filed 24 June 2011 within 14 days. 2 An Order that the Defendant be granted leave to file a Cross claim within 14 days. 3The orders were opposed. The Notices of Motion were heard together.

Background 4The plaintiff, by Summons filed on 15 March 2011, sought to recover principal and interest allegedly payable by the defendant pursuant to a contract. The contract was particularised in the Summons as being in writing and contained in a document entitled "Deed of Loan" executed by the plaintiff and defendant and dated 19 September 2008. 5The Summons was served on the defendant in Israel. On 20 May 2011 the defendant appeared via telephone link and was ordered by the Registrar to file and serve a Defence and any Cross-Claim by 24 June 2011. It was implicit in that order that the summons was to be treated as a Statement of Claim and the matter should proceed on pleadings. This was appropriate. 6On 24 June 2011 the defendant filed a Defence and Cross-Claim. The Cross-Claim was later rejected by the Registry. The documents were drafted by the defendant. The plaintiff responded with the Notice of Motion filed on 2 August 2011. 7The defendant then retained solicitors who drafted a proposed Amended Defence and a Cross Claim. They filed the defendant's Notice of Motion on 31 August 2011.

The plaintiff's claim 8The Deed of Loan dated 19 September 2008 recited that the defendant had received loan moneys from the plaintiff, advanced through the bank account of Cassal Drilling Pty Ltd, in the sum of $113,000 and that the plaintiff had agreed to lend to the defendant the principal sum upon the terms and subject to the conditions contained therein. 9The Deed provided for repayment in the following terms: "(3) The [defendant] hereby covenants and agrees with the [plaintiff] to repay to the [plaintiff] the Principal Sum within two (2) months after the [plaintiff] gives a written notice ('The Repayment Notice') to the [defendant] demanding repayment of the Principal Sum; (4) The [defendant] hereby covenants and agrees with the [plaintiff] to pay interest to the [plaintiff] on the Principal Sum outstanding from time to time at the rate of 10 % per annum calculated from the date when the first part of the Principal Sum was advanced to the [defendant] by the [plaintiff] until the Principal Sum and any interest thereon is repaid in full, such interest to be calculated on a daily basis and paid by monthly instalments in arrears; ... (7) In the event that (i) the [defendant] shall fail to pay when due any amount payable by it hereunder; or (ii) the [defendant] shall default in the performance or observance of any other term, covenant or agreement contained in this Deed; .... THEN and in any such event the Principal Sum together with accrued interest thereon shall become and be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived." 10The breaches alleged in the Summons were a failure to pay interest, a failure to comply with Paragraph 7, and failing to comply with a notice under paragraph 3 of the Deed. 11The defendant admitted the existence of the Deed of Loan. It was not disputed no payment of principal or interest had been made pursuant to the Deed of Loan. 12The defendant in his proposed Amended Defence alleges the loan agreement contained oral terms particularised in the proposed Amended Defence as follows: "The Plaintiff agreed to provide finance to the Defendant for the payment of his personal expenses including legal costs in consideration of the Defendant providing consultancy and management services as particularised in the Cross Claim filed herein. Any arrangements for funds advanced to the Defendant to the Plaintiff pursuant to the Contract were contingent upon a continuity of the consultancy and management service payments as particularised in the Cross Claim. ... Whilst the Defendant provided the consultancy and management services as particularised in the Cross Claim filed herein there was no obligation, which is denied, on the part of the Defendant to pay interest pursuant to the alleged Contract. ... Whilst the Defendant provided the consultancy and management services as particularised in the Cross-Claim filed herein the Plaintiff was not entitled to issue the alleged notice. ... At all relevant times [the Defendant] provided the consultancy and management services as particularised in the cross claim." 13The defendant thus asserts that the terms of the agreement were that he had no obligation to pay the principal sum or interest (a) in the absence of a continuity of the consultancy and management service payments as particularised in the proposed cross claim; or (b) whilst the defendant provided consultancy and management services as particularised in the proposed cross claim. 14The defendant asserts that the payment of consultation and management fees had ceased but that at all relevant times he provided consultation and management services as particularised in the proposed cross claim. 15There is no reference in the "Deed of Loan" to the management agreement nor is it expressed to be subject to any condition derived from the management agreement. 16In his supporting affidavit (upon which he was not cross-examined) the defendant deposed: "33. In or about 2007 I telephoned John Casella and we had a discussion in words interalia to the following effect: I said: John, I need to borrow some money for some urgent legal fees. These related to previous mining projects that I was involved in. I need to borrow up to about $100,000. He said: I will lend you the money. I said: The only way I will borrow this from you is if I can repay it from the $10,000 a month management fee. He said: The management fee will continue for as long as we are working on the projects which are long term project. Let's get the money to you and we will worry about repayment at some later stage. There is no rush for repayment and it can be repaid in the future when we get things into production. We are going to make a lot of money. I said: I need to pay the legal fees rather urgently. He said: I will help you out with the money and will get Trent to send it to you. Just let him know where you need it sent." 34. The proposed loan was conditional on the $10,000 a month management fee being paid to me, as this was the only income I had at the time. 35. I would not have borrowed the money from Mr Casella unless I had the continuity and assurance of the income of the $10,000 management fee. 36. I was led to believe by Mr. Casella before I borrowed the money that the management fee would continue on because we had many projects we were working on and in fact those projects continue to be worked on to this day. 37. Mr Casella then arranged to have the money sent to my bank account in various amounts. 38. At the time the funds were advanced by Mr Casella there was no written loan agreement. 39. It was not until a long time after the money had been sent to me that Mr Casella asked for a formal loan agreement to be prepared. 40. The loan agreement did not reflect the terms that we had verbally agreed to. 41. At the time the loan agreement was presented to me Mr Casella told me that I had to sign it otherwise he was not going on with funding the projects in Israel or Canada. 42. The projects we were working on continued for a long time and until current. ... 48. Over the 4 year period November 2006 to July 2010 Mr Casella had made payments to me and Arkaroola Mining Ltd of a cumulative total of about $443,000. 49. Hence when I borrowed the money from Mr Casella I had every belief that ongoing payments would be made and that Mr Casella would keep to his word and that I would be able to repay the amounts borrowed."

The proposed Cross Claim 17The defendant, in his proposed Cross Claim, seeks to recover $282,000.00 for unpaid management fees and out of pocket business expenses pursuant to a management agreement. The agreement out of which the claim is said to arise was particularised as follows in paragraph 1 of the Cross-Claim "The management fee agreement was an integral part of the shareholders' agreement between Dart Commodities Ltd and the Plaintiff made in about October 2006 and then with respect to a Participation Agreement made between the Plaintiff in his personal capacity and Dart and Cassal Drilling on about 15 October 2009 and which was back dated to 15 January 2009. This Participation Agreement later had the effect of becoming a shareholders' agreement." Alternatively, the defendant seeks damages for unfair dismissal. 18The defendant, in his affidavit recounts that he first met the plaintiff in 1991; that in 2005 the plaintiff expressed an interest in investing in mining ventures; and that in July 2006 the defendant told the plaintiff "(11) I can arrange to get hold of good quality projects and the management needed to run them and you put in the money and the ownership would be 50%-50% on the deal. I would be paid a management fee of $10,000 each month. You will need to provide money for the projects. He said: That sounds okay to me. (12) Mr Casella asked me to put this in an agreement which then became the basis of our ongoing operations. In the agreement we had Dart Commodities Ltd was a company I was working as manager for and would own 50% of the deal. (13) This agreement was completed in or about November 2006 as a two page document. This agreement became the foundation of our ongoing my management and John Casella's investment in mining projects. I do not have a copy of this agreement as it was stolen from my office [along with other records]." 19He then continued: "(16) From about November 2006 onwards, Mr Casella began paying my management fee of $10,000 per month. The management fee was assigned to me by Dart Commodities. At first it was paid to my management company Arkaroola Mining Ltd in about 2008 it was then paid to myself as principal. ... (18) This arrangement of payment for my management services continued on through 2007, 2008, 2009 and 2010 with payments being made on a monthly basis. This was paid for managing the mining projects in Australia and Canada. (19) At first I was told by Mr Rosarto at Mr Casella's accounting office in Griffith to send the invoices to Cassal Drilling Pty Ltd as this was the company that Mr Casella wanted to make the payments through for tax deduction purposes. (20) In about March 19, 2010 I was then told to address the invoices to Cassal Drilling Ltd, however the payments seemed to continue to come came from Cassal Drilling Pty Ltd in Australia." 20The defendant annexed to his affidavit a series of invoices for payment of management fees from July 2008 to 19 August 2011. He deposed that the invoices for 2006-2007 were part of the documents stolen from his office. The invoices dated between 4 August 2010 and 19 August 2011 were headed "Rod Salfinger" and were addressed to "Cassal Drilling Ltd" and were expressed to be for management fees. They were signed by the defendant and stated "Please remit to the Bank as account as agent for Arkaroola Mining Ltd as follows: Account Name: R N Salfinger Bank: Peoples Trust Company ..." Other invoices in 2010 were in the same format, save they were addressed to "Cassal Drilling Ltd" and the bank was the ANZ Bank. In May 2010 invoices were addressed to "Cassal Drilling Pty Ltd". 21In 2009 the invoices were headed "Arkaroola Mining Ltd.", the account name was "KiTov Resources Ltd" and the bank was the Royal Bank of Canada. 22Earlier in 2009 invoices were from "Arkaroola Mining Ltd.", the account name was "Rod Salfinger BTB Expense Account" and the bank was the Royal Bank of Canada. In August 2008 the invoice from "Arkaroola Mining Ltd." required remittance to the Bank "as account as agent for Arkaroola Mining Ltd as follows: Account Name: Rod Salfinger Bank: Royal Bank of Canada." 23In his affidavit the defendant said that in about October 2009 the plaintiff requested a separate agreement to be made in respect of operations in Israel. The agreement was to be a participation agreement. The agreement was prepared on or about 15 October 2009 but was backdated by the plaintiff to 15 January 2009. 24A copy of the participation agreement was annexed to the affidavit of the defendant. 25Clause 3.2 of the participation agreement provided: "It is the intention of the Parties that Dart will provide a manager (the 'Manager'), pursuant to a separate management agreement, to manage and administer the oil and gas concessions..."

Principles 26The relevant principles are of long standing. They were stated in General Steel Industries v Commissioner for Railways (NSW) [1964] HCA 69 (1964) 112 CLR 125 at 128-129 as follows: "...the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. ... The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense'." 27The plaintiff made reference to the test provided by s 31A of the Federal Court of Australia Act 1976 (Cth) that there be no reasonable prospect of successfully defending the proceedings. This radically different test ( Spencer v The Commonwealth [2011] HCA 28 (2010) 241 CLR 118 [53]) does not apply to the present case. There is no provision in those terms in the Civil Procedure Act 2005 or the Uniform Civil Procedure Rules 2005.

Submissions 28The plaintiff submitted the evidence before the Court established that neither the plaintiff nor the defendant were parties to the management agreement. Accordingly, the Defence and Cross Claim in their original form and in the form now proposed were "hopeless". The original Defence and Cross Claim should be struck out and leave refused to file the amended Defence and proposed Cross Claim. There should be judgment for the plaintiff on the Summons. 29The defendant submitted that: (a) There was a real question to be determined: namely, were the terms of the loan agreement as alleged by him. (b) The Court could not be satisfied that there was clearly no defence to the Summons and, accordingly, the Notice of Motion filed on behalf of the plaintiff should be dismissed. (c) There was no prejudice to the plaintiff in the Amended Defence and the proposed Cross Claim being filed at this stage. The contrary was not argued. The orders sought in the Notice of Motion filed on behalf of the defendant should be made.

Determination 30It was common ground that the plaintiff and the defendant were the parties to the Loan Agreement notwithstanding that the loan monies were advanced to the defendant by the plaintiff "through the bank account of Cassal Drilling Pty Limited". 31There was evidence from the defendant in his affidavit which provided a possible basis for the conclusion that the parties' relationship was governed by terms such as were alleged by the defendant. 32Some credence is lent to that conclusion by reason of the apparent absence of any payment or request for payment under the Loan Agreement until a dispute arose as to the continuation of the payment of management fees. 33There was evidence that the management agreement was entered into by the plaintiff and defendant in July 2006 but that a company, Dart Commodities Limited, was interposed by the defendant. There was evidence from the defendant that "the management fee was assigned to [him] by Dart Commodities. At first it was paid by [his] management company Arkaroola Mining Limited in about 2008. It was then paid to [him] as principal." This arrangement of payment for managerial services continued on through 2007, 2008, 2009, 2010, with payments being made on a monthly basis. This was paid for managing the mining projects in Australia and Canada. There was some support for the involvement of the defendant by reason of the form of the invoices though the reasons for changes in the invoices is not clear at this stage. 34There was evidence that the defendant was told "to send the invoices to Cassal Drilling Pty Limited as this was the company that Mr Casella wanted to make the payments through for tax deduction purposes". In about March 2010 the defendant deposed he was told to address the invoices to Cassal Drilling Limited, however the payments seemed to continue to come from Cassal Drilling Pty Limited in Australia. This reflects the manner in which the loan was made by the plaintiff as stated in the recitals to the Deed. This does not preclude the plaintiff from being a party to the management agreement. 35It may be arguable the proposed defence is available even if the parties to the management agreement were other than the plaintiff and the defendant, it being sufficient to found the defence that the defendant was providing his services and was not being paid.

Conclusion 36This is not a clear case. The relationship and business dealings of the parties appears to be of some complexity. I am not satisfied the Court has the requisite material to reach a definite and certain conclusion. The defence and cross claim, for the reasons above set out, are not so obviously untenable that they cannot possibly succeed. Accordingly, the plaintiff's notice of motion will be dismissed with costs. 37It is appropriate that the defendant should have leave to amend his Defence and to file a Cross Claim against the plaintiff.

Orders 381. The plaintiff's Notice of Motion filed on 2 August 2011 is dismissed with costs. 2. Leave granted to the defendant to file and serve an amended Defence with verification within fourteen (14) days of this date. 3. Leave granted to the defendant to file and serve a Cross Claim against the plaintiff within fourteen (14) days of this date. 4. Each party to bear his own costs of and associated with the defendant's Notice of Motion filed on 31 August 2011.

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. Decision last updated: 30 November 2011

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