Cassaniti v Ruse NSW Pty Ltd

Judgment

1. THE COURT: On 26 October 2017 the Court ordered that the applicants' (for convenience referred to by their given names, Ivana and Gino) application for leave to appeal be dismissed with costs. These are the reasons for the making of that order.
2. The application was for leave to appeal from the determination by the primary judge (Pembroke J) of a separate question: Cassaniti v Ruse NSW Pty Limited [2017] NSWSC 499. That question (set out in [8] below) arises in proceedings in which Ivana and Gino seek relief, including a declaration, that the first respondent (Ruse NSW) holds its interest as registered proprietor of land in Western Sydney (the Ruse Property) subject to Ivana's entitlement to a first registered mortgage securing the repayment of $300,000 due from the second and third respondents (respectively Armstrong Scalisi Holdings Pty Limited and Raptor (Aust) Pty Ltd, referred to as ASH and Raptor).
3. That interest is claimed in the following circumstances. The natural person parties in the underlying proceedings (Ivana, Gino and the sixth and seventh respondents, respectively David and Sam Cassaniti) and companies controlled by them entered into a comprehensive settlement of numerous disputes arising from the conduct of an accounting practice. Following a mediation and protracted negotiations, the parties sought to resolve their differences by a Deed of Release and Indemnity dated 16 January 2013. As part of that settlement ASH and Raptor jointly and severally promised to pay Ivana $300,000 within 18 months and Ivana was to receive a first registered mortgage over the Ruse Property to secure that payment obligation (clauses 5.1 (c), 14.1 (d)). The Deed contemplated that Ivana would receive that mortgage "without delay" (clause 14.1 (d)).
4. By their consolidated statement of claim filed 21 July 2016 the applicants sought the declaration referred to above and consequential relief, including that Ruse NSW execute and deliver a first ranking mortgage in favour of Ivana to secure the debt of $300,000. At the time the Deed was executed, the registered owner of the Ruse Property was Mr Ip. The applicants allege the property was held by him for David, or for David and Sam, as beneficial owner or owners. Ivana was not granted the first registered mortgage. On 14 July 2014 Ruse NSW was incorporated, with David as sole shareholder and director. On 16 July 2014 the Ruse Property was transferred from Mr Ip to Ruse NSW. David's wife is now the sole shareholder and director of that company.
5. The applicants' pleaded case is that by reason of the express and implied terms of the Deed, or by those terms as rectified, David as beneficial owner of the Ruse Property was subject to an obligation to provide or procure the first mortgage in favour of Ivana and that this obligation of the equitable owner gave rise to an equitable mortgage of Mr Ip's legal interest in the property. It is then alleged that the legal title was transferred to Ruse NSW with knowledge of the existence of that obligation and interest and that this was sufficient to constitute Ruse NSW a trustee of that obligation for the benefit of Ivana.
6. In their defence the respondents admit that ASH and Raptor were subject to an obligation to "provide" the first ranking mortgage; deny that David or Sam or the both of them were the equitable owners of the Ruse Property; and deny that David or Sam promised to provide or procure, or to do all things necessary to provide or procure, a first mortgage of that property in favour of Ivana. They do not, in that defence, rely on the indefeasibility provisions in Real Property Act 1900 (NSW), s 42, presumably because it is accepted that the applicants' claims assert a personal obligation of Ruse NSW as constructive trustee to hold its registered title subject to Ivana's equitable mortgage. It is not part of the applicants' pleaded case that any equitable obligation of Ruse NSW arose by reason of fraud on the part of David or Ruse NSW.
7. The separate question, as described by the primary judge in orders made on 26 April 2017, was directed to the applicants' claim to declaratory and other relief founded on express and implied terms of the Deed, as distinct from those express terms as rectified. That question gives rise to issues concerning the construction of provisions of the Deed and the implication of terms, as well as whether Mr Ip held the Ruse Property for David as beneficial owner.
8. The order for the determination of the separate question, as it appears on Justicelink was: 4. Order that the entitlement of the first plaintiff [Ivana] to the relief sought in prayers 5, 6, 8, 9, 10, 11, 12 and 13 of the consolidated statement of claim dated 21 July 2016 be dealt with separately and in advance of all other issues. 5. I note that those prayers for relief are concerned with the construction of the deed of release and indemnity dated 16 January 2013.
9. This order does not in terms formulate the question for determination. However it is sufficiently clear that the question is directed to the determination of the claims for relief made in the specified paragraphs relying on the express and implied terms of the Deed and other circumstances in each case as pleaded in the consolidated statement of claim. Those terms included an implied term that "ASH, Raptor, David and Sam would do all things necessary to ensure that Ivana received the Mortgage" (consolidated statement of claim, para 23). No reference was made in the pleading, or in the argument before the primary judge, to clause 21.5 of the Deed which provided that each party will "do all things required by any other party necessary to give effect to this Deed".
10. The primary judge ordered that the separate question be answered "in the negative": Judgment [3], [18]. His Honour stood over the balance of the proceedings for determination by another judge of the Equity Division. Those proceedings currently are listed for hearing on 28, 29 and 30 November 2017.
11. As to the first of the two issues referred to above, the primary judge held that the reasonable and effective "operation of the Deed does not necessarily require the imposition, by a process of implication, of an obligation on David to procure a mortgage". As David did not expressly agree to provide or procure a mortgage it followed that he had no obligation to do so: Judgment [16]. No consideration was given to the effect of clause 21.5 upon the implied term contended for, or to the construction of that clause.
12. In relation to the second of those issues - whether David was the beneficial owner of the Ruse Property - the primary judge noted that David "appears to have had an interest in the land, possibly the entire beneficial interest". His Honour did not make any clear finding that David held the whole of the beneficial interest in the land: cf Judgment [5], [17].
13. This second issue also arises for consideration in the applicants' alternative claim to the same relief based on the deed as rectified. The existence of that alternative claim, the common question as to beneficial ownership arising in relation to each claim, and the likelihood that the determination of that question and of the rectification claim would also involve common witnesses whose credibility would be in issue, provided compelling reasons for not making the order for separate determination. However, because that order was made by consent neither party was in a position to appeal against it: Young v Hones [2014] NSWCA 337 at [6] (Bathurst CJ), [155] (Ward JA), [313] (Emmett JA).
14. A party who wishes to challenge a ruling on a separate question may do so as of right following the final determination of the proceedings. As to the existence of that right, see Gerlach v Clifton Bricks Pty Limited (2002) 209 CLR 478; [2002] HCA 22 at [4] - [6] (Gaudron, McHugh and Hayne JJ) and David Syme & Co Ltd v Lloyd [1984] 3 NSWLR 346 at 349 (Glass JA). That party may also, with leave, appeal from any order determining such a separate question: Supreme Court Act 1970 (NSW), s 103.
15. In deciding whether leave should be granted, the Court's concern is to facilitate the just, quick and cheap resolution of the real issues in the proceedings: Civil Procedure Act 2005 (NSW), s 56. In American Home Assurance Co v Ampol Refineries Ltd (1987) 10 NSWLR 13 at 19, the Court (Kirby P, Hope and Samuels JJA) pointed out that there are frequently advantages in requiring, "even where matters for separate decision have been determined, that a trial should be concluded upon all issues before an appeal is heard" (emphasis added). That is because there is likely to be a more efficient and expeditious use of the resources of the parties and the Court if, where it is possible and convenient, all matters in dispute by way of appeal are addressed at the one time. The Court in Ampol Refineries also identified some of the countervailing circumstances that might favour the granting of leave to appeal. They include that the determination of the first appeal might "effectively terminate litigation or substantially narrow the issues for trial", or where important considerations of general application, public interest, or principle are involved.
16. No such countervailing circumstances exist in this case. The determination of the appeal on the separate question would require this Court to decide the issue of David's beneficial ownership which was not determined by the primary judge. That issue, which was the subject of limited evidence before his Honour, also arises in the applicants' rectification case which remains to be determined. For this Court to decide that question on the limited evidence would deny the applicants the opportunity to lead further evidence on this issue, and to take advantage of the opportunity to cross-examine on this issue witnesses called in the respondents' case in relation to rectification and other remaining issues. Those witnesses could include David.
17. Perhaps more significantly, before the hearing of the present application, the Court drew the parties' attention to clause 21.5 of the Deed and its possible relevance to the applicants' case as pleaded. During the oral argument, the applicants indicated that they relied on that provision. That indication raises questions as to whether the applicants are able to do so on the existing pleadings, or by way of an amendment in circumstances where the separate question has been decided. Whether the applicants should be permitted to make such an amendment is a pleading question that should be dealt with in the trial of the issues that remain, and this Court expresses no view about that matter.
18. In their written argument the respondents opposed the grant of leave, including for the reason that an appeal on the separate question was likely to result in additional costs to the parties, rather than savings. Although they resiled from this position in oral argument, there was force in the submissions made in support of their original position. In their written submissions in response the applicants raised two matters. First, it was suggested that a grant of leave would permit issues as to the interpretation of the Deed to be authoritatively resolved. Secondly, it was said that a favourable determination of the appeal might permit the respondents to challenge the "adverse fraud findings against David" made by the primary judge.
19. Neither of these matters provides a basis for concluding that taking the course of determining the proposed appeal is likely to result in a saving of costs to the parties, and neither has the virtue for which the applicants contend.
20. As to the first, the appeal would not necessarily address clause 21.5 or its construction and relevance to the implication of the pleaded term. As to the second, the findings and observations made by the primary judge as to the transfer of title of the Ruse Property to Ruse NSW being "intended to deprive, cheat and subvert the intention disclosed in the deed that Ivana have a first ranking mortgage" (Judgment [2], [11], [12]), are not binding on the parties in relation to the determination of the remaining issues. That is because they were not made in relation to any question of fact or law in issue in the separate determination: Bass v Permanent Trustee Co Limited (1999) 198 CLR 334; [1999] HCA 9 at [57] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ) citing Diplock LJ in Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630 at 642.
21. In any event, and more fundamentally, those findings should not have been made in circumstances where the question of fraud was not pleaded or raised as an issue by any argument put to the primary judge or otherwise the subject of any submission. The principles which dictated that the primary judge was not permitted to make these findings are explained by Sackville AJA in Nadinic v Drinkwater [2017] NSWCA 114 at [108] to [117].
22. When disregarding this basic rule of procedural fairness the primary judge acknowledged that the consolidated statement of claim made no allegations of fraud. His Honour nevertheless proceeded to make findings observing that the claim made "assumes the perpetration of fraud within the meaning of s 42(1)" of the Real Property Act. That observation is wrong, ignoring as it does the absence of any reliance by the respondents on that indefeasibility provision, the in personam claim exception to indefeasibility of title as explained in Frazer v Walker [1967] 1 AC 569 and Breskvar v Wall (1971) 126 CLR 376, and the absence of any pleading of fraud as a basis for the in personam claim in the consolidated statement of claim.
23. In the circumstances, the interests of justice, including those directed to the efficient use of the Court's resources as well as those of the parties, are best advanced by allowing the remaining issues (presently fixed for hearing in November) to be determined before any appeal.
24. There is one other matter to which reference should be made. In the course of argument the Court was advised that David became a bankrupt on 4 March 2016, at which time his property vested in the Official Trustee: Bankruptcy Act 1966 (Cth), s 58. The operation of that section in the context of the claims made by the applicants raises the question whether the Official Trustee, or whoever is the relevant trustee of David's bankrupt estate, is a necessary party to the underlying proceedings. It is not obvious that the parties have addressed this question by reference to each of the bases on which relief is sought.

Amendments 07 November 2017 - [24] "remaining" changed to "other" 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: 07 November 2017