Ferella v Otvosi

Civil Procedure Act 2005 s 91 Conveyancing Act 1919 ss 78, 89(2) LEGISLATION CITED : Federal Court Rules Order 35 r 6 Supreme Court Act 1970 s 91 Supreme Court Rules 1970 Part 6 r 6(2), Part 8 r 8, Part 34 r 6A and Part 40 r 8

Blair v Curran (1939) 62 CLR 464 D'Orta-Ekenaike v Victoria Legal Aid (2005) 79 ALJR 755 Ferella v Otvosi [2003] NSWSC 1254 Ferella v Otvosi [2004] NSWSC 230 CASES CITED : Henderson v Henderson (1843) 3 Hare 100; 67 ER 313 Makhoul v Barnes (1995) 60 FCR 572 Newmont Pty Ltd v Laverton Nickel NL (No 2) [1981] 1 NSWLR 221 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 598 Spencer Bower, Turner and Handley, The Doctrine of Res Judicata (3rd ed, 1996) [38]

Angelo Ferella (P1 & XD1) Gustavo Ferella (P2 & XD2) PARTIES : Ervin Lloyd Otvosi (D1 & XC1) Keiko Otvosi (D2 & XC2)

T F Robertson SC and J E Lazarus (Ps & XDs) COUNSEL : P Brereton SC (Ds & XCs)

Klimt & Associates (Ps & XDs) SOLICITORS : Landerer & Company (Ds & XCs)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2583/03 ANGELO FERELLA & ANOR v ERVIN LLOYD OTVOSI & ANOR JUDGMENT 1 HIS HONOUR: This is an application to amend points of defence to cross claim in circumstances where it is contended that the amendments are precluded by the doctrine of res judicata or the doctrine of issue estoppel or ought not, as a matter of discretion, be allowed. 2 The summons in these proceedings was filed on 30 April 2003. There is a further amended summons filed on 30 September 2003. Prayers 1 - 5 in the summons are as follows:- "1 A declaration that Folio Identifier 2/389502 ('the Plaintiffs' Property') is not affected by the covenant set out in Memorandum of Transfer registered number G315812

2 In the alternative to paragraph 1 above, a declaration that the covenant set out in Memorandum of Transfer registered number G315812 is not enforceable against the Plaintiffs' Property.

3 Further, in the alternative to the declarations sought above, a declaration that the building in the Plaintiffs' Development Application and Construction Certificate 98/179 does not infringe the restriction arising under Covenant G315812 registered on the Plaintiff's Property as varied by the Deed between the Plaintiffs and the Defendants dated 25 February 2002 ('the Restrictive Covenant') in so far as it benefits the land contained in Folio Identifier 4/389502 ('the Defendants' Property').

4 Further in the alternative to the declarations sought above, an order that the Restrictive Covenant insofar as it benefits the Defendants' Property, be modified by deleting paragraph 1 of the Covenant and inserting a new paragraph 1 as follows: 'That not more than one main building shall be erected upon the land hereby burdened and in respect of any building now or hereafter to be erected on the land hereby burdened no part of the structure including but not limited to the ridge line of any roof or roof parapet or any other part of the structure constructed upon such building shall exceed a height of R.L. 31.00 based on Australian Height Datum.'

5 Further, in the alternative to the declarations sought above, an order that the Restrictive Covenant insofar as it benefits the Defendants' Property, be modified by deleting paragraph 1 of the Covenant and inserting a new paragraph 1 as follows: 'That not more than one main building shall be erected upon the land hereby burdened and in respect of any building now or hereafter to be erected on the land hereby burdened no part of the structure including but not limited to the ridge line of any roof or roof parapet or any other part of the structure constructed upon such building shall exceed a height of RL 28.99 based on Australian Height Datum "AHD" with the exception of a single lift overrun having a base area on the said roof not exceeding 2.3 metres x 2.3 metres which shall not exceed a height of RL 29.22 AHD.'"

The cross claim was filed on 27 June 2003. That cross claim claimed only an injunction restraining the plaintiffs from infringing the restrictive covenant. 3 A hearing was fixed before Master McLaughlin (as his Honour then was) for 13 October 2003. On 8 October 2003 the learned Master made an order noting that the parties agreed that the hearing specially fixed for 13 October 2003 should be limited to the relief sought in prayers 1 and 2 in the further amended summons. The hearing proceeded on 13 October 2003 and judgment was reserved. On 23 December 2003 Master McLaughlin delivered his judgment: Ferella v Otvosi [2003] NSWSC 1254. The learned Master ordered that the claim of the plaintiffs for relief in terms of prayers 1 and 2 of the further amended summons be dismissed; that the plaintiffs pay the costs of the defendants of the claim for relief in terms of prayers 1 and 2; and that the balance of the further amended summons be stood over generally with liberty to restore on seven days notice. 4 From the decision of the learned Master an appeal was taken to the Court constituted by a Judge. This appeal was heard by Gzell J on 18 March 2005 and his Honour delivered judgment on 31 March 2004: Ferella v Otvosi [2004] NSWSC 230. His Honour ordered that the appeal from the Master be dismissed and directed the parties to bring in short minutes of order reflecting his reasons. 5 Orders were not in fact made until 19 July 2004. On that day, by a reference to a document entitled Consent Orders, the Court, by consent, ordered that: "(1) All proceedings by the plaintiffs against the defendants (including and not limited to the summons filed 30 April 2003, the amended summons filed 22 May 2003 and the further amended summons filed 30 September 2003) be dismissed;

(2) The plaintiffs pay any costs of the defendants in respect of those proceedings which are not the subject of existing orders or costs, as assessed or agreed; and

(3) The defendants' cross claim filed 10 June 2003 be stood over generally with liberty to the defendants to restore the cross claim to the Registrar's list on seven (7) days notice."

The Court also made an order noting that: "(4) The plaintiffs agree that they will not appeal from the judgments of Gzell J given on 31 March 2004 and 15 April 2004 in these proceedings."

The latter of those judgments was as to costs. (Those orders are referred to as "the consent orders".) 6 Some comment should be made at once on the form and effect of the consent orders. As noted above, the form of orders by reference to which the consent orders were made was brought in after a direction by Gzell J that short minutes be brought in to give effect to his Honour's decision. The consent orders encompass but go far beyond that. The decision was limited to prayers 1 and 2 in the further amended summons, but the consent orders disposed of all the prayers in that summons. It is noted that the orders were made by consent. This certainly must be so in respect of the order of dismissal, in so far as order (1) disposes of prayers 3 and following ("the subsequent prayers"), in respect of which there had been no hearing at all. In reality, it is not true that order (1) was made by consent in so far as it disposes of prayers 1 and 2, which had been heard to finality. 7 The cross claim was subsequently restored to the list and has been fixed for trial before me on 18 and 19 July 2005. There are now amended points of cross claim which were filed on 30 March 2005. The only relief sought by the cross claim remains injunctive relief to restrain an infringement of the covenant. Points of defence to the amended points of cross claim were filed on 31 March 2005. 8 By notice of motion filed on 29 June 2005 the plaintiffs seek to file amended points of defence to the amended cross claim. By pars 9 and 10 proposed to be added the plaintiffs: "9 Say, in answer to the whole of the amended points of claim, that pursuant to s 89(2) of the Conveyancing Act 1919 (NSW), they are entitled to an order under s 89(1) of that Act, that the covenant set out in the Memorandum of Transfer registered number G315812 ('the covenant') be modified by deleting paragraph 1 of the covenant and inserting in its place the following: 'That no more than one building shall be erected upon the said land and that such building shall not be more than two storeys in height above natural ground level.'

10 Further, or in the alternative, say, in answer to the whole of the amended points of claim, the restriction in paragraph 1 of the covenant that 'such building shall not be more than two storeys in height' is ambiguous and therefore unenforceable." 9 It was these paragraphs, the introduction of which was submitted to be prohibited by the effects of the consent orders. The argument on both sides turned initially on the doctrines of res judicata, issue estoppel and Anshun estoppel. Unexceptionable propositions were put to me concerning the importance of the finality of litigation. This was most recently referred to in the High Court in D'Orta-Ekenaike v Victoria Legal Aid (2005) 79 ALJR 755 at [34] as the "central and pervading tenet of the judicial system ... that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances". Such classic cases were cited as Blair v Curran (1939) 62 CLR 464 and Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 598. See also Henderson v Henderson (1843) 3 Hare 100; 67 ER 313. There was debate as to the circumstances in which consent orders would or would not create a res judicata: see Spencer Bower, Turner and Handley, The Doctrine of Res Judicata (3rd ed, 1996) at [38]. 10 However, in the end, in my view, the decision does not turn on those principles as such. In their original submissions neither side mentioned Part 40 r 8 of the Supreme Court Rules 1970 ("the SCR"). That rule provides, so far as material, as follows:- "(1) Where … under these rules … the Court makes an order for the dismissal of proceedings or for the dismissal of proceedings so far as concerns any cause of action or the whole or any part of any claim for relief, the order for the dismissal shall not, subject to any terms or conditions on which the order for dismissal is made, prevent the plaintiff or claimant from bringing fresh proceedings or claiming the same relief in fresh proceedings." 11 There is some history relating to the effect of orders of dismissal on the Equity side of the Court. Prior to the enactment of the SCR an order for the dismissal of the proceedings was the usual form of judgment for the defendant in defended Equity proceedings. The judgment of Needham J in Newmont Pty Ltd v Laverton Nickel NL (No 2) [1981] 1 NSWLR 221 appeared to indicate that a bare order for dismissal was no longer efficacious to dispose of proceedings; even in Equity proceedings, there should be an order in the Common Law form giving judgment for the defendant, or at least an order directing that the order for dismissal should be entered as a judgment. At that time, however, s 91 of the Supreme Court Act 1970 ("the SCA") was in the mandatory form that the Court is, after trial, to "direct judgment to be entered as it thinks fit". In 1989 s 91 was amended, probably in response to the Newmont case, to provide that the Court is to "give such judgment or make such order as the nature of the case requires". This would seem to validate an order of dismissal as the final order in favour of the defendant after the trial of Equity proceedings. In any event, in the Newmont case, Needham J made it plain that, even before the 1989 amendment, an order for dismissal after a hearing on the merits resulted in a res judicata which prevented the matter being re-agitated, despite the provisions of Part 40 r 8. 12 Subject to this exception relating to a hearing on the merits, the effect of Part 40 r 8, at least where the order for dismissal is made under the rules, is that proceedings may be brought or the same relief claimed again after the order for dismissal. This in my view is not a breach of the principle of finality. The order for dismissal itself stands as a final order. It is just that the SCR themselves provide that the effect of the order of dismissal is not to preclude the bringing of fresh proceedings. 13 In so far as it was submitted that the decision of the Full Court of the Federal Court in Makhoul v Barnes (1995) 60 FCR 572 is to the contrary effect, two observations must be made. The first is that the relevant rules in that case were the Bankruptcy Rules, since the relevant dismissal was not of ordinary proceedings, but of an application to set aside a bankruptcy notice. The second is that the provision of the Federal Court Rules ("the FCR") corresponding to Pt 40 r 8 of the SCR is quite different in terms. Order 35 r 6 of the FCR provides: "(1) Where the Court makes an order for the dismissal of proceedings or for the dismissal of proceedings so far as concerns any cause of action or the whole or any part of any claim for relief, the Court may order that such dismissal shall be without prejudice to any right of the applicant or claimant to bring fresh proceedings or to claim the same relief in fresh proceedings."

Thus, under the FCR, upon a dismissal, the Court must order that the dismissal be without prejudice to the claimant's right to bring fresh proceedings, if that right is to survive. Under the SCR, it is the practice for the Court to order that the dismissal be to the intent or on condition that the proceedings not be brought again, if the dismissal is to preclude fresh proceedings. The pattern of the SCR is embodied in s 91 of the Civil Procedure Act 2005 (passed but not yet proclaimed). Section 91(2) now gives legislative expression to the exception that fresh proceedings cannot be brought if the dismissal is after a hearing on the merits. 14 It was not seriously argued before me that Part 40 r 8 did not apply to the dismissal in question. It seems to me from what I have said above that order (1) of the consent orders must be construed distributively in the following sense. In so far as it applies to prayers 1 and 2 of the further amended summons, it should be treated as a dismissal after a hearing on the merits, so that that subject matter may not be reopened. In so far as it applies to the subsequent prayers, which have not been the subject of any hearing on the merits, it is governed by Part 40 r 8, so that the claims made in those prayers may be made again. 15 The only argument that occurs to me, that would avoid Part 40 r 8 having this effect, is that the dismissal was not a dismissal under the rules, and therefore not within the ambit of Part 40 r 8. However, Part 34 r 6A of the SCR provides that the Court on the application of any party making a claim for relief may at any time make an order for the dismissal of the proceedings so far as concerns any cause of action or any claim for relief. In my view the plaintiffs in this case, within the meaning of Part 34 r 6A, applied for the dismissal of the proceedings, so far as the subsequent prayers were concerned, by joining in asking the Court by the consent orders to dismiss the proceedings in relation to those prayers. In any event, this argument was not put to me. 16 This is sufficient to dispose of the argument that the points of defence to cross claim cannot be amended to include the proposed pars 9 and 10. 17 The plaintiffs put an alternative argument. The defendants argued that the intention of the parties evinced in the consent orders was to put a permanent end to all the plaintiffs' claims. I have already said that the vice in this argument is that the order that was procured by consent, being an order of dismissal, was an order that by its nature contained an exception to the ordinary doctrine of finality. However, the defendants' argument is that, in addition, the consent orders kept alive the cross claim. The cross claim was for the enforcement of the restrictive covenant. This claim, by its nature, contained in its bosom a right to defend the proceedings by applying for modification of the covenant. This is by virtue of s 89(2) of the Conveyancing Act 1919 ("the CA"), which provides as follows:- "(2) Where any proceedings are instituted to enforce an easement, profit à prendre, restriction or obligation, or to enforce any rights arising out of a breach of any restriction or obligation, any person against whom the proceedings are instituted may in such proceedings apply to the Court for an order under this section."

The defendants protested that the use of this provision was precluded by the use in order (1) of the consent orders of the expression "all proceedings by the plaintiffs against the defendants". At the time the consent orders were made the cross claim was already formulated. I am inclined to think that those words are too vague and uncertain in their ambit to evince an intention to bar the agitation in the existing cross claim proceedings of the statutory defence under s 89(2) of the CA. Important as is the principle relating to the finality of litigation , there is also an important principle that persons should not be deprived of existing rights by imprecise terminology or unclear language. It is not really necessary for me to decide this as, in my view, the situation is governed by the effect of the order of dismissal construed in the light of Part 40 r 8 of the SCR. 18 There was some argument put that the defendants would suffer prejudice by the insertion in the defence to cross claim of these paragraphs at this late stage of the proceedings. It may be that the hearing will be protracted by the agitation of these grounds of defence. However, I am unable to see that the defendants will suffer any prejudice which cannot be met by orders as to costs. 19 The plaintiffs will therefore be allowed to amend the defence to cross claim as sought in the notice of motion. It would seem to follow that the defendants must pay the plaintiffs' costs of the motion. 20 I have been asked by consent to join two additional cross claimants, who are not yet parties to the proceedings and who have consented in writing to being joined. At first I had some doubts as to whether this could be done, in view of the terms of s 78 of the SCA. However, once a cross claim has been instituted by a defendant, I do not see why additional cross claimants, who are not parties to the proceedings, may not be joined by the combined operation of SCR Part 6 r 6(2) and Part 8 r 8. As I have said, all relevant persons have consented and the course is a convenient and beneficial one as tending to avoid multiplicity of proceedings. 21 The defendants have now applied under Part 40 r 8(2) for a stay of the application made by the plaintiffs under par 9 of the amended points of defence to cross claim for modification of the covenant on the basis that the costs ordered against the plaintiffs in the consent orders upon dismissal of the principal proceedings have not been paid. I have indicated that I propose to stand this application over to the commencement of the trial, but that I consider that arrangements should be made for the payment of those costs.

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