Plaintiff v Defendants

2 By summons filed 21 March 2017 in the Alderuccio Proceeding, the liquidator of the Company ("the Liquidator") seeks to have a question of the Company's right of indemnity as the former trustee of the Essence Unit Trust tried as a separate question, following judgment in the claim as between Jafari and the first defendants. Assuming he is successful in his application, the Liquidator then seeks to be excused from the general conduct of the trial of the Alderuccio Proceeding as between Jafari and the first defendants, save for making a closing written submission in relation to paragraph 37 of the Company's defence.

3 By summons filed 6 April 2017, the Liquidator made, in substance, the same application in the 23 Developments Proceeding.[1]

4 For the reasons that follow, orders will be made in both proceedings for the separate trial of the following question:

Does the Company have a right to be indemnified out of the property of the Essence Unit Trust for all debts and liabilities suffered or incurred by it or on behalf of the Essence Unit Trust in the period 4 August 2008 until on or about 2 August 2013, together with all remuneration and costs of the Liquidator in identifying, protecting and/or attempting to get in the property of the Essence Unit Trust; and in respect of which, the property of the Essence Unit Trust is charged in favour of the Company?

5 Subject to further order of the court, the Liquidator will accordingly be excused from attending the trial of the Alderuccio Proceeding as between Jafari and the first defendants,[2] and the trial of the 23 Developments Proceeding as between Jafari and the first to fourth defendants.

6 Both proceedings were initiated on behalf of Jafari and the Company jointly.

7 In the 23 Developments Proceeding, Jafari seeks a declaration that the first and second defendants hold an interest in the Land on trust for Jafari and the Company. It is alleged that the first and second defendants were developing the Land in partnership or joint venture with Jafari and the Company. Jafari also seeks damages for alleged representations made to him by the second defendant and the third defendant (a lawyer).

8 In the Alderuccio Proceeding, it is alleged that the first defendants improperly lodged caveats over 2 of the properties comprising the Land, which prevented Jafari and the Company from developing the Land. Jafari claims he and the Company suffered loss and damage by reason of the first defendants' conduct, and claims damages for lost development opportunities. These allegations arise out of an earlier proceeding ("the Earlier Proceeding"), which concerned conduct that was the subject of a trial and determination by this court.[3]

9 Jafari contends that on or about 4 August 2008, the Company was appointed the trustee of the Essence Unit Trust. Jafari is the sole unitholder. Jafari alleges that some time before August 2013, as the sole director of the Company, he resolved that the Company hold all its property as trust property on the terms of the Essence Unit Trust. As such, it is his position that the Company holds the benefit of both proceedings as trustee for the Essence Unit Trust.

10 On 2 August 2013, Gardiner AsJ made an order for the winding up of the Company. The Company now being in liquidation, Jafari succeeded the Company as trustee.

11 Since 2 August 2013, the Liquidator has been without funds and has been unable to actively participate in prosecuting the Company's claims.

12 On 15 July 2016, on the application of Jafari, it was ordered in both proceedings that the Company be removed as a plaintiff and added as a defendant.

13 On 11 November 2016, the Liquidator, on behalf of the Company, filed a defence in the Alderuccio Proceeding. The Liquidator subsequently filed a defence in the 23 Developments Proceeding on 21 December 2016.

C. The Liquidator's applications for a separate trial of question

14 Relevantly, in its defences the Company does not admit that it was the trustee of the Essence Unit Trust, or that Jafari was the unit holder of that trust. It also does not admit that Jafari resolved for the Company to hold all its property as trust property on the terms of the Essence Unit Trust. Those are factual matters which will be determined at the trial of each proceeding.

15 The Company says in its defences that, if it is found to have been the trustee of the Essence Unit Trust from 4 August 2008 until on or about 2 August 2013, then:[4]

[T]he Company has a right to be indemnified out of the property of the [Essence Unit Trust] for all debts and liabilities suffered or incurred by it or on behalf of the [Essence Unit Trust] in that period together with all remuneration and costs of the Liquidator in identifying, protecting and/or attempting to get in the property of the [Essence Unit Trust] and in respect of which, the property of the [Essence Unit Trust] is charged in favour of the Company.

16 The Liquidator submitted that this is a question, with both legal and factual aspects, that goes only to the rights as between Jafari and the Company. In his submission, the question does not overlap with any other issues that will be determined at trial, nor is it a question that any other parties have an interest in or are likely to lead evidence on. Further, the question will only arise if the court finds that the Company was the trustee of the Essence Unit Trust for any period, and even then only if the court finds in Jafari's favour on the substantive issues against the remaining defendants in each proceeding.

17 Accordingly, the Liquidator seeks to have this question tried separately, if necessary, following judgment in the claims between the plaintiff and the other defendants in each proceeding.

18 The Liquidator, being without funds,[5] noted that there is only 1 other issue between Jafari and the Company that he seeks to agitate. He intends to make a closing written submission in the Alderuccio Proceeding in relation to the issue raised by the Company in paragraph 37 of its defence. That issue goes to the effect of the judgment delivered in the Earlier Proceeding on the relief sought by Jafari in the Alderuccio Proceeding, as it affects the Company. On this basis, subject to making the closing written submission, the Liquidator also seeks to be excused from the general conduct of the main trial in each proceeding.

19 The first defendants in the Alderuccio Proceeding neither consented to nor opposed the Liquidator's application and were excused from the hearing of this application. As for the 23 Developments Proceeding, the first, second and third defendants did not oppose the application, on the understanding that the Liquidator will be bound by the decisions of this court in the 23 Developments Proceeding.[6]

20 Jafari did not oppose the Liquidator's application in the Alderuccio Proceeding. However, he did oppose the application in the 23 Developments Proceeding. Jafari submitted that the question should not be deferred, primarily on the basis that the Liquidator should not be excused from the conduct of the proceeding, which he said raised issues about the appointment of the Liquidator. Jafari submitted that it was unfair to allow the Liquidator to sit idly by while Jafari prosecuted his claim when, if successful, the Liquidator would later "jump" in to claim the plaintiffs' damages for the Company.

21 Rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) provides the court may order that:

(a) any question[7] in a proceeding be tried before, at or after the trial of the proceeding, and may state the question or give directions as to the manner in which it shall be stated;

(b) different questions be tried at different times or places or by different modes of trial.

22 The principles applicable to the making of an order under r 47.04 are not in dispute and were set out by Derham AsJ, in Vale v Daumeke,[8] as follows:[9]

(a) The discretion must be exercised with great caution, and only in a clear case;

(b) An order for the determination of a separate question before trial is generally only appropriate where the determination of the question will be likely to end the litigation or substantially narrow the issues in dispute, or where there is a clear demarcation between that issue and the other issues in the case;

(c) Where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated (ensuring that the terms used have clear meaning) and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, as agreed facts or as facts to be judicially determined;

(d) The separate determination of the question should not be attempted where there is uncertainty inherent in the definition of the facts upon which the substantive question must be determined;

(e) In cases where the relevant facts are assumed by one party to be correct for the purposes of the preliminary determination, it is only possible to determine a question of law, not one of mixed law and fact;

(f) Care must be taken in utilising the procedure provided for in r 47.04 of the Rules to avoid the determination of issues not 'ripe' for separate and preliminary determination - for example, where it is simply one of two or more alternative ways in which an applicant frames its case, and determination of the issue would leave significant other issues unresolved;

(g) The advantages of trying separate questions for one party may unfairly disadvantage another party, including because the questions will be determined without the benefit of all the evidence relevant to the proceeding;

(h) Whether a question should be determined separately involves a two-stage process - the first stage requires that the questions for determination be identified clearly and with precision, while the second stage is the actual determination of the question - and the two stages should not be run together;

(i) If the questions involve issues of fact that need to be determined or proved, and the Court cannot see, on the basis of the material presently before it, that the facts can be properly determined, it is inappropriate to make the order;

(j) In some cases, perhaps most cases, it will be inappropriate to order the trial of preliminary questions before discovery of documents relevant to the questions, and before resolving grounds restricting production and inspection of them, such as client legal privilege or public interest immunity;

(k) Factors that tend to support the making of an order include that the separate determination of the question may:

(i) Contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or

(ii) Contribute to the settlement of the litigation; and

(l) Factors that tell against the making of an order include that the separate determination of the question may:

(i) Give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial;

(ii) Result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding - which will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or

(iii) Prolong rather than shorten the litigation.

23 Applying these principles to the Liquidator's application, in my view, these are appropriate cases to order the trial of a separate question.

24 The question of whether the Company has a right of indemnity out of the assets of the Essence Unit Trust as the former trustee of that trust is a clearly defined and distinct question. The other defendants in both proceedings have no interest in its outcome and are unlikely to lead any evidence or make submissions on the issues it raises. The question does not need to be resolved for the other issues between the parties to be addressed. Further, the facts that need to be decided to answer this question are discrete and do not intersect with any other issues raised on the pleadings in either proceeding.

25 Furthermore, this question only arises in each proceeding if the court makes a finding in the relevant trial that the Company was trustee of the Essence Unit Trust, and if Jafari makes good his claim against the other defendants. As such, depending on the outcome of each trial, 1 or both proceedings may be dismissed without the need to determine this question.[10] If such circumstances arise, this will result in savings in time and cost for Jafari and the Company, the other defendants, and the court.

26 It follows that in each proceeding on either scenario, that is, whether Jafari is successful or not on the substantive issues against the other defendants, these defendants will not need to spend time in court while issues as between Jafari and the Company are heard and determined.

27 Given the discrete nature of the question, there is no risk of prejudice to the parties in each dispute if the question is tried after each main proceeding. In this respect, contrary to Jafari's submission, there is nothing unfair about the Liquidator agreeing to be bound by the court's decision in the 23 Developments Proceeding without actively participating in the trial, and then asserting the Company's right of indemnification if the issue arises. This approach is not a sufficient reason to deny the Liquidator's application in the 23 Developments Proceeding. On the contrary, the Liquidator, who is without funds, is likely to be acting in the best interests of the creditors by making this application. Further, regardless of the extent of the Liquidator's involvement at the main hearing, it has been clear on the pleadings that Jafari necessarily runs the risk that he will succeed at trial as against the other defendants, only to have the fruits of any such success diminished by claims made by the Liquidator (in his own right or on behalf of the Company).

28 In all the circumstances, the separate trial of the question raised by the Liquidator will facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute in each proceeding.[11] It is appropriate in these circumstances that the orders sought with respect to the separate question be made and the Liquidator be excused from attending the trial of each proceeding, subject to any further order of the court and to making a closing written submission in the Alderuccio Proceeding.[12]

[1] In light of the lateness of the filing of this summons, the first and second defendants' solicitor said she needed more time before she was in a position to fully respond to the application. The court was informed this would require conferring with counsel. Accordingly, the first and second defendants were given until 4.00 pm on 13 April 2017 to file any further submissions, and Jafari was given until 4.00 pm on 20 April 2017 to respond. On 13 April 2017, the court was informed that the first and second defendants would not be filing any further submissions.

[2] See also par 18 below.

[3] Bloomingdale Holdings Pty Ltd v 63 Buckley Street Pty Ltd [2008] VSC 168 (Hargrave J).

[4] Defence in Alderuccio Proceeding, [38]; Defence in 23 Developments Proceeding, [9].

[6] The fourth defendant was not represented at the hearing.

[7] "Question" is defined in r 1.13 to mean "any question, issue or matter for determination by the Court, whether of fact or law or of fact and law, raised by the pleadings or otherwise at any stage of a proceeding by the Court, by any party or by any person not a party who has a sufficient interest".

[8] [2015] VSC 342, [26]-[37] and the cases there cited.

[10] Cf Supreme Court Rules, r 47.05 which provides: "If the determination of any question in a proceeding and tried separately from the proceeding substantially disposes of the proceeding or renders the trial of the proceeding unnecessary, the Court may dismiss the proceeding or make such other order or give such judgment as it thinks fit."

[11] See Civil Procedure Act 2010 (Vic), s 7(1).

[12] See par 18 above.