Riva NSW Pty Ltd v Key Nominees Pty Ltd

The Parties 5The applicants for leave to appeal are Angelo Ferella, Gustavo Ferella and Riva. (A fourth applicant, Agusta Pty Ltd, is named in the summons for leave to appeal, but its role in the proceedings is obscure). Angelo and Gustavo Ferella (together, the Ferellas) are father and son. It appears that until 2005, the Ferellas were the trustees of the Cavallino Unit Trust (CUT) established in 1995. The Ferellas say that they resigned as trustees of the CUT in April 2005 and were replaced by Riva. 6A matter of some importance, which was overlooked by the parties until raised by members of the Bench on the leave application, is that the Ferellas were each made bankrupt in October 2005. 7Key Nominees was the mortgagee of a residential property in Point Piper (Property) acquired by the Ferellas in October 2000. Key Nominees took possession of the Property in March 2006 and exercised its power of sale as mortgagee at an auction held on 11 April 2006. The sale price was $7.95 million. 8Mr Stomo is a barrister who was retained by the Ferellas between November 2005 and September 2006. It is alleged that he was retained to advise as to the liability of Key Nominees, as the mortgagee exercising a power of sale over the Property, to pay Goods and Services Tax (GST) on the proceeds of sale.

The Proceedings 9Riva commenced proceedings in 2009 in the Equity Division against Key Nominees (2009 Proceedings). By an amended statement of claim, filed on or about 27 September 2010, Riva claimed, among other relief, an order that Key Nominees pay $722,727. Riva alleged that Key Nominees had incorrectly paid this amount to the Australian Taxation Office (ATO) for GST in respect of the sale of the Property. 10In the amended statement of claim, Riva alleged that the Ferellas had purchased the Property in October 2000 in their capacity as trustees of the CUT. Riva further alleged that in July 2004 the Ferellas, again in their capacity as trustees of the CUT, borrowed $4.3 million from Key Nominees on the security of a registered mortgage over the Property. Following the Ferellas' default under the loan, Riva says that Key Nominees exercised its power of sale, but in doing so breached both its duty of care and the fiduciary duties it owed to Riva as trustee of the CUT. The alleged breach consists of paying GST to the ATO when there was no obligation to do so. 11The 2009 Proceedings were listed for hearing before Windeyer AJ on 23 May 2011. On that day Riva applied for an adjournment, but its application was dismissed. After the adjournment was refused, Riva elected not to participate in the hearing. In these circumstances, Windeyer AJ dismissed the proceedings in an ex tempore judgment: Riva (NSW) Pty Ltd v Key Nominees Pty Ltd (Supreme Court (NSW), Windeyer AJ, 23 May 2011, unrep). 12Riva filed a notice of intention to appeal against the orders made by Windeyer AJ, but never filed a notice of appeal. Instead, Riva commenced new proceedings in 2012 (2012 Proceedings), seeking essentially the same relief against Key Nominees. However, the Ferellas were joined as plaintiffs and Mr Stomo was added as a defendant. The applicants' claim against Mr Stomo was founded on negligent advice he allegedly gave in connection with Key Nominees' liability to pay GST on the proceeds of sale of the Property.

The Motions 13The applicants pleaded their case in the 2012 Proceedings in a 55 page statement of claim (SC) filed on 13 September 2013. By an amended notice of motion filed on 30 September 2013, Key Nominees (but not Mr Stomo) sought orders striking out the SC. The primary Judge heard the motion on 6 December 2013. 14In a judgment delivered on 20 December 2013 (Riva NSW Pty Ltd v Key Nominees Pty Limited [2013] NSWSC 1952), Young AJ gave reasons for concluding (at [22]) that "the Statement of Claim is hopelessly defective but could possibly be cured by being put in proper form". His Honour struck out the SC but gave the applicants leave to re-plead by 4 March 2014. However, his Honour stated (at [22]) that he was giving the applicants "one further final chance to put [their] pleading in order. If that is not done by 4 March 2014 then the proceedings may well be dismissed." 15The matter returned before Young AJ at 9:30 am on 4 March 2014. At that time, Mr Maroya of counsel, who had previously appeared on behalf of the applicants, appeared as amicus curiae. Mr Maroya informed his Honour that a fresh statement of claim would be filed before 4:00 pm that day. His Honour adjourned the matter until 4:05 pm. 16When the hearing resumed, Mr Maroya handed an Amended Statement of Claim (ASC) to the Court. Upon reading the ASC, Mr Parsons, who appeared for Key Nominees, moved that the proceedings should be dismissed because the applicants' pleadings were still not in order. He submitted that the proceedings should be dismissed in any event because they constituted an abuse of process. 17At the conclusion of the hearing, Young AJ made orders dismissing the proceedings, but stayed the order until 21 March 2014 to give Riva "one last opportunity to justify" the pleading. 18Mr Maroya took advantage of this opportunity to file written submissions seeking to support the ASC. On 21 March 2014, Young AJ delivered the First Judgment. His Honour affirmed the orders made on 4 March 2014 and dismissed the proceedings against Key Nominees. 19The primary Judge noted that the basic reason for rejecting the SC was that it was embarrassing. It contained a complicated series of statements in what purported to be definitions, but which actually incorporated allegations of material facts. In addition, the pleading was verbose and made many allegations in the alternative, not always in a manner permissible in a pleading. 20His Honour considered that the ASC contained many of the same defects. It was prolix (at [12]), and repeatedly "rolled up multiple allegations" (at [14]). Some of the relief claimed was clearly not available or was not supported by allegations of material facts (at [20]-[22]). It contained inconsistent allegations, particularly as to the capacity in which the Ferellas entered into various transactions (at [25]-[26]). For these reasons, his Honour concluded that the ASC, like its predecessor, should be struck out (at [31]). 21The primary Judge then considered whether the proceedings should be dismissed as an abuse of process. His Honour concluded (at [37]) that the continuation of the proceedings could not be characterised as an abuse of process, but the circumstances invoked by Key Nominees to support its abuse of process argument showed that the applicants should not be given further leave to re-plead their case. His Honour reasoned as follows: "[33] As noted above, the case has had an unhappy history. When its predecessor was listed for final hearing before Windeyer AJ, the leading man on the plaintiff's side did not attend because of alleged business commitments. Windeyer AJ refused an adjournment and dismissed the suit. [34] The new action was commenced and the Statement of Claim was so defective that it was struck out. I gave until 4 pm on 4 March for one last chance for amendment. [35] When the case was mentioned at 10 am on 4 March, the plaintiffs still had not filed their amended statement of claim. Mr Maroya said that this was because the leading plaintiff had business commitments. I found this hard to accept as three months had gone by. Nevertheless, I adjourned the proceedings until 4 pm when, at last, a revised statement of claim was handed up. However, that document still contained many defects as outlined earlier." His Honour described (at [36]) the attitude of the applicants to the litigation as "cavalier" and "deplorable". 22As has been noted, Mr Stomo did not join in Key Nominees' motion to strike out the ASC. However, on 13 March 2014, Mr Stomo filed his own motion seeking to strike out the claim against him. The motion was listed for hearing before his Honour on 21 March 2014. 23The hearing on that day commenced immediately after his Honour delivered the First Judgment. Mr Stomo was represented by counsel, but there was no appearance on behalf of the applicants. After a short hearing in which Mr Stomo's counsel provided evidence of service of the motion, his Honour delivered the Second Judgment ex tempore. 24In the Second Judgment, his Honour identified a number of defects in the ASC, insofar as it pleaded a case against Mr Stomo. Some of the defects were those already identified in the case pleaded against Key Nominees, but there were others. His Honour concluded that the ASC was "clearly embarrassing and ... almost impossible for a party to plead to it". Accordingly the claim against Mr Stomo was struck out. 25His Honour then considered what orders should be made: "Normally when a pleading is struck out the pleader is given leave to re-plead, but this is not the normal case. The pleading came before me last year and I struck it out and gave three months to re-plead. Although [Mr Stomo] was not involved in the motion to strike it out, it was clear that the liberty to reformulate the pleading was to reformulate the pleading generally, yet the same allegations are being made against [Mr Stomo] without any real modifications in the revised late final version. I think in the circumstances it is probably wrong to let this case continue in the list any further. I should not give leave to re-plead, but merely dismiss the case also against [Mr Stomo]".

Reasoning 26Mr Maroya, who appeared for the applicants on the leave application, did not dispute that the primary Judge had correctly identified defects in the ASC that warranted striking out the pleadings against both Key Nominees and Mr Stomo. He submitted, however, that his Honour had erred in dismissing the proceedings and directing that the applicants could not commence fresh proceedings against Key Nominees on the same causes of action without the leave of the Court. Mr Maroya contended that the applicants should be given a yet further opportunity to put their house in order. 27In the course of Mr Maroya's submissions, a difficulty became apparent. It was common ground that the Ferellas had been the subject of sequestration orders made by the Federal Magistrate's Court in October 2005. In consequence, their bankrupt estates had vested in the Official Trustee. It was also common ground that the Ferellas had not been discharged from bankruptcy at the time that their pleaded causes of action against each of the respondents arose. In these circumstances, Mr Maroya conceded that any causes of action claimed on behalf of the Ferellas personally (as distinct from causes of action claimed in their capacity as trustees of the CUT) had vested in the Official Trustee by virtue of s 58(1) of the Bankruptcy Act 1966 (Cth). In the absence of an assignment of the cause of action to the Ferellas by the Official Trustee (which has not occurred), the case pleaded on their behalf personally was doomed to failure. 28Although Mr Maroya characterised the order dismissing the proceedings against Key Nominees as final, it is clear that the order is interlocutory. It remains open to the applicants to seek leave to institute fresh proceedings against Key Nominees. The application is therefore for leave to appeal against an interlocutory decision on matters of practice and procedure. 29The principles governing challenges to interlocutory decisions of this kind were recently stated by the Court in Young v Hones (No 2) [2014] NSWCA 338: "[14] Both those decisions are discretionary interlocutory decisions on matters of practice and procedure. Challenging such decisions is a difficult task: Warragamba Winery Pty Ltd v State of NSW [2010] NSWCA 174 at [6]; Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45]. Ordinarily, it is appropriate to grant leave to appeal from such decisions only where there is an issue of principle involved or a question of general public importance or an injustice which is reasonably clear in the sense of going beyond what is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]. [15] What must be shown is error in the House v R sense (House v R [1936] HCA 40; (1936) 55 CLR 499 at 505), namely that the primary judge: made an error of legal principle; made a material error of fact; took into account some irrelevant consideration; failed to take into account, or to give sufficient weight to, some relevant matter; or arrived at a result so unreasonable or unjust as to suggest that one of the foregoing categories of error had occurred (even though the error in question may not explicitly appear on the face of the reasoning). It is not sufficient merely to show that the primary judge was arguably wrong: Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]. Nor is it to the point that the appellate Court might have arrived at a different result had it exercised the relevant discretion at first instance (House v R at 504-505)." 30Mr Maroya had some difficulty in identifying an error of the relevant kind that would justify the intervention of this Court. His principal contention was ultimately that the primary Judge, although entitled to strike out the ASC, had not turned his mind to whether it was appropriate to make orders effectively disposing of the proceedings against the respondents. Mr Maroya pointed out that although it was theoretically possible for Riva to seek leave to institute fresh proceedings against Key Nominees, any such proceedings were likely to be met by a limitations defence, since the pleaded causes of action had accrued in 2006, over eight years ago. Similarly, any fresh proceedings against Mr Stomo were likely to be met with the same defence. 31Contrary to Mr Maroya's submissions, the primary Judge did give consideration to whether Riva's claims against Key Nominees should be dismissed. In the First Judgment, his Honour recounted the matters relied upon by Key Nominees to support its contention that the proceedings were an abuse of the Court's process. While his Honour rejected that contention, he found that those matters, including Riva's "cavalier" and "deplorable" attitude to its own litigation, justified dismissal of the proceedings. His Honour clearly took into account that Riva had effectively abandoned the 2009 Proceedings against Key Nominees and, despite having had two opportunities in the present proceedings to plead its case properly, it had failed to do so. 32No error is disclosed in the primary Judge's reasoning. The order dismissing the proceedings against Key Nominees was made in March 2014, nearly five years after Riva commenced the 2009 Proceedings. Even after such a lengthy period had elapsed, Riva was still unable to plead its case against Key Nominees properly. Indeed, no attempt was made on the leave application to proffer a draft further amended statement of claim that might have demonstrated that Riva can plead a coherent case against Key Nominees, in conformity with the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). 33It is true that the primary Judge, apart from a reference to the limitation period applicable to a claim under the Trade Practices Act 1974 (Cth), did not specifically advert to the limitations difficulty that Riva would face if it instituted yet further proceedings. However, as Mr Moraya accepted, no submission was made to his Honour that a likely expiration of the limitation period was a reason not to dismiss the claim against Key Nominees. It is therefore not surprising that the First Judgment makes no reference to the limitations issue that would arise if the applicants sought to commence fresh proceedings. His Honour did not err in failing to refer to the issue. 34The primary Judge noted that the ASC incorporated inconsistencies. A reading of the document shows that it is ambiguous - perhaps deliberately so - as to whether the Ferellas acquired the Property personally or in their capacity as trustees of the CUT. The 2009 Proceedings made no claim that the Ferellas had acquired the Property personally and indeed they were not plaintiffs in those proceedings. 35The allegation that the Ferellas acquired the Property personally appears for the first time in the SC filed in the 2012 Proceedings. For the reasons already given, it is not open to the Ferellas to make a claim against Key Nominees in their personal capacity. However the claims pleaded in the ASC on behalf of Riva against Key Nominees have been rendered even more obscure by the incorporation of apparently connected, but unsustainable claims made on behalf of the Ferellas personally. 36Riva's application for leave to appeal against the Second Judgment is different in one respect from its application for leave to appeal from the First Judgment. Riva did not join Mr Stomo as a defendant until it instituted the 2012 Proceedings. Thus the claims against him have been underway for a shorter period than Riva's claims against Key Nominees, although any cause of action against him presumably accrued in 2006. It was Riva's decision not to join Mr Stomo to the earlier proceedings. No explanation was provided to the primary Judge (or to this Court) as to why Mr Stomo was not joined as a party in the first place. In any event, his Honour turned his mind to whether an order should be made dismissing the proceedings against Mr Stomo and concluded that it was. That decision was open to him. 37The Second Judgment was given in Riva's absence. It was (and perhaps still is) open to Riva to apply to set aside the judgment: UCPR r 36.16(2)(b). The order dismissing the proceedings did not prevent Riva taking that course if it wished to do so. This is an additional reason for dismissing Riva's application for leave to appeal from the Second Judgment.

Orders 38The applications for leave to appeal from the First Judgment and the Second Judgment should be dismissed. The applicants should pay the respondents' costs of the applications for leave to appeal.

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