Supreme Court New South Wales Medium Neutral Citation: Mace Central Pty Ltd v Franco [2022] NSWSC 1463 Hearing dates: 17 October 2022 Date of orders: 17 October 2022 Decision date: 17 October 2022 Jurisdiction: Equity - Duty List Before: Henry J Decision: Settlement of proceedings approved. See [29] Catchwords: CIVIL PROCEDURE – Court approval of settlement made in mediation – no issue of principle Legislation Cited: Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law Civil Procedure Act 2005 (NSW) Contracts Review Act 1980 (NSW) Cases Cited: Gojak v Transport Accident Commission [2019] NSWSC 1745 Permanent Trustee v Mills (2007) 71 NSWLR 1; [2007] NSWSC 336 Category: Procedural rulings Parties: Mace Central Pty Ltd (Plaintiff) Jose Manuel Franco (First Defendant) Antonia Franco (Second Defendant) Franco's Smash Repairs Pty Ltd (Third Defendant) J.B Adam, D.R Baird, G Bonura, G Butterfield, P.J Crittenden, A.L Marsden, T.C Reeve, A.J Seton, J.R Thornton, B Wong & trading as Marsdens Law Group (Fourth Defendant) Representation: Counsel: F G Di Lizia (Plaintiff) O Fagir (First Defendant) M Gunning (Second Defendant) S Kumar (Third Defendant) Solicitors: Simone Legal (Plaintiff) Williamson + Learmonth Solicitors (First Defendant) Joseph Grassi + Associates (Second Defendant) Adams & Partners Lawyers (Third Defendant) K&L Gates (Fourth Defendant) File Number(s): 2022/00165238 Publication restriction: Nil JUDGMENT – EX TEMPORE (REVISED) 1. By notice of motion filed on 14 October 2022, the first defendant, Jose Manuel Franco, by his tutor, seeks an order under s 76 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) for approval of a settlement of these proceedings. The settlement follows a successful mediation that took place in August 2022. 2. In support of the application, the first defendant relies on an affidavit by his tutor sworn on 14 October 2022 and an affidavit from the solicitor for the first defendant, Deryk Craig Learmonth, affirmed on 14 October 2022. 3. In addition, the first defendant also relies on confidential advice of his counsel, Mr Oshie Fagir. As is usual, that advice has not been provided to the legal representatives of the other parties as it contains statements and views of counsel as to the strengths and weaknesses of the first defendant's case for the purposes of the Court having a full understanding of the risks of the litigation. 4. The orders sought by the first defendant are supported by the second defendant and the other parties to the proceedings. 5. The background to the application can be summarised as follows. 6. The proceedings arise out of a sale, or purported sale, of commercial property to the plaintiff, Mace Central Pty Ltd as trustee for the Mace Central Unit Trust (Mace). The property, which is located at Wetherill Park, New South Wales (the Property), is owned by the first defendant and his wife, Antonia Franco, who is the second defendant in the proceeding. The first and second defendants have for many years owned a smash repairs business, Franco Smash Repairs Pty Ltd, of which they are the directors and sole shareholders, and are also members of a partnership that owns the Property from which the business was conducted. 7. From 2019, the first defendant was the victim of a series of internet scams which caused him to lose an estimated $1.2 million in cash and Bitcoin, and to borrow substantial sums of money. 8. In late November 2021, the first defendant had discussions with Mace's director about selling the Property to Mace. In early December, the first defendant proposed a sale price of $2.8 million, which appears to have been based on a valuation he had obtained two years earlier, which Mace accepted. A "Bill of Sale" in relation to the Property was prepared by Mace's accountant and provided to the first defendant, who signed it and who received $38,000 as an upfront payment. 9. The first defendant subsequently engaged a solicitor at Marsdens Law Group (Marsdens), Mr Mosca, who negotiated the contact for sale with the Mace's solicitor and provided a copy to the first defendant for signing. The first defendant returned the contract of sale to Marsdens with signatures appearing against the first and second defendant's names. 10. As events transpired, the second defendant did not know of the purported sale of the Property, the retainer of Marsdens and had not signed the contract for sale. It appears that her signature was forged by the first defendant's tarot card reader. 11. The contracts for sale of the Property were exchanged in late December 2021. The settlement date was 30 June 2022. Mace registered a caveat on title on 17 January 2022. By January 2022, 10% of the purchase price had been received by or on behalf of the first defendant. 12. In April 2022, after the second defendant became aware of the contract for sale (and the first defendant sending money in relation to the internet scams and borrowing money), her legal representative informed Mace's lawyers that the second defendant had not signed the contract and asserted that the contract for sale was void and would not proceed. 13. The Property was subsequently listed for sale by the first and second defendant in around May, with an auction scheduled in August 2022. Various offers were received for the Property, including at prices higher that the sale contract price. On 10 May 2022, Franco Smash Repairs was placed into external administration with significant amounts owing for which the first and second defendants are liable in part. 14. On 7 June 2022, Mace commenced the proceedings by summons against the first and second defendants and Franco Smash Repairs in the context where a lapsing notice had been issued by the second defendant in relation to Mace's caveat lodged over the Property. 15. On 10 June 2022, orders were made for Mace's caveat to be extended and for the proceedings to continue on the pleadings. 16. In the proceedings, Mace seeks orders for specific performance of the contract for sale of the Property and associated declarations. Alternatively, Mace seeks orders for the return of the deposit and damages against the first defendant for fraudulent misrepresentation or breach of the Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law (ACL), and damages against Marsdens (which was also joined as a party to the proceedings) in respect of losses resulting from its misrepresentations to Mace that they acted on instructions of both the first and second defendants. 17. On 18 July 2022, the first defendant was voluntarily admitted to a mental health facility. On 5 August 2022, the first defendant's son, Andy Manuel Franco, was appointed his tutor for the proceedings. 18. On 22 August 2022, the first defendant filed a defence and a cross-claim against Mace and Marsdens. In his defence, he pleads that the contract of sale is void or voidable because of his incapacity. The first defendant's cross-claim raises claims of unconscionable conduct and unjust contracts under the Contracts Review Act 1980 (NSW) (Contracts Review Act), and seeks damages from Marsdens for breach of contractual and tortious duties to exercise reasonable care, skill and diligence in the performance of its retainer. 19. Marsdens also filed defences and a cross-claim against the first defendant, claiming damages for breach of warranty of authority, damages under s 236 of the ACL and contribution for any damages for which Marsden is liable to Mace. 20. As noted above, the proceedings were mediated in August 2022 which led to a settlement of the proceedings. The first defendant was represented by his tutor at the mediation. 21. Section 76 of the Civil Procedure Act provides: (1) This section applies to proceedings commenced by or on behalf of, or against, any of the following persons— (a) a person under legal incapacity, (b) a person who, during the course of the proceedings, becomes a person under legal incapacity, (c) a person whom the court finds, during the course of the proceedings, to be incapable of managing his or her own affairs. (2) The court may make a finding referred to in subsection (1) (c) only on the basis of evidence given in the proceedings in which it is made, and such a finding has effect for the purpose only of those proceedings. (3) Except with the approval of the court, there may not be— (a) any compromise or settlement of any proceedings to which this section applies, or (b) any acceptance of money paid into court in any such proceedings, as regards a claim made by or on behalf of, or against, a person referred to in subsection (1). …. (4) If an agreement for the compromise or settlement of any matter in dispute in any such proceedings is made by or on behalf of a person referred to in subsection (1), the court may approve or disapprove the agreement. (5) An agreement disapproved by the court does not bind the person by whom or on whose behalf it was made. (6) An agreement approved by the court binds the person by whom or on whose behalf it was made as if he or she were of full capacity and (if it was made by some other person on his or her behalf) as if that other person had made the agreement as his or her agent. 1. The Court's function on such an application for approval is protective. In Permanent Trustee v Mills (2007) 71 NSWLR 1; [2007] NSWSC 336, Hammerschlag J (as his Honour then was) observed at [29]: "The principle is that for the Court to grant approval for a compromise to be entered into by the disable person it must form the view that it is beneficial to his or her interests. The compromise should be assented to by the tutor and there should be opinions from his or her legal advisers that they consider it to be so: Re Birchall. The Court will consider for itself whether the compromise will be beneficial to the disable person: Re Ley's Trusts [1964] 1 WLR 640." 1. As identified by His Honour, the Court must form the view that the settlement is in some way beneficial or in the interests of the first defendant. That necessarily involves the Court undertaking the process of reviewing any issues on liability, forming a view as to the potential defences that the first defendant has, what damages he might receive if his cross-claims are successful or what he might be exposed to if the other cross-claims against him have merit. It also requires a consideration of any other factors or issues which might suggest that settlement at the time is appropriate, and ultimately coming to a view as to whether it is in the interests of the first defendant that the matter is settled by the proposed settlement sum at that time: Gojak v Transport Accident Commission [2019] NSWSC 1745 at [10]. 2. Having considered the material before the Court, including the confidential advice received from Mr Fagir, and the issues that might arise if the settlement was not approved, I am satisfied that it is appropriate to grant approval to the settlement. 3. The terms of settlement are set out in a confidential Deed of Release dated 5 October 2022 which has been executed by all the parties to these proceedings. It is not necessary to detail the terms of the proposed settlement other than to state that they provide for the resolution of all the disputes in these proceedings and a payment to the first and second defendants in relation to the sale of the Property for an amount which exceeds the sale price in the contract of sale referred to earlier. 4. Having regard to the first defendant's prospects of success, I am satisfied that the settlement is beneficial to and in the best interests of the first defendant. I will not go into the details of Mr Fagir's advice. It is suffice to say that the material persuades me that there can be no certainty as to success of the first defendant's defence and cross-claims and there are likely to be issues and risks that would arise on the substantive issues raised by them, including as to the correct valuation of the Property, the capacity of the first defendant at the relevant times, whether the circumstances give rise to unconscionable conduct of which Mace was or could be expected to have been aware, and whether the circumstances overall would establish a successful claim under the Contracts Review Act. 5. The material before me indicates that the first defendant's financial position is precarious and that he may be further exposed financially if he had to continue to fund the conduct of the litigation through to finality or potentially exposed to criminal sanctions for fraudulent conduct, having regard to the nature of the claims made against him concerning the preparation of the sale contract and retainer of Marsdens. I also consider it significant that the second defendant supports the settlement and, according to the evidence on this application, she will be managing the first defendant's finances for some time, together with assistance from their son, the first defendant's tutor. 6. Overall, it seems to me that the outcome of the settlement is beneficial to the first defendant as it provides him with a financial outcome that takes account of his prospects of success in the litigation and should assist him in clearing some debt and avoiding the potential loss of further funds.. 7. For these reasons, I make the following orders in accordance with the short minutes of order, as amended: 1. Order pursuant to s 76 of the Civil Procedure Act 2005 (NSW) approving settlement of the proceedings. 2. Pursuant to section 77(3) of the Civil Procedure Act 2005 (NSW), the monies recovered by the first defendant are to be paid in accordance with the terms of the parties' confidential deed of release dated 5 October 2022. 3. Order that the first defendant's opinion from Counsel and the deed of release be placed in an envelope and marked "Confidential – not to be opened by anyone other than a Judge of the Court" and not be made available for inspection or access without an order of a Judge of this Court. 4. No order as to costs in relation to the first defendant's Notice of Motion. ********** 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: 26 October 2022