SIALEPIS v IRONAID PTY LTD & ORS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, HANDLEY and COLE JJA 25 November 1997, 10 December 1997 [1997] NSWCA 286 PRACTICE AND PROCEDURE — PLEADING — SUMMARY DISMISSAL — AMENDMENT PRACTICE AND PROCEDURE — PLEADING — Summary dismissal of claim against three of eight defendants — pleading alleges and evidence shows no viable cause of action — multiple amendments fail to improve position — further amendment refused — HELD — trial judge was right to conclude that existing pleading, considered in the light of the evidence, disclosed no reasonable cause of action and also to refuse further amendment. Gleeson CJ This is an appeal from a decision of Rolfe J in the Commercial Division dismissing, pursuant to Pt13 r5 of the Supreme Court Rules, the claim by the appellant, as plaintiff, against three of eight defendants. Those three defendants are the respondents to the appeal. They are Ironaid Pty Ltd (Ironaid) and the two directors of that company, Mr and Mrs Cosco. They were respectively the third, sixth and seventh defendants in the action. The remaining defendants have taken no part in the appeal. The action against them is awaiting hearing in the Commercial Division. The appellant, Mrs Sialepis, is the former wife of the first defendant, Mr Harry Sialepis. Their marriage was dissolved in 1995. It is material to note that, in July 1995, Mr Sialepis was made bankrupt. He was the first defendant in the proceedings. The second defendant is Westpac Banking Corporation. The third defendant was Ironaid. That company is now in liquidation. The fourth defendant is the mother of Harry Sialepis. She also is bankrupt. The fifth defendant is Mr Smiles, who is said to have been an accountant and financial adviser to Mr Sialepis. As has been noted, the sixth and seventh defendants were Mr and Mrs Cosco. The eighth defendant is a corporation which at some stage took over the practice of Mr Smiles. During 1994, the appellant commenced proceedings against her husband in the Family Court, seeking relief under PtVIII of the Family Law Act 1975. The pendency of that claim in May 1995 is a material matter. The proceedings before Rolfe J came to the Supreme Court by way of an order for cross-vesting made by the Family Court. Rolfe J had before him for consideration the appellant's claim against the three present respondents, that is to say, Ironaid and Mr and Mrs Cosco, as set out in a document entitled "Further Amended Summons". We were informed that the claim against the three respondents had been formulated, and re-formulated, on numerous occasions, and that what Rolfe J was considering was the sixth version of the pleading. It was common ground that, pursuant to the provisions of SCR Pt13 r5(2), his Honour was entitled to receive evidence, and to consider the argument that the appellant's claim disclosed no reasonable cause of action in the light of the pleadings, various further and better particulars that had been given, and the 2 UNREPORTED JUDGMENTS evidence. In the result, Rolfe J concluded that the claim as formulated against the three respondents did not disclose a reasonable cause of action, and dismissed the action against those respondents. It is against that decision that the present appeal is, by leave, brought. Rolfe J acknowledged that the principles governing an application such as that before him were those set forth in cases such as General Steel Industries Inc v Commission of Railways (NSW) & Ors (1964) 112 CLR 125, Webster & Anor v Lampard (1993) 177 CLR 598, and Wickstead & Ors v Browne (1992) 30 NSWLR 1. There is no ground for any suggestion that his Honour failed to apply those principles. In addition to having regard to those principles, it has been of particular concern to this court, as it no doubt was to Rolfe J, to see that the resolution of the matter should not turn upon what may be described as infelicities or errors in the pleading. In a number of important respects the claim as formulated, even after the numerous amendments that have been made, is obscurely expressed, and some of the allegations in the pleading involve either internal inconsistencies or manifest errors. Nevertheless, it is important to ensure that, if the appellant has a substantial claim against the three respondents, it is not defeated by mere drafting imperfections. During the course of the hearing of the appeal the court granted Senior Counsel for the appellant an adjournment for the purpose of considering what appeared to be major difficulties of substance relating to the appellant's claim against the three respondents, so that the case would not go off on points of pleading rather than issues of substance. It is convenient to begin a consideration of the matter by outlining, in a general way, the structure of the claim as formulated in the Further Amended Summons. Relevantly for present purposes, there were two principal aspects of the claim. The first aspect is covered in paral - paral.19. The second aspect is covered in paral.29 - paral.43. The matters the subject of paral.20 - paral.28 principally concern other defendants in the proceedings, and may be put to one side. The allegations in paral - paral.19 relate to a transaction that was entered into in July 1992. It is not alleged that any of the three respondents played any part in that transaction. Indeed, the pleading later alleges that Ironaid was not incorporated until 1994, and there was no suggestion that Mr and Mrs Cosco had any involvement in the 1992 transaction. The transaction concerned a mortgage that was given to the second defendant, Westpac, over the Sialepis family home at Cronulla. The plaintiff, her husband, and her mother-in-law, each had a one-third share in that home. According to the allegations made in the Further Amended Summons, the plaintiff was induced, by misrepresentations on the part of Mr Sialepis and the bank, to execute the mortgage over the Cronulla property. It is not necessary for present purposes to go into the nature of the alleged misrepresentations in any detail. In brief, the allegation is that Mr Sialepis, who was in difficult financial circumstances, was seeking to raise money for a property development, and he and a bank officer made various false statements to the appellant in order to induce her to sign a mortgage over the family home. The only way in which the three respondents came to be caught up in that claim is that the mortgage to the bank was one of a number of mortgages later assigned to Ironaid, in circumstances that will be described below. The second aspect of the claim, which is covered by paral.29 - paral.43, and which directly concerns the present respondents, relates to an assignment by Westpac to Ironaid of a number of mortgages that had been given by Mr Sialepis and Sialepis Pty Ltd over various parcels of real estate in order to secure debts owed to Westpac. As was noted, one of those securities was the mortgage over URJ SIALEPIS v IRONAID PTY LTD & ORS (Gleeson CJ) 3 the Cronulla property. The essence of the claim is that the purpose and effect of that assignment, which took place in May 1995, was to defeat the pending claim of Mrs Sialepis under the Family Law Act. That was, in substance, a claim for some of the property of Mr Sialepis to be vested in her. The principal reason why Rolfe J dismissed the action against the three respondents was that it is impossible to tell how it is that such assignment could have had the consequence of defeating the claim of Mrs Sialepis. Indeed, the pleading contains a number of allegations which appear to negate that consequence. The pleading contains allegations to the effect that over the period from 1992 until 1995, both Mr Sialepis and Sialepis Pty Ltd were in grave financial difficulties. There was evidence that Mr Sialepis was made bankrupt in 1995, that at that time he had virtually no unencumbered assets, that he had unsecured creditors in an amount of $5.4 million, and that the estimated deficiency in respect of secured creditors was approximately $10.5 million. According to the evidence, the estimated shortfall in his estate, subject to bankruptcy costs, was approximately $15.99 million. This is consistent with a number of the allegations made in the pleading. In paral.9(ii) it is asserted that the financial condition of Mr Sialepis, Sialepis Pty Ltd, and another company, collectively called The Sialepis Group, was such that Sialepis Pty Ltd did not have sufficient funds to re-finance a certain project. In paral.9(vi) it is alleged that in 1992 the liabilities of the Sialepis Group greatly exceeded the group's assets. Paral.37 alleges: "1.37 At all relevant times (certain) defendants knew that (Mr Sialepis) and Sialepis Pty Ltd were in default of their obligations under (certain) securities and were not and would not be in a financial position to cure such default." Although paral.30 alleges that Mr Sialepis had "substantial assets" it is elsewhere alleged that he also had even more substantial liabilities. Certain paragraphs of the pleading are expressed in a confusing fashion in that they fail to distinguish between the assets of Sialepis Pty Ltd and shares owned in that company by Mr Sialepis. During the course of argument in the present appeal, Senior Counsel for the appellant said that his client did not really know the extent of the assets of Mr Sialepis. We know, of course, that he owned a one-third share in the house at Cronulla. Sialepis Pty Ltd owned, amongst other things, a service station at South Hurstville, and a shopping centre in Queensland. All of those assets were subject to mortgages to Westpac. Paral.36 of the pleading alleges that, in May 1995, Westpac transferred to Ironaid securities "which had a face value of some $14 million for a consideration of some $4 million". That, again, is consistent with both the evidence, and the assertions in the pleading, as to the financial position of Mr Sialepis and Sialepis Pty Ltd. It is not alleged that the transfer was at an undervalue. There is no suggestion that Westpac was defrauded in any way, or that it was making a gift to Ironaid. There was some argument at first instance, and on this appeal, as to the true interpretation of a response to a request for particulars that had been given by the appellant's solicitors. The solicitors for the respondents asked whether it was asserted that the assets of Mr Sialepis exceeded his liabilities throughout the period from 1992 until July 1995. That question was answered in the negative. Rolfe J understood that answer to mean that, throughout that period, the assets of Mr Sialepis did not exceed his liabilities. It was argued on this appeal that the answer merely meant that his assets did not exceed his liabilities at all times 4 UNREPORTED JUDGMENTS during that period. The answer was ambiguous, but the ambiguity is presently unimportant. The evidence in the case, and numerous assertions in the pleading, are consistent with the interpretation which Rolfe J placed upon the answer. However, even if that interpretation did not reflect what the answer was intended to mean, nevertheless the other material already mentioned can be, and is, relied upon by the respondents. As Rolfe J observed in his reasons for judgment, on the face of the allegations made in the pleading concerning the financial position of Mr Sialepis and Sialepis Pty Ltd, and in the light of the evidence concerning that matter, it is impossible to understand how an assignment of the Westpac securities to Ironaid could have had either the purpose or the effect of defeating the claim of Mrs Sialepis to assets of Mr Sialepis under the Family Law Act. The Further Amended Summons does not allege that it was part of the purpose of the May 1995 transaction to seek to cure the alleged defect in the 1992 mortgage of the Cronulla house, and the pleading contains no allegation that Ironaid or Mr and Mrs Cosco were aware of such defect. The problem confronting the appellant in relation to this matter may be illustrated by asking, as was asked during the course of the hearing of the appeal, in what way the position of Mrs Sialepis in relation to her claim under the Family Law Act would have been better if the May 1995 transfer from Westpac to Tronaid had never taken place. No cogent answer to that question is provided in the pleading, or was provided in oral argument. On the face of the pleading, as at May 1995, Westpac was owed approximately $14 million, it had mortgages over assets of Mr Sialepis and Sialepis Pty Ltd, Mr Sialepis had guaranteed the obligations to Westpac of the company, Mr Siapelis and his company were in default in relation to their obligations to Westpac, and there was no reasonable possibility that they would be able to cure the default. There is no suggestion other than that Westpac obtained full value when it transferred the debts and the securities, to Ironaid, for much less than the face value of the debts. Ironaid acquired from Westpac debts owed by Mr Sialepis and Siapelis Pty Ltd to the extent of approximately $14 million, and it also acquired the benefit of mortgages given to secure those debts. If the transfer had never taken place, the position would have been that an insolvent Mr Sialepis, and an insolvent Siapelis Pty Ltd, would have owed Westpac about $14 million, and Westpac would have had mortgages over their properties. There is no allegation in the pleading that the mortgages from Mr Sialepis and his company to Westpac were other than fully effective and enforceable. The Further Amended Summons contains the following allegation, the meaning of which is far from clear: "1.38 The predominant common purpose shared by (the) first, third, fourth, fifth, sixth and eighth defendants in the negotiation and implementation of the assignment was to vest the securities in (the) third defendant so that (the) third defendant could become the mortgagee in possession of the properties secured by the securities, and apply some of the proceeds thereof for the benefit of (the) first, fifth and eighth defendants." In a request for further and better particulars an explanation of the concluding part of that paragraph was sought. No intelligible explanation was given. In the course of oral argument on this appeal a further attempt was made to obtain an explanation of the meaning of that allegation. The only explanation that was forthcoming was as follows: URJ SIALEPIS v IRONAID PTY LTD & ORS (Gleeson CJ) 5 'The predominant common purpose was to make Ironaid the mortgagee in possession of the securities and, as such, Ironaid would then share the proceeds between Mr H Sialepis and others...... In other words, Mr H Sialepis would ostensibly lose all of his assets, thus defeating the appellant's claim to a portion thereof by way of a property settlement.....and then Mr H Sialepis would be revested with some of those assets, to the detriment of the appellant." There is no allegation in the pleading that Mr Sialepis was, in truth, not insolvent. On the contrary, the pleading repeatedly alleges, in a variety of ways, that Mr Sialepis and his company owed Westpac more than they could hope to pay, and Westpac, for its part, was prepared to assign debts of about $14 million to Ironaid in consideration for a payment of $4 million. It is impossible to understand what is meant by the references to Ironaid sharing the proceeds of the realisation of the securities. On the face of the allegations made in the pleading, the proceeds would be insufficient to pay the debts Ironaid was taking by assignment from Westpac. Of course, if Mr Sialepis owned assets in addition to those which were the subject of the mortgages to Westpac, and had fraudulently concealed those assets from Mrs Sialepis and his creditors, then that might have operated in a practical way to defeat the claim of Mrs Sialepis under the Family Law Act, but that would have nothing to do with the assignment of May 1995 from Westpac to Ironaid. Counsel for the plaintiff was unable, either before Rolfe J or in this appeal, to give any explanation, consistent with the case as framed in the pleading, of how the assignment to Ironaid could have operated to defeat or disadvantage the plaintiff's claim under the Family Law Act. It is possible to imagine a different claim, inconsistent with a number of the allegations made in the pleading, which might have provided a plausible basis for an allegation that the transfer of debts and securities to Ironaid was part of a scheme to defraud Mrs Sialepis, although it is not easy to see how a claim of that nature would not also have involved an allegation that Westpac was also a victim of the fraud. If, for example, it had been alleged in the pleading that the assets of Mr Sialepis and his company were more than sufficient to pay the debts owed to Westpac, then that might have put a different complexion on the matter. No such allegation was made and, as has been pointed out, it would have been inconsistent with a number of allegations in the pleading and with evidence in the case. There is a further problem with the manner in which the claim against the three respondents is framed in the Further Amended Summons. Paral.32 alleges that on or about 15 February 1994, the first defendant (Mr Sialepis), the fourth defendant (his mother), and the fifth defendant (the accountant, Mr Smiles), fraudulently conspired with a solicitor named Karageorge so to re-arrange the financial affairs of Mr Sialepis as to prevent the appellant from succeeding in her Family Court proceedings, and to prevent her from obtaining any part of her husband's assets. It is not alleged that any of the respondents were a party to that conspiracy. Curiously, it is alleged in paral .34(b) that in furtherance of that conspiracy, Ironaid was caused to be incorporated on 31 January 1994. Senior Counsel for the appellant acknowledged that this must be a mistake, (the dates are irreconcilable), but he did not say what the correct allegation was meant to be. The pleading then alleges that the assignment of May 1995 followed negotiations "in furtherance of fraudulent conspiracy referred to in paral.32". It is alleged that the purpose of the assignment was to enable Ironaid to become the 6 UNREPORTED JUDGMENTS mortgagee in possession of the mortgaged assets "so as to frustrate (the appellant's) claims in the Family Court". It is not alleged that the three respondents were, or became, parties to the fraudulent conspiracy, although it is alleged that in arranging the assignment of the debts and mortgages they acted in furtherance of the conspiracy. Leaving aside the problem, referred to above, as to how Ironaid's becoming mortgagee in the possession of the mortgaged properties would frustrate the appellant's claims in the Family Court, all that appears to be alleged is participation in an overt act without the respondents being party to the alleged conspiratorial agreement. The claims for relief made by the appellant were not limited to damages for conspiracy. They included statutory claims referred to in the judgment of Rolfe J, but the problems referred to above were fundamental to the case sought to be made out against the three respondents. It may well be that the appellant will succeed in making out her case against the remaining defendants, including Westpac. However, Rolfe J was correct to conclude, having regard to the terms of the pleading, the further and better particulars, and the evidence received on the hearing of the application, that no reasonable cause of action against the three respondents was disclosed. Following the delivery by Rolfe J of his reasons for dismissing the action against the three respondents, Senior Counsel for the appellant applied to his Honour for leave further to amend the pleading. This would have been the seventh version of the claim, which had been further amended on the day of the argument before Rolfe J, but before he gave judgment. It appears that the proposed amendments were not formulated and, indeed, they had still not been formulated at the commencement of the hearing of the present appeal. During the course of the appeal this court rejected an application for further amendment. That is the subject of a separate judgment. The decision of Rolfe J not to permit further amendment was an appropriate discretionary decision. The appellant had far more than ample opportunity to formulate a viable claim against the respondents if one existed. The difficulty which the appellant's lawyers have experienced in framing a plausible statement of her cause of action against the respondents is a good indication that, on the facts known to them, or which they can realistically expect to prove, there is no cause of action. The appeal should be dismissed. Handley J I agree with the Chief Justice. Cole JA I agree with the Chief Justice. Appeal dismissed with costs. Counsel for the appellant: M S Jacobs QC/A S Kostopoulos Solicitors for the appellant: Stewart Levitt & Co Counsel for the first respondent: M F O'Neill (Solicitor) Counsel for the second and third respondents: P LeG Brereton/D W Phillips Solicitors for the respondent: Diamond Peisah & Co