Supreme Court New South Wales Medium Neutral Citation: Baira v Egisto & Ors [2013] NSWSC 1023 Hearing dates: 26 July 2013 Decision date: 26 July 2013 Jurisdiction: Common Law Before: Beech-Jones J Decision: Proceedings transferred. Catchwords: PRACTICE AND PROCEDURE - transfer of proceedings from District Court to Supreme Court - degree of connection with existing proceedings. Legislation Cited: - Civil Procedure Act 2005 Cases Cited: - Baira v RHG Mortgage Corporation Ltd [2012] NSWCA 387 - Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 - Reichel v Bishop of Oxford (1889) 14 App Cas 259 - Reichel v McGrath (1889) 14 App Cas 665 Category: Procedural and other rulings Parties: Rosa Baira (Plaintiff) Pompeo Joseph Egisto (First Defendant) Lazzaro Calvitto (Second Defendant) Frederick Forster (Third Defendant) Representation: Counsel: P.G. Bolster (Plaintiff) W. McManus (Defendants) Solicitors: Frank Legal (Plaintiff) Colin Biggers & Paisley (Defendants) File Number(s): 2013/111958 EX TEMPORE Judgment 1Before me is a summons seeking the transfer of proceedings commenced in the District Court (the "District Court proceedings") into this Court. The transfer is said to be justified because of the "connection" between those proceedings and proceedings already commenced in this Court which are due to be heard in March 2014. Background 2The District Court proceedings were commenced in 2010 by the plaintiff, Rosa Baira, against a firm of solicitors. They alleged negligence by two members of that firm in respect of two transactions. The first transaction concerns the execution of a consent by Ms Baira in 2004 to an increase of the amount of a guarantee she had given in favour of the St George Bank of and concerning debts owed by a company associated with her daughter, Sandra Ianni, and her then husband, Joe Ianni. It is alleged that a solicitor, Mr Calvitto, was negligent in advising Ms Baira of the nature of the documents that she signed. 3The second transaction the subject of the District Court proceedings took place in October 2005. As I will explain, it was said to be part of a restructure of her daughter's and husband's financial affairs and those of their business. As part of that, Ms Baira is said to have executed a consent as guarantor to the removal of certain properties owned by others as security for the principal debt that she guaranteed. Although this included a reduction in the amount the subject of her guarantee it is said that overall the effect of the transaction was to significantly and materially increase her exposure. 4Ms Baira alleges that a solicitor who is one of the defendants, Mr F. Forster, provided a certificate to the St George Bank in which he incorrectly asserted that he had given advice to Ms Baira concerning those documents. She states she never met him and did not give him any such advice. At the time of the second transaction both Ms Baira and the parents of her son-in-law, Dominic and Rosa Ianni, provided security in support of the debts of their children's business. 5In Baira v RHG Mortgage Corporation Ltd [2012] NSWCA 387 at [208] to [214] Basten JA described the restructuring that the second transaction formed part of and the subsequent events as follows: "[208] Mr and Mrs Ianni then owned properties at Castle Hill, Milsons Point and Pyrmont. They financed their business and property purchases through St George Bank Ltd The total value of the properties and the outstanding loans was at that time about equal, in an amount a little over $3 million. The Bank held various securities, including a fixed and floating charge over the assets of Jencon and mortgages over the three properties. In addition, the Bank was the beneficiary of third party guarantees from Sandra Ianni's mother, Mrs Rosa Baira, secured by a mortgage over her Marrickville property. The bank also held a third party guarantee from Mr Rosario Ianni and his wife Mrs Domenica Ianni (Mr and Mrs Ianni senior), the parents of Joe Ianni, secured over their Drummoyne property. [209] In about July 2005 Mr and Mrs Ianni junior decided to purchase a house at Dural for a little over $2.2 million. In order to obtain the funds, they engaged in a major restructuring of the outstanding debts of Jencon and themselves, apparently to extract larger borrowings against the equity in their own properties and, particularly, the properties owned by their respective parents. The restructuring involved two stages, the first having three elements. The first element was to remove from the securities in favour of St George Bank both their property at Pyrmont and the property owned by Mr and Mrs Ianni senior at Drummoyne. The result was that the remaining securities held by St George Bank were the Castle Hill and Milsons Point properties owned by Mr and Mrs Ianni junior and the third party guarantee and mortgage secured over Mrs Baira's property at Marrickville. The Bank was willing to accept that arrangement on the basis of a reduction in the amount owing to it from a little over $3 million to a little over $2 million. [210] The second element was a loan to Mr and Mrs Ianni junior to purchase the Dural property, with additional financial accommodation provided by the National Australia Bank Ltd ("NAB") involving a total of $3.5 million, secured by mortgages over both the Dural and the Pyrmont properties, the latter having been released by St George. [211] The third element of the restructuring involved Mr and Mrs Ianni senior 'borrowing' $910,000 from RHG Mortgage Corporation Ltd ('RHG'), formerly known as RAMS Home Loans Pty Ltd, in exchange for a mortgage over their Drummoyne property. The total indebtedness then amounted to $6.5 million, in round figures. However, Jencon and Mr and Mrs Ianni junior nominally had primary responsibility for only $5.6 million. [212] Stage two occurred on 14 March 2006. It involved a further reduction of approximately $550,000 in the liability to the St George Bank, in exchange for which St George released the third party mortgage over the property of Mrs Baira. That arrangement was financed by a "loan" to Mrs Baira from RHG in an amount of $650,000. On the basis that the beneficiaries of all loans were Mr and Mrs Ianni junior, either directly or through Jencon, their total liabilities were then $6.56 million. [213] The Jencon business had apparently declined sharply by 2008 and Jencon and Mr and Mrs Ianni junior were unable to meet the obligations under the loans and, relevantly for present purposes, RHG sought possession of the homes of the parents, namely the Marrickville property owned by Mrs Baira and the Drummoyne property owned by Mr and Mrs Ianni senior. Mr Joe Ianni was declared bankrupt. [214] On 3 June 2011 Grove AJ gave judgment in favour of RHG against Mrs Baira in an amount in excess of $846,000 and ordered that she give RHG possession of the land at Marrickville. In respect of the proceedings against Mr and Mrs Ianni senior, he gave judgment under the loan in favour of RHG in an amount in excess of $1.2 million and ordered that they give RHG possession of the land at Drummoyne." 6An appeal from the judgment of Grove AJ referred to in [214] was successful and a re-trial was ordered (see Baira at [206] per Bathurst CJ and at [336] per Basten JA, Tobias AJA dissenting at [559]). As I stated, the re-trial of those proceedings is listed to commence in March 2014. 7The proceedings before Grove AJ referred to by Basten JA in Baira at [214] also involved a number of cross claims brought by Mr and Mrs Ianni and Ms Baira against parties that included financial brokers and their own children. At that time Ms Baira did not bring any cross claim against the solicitors who are the defendants in the District Court proceedings. 8However, the evidence before Grove AJ traversed in considerable detail a number of the guarantees and similar documents that Ms Baira had executed in respect of the business of her daughter and son-in-law over a number of years. In particular, both Mr Calvitto and Mr Forster were called to give evidence before Grove AJ. The circumstances concerning the two transactions the subject of the District Court proceedings were extensively canvassed before his Honour. 9As I stated, the District Court proceedings were commenced in 2010. That was before the hearing before Grove AJ took place. At the time those proceedings were commenced, the second transaction was not referred to in the Statement of Claim. At some point the District Court proceedings were allocated a trial date in December 2011. However, in October 2011 the trial date was vacated and the proceedings were stayed pending the outcome of Ms Baira's appeal. 10It also appears that Ms Baira was granted leave to amend the Statement of Claim to add a complaint concerning the second transaction. She served a proposed amended pleading to that effect. I am informed that, by an oversight, that form of amended pleading has not yet been formally filed. The Transfer Application 11Counsel for Ms Baira, Mr Bolster, pointed to a number of matters that he contended warranted the transfer of the District Court proceedings into this Court. 12First he contended that the factual substratum of the District Court proceedings is "inextricably linked" to the existing Supreme Court proceeding. He referred to the fact that both of the transactions the subject of the District Court proceedings were, as I have stated, considered closely in the proceedings before Grove AJ and it that can be expected they will be reconsidered in the trial that is to take place early next year. He submits that it is desirable that all disputes arising out of the same or related facts be determined at the same time and that they be determined in a consistent manner. 13Second, Mr Bolster pointed to the possibility of his client being bound by an estoppel arising out of the Supreme Court proceedings should they take place before the District Court proceedings. He submits that possibility is a real one even though the two sets of proceedings do not involve identical parties. In that regard he cites the discussion in Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404, and in particular the discussion in that case (at 410 to 412) of the decisions in Reichel v Bishop of Oxford (1889) 14 App Cas 259 and Reichel v McGrath (1889) 14 App Cas 665. 14Third, Mr Bolster submits that, although the transfer of the District Court proceedings into this Court would mean that it is likely that the hearing of both sets of proceedings would involve extra cost and time, that can be minimised if the proceedings are appropriately case managed. He submits that should be balanced against the cost involved in hearing two separate cases. 15Counsel for the defendants, Mr McManus, resisted the transfer. 16First, he stated that his clients would take no estoppel or abuse of process point that might arise if findings were made in the Supreme Court proceedings that might otherwise affect Ms Baira's prosecution of the proceedings in the District Court. 17Second, Mr McManus pointed to the unfairness in terms of time and cost of requiring his clients to participate in the Supreme Court hearing, which will inevitably involve significantly more issues than those raised by the District Court proceedings. 18Third, Mr McManus rejected the contention that the proceedings are inextricably linked. He submits that as a matter of substance the factual matters that arise in the District Court proceedings are no more than part of the history that led to Ms Baira's entry into the financial transactions that are the subject of dispute in the Supreme Court proceedings. Further, Mr McManus ultimately submitted that the District Court proceedings are misconceived. He contended that any loss that was occasioned to Ms Baira from the alleged negligence on the part of his client was subsumed or overtaken by a loss that might be found to flow to her from entering into the mortgages with RHG (as referred to in the extract from the judgment of Basten JA in Baira v RHG that I have set out above). Thus Mr McManus submits that the conduct of Ms Baira and the other players in the transaction with RHG breaks any causal link between any alleged negligence on the part of his clients and any loss suffered on the part of Ms Baira. 19One difficulty with the hearing of this application is that it has, as an underlying assumption, the proposition that if the District Court proceedings were transferred to this Court, then it is inevitable they would be heard together with the Supreme Court proceedings. The making of orders that the two sets of proceedings be heard together, with evidence in one to be evidence in the other and findings in one to be findings in the other, is a step I would not take without hearing from the parties to the existing Supreme Court proceedings. That said, the balance of the reasoning in the judgment assumes that will occur, but it is an assumption that will need to be revisited. For the reasons that follow, I will order that the proceedings be transferred, however, I will list the matter before me at a later date to consider that very question as to whether the two sets of proceedings should be heard together, or whether some other stance should be taken including possibly transferring the matter back to the District Court. I considered whether the appropriate course was simply to adjourn this application to such a time. However, I think a consideration of the ultimate destination of the District Court proceedings is better undertaken when various further procedural steps have been completed. It is not appropriate for this Court to case manage proceedings that are extant in another court. 20The mere existence of overlap of the kind involved in the first transaction the subject of the District Court proceedings and the existing Supreme Court proceedings is not a matter I consider warrants Mr McManus' client being forced to participate in a lengthy hearing in this Court. However, it appears to me that the second transaction the subject of the District Court proceedings is much closer to the heart of than what is in issue in the Supreme Court proceedings. 21The extract from the judgment of Basten JA in Baira v RHG that I have set out above suggests that the alteration of the securities that supported the principal debt, which was in turn guaranteed by Ms Baira, was an inextricable part of the refinancing with RHG. The consequence is that at this stage it appears that if the two sets of proceedings are not heard together, then there is not just a mere risk of inconsistent factual findings, but inconsistent factual findings on matters that are likely to be central to any determination of Ms Baira's legal rights and the obligations and rights of other parties. An outcome of that kind is one that should generally be avoided. 22There is a further matter pointing to the existence of an essential link to the two proceedings which in part flows from Mr McManus' submissions concerning the formulation of Ms Baira's damages claim in respect of the alleged negligence of her solicitors. An assessment of the scope of damages that Ms Baira may recover if she was successful in establishing negligence against the defendants in the District Court proceedings is not straightforward at this point. As I have stated, Mr McManus contends that there is, in fact, none in light of the subsequent entry by Ms Baira into a loan agreement and mortgage with RHG. Mr McManus may be right in that respect. However, prima facie to reach that point would appear to me to require findings about the position that the parties would have been in but for Mr Forster having provided a certificate to the Bank in relation to the second transaction, and this in turn would require a determination of whether the entire refinancing would have proceeded. If Ms Baira could establish that it would not have, then an assessment of her damages flowing from any negligence would appear to require a comparison between the position that she would have been in had the refinancing not occurred, compared with the position she will be in as a result of the proceedings brought against her by RHG. 23In my view, it follows from that that there is an inextricable link between the assessment of any damage that Ms Baira may have suffered and the outcome of the Supreme Court proceedings. It seems to me that a determination of that question will be significantly impacted by the evidence concerning the refinance that occurred which is the very subject matter of the Supreme Court proceedings. 24Accordingly, I will order the transfer of the District Court proceedings into this Court. I do so noting my earlier comment that one outcome from hearing the parties in the existing Supreme Court proceedings is that I may decide to transfer it back. As I have indicated, in the meantime I will give directions and I will arrange for all sets of proceedings to be listed before me in the future. [The parties addressed in relation to further directions.] 25Accordingly: (1)I order that District Court proceedings 2010/373830 be transferred to this Court pursuant to s 140 of the Civil Procedure Act 2005. (2)I direct that the plaintiff in proceedings 2010/373830 file and serve an Amended Statement of Claim on or before 2 August 2013. (3)I direct the defendants in proceedings 2010/373830 file and serve a defence on or before 23 August 2013. (4)I direct the parties to confer in relation to the provision by the Plaintiff of such material she has concerning proceedings 08/285539, and related proceedings thereto, to the Defendants. (5)I direct the plaintiff in proceedings 2010373830 to serve all evidence upon which she relies upon the defendants on or before 5:00pm on 13 September 2013. (6)I list proceedings 2010/373830 for mention before me at 9.30 am on 20 September 2013. (7)I direct the plaintiff in proceedings 2010/373830 to notify the remaining parties in proceedings 08/285539 and the proceedings related thereto of the orders made today, that these proceedings will be listed for mention before me on 20 September 2013, and of the terms of this judgment. (8)I direct that the directions hearing on 20 September 2013 in 2008/285539 and 2008/284857 be listed before me at 9.30 am. (9)I reserve costs of today's application. ********** 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: 02 August 2013