Supreme Court New South Wales Medium Neutral Citation: Wyse & Young International Pty Ltd trading as Wyse & Young Accounting v Corrado Sanna [2017] NSWSC 1871 Hearing dates: 21 August 2017 Date of orders: 23 August 2017 Decision date: 23 August 2017 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Leave granted to amend defence and file cross-claim; defendants' application for transfer of proceedings to Federal Court refused; plaintiffs' claim for monetary sum or sums against the defendant to be heard separately and before other issues. Catchwords: PROCEDURE – application to amend defence and file cross-claim – where arguable case sought to be put on amended defence and proposed cross-claim – whether unacceptable prejudice to plaintiff of permitting amendment – where granting leave consistent with approach of allowing issues to be decided on their merits – held, leave to amend defence and file cross-claim granted. JURISDICTION – Cross-vesting – application for transfer to Federal Court – whether "special federal matter" – where proceedings well advanced and hearing imminent – where some bankruptcy-related issues could not proceed for want of relevant parties – claims for monetary judgments against non-bankrupt parties severed to be determined first – transfer at this stage refused. Legislation Cited: (CTH) Bankruptcy Act 1966, s 5, s 27, s 31(1)(f) (CTH) Family Law Act 1975, s 90C (CTH) Jurisdiction of Courts (Cross-vesting) Act 1987, s 3(e), s 6(3) (NSW) Contracts Review Act 1980 Cases Cited: DCL Construction Group Pty Ltd, In the matter of [2017] NSWSC 839 Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174 Wyse & Young International Pty Ltd t/as Wyse & Young Accounting & Ors v Corrado [2015] NSWSC 1863 Category: Procedural and other rulings Parties: Wyse & Young International Pty Ltd trading as Wyse & Young Accounting (first plaintiff) Defined Properties Investment Pty Ltd (second plaintiff) Wolgan Consulting Pty Ltd (third plaintiff) Corrado Sanna (first defendant) DCL Construction Group Pty Ltd (second defendant) Domenic Sanna (fourth defendant) Representation: Counsel: G Dimitriou (director, by leave) (plaintiffs) D Allen (defendants) Solicitors: Kekatos Lawyers (defendants) File Number(s): 2015/217506 Judgment (ex tempore) 1. Before the Court is an application by the defendants for transfer of the proceedings to the Federal Court, and for leave to amend their defence and to file a cross-claim, in the context that the substantive proceedings are set down for hearing before me in this Court to commence in a little over two weeks on 12 September 2017. Consideration of the issues requires some understanding of the factual background and the issues in the substantive proceedings, and a little of their procedural history. Factual background 1. Prior to 26 July 2012 the first defendant Corrado Sanna and his wife Lepa were the registered proprietors of their home at Copacabana, subject to a mortgage to Australian Executor Trustees Limited (AETL), and also of a property at Green Valley. They were in default in respect of the AETL mortgage, and were facing eviction. The plaintiffs allege, and the defendants deny, that on 26 July 2012 the defendants executed a Deed of Loan and a General Security Aeed between the second plaintiff Defined Property Investments as lender, the third defendant DCL Constructions as borrower, and the first defendant Corrado Sanna and his wife Lepa Sanna as guarantors. 2. As explained in a judgment given in related proceedings, [1] essentially, there are two competing explanations of the facts. The plaintiffs' case is that: 1. to avoid eviction, the Sannas, through their company DCL, on 26 July 2012 obtained an advance of $1.2 million from Defined, the proceeds of which were applied as directed by the Sannas to discharge the AETL mortgage and to pay other liabilities, on a short-term loan at 20% per annum. This is the subject of the Deed of Loan, and is secured by mortgages on Copacabana and Green Valley, and by the General Security Agreement. Upon discharge of the AETL mortgage, Mr Dimitriou received the certificate of title on behalf of Defined as mortgagee; 2. the Sannas made periodic repayments of principal, which were recorded in Defined's bank statements as direct deposits of rent by DCL; 3. on 9 May 2013, the Sannas obtained a loan from Westpac, the proceeds of which were, to the extent of $820,662, applied to reduce the Defined loan; and 4. the balance of the Defined loan and interest remains outstanding, and is the subject of the claim in the substantive proceedings. 1. The defendants' version is that: 1. by arrangement with AETL the Sannas unsuccesfully offered Copacabana for sale by auction, and then privately to Arcadia Property Holdings Pty Ltd, a company said to be associated with Mr Dimitriou; 2. on 26 July 2012 Arcadia purchased Copacabana from AETL as mortgagee for $948,520. Mr Dimitriou received the certificate of title on behalf of Arcadia as purchaser, but in order to avoid incurring stamp duty did not register a transfer; 3. in about December 2012 Mr Dimitriou then offered to re-sell Copacabana to the Sannas, and Mr Sanna – with the assistance of Mr Dimitriou – obtained finance of $1,008,000 from Westpac for that purpose, which was applied as directed by Mr Dimitriou or Arcadia, including as to $820,662 to Defined, in satisfaction of the purchase price; and 4. the Sannas did not personally or through DCL ever borrow any funds from Defined, and their apparent signatures on the transaction documents have been forged. 1. Also in or about May 2013, Lepa Sanna purported to transfer her interest, at least in the Green Valley property, to Corrado Sanna pursuant to a binding financial agreement under (CTH) Family Law Act 1975, s 90C, said to have been entered into in December 2011. Timewise, this transaction appears to have coincided approximately with, first, the Westpac loan to the Sannas referred to above – which appears also to have involved Westpac refinancing a debt to Permanent Mortgages which was secured on the Green Valley property, and taking a mortgage over that property, which however has not been registered due to caveats preventing its registration; and, secondly, the commencement of proceedings by Perpetual against Lepa Sanna on 21 February 2013 to recover a debt of $682,000, which appear to have been served by substituted service on her on 8 April 2013, and in respect of which default judgment was entered in the District Court on 23 May 2013 against her for $478,583. 2. A bankruptcy notice was served on Lepa Sanna on 18 June 2013, and she committed an act of bankruptcy on 10 July 2013. A creditor's petition was filed on 23 July 2013, served by substituted service on 3 October 2013, and a sequestration order made against her in the Federal Magistrate's Court of Australia on 10 December 2013. Paul Gerard Weston is her trustee in bankruptcy. 3. The title to the Green Valley property remains in the name of Lepa Sanna and Corrado Sanna, and on the title remains subject to the mortgage to Permanent, although it seems that Permanent has been refinanced by Westpac. Procedural history 1. The present proceedings were commenced on 24 July 2015, initially to extend the operation of caveats in respect of at least the Green Valley property. The initial defendants included, as the fifth defendant, Lepa Sanna's trustee in bankruptcy; but the trustee in bankruptcy ceased to be a defendant pursuant to an order made by White J (as his Honoru then was) on 27 November 2015. In his Honour's judgment of that date, [2] it was recorded (at [13]) that reference had been made to a binding financial agreement of 16 December 2011, which was apparently the subject of attack, and which remains the subject of attack in the current pleadings. However (in [14]), White J recorded that Mr Foley, who then appeared for the plaintiffs, said that the plaintiffs did not wish to pursue any claim against the trustee in bankruptcy of Lepa Sanna, as it would not substantially affect his client's position whether the transfers were in fraud of creditors or not – presumably on the basis that his clients would seek to execute judgments against Mr Sanna, which would not be assisted by orders requiring the transfer of assets from Mr Sanna to his wife. Later (at [48]), his Honour recorded that Mr Foley eschewed any claim against the trustees in bankruptcy of Lepa Sanna. His Honour said: I was concerned that the application might involve an exercise of jurisdiction in bankruptcy, which would require a transfer of the proceedings to the Federal Court for the reasons stated by the Full Court of the Federal Court in Truthful Endeavour Pty Ltd v Condon [2015] FCAFC 70; (2015) 321 ALR 483. But as the claims against the fifth defendant will be dismissed, I do not think that there is any reason to take that course. 1. It was against that background that his Honour dismissed the proceedings as against the fifth defendant and ordered that he cease to be a party. 2. Now, pursuant to an amended statement of claim filed on 17 November 2016, the first plaintiff Wyse & Young International, the second plaintiff Defined, and the third plaintiff Wolgan Consulting, claim against the first defendant Corrado Sanna, the second defendant DCL, and the fourth defendant Dominic Sanna: 1. declarations that the Deed of Loan and the General Security Agreement between Defined as lender, DCL as borrower, and Corrado Sanna and Lepa Sanna, are valid; 2. declarations that a mortgage of the Green Valley property between Lepa Sanna and Corrado Sanna as mortgagors and Defined as mortgagee is valid, and that the property is charged with the outstanding loan; 3. judgment against Corrado Sanna and DCL for the loan, and also for other monetary claims; 4. an order setting aside or declaring void the transfer of Lepa Sanna's interest in Green Valley to Corrado Sanna, including the binding financial agreement pursuant to which the transfer was purportedly made; and 5. judgment for possession and orders for the sale of the Green Valley property. 1. Relief is also claimed in the amended statement of claim in respect of the Copacabana property, but it has been indicated that relief in respect of that property is not pressed. 2. The defendants' defence of 20 December 2016 denied execution of all relevant documents and alleged that the signatures of Corrado Sanna and others on them were forgeries. 3. On 7 June 2017, the proceedings were fixed for final hearing for two days, commencing on 5 December 2017, before Robb J. Shortly thereafter, on 13 June 2017, the defendants filed an affidavit which annexed a draft amended defence, but, so far as I can tell, no order has ever been made granting leave to rely on that amended defence. In any event, the amendments which it would have made to the earlier defence related only to a couple of dates, and the burden of the defence remained, as pleaded in [21], that: The claims made are fraudulently made, in that the plaintiffs are demanding money from the defendants to which they know they are not entitled and, in order to make, have created false documents, as pleaded above, and that any document produced in evidence by the plaintiffs which has not been specifically pleaded will not be accepted as being authentic. 1. Meanwhile, on 25 February 2016, Lepa Sanna's trustee in bankruptcy commenced proceedings in the Federal Court against Corrado Sanna, seeking orders inter alia to have the purported transfer of her interest in the Green Valley property to Corrado Sanna declared void, essentially on the basis that it was a fraud on creditors and related grounds. 2. On 13 June 2017, I heard in the Corporations List the application of DCL to set aside a creditor's statutory demand served on it by Defined for the loan debt. I gave judgment on that application on 23 June 2017, [3] upholding the application to set aside the creditor's statutory demand on the basis that there was a genuine dispute as to the indebtedness; however, in order to expedite the final resolution of the matter and with the consent of both parties, I vacated the previous appointment for hearing, and fixed the proceedings for hearing on 12 September for three days. Pre-trial directions were appointed for 8 August, and leave was granted to adduce forensic handwriting expert evidence in respect of the disputed signatures. 3. The matter came before me for pre-trial directions on 8 August, when further directions were made in respect of obtaining forensic handwriting evidence. Only on 18 August 2017 was the present notice of motion filed, seeking a transfer of the proceedings pursuant to the cross-vesting legislation to the Federal Court, and leave to amend the defence and to file a cross-claim. Transfer application 1. I deal first with the transfer application. As I have said, the title to the Green Valley property remains in the name of Lepa Sanna and Corrado Sanna, apparently subject to a mortgage to Permanent Mortgages and to several other caveats. In circumstances where Lepa Sanna remains on title, I do not see how a claim to an interest in that property can proceed in the absence of her trustee in bankruptcy as a party. Moreover, the claim to set aside the binding financial agreement overlaps with the trustee in bankruptcy's claim. 2. Thus, as it seems to me, if the matter proceeds as presently constituted, the claims for proprietary relief in respect of the Green Valley property must fail for want of necessary parties; in particular, for want of the joinder of the trustee in bankruptcy, and probably also of other caveators in respect of the Green Valley property. If it were sought to address this by joining Lepa's trustee in bankruptcy, then the claim would be one for a declaration adverse to the title of the trustee in bankruptcy within the meaning of (CTH) Bankruptcy Act 1966, s 31(1)(f). It would then involve an aspect of "jurisdiction in bankruptcy", as defined in (CTH) Bankruptcy Act, s 5, in respect of which, but for the (CTH) Jurisdiction of Courts (Cross-vesting) Act 1987, the Federal Court has exclusive jurisdiction pursuant to Bankruptcy Act, s 27. As has been explained, the effect of s 27(1) of the Bankruptcy Act is that this Court would not have jurisdiction in bankruptcy, but for the Jurisdiction of Courts (Cross-vesting) Act. [4] Accordingly, the matter would involve a "special federal matter" within Jurisdiction of Courts (Cross-vesting) Act, s 3(e), and this Court would be obliged to transfer it to the Federal Court – unless there were "special reasons" within s 6(3) of Jurisdiction of Courts (Cross-vesting) Act, and notice to the Federal and State Attorneys General had been given. In my view, the stage that these proceedings have reached, the interrelationship of the bankruptcy aspect with non-bankruptcy aspects, and other considerations, may arguably amount to sufficient "special reasons" for that purpose. However, it is not realistic to suppose that the trustee in bankruptcy could be joined, and the necessary notice given to the Attorneys General, in time for a hearing commencing on 12 September. In those circumstances, as it seems to me, the claims for proprietary relief in respect of the Green Valley property cannot, at least at this stage, proceed. However, these considerations present no obstacle to the claims monetary judgment against the current defendants from proceeding. Application to amend 1. I turn to the question of amendment. The proposed amended defence, although very late, does not appear to raise any issues which are incapable of being dealt with at the imminent hearing. The proposed cross-claim, however, provides further cause for consideration, because it would propound, for the first time, a case of breach of fiduciary duty and for relief under (NSW) Contracts Review Act 1980. Essentially, it alleges: 1. first, that Mr Dimitriou owed a fiduciary duty to the Sannas as their financial adviser; 2. secondly, that he counselled or permitted them to borrow from related entities of his, and thereby preferred his own interests over those over the Sannas; 3. thirdly, even if this did not constitute a breach of fiduciary duty, the same matters would render the contract unjust, so as to be amenable to being set aside under the Contracts Review Act; and 4. fourthly, the interest rate and the term of the loan were substantively unjust. 1. The case which the defendants now seek to raise in this respect is one which they have had ample opportunity to raise had they wished to do so. It was not raised as the pre-trial directions, and there is not really any satisfactory explanation as to why it was not raised earlier. It involves a significant change to the case so far maintained, which to this point has very clearly been one conducted on the basis of forgery and fraud. The new case does not sit entirely comfortably with evidence previously given by Mr Corrado Sanna in the course of the DCL proceedings, in which he effectively denied the possibility that he had been tricked or misled into signing the documents which he had disputed that he had signed. 2. All that said, the contention that there was a fiduciary relationship is plainly an arguable one. It is consistent with principle – and perhaps, more particularly, with the approach I have endeavoured to take throughout the management of this case – that if possible, the real issues in the case should be presented to the Court and adjudicated and, thus, that amendments to enable that to happen should be permitted, at least if they are not causative of unacceptable prejudice to the other party. 3. Delay or adjournment of the hearing would cause unacceptable prejudice to the plaintiffs. There are, as is self-evident from these and other proceedings before the Court, very considerable financial pressures on the group of companies of which the plaintiffs are members, including outstanding unpaid judgments in other proceedings of large amounts. The plaintiffs appear now to have limited resources and, if not entirely, are at least largely self-represented. There is a real risk that any delay in the final hearing will see their claim defeated without having the issues decided on the merits. 4. The defendants have said that they will adduce no further evidence on the new matters of defence and the cross-claim. Of course, eschewal by the cross-claimants of any intention to lead further evidence does not mean that the cross-defendants would not have to do so in response to the cross claim. For that reason I have given close consideration to what might reasonably be required in that respect, in order to determine whether it is realistic to expect the cross-defendants to meet the cross-claim at a trial commencing on 12 September. 5. As it seems to me, essentially the propsoed cross-claim gives rise to three issues: first, whether or not there was a fiduciary relationship; secondly, whether there was a breach of any fiduciary obligation; and thirdly, whether there is any associated obligation of restitution and if so, whether it was satisfied. As to the first, it seems to me that the evidence on which the Court would decide whether or not a fiduciary relationship existed is largely, if not entirely, already before the Court. It is difficult to see that much additional evidence would be adduced by the cross-defendants on that front. 6. As to whether there was a breach of any fiduciary obligation, the central issue will be the communications and advice given in connection with the transactions into which the Sannas are said to have entered. A substantial amount of evidence about those meetings is already in evidence, and reference has been made to a certificate of independent advice, which is plainly already available to the cross defendants. I can apprehend that there would be some expansion of the evidence in connection with these communications. Perhaps, in particular, the person who gave the independent advice referred to in the certificate of independent advice would be a necessary witness, if not already called. Thus it seems to me that there will be some enlargement of the evidence on this front, but it will not be a particularly extensive enlargement. 7. Thirdly, so far as any obligation of restitution is concerned, that really depends on how the funds were applied, and those matters are already well and truly in issue. 8. Accordingly, it seems to me that, provided that the defendants are permitted to adduce no new evidence on the matters raised by the propsoed amended defence and cross-claim, and that the plaintiffs are permitted to adduce evidence on the new issues up to and including orally at the trial, the interests of justice favour permitting the defendants to amend and propound their proposed amended defence and cross-claim. Conclusion 1. In summary, first, the claims for proprietary relief in respect of the Green Valley property cannot proceed in the absence of the trustee in bankruptcy. Such claims would be claims against the title of the trustee in bankruptcy and thus involve a jurisdiction in bankruptcy constitute a special federal matter. Although it may be that there would be special reasons for its retention in this Court, the requisite notice has not been given and could not be given in time for 12 September. 2. Secondly, claims for a monetary judgment against the extant defendants can proceed. 3. Thirdly, leave to amend the defence and to file the cross-claim should be granted, conditional upon the defendants being permitted to adduce no further evidence, and the plaintiffs being permitted to adduce evidence on the new issues up to and including orally at the trial. 4. For those reasons, and upon terms that the defendants are permitted to adduce no further evidence, and that the plaintiffs are permitted to adduce evidence on the new issues up to and including orally at the trial, the Court orders that: 1. The defendants have leave to amend their defence by filing the document entitled "Amended Defence" attached to their notice of motion filed on 18 August 2017, subject to that amended defence being verified by the defendants. 2. The defendants have leave to file a cross claim in the form of the document entitled "Cross Claim" attached to their notice of motion filed on 18 August 2017, subject to its being verified. 3. The plaintiffs' claims for judgment for a monetary sum or sums against the defendants be determined separately and before the other claims for relief in the proceedings. 4. The application for transfer of the proceedings to the Federal Court be adjourned until determination of the questions referred to in order 3. ********** Endnotes 1. In the matter of DCL Construction Group Pty Ltd [2017] NSWSC 839. 2. Wyse & Young International Pty Ltd t/as Wyse & Young Accounting & Ors v Corrado [2015] NSWSC 1863. 3. In the matter of DCL Construction Group Pty Ltd [2017] NSWSC 839. 4. Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174 at [48]. 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: 10 July 2019