Bagnato v Bagnato

[2011] NSWSC 1035

Supreme Court

New South Wales

Medium Neutral Citation:	Domenico Bagnato v Vincenzo Bagnato & Anor [2011] NSWSC 1035
Hearing dates:	6 September 2011
Decision date:	06 September 2011
Jurisdiction:	Equity Division
Before:	Pembroke J
Decision:	Proceedings stayed on conditions. See paragraph [29]
Catchwords:	STAY OF PROCEEDINGS - stay on terms - extent of court's discretion - stay unless and until security for costs provided - overriding purpose of litigation - Civil Procedure Act 2005 ss 56, 67. COSTS - security for costs - basis of jurisdiction - inherent power - impecuniosity of natural person plaintiff not determinative - Civil Procedure Act 2005 ss 56, 67 - Uniform Civil Procedure Rules 2005 r 42.21.
Legislation Cited:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
Cases Cited:	Barton v Minister for Foreign Affairs (1984) 2 FCR 463 Chang v Comcare Australia [1999] FCA 1677 Charara v Integrex Pty Ltd [2010] NSWCA 342 Cunningham v Olliver (unreported, Burchett J, 21 November 1994) Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 Knight v Beyond Properties Pty Limited [2005] FCA 764 Liristas v Canic [2011] NSWCA 239 Loque v Hensen Technologies Ltd [2003] FCA 81 Melville v Craig Nowlan & Associates (2002) 54 NSWLR 82 Morris v Hanley [2000] NSWSC 957 Morris v Hanley & Ors [2001] NSWCA 374 Phillips Electronics Australia Pty Ltd v Matthews (2002) 54 NSWLR 598
Category:	Interlocutory applications
Parties:	Domenico Bagnato - plaintiff Vincento Bagnato - first defendant Rosa Bagnato - second defendant
Representation:	Counsel: D K L Raphael - plaintiff S J Burchett - first and second defendants Solicitors: Saba El-Hanania Lawyers - plaintiff Blacktown Legal - first and second defendants
File Number(s):	2010/320146

Judgment

Introduction

1. This is an application by the first and second defendants for, among other things, a stay of proceedings against them pursuant to s 67 of the Civil Procedure Act 2005 .

1. The plaintiff is the son of the first and second defendants. As a result of the commencement of these proceedings by him, the first and second defendants have so far spent $74,689 in legal fees and $16,781 in stamp duty. Their solicitor estimates that their further costs of the proceedings will be approximately $150,000 of which he anticipates that in excess of $100,000 would be recoverable as party party costs. The first and second defendants are elderly, poor and commercially unsophisticated.

1. At the bottom of the proceedings is a transaction between the son and his parents. It involves a disputed transfer of an interest in land at Myrtle Street, Leichhardt. That property is and has been for many years the home of the first and second defendants.

1. In the circumstances that I will shortly explain, the plaintiff acquired a 49% interest in his parents' property. Subsequently, he re-transferred it to them without prejudice to his contention that he remains entitled to a 49% interest. The current position is that the first and second defendants are the registered proprietors of the land but the plaintiff continues to claim a 49% interest. The transfer and re-transfer of the land, and consequential alterations to the mortgage arrangements, explain why the first and second defendants have incurred wasted expenditure in stamp duty of $16,781.

1. The essential commercial rationale for the original transaction was that the son would assume responsibility for a fresh mortgage loan to be arranged in respect of the property. Prior to the transaction with their son, the first and second defendants had a "seniors" loan from the St George Bank. This type of loan permits the interest to be capitalised and for the loan to be paid out on the death of the survivor or a prior sale, whichever first occurs. The balance outstanding by the first and second defendants on their loan immediately prior to August 2010 was approximately $164,000.

1. With the plaintiff's encouragement and at his request, the St George loan was paid out and a new loan was taken out with Bluestone Mortgages Pty Ltd (Bluestone). The plaintiff took the benefit of the mortgage advance from Bluestone. He then failed to meet his commitment to his parents that he would pay the mortgage instalments. Subsequently he undertook to the court to meet the mortgage instalments on the Bluestone loan. He then failed to comply with his undertaking to the court - repeatedly and regularly.

1. The result was that the first and second defendants were compelled, with the assistance of their other children, to pay out the Bluestone loan in the sum of $289,914 and to take another seniors loan in a larger amount from the Commonwealth Bank. Thus the first and second defendants are at least worse off in the sum by $134,000 - when their current position is compared to that which prevailed immediately before the Bluestone loan.

1. I make these points by way of background because I will shortly make orders staying the proceedings on terms. It seems to me that the plaintiff's claim has very weak prospects of success, there have been serial and substantial defaults by the plaintiff and the first and second defendants have suffered or incurred substantial oppression, stress, anxiety and expense. For the reasons that follow, these circumstances justify an order for a stay on the terms that I have in mind.

The Transaction

1. I mentioned that the basis of the proceedings concerns a transaction in relation to a transfer to the plaintiff of a 49% interest in his parents' property. That transaction, the validity of which is in contest, was recorded in a document dated 12 August 2008. It provided that among other things:

In the event that my son, Domenico Bagnato cannot, does not make the mortgage repayments or if the loan exceeds the sum of $300,000 due to non-payment of the mortgage/loan on the property then our son's share of 49 percent is to be transferred back to us or as we so desire.

1. It was therefore an essential term of that arrangement, if it is valid, that the son acknowledged that he would re-transfer his interest in the property to his parents in the event of default by him in meeting the mortgage instalments. I have already explained that he repeatedly failed to meet those mortgage instalments.

1. On 29 August 2008, the plaintiff signed a further document described as "Acknowledgement and Declaration" by which he declared he was fully responsible and liable in the sum of $173,000. He further acknowledged and declared that all mortgage repayments would be made by him by way of direct debit from his St George Bank account. That further acknowledgment and declaration did not purport to detract from the central condition of the original transaction that in the event of default, the son would re-transfer his interest in the property back to his parents. Given the fact of the son's numerous defaults, it is difficult to see how he can still maintain a claim to a 49% interest in the property.

The Proceedings

1. The plaintiff commenced these proceedings by summons on 27 September 2010 seeking an extension of the caveat that he had placed on the title. He also sought an order setting aside or avoiding the re-transfer from him to his parents. The re-transfer from the plaintiff to his parents occurred in February 2010. For all intents and purposes, it unwound the original transfer in his favour that had occurred pursuant to the arrangement made on 12 August 2008.

1. After the proceedings were commenced, orders were made by, and undertakings given to, Rein J on 8 November 2010, Hallen AsJ on 17 December 2010 and Sackar J on 20 April 2011. There have been serious defaults by the plaintiff in relation to a number of those orders and undertakings.

1. On 8 November 2010, Rein J ordered that the plaintiff file and serve a statement of claim within 21 days. That did not occur. On the same occasion, the court also noted the plaintiff's undertaking to the court to make all further payments as and when they fall due on the mortgage to Bluestone and not to draw or authorise the drawing of any further monies pursuant to the mortgage. Those two conditions were breached. Further, they were breached knowingly and wilfully.

1. On 17 December 2010, Hallen AsJ noted a further undertaking to the court by the plaintiff to pay the outstanding December instalment of the mortgage to Bluestone together with any default interest or penalty interest in relation to that instalment. The court also directed the plaintiff to file and serve his statement of claim on or before 24 January 2011. The undertaking to the court which was made on that occasion and the direction to file and serve the statement of claim were both breached.

1. In January 2011 Bluestone served a default notice relating to the non-payment of the instalment due on 2 January 2011. The amount due was $2,107; when the fees, interest and enforcement expenses were added, the total amount due was $4,285. The default by the plaintiff also resulted in the acceleration of the payment of the principal and accrued interest due under the loan. The full amount therefore required to be paid on 19 January 2011 was $238,992.

1. This is the sorry situation that led to the need for the first and second defendants to negotiate with a new lender and to obtain financial assistance from their other children. It resulted in a substitute seniors loan in June 2011 from the Commonwealth Bank to the first and second defendants.

1. On 20 April 2011 the proceedings came again before Sackar J. On that occasion the plaintiff undertook to the court to sign all documents and do all things reasonably required by him to facilitate the registration of the re-transfer of his legal interest in the property to the first and second defendants and to facilitate the refinancing of the mortgage of the property by them. He gave those undertakings without prejudice to his claim for an equitable interest in the property.

1. The plaintiff's contention prior to the refinance of the Bluestone loan was that notwithstanding his undertaking to the courts, he could no longer afford to pay the mortgage instalments. No evidence was put before me which would justify that statement. I am not prepared to act on it. I do not, in any event, regard it as a satisfactory response. The fact remains that the plaintiff gave solemn undertakings to the court in circumstances where he had brought about a situation which was intolerable for his parents. He refused to honour the commitments which he had given to his parents and failed to comply with the undertakings which he gave to the court.

No Reasonable Prospects of Success

1. The first and second defendants have put before me almost all of the evidence which would be led at the final hearing - if I permitted one to take place. The plaintiff did not put any evidence before me going to the merits. The evidence was not tested and I am not, of course, in a position to make findings of fact on a final basis. But I can see nothing in the evidence which satisfies me that the plaintiff has any sort of case which is reasonably likely to succeed. As I have mentioned, an essential term of the arrangement, if it is valid, was that the plaintiff would re-transfer his 49% interest to his parents if he failed to meet the mortgage instalments.

1. Nor does the plaintiff's conduct in relation to the proceedings since they were commenced in September 2010 give me any confidence. Nor can I be satisfied that the rules and procedures of the court will be followed or that the overriding purpose of litigation in this court will be met. That overriding purpose is buttressed by the duty on the plaintiff imposed by Section 56(3) of the Civil Procedure Act . It seems to me that the plaintiff has acted irresponsibly in the conduct of the proceedings and ought not to be given any opportunity to continue with the proceedings except on satisfaction of stringent conditions. Among other things, directions of the court in relation to the provision of particulars of the plaintiff's statement of claim have remained outstanding, despite multiple requests, since approximately 9 March 2011. Nor has the plaintiff filed and served a proposed amended statement of claim despite one being repeatedly foreshadowed. To date the proceedings have achieved nothing more than to incur considerable expense and anxiety for the first and second defendants without advancing any reasonably arguable case for the plaintiff.

Stay on Terms

1. I propose to order that the proceedings be stayed pursuant to Section 67 of the Civil Procedure Act unless and until the plaintiff provides security for the costs of the first and second defendants in the sum of $100,000. I am not at all satisfied that this would prevent the plaintiff from continuing with the proceedings. In any event, there is no evidence on which I could be satisfied that he would not be able to raise $100,000 in order to prosecute this claim - if it were a genuine claim with bona fide prospects of success.

1. As a matter of juridical analysis, I am ordering a stay on terms. The terms include the provision of security. But even if I were to order security for costs in isolation, the power to so order against an individual plaintiff is well established. The general principle that a natural person who sues will not be ordered to give security for costs, however impoverished, is not absolute and is subject to numerous exceptions. Lindgren J provided a summary of certain circumstances in which a court might order that a natural person provide security in Knight v Beyond Properties Pty Ltd [2005] FCA 764 at [33]. See also Barton v Minister for Foreign Affairs (1984) 2 FCR 463; Loque v Hansen Technologies Ltd [2003] FCA 81; Cunningham v Olliver (unreported, Burchett J, 21 November 1994); Chang v Comcare Australia [1999] FCA 1677 at [32]; Morris v Hanley [2000] NSWSC 957; Morris v Hanley & Ors [2001] NSWCA 374 at [30]- [31]) and Melville v Craig Nowlan & Associates (2002) 54 NSWLR 82.

1. I adopt the following statement by Heydon J in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 at 118 [91]:

Mere impecuniosity is not an absolute barrier to ordering security for costs against a natural person, although it is a factor against doing so. In particular, there are instances additional to those listed in r 42.21(1)(a)-(c) and (e) where it can be done. They include the vexatious conduct of litigation by a plaintiff who had failed to set aside an earlier judgment, instances where the plaintiff has dissipated assets and/or not paid previous costs orders (particularly costs orders in favour of the defendant), instances where the plaintiff brings a weak case to harass the defendant and instances where the plaintiff brings a case for the benefit of others, but not solely for that benefit. Hence the supposed "general principle ... that poverty is no bar to a litigant" is a severely qualified one.

1. The ordinary rule relating to security for costs in Rule 42.21 of the Uniform Civil Procedure Rules 2005 circumscribes the circumstances in which a security for costs order may be made. But it does not exhaust the circumstances in which an appropriate order may be made. The court has both an inherent jurisdiction and a wide-ranging statutory power pursuant to the Civil Procedure Act 2005 to order a stay on such terms as may be appropriate to the particular facts of the case. In the inherent jurisdiction, the only limitation on the discretion is that it must be exercised by determining how "on the whole, justice will be best served": Charara v Integrex Pty Ltd [2010] NSWCA 342 at [17].

1. The purpose of a stay pursuant to Section 67 of the Civil Procedure Act on terms requiring the provision of security for costs, is to ensure that justice is achieved and the overriding purpose of litigation in this court is met. Section 56 and its related provisions in the Civil Procedure Act, among other matters, must be taken into account in determining whether to grant a stay pursuant to Section 67. They are mandatory considerations.

1. Even before the introduction of the Civil Procedure Act , the Court of Appeal had held that the District Court (a tribunal lacking the inherent jurisdiction of the Supreme Court) was entitled to make a order staying proceedings pursuant to a statutory equivalent of Section 67 on terms that security for costs be provided, where such an order was reasonably necessary to do justice between the parties: Philips Electronics Australia Pty Ltd v Matthews (2002) 54 NSWLR 598. The majority held that the guiding principle when ordering a stay subject to the provision of security for costs was that it be "reasonably necessary in order to do justice between the parties": at [47] - [48]. The power to do so was not circumscribed by the particular District Court rule dealing with security for costs. The introduction of the Civil Procedure Act 2005 has only served to fortify this jurisdictional basis in an appropriate case.

Conclusion & Orders

1. In this case, I have taken into account the plaintiff's limited financial resources - as to which there seemed to be a consensus in submissions. More significantly however, I have taken into account the conduct of the plaintiff in default of undertakings to, and directions by, the court. I have also had regard to my lack of confidence in the ability or willingness of the plaintiff to prosecute his claim expeditiously, reasonably and in accordance with the overriding purpose of the Civil Procedure Act. I have also taken into account my view that the plaintiff's prospects of success are weak. Finally I have had regard to the undoubted hardship that has already been suffered by the first and second defendants and which will be exacerbated if I do not make the orders that I propose.

1. For those reasons I order that the proceedings be stayed pending the provision by the plaintiff of security for the costs of the first and second defendants in the sum of $100,000. I order the plaintiff to pay the first and second defendants' costs of this application.

oOo

Decision last updated: 12 September 2011