FEDERAL COURT OF AUSTRALIA

Ferella v Official Trustee in Bankruptcy [2013] FCA 1319

THE COURT ORDERS THAT:

1.    The interlocutory application filed by the applicants on 25 November 2013 is dismissed.

2.    Pursuant to rule 5.23(1)(b)(i) of the Federal Court Rules 2011, the application filed on 12 March 2012 is dismissed.

3.    The applicants pay the costs of the proceedings, including any reserved costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    This proceeding was commenced on 12 March 2012 by an application and statement of claim. The essence of the claim and the relief sought can be stated briefly.

2    On or about 13 March 2006 Mr Angelo Ferella attended at the offices of ITSA in Sydney and delivered to Mr Phillip Madden, the officer with the day to day management of the bankrupt estates of Angelo and Gustavo Ferella on behalf of the Official Trustee, four cheques which added up to the sum of $249,221.54.

3    Mr Angelo Ferella is not an applicant in the proceeding. Nor is he a director or shareholder of the second applicant. However, he has been actively involved in the conduct of the proceeding, at very least, on behalf of his mother, Mrs Nida Ferella, who is the first applicant in the proceeding and for whom Mr Angelo Ferella holds a power of attorney. The claim made by the applicants in the proceedings is that:

(a)    the money that was handed over by Mr Angelo Ferella belonged to Mrs Nida Ferella or the Agusta Trust of which it appears that Mrs Nida Ferella was, at the time, the trustee; and

(b)    the money was paid over by Mr Angelo Ferella for the sole purpose, and on the basis of a common understanding of the applicants and the Official Trustee, that the money would be used to obtain an immediate annulment of both the bankrupt estates and, further, that if that did not occur, the Official Trustee would repay those funds to Mrs Nida Ferella.

4    The claim is put on three alternative legal grounds, but all of the bases upon which the repayment is sought depend upon the factual allegations referred to above.

5    The principal claim is that the money was paid over and was subject to either an express trust or a constructive trust or a trust often described as a Quistclose trust, as a result of which the law would impose a trust upon the respondent to enforce the return of the money that had been paid over.

6    It is unnecessary to state the alternative grounds upon which the claim is put, although I should mention that the claim that the Official Trustee is susceptible to review under s 178 of the Bankruptcy Act 1966 (Cth) now appears to be well out of time. This is because it appears that Mrs Ferella was made aware of the refusal of the Official Trustee to disgorge the funds many years ago.

7    In its defence the Official Trustee puts forward an alternative factual case. The Official Trustee denies the existence of any trust and, in particular, says that the money was paid by Mr Angelo Ferella in satisfaction of a claim which was then on foot against his father, Mr Gustavo Ferella, for recovery of the sum of $250,000. It is alleged that this sum had been paid to him as a result of the sale of a luxury motor vehicle after the commencement of his bankruptcy, and for which he had not accounted to the Official Trustee.

Procedural History

8    On 11 April 2013 I made orders listing the matter for final hearing, commencing on 9 December 2013. An estimate of four days was given for the hearing.

9    In August of this year the matter was relisted upon the application of the applicants, who sought to have the hearing date vacated and fixed for a later date in about March 2014. I made an order vacating the date but, shortly afterward on 5 September 2013, Mr Svehla of counsel, who was briefed for the applicants, appeared before me and obtained orders including an order that the matter be listed for final hearing on 2 December 2013.

10    The matter came before me again on 18 November 2013, as I had listed it for a readiness hearing. Ms McCue, a solicitor who was then retained by the applicants, informed me that Mr Svehla had withdrawn from the case and that she sought to vacate the hearing. I refused to do so and informed Ms McCue that the matter remained listed for hearing on 2 December 2013. Ms McCue informed me at that time that she, too, would be withdrawing from the case. On 19 November 2013 Mr Angelo Ferella sent a letter to which I will refer later.

Application to vacate the hearing date

11    On 25 November 2013 the applicants filed an interlocutory application seeking orders which included an order that the hearing date of 2 December 2013 be vacated forthwith.

12    The application is supported by an affidavit of Mr Angelo Ferella. The affidavit contains only six paragraphs, which read as follows (Annexures A & B referred to in 1. and 3. are not included):

1.    I make this application and affidavit in support of the first applicant as Attorney under a Power of Attorney and also as the manager of the second applicant. Annexed and marked “A” is a copy of the power of attorney.

2.    Counsel for the applicants has withdrawn from the proceedings effectively on 14 November 2013.

3.    McCue & Associates Solicitor for the applicants has withdrawn from the proceedings and has ceased to act effectively on 18 November 2013. Annexed and marked “B” is a copy of the notice of ceasing to act.

4.    To instruct new solicitors and counsel to prepare for the hearing set down for 2 December 2013 is not possible.

5.    The applicants respectfully seek the proceedings listed on 2 December 2013 be vacated and adjourned to a date fixed as and when convenient to the Court and the parties in the new year so as to allow the applicants to instruct new solicitors and counsel as soon as possible.

6.    It is respectfully requested that the Orders sought in the application be granted.

13    The interlocutory application was given a return date of 2 December 2013 to coincide with the commencement of the hearing but I brought the return date forward to 28 November 2013 and arranged for the parties to be notified.

14    When the application was called there was no appearance for the applicants although I was informed during the course of the hearing that Mr Angelo Ferella had acknowledged receipt of the communication from the Court that the matter was listed for 28 November.

15    Nevertheless, I adjourned the hearing to today but I requested the respondent’s solicitors to inform the applicants that, if the interlocutory application was dismissed, I would then proceed with the hearing of the case.

16    When the matter was called this morning, Mr John Conti appeared as solicitor for the applicants in the interlocutory application. He informed me that he was not retained for the hearing in the event that I refused the adjournment.

17    In the course of submissions, I permitted Mr Conti a very short adjournment to enable him to call Mr Angelo Ferella, who was in Court, in order to supplement his affidavit evidence. I did so notwithstanding the force of the submissions put by Mr Golledge, counsel for the respondent, that Mr Ferella had chosen to proceed solely upon the basis of his affidavit evidence and that there was prejudice to the respondent by the course that was taken.

18    Mr Ferella’s evidence in chief was that he had a conversation with Mr Svehla shortly before 14 November 2013, in which Mr Ferella had sought to vary an instalment arrangement he had made with Mr Svehla for the payment of counsel’s fees. He said the proposed variation was not “palatable” for counsel, who then withdrew from the case.

19    Mr Ferella said that he did not blame Mr Svehla for taking that course and that he had no criticism of counsel’s actions in withdrawing from the case. In cross-examination Mr Ferella gave no explanation as to why his mother could not swear an affidavit in support of the adjournment application other than her age. He agreed with Mr Golledge that there was no reason why his sister, who appears to be the sole director of the second applicant, could not swear an affidavit.

20    Mr Ferella also accepted that he has been on notice from April of this year that the hearing was listed for December. He agreed that he had informed his mother and sister of the hearing date. In addition, Mr Ferella informed his mother and sister of the commercial terms on which Mr Svehla had been retained some time well in advance of the hearing. He said the arrangement was an oral one made between Mr Svehla and himself, apparently with his sister present at the time. Mr Ferella accepted that he, his mother and sister were aware of the need to pay counsel some months before the hearing.

21    Mr Ferella was cross examined on a letter, to which I referred earlier, that he wrote to the Australian Financial Security Authority (AFSA) on 19 November 2013. The letter, which was marked urgent and was faxed to AFSA by Mr Ferella, is as follows:

I refer to the above mentioned proceedings in the Federal Court of Australia proceedings no. NSD 405/2012 and respond as follows.

On 18 November 2013 Margaret McCue of McCue & Associates appeared before his Honour Jacobson J to seek an adjournment as Counsel has withdrawn from the matter as of 14 November 2013. As of 19 November 2013 Margaret McCue has ceased to act in the proceedings.

I have flagged urgently to the Associate for Jacobson J the circumstances why the adjournment is warranted and to allow the plaintiffs to engage new representation.

I have made it clear to the Associate the Plaintiffs will not participate any further in the proceedings with regard to any further directions with regard to a joint tender bundle etc notwithstanding the plaintiffs have filed and served some many months ago without a Solicitor on the record and new Counsel briefed.

The Plaintiffs are not in a position to now proceed the time left is inadequate for the preparation of Submissions, List of Authorities etc.

The Plaintiffs will not appear on 2 December 2013 the Associate for Jacobson J has been made aware of the position, if you proceed to appear on 2 December 2013 notwithstanding you have been put on notice the plaintiffs will appeal any adverse decision and seek all costs without recourse.

What you do from this point on in the proceeding is a matter for you adequate notice has been given to you so as to make your solicitor and counsel aware they need not prepare for a hearing where the plaintiffs will not appear.

22    Mr Ferella accepted in cross-examination that the letter reflects what he told his mother and sister and that, by 19 November 2013, his mother and sister had decided that neither would appear on 2 December to conduct the proceeding because there was inadequate time to prepare. Mr Ferella also accepted that the decision not to appear on 2 December was made on 19 November and that he did not speak to any solicitor about the matter until 29 November when he approached Mr Conti.

23    Mr Ferella again made his position clear in a letter to AFSA dated 28 November 2013 which was tendered in redacted form because it apparently contains an offer made by Mr Ferella in relation to the proceedings. The letter concludes with the following paragraph:

Failing acceptance of the offer solicitors will be instructed this day to appear on Monday to formerly [sic] vacate the hearing of 2 December 2013 in accordance with the interlocutory application and supporting affidavit filed and served 25 November 2013 and listed for mention on 2 December 2013 at 10.15 am notwithstanding the defendant being given substantial notice prior that the applicants will not and cannot proceed on 2 December 2013.

24    At the conclusion of the hearing of the interlocutory application, I indicated that I would refuse the adjournment. These are my reasons.

25    First, the evidence in support of the application contained a number of deficiencies as to the full circumstances in which the lawyers withdrew. I was told in very general terms what happened but I was not told the substance of why it happened. It seems to me that I should infer from such evidence as was given that the applicants were not prepared to fund the litigation. This has a significant bearing on the question of whether an adjournment should be granted.

26    Second, it is plain that Mr Ferella, with the full knowledge of his mother and sister, took the decision no later than 19 November 2013 that the case was not to go ahead. This was a unilateral decision which amounted to a fait accompli, the consequences of which must be accepted by the applicants.

27    What seems to me to be significant is that, while the case is listed for four days, it is not a particularly complex one. The dispute between the parties turns largely upon a conversation that took place on 13 June 2006, when the cheques were handed over. Of course, the circumstances in which this occurred would also be relevant. However, it is plain that any reasonably competent counsel could have prepared for the case on very short notice. The factual issues are, as I have said, not complex, and the answers to the legal questions would follow almost as a matter of course from the factual findings.

28    Third, nothing was put to me to give me any confidence that, if the matter is adjourned, the position will alter. In particular, Mr Ferella made no offer to fund lawyers to prepare the proceeding for hearing. Mr Conti, as I have said, was briefed only to conduct the adjournment application and then to withdraw if the application was unsuccessful. There was no suggestion that any difficulties in having the matter ready for hearing were short term matters which could be addressed in a relatively short period, let alone any period at all.

29    Fourth, the High Court has made it clear that the overarching principles stated in legislation in similar terms to s 37M of the Federal Court of Australia Act 1976 (Cth) have the object of the administration of justice, which takes into account the effects of conduct not only on the parties to the dispute, but upon other litigants: see Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46 at [51], [56]-[57].

30    The relevant principles were aptly expressed by Kenny J in Wu v Avin Operations Pty Ltd [2006] FCA 36 at [51]. Her Honour there said that when applying the relevant principles, the Court must balance the need for the expeditious conduct of litigation, particularly in a court committed to a case management system, and the strong reluctance of courts to prevent litigants having “a proper opportunity” to present their cases.

31    What seems to me to be clear in the present case is that the applicants have had a proper opportunity to present their case. It cannot be suggested that a period of eight months was not adequate, but having been given that opportunity to prepare, the applicants took a unilateral decision on (or perhaps before) 19 November 2013 not to go ahead with the hearing. There was ample time from 18 November, when I refused to adjourn the hearing, to seek to approach and brief alternative counsel.

32    The applicants have failed to put themselves in a position to present their case today. They have put nothing to me to give me the remotest idea when the matter may be ready for hearing, if at all. I do not accept Mr Conti’s submission that an order for costs is sufficient to meet the respondent’s prejudice. The High Court has made it clear that a costs order is often an inadequate answer.

33    Indeed, a costs order is of no utility at all in the present case. Applicants who are apparently unwilling or unable to fund their own litigation can hardly be expected to be in a position to meet a costs order against them resulting from the time and expense wasted as a result of the vacation of the hearing.

34    The balancing exercise referred to by Kenny J in Wu, between the expeditious and timely conduct of litigation and the need to provide a litigant with a proper opportunity to present its case, comes down firmly against the grant of an adjournment. Accordingly, I dismissed the application.

35    I then turned to the hearing of the proceeding. The indication given by Mr Conti that he would withdraw left the case in a position that the applicants were in default under r 5.22(c) or (d) of the Federal Court Rules 2011. I therefore considered it appropriate on Mr Golledge’s application to order, under r 5.23(1)(b)(i) that the whole of the proceeding brought by the applicants be dismissed immediately.

36    Costs should follow the event, but Mr Golledge sought costs on an indemnity basis from 18 November 2013 to today. He submitted than an order for indemnity costs was appropriate for that period because his client had to be ready to proceed today, notwithstanding the insistence on the part of the applicants that they were not prepared to go ahead.

37    It is true that the respondents had to proceed to prepare and appear at the hearing but, in my view, this is not sufficient to warrant an order for costs other than on the usual party/party basis.

Conclusion and Orders

38    Accordingly, the order I make in the proceeding is that the proceeding brought by the applicants be dismissed immediately, and that the applicants pay the respondent’s costs of the proceeding.

Associate:

Dated:    2 December 2013