FEDERAL COURT OF AUSTRALIA

Riva NSW Pty Limited v Official Trustee in Bankruptcy [2017] FCA 188

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) and rule 26.01 of the Federal Court Rules 2011 (Cth), judgment be given for the respondent against the applicants for the whole of the proceeding NSD 1391 of 2015.

2.    The applicants are to pay the respondent’s costs of and incidental to the respondent’s interlocutory application dated 4 December 2015 and otherwise of or incidental to the proceedings, with such costs to be agreed or assessed.

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

REASONS FOR JUDGMENT

PERRY J:

1.    INTRODUCTION

1    The proceedings concern land at Point Piper (the land) which was purchased by the second and third applicants, Gustavo Ferella and Angelo Ferella, in or about October 2000. Angelo Ferella is the son of Gustavo and Nida Ferella. The land was purchased for the Cavallino Unit Trust (the Cavallino Trust) of which the first applicant, Riva NSW Pty Limited (Riva), was the trustee. As will become apparent, this litigation comprises a further episode in “a complex and costly network of litigation that this bankruptcy has unfortunately spawned”, as I observed in Ferella v Official Trustee in Bankruptcy [2016] FCA 1270 (Ferella (FCA (2016)) at [2].

2    By a statement of claim dated 8 July 2015, the applicants claim damages, “an order for the taking of accounts” or restitution of trust property for alleged breaches of various duties by the Official Trustee in Bankruptcy (the Official Trustee). The breaches are said to have been occasioned by the Official Trustee’s conduct in lodging two caveats over the land and making certain (inferred) representations to Provident Capital Limited (‘Provident’) which the Official Trustee allegedly knew to be incorrect. This conduct is said to have caused Provident to abandon a refinancing settlement with respect to the land in early 2006.

3    This is an interlocutory application filed by the respondent, the Official Trustee, seeking orders pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) and r 26.1 of the Federal Court Rules 2011 (Cth) (FCR) that judgment be given for the Official Trustee against the applicants for the whole of their claims. Further or in the alternative the Official Trustee seeks an order that paragraph [33] of the statement of claim dated 8 July 2015 be struck out, together with paragraph [3] in which damages for conversion of trust land are sought.

4    For the reasons that follow, summary judgment should be given for the Official Trustee against the applicants under s 31A of the Federal Court Act.

5    In short, each of the causes of action are plainly barred by statute or by analogy in the case of the equitable claims as submitted by the Official Trustee. That finding would itself have sufficed to provide a proper basis on which to accede to the application for summary dismissal. However, given the history of proceedings arising from this bankruptcy and the degree to which the claims for relief are misconceived, I consider it appropriate to deal comprehensively with the issues raised by the summary dismissal application in the interest of promoting finality in litigation.

2.    THE CLAIM

2.1    Background to the claim

6    At all material times until 19 April 2005, Gustavo and Angelo Ferella were the trustees of the Cavallino Trust. On or about 18 October 2000, Gustavo and Angelo Ferella acting in their capacity as trustees of the trust purchased the land. They subsequently mortgaged that land to Key Nominees Pty Limited (Key).

7    On 19 April 2005, Gustavo and Angelo Ferella ceased to be the trustees of the Cavallino Trust and at all times thereafter Riva has been the trustee. As mentioned, Riva is an applicant to these proceedings in its capacity as trustee of the Cavallino Trust.

8    These proceedings were instituted in the Supreme Court of New South Wales on 8 July 2015 and transferred to this Court on 29 October 2015.

2.2    Bankruptcy of Gustavo and Angelo Ferella on 14 October 2005 and appointment of the Official Trustee

9    Gustavo and Angelo Ferella, became bankrupt on 16 August 2005 and a sequestration order was made on 14 October 2005 with the Official Trustee being appointed as their trustee in bankruptcy. At all material times, Phillip Madden was an officer in the office of the Insolvency and Trustee Service of Australia (ITSA) who had the care and conduct of their bankrupt estates on behalf of the Official Trustee. It is not in dispute that the land did not vest in the Official Trustee upon bankruptcy as it was not the land of Gustavo and Angelo Ferella (statement of claim at [5]-[7]; Defence at [5]-[7]).

10    Gustavo and Angelo Ferella were discharged from bankruptcy on 3 December 2008 by operation of law.

2.3    The first caveat lodged by the Official Trustee on 31 October 2005

11    In late October 2005, the Official Trustee lodged caveat registered number AB873890M on the title to the land (the first caveat). The applicants plead that the caveat wrongly claimed an interest in the land pursuant to s 58 of the Bankruptcy Act 1966 (Cth) (the Act) (statement of claim at [8]).

2.4    The alleged meeting on 1 November 2005

12    The applicants allege that Angelo Ferella met with Mr Madden on 1 November 2005 at which he advised Mr Madden that: the land belonged to the Cavallino Trust and did not form part of the land of the bankrupts which had vested in the Official Trustee on their bankruptcy; the bankrupts held the land on behalf of Riva as the then trustee of the Trust; and the Official Trustee should not attempt to deal with or interfere with the land. The applicants also allege that at that meeting certain documents were delivered to Mr Madden including: a deed dated 19 April 2005 changing the trustee of the Trust from Gustavo and Angelo Ferella to Riva; and a deed dated 1 October 2001 changing the name of the Trust to Cavallino Unit Trust (statement of claim at [9-10]).

2.5    Arrangements allegedly put in place with Provident in early 2006 to refinance the land in response to the writ for possession obtained by Key

13    The applicants allege that they put in place arrangements to refinance the land in response to an order for possession obtained by Key. Specifically, the applicants plead that:

(1)    on 25 January 2006, Key obtained an order for possession of the land and was granted leave to issue a writ for possession on the footing that the writ was to lie in the Registry until 6 March 2006 (statement of claim at [14]);

(2)    in or about February 2006 “the plaintiffs in their capacities as trustees of the trust and/or holding the land on behalf of the Trust and/or Agusta … in its capacity as the prospective trustee of the Trust made arrangements with [Provident] for [Riva] and/or Agusta to refinance the land so as to enable the then indebtedness to Key to be repaid” (statement of claim at [15]);

(3)    by letter dated 2 March 2006 to Angelo Ferella from Bersten Pain, the solicitors for Provident, it was certified by Bersten Pain that settlement of the refinancing could proceed and 3 March 2006 at 2.30pm was appointed as the time for the settlement to take place (statement of claim at [16]).

2.6    The alleged representations made by the Official Trustee to Provident and the lodging of the second caveat (on or about 3 March 2006)

14    The applicants allege that on or about 3 March 2006 certain representations (the representations) were improperly made by or on behalf of the Official Trustee to Bersten Pain, the solicitors for Provident, which caused the refinancing settlement to be abandoned by Provident: (statement of claim at [17]). The particulars given of the representations are that they are to be inferred from a facsimile to Angelo Ferella from Bersten Pain, a conversation between Angelo Ferella and Bersten Pain, the lodging of a second caveat on 3 March 2006 verified by Mr Madden, and a conversation “between [Angelo Ferella] and Madden on 3 March 2006 in which Madden said words to the effect ‘[o]ur solicitor has been in touch with Bersten Pain to stop the settlement. You cannot deal with this land without permission. We are lodging another caveat’”.

15    The applicants allege at [18] of the statement of claim that:

The Representations by or on behalf of the [Official Trustee] included representations to the effect the land was vested in the defendant and that none of the plaintiffs was authorised to deal with the land.

16    However, the applicants further allege at [19] that:

Subsequently to the making of the Representations findings were made by Nicolas J in Agusta Pty Ltd & Ors v The Official Trustee in Bankruptcy [2008] NSWSC 685 to the effect that at all material times [Riva] was and remained the trustee of the trust and that the land was an asset of the Trust.

17    Based upon the conversations allegedly on 1 November 2005 and 3 March 2006 together with documents said to be made available to the Official Trustee on those dates, the applicant further allege at [24] of the statement of claim that when the first and second caveats were lodged and the representations were made, the Official Trustee had “actual notice” that:

(1)    the land was an asset of the Trust;

(2)    Gustavo and Angelo Ferella had acquired the land in their former capacity as trustees of the Trust;

(3)    Riva or Agusta was the current trustee of the Trust; and

(4)    the Official Trustee was not authorised to deal with the land or to hold itself out as having an interest in it.

2.7    Alleged breaches of duty

18    Riva claims that it was entitled to enjoy the legal ownership of the land until Key purported to exercise its mortgagee’s power of sale in respect of the land on or about 11 April 2006, and that it would have continued to do so but for the purported exercise of the power of sale by Key and the loss of the opportunity to refinance the land on 3 March 2006 (statement of claim at [11-12]).

2.7.1    Alleged breaches of duty as trustee in bankruptcy of Gustavo and Angelo Ferella

19    At [20]-[23] of the statement of claim, the applicants contend that:

(1)    as trustee in bankruptcy of Gustavo and Angelo Ferella, the Official Trustee was required to act in accordance with the duties in s 19 of the Bankruptcy Act and was under an implied duty not to act in excess of those duties or for improper purposes;

(2)    the Official Trustee was not permitted to exercise its powers as trustee in bankruptcy in respect of the land because the land was the land of the Trust;

(3)    the Official Trustee was not permitted to interfere with the exercise of dominion or control of the land in a manner inconsistent with the express wishes or stipulations of the applicants; and

(4)    the Official Trustee had no right, power or authority to hold itself out as having any interest in the land or to restrict any dealing with the land authorised by Riva.

20    However, the applicants allege at [28] that, in making the representations and lodging the first and second caveats, the Official Trustee breached its duty as a trustee in bankruptcy of Gustavo and Angelo Ferella, the particulars given being that:

(a)    Acting in excess of its proper duty as trustee in bankruptcy to the detriment of the plaintiffs and the beneficiaries of the Trust.

(b)    Acting contrary to the express wishes of the plaintiffs with respect to the land as communicated by [Angelo Ferella] to Madden.

(c)    Attempting to appropriate the beneficial interest in the land for the purposes of the bankrupt estates of [Gustavo and Angelo Ferella].

(d)    Incurred liabilities and expenses which were not for the proper purposes of administering the bankrupt estates of [Gustavo and Angelo Ferella].

(e)    Preferring its own interests.

2.7.2    Alleged breaches of duty as a trustee de son tort in respect of the Cavallino Trust and its beneficiaries

21    The applicant also alleges at [25] that by lodging the caveats and making the representations, the Official Trustee:

(1)    became a trustee de son tort in respect of the Cavallino Trust and its beneficiaries;

(2)    became obliged to protect the assets of the Trust;

(3)    was obliged to act only in the interest of those beneficiaries of the Trust; and

(4)    was not entitled to act in its own interest.

22    At [29] the applicants allege that in making or causing the representations and in lodging the first and second caveats, the Official Trustee breached its duty to the beneficiaries of the Cavallino Trust as a trustee de son tort. The particulars of the alleged duty are as follows:

(a)    Failing to act solely in the interest of the beneficiaries of the Cavallino Trust.

(b)    Knowingly acting contrary to the terms of the Trust.

(c)    Acting to circumvent the express wishes and stipulations of the plaintiffs with respect to the land.

(d)    Failing to protect the land as an asset of the Trust.

(e)    Acting contrary to the interests of the beneficiaries of the Trust

(f)    Acting in its own interest.

2.7.3    Alleged breaches of fiduciary duties

23    Further in the alternative, at [26] of the statement of claim, the applicants allege that the Official Trustee became the fiduciary of Riva who was acting as trustee of the Cavallino Trust and as such the Official Trustee was under a duty:

(1)    to act only in the best interests of Riva and the beneficiaries of the Trust;

(2)    to protect the assets of the Trust;

(3)    not to act inconsistently with the express stipulations of “the first defendant” (which would seem to be intended to refer to the first applicant, Riva) or its representatives concerning the land; and

(4)    was not entitled to act in its own interest.

24    In the further alternative, the applicants contend at [27] that the Official Trustee became the fiduciary of Gustavo and Angelo Ferella to act in accordance with their stipulations with respect to the land.

25    The same particulars of the alleged breaches of the Cavallino Trust as a trustee son tort at [29] of the statement of claim are also given as breaches of the fiduciary duties allegedly owed to Riva at [26] and Gustavo and Angelo Ferella at [27]: see at [22] above.

2.8    Alleged loss and damage

26    The applicants plead at [31] of the statement of claim that, by reason of each of the breaches of duty, “either as joint or several causes the plaintiffs lost the opportunity to refinance the land and this in turn brought about the sale under a purported mortgagee sale by Key on or about 11 April 2006” and the consequences of that sale as pleaded in paragraph [32] of the statement of claim. Those consequences include that:

32.    The sale of the land under the purported exercise of a power of sale by Key had the following consequences:

(a)    the trust estate of the [Cavallino] Trust was diminished by the sale and loss of the land;

(b)    [Riva] lost the opportunity to construct a duplex on the land and thereby greatly enhance its value;

(c)    [Riva] lost the opportunity to construct improvements on the land at the advantageous costs prevailing in 2006;

(d)    [Riva] lost the chance to sell the land on an improved basis at a greatly enhanced value;

(e)    the land was sold at an undervalue by Key;

(f)    [Riva] lost the opportunity to claim the land tax concessions which would have been available if the completed duplexes had been occupied by second and third plaintiffs as their personal residences as had been contemplated;

(g)    costs of sale were incurred by Key and satisfied out of the proceeds of sale of the land;

(h)    Key made a payment in respect of goods and services tax in respect of the sale which was not properly payable or which would not otherwise have been payable;

(i)    the plaintiffs became liable to indemnify Agusta Pty Limited and Nida Ferella in respect of alleged liabilities they incurred to Provident for fees and expenses in relation to the abortive refinancing;

(j)    the plaintiffs unnecessarily incurred legal costs and disbursements in and about the abortive sale and the proper application of the proceeds of sale of the land by Key;

(k)    the [Official Trustee] unnecessarily incurred legal costs and expenses in respect of its improper intermeddling in the affairs of the Trust;

(l)    the [Official Trustee] has claimed remuneration and/or realisation fees in respect of the proceeds of sale of the land by Key;

(m)    the [Official Trustee] procured payment to it of part of the proceeds of sale of the land and improperly appropriated those proceeds as if they were property of [Gustavo and Angelo Ferella] which had vested in the [Official Trustee] consequent upon the bankruptcies of [Gustavo and Angelo Ferella].

27    No particulars have been given of any of these alleged consequences.

28    The applicants further plead at [33] that the Official Trustee is responsible for causing the loss or damage and should indemnify Riva on the basis that it is a “defaulting trustee and the default is wilful”. The applicants further plead in the alternative at [34] that the Official Trustee should also account to Gustavo and Angelo Ferella as their former trustee in bankruptcy as if the costs expenses and fees referred to at paragraph 32(i) and (l) had not been incurred or charged against their bankrupt estates. Further in the alternative, the applicants alleged that the Official Trustee should account to Riva for that part of the proceeds of sale received by it and appropriated towards the bankrupt estates of Gustavo and Angelo Ferella.

2.9    Conclusions on the statement of claim

29    In short the applicants’ case is that the Official Trustee acted in breach of various duties by lodging two caveats over the land and making certain representations to Provident which it knew to be incorrect and which are said to have caused Provident to abandon a refinancing settlement set to go ahead on 3 March 2006. It is alleged that these breaches thereby caused the applicants various losses. Those losses included the loss of the opportunity to sell the land on improved basis for a “greatly enhanced value”, the incurring of unnecessary legal costs and expenses by the Official Trustee in respect of its allegedly improper intermeddling in the affairs of the Trust, and the procurement of a payment to the Official Trustee of part of the proceeds of sale of the land as if they were the land of Gustavo and Angelo Ferella.

3.    EARLIER RELEVANT LITIGATION

3.1    The Agusta Proceedings in the Supreme Court of NSW

30    At [19], the statement of claim expressly relies upon the alleged finding in Agusta Pty Ltd v The Official Trustee in Bankruptcy [2008] NSWSC 685 (Agusta (SC) (2008)) that Riva was and remained the trustee of the Cavallino Trust and that the land was an asset of the Trust until the sale of the land by Key.

31    Those proceedings were commenced in about 13 September 2006 by Agusta Pty Ltd (Agusta) against the Official Trustee in the Supreme Court of New South Wales. The parties to the action were Agusta allegedly as trustee for the Cavallino Trust (the plaintiff and cross defendant), the Official Trustee as trustee of the bankrupt estates of Gustavo and Angelo Ferella (the defendant and cross-claimant), Nida Ferella (second cross defendant) and the Ferell Staff Superannuation Fund (third cross defendant). Agusta claimed to be the sole trustee of the Cavallino Trust until the first day of trial. Riva as trustee for the Cavallino Trust was the second plaintiff and joined only on the first day of the hearing before Nicholas J, as were Gustavo and Angelo Ferella. (I note in this regard that the published reasons in Agusta (SC) (2008) do not identify Gustavo and Angelo Ferella as parties to those proceedings. However, Yates J in in Ferella v Official Trustee in Bankruptcy (No 2) [2011] FCA 619 (Ferella (Inquiry) (No 2)) at [123] found that they had been joined on the first day of the hearing. Further, at the hearing of this application, counsel for the Official Trustee made a statement to the same effect without objection from counsel for the applicants. Further, they were appellants on the appeal from Agusta (SC) (2008). As such, I do not understand the fact that Gustavo and Angelo Ferella were parties to Agusta (SC)(2008) from the first day of trial to be in dispute.).

32    The issues and the context in which they arose were identified by his Honour in the following passages of his judgment:

1    These proceedings concern issues arising out of the administration of the Cavallino Unit Trust (the trust) upon the bankruptcy of the original trustees, Mr Gustavo Ferella and Mr Angelo Ferella (the Ferellas) and the sale of the trust property which consisted of real estate at Point Piper (the property). The Official Trustee in Bankruptcy (the defendant) is the trustee of their bankrupt estates, and presently holds the money which was the proceeds of sale of the property (the fund).

2    The defendant did not admit that the fund was an asset of the trust, but did not oppose the plaintiffs’ case that it was. In my opinion the terms of the contract for the purchase of the property made 7 October 2000 and of the arrangement for finance for the transaction support the finding, which I make, that the property was bought for the trust. In addition there was uncontradicted evidence from Angelo Ferella and Tiziana Ferella to the same effect. Accordingly, the fund must properly be regarded as an asset of the trust.

3    By their further amended statement of claim, the plaintiffs seek declarations as to identity of the trustee, that the money held by the defendant is an asset of the trust, and an order that the defendant pay over to the trustee the balance of the fund to which it is not entitled.

4    By its cross-claim the defendant seeks orders confirming its entitlement to retain from the fund a sufficient amount for security for a right of indemnity in respect of certain claims made by creditors of the Ferellas. It also seeks directions for dealing with the fund or any relevant surplus.

5    The essential questions for determination are, firstly, the identity of the trustee and, secondly, whether the fund is subject to an equitable charge or lien in favour of the defendant as security for an indemnity for the payment of certain claims and expenses.

33    The Court found relevantly that:

(1)    the land was bought for the Cavallino Trust (Agusta (SC) (2008)) at [2]);

(2)    following its purchase in October 2000, the land was registered in the names of Gustavo and Angelo Ferella who had been appointed trustees of the Cavallino Trust on 10 January 1995 (at [7]-[8]);

(3)    the Cavallino Trust has 10A class units which are held by Gustavo, Nida and Angelo Ferella and 10B class units held by the Ferell Staff Superannuation Fund of which Gustavo and Nida Ferella were original trustees and later, Angelo Ferella as a co-trustee (at [6]);

(4)    on 11 April 2006, the land was sold pursuant to a sale by the then mortgagee, Key, for the sum of $7,950,000, following which the net proceeds in the sum of $1,742,030.39 were paid to the Official Trustee (the fund) (at [15]);

(5)    Gustavo and Angelo Ferella remained the registered proprietors of the land until the time of its sale and it follows that the assets of the trust remained vested in them at the time of their bankruptcy (at [32]);

(6)    the plaintiffs accepted that the Official Trustee was entitled to a lien over (and thus to be indemnified from) the Point Piper funds in respect of a number of debts for which proofs of debt had been lodged and admitted in the bankruptcy (noting also that the Official Trustee did not press it claims for indemnity with respect to two other debts) (at [37]-[38]));

(7)    during submissions in the course of the hearing the case for Agusta was not pressed (at [23]);

(8)    Nicholas J found that the trust assets were never vested in Riva despite it being appointed trustee by deed dated 19 April 2005 (at [16] and [34]).

34    Those findings were left undisturbed on appeal, notwithstanding that the Court of Appeal held (as largely conceded by the Official Trustee) that the Official Trustee did not have a right of indemnity with respect to certain costs and the capital gains tax (CGT) claim which had been the subject of orders by Nicholas J in favour of the Official Trustee, with the result that those orders were set aside: Agusta Pty Ltd v Ors v The Official Trustee in Bankruptcy of Gustavo Ferella and Angelo Ferella [2009] NSWCA 129 (Agusta (NSWCA) (2009)).

3.2    The Inquiry proceedings in the Federal Court

35    On 11 November 2009, by proceedings NSD1284/2009 instituted in the Federal Court against the Official Trustee, Angelo Ferella and Gustavo Ferella sought an inquiry under s 179 of the Bankruptcy Act of their respective estates (the Inquiry Proceedings) with a view to certain orders being made, including an order that the Official Trustee be removed as the trustee of each estate. Riva was not a party to these proceedings. Section 179 provided at the relevant time that:

(1)    The Court may, on the application of the Inspector-General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:

(a)    remove the trustee from office; and

(b)    make such order as it thinks proper.

(2)    The Inspector-General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt’s estate or affairs.

36    The application under s 179 was rejected by Yates J in Ferella (Inquiry) (No 2) save for ordering a limited inquiry against the Official Trustee as to:

(1)    whether the Official Trustee was justified in not disclosing a letter dated 16 July 2008 from the Australian Taxation Office (ATO) regarding the liability of the applicants for CGT in relation to the sale of the Point Piper property; and, if not,

(2)    as to the consequences (if any) of the non-disclosure for the orderly administration of the applicants’ bankrupt estates together with what relief (if any) should lie.

37    The other questions on which Gustavo and Angelo Ferella sought an inquiry included (relevantly) whether:

(1)    the Official Trustee had participated unnecessarily in the Agusta proceedings in the Supreme Court in relation to the Point Piper land (being the proceedings described at [30] to [34] above) (question 1);

(2)    the administration of the bankrupt estates had been unnecessarily delayed and the estates exposed to the burden of additional costs which they should not bear (questions 2 and 10); and

(3)    the Official Trustee had become pre-occupied with and intermeddled with the affairs of the Cavallino Trust (question 4).

(Ferella (Inquiry) (No 2) at [155](1), (2), (4) and (10); see also at [4]-[7].)

38    With respect to question 1, Yates J rejected the submission that from the commencement of the Agusta proceedings in September 2006 until their final resolution in August 2009, the Official Trustee engaged in litigation on a substantially misconceived basis or in a manner which was unnecessary or extravagant (Ferella (Inquiry) (No 2) at [185]). To the contrary, his Honour held that the Official Trustee “…was justified in defending the [Agusta] proceedings in the way that it did and in prosecuting its claim to be entitled to be indemnified from the Point Piper funds”: (Ferella (Inquiry) (No 2) at [185] see also at [172]. Accordingly his Honour found that he was “not satisfied that there is any sound basis to order a general inquiry into the [Official Trustee’s] conduct of the Supreme Court proceedings” (at [186]).

39    With respect to the second question, Yates J held that:

196    In my view an inquiry is not warranted on the issues raised by this question. [Gustavo and Angelo Ferella] have not shown any significant neglect or delay on the respondent’s part. The delay of which [Gustavo and Angelo Ferella] speak has resulted from the need to determine [Gustavo and Angelo Ferella’s] objection to the [Official Trustee’s] entitlement to use the Point Piper funds to pay creditors. I am satisfied that the [Official Trustee] has made conscientious endeavours to fully pay creditors whose debts have been proved in the bankruptcies, from the time it received the Point Piper funds. The delay in paying those creditors has been caused by [Gustavo and Angelo’s] considerable resistance to the use of those funds – the most appropriate and readily-available asset to be used for the payment of creditors. I should add that no creditor appears to have complained of any neglect or delay on the respondent’s part.

40    With respect to question 4, his Honour held that:

200.    The only possibly relevant issues (for s 179 purposes) raised by this question have been covered by my consideration of questions 1 and 2. The applicants do not advance any additional matter of substance in support of an inquiry under this heading. For the reasons I have given in relation to questions 1 and 2, no inquiry is warranted.

41    That decision was upheld unanimously on appeal in Ferella v Official Trustee in Bankruptcy [2013] FCAFC 43 (Ferella (Inquiry) (FCAFC)) esp at [45]-[49], [51]-[52].

42    Judgment on the limited inquiry was delivered on 14 July 2015 by Yates J (Ferella v Official Trustee in Bankruptcy (No 4) [2015] FCA 712 (Ferella (Inquiry) (No 4)), and the matter was finalised on 8 September 2015, when the costs decision was delivered (Ferella v Official Trustee in Bankruptcy (No 5) [2015] FCA 983). In Ferella (Inquiry) (No 4), Yates J held that the Official Trustee was not justified in failing to disclose the letter from the ATO or its content to the applicants during the Agusta proceedings then ongoing before the Supreme Court (at [92]). However, his Honour was not satisfied that this non-disclosure had any material consequences for the orderly administration of the bankrupt estates (at [94]). His Honour also held at [95] that the applicants’ submissions ignored his earlier finding in Ferella (Inquiry) (No 2) at [185] as to the conduct of the Official Trustee with respect to the Agusta proceedings. Yates J therefore held that the applicants had not made a proper case for the relief they sought (at [95]).

4.    PRINCIPLES GOVERNING THE SUMMARY JUDGMENT APPLICATION

43    Section 31A of the FCA Act relevantly provides that:

…

(2)    The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

(a)  the first party is defending the proceeding or that part of the proceeding; and

(b)  the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.

(3)    For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:

(a)      hopeless; or

(b)     bound to fail;

for it to have no reasonable prospect of success.

44    The principles governing the application of s 31A are well established and may be summarised as follows.

45    First, the respondent as the moving party bears the onus of persuading the Court that the application has no reasonable prospects of succeeding: Australian Securities and Investments Commission v Cassimatis [2013] FCA 641; (2013) 220 FCR 256 (Cassimatis) at 271 [45] (Reeves J).

46    Secondly, the intention behind the enactment of s 31A is “to lower the bar for obtaining summary judgment (including summary dismissal) below the level that had been fixed by such authorities as Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91-92, and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129–130…”: White Industries Aust Ltd v Commissioner of Taxation [2007] FCA 511; (2007) 160 FCR 298 (White Industries) at 310 [54] (Lindgren J); see also Cassimatis at 271 [46] (Reeves J). In the cases to which Lindgren J referred in White Industries, the requirement had been expressed in such terms as “manifestly groundless” or “hopeless”. As Hayne, Crennan, Kiefel and Bell JJ held in Spencer v The Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118 (Spencer) at 139 [52]-[53]:

52.     …effect must be given to the negative admonition in sub-s (3) that a defence, a proceeding, or a part of a proceeding may be found to have no reasonable prospect of successful prosecution even if it cannot be said that it is “hopeless” or “bound to fail”. …[I]t is important to begin by recognising that the combined effect of sub-ss (2) and (3) is that the inquiry required in this case is whether there is a “reasonable” prospect of prosecuting the proceeding, not an enquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail.

53.    In this respect, s 31A departs radically from the basis upon which earlier forms of provision permitting the entry of summary judgment have been understood and administered.

47    Thirdly, the assessment required by s 31A of whether a proceeding has no reasonable prospects of success necessitates the making of value judgments in the absence of a full and complete factual matrix and argument, with the result that the provision vests a discretion in the Court: Kowalski v MMAL Staff Superannuation Fund Pty Ltd [2009] FCAFC 117; (2009) 178 FCR 401 (Kowalski) at 408-409 [28] (the Court). That discretion includes whether to deal with the motion at once or at some later stage in the proceedings when the legal and factual issues have been more clearly defined: Butorac v WIN Corporation Pty Ltd [2009] FCA 1503 at [19] (Buchanan J); Cassimatis at 272 [50] (Reeves J).

48    In the fourth place, despite the threshold for summary dismissal having been lowered, the discretion must still be exercised with caution (Spencer at 131 [24] (French CJ and Gummow J) and 141 [60] (Hayne, Crennan, Kiefel and Bell JJ)). Consistently with this, the discretion is concerned “with the bringing and defending of proceedings, not just with pleadings; with substance, not just with form”: White Industries at [50] (Lindgren J) (approved in Kowalski at 409 [30] (the Court); see also Spencer at [23] (French CJ and Gummow J)).

49    Finally, in his Honour’s helpful explanation of how these principles are to be applied, Reeves J in Cassimatis further explains at 271-272 [46] that:

…the determination of a summary dismissal application therefore does not require a mini-trial based upon incomplete evidence to decide whether the proceedings are likely to succeed or fail at trial. Instead, it requires a critical examination of the available materials to determine whether there is a real question of law or fact that should be decided at trial. Each application for summary judgment or summary dismissal has to be determined according to its particular circumstances. What is required is a practical judgment of the case at hand. The relevant circumstances will partly depend upon the stage which the proceedings have reached. Among other things, this will affect the materials available to the Court considering the application, for example, whether pleadings have been exchanged, or discovery of documents has occurred.

50    To illustrate the application of these principles, Reeves J explained at [47] that the moving party is more likely to succeed if she or he demonstrates that the applicant’s success relies on a question of fact that is fanciful, trifling, implausible, improbable, tenuous or contradicted by all the available documents or evidence. Conversely, his Honour explained that, as a general principle, such an application is unlikely to succeed where, on a critical examination of all the available materials, the Court is satisfied that there appears to be a real question of fact to be determined. The latter, in his Honour’s view, is more likely to be the case where the available materials include pleadings that raise factual disputes that can truly be described as significant, substantial, plausible or weighty.

5.    CONSIDERATION

5.1    Alleged breach of statutory and general law duties

5.1.1   Statutory and general law imposed on a trustee in bankruptcy

51    It is helpful to start first with a consideration of the pleading as to breach of statutory and implied duties. As earlier explained, the applicants plead that the Official Trustee was required to act in accordance with his duties under s 19 of the Act. That section provides that:

(1)    The duties of the trustee of the estate of a bankrupt include the following:

(a)    notifying the bankrupt’s creditors of the bankruptcy;

(b)    determining whether the estate includes property that can be realised to pay a dividend to creditors;

(c)    reporting to creditors within 3 months of the date of the bankruptcy on the likelihood of creditors receiving a dividend before the end of the bankruptcy;

(d)    giving information about the administration of the estate to a creditor who reasonably requests it;

(e)    determining whether the bankrupt has made a transfer of property that is void against the trustee;

(f)    taking appropriate steps to recover property for the benefit of the estate;

(g)    taking whatever action is practicable to try to ensure that the bankrupt discharges all of the bankrupt’s duties under this Act;

(h)    considering whether the bankrupt has committed an offence against this Act;

(i)    referring to the Inspector-General or to relevant law enforcement authorities any evidence of an offence by the bankrupt against this Act;

(j)    administering the estate as efficiently as possible by avoiding unnecessary expense;

(k)    exercising powers and performing functions in a commercially sound way.

52    As is apparent from s 19 itself, the list of duties enumerated in that provision is not necessarily exhaustive. Nonetheless, any duties imposed upon the trustee in bankruptcy plainly cannot conflict with those duties imposed upon her or him by s 19 as a law of the Parliament.

53    The obligations of the trustee in bankruptcy were considered by the Full Court of the Federal Court in Adsett v Berlouis (1992) 37 FCR 201 (Adsett) upon which the Official Trustee relied. In that case, the Court held at 208 that:

A trustee appointed in relation to a bankrupt becomes trustee of the bankrupt's estate. The trustee is bound to administer that estate in accordance with the Bankruptcy Act and Bankruptcy Rules 1968 (Cth). The trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act... The conduct of the trustee is subject to the supervision of the court (eg Div 4 of Pt VIII of the Act) and a trustee in bankruptcy has historically been regarded as an officer of the relevant court….

(citations omitted)

54    Accordingly, while the Trustee must exercise a great deal of discretion and judgment, the Trustee must do so conformably with the discharge of the public duty imposed by the Act upon her or him, and “also conformably with the trustee's obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt”: Adsett at 208-209 (approving Smither J in Mannigel v Aitken (1983) 77 FLR 406 (Mannigel) at 408-409); see also by analogy in Elder’s Trustee and Executor Co Ltd v Commissioner of Taxation (Cth) (1963) 113 CLR 426 (Elder’s Trustee) at 449 (Dixon CJ, McTiernan and Windeyer JJ). Thus a trustee in bankruptcy must exercise judgment so as, among other things, to save the estate unnecessary expenditure of money (at 208).

55    The standard to which the trustee in bankruptcy must perform these obligations is that of “reasonable skill”: Adsett at 208. Consistently with this, where an order is sought for removal of the trustee in bankruptcy and to make good losses allegedly suffered by the estate, “it must be established that the trustee has been guilty of a breach of duty to act ‘diligently and prudently in regard to the business of the Trust’”: Mannigel at 409; Adsett at 209; Elder’s Trustee at 449 (Dixon CJ, McTiernan and Windeyer JJ) (by analogy). However, beyond executing the trust with fidelity and reasonable diligence in accordance with these principles, the trustee in bankruptcy “is not bound to adopt further precautions.”: Mannigel at 409; see also Adsett at 209.

5.1.2    Is there a reasonably arguable claim of breach of statutory and/or implied duties by the Official Trustee?

56    The claim of a breach of statutory and implied duty is misconceived at a number of levels.

57    First, the pleadings conflate the position of Riva with that of the bankrupts. For example, the pleadings assume that the Official Trustee breached its duty to Gustavo and Angelo Ferella (pleaded at [20]) by acting in excess of its duty as a trustee in bankruptcy not only to their detriment, but also to the detriment of Riva and indeed the beneficiaries of the Cavallino Trust (statement of claim at [28(a)]). Further, in the statement of claim at [31], the applicants plead that they suffered loss or damage by reason of the various breaches of duty pleaded without differentiating between those breaches of duty allegedly owed only to Gustavo and Angelo Ferella, on the one hand, and Riva, on the other hand. Quite apart from other difficulties posed by these pleadings, to the extent that the pleadings assume that the Official Trustee could owe the duties under s 19 or at general law to Riva which is neither a creditor nor (clearly) a bankrupt, the proposition is untenable.

58    Secondly, while s 19 of the Act provides a basis on which it can be said that the Official Trustee owed duties to the bankrupts by reason of their interest in any possible surplus, the applicants do not identify any specific duty under s 19 said to have been breached.

59    Thirdly, the alleged breaches of duty do not marry with the duties of a trustee in bankruptcy as articulated in Adsett and other authorities. For example, the pleading that the Official Trustee breached his duties by failing to act in accordance with the applicants’ wishes with respect to the land is untenable (cf statement of claim at [28(b)]). Any such obligation would run counter to the duty vested by law in the Official Trustee to administer the estate so as to maximise the return from estate assets for creditors in the first instance and any possible surplus. Equally, there can be no breach in the Official Trustee “preferring its own interests” insofar as this refers to the Official Trustee preferring the interests of the administration of the bankrupt estates over those of the bankrupts and Riva: cf the allegation at [28(e)] of the statement of claim.

5.2    The claim of a breach of duty by the Official Trustee allegedly as a trustee de son tort

5.2.1    Principles applicable to a trustee de son sort

60    The concept of a trustee de son sort was considered in Nolan v Nolan [2004] VSCA 109 (Nolan) upon which the Official Trustee relied. That case concerned a claim by the daughter of the late Sidney Nolan that she was entitled as owner (effectively as the sole beneficiary of her mother, Cynthia Nolan’s estate) to possession of three paintings by her father allegedly given to Cynthia Nolan, his first wife. One of the issues was whether any of the claims in conversion had survived because the subject matter of the claims was trust property to which, by virtue of the applicable limitation law, no limitation period applied. There being no formal trust which applied to the property, the daughter asserted that her father had been the constructive trustee of each of the three paintings so that, in his hands, they were held on trust and his estate should be held responsible (Nolan at [15]). This question was considered in the judgment of Ormiston JA in Nolan with whose reasons on this issue Chernov and Eames JJA agreed (at [83]). Ormiston JA explained first that:

29.    …trustees de son tort intend, by their actions, to assume the role of trustees and, at least in the first place, to take control of trust property for the benefit of others rather than for themselves. If the word “intermeddle” be used, it tends to confuse the issue to the extent that it suggests wrongful intermeddling, which frequently gives rise to cases where the question of liability is in issue, rather than circumstances in which the original intention is merely to act in the role of trustee in relation to certain property.

61    Secondly, his Honour held that the obligation imposed on executors de son tort and trustees de son tort “can only come into existence ordinarily when there is not already a person in whom the relevant legal right is vested” (Nolan at [78]). However, the difficulty for the daughter in Nolan was that legal title to the three paintings vested in the proving executors to Cynthia Nolan’s estate. His Honour pointed out that:

78.    ...The consequence … is that any conversion alleged to have occurred later, by reason of the acts of Sidney Nolan in displaying the paintings or otherwise using them for his own purposes, must have been adverse to their interests [i.e. the interests of the executors of Cynthia Nolan’s estate] and they were then entitled to sue to enforce the proprietary rights of the estate against any party guilty of any interference with the estate’s proprietary rights.

62    That meant, his Honour held (at [78]), that it was almost impossible to suggest that there could thereafter have been conduct which might be characterised as that of a trustee de son tort or any other form of constructive trustee on the facts alleged. In this regard, his Honour held:

79.    [t]rusteeship assumes that property or title is held by the person alleged to be a trustee and in the present case that poses an instant problem, unless mere custody or possession can be taken to result in Sidney Nolan allegedly acquiring legal property or title to the paintings. I do not think it could, nor do I believe that there is any authority which compels such a conclusion.

63    Thirdly, Ormiston JA held that:

80.    More importantly, the appellant’s allegation requires that Sidney Nolan be treated as holding as trustee and not adversely to the interests of any beneficiary. To create an institutional constructive trust there must be some act which either directly displays such an intention in the supposed trustee or some acts or circumstances from which it may be inferred that he had an intention to act as a trustee or fiduciary or in some other role which imported an obligation to hold property as if he were a trustee. Again there have not been shown to be any such acts or circumstances. If the allegation be true, there would obviously here have been a contrary intention, that is, an intention to deal with the paintings as if they were his own, if that be established.

5.2.2    Is there a reasonably arguable case of a breach of duty as a trustee de son sort?

64    The submissions for the applicant were largely assertive and did not attempt to grapple with the principles as to the circumstances in which a trustee de son tort may arise. However, it follows from these principles that the applicants’ claim in this case that the Official Trustee owed the obligations of a trustee de son tort to the Cavallino Trust and its beneficiaries cannot succeed.

65    In the first place, at [19] of the statement of claim the applicants plead the finding in Agusta (SC) (2008) “to the effect that at all material times the first plaintiff [Riva] was and remained the trustee of the Trust and that the land was an asset of the Trust.” Furthermore at [6] of the statement of claim, the applicants plead that the land “not being part of the property of [Gustavo and Angelo Ferella]” did not vest in the Official Trustee on their bankruptcy. It follows that even within its own terms, the applicants’ claim that the Official Trustee is a trustee de son tort must fail for the first reason identified by Ormison JA in Nolan, namely, that the Official Trustee did not hold property or title to the land.

66    I also note that the statement of claim does not in any event provide a complete or accurate statement of the findings by Nicholas J in Agusta (SC) (2008). Rather, as earlier mentioned, while his Honour held at [32] and [34] that Riva was appointed as Trustee of the Cavallino Trust, his Honour also held that the land was never transferred to Riva contrary what might be implied from the pleading at [19], and held that Gustavo and Angelo Ferella remained the registered proprietors of the land until the time of sale and transfer contrary to the pleading at [6].

67    Secondly, the representations on which the applicants rely do not evince any intention on the part of the Official Trustee to hold the land as trustee for the beneficiaries of the Cavallino Unit Trust. Rather, as the Official Trustee submits, “to the extent that any Representation was made, the [alleged] representation was that there was no trust and that the property had vested in the respondent. Similar to the position in Nolan, by proving the Representation, the applicants will have proven the contrary intention, that is, the respondent was not holding the land as trustee for the beneficiaries of the Cavallino Unit Trust but rather adverse to the interests of the beneficiaries of the trust” (emphasis added). In other words, the representations allegedly made and relied upon are inconsistent with the proposition that the Official Trustee intended to hold the land on trust for the Cavallino Trust and its beneficiaries. In this regard, I note that the Official Trustee correctly submitted that, there having been no transfer of the legal title to the land, the only interest which the Official Trustee could have endeavoured to vindicate and to protect by the lodging of the caveats could have been no more than his asserted equitable interest in the land which vested in him by operation of s 58 of the Act pending any transfer of the property to the Official Trustee and registration of the title under the Real Property Act 1900 (NSW). In this regard, s 58(2) of the Bankruptcy Act provides relevantly that where a State law requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property which is property of the bankrupt, that property does not vest at law until the requirements of the State law have been complied with notwithstanding that it vests in equity in the trustee under s 58.

5.3    Alleged breach of fiduciary duties

68    The pleadings as to an alleged breach of fiduciary duty are similarly devoid of merit. While the pleading is misconceived at a number of different levels, it suffices to mention three obstacles to the pleading.

69    First, as the Official Trustee submitted, the relationship between Riva and the Official Trustee does not fall within any of the established classes of fiduciary relationships. In this regard, in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97, Mason J identified “the critical feature” of the established categories of fiduciary duties as that:

…the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions ‘for’ ‘on behalf of’, and ‘in the interests of’ signify that the fiduciary acts in a ‘representative character in the exercise of his responsibility...

70    The fact that, in all of the established categories of fiduciary duty, a fiduciary acts in a representative character in the exercise of his or her responsibility – the principal element identified by Mason J – was emphasised in Breen v Williams (1996) 186 CLR 71 at 93 (Dawson and Toohey JJ); see also at 107 (Gaudron and McHugh JJ) (Breen v Williams) and BN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1 at [1066] (the Court). Thus, as Dawson and Toohey JJ also explained in Breen v Williams, “[i]t is not the case that whenever there is ‘a job to be performed, the entrusting the job to someone involves reposing substantial trust and confidence in that person, a fiduciary relationship arises.” (at 93). That critical feature, however, is not present in this case. It would be contrary to the statutory duties imposed on the Official Trustee to which I have already referred.

71    Secondly, as I raised in arguendo at the hearing, it is the relationship which imposes the duty and not any alleged self-dealing or conflict of interest. As Gaudron and McHugh JJ explained in Breen v Williams at 109, “duty must precede breach”, or, as the Official Trustee submitted, “[l]ogically… you must first assume the office before you can breach it…. You cannot breach the duty by assuming the office.” Thus, as Megarry V-C explained in Tito v Waddell (No 2) [1977] Ch 106 at 230 (in a passage approved in Breen v Williams at 109):

If there is a fiduciary duty, the equitable rules about self-dealing apply: but self-dealing does not impose the duty. Equity bases its rules about self-dealing upon some pre-existing fiduciary duty: it is a disregard of this pre-existing fiduciary duty that subjects the self-dealer to the consequences of the self-dealing rules. I do not think that one can take a person who is subject to no pre-existing fiduciary duty and then say that because he self-deals he is thereupon subjected to a fiduciary duty.

72    Contrary to these principles, however, the appellant relies upon the representations and the lodging of the caveats both to found the fiduciary duty and to found the breach.

73    Thirdly, the law of fiduciary duty rests upon “acceptance of the implications of the biblical injunction that ‘[n]o man can serve two masters’. Duty and self-interest, like God and Mammon, make inconsistent calls on the faithful. Equity solves the problem in a practical way by insisting that fiduciaries give undivided loyalty to the persons whom they serve.”: Breen v Williams at 108 (Gaudron and McHugh JJ). However, as I have earlier explained, the trustee in bankruptcy performs a dual function: to administer the estate in the interests of creditors and the bankrupt, and to exercise her or his powers and perform her or his duties under the Act as a public duty and for the public welfare (Adsett at 208). Thus the statutory duties of the Official Trustee (set out in s 19 of the Act) include administering the estate in the interests of creditors and, in the event of there being a surplus, the bankrupt. It follows that conduct undertaken in the performance by the Official Trustee of her or his statutory duties will not necessarily coincide with the interests of the bankrupt and are, indeed, potentially adverse: see by analogy Samootin v Official Trustee in Bankruptcy (No. 2) [2012] FCA 316 (Samootin) at [22]-[26]. Accordingly, the relationship between Gustavo and Angelo Ferella in their then capacity as bankrupts, on the one hand, and the Official Trustee as the then trustee in bankruptcy of their respective estates, on the other hand, cannot be a fiduciary one, let alone the relationship with Riva.

74    In the fourth place, as the Official Trustee submits, he did not undertake to act in the interests of Riva or the beneficiaries of the Cavallino Trust. In this regard, there is an obvious conflict between the alleged duty to act in the best interests of Riva, Gustavo Ferella and Angelo Ferella, on the one hand, and the statutory duties imposed upon the Official Trustee, on the other hand. Furthermore, contrary to the assumption in the pleadings as to breach of fiduciary duty, equity does not impose upon a fiduciary any general duty to act in the best interests of a person to whom the fiduciary duty is owed. While equity imposes on the fiduciary proscriptive obligations not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict, “the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed”: Breen v Williams at 113 (Gaudron and McHugh JJ); see also at 137-138 (Gummow J).

75    Fifthly, there is no pleading of any material facts on the basis of which it is alleged that the Official Trustee acted in his own interests, as opposed to acting in the discharge of his duties as the trustee in bankruptcy for Gustavo and Angelo Ferella. To the contrary it is contradicted by the findings in Ferella (Inquiry) (No. 2). In their submissions, Angelo and Gustavo Ferella sought to rely upon the finding in Ferella (Inquiry) (No. 4) at [88] that:

The respondent unjustifiably put its own position in conflict with the interests of the applicants and, seemingly, preferred its own position to their interests. In this respect, the respondent failed in its duty to the applicants.

76    However, that finding was made in the context only of the limited inquiry into the failure by the Official Trustee to disclose the July 2008 letter from the ATO regarding CGT liability with respect to a claim to a lien for that possible liability (as set out at [36] and [42] above). Accordingly, the full finding at [88] is as follows:

I am satisfied that the respondent genuinely accepted the correctness of the legal advice that had been given on 22 October 2008. However, when it chose to act on that advice, it did so appreciating the significance of the ATO letter in respect of its claim to be entitled to a lien for a possible capital gains tax liability. In those circumstances, the respondent did not act reasonably in the interests of the applicants, as it was obliged to do. I do not think that the respondent’s obligations in that particular regard were modified by the fact that it was in litigation with the applicants. The respondent unjustifiably put its own position in conflict with the interests of the applicants and, seemingly, preferred its own position to their interests. In this respect, the respondent failed in its duty to the applicants.

77    So understood, the finding does not in any way undermine the findings made by Yates J in Ferella (Inquiry No. 2) on which the Official Trustee relied. The passage quoted by the applicants cannot be extrapolated and treated as if it were a finding applicable generally to the Official Trustee’s administration of the bankrupts’ estates.

78    Gustavo and Angelo Ferella also submitted that:

There can be no doubt the finding of Nicholas J and the decision of the NSW Court of Appeal implicitly placed the respondent in a fiduciary position relative to Riva as from 16 October 2005. The respondent had no business dealing with the Land at all except on terms consented to by Riva. In so far as it did otherwise it cannot complain that the beneficial owner now wishes to call it to account.

79    It would seem that the submission is that from the date of his appointment, the Official Trustee owed a fiduciary duty to Riva. The submission does not rise above bare assertion. That submission and those which followed addressing the issue of fiduciary duty ignored the fact that at no point was the land vested in the Official Trustee. Equally the applicants’ submission that by reason of s 116(2)(a) of the Act, neither the land nor the proceeds of sale could have been held for any party other than Riva as the lawful trustee of the Cavallino Trust not only ignores the findings in the Inquiry Proceedings; it also ignores that Riva, Gustavo and Angelo Ferella accepted in Agusta (SC) (2008) that the Official Trustee was entitled to a lien over the Point Piper funds in respect of a number of debts admitted in the bankruptcy: see above at [33(6)].

5.4    The claim for conversion of trust property

80    I note that the relief claimed at [3] of the statement of claim includes damages for conversion of trust property. However, only goods may be the subject matter of conversion: Balkin and Davis, Law of Torts (5th Ed, 2013) at 71 [4.16]; Barker, Cane, Lunney and Trindade, The Law of Torts in Australia (5th Ed, Oxford University Press) (2012) at 105 [3.3.1].

5.5    The causes of action are statute barred or barred by analogy

81    The Official Trustee submits that a further reason why the proceedings should be dismissed are that they are barred by statute or alternatively by analogy. I note that state limitations laws do not apply their own force in these proceedings, being proceedings involving the exercise of federal jurisdiction. However, they apply as surrogate Commonwealth laws by operation of s 79 of the Judiciary Act 1903 (Cth): see e.g. Pedersen v Young (1964) 110 CLR 166 at 165 (Kitto J) and 168-169 (Windeyer J); Fair Work Ombudsman v Toyota Material Handling (NSW) Pty Limited [2012] FCAFC 193; 209 FCR 428 at [53] (North and Flick JJ).

82    The applicants assert without elaboration that in general limitation points are best left until after the evidence is heard at trial. However, where the actions are plainly statute barred, there is no point in requiring the respondent to defend the proceedings quite apart from the other difficulties I have identified.

83    By s 14 of the Limitation Act 1969 (NSW) (Limitation Act) a cause of action founded upon tort, including for damages for breach of statutory duty, is barred if instituted after the expiration of a limitation period of six years running from the date on which the cause of action first accrues. These proceedings were instituted in the Supreme Court of NSW on 8 July 2015. The loss was suffered no later than when the land was sold on 11 April 2006 by Key Nominees, as the Official Trustee submits. It follows that the action for breach of statutory duty is barred by operation of s 14 of the Limitation Act as applied by s 79 of the Judiciary Act.

84    Secondly s 48 of the Limitation Act provides that an action on a cause of action in respect of a breach of trust is not maintainable if brought after the expiration of (relevantly) a limitation period of six year running from the date on which the cause of action first accrued. The section is not limited to express trusts. It follows equally therefore that the claim for breach of the trust de son tort is barred, as the Official Trustee submits.

85    Thirdly, s 23 of the Limitation Act provides relevantly that s 14 does not apply to a cause of action for equitable relief except insofar as it may be applied by analogy. In this regard, equity will apply the same statutory bar with respect to the alleged breaches of fiduciary duty. As Meagher JA held in Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181; (2014) 87 NSWLR 435 (Gerace) at [70]-[71] (with whose reasons Beazley P and Emmett JA agreed):

70. … in purely equitable proceedings, where there is a corresponding remedy at law in respect of the same matter and that remedy is the subject of a statutory bar, equity will apply the bar by analogy unless there exists a ground which justifies its not doing so because reliance by the defendant on the statute would in the circumstances be unconscionable. They do not support the proposition that equity retains any broader discretion whether to apply the bar. The description of such a ground, or the conduct giving rise to or constituting it, as unconscionable or unconscientious leaves to be identified the principles according to which equity justifies that conclusion: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 at [45] per Gleeson CJ and Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51 at [41]–[42] per Gummow and Hayne JJ.

71. In applying the statute by analogy, equity gives effect to the maxim that it follows the law and acts on the basis that “laches is presumable in cases where it is positively declared at law”: J Story, Commentaries on Equity Jurisprudence (First English Edition by W Grigsby, 1884, London, Stevens and Haynes) at [64a]. In doing so, it must be taken also to be giving effect to the legislature’s judgment in fixing the relevant limitation period and in allowing for any exceptions to its application. The considerations likely to inform that judgment are referred to by McHugh J in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552–554.

86    However, in the present case, the relief sought is for damages or an account of profits for alleged breaches of fiduciary duty (and of the duties of a trustee de son tort) which are essentially the same as the statutory duties alleged to have been breached. The same result will follow if, as the Official Trustee submits, the relevant analogy is with a claim for damages for negligent misstatement (albeit that there is no proper pleading of the basis on which the duty of care is said to arise or indeed even any mention of a duty of care in the statement of claim). The limitation period in s 14 of the Limitation Act (applied as a Commonwealth law) would therefore apply by analogy to the claim for equitable damages for breach of fiduciary duty, as would the statutory bar in s 48 by analogy in equity to the extent that ultimately the alleged breach of fiduciary duty should be characterised as a breach of trust. There is no residual discretion as would apply where the defence of laches is raised where equity applies the statutory bar by analogy: Gerace at [74]-[75].

87    In their written submissions, Gustavo and Angelo Ferella assert that the Official Trustee’s conduct “should be treated as analogous to a fraudulent breach of trust or conversion of trust property, so as to give rise to a limitation period of 12 years under s 47 of the Limitation Act 1969 (NSW).” In this regard, it is true that equity will decline to permit a respondent to rely upon the statutory bar where there has been fraudulent concealment which “is not confined to common law fraud or deceit and requires a consciousness on the part of the defendant that what is being done is wrong or that to take advantage of a particular involves wrongdoing.”: Gerace at [75]. However, that is not alleged in the pleadings; nor is there any pleading of actual fraud which, were it to be alleged, must be pleaded specifically and with particularity: Banque Commecial SA v Akhil Holdings Ltd (1990) 169 CLR 279 at 285 (Mason CJ and Gaudron J). Contrary to the applicants’ submissions, the pleading at [24] of the statement of claim that the Official Trustee had “actual notice” of certain matters is not a pleading that the Official Trustee was conscious that he was engaging in wrongdoing or a pleading otherwise that the Official Trustee acted fraudulently. Nor, given the findings in Ferella (Inquiry No. 2), is there any material suggesting that any such claims would have any merit.

88    In the course of his oral argument, counsel for the applicants submitted that he may seek instructions to apply to amend the statement of claim to plead a case of fraud. However, given that no part of the pleadings suggests any reasonably arguable cause of action and my findings made below that the proceedings are an abuse of process, I do not consider that this is an appropriate case in which to refuse the application for summary dismissal in order to allow an opportunity for such an application to be made. Nor is it apparent that any amendment to plead a case of fraud would not equally constitute an abuse of process, there being no suggestion by counsel for the applicants that such a claim would be based upon any new material which has not been available to the applicants since the relevant events took place in 2006.

5.6    Alleged abuse of process

5.6.1    The issue

89    The Official Trustee did not contend that the claims are barred by res judicata or ultimately press the argument that they are barred by issue estoppel as Riva was not a party to the Inquiry Proceedings: Tomlinson v Ramsey Food Processing Pty Limited [2015] HCA 28; (2015) 256 CLR 507 (Tomlinson) at [17] (French CJ, Bell, Gageler and Keane JJ). However, the Official Trustee submitted that the pleadings as to the alleged breaches of duty constitute an abuse of process having regard among other things to the fact that they effectively seek to re-litigate issues the subject of findings in the Inquiry Proceedings instituted by Gustavo and Angelo Ferella “in the absence of evidence different to that pleaded in the statement of claim”. Furthermore, the Official Trustee submits that “there is nothing in the pleaded case that would suggest the possibility of an outcome or a conclusion different to that reached by Yates J…”.

90    The applicants deny that characterisation of the issues and contend that they are being denied access to justice by technical arguments which the Official Trustee, as a model litigant, should not take. They also deny the relevance of the earlier proceedings to the question of abuse of process, submitting among other things that Ferella (Inquiry) (No. 2) was not an appropriate vehicle for a damages claim and that this is the first time in which they have sought to have the substantive merits of their claims determined. Further the applicants say that this is not a case where the lapse of time meant that a fair trial was not possible.

5.6.2    Relevant principles as to the circumstances in which proceedings may constitute an abuse of process

91    The circumstances in which a proceeding may constitute an abuse of process were considered by the plurality in Tomlinson, which explained that:

25. Abuse of process, which may be invoked in areas in which estoppels also apply, is inherently broader and more flexible than estoppel. Although insusceptible of a formulation which comprises closed categories, abuse of process is capable of application in any circumstances in which the use of a court’s procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute. It can for that reason be available to relieve against injustice to a party or impairment to the system of administration of justice which might otherwise be occasioned in circumstances where a party to a subsequent proceeding is not bound by an estoppel.

26. Accordingly, it has been recognised that making a claim or raising an issue which was made or raised and determined in an earlier proceeding, or which ought reasonably to have been made or raised for determination in that earlier proceeding, can constitute an abuse of process even where the earlier proceeding might not have given rise to an estoppel. Similarly, it has been recognised that making such a claim or raising such an issue can constitute an abuse of process where the party seeking to make the claim or to raise the issue in the later proceeding was neither a party to that earlier proceeding, nor the privy of a party to that earlier proceeding, and therefore could not be precluded by an estoppel.

92    Thus as Gaudron J explained in Ridgeway v The Queen (1995) 184 CLR 19 at 75 (in a passage quoted with approval in Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 (Batistatos (HCA)) at [14] (Gleeson CJ, Gummow, Hayne and Crennan JJ)):

The powers to prevent an abuse of process have traditionally been seen as including a power to stay proceedings instituted for an improper purpose, as well as proceedings that are ‘frivolous, vexatious or oppressive.’ … Abuse of process cannot be restricted to ‘defined and closed categories’ because notions of justice and injustice, as well as other considerations that bear on public confidence in the administration of justice, must reflect contemporary values and, as well, take account of the circumstances of the case. That is not to say that the concept of “abuse of process” is at large or, indeed, without meaning. … it extends to proceedings that are instituted for an improper purpose and it is clear that it extends to proceedings that are “seriously and unfairly burdensome, prejudicial or damaging” or “productive of serious and unjustified trouble and harassment”.

93    Accordingly, where the proceedings are alleged to constitute an abuse of process on the ground of oppression, there is no requirement that the continuance of the action would involve moral delinquency on the applicant’s part. Rather, it is the objective effect of the continuation of the action which is decisive (Batistatos (HCA) at 281 [70] (Gleeson CJ, Gummow, Hayne and Crennan JJ)). The statement of principles in Eliezer v University of Sydney [2015] FCA 1045; (2015) 239 FCR 381 at [57]-[58] which the parties accepted reflects these principles.

94    In determining whether these proceedings constitute an abuse of process, it is necessary to bear in mind the nature of the Inquiry Proceedings. In this regard, French J (as his Honour then was) summarised the relevant authorities with respect to s 179 in Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101 (Macchia) at [49] (in a passage cited with approval in Ferella (Inquiry) (FCAFC) at [39]) as follows:

49. As appears from the language of s 179 [of the Bankruptcy Act] it invites first a consideration, albeit upon application by a person with standing, of whether the Court should inquire into the conduct of the trustee. If inquiry is undertaken, the next question is whether the trustee should be removed from office and/or any other order made. The first question requires the Court to consider whether, on the grounds and facts before it, a case has been made for an inquiry – Re Alafaci at 268. The application of s 179 to that first step involves a broad discretion as to whether or not there are sufficient grounds to make an inquiry appropriate – Turner v Official Trustee in Bankruptcy (Full Court, 27 November 1998, unreported). The Full Court there quoted with approval the observation of Ellicott J in Re Gault that:

“…the court should be loath to order an inquiry unless it considers that on the evidence before it there are substantial grounds for believing that the trustee erred in his administration. If the court considers that an inquiry is unlikely to reveal misconduct it should not make an order and put the respondent and possibly the creditors to the expense and trouble involved.” (173)

The policy consideration referred to by Deane J in Re: Tyndall that “the court should not unduly interfere with the day-to-day administration of a bankrupt’s estate by a trustee” applies also to the operation of s 179 – Turner at pp 2-3.

50. Section 179 operates in aid of the Court’s supervision of trustees who are its officers. That operation, however, is subject to restraint against undue interference and to discretionary considerations including the practical benefit likely to be derived from the conduct of any inquiry. Like s 178, it may be invoked by a bankrupt after discharge and in part for the same reason, namely that the trustee’s powers continue in the various ways referred to in [Cheesman & Ors v Waters [1997] FCA 90; 77 FCR 21]. It may also be the case that the trustee should be held to account for conduct in the administration of the estate which has affected the bankrupt in some way. … the court will also have in such cases the discretion to determine the utility of an inquiry and its likely outcomes. For “although the court is given a broad discretion under s 179 of the Act, that discretion must be exercised in the interests of the orderly administration of the bankrupt’s estate” – Re Challen (A Bankrupt); Ex parte Brown (Beaumont J, 23 April 1996, unreported) cited with approval by Merkel J in Cheesman at first instance, p 114.

95    However, French J explained at [50] in Macchia that:

As is the case with s 178, it is not a vehicle for pressing claims for common law damages under the general law. That is a matter for a court of appropriate jurisdiction.

96    This caveat on the scope of s 79 was expressly recognised by Yates J in Ferella (Inquiry No. 2) at [18], as the applicants contend.

5.6.3    Are the proceedings an abuse of process?

97    In Ferella (Inquiry No. 2) Yates J held among other things that:

173    The [Official Trustee] had a sound basis for concluding that Agusta was not the trustee of the Cavallino Unit Trust. This position was vindicated in the Supreme Court proceedings. The [Official Trustee] also had a clear interest in defending its position in that regard. It had a very real interest in ensuring that the Point Piper funds, on the assumption they were a trust asset, were paid to the person properly entitled to be trustee, rather than being paid away to a stranger to the trust who was not bound by the terms of the trust. After all, [Gustavo and Angelo Ferella’s] units in the Cavallino Unit Trust comprised part of their bankrupt estates. Also, Agusta had asserted a right to claim damages against the respondent. It is to be remembered in this connection that, at this time, no other person in the interests of the Ferella family was then claiming to be the trustee of the Cavallino Unit Trust. The [Official Trustee] was entitled to defend itself and the bankrupt estates against that claim, when it had sound reason to believe that Agusta had no standing to bring such a claim.

174    But perhaps more importantly for present purposes, the [Official Trustee] had a sound basis for claiming that, if the Point Piper land had been a trust asset, it was entitled to exercise a right to be indemnified out of the Point Piper funds and to assert a lien over those funds to secure that indemnity, whoever the trustee of any proven trust may have been. Once again, this conclusion was vindicated in the Supreme Court proceedings. The then plaintiffs in those proceedings ultimately came to accept, as a general proposition, that the [Official Trustee] was entitled to be indemnified out of the Point Piper funds and to assert a lien over them in respect of debts proved in the bankruptcies that had been incurred by [Gustavo and Angelo Ferella] as trust debts. This was a significant change in position by [Gustavo and Angelo Ferella] and the entities associated with them. However, this change in position was adopted only shortly before the commencement of the hearing of the Supreme Court proceedings in February 2008. In fact, it was only during the course of the hearing of those proceedings that [Agusta and Riva] came to accept that that entitlement existed in relation to a number of debts that had been proved in the bankruptcies. At all other times, the [Gustavo and Angelo Ferella] had steadfastly maintained the position that Agusta alone was entitled to all the Point Piper funds and that none of the debts which had been proved in the applicants’ bankruptcies should be paid from those funds.

98    Those findings formed part of the ratio for the decision by Yates J to refuse to order an inquiry into questions 1, 2 and 4 (see at [37]-[40] above) and constitute a finding that the steps taken by the Official Trustee to protect his interests as such in the land were warranted in the circumstances. Those steps included the lodging of the caveats to protect the trustee’s asserted equitable interest in the land under s 58(1) and (2) of the Act.

99    The appellants submit that the only relevant finding is that the Official Trustee had no interest in the land, apparently based upon the assumption that in Ferella (Inquiry) (No.2), Yates J considered “the question of impropriety of the present respondent in connection with the proceedings before Nicholas J and the NSW Court of Appeal which … does not arise in these proceedings except in so far as it may bear upon the credit of witnesses.” However, that assumption is wrong. In making the findings to which I have referred, Yates J comprehensively examined the circumstances in which the refinancing of the Point Piper property fell through and the reasonableness of the Official Trustee’s conduct leading up to the Supreme Court proceedings, as well as his conduct in defending those proceedings (see Ferella (Inquiry) (No. 2) especially at [55]-[152]). This included consideration of complaints by Angelo Ferella that the Official Trustee had prejudiced attempts being made to refinance the Point Piper land by lodging the further caveat (at [58]) and the reasonableness of the Official Trustee’s doubt that the Point Piper land was a trust asset having regard to the confusing picture presented by the documentation and information provided to him from time to time – all matters which the applicants seek to put in issue in these proceedings.

100    It may readily be accepted that s 179 of the Act is not a vehicle for pressing claims for common law damages, as French J said in Macchia and as the Official Trustee accepted. It may well be, therefore, that in some circumstances, it would not be an abuse of process for a bankrupt to institute proceedings for damages notwithstanding that the Court in earlier proceedings did not consider that an inquiry into the Official Trustee’s conduct was warranted. Nonetheless in the circumstances of this case, I consider that the attempt to re-litigate these issues are relevant to the question of whether the appellants’ claims have any reasonable prospects of success or constitute an abuse of process, as the Official Trustee submitted.

101    First, contrary to the applicants’ submissions, it is apparent the underlying issues which the applicants seek to raise in this proceeding correspond with those which Gustavo and Angelo Ferella asked the Court to inquire into in the Inquiry Proceedings. Nicholas J having examined comprehensively those issues, found the Trustee’s conduct to have been warranted and sound (leaving aside the CGT issue). For example, the allegations made at [32(j), (k), (l) and (m)] of the statement of claim essentially mirror the grounds on which an inquiry into questions 1, 2 and 4 were sought before Yates J.

102    Secondly, the pleadings contradict the findings by Yates J in Ferella (Inquiry No. 2), including the key allegation that the Official Trustee had actual notice at the time of the matters alleged at [24] of the statement of claim when it lodged the caveats and made the representations (see above at [17]).

103    Thirdly, no new material is said to have come to light which might warrant revisiting the findings by Yates J. The allegation that representations made by the Official Trustee are to be inferred “to the effect the land was vested in the [Official Trustee]” (statement of claim at [18]) is contradicted by all of the known material, including the fact that the Official Trustee made no such allegation in the Supreme Court or Inquiry proceedings (including in the correspondence considered by Yates J in his reasons in Ferella (Inquiry) (No. 2)) and the findings in Agusta (SC) (2008) that Gustavo and Angelo Ferella remained the registered proprietors of the land until the mortgagee sale on 11 April 2006 (see above at [32]); see also s 58(2) of the Act (explained at [67] above). Moreover, the only representation pleaded at [17] of the statement of claim which is directly attributed to the Official Trustee as opposed to representations made by others, was not to the effect that the land was vested in the Official Trustee; rather it is consistent with the Official Trustee seeking on 3 March 2006 to protect the interests of creditors in circumstances where there was then a real possibility that the land was held beneficially by Gustavo and Angelo Ferella and not as trustees, as Yates J found in Ferella (Inquiry) (No. 2) at [57].

104    Fourthly, Riva and Gustavo and Angelo Ferella accepted in the Supreme Court proceedings the entitlement of the Official Trustee to be indemnified generally speaking from the Point Piper funds (see above at [36(6)] and [97]).

105    Fifthly, as early as 4 March 2006 Angelo Ferella wrote on behalf of the Cavallino Trust to Mr Madden at Official Trustee alleging that the Trust had been prejudiced in its attempts to finance the land by the actions of the Official Trustee in lodging the first caveat and threatening to sue for damages (Ferella (Inquiry No. 2) at [59]). Yet these proceedings were not instituted until 2015.

106    In the sixth place, the applicants submit that, having regard to the importance of upholding public confidence in line with contemporary values:

In the present case, it has to be observed that a family, two members of whom had their bankrupt estates administrated by the [Official Trustee], are seeking relief against what they say was erroneous and very high handed conduct by a Commonwealth statutory body in the face of information which indicated the wrong approach was being taken. The inequality of positions is very substantial. It is submitted that contemporary values are likely to be very much opposed to the use of technical arguments to deny access to justice by the Applicants.

107    However, those submissions take no account of the lack of any merit in the allegations raised in the statement of claim as a matter of law and otherwise on the available materials for the reasons earlier explained, nor of the significant delay in instituting the proceedings well past the statutory limitations period. Equally, the submission that there is no prejudice occasioned by the delay cannot be accepted. Rather, as McHugh J explained for example, in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551:

The enactment of time limitations has been driven by the general perception that “[w]here there is delay the whole quality of justice deteriorates”. Sometimes the deterioration in quality is palpable, as in the case where a crucial witness is dead or an important document has been destroyed. But sometimes, perhaps more often than we realise, the deterioration in quality is not recognisable even by the parties. Prejudice may exist without the parties or anybody else realising that it exists. As the United States Supreme Court pointed out in Barker v Wingo, “what has been forgotten can rarely be shown”. So, it must often happen that important, perhaps decisive, evidence has disappeared without anybody now “knowing” that it ever existed. Similarly, it must often happen that time will diminish the significance of a known fact or circumstance because its relationship to the cause of action is no longer as apparent as it was when the cause of action arose. A verdict may appear well based on the evidence given in the proceedings but, if the tribunal of fact had all the evidence concerning the matter, an opposite result may have ensued. The longer the delay in commencing proceedings, the more likely it is that the case will be decided on less evidence than was available to the parties at the time that the cause of action arose.

108    As McLelland CJ in Equity also explained in Watson v Foxman and Others (1995) 49 NSWLR 315 at 319:

…human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

109    None of these matters are mere technicalities and no basis exists for doubting compliance with the Commonwealth’s Model Litigant Principles. In all of the circumstances, therefore, I consider that the proceedings constitute an abuse of process, being proceedings that are vexatious and oppressive.

6.    CONCLUSION

110    It follows for these reasons that the alleged causes of action are untenable as a matter of law, the appellants’ success relies upon questions of fact which are contradicted by the findings in other proceedings to which the appellants have been a party and the available material, the claims are barred by statute or by analogy, and the proceedings constitute an abuse of process. This is a clear case where the proceedings should be dismissed under s 31A of the Federal Court Act with costs.

Associate:

Dated:    3 March 2017