FEDERAL COURT OF AUSTRALIA

Westpac Banking Corporation v Forum Finance Pty Limited (Freezing Order Variation No 2) [2022] FCA 1206

ORDERS

THE COURT ORDERS THAT:

1.    the requirements of rules 16.41, 16.42 and 16.43 of the Federal Court Rules 2011 (Cth) be dispensed with to the extent that those rules otherwise operate to require the particulars of the Second Further Amended Statement of Claim (Statement of Claim) which have in fact been provided outside of the pleadings to be, or have been, stated in the Statement of Claim;

2.    paragraphs 1 and 2 of the interlocutory application dated 23 September 2022 (dealing with variation of the freezing order) be dismissed;

3.    The forty-fifth respondent (Mr Tesoriero Senior) request any further and better particulars of the claim for the tort of unlawful means conspiracy pleaded at [2657] – [2665] of the Statement of Claim within 14 days;

4.    Westpac provide answers to any request for further and better particulars pursuant to order 3 hereof within 14 days of receipt of the request;

5.    paragraphs 3 to 6 and 9 and 10 of the interlocutory application (dealing with striking out various paragraphs of the Statement of Claim and, alternatively, the providing of particulars) be dismissed, without prejudice to:

a)    the Tesoriero Parties making further targeted and appropriate requests for particulars in respect of material matters preferably identifying the contended deficiencies in the pleadings and particulars already provided; and

b)    the Tesoriero Parties filing a further interlocutory application to strike out or summarily dismiss the second further amended statement of claim to be made returnable at the hearing on 6 February 2023;

6.    leave be granted to the Tesoriero Parties to file and serve any amended defences by 31 October 2022;

7.    the Tesoriero Parties pay the costs of the interlocutory application;

8.    the Tesoriero Parties pay the costs of the interlocutory application of the fourth, tenth and thirty-seventh respondents and of Mr Jason Preston and Mr Jason Ireland in their capacities as court-appointed receivers and managers of the XOXO yacht; and

9.    the Tesoriero parties pay the costs of the interlocutory application of the applicant in proceeding NSD681/2021 (SMBC Leasing and Finance Inc).

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

REASONS FOR JUDGMENT

(Revised from transcript)

THAWLEY J:

1    By an interlocutory application filed on 23 September 2022, the Tesoriero Parties seek orders: (a) varying a freezing order against Mr Tesoriero to allow him to access up to $3,831,937.40 for his reasonable legal expenses from the commencement of the proceedings to judgment; and (b) either striking out certain paragraphs of the second further amended statement of claim or, alternatively, requiring the provision of further and better particulars of certain paragraphs of the statement of claim.

2    The applicants (Westpac) oppose the orders sought in the interlocutory application. SMBC Leasing & Finance (SMBC) opposes the orders for variation of the freezing order as do the liquidators.

3    The Tesoriero Parties relied upon five affidavits (and accompanying exhibits) of Mr Evans. Westpac relied upon one affidavit of Ms Murray and an accompanying exhibit. The liquidators relied on an affidavit of Mr Ireland and an accompanying exhibit.

4    A substantial part of the general background to the proceedings may be found in the following judgments: Westpac Banking Corporation v Forum Finance Pty Limited [2021] FCA 807; Westpac Banking Corporation v Forum Finance Pty Limited (Greek Telephone Number) [2021] FCA 1340; Westpac Banking Corporation v Forum Finance Pty Limited (Contempt Application) [2021] FCA 1341; Westpac Banking Corporation v Forum Finance Pty Limited (Sale of Properties) [2022] FCA 171; and Westpac Banking Corporation v Forum Finance Pty Limited (Freezing Order Variation) [2022] FCA 910.

APPLICATION TO VARY THE FREEZING ORDER

5    The freezing order made against Mr Tesoriero has been varied on a number of occasions on the application of Mr Tesoriero. It is sufficient for present purposes to refer to the most recent. By an interlocutory application filed on 17 June 2022, Mr Tesoriero sought an amendment to allow for payment of up to $1,866,000 for his reasonable legal expenses, and an order that funds paid into Court or a controlled monies account be released to Mr Tesoriero for the payment of his legal expenses. On 20 July 2022, Lee J varied the Freezing Order to allow for payment by Mr Tesoriero of up to $1,250,000 on his reasonable legal expenses.

6    On the evidence given by Mr Tesoriero, and the submissions put forward by his then Senior Counsel presumably with the assistance of the assessment of likely costs made by Mr Tesoriero’s then solicitors, Lee J determined that the Tesoriero Parties would have a fair trial if the freezing orders were varied to allow Mr Tesoriero to have access to $1,250,000. His Honour noted that Mr Tesoriero could apply for a further variation “if the case were to develop in some extraordinary way such that this assessment is wrong”: [2022] FCA 910 at [38].

7    Shortly after those orders were made, namely on 5 August 2022, Mr Tesoriero executed a new retainer with Aptum Legal for an amount of legal costs in excess of those which Lee J had identified as sufficient.

8    By this application, which was filed just over two months after the variation made on 20 July 2022, Mr Tesoriero has applied for a further variation which, if granted, would allow him to expend $3,831,937.40 on his reasonable legal expenses. As Westpac submitted, this is more than double the amount sought by Mr Tesoriero in June this year. It is more than three times the amount which Lee J had determined was appropriate. Further, it is an amount which can only be paid from funds over which Lee J has concluded that Westpac has prima facie proprietary claims: [2022] FCA 910 at [34].

9    The freezing order covers assets to the unencumbered value of AUD$253,766,555.76 and NZD$44,097,969. Accordingly, as Lee J noted at [9], its “practical effect” is that of an “all assets” freezing order.

10    By reason of the variation made by Lee J the freezing order now allows for payment of up to $1,250,000 on reasonable legal expenses. Only the amount of $271,219.57 remains in trust. An amount of $215,928.94 remains owing to Fortis Law. There is also an amount owing to Mr Tesoriero’s present legal advisors, Aptum Legal.

11    The Tesoriero Parties referred to the decision of Henry J in National Australia Bank Ltd v Human Group Pty Ltd (No 2) [2020] NSWSC 1900 at [111]. It is useful also to refer to [109] and [110] of her Honour’s reasons:

When freezing orders are made in relation to non-proprietary claims, the usual position is that defendants generally have an entitlement to use their assets for legitimate purposes, such as to pay their ordinary living and business expenses and their reasonable legal expenses in defending the claims made against them: Goumas v McIntosh [2002] NSWSC 713 at [27].

In contrast, there is no reason, in general, why defendants should be permitted to use property or money belonging to another in order to pay their legal costs or other expenses. There is an obvious risk of injustice if assets the subject of the proprietary claim are used to finance the defendants’ litigation as the money is not the defendants at all but represents money which is held on trust for the plaintiff. The Courts will be attentive to the protection of trust property and a defendant may not be allowed to access money to which they have no legal or moral right to enable them to spend it on their own living expenses or on private representation of their choice: Commonwealth of Australia v Jansenberger (Supreme Court (Vic), Southwell J, 3 October 1985, unrep) at 8; Petar at [85]; Birketu Pty Ltd v Westpac Banking Corporation (No 2) [2018] NSWSC 494 (Birketu) at [60], [63]; Polly Peck International Plc v Nadir (No 2) [1992] 4 All ER 769 at 784; Sundt Wrigley & Co Ltd v Wrigley (Court of Appeal (UK), 23 June 1993, unrep).

In cases concerning proprietary claims, a “careful and anxious judgment” is required whereby the Court must assess whether any injustice to a plaintiff, such as NAB, would be outweighed by the potential injustice to the defendants, here Ms Rosamond and Human Group, if they were precluded from accessing funds and therefore perhaps denied the opportunity to advance an arguable defence: Birketu at [61] - [62]; Courtenay House at [49] [In the matter of Courtenay House Capital Trading Group Pty Ltd (In Liq) [2018] NSWSC 1918]; Cong v Shen [2020] NSWSC 945 at [163].

12    At [154], her Honour stated:

[T]he cases to which I have referred make clear that there is no predisposition to allow a defendant access to frozen funds that are subject to a proprietary claim to pay their living and legal expenses. To the contrary, it seems to me that the starting position is that a defendant will not be entitled to such access unless they can demonstrate that the interests of justice weigh in their favour.

13    This articulation of the relevant legal principles by Henry J in Human Group was not in dispute.

14    The Tesoriero Parties put forward five submissions as to why the variation should be made. They are set out in full in the written submission and supplemented by oral submissions. I will not repeat each of them in full. In summary:

(1)    First, it was submitted that the sum of $271,219.57 which remains in trust is inadequate to meet Mr Tesoriero’s reasonable legal costs to the end of the trial. The Tesoriero Parties pointed to work which remained outstanding, including the filing of an amended defence, and submitted that the amount remaining in trust is unlikely to cover the legal costs for the hearing which is listed for three weeks starting on 6 February 2023. I should note in this regard that three weeks has been allowed for the hearing but the estimate of some parties is that only two weeks will be required. Three weeks has been allowed to seek to ensure the matter does not become part heard.

(2)    Secondly, it was submitted that access to additional funds for reasonable legal expenses is necessary to ensure a fair trial. The submission was that there should be “equality of arms” and that the applicants were well resourced with the consequence that the Tesoriero Parties should also be well resourced. It was submitted that a freezing order should not operate as a form of de facto security for an applicants’ claim and that the sole purpose is to prevent “illegitimate” dissipation of assets that would otherwise be available to meet any judgment. The Tesoriero Parties referred to Goumas v McIntosh [2002] NSWSC 713 at [27] (Barrett J).

(3)    Thirdly, it was submitted that Mr Tesoriero does not have any other assets above and beyond the unencumbered value of AUD$253,766,555.76 and NZD$44,097,969. The Tesoriero Parties referred in this regard to the conclusion of Lee J that, despite delays and deficiencies in Mr Tesoriero’s disclosure of his financial position, it is “likely that the substance of Mr Tesoriero’s asset and liability position has finally been revealed, despite the deficiencies to which Westpac rightly points”: [2022] FCA 910 at [32]. I interpolate that his Honour also observed that he was “unconvinced that the true position concerning Mr Tesoriero’s financial affairs has been completely disclosed with any precision”: at [32].

(4)    Fourthly, it was submitted that the evidence explains why the amount now sought is needed. It was said that the estimate of Mr Tesoriero’s previous representatives was “simply unrealistic for commercial litigation of this size and complexity”.

(5)    Fifthly, it was submitted that the making of a proprietary claim does not of itself preclude the making of an order permitting Mr Tesoriero to use funds to meet reasonable legal expenses.

15    The starting point is to observe that, in order to engage the Court’s discretion to vary the freezing order, the Tesoriero Parties must establish that there has been a material change of circumstances since the application before Lee J, or that new material has been discovered that was not reasonably available at the time his Honour’s orders were made: Human Group at [104], [119]; Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at [46]; Short v Crawley (No 42) [2009] NSWSC 1110 at [75].

16    The Tesoriero Parties did not clearly articulate what changes in circumstance were relied upon apart from the fact that Mr Tesoriero had again changed solicitors. Mr Tesoriero had first engaged Fortis Law, then Madgwicks and finally, shortly after the judgment of Lee J, Aptum Legal. I will proceed on the basis that a change in legal representation is in certain circumstances capable of being a relevant change in circumstance. The reasons for the change, however, are relevant to the exercise of the discretion. No explanation was given as to why there was a change in representation. It was not put that the previous representation fell below a standard that would enable a fair trial or that there was a reason for a change in representation which should be taken into account in favour of the Tesoriero Parties.

17    For the reasons which follow the Tesoriero Parties have not established that the discretion to vary the freezing order should be exercised in their favour.

18    First, it is relevant to have regard to the source of any funding of the Tesoriero Parties’ legal costs if a variation of the freezing order were ordered. Any further funding necessarily must come out of assets in respect of which the applicants have a prima facie proprietary claim, and in relation to one asset, in relation to which another person that I will come to, has a proprietary claim in the nature of a security interest.

19    The Tesoriero Parties have identified four potential sources of funds to pay legal expenses, being the proceeds of sale of:

(1)    “XOXO” Motor Yacht Cayman Islands Official Number 734587 (XOXO Yacht) – acquired by Intrashield Pty Ltd (Intrashield PL) as trustee of the Mangusta Trust and transferred (for, at best, nominal consideration) to Mangusta (VIC) Pty Ltd (Mangusta PL) as trustee of the Mangusta Trust;

(2)    23 Margaret Street, Rozelle NSW (Margaret Property) – the former registered proprietor of which was 23 Margaret Street Pty Ltd (Margaret PL);

(3)    8-12 Natalia Avenue, Oakleigh (Natalia Property) – a property associated with 8-12 Natalia Avenue Oakleigh Pty Ltd (Natalia PL); and

(4)    1160 Glen Huntly Road, Glen Huntly (Glen Huntly Property) – the former registered proprietor of which was 1160 Glen Huntly Pty Ltd (Glen Huntly PL).

20    As to the XOXO Yacht, on the evidence on this application (which was not disputed), the relevant facts are:

    the XOXO Yacht is an asset of the Mangusta Trust, of which Intrashield PL was trustee at the time of acquisition;

    the purchase price of the XOXO Yacht was funded (in part) by Forum Group Financial Services Pty Ltd (FGFS) (in the amount of $116,500) and 26 Edmonstone Pty Ltd (Edmonstone PL) (in the amount of $1,006,675);

    in February 2019, Mangusta PL replaced Intrashield PL as the trustee of the Mangusta Trust, and title to the XOXO Yacht was transferred from Intrashield PL to Mangusta PL for nominal consideration;

    the liquidators (who are also the liquidators of FGFS and Edmonstone PL) were appointed as liquidators of Intrashield PL on 28 July 2021, by order of this Court;

    the moneys advanced by Edmonstone PL and FGFS to fund the purchase of the XOXO Yacht have not apparently been repaid and Intrashield PL continues to have undischarged liabilities that it incurred as trustee of the Mangusta Trust, including loan liabilities to FGFS;

    in these circumstances, it would seem that Intrashield PL has a right of indemnity out of the trust assets (being the XOXO Yacht) for the liabilities it incurred as trustee. The right of indemnity would appear to be secured by an equitable lien over the trust assets, which arises by operation of law and confers a proprietary interest in the nature of a security interest in the trust assets. The proprietary interest of the trustee would ordinarily take priority over claims of beneficiaries and subsists in the trust assets after transfer to a new trustee: Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344, 74 NSWLR 550 at [13]-[22], [50]; Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 per Gordon J at [14], [22]-[23]; Hughes in the matter of Substar Holdings Pty Ltd (in liquidation) [2020] FCA 1863 at [26]-[29].

    on 3 September 2021, having regard to the security interest of Intrashield PL in the XOXO Yacht, this Court (with the consent of Mangusta PL) appointed the liquidators as receivers and managers of the XOXO Yacht with powers to sell the yacht;

    pursuant to that appointment, the XOXO Yacht was sold by the liquidators acting as Court appointed receivers; and

    the net sale proceeds of $616,282.78 are held by the liquidators’ solicitors and the costs of the receivership are yet to be paid from the sale proceeds.

21    The liquidators submitted, and I accept, that the proceeds of the sale of the XOXO Yacht should not in these circumstances be made available to the Tesoriero Parties. Those proceeds are subject to an equitable lien in the nature of a security interest in favour of Intrashield PL as the former trustee of the Mangusta Trust. If those funds are made available to Mangusta PL, or to the other Tesoriero Parties, to pay legal costs, that would destroy or diminish that interest.

22    As to the proceeds of sale of the Margaret Property, Natalia Property and Glen Huntley Property, the liquidators submitted, and I accept, that:

(1)    According to the books and records of FGFS and each of Margaret PL, Natalia PL and Glen Huntly PL, FGFS is a substantial creditor of each of those companies. The records of FGFS show outstanding intercompany loans payable to FGFS by Margaret PL (in the sum of $691,212.26), Natalia PL (in the sum of $2,145,305.36) and Glen Huntly PL (in the sum of $1,020,015.30).

(2)    Those debts exceed the frozen funds held in relation to those entities, as referred to in [12] of Mr Evans’ fifth affidavit. On the evidence before the Court on this application, there is no suggestion that the entities have any other assets of substance. It follows that according to the evidence on this application, even apart from the claims made against them by Westpac and the other financiers, each of the entities appears to be insolvent.

23    I should also observe that, viewed from the position of Westpac, the amounts of money, irrespective of whether they constitute loans, are constituted by funds that Westpac asserts are stolen funds and in respect of which it asserts it has a proprietary interest.

24    The Tesoriero Parties seek to use all of the remaining funds of these three entities to pay the legal costs of all of the Tesoriero Parties, numbering 21.

25    I should also observe that two of the three entities, Margaret PL and Natalia PL, are currently subject to winding up applications brought against them by FGFS, relying on their failure to comply with statutory demands. Those winding up applications are listed for hearing on 2 November 2022. The presumption of insolvency referred to in s 459C of the Corporations Act 2001 (Cth) will apply in those proceedings. If Margaret PL and Natalia PL are ordered to be wound up on 2 November 2022, the proceedings against them will be stayed by operation of s 471B of the Corporations Act. In that event, those entities will not need to spend their remaining funds defending the proceedings.

26    Whilst SMBC is not a party to these proceedings, SMBC was heard in opposition of variation to the freezing order. SMBC also contends that it has proprietary claims against Margaret PL and Natalia PL. SMBC made submissions broadly similar to those made by the liquidators, except that its interest lay in the fact that the monies were, it contends, stolen monies.

27    In my view, in the circumstances of this case, including those referred to below, it is not appropriate to use the funds of three apparently insolvent entities to pay the legal costs of each of the Tesoriero Parties. The use of the funds in this way would have the practical effect of defeating the claims of the creditors of the three apparently insolvent entities including the claims of FGFS, by leaving the three entities without any assets. I should make clear that this is not a reason of itself for refusing the variation, but that it is an additional discretionary matter.

28    Secondly, on the evidence adduced before Lee J, it was concluded that a fair trial could be achieved with total funding of $1,250,000, about $787,000 of which was to be funded out of assets in respect of which there was a prima facie proprietary claim.

29    As I have mentioned, after Lee J so concluded, the decision was made by the Tesoriero Parties to engage new legal representatives. This is likely to have substantially increased total costs because the new representatives necessarily do not have the knowledge of what has previously occurred and have been and will be required to duplicate what other solicitors and barristers have already done. By way of example only, the new representatives have been and will be required to review evidence and discovery already reviewed, provide advice on what has occurred to date and give advice in respect of topics in respect of which advice has presumably already been given. No attempt was made by the Tesoriero Parties to quantify in any way what the duplication of costs would likely be.

30    At paragraph 53 of his third affidavit, Mr Evans gave evidence that on the basis of his review of the file received from Madgwicks, he considered that duplication of work would be minimal. It seems to me, however, that the duplication is necessarily quite extensive for the reasons I have just given.

31    It is relevant to determining where the balance lies that the funding of the respondents’ legal costs is now necessarily only out of property in respect of which an applicant has a prima facie proprietary claim, in circumstances where the level of those legal costs has been substantially increased by changing forensic decisions and changing decisions as to legal representation without specific reasons being advanced for the change in legal representation.

32    Thirdly, I am not satisfied that the estimate of $3,831,937.40 is one which reflects an appropriate amount having regard to the competing interests of the parties.

33    As to general approach, the estimate appears to have been formulated on the basis that it is appropriate in the circumstances of this case for the Tesoriero Parties at this point in time to have “equality of arms” rather than focussing on what is sufficient and reasonable to permit a fair trial. This inference arises from aspects of the submissions and, to the extent it can be understood, the manner of quantification of the future legal fees. Whatever might be the situation in another case, it is the circumstances of this case which must govern the appropriate orders to make. The costs of the Tesoriero Parties in this litigation have been increased by changes in representation and by changing forensic decisions. These increases in costs have, in substantial degree, been funded by assets over which there are prima facie proprietary claims. I do not consider an appropriate balance would be struck by further depleting assets over which there are prima facie proprietary claims, in the circumstances I have identified.

34    Aptum Legal’s estimate of future costs in this and the SMBC proceeding is $2,246,123. Mr Tesoriero is not a respondent to the SMBC proceeding, but some of his entities are. The material which has been adduced only partly assists in working out how the amount has been determined. The evidence as to how the amount was calculated was not sufficient to reach a confident conclusion in that respect. Hourly rates were provided and a total claimed. However, there was no estimate of the number of hours necessary or the number and seniority of lawyers anticipated to be engaged on the various tasks.

35    Mr Evans’ evidence in his second affidavit (affirmed on 15 September 2022) was that, from 5 to 31 August 2022, Aptum Legal incurred $209,480.96, including a “substantial amount of work in preparation for trial”. The trial in this matter was originally listed for hearing commencing on 10 October 2022. As Westpac observes, significant work must have been undertaken in order for that quantum of costs to be incurred on trial preparation.

36    Noting the absence of sufficient material to determine exactly how the estimate of future legal costs was calculated, some amounts appear excessive. Westpac gave the following examples of what it considered to be excessive solicitor expenditure excluding disbursements and counsel fees:

    $73,600 in respect of “case management”, described as “general care and conduct” and “document and file management”, without further explanation;

    $76,020 in respect of discovery, which includes “completing further discovery for Respondents” in circumstances where the respondents have previously denied an obligation to give further discovery and not sought an extension of time to provide further discovery in the orders made on 28 September 2022;

    $132,300 in respect of lay evidence, in circumstances where the forensic decision previously made by Mr Tesoriero was to file no lay evidence;

    $14,550 in respect of a pre-trial case management hearing, with an estimate of half a day, in circumstances where no case management hearing has been listed and, if one were, half a day is likely excessive;

    $126,700 for pre-trial preparation which includes preparing opening submissions, objections to evidence (tasks usually undertaken by counsel), general trial preparation and co-ordination of trial logistics;

    $218,620 for attendance at trial based on 15 sitting days (together with a further sum for post-trial work), in circumstances where: (a) there is no breakdown of the calculation of an amount which translates to $14,574.66 per day for instructors; and (b) both senior and junior counsel have been briefed; and

    $33,770 for a mediation which Westpac opposes and which has not been ordered.

37    I agree that some of these amounts appear excessive, although it is difficult to tell without fully understanding how the amounts were calculated.

38    As to past legal costs, the amount expended to date is $1,515,898.40. Westpac submitted this amount was the product of various forensic choices made by Mr Tesoriero. Westpac points to a history of Mr Tesoriero taking various procedural courses and then abandoning them. Westpac referred in this respect to Mr Tesoriero’s changing stance with respect to whether to make a strike-out application and with respect to the service of lay evidence. I accept that Mr Tesoriero’s changing forensic decisions have increased past costs.

39    Whilst perhaps a minor matter, I note that, on this application, Mr Tesoriero has not deposed to an inability to fund the litigation by other means if the variation is not made. I note, in this regard, that his father (Mr Tesoriero Senior, who is also a respondent) has provided funding in the past and is represented by the same solicitors as represents the Tesoriero Parties. As Lee J noted in [2022] FCA 910 at [33], there is no legal obligation on the part of Mr Tesoriero Senior to provide funding. Notwithstanding, it is of at least some relevance that funding from that source might be forthcoming.

40    In summary, the Tesoriero Parties have already been permitted to access legal costs in an amount which has been held to have been sufficient to permit a fair trial. In the circumstances described above, it would not strike an appropriate balance between the competing interests of the parties (and others), to order a further variation on the basis of the events which have transpired since the last variation ordered on 20 July 2022.

APPLICATION WITH RESPECT TO PLEADING AND PARTICULARS

41    As noted earlier, the Tesoriero Parties seek orders striking out certain pleadings or requiring that further and better particulars be provided. The Tesoriero Parties’ submissions were advanced by reference to Mr Tesoriero and in relation to each of the relevant claims made against him. The Tesoriero Parties also sought to strike-out the equivalent paragraphs concerning the remaining Tesoriero Parties. Leaving aside one matter with respect to Mr Tesoriero Senior, it is sufficient to adopt the approach of the parties, namely to address the issues by reference to the pleadings as they relate directly to Mr Tesoriero.

42    Before turning to the complaints made by the Tesoriero Parties, it is necessary first to refer to certain relevant matters which have already occurred.

43    The Tesoriero Parties’ first solicitors (Fortis Law) requested particulars from Westpac on 23 August 2021. Answers were provided on 14 September 2021.

44    On 12 November 2021, Mr Tesoriero’s then senior counsel stated in Court that a strike-out application would be brought if the particulars provided by Westpac were insufficient. Orders were made on that day requiring that any strike-out application was to be filed by 14 February 2022.

45    On 18 November 2021, some six days later, Mr Tesoriero’s second solicitors (Madgwicks) foreshadowed a further request for particulars and proposed a timetable which contemplated any strike-out application to be filed after answers were provided. The Tesoriero Parties’ solicitors requested further particulars from Westpac on 3 December 2021. Answers were provided on 31 January 2022.

46    On 9 February 2022, Mr Tesoriero’s then senior counsel stated in Court that Mr Tesoriero would pursue a strike-out application. On 21 February 2022, Mr Tesoriero filed an application to strike-out certain paragraphs of the statement of claim that pertained to claims against him. This application was listed to be heard on 10 March 2022.

47    On 28 February 2022, a little under two weeks before the scheduled hearing, Mr Tesoriero’s solicitors emailed the parties and the Court stating that Mr Tesoriero would not press his strike-out application ahead of the then current trial date of 10 October 2022. On 10 March 2022, Mr Tesoriero’s then senior counsel told the Court at a case management hearing that Mr Tesoriero wished for the strike-out application to be adjourned to the first day of the trial. An order to that effect was made.

48    The Tesoriero Parties all filed defences in April 2022.

49    Westpac’s evidence has been filed and, on 15 September 2022, it served its opening submissions for final hearing.

50    Aptum Legal has not made formal requests for further and better particulars, but has sent three letters to Westpac requesting further details of its claim, two on 12 September 2022 and one on 15 September 2022. Westpac responded by two letters, both dated 15 September 2022.

51    As mentioned, by the interlocutory application filed on 23 September 2022, Mr Tesoriero, now together with the remaining Tesoriero Parties, seeks to strike-out various paragraphs of the statement of claim. Westpac submits that Mr Tesoriero’s earlier series of forensic choices should not be revisited and otherwise opposes the orders.

52    On 28 September 2022, and as had been foreshadowed at a case management hearing on 16 September 2022, Westpac provided the Tesoriero Parties a “Consolidated schedule of further and better particulars requested by the Tesoriero Respondents” (Consolidated Response) which is over a hundred pages in length. This document brings together both requests for particulars, being those made by Fortis Law and Madgwicks, and the relevant answers. The statement of claim comprises 620 pages.

Principles

53    The Tesoriero Parties stated the relevant principles in the following way:

“A party must state in a pleading, or in a document filed and served with the pleading, the necessary particulars of each claim … or other matter pleaded by the party” (r 16.41(1)). A purpose of a pleading is to give the opposing party fair notice of the case to be met at trial: Betfair Pty Ltd v Racing NSW (2010) 189 FCR 356 at [50]-[51] (Keane CJ, Lander and Buchanan JJ). It is no answer to say that a party knows from documents and other sources what the case against it is: Y Primavera v T Bakos & Anor [2019] NSWSC 825 at [35]-[36] (Black J). A party is entitled to have the opposing party confined to that party’s pleadings: Betfair at [50]-[51].

For allegations of fraud, misrepresentation, breach of trust and wilful default, a party “must state in the pleading particulars of the facts on which the party relies” (r 16.42). “A party who pleads a condition of mind must state in the pleading particulars of the facts on which the party relies” (r 16.43(1)). In turn, a “condition of mind” includes “knowledge” and “any fraudulent intention of the party” (r 16.43(3)). “If a party pleads that another party ought to have known something, the party must give particulars of the facts and circumstances from which the other party ought to have acquired the knowledge” (r 16.43(2)).

“Even in the absence of [r 16.43], there are sound reasons for requiring knowledge to be particularised, at least in relation to allegations such as fraud or intentional participation in the breach of another … That requires particulars of the facts and circumstances from which it is said that the party knew (or ought to have known) the relevant matter. Those facts may include an admission or communication from which it must follow that the relevant party had the relevant knowledge” or “facts and circumstances from which it can be inferred that the party had the knowledge”: KTC v David [2022] FCAFC 60 at [418] (Jackson J).

54    In its submissions, Westpac added the following:

An overly technical approach to pleadings should not be taken in the modern case management era and pleadings are not an end in themselves: Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82 at [4] – [8] (Martin CJ), approved by the Full Court of the Federal Court in Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 at [13] (Greenwood, McKerracher and Reeves JJ) and Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2021) 287 FCR 388 at [152] (McKerracher and Colvin JJ). The question is whether the respondents know the nature of the case they have to meet: Betfair Pty Ltd v Racing NSW (2010) 189 FCR 356 at [52] – [53] (Keane CJ, Lander and Buchanan JJ); Rush v Nationwide News Pty Ltd (2018) 359 ALR 473 at [44] (Wigney J).

As identified by French J in Police & Nurses Credit Society v Burgess Rawson (WA) Pty Ltd [2006] FCA 1395 at [17], it is important to maintain a sense of balance in the detail of particulars sought and ordered, and the provision of particulars should not be allowed unduly to increase the cost and delay associated with litigation, particularly in contemporary commercial litigation where affidavits are filed, as here.

55    I accept all of the statements of general principle as identified by the Tesoriero Parties and Westpac. I would add that the degree to which a “technical approach” should be taken to pleading inevitably depends on the particular case. Where serious allegations of fraud or dishonesty are concerned, a more technical approach may well be warranted than for cases where no such allegations exist.

56    Further, however, the approach which should be taken is necessarily informed by the way the litigation has been conducted by the parties, the stage at which complaints are made and any other relevant circumstances. The critical question is whether the respondent understands the case which it has to meet in sufficient detail to enable a fair trial.

Particulars not with the statement of claim

57    As to the point raised by the Tesoriero Parties that the particulars are not contained in the statement of claim, that is a point which should have been raised formally before the Court at an earlier stage if it were to be taken in the circumstances of this case. If this interlocutory application had been made after requests for and answers to particulars and before evidence was filed, discovery given, a hearing date set and opening submissions filed, different conclusions may have been appropriate. That is, however, not what has occurred.

58    A part of the relevant context is that it has been necessary to serve the statement of claim on various entities and individuals overseas, which has resulted in increased costs and delay, including costs associated with translations. The hearing has already been vacated once. The hearing is presently listed to commence on 6 February 2023. It is not clear that service overseas of a new statement of claim could be achieved in sufficient time to retain the hearing date. Requiring particulars to be stated in the statement of claim, and requiring it then to be served again overseas, would be inconsistent with the overarching purpose contained in s 37M of the Federal Court of Australia Act 1976 (Cth).

59    Accordingly, in my view the Court should dispense with the requirements of rules 16.41, 16.42 and 16.43 of the Federal Court Rules 2011 (Cth) to the extent those rules otherwise operate to require the particulars which have in fact been provided outside of the pleading to be, or have been, stated in the statement of claim.

60    The interlocutory application filed by the Tesoriero Parties did not request specific particulars. Rather, the interlocutory application simply sought, in the alternative to striking out the relevant paragraphs, that further and better (but unspecified) particulars be provided.

61    The written submissions filed by the Tesoriero Parties in support of the interlocutory application also largely proceeded on the basis that extensive particulars had not been provided and did not seek to explain in what way those particulars were deficient or how the statement of claim was deficient when read with those particulars. On the other hand, the oral submissions advanced by the Tesoriero Parties did make complaints about the particulars and about the statement of claim when read with the particulars which have been provided.

62    I make the following observations about the complaints made.

Fraud and dishonesty

63    In respect of the allegations of fraud and dishonesty against Mr Tesoriero, the Tesoriero Parties submit that [55] of the statement of claim does not state the particulars of the facts relied upon in support of the allegations of fraud, dishonesty and devising of the “Scheme” on the part of Mr Tesoriero, or the location in the pleading where the particulars may be found.

64    Westpac submits that:

    the dishonest and fraudulent purpose of Mr Tesoriero in devising the Scheme is pleaded in [57] of the statement of claim;

    the dishonest and fraudulent operation of the Scheme is pleaded at [56] of the statement of claim; and

    detailed particulars of [55] were given in response to requests for particulars and can be found in the Consolidated Response at [2.1] – [2.6].

65    Having reviewed these paragraphs of the statement of claim together with the extensive particulars provided, I am not satisfied that the Tesoriero Parties do not understand the case that is put against them in a way which is sufficient for a fair trial. Further, I propose to make it clear that the Tesoriero Parties are entitled to request targeted and appropriate particulars in respect of material matters.

Trust allegations

66    In respect of the trust allegations, the Tesoriero Parties complain that:

(1)    The pleading against Mr Tesoriero that he holds funds on trust (at [1895]-[1897] of the statement of claim) does not specify:

(a)    the basis for the imposition of an alleged trust on Mr Tesoriero;

(b)    what the alleged “traceable proceeds” of the relevant funds are;

(c)    what the alleged “property … he [allegedly] converted those funds into” is;

(d)    the basis for the asserted agency relationship in particular (ii) of [1895]; and

(e)    the particulars for the bare conclusions of fraud in particular (iv) of [1895].

(2)    The applicants’ pleading fails to articulate the critical facts of:

(a)    precisely what Mr Tesoriero allegedly “came to learn”; and

(b)    when he allegedly learnt it.

67    These matters were said to be critical because “a third party who receives stolen money as a volunteer is only obliged to account to the beneficial owner of the stolen property on Black v S Freedman [& Co [1910] HCA 58; (1910) 12 CLR 105] principles to the extent the recipient holds the stolen property, or its traceable proceeds, at the time the recipient obtains sufficient knowledge of the theft”, referring to Sino Iron Pty Ltd v Worldwide Wagering Pty Ltd [2017] VSC 101; 52 VR 664 at [316].

68    As to 1(a) – the basis for the imposition of an alleged trust – the case brought by Westpac is a stolen money case. This is pleaded, for example, at [69], [1845] and [1900]. This is evidently understood by the Tesoriero Parties. This is also made clear in the extensive particulars provided in the Consolidated Response at [15.1], [15.4], [15.9] and [15.12] to [16.6].

69    As to 1(b) – the “traceable proceeds” – updated particulars have been given of the amounts allegedly received by Mr Tesoriero and the property those funds were converted into in the Receipts Table annexed to Westpac’s opening submissions and the s 50 summaries served in the proceedings.

70    As to 1(c), this appears to me is a matter for evidence. As to 1(d), the basis of the agency relationship is tolerably clear, namely that the operation of the Scheme was such that the relevant entities received the money as agent for Mr Tesoriero. To the extent it is not clear further particulars may be requested. As to 1(e), for reasons given earlier, I am not satisfied that the case as to fraud is not sufficiently understood by the Tesoriero Parties by reference to both the pleading and the particulars.

71    As to 2(a) and (b), it is clear from the statement of claim at [55] – especially when read with [56] to [58] and [1905] and the extensive particulars which have been provided – that Mr Tesoriero is alleged to have known of the Scheme from the time it was devised, which was a date unknown to Westpac but no later than 31 August 2018 or, alternatively, 13 September 2018.

Unlawful means conspiracy

72    In respect of the claim based on the tort of unlawful means conspiracy, the Tesoriero Parties complain that the pleading does not set out:

(a)    the basis for the conclusion that an agreement “was reached between Mr Tesoriero and Mr Papas to devise and implement the Scheme”;

(b)    the particulars of facts for the conclusory allegations of fraud implicitly picked up by the use of the term “Scheme”;

(c)    the essential element of intention to cause injury to the applicants.

73    It is often not possible for an applicant to plead the terms of an express agreement relevant to the tort of unlawful means conspiracy, given the clandestine nature of such agreements.

74    Where the terms of the express agreement are not known to the applicant, which is the position in this case, it is sufficient to plead the overt acts relied upon to justify the inference that the agreement was made; it is desirable at least for it to be made clear to the respondents how the pleaded overt acts give rise to the inference that the respondents were parties to the conspiracy – see the discussion in Muriniti v Lawcover Insurance Pty Ltd [2022] NSWSC 90 at [343] (Ward CJ in Eq).

75    Westpac submitted that the basis for the conclusion that the Scheme Agreement was reached is set out at [55]-[57] and [1844] (in respect of which particulars have been provided), and that it follows from the fact that the Scheme operated as pleaded in a manner which benefitted Mr Tesoriero. Further particulars of the matters relied on in support of the Scheme Agreement are set out in the Consolidated Response at [8.7] to [8.9]. Westpac submitted that, as pleaded at [1898], it does not know the precise time and making of the Scheme Agreement but has pleaded the date by which it alleges the agreement was made together with the unlawful means employed and the relevant facts and circumstances.

76    Having reviewed these paragraphs of the statement of claim together with the particulars provided, I am not satisfied that the Tesoriero Parties do not understand the case that is put against them in a way which jeopardises a fair trial. If there is a specific matter which is not clear, then it is open to the Tesoriero Parties to request targeted particulars, preferably with an explanation as to why what has already been provided is inadequate.

77    In relation to intention to cause injury, it is true that the words “intent to cause injury” do not appear in the statement of claim. However, the holding of a purpose which included a dishonest purpose of causing detriment to Westpac is expressly pleaded in [57(a)]. It is, in my view, sufficiently clear that the pleaded conspiracy was in part aimed at Westpac – see: Fatimi v Bryant [2004] NSWCA 140; 59 NSWLR 678 at [13]-[21] (Handley JA; McColl JA agreeing); Uber Australia Pty Limited v Andrianakis [2020] VSCA 186; 61 VR 580 at [31]-[34].

78    The Tesoriero Parties also complain about the pleading concerning Mr Tesoriero Senior becoming a co-conspirator. Mr Tesoriero Senior accepts that a conspirator may join in the execution of a plan after it has been originally conceived and still be liable in conspiracy, but submitted that in order to “join” the conspiracy, a person must first learn of or discover it. It was submitted that “it is necessary that the pleading allege the material facts upon which the requisite knowledge (and intention) is alleged or from which it is to be inferred”, referring to Muriniti at [334].

79    Westpac’s responded to this complaint, or a similar one, in its solicitor’s letter dated 15 September 2022 at [28].

80    Paragraph 2663 of the statement of claim pleads:

From:

(a)    the date that 286 Carlisle St received the amounts referred to in paragraph [2659] above (during which period Mr Tesoriero Snr was a director of 286 Carlisle St); or

(b)    the date on which Mr Tesoriero Snr received the amounts referred to in paragraph [2654] above,

Mr Tesoriero Snr was a party to the Scheme Agreement and became, with Mr Papas, Mr Tesoriero Snr and diverse others, a co-conspirator in the Scheme.

81    It seems to me that it is appropriate to provide proper particulars of the pleading that Mr Tesoriero Senior became a co-conspirator. I was not taken to any pleading or particulars which identified the material facts which founded, or from which it should be inferred, that Mr Tesoriero Senior knew of the Scheme and agreed to become a party to the Scheme Agreement. Unlike Mr Tesoriero, it is not alleged that Mr Tesoriero Senior devised the Scheme. I understood senior counsel for Westpac to concede that further particulars of the allegations at [2657]-[2665] might be appropriate and in particular that further particulars to [2663] are appropriate.

Knowing receipt

82    In relation to the knowing receipt case against Mr Tesoriero, contained in the statement of claim at [1902]-[1906], the complaint was that it did not specify:

(a)    the basis for the conclusory assertion in [1905] that Mr Tesoriero “knew” certain matters;

(b)    the particulars of the facts and circumstances from which Mr Tesoriero “ought reasonably to have known” certain matters; and

(c)    the “circumstances” it is asserted “would have disclosed to an honest and reasonable person in his position” certain matters.

83    Westpac submitted that the basis for the allegation of Mr Tesoriero’s knowledge, including the alternative claim as to constructive knowledge, is set out at [1905], as being his awareness of the facts, matters and circumstances set out at paragraphs (d) to (i). Westpac noted that further particulars of these matters had been provided and are contained in the Consolidated Response at [21.1] to [21.14]. Westpac submitted that the circumstances which would have disclosed to an honest and reasonable person in Mr Tesoriero’s position the matters set out in (a) to (c) are his awareness of the matters pleaded at (d) to (i).

84    Having reviewed these paragraphs of the statement of claim together with the particulars provided, I am not satisfied that the Tesoriero Parties do not understand the case that is put against them in a way which is sufficient to enable a fair trial. Having said that, if there are specific particulars which are still required, those may still be requested.

Knowing assistance

85    In respect of the knowing assistance claim, contained in the statement of claim at [1907]-[1910], the complaint was that it does not specify the basis for the assertions that Mr Tesoriero:

(a)    “was aware of the Scheme … and of its purpose”;

(b)    “devised it and participated in giving effect to the Scheme”;

(c)    had “knowledge of the Scheme and its purpose”;

(d)    “knowingly assisted” Forum Finance’s breaches of its obligations as trustee. It was said that the pleading fails to state the material facts, and inferences from those facts, relied on to support the allegation of knowledge.

86    Westpac submitted that:

(a)    The basis for the allegation in [1907] that Mr Tesoriero was aware of the Scheme and its purpose was set out in [1907], which refers to [55] and [57].

(b)    The allegation that Mr Tesoriero devised the Scheme is the same allegation as made in [55]. The Consolidated Response at [23.1] to [23.4] provides further particulars in this regard, by reference to earlier particulars given in respect of [55].

(c)    The basis for the allegation in [1907] that Mr Tesoriero participated in giving effect to the Scheme which he is alleged to have devised is stated in [1907] to be pleaded at [1900].

(d)    Mr Tesoriero’s knowledge of the Scheme and its purpose pleaded at [1908] derives from the pleading at [1907]. The basis for the allegation that Mr Tesoriero knowingly assisted the breaches of obligations pleaded are set out at paragraphs (a) to (i) of [1908].

87    I am satisfied that the pleadings already furnished, when read with the particulars, are sufficient to understand the case which is brought.

Misleading or deceptive conduct

88    In respect of the allegations against Mr Tesoriero, in the statement of claim at [1911]-[1912], that Mr Tesoriero:

(a)    aided, abetted or procured;

(b)    was knowingly concerned in or a party to; or

(c)    conspired with others (by the Scheme Agreement) to give effect to,

Forum Finance and Mr Papas’ misleading or deceptive or false or misleading conduct, the Tesoriero Parties complain that the pleading comprises “a series of conclusions absent material facts premised on unparticularised assertions of knowledge on the part of Mr Tesoriero”.

89    Westpac observed that, in [1911] of the statement of claim, Westpac relied on Mr Tesoriero’s conduct in entering into the Scheme Agreement and engaging in the conduct identified at [1900] in the circumstances identified at [1905]. Westpac submitted that those paragraphs plead the material facts in support of his involvement in the conduct.

90    Again, I am satisfied that the pleadings already furnished, when read with the particulars, are sufficient to understand the case which is brought in sufficient detail to enable a fair trial. If there is a specific matter which is not clear, then it is open to the Tesoriero Parties to request specific particulars, preferably with an explanation as to why what has been provided to date is inadequate.

Conclusion

91    As I have indicated, the approach which should be adopted must take account of the stage the litigation has reached and the way the litigation has been conducted to date, including the forensic choices previously made by the Tesoriero Parties.

92    The proceedings had been listed for hearing commencing on 10 October 2022. Different considerations would have applied if this application had been brought at an earlier point in time. For reasons given, I am not satisfied that the Tesoriero Parties do not understand the case they have to meet in sufficient detail to enable a fair trial.

93    Leaving aside one aspect of the claims made against Mr Tesoriero Senior, the appropriate course is to dismiss the strike-out application and the general application for further particulars, without prejudice to the Tesoriero Parties being able to:

(1)    make targeted and appropriate requests for particulars in respect of material matters which clearly identify the contended deficiencies in the particulars already provided; and

(2)    seek to strike-out the impugned paragraphs of the statement of claim by further interlocutory application made returnable at the hearing on 6 February 2023.

94    Finally, an issue was raised about whether leave should be granted to the Tesoriero Parties to adduce expert evidence. As best I could understand the position as to what evidence was intended to be adduced, it went to three issues:

(1)    a question about whether the allocation to a particular party of certain amounts made by or contained in the section 50 summaries was accurate;

(2)    evidence concerning certain amounts of money which were alleged to be stolen, and certain amounts which were not, and how the relevant allocation or identification of the amounts was or should be undertaken; and

(3)    whether there should be a further tracing of funds from the time of receipt by particular entities to the time that Mr Tesoriero asserts that he first became aware of the fraud, namely on 21 June 2021.

95    The reason that leave is required, as I understood it, was because any such evidence would fall outside of the timetable for the filing of evidence. In my view, this application should in substance be deferred. It seems to me that, before the Court would accede to the request, there should at least be an identification of the following three matters: first, precisely what questions it is that are proposed to be asked of the expert, together with an identification of the particular expert’s field of expertise; secondly, a careful identification of why answers to those questions are necessary or appropriate at this stage; and thirdly, consideration should be given to whether there is an alternative to providing expert evidence in respect of those questions, including whether a court-appointed expert should be appointed to answer those questions or whether a referral of questions should be made under section 54A of the Federal Court of Australia Act 1976 (Cth).

Associate:

Dated:    18 October 2022