Federal Court of Australia

Pizzino v Caratti (No 3) [2024] FCA 1278

ORDERS

THE COURT ORDERS THAT:

1.    The further substituted statement of claim dated 2 August 2024 be struck out.

2.    The respondent's interlocutory application dated 6 August 2024 be otherwise dismissed.

3.    On or before 19 December 2024, a second further substituted statement of claim be filed and served.

4.    The costs of the respondent's interlocutory application be reserved.

5.    There be a case management hearing listed for 10.15 am AWST on 30 January 2025.

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

REASONS FOR JUDGMENT

COLVIN J:

1    Twenty years ago, Mr Alberto Pizzino and his three sisters were the owners of undeveloped land in West Swan being Lot 76 Coast Road, Bennett Springs. At that time, Mr Pizzino had dealings with Mr Allen Caratti concerning the sale of the property. In those dealings, Mr Caratti was acting as a director of West Swan Land Company Pty Ltd (WSLC) in its capacity as the trustee of the West Swan Land Trust (WSL Trust).

2    For present purposes, it appears to be common ground as between Mr Pizzino and Mr Caratti that (a) in 2005, WSLC entered into an option agreement to purchase Lot 76 from Mr Pizzino and his sisters; (b) subsequently WSLC exercised the option and Lot 76 was transferred to WSLC but there was a dispute about the performance of the agreed terms of transfer; (c) in 2012, the parties entered into a deed of settlement and release with respect to their claims concerning Lot 76 (Settlement Deed); (d) the Settlement Deed provided for a future payment of $4 million by WSLC to the four vendors; (e) WSLC did not pay the $4 million; and (f) sometime later, WSLC was deregistered with the $4 million remaining unpaid.

3    The Settlement Deed provided for WSLC to be able to discharge its obligation to pay $4 million by transferring to the four owners 16 lots from a proposed subdivision of Lot 76 (and adjoining lots) to a value of $4 million. This aspect of the Settlement Deed was consistent with the terms of the option agreement which provided for the certificate of title for each of 16 lots in the proposed subdivision to be given to Mr Pizzino and his sisters after transfer of Lot 76 to WSLC. By that unusual mechanism, in substance, the original sale terms provided for WSLC to acquire Lot 76 less the land comprising the 16 lots.

4    It is not in dispute that WSLC sold Lot 76 without undertaking the development and that the $4 million was not paid to the owners (nor was there a transfer to them of 16 lots to the value of $4 million). Mr Caratti says that this occurred because there were delays in securing the necessary rezoning to undertake the subdivision and additional financing costs. He says that Lot 76 (together with other properties held by WSLC) were sold to discharge mortgages over the properties that were proposed to be subdivided.

5    In September 2023, Mr Pizzino and his sisters commenced proceedings in this Court against Mr Caratti. They advanced various claims in relation to the failure to pay the amount of $4 million. Mr Caratti applied to strike out their statement of claim. His application was successful, but leave was given to replead: Pizzino v Caratti [2023] FCA 1624.

6    Only Mr Pizzino seeks to continue the proceedings. His sisters have discontinued their claims. Mr Pizzino has filed a substituted statement of claim (New Pleading).

7    Mr Caratti has applied for orders striking out the New Pleading and dismissing the proceedings.

The nature of the case advanced by the New Pleading

8    The New Pleading advances the following claims:

(1)    During its existence, WSLC was the trustee of the WSL Trust.

(2)    Upon deregistration, assets of the Trust vested in the Commonwealth.

(3)    Mr Pizzino does not know the terms of the WSL Trust and, despite request, Mr Caratti has declined to undertake reasonable investigations to locate a copy of the instrument recording the terms of the WSL Trust.

(4)    Mr Pizzino and his sisters (Vendors) 'entered into commercial arrangements and discussions with WSLC and [Mr Caratti] as to Lot 76'.

(5)    As a result of those commercial arrangements and discussions, prior to 15 October 2012, it was 'agreed' between Mr Pizzino (for the Vendors) and Mr Caratti (for WSLC) that:

A.    Lot 76 would be transferred to WSLC in the above capacity

B.    WSLC would pay to the [Vendors] the sum of $760,000 as part consideration for the transfer

C.    WSLC at its expense would develop and subdivide lot 76 and provide 16 lots from the proposed development to the [Vendors] to a value of $4,000,000 and alternatively pay such sum with interest to the [Vendors].

D.    The same would be documented in and included in the terms of a Deed of Settlement and Release [that is, the Settlement Deed] … to be actioned.

('the Arrangement')

(6)    Mr Caratti 'representing WSLC represented that WSLC would implement the Arrangement and fulfill the representations'.

(7)    In reliance upon the 'said representations', the Vendors transferred Lot 76 to WSLC, entered into the Settlement Deed, awaited the subdivision and development of Lot 76 'by or on behalf of WSLC' and performed their obligations under the Settlement Deed.

(8)    The Arrangement was entered into in trade or commerce.

(9)    WSLC in representing the Arrangement would be implemented made representations as to future matters within the meaning of s 4 of the Australian Consumer Law.

(10)    WSLC is taken not to have reasonable grounds for making the representation unless evidence is adduced to the contrary.

(11)    WSLC 'breached the Arrangement' (a) by not developing Lot 76 and instead selling it to Mirvac Ltd; and (b) not paying the $4 million to the Vendors or providing 16 lots to the value of $4 million to them.

(12)    WSLC 'therefore' engaged in conduct in trade or commerce that was misleading or deceptive contrary to s 18 of the Australian Consumer Law.

(13)    Mr Pizzino and the other Vendors 'suffered loss because of such conduct and contravention'.

(14)    Mr Caratti was 'involved' in the contravening conduct of WSLC.

(15)    Insofar as the cause of action arose when no available assets of the WSL Trust had been demonstrated, it arose from a date to be ascertained but in any event not later than 29 July 2024.

(16)    Insofar as Mr Caratti was an accessory to the breach by WSLC of the Arrangement and the Settlement Deed his 'accessorial involvement constituted a breach of his common law duties as a director and a breach of his duties as a director of a trustee company'.

(17)    Mr Caratti is liable to Mr Pizzino insofar as such breach resulted in loss to Mr Pizzino.

Affidavit evidence of Mr Caratti

9    Mr Caratti relies upon two affidavits in which he deposes to the following matters:

(1)    WSLC was set up to locate and purchase land for development as a residential subdivision in West Swan.

(2)    The relevant land was in an area zoned 'general rural' under the City of Swan's town planning scheme and 'urban deferred' under the metropolitan region scheme.

(3)    Mr Pizzino was a registered proprietor of Lot 76 and another lot, both of which were located within the relevant area that WSLC was seeking to develop.

(4)    Mr Pizzino agreed to sell Lot 76 for $760,000 'with lots in the residential subdivision upon issue of titles for the subdivided lots'.

(5)    Between January 2006 and March 2007, WSLC acquired the two lots in which Mr Pizzino had an interest and two other adjoining lots.

(6)    Suncorp-Metway Limited financed the purchase of three of the lots (including Lot 76) and MKM Capital Pty Ltd financed the purchase of the other lot and the funds advanced by them were secured by mortgages over the properties.

(7)    Steps were undertaken to secure a change of zoning.

(8)    In 2011, proceedings were commenced in the Supreme Court of Western Australia by Mr Pizzino and his sisters for breach of an option deed and variation to the option deed which concerned the sale of Lot 76.

(9)    Related proceedings were commenced in the Supreme Court against lawyers who had acted for the Vendors in relation to the option deeds concerning the sale of Lot 76.

(10)    There was a mediation in 2012 by which time the rezoning sought by WSLC had not been secured.

(11)    On 15 October 2012, the Vendors entered into the Settlement Deed with WSLC as trustee of the WSL Trust, the terms of which resolved the Supreme Court proceedings that had been commenced by them against WSLC.

(12)    The Settlement Deed provided for the payment of $4 million on or before the 'Due Date'. It also provided for a mechanism by which the obligation to pay $4 million may be discharged by delivering 'Chosen Lots' from the proposed subdivision to the value of $4 million.

(13)    The Due Date was 1 March 2016 or as extended by operation of the terms of the Settlement Deed (which provided for extension if approval for the subdivision was obtained and the subdivision was progressing).

(14)    The Settlement Deed required the Vendors to withdraw caveats that had been lodged by them.

(15)    At the time of entry into the Settlement Deed, Mr Caratti 'believed that [WSLC] would continue with the subdivision of [Lot 76 and the other properties purchased in West Swan] and the creation of individual titles' and that there would be individual lots from the subdivision by about 1 December 2015.

(16)    Mr Caratti's belief was based upon his understanding that the 'urban deferred' zoning would be lifted by about October 2013 and that would allow approvals from the City of Swan to be obtained to allow the subdivision to proceed, with construction to commence in December 2014 and for those works to be concluded by July 2015.

(17)    In July 2013, Suncorp sold its property development loan book to an investment bank.

(18)    In August 2013, the interest rates on the loan facilities were increased 'up to 20% per annum compounding' and further amounts of $500,000 were charged as 'quarterly "rollover fees"'.

(19)    The investment bank pressed for loan reduction.

(20)    There were further delays in lifting the 'urban deferred' zoning.

(21)    As a result of these events, the subdivision became unviable.

(22)    In December 2014, WSLC sold the land that it had been seeking to develop (including Lot 76) to Mirvac Pty Ltd.

(23)    The full net proceeds of the sale of Lot 76 were collected by the investment bank and MKM Capital at settlement.

(24)    In 2020, Mr Pizzino commenced proceedings against the lawyers who had acted for him in the earlier proceedings claiming that they had acted in breach of their retainer, alternatively negligently, in failing to advise him that if the caveats were withdrawn and WSLC then sold Lot 76 and subsequently went into liquidation he would receive nothing under the Settlement Deed and in failing to advise that he should negotiate an alternative form of security to safeguard his entitlements under the Settlement Deed.

(25)    In the 2020 proceedings, Mr Pizzino claimed to be the assignee of the rights under the Settlement Deed of one of his sisters and sought to recover the sum of $2 million and interest.

(26)    In October 2022 the further Supreme Court action was dismissed with no order as to costs.

10    The following additional matters emerge from documents exhibited to an affidavit from Mr Caratti's solicitor, namely:

(1)    In April 2005, the Vendors (referred to as the Owners) entered into a deed styled 'Option Deed - Lot 76 Coast Road West Swan' with WSLC as trustee of the WSL Trust.

(2)    The Option Deed provided for an Option Fee of $40,000 and a Purchase Price of $760,000, with 16 lots to be selected by the Owners from a plan of subdivision if the Option was exercised (referred to as the Owners' Lots).

(3)    The Option Deed provided for terms of sale if the Option was exercised that included settlement on 30 June 2006 with WSLC giving the Owners (that is, the Vendors) the separate certificates of title for the Owners Lots if they had issued by the time of settlement or, if they had not issued, the transfer of Lot 76 to WSLC on the basis that WSLC would hold the Owners Lots on trust for the Owners and the Owners may lodge a subject to claim caveat over Lot 76 with WSLC to do all acts necessary to obtain the titles for the 16 lots and transfer them to the Owners free from encumbrances within two years of settlement.

(4)    The Option was exercised by WSLC on 25 November 2005.

(5)    A variation of the Option Deed was entered into on 17 February 2006 (not in evidence).

(6)    The Owners (that is, the Vendors) identified the Owners' Lots.

(7)    Lot 76 was transferred to WSLC on 25 July 2006.

(8)    It was the failure by WSLC to obtain separate certificates of title for the Owners' Lots and transfer them to Mr Pizzino and his sisters that gave rise to the first round of Supreme Court proceedings in 2011.

(9)    On the sale to Mirvac of the various properties that were to form the subdivision, the value allocated to Lot 76 was $2.8 million of the total purchase price of circa $9.7 million.

Principles to be applied

11    I set out the relevant principles in my reasons on the previous strike out application: Pizzino v Caratti at [13]-[14]. I repeat them here for ease of reference:

The sole objective of a pleading is to clearly identify matters in dispute. This requires a clear articulation of the factual basis for the claim and the ready identification of the matters relied upon to support each element of the claim or defence. As was observed in Oztech Pty Ltd v Public Trustee of Queensland [2019] FCAFC 102; (2019) 269 FCR 349 at [30] (Middleton, Perram and Anastassiou JJ):

There should be no doubt about whether any particular cause of action is relied upon. At a minimum, the pleading should be pellucidly clear about the causes of action, or claims, relied upon by the applicant, including any claims made upon an alternative hypothesis. The explicit clarity with which a claim is expressed should ensure that there be no need for the opposite party to closely scrutinise the pleading in a process of textual construction to determine whether a particular fact is relied upon, or the purpose for which it is alleged, much less to decide whether a particular cause of action is raised. The same basic requirement applies to any defence raised in answer to a claim.

Clear, concise pleadings that articulate the case alleged are essential to the fairness of the conduct of court proceedings: Betfair Pty Limited v Racing New South Wales [2010] FCAFC 133; (2010) 189 FCR 356 at [49]‑[53] (Keane CJ, Lander and Buchanan JJ).

12    I would add a reference to the description of the three functions of pleadings and particulars as stated by the High Court in Dare v Pulham (1982) 148 CLR 658, namely (a) they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it; (b) they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial; and (c) they give an understanding of the claim in aid of the right to make a payment into court.

13    In the present case, a further issue arises as to the circumstances in which the Court will allow a further opportunity to amend in circumstances where Mr Pizzino seeks that opportunity if the strike out application is upheld. In considering whether to afford a further opportunity to amend, there may be regard to case management principles of a kind that are entrenched in the modern approach to practice and procedure. In Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175, the High Court was concerned with whether an amendment should be allowed under a rule (rule 21) which permitted amendment for purposes that reflected case management principles. In that context, it was said by Gummow, Hayne, Crennan, Keifel and Bell JJ at [98]:

Of course, a just resolution of proceedings remains the paramount purpose of r 21; but what is a 'just resolution' is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account. The Rule's reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs.

14    As to the part of the interlocutory application that seeks summary dismissal, the separate principles to be applied were recently summarised by Banks-Smith J in Karis v Digital CC Management Pty Ltd (No 3) [2024] FCA 738 at [27]-[33] in terms which I gratefully adopt.

15    As was explained by Lindgren J in White Industries Aust Ltd v Commissioner of Taxation [2007] FCA 511; (2007) 160 FCR 298 at [47], there is an important distinction between dismissal for failure to plead a case (after successive attempts to do so) and summary dismissal, namely:

… evidence may disclose that a person has or may have a 'reasonable cause of action' or 'reasonable prospects of success', yet the person's pleading does not disclose this. In such a case O 11 r 16 empowers the Court to strike out the pleading but O 20 r 2(1)(a) would not empower the Court to order a stay or dismissal, and s 31A(2) would not empower the Court to give judgment for the respondent against the applicant. A failure after ample opportunity to plead a reasonable cause of action may suggest that none exists and therefore that the applicant has no reasonable prospects of success, but the existence of a reasonable cause of action and the pleading of a reasonable cause of action remain distinct concepts.

16    Therefore, successive failures to plead a case may justify dismissal if (a) the Court concludes from what has occurred (as distinct from factual evidence led) that no reasonable cause of action exists; or (b) the point has been reached where it is inconsistent with a just resolution of the proceedings for the respondent to continue to be exposed to litigation in which an applicant, despite ample opportunity, has been unable to plead a case.

Issues for consideration

17    As outlined in oral submissions, Mr Caratti contended that the New Pleading was seriously deficient and should be struck out. He contended that Mr Pizzino had been afforded an adequate opportunity to plead his case. He submitted that the failure to articulate a recognisable cause of action by the New Pleading or to point to facts that might found such a cause of action despite a number of attempts meant that it was appropriate to dismiss the proceedings. He did not advance a submission to the effect that, on the facts, the case sought to be advanced was 'hopeless'. That is to say, he did not seek to demonstrate that the Court should dismiss the proceedings on the basis that the affidavit material filed for Mr Caratti demonstrated that the proceedings should be summarily dismissed.

18    Although issues were raised as to whether any claim by Mr Pizzino was within any limitation period, the position of Mr Caratti as to that aspect was that it was not possible to reach any meaningful conclusion in that regard because Mr Pizzino had not been able to plead any claim in respect of which an assessment could be made as to when the cause of action accrued.

19    Mr Pizzino maintained that the pleading should be allowed to stand. He sought an opportunity to re-plead if Mr Caratti's strike out application was successful.

20    Respectfully, the submissions advanced to support Mr Pizzino's pleading were difficult to understand. They took the form of general assertion and sloganeering. In effect, they reduced to little more than the proposition that as Mr Caratti was the only individual involved and the $4 million had never been paid then Mr Caratti must be responsible as a matter of law. The submissions were not supported by anything resembling coherent legal analysis.

21    Consequently, largely unaided by any meaningful submissions advanced for Mr Pizzino, there are two issues for determination on the interlocutory application. First, should the New Pleading be struck out. Second, should there be leave to replead or should the proceedings be dismissed on the basis that there has been sufficient opportunity afforded to Mr Pizzino to plead his case.

Issue 1: Should the New Pleading be struck out?

22    Although the submissions advanced to support the New Pleading were opaque, it appeared that there was an attempt to advance the following categories of claim:

(1)    A claim of misleading or deceptive conduct.

(2)    A claim there was a breach of the Arrangement to which Mr Caratti was an accessory.

(3)    A claim that Mr Caratti breached his common law duties as a director of WSLC.

(4)    A claim that the breach of the Settlement Deed by WSLC was induced by Mr Caratti.

(5)    A claim that Mr Caratti is liable to Mr Pizzino by application of s 197(1) of the Corporations Act 2001 (Cth).

(6)    A claim that Mr Caratti has been involved in some form of breach of an equitable duty or there is some other claim in equity that may give rise to a tracing claim or a claim based upon Barnes v Addy liability.

(7)    A claim of some kind that depends upon knowledge of the terms of the deed of trust for the WSL Trust.

(8)    A claim that any cause of action did not arise until there was some perception by Mr Pizzino that there were no available assets in the WSL Trust to be able to meet the liability to pay $4 million in accordance with the terms of the Settlement Deed.

23    I will deal with each in turn.

(1) Alleged misleading and deceptive conduct

24    After beginning by referring to problems with obtaining information about the Trust and its assets, the New Pleading refers to Mr Pizzino and his sisters having been the owners of Lot 76 'at all material times before 25 July 2006' (para 9). The significance of the date is not apparent from the pleading, nor from the facts in evidence on the interlocutory application.

25    The pleading then refers to Mr Pizzino entering into 'commercial arrangements and discussions with WSLC and [Mr Caratti] as to Lot 76' (para 10). It provides no detail at all about when they occurred or their content. The form of the plea suggests that the discussions were with Mr Caratti in his personal capacity, but the rest of the pleading refers to Mr Caratti being alleged to have been 'representing WSLC'.

26    In the next paragraph (para 11), it is alleged that '[a]s a result of' the commercial arrangements and discussions between Mr Pizzino (representing the owners of Lot 76) and Mr Caratti (representing WSLC), on or prior to 2012, certain matters were 'agreed'. The references to dates in 2006 and 2012 indicate that the commercial arrangements and discussions took place between those dates and that they culminated in the matters being agreed.

27    The pleading as to matters said to have been agreed is quoted above. Those matters are (a) the transfer of Lot 76; (b) payment of $760,000 as part consideration for the transfer; (c) the provision of 16 lots from 'the proposed development' (not explained in the pleading) to a value of $4 million alternatively payment of that sum; and (d) documentation of the 'same' in a 'Deed of Settlement'. In circumstances where the agreed chronology is that there was first a deed of option, then a settlement on the sale of Lot 76, then a dispute giving rise to Supreme Court proceedings and then a Settlement Deed, the pleading makes no sense. It alleges that both the original option agreement and its performance by the transfer of Lot 76 and the subsequent Settlement Deed resolving a dispute were all part of a single 'Arrangement' made at some time prior to 15 October 2012.

28    As a result, it is most unclear as to what is being alleged about the Settlement Deed which is said to document the other matters. In particular, is it alleged that the Settlement Deed gave effect to some form of wider 'Arrangement' and, if so, is it being said that the Arrangement is legally enforceable?

29    The pleading then moves on to allege the making of a representation (para 12). It alleges that Mr Caratti 'representing WSLC represented that WSLC would implement the Arrangement and fulfil the representations'. As to this plea, there are no earlier representations pleaded. The only conduct is the 'commercial arrangements and discussions'. As has been mentioned the pleading is devoid of details as to their content or when they occurred. Accordingly, the representation plea amounts to no more than an allegation that at some time (unspecified) Mr Caratti made representations (unspecified) that those unspecified representations would be fulfilled. It is a hopeless and meaningless plea.

30    The rest of the paragraph is a claim that at some unspecified time and in an unspecified way, Mr Caratti representing WSLC represented to an unspecified person 'that WSLC would implement the Arrangement'. It is also unclear whether the allegation is that WSLC would perform the Arrangement or whether it is an allegation that WSLC had the capacity to perform the Arrangement. There is also no plea in what follows which falsifies the alleged representation. That is to say, the pleading does not go on at any point to allege precisely what it is that was false or misleading about the alleged representation. The only plea in that regard is a later plea that WSLC 'breached the Arrangement' which is to say no more than that the matters that were 'agreed' did not come to pass and has the additional vice of seemingly twisting the plea into some form of vague breach of contract claim. However, that possibility is seemingly dispelled by the following plea which is that: 'WSLC therefore engaged in conduct in trade or commerce that was misleading or deceptive …'.

31    Next, there is a pleading of what is said to have been done in reliance upon these very vague representations. The matters pleaded are:

A.    Transferred lot 76 to WSLC

B.    Received the said sum of $760,000

C.    Entered into the [Settlement Deed] the same being dated 15/10/2012.

D.    Awaited the subdivision and development of Lot 76 by or on behalf of WSLC

E.    Performed their obligations under the [Settlement Deed]

32    As has been explained, the common position of the parties is that the transfer of Lot 76 to WSLC and the payment of the sum of $760,000 all occurred many years before the parties entered into the Settlement Deed. How the chronology works with the actual events is unclear. In particular, how it could be the case that the Arrangement included both the original dealing between the parties in which the terms of sale of Lot 76 were agreed and the settlement of the dispute that arose after Lot 76 was transferred to WSLC is impossible to conceive.

33    Then it is said that WSLC did not have reasonable grounds for the representations it made and the only basis for that plea is reliance upon s 4 of the Australian Consumer Law. In circumstances where it is entirely unclear what representations were made it is difficult to ascertain whether s 4 might apply. It is relied upon to support a claim that WSLC 'therefore' engaged in misleading or deceptive conduct (para 19). There is no claim that Mr Caratti has himself engaged in such conduct. Rather, he is said to be 'involved in' the contravention (para 21).

34    Reliance upon s 4 may establish a primary contravention of the statutory proscription against misleading or deceptive conduct but is an insufficient basis upon which to demonstrate accessorial liability. In order to establish liability according to the statutory accessorial liability provisions the accessory must be shown to know that the representation was false but need not be demonstrated to have known that the representation would be characterised as being misleading or deceptive as a matter of legal analysis: see the recent detailed analysis of the authorities in Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88; (2023) 111 NSWLR 304 (Ward P, Brereton JA and Griffiths AJA) and the statements concerning that analysis by members of the High Court in Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2024] HCA 27 at [81]-[83] (Gageler CJ and Jagot J), [153] (Gordon J), [269] (Edelman J), [309] (Steward J agreeing), [310] (Gleeson J agreeing), [360] (Beech-Jones J). The pleading of those elements is not to be found in the New Pleading (see para 21).

35    There is a bare plea of loss being suffered by Mr Pizzino and his sisters 'because of such conduct and contravention' (para 20).

(2) Alleged breach of the Arrangement to which Mr Caratti was an accessory

36    The Arrangement is not pleaded as a contract. Although the word 'agreed' is used, there is no pleading as to the consideration. It is not possible to extract any claim as to when the parties agreed what is alleged. Further, as has been explained, the pleading of what was agreed is temporally confused. It seems to blend what was initially agreed in the deed of option concerning Lot 76 and the Settlement Deed by which the subsequent Supreme Court proceedings were compromised. It is common ground that those events were more than six years apart. It makes no sense to claim that the agreement conferring the option to purchase Lot 76 formed part of the compromise of proceedings complaining about the way in which the purchase was performed.

37    Further, as has been observed, the concept of 'the Arrangement' is used to formulate a plea that appears to concern a claim of misleading or deceptive conduct.

(3) Alleged breach by Mr Caratti of common law duties as a director of WSLC

38    Mr Caratti is not alleged to be a shareholder of WSLC. There is no attempt to engage with the contentious principles concerned with duties owed by directors to creditors and whether they may provide a basis for a claim by creditors for breach of duty.

39    The plea as to breach of common law duties is very obscure. It is as follows (para 23):

Insofar as:

A.    [Mr Caratti] in his capacity as a director of WSLC was an accessory to the breach by WSLC of the Arrangement and the [Settlement Deed].

B.    Such accessorial involvement constituted a breach of his common law duties as a director and a breach of his duties as a director of a trustee company; and

Such breach resulted in loss to [Mr Pizzino] and [Mr Caratti] is liable to [Mr Pizzino] in respect to such loss.

40    Strangely, the plea begins '[i]nsofar as'. These words suggest, perhaps, that a plea of breach of director's duty may be divined from the earlier paragraphs. However, there is no earlier indication of such a claim. The form of plea leaves the reader uncertain as to the status of what follows. The plea itself seems to say that by being an accessory to what is alleged before (principally misleading or deceptive conduct), Mr Caratti breached a duty owed as a director.

41    What is clear is that it fails to articulate the nature of the duty alleged, the precise nature of the breach of duty, the material facts to support the plea and how it is that Mr Pizzino has a cause of action in respect of a breach of duty owed by Mr Caratti as a director of WSLC.

(4) Alleged breach of the Settlement Deed induced by Mr Caratti

42    By the amendment to the New Pleading proposed on the day before the hearing of the strike out application, Mr Pizzino seeks to add the following additional plea (para 24):

Insofar as [Mr Caratti] caused WSLC to breach its obligations [under] the [Settlement Deed] as above pleaded [Mr Pizzino] has suffered loss and damage due to [Mr Caratti] inducing WSLC's breach of the [Settlement Deed].

43    There are many problems with this rolled-up generalised claim which appears to allege tortious interference with a contract by Mr Caratti. As was explained in Daebo Shipping Co Ltd v The Ship Go Star [2012] FCAFC 156; (2012) 207 FCR 220 at [89]: 'The gravamen of the tort is the defendant's intention to induce or procure the breach in the knowledge that such a breach will interfere with the plaintiff's contractual rights'. The proposed amendment is entirely deficient in raising a claim of that kind.

44    First, there is no plea of the terms of the Settlement Deed. The only plea is of the Arrangement which has the deficiencies already described.

45    Second, there is no plea of loss or damage for breach of the Settlement Deed.

46    Third, there is no plea of any material facts to support the claim that Mr Caratti has induced a breach of the Settlement Deed. It would need to be a plea that had due regard to the elements of the tort of interference with contract, presuming that to be the case that is to be alleged.

47    Fourth, by beginning the plea with the words '[i]nsofar as', the plea creates an ambiguity as to what aspect of the earlier part of the New Pleading is being referenced. In the preceding paragraphs there is no plea, in terms, that Mr Caratti 'caused' WSLC to breach its obligations under the Settlement Deed. The only plea is that Mr Caratti was involved in the breach of the Arrangement.

(5) Section 197(1) of the Corporations Act

48    A plea added by Mr Pizzino's late application to amend the New Pleading was a claim under s 197(1) of the Corporations Act which provides:

A person who is a director of a corporation when it incurs a liability while acting, or purporting to act, as trustee, is liable to discharge the whole or a part of the liability if the corporation:

(a)    has not discharged, and cannot discharge, the liability or that part of it; and

(b)    is not entitled to be fully indemnified against the liability out of trust assets solely because of one or more of the following:

(i)    a breach of trust by the corporation;

(ii)    the corporation's acting outside the scope of its powers as trustee;

(iii)    a term of the trust denying, or limiting, the corporation's right to be indemnified against the liability.

The person is liable both individually and jointly with the corporation and anyone else who is liable under this subsection.

49    The statutory predecessor to s 197 was s 229A of the Companies Codes. It imposed personal liabilities on directors of trustee companies where a debt was incurred by the company as trustee for which there was no entitlement to be reimbursed for the debt out of the assets of the trust.

50    After the decision in Hanel v O'Neill [2003] SASC 409 which gave the provision a very broad operation, s 197 was amended. The Explanatory Memorandum for the Corporations Amendment Bill (No 1) 2005 (Cth) described the change as one which replaced the provision with a new section 'that will only impose personal liability on a director of a corporate trustee where the corporation's right of indemnity as trustee is lost through disentitling conduct on the part of the corporation (whether through breach of trust or ultra vires conduct) or through a restriction in the terms of the trust that purports to deny a right of indemnity against trust assets'.

51    Recently, in Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (Trial Judgment) [2024] FCA 766 at [298] Jackman J summarised the current state of the law concerning s 197 as follows:

I note for completeness that, while s 197 of the Act might appear on its face also to confer a direct right of action on the plaintiffs against the directors of Gold Stone, that contention would have been met by the current state of the authorities which is to the effect that the provision does not extend to a claim by a beneficiary against the trustee: Young v Murphy [1996] 1 VR 279 at 313 (JD Phillips J, with whom Brooking J and Batt J agreed), a case dealing with s 229A of the Companies Code 1981. The reasoning in that case has been held to be applicable to s 197 of the Act: Cole v Tillman [2015] FCA 1512 (Dowsett J). I note that the current form of s 197 was introduced by the Corporations Amendment Act (No1) 2005 (Cth), following the decision in Hanel v O'Neill [2003] SASC 409; (2003) 48 ACSR 378, which found that s 197 made directors liable merely because the trust assets were not sufficient to indemnify a trust creditor, even where this was not because of a breach of trust or an act which was ultra vires the trust. The second reading speech for the Corporations Amendment Bill (No 1) 2005 made it clear that the purpose of the amendment was to 'address concerns that have arisen in the light of the recent decision in Hanel v O'Neill' and to 'restore the longstanding interpretation of section 197'. The Explanatory Memorandum for the 2005 Bill was to the same effect, and explained the difficulties with the Hanel v O'Neill interpretation, principally that it effectively turned directors into guarantors of trustee companies for any transaction the trustee entered into: see [1.9]-[1.13]. Accordingly, the plaintiffs have justifiably not pursued a claim under s 197.

52    The pleading advanced by Mr Pizzino that seeks to rely upon s 197(1) is expressed in the following terms:

Insofar as [Mr Caratti] was a director of WSLC when it incurred a liability interalia to [Mr Pizzino] while acting as a trustee and has not discharged same in the terms of s 197(1) of the Corporations Act. [Mr Caratti] is liable to [Mr Pizzino] in the terms of that section.

53    Once again, the introductory words '[i]nsofar as' serve to obscure what other aspect of the pleading may be relied upon as the foundation for the plea. What appears to be alleged is that the mere fact that Mr Caratti was a director of WSLC when it incurred the debt of $4 million and the debt has not been discharged is enough to found a claim based upon s 197. Indeed, the language of the plea suggests that a failure by Mr Caratti to discharge the debt, means there is a liability on his part. As to that aspect, I will assume that the allegation is to the effect that WSLC has not discharged the debt and that because it was incurred as trustee at a time when Mr Caratti was a director then Mr Caratti is liable, in effect, to guarantee the debt of WSLC. That is precisely the form of claim that was not to be encompassed by the current terms of s 197.

54    Plainly, the plea is insufficient to raise a claim under the statutory provision. What must be alleged, with a proper factual foundation, is a lack of entitlement of WSLC to an indemnity from the assets of the WSL Trust solely because of one of the matters listed in s 197(1)(b).

55    Further, by reason of the very vague way in which submissions were advanced about breach of trust, I note that it is important to differentiate between the terms of the WSL Trust of which WSLC was trustee (on the one hand) and any claim that by reason of the terms of the option deed or the dealings by which Lot 76 came to be transferred that WSLC was a trustee of Lot 76 for the Vendors, including Mr Pizzino (on the other hand). It seems unlikely that the WSL Trust was the source of some form of obligation which required WSLC as its trustee to act in the interests of the Vendors. On the facts as currently before the Court it appears that the WSL Trust was established for the benefit of interests associated with Mr Caratti. There is nothing to suggest that it was some form of structure by which the proposed subdivision might be undertaken in the interests of Mr Caratti and the Vendors in particular or all vendors of the lots that were to form part of the subdivision.

(6) Alleged breach of equitable duty or Barnes v Addy liability

56    Although there were brief, unparticularised, references in the course of oral submissions for Mr Pizzino to Mr Caratti's conduct amounting to some form of breach of an unspecified equitable duty or to liability according to Barnes v Addy principles, it is impossible to extract any kind of claim of that kind from the pleading. It too would be a claim of a kind where it would be necessary to be clear about the nature of the trust or other fiduciary relationship that was the foundation for the claim.

(7) Alleged claim that depends upon knowledge of the terms of the deed of trust for the WSL Trust

57    As has been mentioned, the New Pleading begins with an account of what is said to have happened to WSLC, particularly its liquidation and deregistration. It culminates in a plea that Mr Pizzino has no knowledge of the content of the trust deed for the WSL Trust. Thereafter, the New Pleading focusses on the 'Arrangement' as alleged. It then concludes with the added pleas to the effect that Mr Caratti procured a breach of the Settlement Deed and that he is liable for the debt of $4 million under s 197 of the Corporations Act.

58    Despite the focus of the New Pleading, there was an insistence in oral submissions for Mr Pizzino upon the significance of the fact that Mr Caratti had not produced the deed of trust for the WSL Trust and the need to obtain financial statements for the Trust to identify whether it had any assets. For the most part this seemed to be advanced as a reason why applicable limitation periods did not commence to run (as to which, see below).

59    It is not possible to discern from the pleading what the significance of the terms of the WSL Trust might be for the claims as alleged, save perhaps for the claim under s 197. However, no submission was put to the effect that the claim under that provision required access to the terms of the deed of trust. Rather, as has been explained, that case was put on the basis that it was enough to show that WSLC could not pay and that Mr Caratti had not paid. For reasons that have been given, that approach is misconceived.

(8) Allegations about limitation periods

60    As has been mentioned, the oral submissions for Mr Pizzino seemed to suggest that until it was known to Mr Pizzino that there were no assets in the WSL Trust, time did not commence to run for limitation purposes, especially in relation to claims of misleading or deceptive conduct. In that regard, the decision in Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 was invoked as a form of incantation that would dispel any prospect of a limitation point being raised by way of defence. Given the state of the New Pleading it is not possible to ascertain with any confidence precisely what is being alleged by way of a cause of action and accordingly when it may have accrued. However, what can be said is that the decision in Wardley lacks the magical power that is suggested by the submissions advanced for Mr Pizzino.

61    The majority in Wardley said (at 527):

When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff. But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of 'loss or damage'. And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of undercompensation or overcompensation, the risk of the former being the greater.

62    Here, on any view, the amount of $4 million was due many years ago. There was no contingency or uncertainty on which the obligation to pay the $4 million depended. It is very difficult to see any basis upon which it might be said that there was some claim of misleading or deceptive conduct in which the loss is formulated as taking the form of the failure to pay the $4 million that might require something more to become known or apparent. In particular, it is difficult to see what the significance might be of knowing the terms of the deed of trust or the current asset position of the trust of which WSLC had been trustee for Mr Pizzino to be able to understand whether he had suffered any loss. That is especially so in circumstances where WSLC was wound up some time ago and, on the facts before the Court, Mr Pizzino brought proceedings claiming that loss from his former solicitors in the Supreme Court in 2020.

Conclusion whether the New Pleading should be struck out

63    For the above reasons, it is no overstatement to say that the New Pleading is both confusing and hopelessly deficient in fundamental respects. It does not serve the purposes of a statement of claim. It must be struck out.

Issue 2: Should there be leave to re-plead?

64    Mr Duckham, who is both the solicitor on the record for Mr Pizzino and the author of the New Pleading, appeared as counsel on the application. Part way through his oral submissions, it emerged that counsel at the Independent Bar had been briefed to consider the preparation of a further version of the pleading. There was no real explanation as to why that had not occurred earlier. However, that was a matter advanced as to why the Court should afford a further opportunity to Mr Pizzino to plead his case.

65    It was also said that on the materials, Mr Caratti paid $760,000 at the time of transfer of Lot 76 and paid nothing more despite the nature of the dealing being one in which much more was to be received by the Vendors. It was also said that the value attributed to Lot 76 when it was sold by WSLC was $2.8 million and there had been no accounting for what had happened to the difference between that amount and the figure of $760,000. This was said to indicate that there was a great injustice that had occurred. However, submissions of that kind are no substitute for discharging the burden of identifying the nature of a claim based upon established legal principles that Mr Caratti can be properly called upon to answer.

66    Significantly, the New Pleading is the fourth attempt to plead a case against Mr Caratti over a period of about 12 months. After the first attempted pleading was struck out, successive versions were delivered each of which was replaced after issues were raised by those acting for Mr Caratti. The New Pleading prompted the present interlocutory application. On the day before the hearing of that application, a minute of two additional paragraphs was delivered. The addition of those paragraphs was not opposed by counsel for Mr Caratti. Therefore, the present application has proceeded on the basis that it is the fifth attempt to articulate a case.

67    Further, the proceedings have now been on foot for over a year during which time Mr Caratti has been exposed to the burdens of a case where no proper basis for the proceedings has been articulated. Even so, Mr Caratti did not point to any personal reasons as to why that is a particular strain upon him.

68    It was contended that Mr Pizzino appears to face an insurmountable limitation defence. There is force in that submission, especially insofar as it relates to the way in which the misleading or deceptive conduct claim appears to be conceived. However, as I have explained, it is difficult to form any final view as to matters of limitation given the current state of the pleading. Also, there will be an opportunity for Mr Caratti to raise any matters of limitation in the context of a further pleading.

69    Finally, this is not a case where Mr Caratti seeks to demonstrate that, on the facts, there is no arguable case against him and for that reason the proceedings ought to be summarily dismissed.

70    Bringing all of the above considerations into account, I am persuaded that there should be leave to re-plead. In forming that view, I bring to account the evident deficiencies in the way in which the New Pleading has been expressed. It bears the hallmarks of a failure to bring the required expertise to bear in considering whether there is an arguable claim. For that reason, the fact that there are substantial deficiencies in the New Pleading does not provide a foundation for the Court to conclude that, despite best efforts to articulate a case for Mr Pizzino, none exists. There remains at least the possibility that Mr Caratti has engaged in some conduct as director of WSLC which means that the company, as trustee, was not entitled to an indemnity against the trust assets. If that is the case (being a matter about which I express no view) then it may be that s 197 of the Corporations Act has some relevance. It may be that the former liquidator of WSLC may have relevant documents as to the conduct of the affairs of WSLC when it acted as trustee of the WSL Trust. The possibility that financial documents might be sought from the liquidator has been raised. The submissions advanced for Mr Pizzino suggest that consideration is being given to the possibility of a claim against Mr Caratti based upon Barnes v Addy principles. Again, that is a matter about which I express no view. There may be other pleas that could be advanced after competent consideration of the circumstances by independent counsel.

71    Further, I am not satisfied that the point has been reached where it is inconsistent with the just resolution of the case for the proceedings to be allowed to continue. I take into account the fact that the matter has been briefed to independent counsel to consider the pleading. I also take into account the fact that there will be an opportunity for Mr Caratti to raise any matters of limitation in the context of a further pleading.

Orders

72    For those reasons, there should be an order striking out the New Pleading but otherwise the interlocutory application should be dismissed. After the parties have had an opportunity to consider these reasons, I will hear from the parties as to the appropriate order for costs on the next occasion that the matter is before the Court for case management. In the meantime, I will reserve the question of costs. There will be an order for the filing of a second further substituted statement of claim by 19 December 2025.

Associate:

Dated:    6 November 2024