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Kovarfi v BMT & Associates Pty Ltd (No 3) [2017] NSWSC 710 (31 May 2017)

Last Updated: 6 June 2017

Case Name:	Kovarfi v BMT & Associates Pty Ltd (No 3)
Medium Neutral Citation:	[2017] NSWSC 710
Hearing Date(s):	31 May 2017
Date of Orders:	31 May 2017
Decision Date:	31 May 2017
Jurisdiction:	Equity
Before:	Parker J
Decision:	Proceedings dismissed
Catchwords:	Limitation of actions – suspension of limitation period – “cause of action based on fraud” – fraudulent concealment – determination in absence of defence and reply pleadings Civil Procedure - abuse of process – relitigation of issues decided in previous proceedings – summary disposal – stay of proceedings pending payment of costs
Legislation Cited:	Bankruptcy Act 1966 (Cth), s 129AA Limitation Act 1969 (NSW), s 55 Uniform Civil Procedure Rules 2005 (NSW), rr 12.10, 14.28, 15.3
Cases Cited:	CGU Insurance Ltd v Watson [2007] NSWCA 301 In the matter of BMT & Associates Pty Ltd [2014] NSWSC 1082 In the matter of Kata-Lyn Pty Ltd  [2014] NSWSC 1246  Kovarfi v BMT & Associates Pty Ltd [2012] NSWSC 1101 Kovarfi v BMT & Associates Pty Ltd (No 2) [2014] NSWSC 100
Category:	Procedural and other rulings
Parties:	Edith Etelka Kovarfi (Plaintiff) BMT & Associates Pty Ltd (1st Defendant) Thomas Charles Plenty (2nd Defendant)
Representation:	Plaintiff in person Counsel: R May (Defendants) Solicitors: Yeldham Price O’Brien Lusk (Defendants)
File Number(s):	2016/268695
Publication Restriction:	Nil

JUDGMENT – EX TEMPORE

1. These proceedings concern a development at Queenscliff. The following background material is taken from the plaintiff's claim in the proceedings and I will assume for the purpose of today's application that these facts could ultimately be established.
2. The developer was a company called Kata-Lyn Pty Ltd ("Kata-Lyn"). This company was owned and controlled by the plaintiff and her husband. Kata-Lyn borrowed money from the Commonwealth Bank of Australia ("CBA") to finance the development and Mr and Mrs Kovarfi were guarantors under the finance facility.
3. The first defendant is a firm of quantity surveyors which was retained by the CBA to certify progress of the development. The second defendant was a director of the first defendant who was responsible for its work on the development.
4. Initially the development works were carried out by a company called Scarfone Building Pty Ltd ("Scarfone"). Disputes apparently arose between the Kovarfis and Scarfone and in February 2004 the building contract with Scarfone was terminated. Mr Kovarfi, who apparently had his own building business, took over the building work on the development. Subsequently, CBA commissioned a report from the first defendant which is referred to in the pleadings and the evidence as the "Cost to Complete" report. Apparently, this was because the CBA's consent was needed to provide further funds, or perhaps to keep existing credit lines open for financing the development. The report was prepared on 13 May 2004.
5. Following the report, no further funding was provided by CBA and CBA entered into possession of the property as mortgagee. CBA sold the property on 27 October 2004, presumably on the basis of default by Kata-Lyn under the finance facility. CBA also called for payment under the guarantees and Mr and Mrs Kovarfi "declared bankruptcy" on 25 January 2005.
6. Three sets of proceedings have been brought in the Court concerning these events by Mrs Kovarfi or parties associated with her. The first proceedings were commenced in the Common Law Division's Professional Negligence List in October 2010. I will refer to these as the “First Common Law Proceedings”. Those proceedings were dismissed by McCallum J in September 2012: Kovarfi v BMT & Associates Pty Ltd [2012] NSWSC 1101.
7. The second proceedings were also commenced in the Common Law Division's Professional Negligence List, in May 2013. I will refer to these proceedings as the "Second Common Law Proceedings". Those proceedings were dismissed by Campbell J in February 2014: Kovarfi v BMT & Associates Pty Ltd (No 2) [2014] NSWSC 100.
8. The third proceedings were commenced in the Corporations List in this Division in April 2014. I will refer to these proceedings as the "Corporations Proceedings". The proceedings were dismissed by Black J in July 2014: In the matter of BMT & Associates Pty Ltd [2014] NSWSC 1082. An application to reopen was dismissed by his Honour in August 2014: In the matter of Kata-Lyn Pty Ltd  [2014] NSWSC 1246. 
9. The present proceedings were commenced by Statement of Claim filed in September 2016. The plaintiff is Mrs Kovarfi. She sues on her own behalf and also as purported assignee of Mr Kovarfi. In the proceedings she claims damages for losses resulting from the CBA's action in calling in its securities under the loan to Kata-Lyn.
10. The plaintiff claims that she and her husband lost other properties which they held (presumably as a result of their guarantee obligations) together with the value of their shares in Kata-Lyn and payments and profits which they would have otherwise derived from the operations of Kata-Lyn.
11. The plaintiff claims also that she lost her real estate licence and her real estate business, ceased her design business, and suffered depression and anxiety as well as distress from an inability to visit Hungary when her father died there in 2009. Mrs Kovarfi also claims on behalf of Mr Kovarfi that he lost his building licence and building business. The plaintiff also claims punitive damages.
12. There are two applications before the Court. The defendants move for summary disposal or a stay of the proceedings or alternatively for the striking out of the Statement of Claim. Mrs Kovarfi moves for leave to amend her Statement of Claim.
13. I will deal first with the defendants’ application because if that application is successful I do not need to consider Mrs Kovarfi's application for leave to amend. However, in dealing with the defendants’ application I have had regard to the amendments propounded by Mrs Kovarfi and I have assumed that those amendments could be made, so that I would need to be satisfied that the case as propounded in the proposed Amended Statement of Claim is relevantly one which ought to be stayed or struck out.
14. There are three main aspects to the defendants’ contentions. First, the defendants contend that the proceedings are hopeless in the sense that they are bound to fail. Summary judgment is sought on that basis or alternatively the defendants rely on the Court's power to strike out pleadings pursuant to Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) r 14.28. As I understand it, the defendants contend that even if there were a viable cause of action, it is not properly pleaded. In this regard they also rely on UCPR r 15.3 which relates to the pleading of claims of fraud.
15. The defendants’ second contention is that the proceedings are an abuse of process. The defendants rely on the principles stated by the Court of Appeal in CGU Insurance Ltd v Watson [2007] NSWCA 301 at [40]:

The Supreme Court has an inherent jurisdiction to prevent abuse of its procedures, and may stay or dismiss proceedings the bringing or continuance of which is an abuse of process. Even if principles of res judicata or Anshun estoppel do not apply, there may be abuse of process in relitigating an issue decided against a party in previous proceedings.

16. Thirdly, if the proceedings are not to be summarily dismissed, the defendants seek a stay. They invoke the power of the Court under UCPR r 12.10:

If:
(a) as a consequence of the dismissal of proceedings, a party is liable to pay the costs of another party in relation to those proceedings, and
(b) before payment of the costs, the party commences further proceedings against that other party on the same or substantially the same cause of action, or for the same or substantially the same relief, as that on or for which the former proceedings were commenced,
the court may stay the further proceedings until those costs are paid and make such consequential orders as it thinks fit.

17. A stay is also sought in the Court's inherent jurisdiction.
18. Mrs Kovarfi's pleaded case makes essentially two complaints about the conduct of the defendants. The first complaint concerns certifications undertaken by the first defendant whilst Scarfone was working on the property. That complaint is pleaded in the following terms (omitting particulars):

11. The defendants’ certification contained work and the Financier paid for Scarfone that either wasn’t finish or didn’t even started or executed with fault in the construction.
12. The defendants caused that Scarfone had received substantially more fund from the Financier that the value of the work executed.
13. The defendants caused that the remaining amount of the fund was less that it is required to finish the development and there was a substantial shortfall of the finance for those constructions that had been paid, but wasn’t executed.
14. The defendants caused that the value of the executed work was less than it was paid for.
15. The defendants caused that the value of the property together with the ready construction was less than the loan advanced by the Financier.

19. The second complaint concerns the Cost to Complete report. The allegation in the Statement of Claim as it currently stands is as follows.

19. On or about 13th May 2004 BMT completed its ‘Cost to Complete’ report. This report was prepared with fraud to cover up the negligent overpayment. BMT convinced the Financier to withdraw its finance.

20. In the proposed Amended Statement of Claim the allegations concerning the certifications whilst Scarfone was working on the property are relevantly identical. The allegation concerning the Cost to Complete report is as follows:

21. On or about 13th May 2004 BMT completed its ‘Cost to Complete’ report. This report was prepared with fraud to cover up the negligent overpayment. The “Cost to Complete Estimate” was prepared dishonestly, and with the intention to deprive the Plaintiff from its property and imperil their rights and interest. The Defendants knew that their “Cost to Complete Estimate” is not true. The defendants knew that with their false professional report they convince the Financier to withdraw its finance, take into possession the development property and imperil the Plaintiff’s rights and interests.

21. I do not see the difference in formulation in the Amended Statement of Claim as making any substantial difference. In both the Statement of Claim and the Amended Statement of Claim the essential allegation is that deliberately false statements were made in order to cover up alleged previous negligence; that those statements were calculated to injure the plaintiff; and they in fact resulted in the CBA withdrawing or failing to grant further finance.
22. As I have mentioned, the first defendant was retained by the CBA. The reports which are referred to in the Statement of Claim were presumably provided by the first defendant direct to the CBA. They would not necessarily have been sent to the Kovarfis in the ordinary course.
23. If the Kovarfis have a claim, then it is not a claim which is based on any negligent or fraudulent statements made to them. However, it is conceivable in the circumstances that although the first defendant was not retained by the Kovarfis or their company, it nevertheless owed a duty of care to them. On this application, counsel for the defendants accepted that this was so, and made it clear that the defendants do not on this application contest the possibility that a duty of care directly from the first defendant in favour of Mr and Mrs Kovarfi might be established, and I will proceed on the assumption that such a duty exists, if only for the purpose of this application. However, counsel for the defendants contended that the proceedings were doomed to fail because they were statute barred.
24. On the face of it, the damage to Mr and Mrs Kovarfi, of which the proceedings complain, was first suffered at the latest by October 2004 and the proceedings were well out of time. However, it may be that it can be argued on behalf of the Kovarfis that the time has been suspended from running. In particular, it may be open for the Kovarfis to rely on the Limitation Act 1969 (NSW), s 55(1):

(1) Subject to subsection (3), where:
(a) there is a cause of action based on fraud or deceit, or
(b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed,
the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment.

25. Counsel for the defendants accepted that if the proceedings answered the description in s 55(1), then time would cease to run until the point at which Mrs Kovarfi first discovered, or might with reasonable diligence have discovered, the fraud deceit or concealment in question.
26. However, counsel argued that the section was clearly not engaged or alternatively that the alleged fraud was discoverable before September 2010 so that the present proceedings were out of time. There is a difficulty in evaluating these submissions. The onus of establishing that a claim is statute barred lies on the defendant. The limitation defence must be pleaded. Accordingly, in the ordinary course there is no obligation on the plaintiff to plead in the statement of claim grounds for extension or suspension of the limitation period. Rather, the plaintiff is entitled to plead the cause of action and no more. If the defendant wishes to raise a limitation defence then that must be pleaded and then the plaintiff can rely upon any extension by way of reply. Accordingly, the defendants are inviting me to determine that the case for an extension is hopeless in circumstances where the plaintiff, Mrs Kovarfi, has not been required formally and specifically to plead what that case is.
27. It seems to me that the question of whether proceedings involve a cause of action "based on fraud" may involve factual issues. No doubt it ought to be possible to determine from the statement of claim itself whether the cause of action is based on "deceit" because this is a tort which has well-established elements which must be pleaded in order to sustain it. But it is not clear to me what additional content is created by the reference to "fraud" as well as deceit. It may be that a cause of action could be "based on fraud" because of facts that could be asserted about the circumstances in which the cause of action arose, but which are not necessarily elements of that cause of action. Whether that be so or not, it is plain that an allegation of "fraudulent concealment" for the purpose of s 55(1)(b) involves factual allegations, as does the question of whether or when a person might with reasonable diligence discover such fraud.
28. I acknowledge that there may be cases where it is clear beyond argument, having regard to the case framed in the statement of claim, that the claim being made is statute barred and accordingly that there may be circumstances in which the Court can be persuaded to make an order for summary dismissal of proceedings without requiring the defendant to take the formal step of pleading a defence. However, I do not think that this is one of those cases.
29. Counsel for the defendants suggested that Mrs Kovarfi's Statement of Claim had anticipated the obligation to reply by pleading when it was that she had become aware of the reports of the first defendant which are in question. It is certainly true that there are pleadings in the Statement of Claim which touch on this. The Statement of Claim pleads:

17. On or about 25th of February 2004 Kata-Lyn received the copy of the remaining BMT’s reports.
...
29. On or about 9 September 2010 the Plaintiff received a letter from the Financier’s solicitor advising her that the officer worked for the Financier and transferred the money in accordance with BMT’s reports at the time of the development is working and was working to BMT. The letter gave the impression to the Plaintiff that there could be foul play when the Financier withdrew the finance without giving any chance to Kata-Lyn and or the guarantors to check and comment on BMT’s” Cost to Complete Estimate” and report.

30. Whatever might be the case if Mrs Kovarfi were legally represented, I do not think that I should treat these pleadings as a considered and exhaustive statement of the case that she might potentially make under s 55. As a litigant in person, Mrs Kovarfi is not entitled to special treatment from the Court but she is entitled to expect that the Court will not cut any corners in dealing with an application to dispose of her proceedings summarily. Accordingly, I would not dismiss the proceedings summarily on the ground that the proceedings are hopeless.
31. The next question is whether there is sufficient identity between the proceedings as currently framed and earlier proceedings in the Court to lead to the conclusion that these proceedings represent an abuse of process on the basis that they have substance already determined by the Court, in accordance with the principles referred to by the Court of Appeal in CGU v Watson.
32. It is convenient to consider this question first by reference to the Second Common Law Proceedings. Those proceedings were brought by Mr and Mrs Kovarfi as two of the plaintiffs. The claims included claims for damages based on losses flowing from the exercise by the CBA of its rights against Kata-Lyn and under the guarantees.
33. The heads of loss claimed were pleaded in terms which were virtually identical to the terms in which they are pleaded in the present proceedings. The complaint concerning the certification of the work done by Scarfone was also pleaded in virtually identical terms. The complaint concerning the Cost to Complete report, styled as the “Cost to finish” report in the statement of claim in those proceedings, was pleaded as follows:

17. On or about 13th May 2004 BMT completed its ‘Cost to finish’ report. This report was misleading and deceptive. BMT convinced the financier to withdraw its finance.

34. As a matter of substance, it seems to me that the claims advanced in the Second Common Law Proceedings were identical to the claims now advanced, except that the allegation previously made about the Cost to Complete report was that it was misleading and deceptive and it is now alleged that it was a "fraud". The question for me is whether this makes sufficient difference to make the principles stated by the Court of Appeal inapplicable.
35. The use of the term "fraud" and the allegations of dishonesty and deliberate false statements, as they appear in the Statement of Claim in the current proceedings and in the proposed Amended Statement of Claim, need analysis.
36. The claims made in the present proceedings would not sustain the tort of deceit. To establish deceit, it is necessary to prove that a false statement was made to the plaintiff by the defendant; with the intention of inducing the plaintiff to act on the statement; and the plaintiff in fact did so.
37. That is not the case here; the allegation here is of a statement made by the first defendant to the CBA which resulted indirectly in loss to the Kovarfis. Such a claim is actionable but, in my opinion, must be actionable on the basis of breach of a duty of care.
38. Typically, actions for breach of duty of care are brought on the basis of negligent breach and, as a result, the action for breach of duty of care is often referred to as an action in negligence. However, it must be remembered that if a duty of care exists, then it is not only negligent action that can result in its breach. Intentional action is just as much a breach of a duty of care as negligent action.
39. Seen in this way, the allegations of "fraud" and "dishonesty" do not alter the basic nature of the claim. In essence, the claim is that a statement was made to the CBA by the first defendant, which was incorrect and which caused loss to the Kovarfis. It may be that if the circumstances in which the Cost to Complete report were prepared can be characterised as in some manner involving "fraud" or "dishonesty", then that would assist Mrs Kovarfi in resisting a limitation defence; but it seems to me that it does not alter, in any substantial way, the underlying cause of action itself.
40. In my opinion, the change from an allegation of misleading and deceptive conduct to an allegation of "deliberate" or "fraudulent" conduct makes no relevant difference for the purpose of the application of the principles stated by the Court of Appeal.
41. In his Honour’s judgment dismissing the Second Common Law Proceedings, Campbell J relied principally on the circumstance that, as a result of the bankruptcy of the Kovarfis, any claims they had against the defendants had vested in the trustee. The argument before his Honour apparently centred on the question of whether the claims were "personal" claims which were exempt from this vesting and his Honour concluded that they were not.
42. In the submissions in these proceedings, Mrs Kovarfi suggested that Campbell J had reached the wrong conclusion because he had overlooked the effect of the Bankruptcy Act 1966 (Cth), s 129AA. That section provides that property which is disclosed in a bankrupt’s statement of affairs revests in the bankrupt six years after discharge which, in the present case, would be January 2014.
43. The application of this provision depends, of course, upon it being established that the asset in question was disclosed in the bankrupt’s statement of affairs. There is no evidence before me, and no pleaded allegation, that this was in fact the case. However, even if it were, I do not think it makes any difference to the application of the principles stated by the Court of Appeal. What is important is that Mrs Kovarfi and Mr Kovarfi had an opportunity to pursue the claim in the Second Common Law Proceedings and that the claim was summarily dismissed. The abuse of process which is central to the doctrine in question depends upon the principle of finality; parties cannot be permitted to continually relitigate claims. In the related area of res judicata, it does not matter whether the previous judgment is arguably or even definitely wrong; the only question is whether there has been a previous judgment which has disposed of the matter. I think that I must adopt the same approach in applying the doctrine of abuse of process. The fact is that the s 129AA point was available to be taken and could have been taken before Campbell J.
44. Campbell J also considered the question of whether the proceedings were statute barred. Before his Honour, debate centred on an allegation by Mrs Kovarfi that there had been a period of time between November 2004 and November 2008 when she had been substantially impeded in the management of her affairs by reason of disease or impairment of her mental condition. His Honour accepted that arguably this would engage the operation of the Limitation Act 1969 (NSW), s 52, but concluded that this would be insufficient to save the proceedings from being statute barred.
45. His Honour also touched briefly on s 55. His Honour expressed doubt about the application of the section and said that he was not satisfied that there was likely to be an available extension of the limitation period under that section. Based on the newly formulated Statement of Claim, I have reached a different conclusion for the purpose of evaluating the defendants’ strike out application in this case. That, of course, does not mean that I disagree with the view that Campbell J took, based on the material and the arguments presented before him and the state of the pleadings at that point; but, even if I did disagree, that would be irrelevant. For reasons which I have given, it is the fact of his Honour's decision summarily disposing of the proceedings that matters, not whether the reasons can now arguably be challenged.
46. For completeness, I should mention the other proceedings which were relied on by the defendants.
47. The First Common Law Proceedings were brought by Mrs Kovarfi but they were brought purportedly as assignee of Kata-Lyn. The damages claimed were for losses allegedly suffered by the company in its corporate capacity. If the defendants’ case depended upon those proceedings, I doubt that I would consider them sufficiently identifiable with the claims now being made (which, as I pointed out, are made on behalf of the Kovarfis individually) for the principles identified by the Court of Appeal to operate.
48. The Corporations Proceedings involved an application to reinstate Kata-Lyn as a company after it was deregistered. I see no basis on which the decision of Black J would justify the dismissal of these proceedings on the grounds of abuse of process derived from the bringing of repeated claims.
49. However, for reasons which I have given, I consider that these proceedings are, in substance, an attempt to reagitate the proceedings which were disposed of by Campbell J in February 2014 and that the attempt to do so is an abuse of process, according to the principles stated by the Court of Appeal.
50. Had I not been of this view, I would nonetheless have granted the defendants a stay under UCPR r 12.10, pending payment of the costs of the Second Common Law Proceedings.
51. For reasons which I have given, I consider that the present proceedings are, in substance, the same as the Second Common Law Proceedings. Accordingly, I would have granted a stay until the costs of the Second Common Law Proceedings were paid.
52. Counsel for the defendants argued that, in the exercise of the inherent jurisdiction, if I reached this point, then I should go further and order that there be a stay until all of the costs of the earlier proceedings (that is, including the First Common Law Proceedings and the Corporation Proceedings) were paid. I am not satisfied that, given the express terms of UCPR r 12.10, it would be proper for me to exercise the Court's inherent jurisdiction on some sort of wider basis; but, in any event, in the exercise of my discretion, I would not exercise such a power even if it existed. I see no reason why, in relation to proceedings which, as I have found, are not relevantly the same as the proceedings which have now been brought, the defendants are not adequately protected by their ability to assess and enforce payment of costs in the ordinary way; if necessary, by proceeding to bankruptcy.
53. Given these conclusions, there is no need to consider the defendants’ contentions concerning the form of the pleading and their applications for strike out, based on alleged inadequacies in the pleadings and particulars; nor is there any need to consider and rule on Mrs Kovarfi's application to amend.
54. I order that the proceedings be dismissed.
55. The defendants have been successful in their application and successful in the proceedings and costs should follow the event.
56. The defendants have applied for indemnity costs on the basis of a letter written to Mrs Kovarfi in September 2016. That letter argued that the proceedings were an abuse of process, essentially on grounds which I have upheld in this application. The letter went on to put Mrs Kovarfi on notice of an application for indemnity costs. I do not see this letter as sufficient to depart from the ordinary basis on which costs are conventionally awarded. The letter was in no way an offer and, although Mrs Kovarfi has been unsuccessful in propounding these fresh proceedings, I do not consider that her conduct in doing so is so unreasonable that it should be visited with an order for costs on an indemnity basis. The order of the Court accordingly will be that the plaintiff pays the defendants’ costs of the proceedings on the ordinary basis.

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