Clout & Ors v Klein & Ors [2001] QSC 401

SUPREME COURT OF QUEENSLAND CITATION: Clout & Ors v Klein & Ors [2001] QSC 401 PARTIES: DAVID LEWIS CLOUT and LACHLAN STUART McINTOSH (first plaintiffs) and FIBRE-TEK (GOLD COAST) PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) CAN 010 811 980 (second plaintiff) v GARY MONTAGUE KLEIN (first defendant) and PETER JAMES HILBERT (second defendant) and BERNARD JOHN HILBERT (third defendant) and NATIONAL AUSTRALIA BANK LIMITED ACN 004 044 937 (fourth defendant) and VON INVESTMENTS PTY LTD ACN 000 899 570 (fifth defendant) and COMMISSIONER OF TAXATION (sixth defendant) FILE NO/S: S 10717 of 2000 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Brisbane DELIVERED ON: 25 October 2001 DELIVERED AT: Brisbane HEARING DATE: 13 September 2001 JUDGE: Holmes J -- 1 of 18 -- 2 ORDER: First and second defendants’ application to strike out dismissed CATCHWORDS: PRACTICE – DEFENCE – STRIKING OUT – STATEMENT OF CLAIM ESTOPPEL – RES JUDICATA – ASHUN ESTOPPEL Application to strike out parts of the further amended claim and further amended statement of claim – whether second plaintiff is estopped from advancing a claim against the applicants by virtue of a dismissal of a previous action – whether a judgment obtained on a procedural default can give rise to an estoppel based on res judicata – whether issue estoppel made out – whether Ashun estoppel arose – whether there exists a risk that a judgment will result declaring rights inconsistent with the default judgment – whether an abuse of process. Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508 Pople v Evans [1968] 3 WLR 97 Baines v State Bank of New South Wales (1985) 2 NSWLR 729 Rogers v Legal Services Commission of South Australia [1995] 64 SASR 572 Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 New Brunswick Railway Co. v British and French Trust Corporation Ltd [1939] AC 1 Macquarie Bank v National Mutual Life Association of Australasia Ltd & Larcombe (1996) 40 NSWLR 543 Thoday v Thoday [1964] P. 181 Jackson v Goldsmith (1950) 81 CLR 446 Onerati v Phillips Constructions Pty Ltd (in liq) (1989) 16 NSWLR 730 Chamberlain v Deputy Commissioner of Taxation (1998) 164 CLR 502 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 36 FCR 406 Boles v Esanda Finance Corporation Ltd (1989) 18 NSWLR 666 Blair & Perpetual Trustee Co Ltd v Curran (Adam’s will) (1939) 62 CLR 464 Brewer v Brewer (1953) 88 CLR 1 Egri v DRG Australia Ltd (1988) 19 NSWLR 600 Arnold v Westminster Bank [1991] 2 AC 93 -- 2 of 18 -- 3 Effem Foods v Trawl Industries (1993) 43 FCR 510 Linsley v Petrie [1998] 1 VR 427 Hoystead v Commissioner of Taxation [1926] AC 155 Cachia v Isaacs (1985) 3 NSWLR 366 Re: Allsop & Joy’s Contract (1889) 61 LT 213 Running Pigmy Productions Pty Ltd v AMP General Insurance Co Ltd [2001] NSWSC 431 Bazos v Doman [2001] NSWCA 347 K C Park Safe (SA) Pty Ltd & Ors v Adelaide Terrace Investments Pty Ltd (Federal Court; VG 144 of 1998; Mansfield J 17/9/98) Eisenwerk Hensel Bayreuth Dipl.-Ing Burkhardt GmbH v Australian Granites Limited [2001] 1 Qd R 461 Triantafillidis v National Australia Bank Ltd (1995) V Con R 54-536 Gibbs v Kinna [1999] 2 VR 19 at 27 Tanning Research Laboratories Inc. v O’Brien (1990) 169 CLR 332 Ling v The Commonwealth (1996) 68 FCR 180 Westpoint Corp. Pty Ltd v Coles Supermarkets Australia Pty Ltd (1996) 71 FCR 584 Stewart v Sanderson (2000) 100 FCR 150 Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 State Bank of New South Wales Ltd v Alexander Stenhouse Ltd [1997] Aust Torts Rep 81-423 COUNSEL: Mr Doyle SC with Mr Clothier for the second plaintiff Mr Hackett for the second defendant Mr Lennon QC with Dr Smith for the first defendant SOLICITORS: Morgan Conley Solicitors for the first defendant John M. O’Connor & Company for the second defendant Tucker and Cowen for the second plaintiff [1] The applicants, the first and second defendants, seek orders striking out parts of the further amended claim and the further amended statement of claim filed in the action, on the grounds that the second plaintiff is estopped from advancing any claim against them by reason of the dismissal of an earlier action brought by it against them, or, alternatively, that it would be an abuse of process to allow the second plaintiff’s claim to proceed. The parties [2] The first plaintiffs are the liquidators of the second plaintiff. The first, second and third defendants are former directors. The fourth defendant, the National Australia Bank Limited, held a guarantee from the second plaintiff prior to its being placed into receivership, and a charge to secure that obligation. No claim is made against the fifth defendant in the further amended statement of claim. The sixth defendant, the Commissioner of Taxation, is brought into the action in respect of a disputed -- 3 of 18 -- 4 sales tax debt. The claims as against the fourth and sixth defendants have no relevance to the present application. Their dealings Prior to being placed in liquidation in 2000, the second plaintiff (which I will refer to as “Fibre-Tek”) carried on business as a swimming pool manufacturer from premises on land at Molendinar held under a special lease by the first, second and third defendants in the present action; that is, Gary Klein, Peter Hilbert and Bernard Hilbert, to whom, for clarity’s sake, I will refer by name. The shareholders in Fibre-Tek were Goldenglide Pty Ltd as trustee for the Klein Family Trust and Fibre-Tek Holdings Pty Ltd. [3] In June 1990 Fibre-Tek gave the National Australia Bank a charge to secure certain borrowings. In 1992 the land at Molendinar was mortgaged to the National Australia Bank. In September 1998 Mr Klein and Bernard Hilbert borrowed $600,000 from the National Australia Bank, guaranteed by Fibre-Tek, for the purpose of freeholding the Molendinar land. The obligations secured by the charge already given to the bank extended to the obligations under the guarantee. A freehold interest was subsequently granted to Mr Klein, Peter Hilbert and Bernard Hilbert. In June 1999 the bank made a demand on Fibre-Tek under the guarantee. The first action [4] On 29 June 1999 Fibre-Tek, as first plaintiff, with Bernard Hilbert as second plaintiff, issued a writ of summons against Gary Klein and Peter Hilbert making claims for the following relief: “1. The sum of $507,801.33 by way of restitution, or alternatively unjust enrichment, from the First Defendant, plus interest pursuant to the provisions of the Supreme Court Act 1995; 2. The further sum of $507,810.33 by way of restitution or alternatively unjust enrichment from the Second Defendant, plus interest pursuant to the provisions of the Supreme Court Act 1995; 3. Further, or alternatively, declarations that:- (a) a binding agreement (“the Agreement”) exists between the parties, pursuant to which the Second Plaintiff and the Defendants must repay to the First Plaintiff all monies expended by the First Plaintiff for the construction, repair and maintenance of the improvements on land at 32 Industrial Avenue, Molendinar, Queensland owned by them, if and when the said land is sold; (b) that each of the First Defendants, the Second Defendant and the Second Plaintiff are [sic] obliged to pay to the First Plaintiff pursuant to the Agreement the sum of $507,801.33 plus a reasonable sum for interest if and when the said land is sold.” -- 4 of 18 -- 5 In the same action Bernard Hilbert sought the appointment of trustees for sale of the Molendinar land. It is not necessary to expand on that claim. [5] It was pleaded in support of Fibre-Tek’s claims that in 1991 an agreement was entered between Fibre-Tek on the one hand and Gary Klein, Peter Hilbert and Bernard Hilbert on the other, by which Fibre-Tek would, from time to time, expend monies for purposes associated with the land at Molendinar, the parties would permit Fibre-Tek to carry on its business from the land, and each of Gary Klein and Peter Hilbert would repay such monies with interest if the land were sold. Under that agreement, it was pleaded, Fibre-Tek expended money in an amount of $992,171 on improvements and maintenance of the land and a further $531,233 on outlays such as rates, Crown rental and insurance. Thus, it was said, Gary Klein, Peter Hilbert and Bernard Hilbert received a benefit at the expense of Fibre-Tek in the form of title to the improvements and the payment of outgoings for which they had not repaid Fibre-Tek. [6] It was then alleged in the statement of claim that on 25 June 1999 Gary Klein, procured Goldenglide Pty Ltd to apply for leave to wind up the company with, in support, an affidavit by Klein swearing as to Fibre-Tek’s insolvency and omitting any mention of his and the other defendants’ alleged indebtedness. It was pleaded that it would thus be unfair, unjust or unconscionable for the three defendants to retain the benefit in question; and the claims already set out were made. [7] On 10 September 1999 Fibre-Tek provided further and better particulars of its statement of claim, including particulars of monies expended by it to construct improvements upon the Molendinar land to maintain the land and its improvements. The particulars were set out by item over a period from 1 October 1989 to 30 June 1998, and amounted to a total of $992,171. [8] Each defendant filed a defence denying the existence of any agreement in the terms pleaded. The first defendant further pleaded that Fibre-Tek had occupied the land since about 1988 and that a fair market occupation rent would have been $150,000 per annum. No occupation rent had been paid until 30 June 1998, and Fibre-Tek was now insolvent. The second defendant similarly denied an agreement in the terms pleaded, but said that there was an agreement to the effect that Fibre-Tek could occupy the premises rent-free in exchange for payment of outgoings and the passing of the benefit of any improvements to the registered proprietors of the land. [9] On 6 July 2000, Byrne J made orders that Fibre-Tek provide security for Peter Hilbert’s costs and that Fibre-Tek and Bernard Hilbert make disclosure within 14 days. Neither order was complied with in the time specified, or at all. An application by Peter Hilbert for dismissal of the claim, supported by an affidavit as to Fibre-Tek’s failure to comply with Byrne J’s orders, followed. Both defendants also made application for the appointment of statutory trustees for the sale of the Molendinar land. [10] On 21 July 2000, prior to the hearing of those applications, the National Australia Bank appointed receivers and managers to Fibre-Tek pursuant to its charge. The consequence, according to Mr Betros, the solicitor who had previously acted for both Fibre-Tek and Bernard Hilbert in the action, was that he could not take instructions from his clients, since the claim was now an asset under the control of -- 5 of 18 -- 6 the receivers and managers. On the hearing of the applications by de Jersey CJ on 10 August 2000, a solicitor acting on behalf of the receivers appeared, indicated that they had not adopted the action, and sought an adjournment of the dismissal application. The adjournment was refused. [11] A number of orders was made by de Jersey CJ. Apart from costs orders, all but one related to the application for the appointment of trustees for sale. The remaining order was in the following terms: “Judgment be entered in favour of the first and second defendants on the statement of claim”. [12] On 17 August 2000 the first plaintiffs were appointed as administrators of Fibre-Tek pursuant to the resolution of Bernard Hilbert, who by then was the only director. On 17 September 2000 the first plaintiffs were appointed as liquidators. The second action [13] On 7 December 2000 the present action was commenced. The current application is concerned with the further amended claim and further amended statement of claim filed on 2 July 2001. In the action as presently pleaded, Fibre-Tek claims breaches of directors’ duties by each of Gary Klein, Peter Hilbert and Bernard Hilbert, the relevant duties being pleaded as fiduciary duties, and the general duty of care of a reasonable director, as imposed by the general law and the corporations law. The breaches alleged are causing what is referred to as “occupancy expenditure” (rent, rates and charges and insurance) and “building expenditure”, (the costs of erecting the factory and fixtures in it, and of repairing and maintaining the premises) to be paid by Fibre-Tek, and causing Fibre-Tek to execute a guarantee of the loan to Klein and Bernard Hilbert. There is an alternative claim in respect of the alleged breaches of directors’ duties: that each director was knowingly involved in the others’breach and received the benefit of it. [14] Schedule 1 to the claim sets out the building expenditure. Apart from some relatively minor matters, it is in identical terms to the particulars given in the first action of the monies expended by Fibre-Tek. Schedule 2 to the claim is “gross occupancy expenditure”, again identical, other than in minor respects, to the particulars provided in the first action of monies expended by Fibre-Tek for the purpose of paying outlays associated with the land. [15] The remedies sought are by way of declarations that the defendants have contravened their duties as directors, and that the net proceeds of sale of the Molendinar land are held on trust for Fibre-Tek, or alternatively, that it is entitled to a charge over them; damages and/or equitable compensation; and an account. [16] There are further claims by Fibre-Tek for relief as a surety against Klein and Bernard Hilbert as principal debtors or, alternatively, against Peter Hilbert for contribution as a co-surety. Those claims are not the subject of the present application. [17] Each of Gary Klein, as first defendant, and Peter Hilbert, as second defendant, has pleaded by way of defence that Fibre-Tek is estopped from proceeding in the -- 6 of 18 -- 7 present action on any claim for relief or allegation of fact raised in the earlier action. In addition the first defendants’ defence pleads that the judgment of de Jersey CJ operates as a res judicata, and, further, that the present action is an abuse of process. Fibre-Tek’s reply to each defence asserts that the judgment in the earlier action was not a determination of the merits of the claim, and did not constitute an estoppel; or, alternatively, that it is unconscionable for Mr Klein and Peter Hilbert to rely on the estoppel because Fibre-Tek’s insolvency, which in turn led to its default in compliance with orders for disclosure and security for costs, was brought about by their conduct. It is further pleaded in the replies that it was not unreasonable for Fibre-Tek not to bring the present claims in the earlier action, because that action was one of eight in which it was involved; it had not been prepared for trial; and Fibre-Tek was insolvent and could not afford to retain solicitors or counsel to review and plead the action as currently framed. The parties’contentions [18] For the first defendant, Mr Hackett submitted that the effect of de Jersey CJ’s judgment being to dismiss the proceeding rather than to stay it, the judgment operated as a res judicata. The cause of action in the first action was based on an agreement between Fibre-Tek on the one hand, and Gary Klein and Peter Hilbert on the other, and the receipt of financial benefits in that context allegedly giving rise to an unjust enrichment claim. The claims in the second action were based on the same conduct by Mr Klein. All that had occurred was putting different legal “labels” on the same conduct; but that could not avoid the operation of the principle of res judicata. The rights of Fibre-Tek had merged in the earlier judgment, and it had no right to re-litigate the earlier cause of action. It could be seen from an analysis of the underlying bases for each cause of action that the same factual circumstances, even to the claims for the same items, were involved. [19] Mr Lennon QC for the second defendant also relied on the principle of res judicata or “cause of action” estoppel. That estoppel could extend, he submitted, to the facts supporting a right to judgment, as distinct from the form in which the action was put. All rights flowing from the factual matrix supporting the claims in the first action had merged in the default judgment. That factual matrix, comprising the ownership of the land by Bernard Hilbert, Peter Hilbert and Gary Klein; their relationship with Fibre-Tek; and the fact that Fibre-Tek made the various payments; was the same in both actions. The parties were identical and the capacity in which Fibre-Tek sued was the same. [20] Mr Lennon relied also on issue estoppel; the fundamental issues being the questions as to the existence of those matters identified as constituting the factual matrix. Those issues existed in both actions. Alternatively, an Anshun1 estoppel existed. Fibre-Tek could not now raise a point, or claim a remedy, which could have been asserted in the earlier action. Finally, Mr Lennon argued that the present action was an abuse of process since the subject matter could, and should, have been litigated in the earlier action. 1 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. -- 7 of 18 -- 8 [21] For Fibre-Tek, Mr Doyle SC argued that res judicata could not arise, since the causes of action relied on in the current action were different from that in the earlier action. It was not a case of applying different legal labels to the same conduct, because the conduct in question in the current action was not the same as that alleged in the earlier action. The relationship between the three parties spoken of by Mr Lennon was not pleaded in the original statement of claim. Bernard Hilbert had not been a defendant to that action, and there was not any reliance in it on duties owed by the defendants as directors. Insofar as the original action made a claim for “unjust enrichment”, it was questionable whether any such cause of action existed. [22] So far as issue estoppel was concerned, it was impossible to identify any given issue legally indispensable to the first action decided by the default judgment. It could be explained by reference to the absence of an essential element of Fibre-Tek’s cause of action, but it was impossible to say which, since those elements included matters such as the existence of an oral agreement, and unconscionability arising in circumstances where Klein had caused the winding-up of Fibre-Tek. The judgment could, in theory, be supported on the failure to prove one of those elements, which would have no bearing in the present action. It could not be said, therefore, that the present action involved any issue necessarily decided in favour of the defendants in the earlier action. [23] There was no authority, Mr Doyle said, for the proposition that the Anshun principle would be applied in a case where judgment was given because of a procedural default. Default judgments were often given before a plaintiff had the opportunity to finalise its pleadings; so that it could not be said failure to plead any particular basis of claim was so unreasonable that it should be precluded from doing so in the future. In the particular circumstances of this case, Fibre-Tek had not, at the time default judgment was given, reached a point by which it could be said that its claim should finally have been formulated; and the form of the statement of claim was affected by the company’s financial constraints. At the very worst for Fibre-Tek, the court ought to exercise its discretion against ordering any stay on an Anshun basis, given that its impecuniosity leading to the limited formulation and dismissal of the earlier causes of action resulted from the actions of its directors, the defendants. [24] In general terms, Mr Doyle relied on the General Steel2 principle that the court ought summarily to dispose of proceedings only in a clear case. The defences in this case, of res judicata issue estoppel and Anshun estoppel, had not been clearly pleaded by the defendants. Secondly, the court should consider whether the issues lent themselves to summary determination and, in a case where only part of the proceedings could be disposed of, would resist fragmentation. Even if the applications were to succeed, there would be no significant narrowing of the issues in the proceedings. Res Judicata Application to default judgments 2 General Steel Industries Inc. v Commissioner for Railways (1964) 112 CLR 125. -- 8 of 18 -- 9 [25] The principle of res judicata prevents the raising a second time of a cause of action which has already been litigated and adjudicated upon3. It can apply where judgment has been given by default (as opposed to a mere discontinuance)4. Thus, in Linprint Pty Ltd v Hexham Textiles Pty Ltd5, res judicata was held to prevent the plaintiff from suing for breach of an agreement which had already been the subject of a counter-claim by it in an earlier action by the defendant. The counter-claim had been dismissed after the plaintiff’s withdrawal from the trial of the action. The New South Wales Court of Appeal held that the cause of action had merged in the judgment in the earlier proceedings. To an argument that the plaintiff had not had the benefit in the earlier action of a trial on the merits, the court replied that it was its own conduct, in instructing its counsel to withdraw, which had produced that result. [26] The rationale for the application of res judicata to default judgments may be that they are to be regarded as a form of consent judgment6; although equally it may be said that they indicate nothing “but the fact that a defendant for unascertained reasons, negligence, ignorance or indifference has suffered judgment to go against him”7. But it is clear that there is no universal rule that a default judgment will found a successful plea of res judicata. In Pople v Evans8 the court held that res judicata did not apply where an action was dismissed for want of prosecution (the plaintiff’s trustee in bankruptcy having refused to continue it). The operation of the principle was, in the view of Ungoed-Thomas J, to be limited “to issues which can be fairly regarded or treated as having been disposed of by the order relied on on their merits, for example, by trial, admission or compromise”. And in Baines v State Bank of New South Wales9, Powell J took the view that a dismissal of proceedings pursuant to a self executing order for discovery, not following any hearing on the merits, would not give rise to an estoppel or defence of res judicata. [27] Similarly, the South Australian Supreme Court has held that res judicata is not applicable where the earlier proceedings were dismissed for failing to disclose a cause of action10: “No finding was made as to any fact, nor as to the availability of any cause of action. In those circumstances it seems to me it cannot be 3 Jackson v Goldsmith (1950) 81 CLR 446 at 467. 4 Spencer Bower Turner &Handley, The Doctrine of Res Judicata, Butterworths, 3rd Ed, 1996 at [44] p 24, and [33] p33. 5 (1991) 23 NSWLR 509. 6 Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1010; Rogers v Legal Services Commission [1995] 64 SASR 572 at 596. 7 Kok Hoong v Leong Cheong Kweng Mines Ltd (supra) at 1010. 8 [1968] 3 WLR 97 at 109. 9 (1985) 2 NSWLR 729. 10 Rogers v Legal Services Commission of South Australia [1995] 64 SASR 572. -- 9 of 18 -- 10 said that the cause of action in the first proceeding has merged into a judgment. The principle of res judicata does not have application in these circumstances.”11 [28] In the light of such authorities, it may be questioned whether a judgment obtained on a procedural default, as this one was, is capable of giving rise to an estoppel based on res judicata. However that may be, it is clear that great care must be taken in defining what may be said to be the res judicata of the first action: “Default judgments, though capable of giving rise to estoppels, must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essence of what they must necessarily have decided and, to use the words of Lord Maugham L.C., they can estop only for what must ‘necessarily and with complete precision’ have been thereby determined.”12 Merger or estoppel? [29] Although in Linprint13 the plaintiff’s cause of action was regarded as having merged in the judgment dismissing his counter-claim, the better view, perhaps, is that where a claim has failed there is no merger but simply an estoppel. Clarke JA, in Macquarie Bank v National Mutual14, reasoned that if the plaintiff had failed to establish its cause of action, resulting in a verdict for the defendant, there was nothing to merge. Then, in the words of Diplock LJ in Thoday v Thoday, “If [the plaintiff’s cause of action] was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatum”.15 Gummow J, then a judge of the Federal Court, similarly concluded, in Trawl Industries v Effem Foods16, that there could be no question of merger where the plaintiff had failed in the original action.17 11 Per Lander J at p 597. 12 Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1012 citing the judgment of Lord Maugham LC in New Brunswick Railway Co. v British and French Trust Corporation [1939] AC 1 at 21. 13 At page 515. 14 (1996) 40 NSWLR 543 at 556. 15 [1964] P. 181 at 197-198. 16 (1992) FCR 406 at 409. 17 In contrast, Brennan J in Port of Melbourne Authority v Anshun Pty Ltd [1981] 147 CLR 589 at 611- 613 regarded as merging in a judgment even those causes of action which had not been litigated, but arose on the same facts as those giving rise to the judgment. -- 10 of 18 -- 11 [30] The distinction may be of some significance. In Chamberlain v Deputy Commissioner of Taxation, the absence of any discretion in the court where res judicata was made out was explained on the basis of merger: “by operation of law the cause of action relied upon by the respondent has ceased to exist”18. If, instead, the question is purely one of estoppel, questions of unconscionability in reliance on such an estoppel might, at the least, come into play. I do not, however, find it necessary to explore this issue further. Identifying the causes of action [31] The first question in considering whether res judicata applies, whether by merger or pure estoppel, must be, as identified in Jackson v Goldsmith19 “Whether the cause of action in the later proceedings is the same as that which was litigated in the former proceedings”. That enquiry, as formulated, is deceptively simple. One must start by determining what “cause of action” means, a question which has met with a variety of answers. It may mean “the facts which support a right to judgment”; “a right which has been infringed” or the “substance of an action as distinct from its form”20. Other descriptions have been applied: “every fact which would be necessary for a plaintiff to prove, if traversed, in order to support his right to a judgment”; “the essential ingredients in the title to the right which it is proposed to enforce”; “the act on the part of the defendant which gives the plaintiff his cause of complaint”; or “rights which can be enforced, or liabilities which can be redressed by legal proceedings”21. [32] In Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd22 Gummow J expressed a preference for focussing upon the substance of the proceedings rather than their form. In Boles v Esanda Finance Corporation Ltd the New South Wales Court of Appeal took the view that “cause of action in this area of the law means a right rather than the facts which support a right”23. On the other hand, in Macquarie Bank v National Mutual a majority of the same court, differently constituted, considered it appropriate to undertake “an examination of the factual circumstances relied upon to establish the right to relief in each case in order to determine whether there is a sufficient identity between them to found the conclusion that the same cause of action was in question in both cases.”24 18 Chamberlain v Deputy Commissioner of Taxation (1998) 164 CLR 502 at 511. 19 [1950] 81 CLR 446 at 467. 20 Port of Melbourne Authority v Anshun Pty Ltd [1981] 147 CLR 589 at 610. 21 Onerati v Phillips Constructions Pty Ltd (1989) 16 NSWLR 730 at 739. 22 (1992) FCR 406 at 418. 23 (1989) 18 NSWLR 666 at 672-673. 24 (1996) 40 NSWLR 543 at 559. -- 11 of 18 -- 12 Are Fibre-Tek’s causes of action identical? [33] However one approaches the identification issue, I do not think in the present case it can be said that the causes of action in the first and second proceedings by Fibre-Tek were the same as a matter of form, or as a matter of substance. In the first action, Fibre-Tek sued on a claim of unjust enrichment. (I do not find it necessary to consider whether, as Mr Doyle submitted, a cause of action can be said to exist in unjust enrichment). In the second action, Fibre-Tek claimed breaches of directors’duties. The form of each action and the rights relied on in each were thus different. [34] As to the substance of the actions it was necessary in the first action for Fibre-Tek to prove (1) an agreement by the defendants to recompense it for its expenditure; (2) expenditure pursuant to that agreement benefiting the defendants; (3) failure by the defendants to recompense it; and (4) a procurement by Mr Klein of its winding- up without disclosure of those circumstances, requiring an inference of unconscionability. [35] In the second action, it was necessary for Fibre-Tek to prove (1) that the defendants were directors of Fibre-Tek at relevant times; (2) that they had caused Fibre-Tek to meet the expenditures; (3) and/or that they had caused Fibre-Tek to guarantee the loan to Mr Klein and Bernard Hilbert; (4) that those actions were in breach of the defendants’duties as directors; and (5) that those actions caused loss and/or liability to Fibre-Tek, to the benefit of the defendants. [36] Examining those elements, it will be seen that the only commonality lies in expenditure by Fibre-Tek to the defendants’ benefit. It cannot be said that the factual matrix of either action would give rise to the relief sought in the other. Clearly, different ingredients and issues are involved. I do not therefore consider that res judicata applies so as to estop Fibre-Tek from proceeding in the second action. Issue Estoppel The principle [37] The principle of issue estoppel prevents the raising again of an issue of fact or law already decided as between the same parties by earlier judgment: “Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived”25. 25 Blair& Perpetual Trustee Co Ltd v Curran (Adams’will) [1939] 62 CLR 464 at 532. -- 12 of 18 -- 13 [38] The estoppel does not preclude evidence being given of facts previously put forward to prove the party’s case on an issue26; so that in the present case, for example, the question is not whether Fibre-Tek has previously sought to prove its expenditure, but whether the issue of that expenditure having been made has been determined by the court so as to prevent it from being raised again. The issues as between the causes of action need not be identical, so long as the relevant finding is made in respect of an identical question: Egri v DRG Australia Ltd27. It is not entirely clear whether any discretion, of the kind accepted by the House of Lords in Arnold v National Westminster Bank28, exists in the court in relation to issue estoppel; but again I find it unnecessary to consider this point in the context of the present case. Issue estoppel where first judgment by default [39] As with res judicata, the establishing of issue estoppel presents peculiar difficulties in the case of default judgments. The estoppel can only extend to what was “necessarily and with complete precision decided by the previous judgment”29; but “The adjudication in the previous suit may have been arrived at for a number of different reasons. If it is not clear from the judgment in the previous suit that the particular issue has, in fact, been specifically dealt with, a party will not be held to be estopped from raising that issue again in a subsequent suit."30 [40] Plainly, where the decision itself does not identify issues or conclusions upon them, it becomes difficult to say what was necessarily decided by it31. An issue estoppel may arise in respect of an implied decision on an issue legally necessary to the success or failure of a claim or defence.32 In such a case the issue which has been conclusively determined may be capable of definition by reference to the claim in the earlier proceeding, the decision and the “issues necessarily inferred as legally indispensable”33. 26 Brewer v Brewer (1953) 88 CLR 1 at 15; Thoday v Thoday [1964] P. 181 at 198; Egri v DRG Australia Ltd (1988) 19 NSWLR 600 at 603; Cachia v Isaacs (1985) 3 NSWLR 366 at 386. 27 At p 610. 28 [1991] 2 AC 93; see discussion in Effem Foods v Trawl Industries (1993) 43 FCR 510 at 538; Linsley v Petrie [1998] 1 VR 427 at 442. 29 New Brunswick Railway Co. v British and French Trust Corporation [1939] AC 1 at 21. 30 Thoday v Thoday [1964] P. 181 at 191. 31 Chamberlain v Deputy Commission of Taxation (1998) 164 CLR 502 at 508; Effem Foods v Trawl Industries at 537. 32 Hoystead v Commissioner of Taxation [1926] AC 155 at 165, 170; Cachia v Isaacs (1985) 3 NSWLR 366 at 387. 33 Cachia v Isaacs (1985) 2 NSWLR 366 at p 370. -- 13 of 18 -- 14 Does issue estoppel apply here? [41] I have set out already those ingredients which, in my view, it was necessary for the plaintiff to establish in order to succeed in the first action. Judgment for the defendants was consistent with the absence of any one of those elements. It is not open to the defendants to elect which of a number of theoretical bases for judgment might apply34; and it is in the circumstances impossible to identify an “actual ground upon which the existence of [Fibre-Tek’s claim] was negatived”35. Consequently, no issue estoppel can be made out. Anshun estoppel The Anshun principle and its application [42] A party may be estopped from raising a claim which it could have litigated in previous proceedings if it was unreasonable for the claim not to have been so litigated. Speaking of a claim which might have been raised as a defence in an earlier action, the High Court in Port of Melbourne Authority v Anshun Pty Ltd36 said : “There will be no estoppel unless it appears that the matter relied upon as the defence [sic] in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding.” It has been questioned whether it is useful to speak of relevance in the context of a failure to advance a claim (as opposed to a defence) in an earlier proceeding.37 [43] Later in the Anshun judgment this was said: “The likelihood that the omission to plead a defence will contribute to the existence of conflicting judgments is obviously an important factor to be taken into account in deciding whether an omission to plead can found an estoppel against the assertion of the same matter as a foundation for a cause of action in a second proceeding.”38 34 Re: Allsop & Joy’s Contract (1889) 61 LT 213 at 215. 35 Blair v Curran (1939) 62 CLR 464 at 532. 36 (1981) 147 CLR 589 at 602. 37 Boles & Ors v Esanda Finance Corporation Ltd (1989) 18 NSWLR 666 at 674; Gibbs v Kinna (1999) 2 VR 19 at 27. 38 At p 603. -- 14 of 18 -- 15 Judgments were conflicting if they appeared “to declare rights which are inconsistent in respect of the same transaction”39. [44] There is some doubt as to whether Anshun estoppel has any application where there has been no examination of the merits of the claim in the earlier action40. It has been noted that “attempts to apply Anshun to bar claims not previously adjudicated upon have had little success”41. At the least, it is clear that great care must be exercised in considering whether an Anshun estoppel ought be applied.42 [45] The precise content of the Anshun principle is not clear. Plainly, it is a necessary condition that the claim sought to be raised in the second action was capable of being raised in the first. Thereafter, difficulty arises, firstly, in considering how unreasonableness is to be assessed, and secondly, as to whether the existence of special circumstances is a matter to be considered distinct from the question of unreasonableness. [46] As to the first, a commonly adopted approach has been to ask whether the two proceedings involve the same or substantially the same facts.43 However, the Victorian Court of Appeal has taken the view that the capacity to raise the claim in the earlier proceeding and the common sub-stratum of facts “are necessary but not sufficient conditions”: Gibbs v Kinna44. In the same case, it is suggested that the potential for conflict between judgments is an indicator of unreasonableness, rather than a pre-requisite45. [47] On the other hand, in Tanning Research Laboratories Inc. v O’Brien46 Brennan and Dawson JJ said this: “A plaintiff who has an unadjudicated cause of action which can be enforced only in fresh proceedings … cannot be precluded from taking fresh proceedings merely because he could have and, if you will, should have counter-claimed on that cause of action in a forum chosen by the opposite party in proceedings in which the opposite party sued him. We do not read the majority judgment in Port of 39 At p 604. 40 Bazos v Doman [2001] NSWCA 347;KC Park Safe (SA) Pty Ltd v Adelaide Terrace Investments Pty Ltd (unreported decision of Mansfield J 17/9/98). 41 Australian Granites Limited v Eisenwerk Hensel Bayreuth Dipl.-Ing Burkhardt GmbH [2001] 1 Qd R 461 at 468. 42 Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR at p 522; Ling v Commonwealth (1996) 68 FCR 180 at 181. 43 Bazos v Doman [2001] NSWCA 347 at [39]; Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 at 297. 44 [1999] 2 VR 19 at 27. 45 At p 27. 46 (1990) 169 CLR 332 at 346. -- 15 of 18 -- 16 Melbourne Authority v Anshun Pty Ltd as holding the contrary, except in a case where the relief claimed in the second proceeding is inconsistent with the judgment in the first.” That passage suggests a requirement of potential inconsistency. In Boles v Esanda47 and in Bazos v Doman48 the New South Wales Court of Appeal appears to have regarded the question of the potential for conflicting judgments as critical. Special circumstances [48] The judgment of Dawson J in Chamberlain v Deputy Commissioner of Taxation49 suggests that the Anshun principle is directed to the avoidance of “contradictory judgments which ought not be permitted save in special circumstances” (underlining added). In Ling v The Commonwealth50, Sundberg J, rather than venturing into considerations of special circumstances (as the trial judge at first instance had done) preferred to confine his enquiry to whether the failure to raise a claim earlier was unreasonable51. Similarly, in Westpoint Corp. v Coles Supermarket R.D. Nicholson J appeared to prefer that approach52. [49] In Macquarie Bank v National Mutual53, on the other hand, the New South Wales Court of Appeal considered the special circumstances consideration to constitute a separate discretion, independent of the court’s examination of whether the failure to proceed in the first instance was unreasonable54. In Stuart v Sanderson55 Madgwick J took a similar approach, suggesting that there might be circumstances which would account for unreasonable conduct so as to excuse it, or alternatively, that the circumstances of the case might entail such a degree of hardship or injustice as to warrant the non-application of the rule. [50] It can be seen that views as to how Anshun is to be applied are far from uniform. Indeed, in Triantafillidis v National Australia Bank & Anor56 the Victorian Court of Appeal considered the difficulties of application of the principle to be such as to warrant sending the matter in question to trial rather than attempting a summary disposition on an interlocutory application. 47 (1989) 18 NSWLR 666 at 673. 48 [2001] NSWCA 347 at [42] [43]. 49 (2998) 264 CLR 502 at 512. 50 Ling v The Commonwealth (1996) 68 FCR 180 51 Ling v The Commonwealth (supra) at p 195. 52 (1996) 71 FCR 584. 53 (1996) 40 NSWLR 543 at 559. 54 (1996) 40 NSWLR 543 at 558. 55 2000 100 FCR 150 at 159. 56 (1995) V Con R 54 536. -- 16 of 18 -- 17 Anshun and the present action [51] In the circumstances of the present case, I do not consider it unreasonable for Fibre-Tek to have failed to make its claim in respect of breach of directors’ duties in the earlier action. Although it might fairly be said that the factual matrices of the two proceedings had sufficient in common to warrant the bringing of that claim in the earlier proceeding, that of itself cannot require the application of the principle. There is not, in this case, any risk that a judgment will result declaring rights inconsistent with the default judgment. Indeed, the only right which might be said to be manifest from that judgment is the right of the defendants to have judgment by reason of Fibre-Tek’s default. [52] Whether it be relevant to unreasonableness or to special circumstances, I consider it of some significance that the default judgment in this case was the product of an early dismissal, rather than there being an action prosecuted by the plaintiff to judgment. It was still open to the plaintiff at the time the action was dismissed to amend so as to add the further claim of breach of directors’duties. It was not a case where the plaintiff either sought unsuccessfully a late amendment or allowed the matter to proceed to trial without advancing its claim. [53] The immediate circumstances surrounding the default judgment are also in my view of some importance. It is conceivable – although I do not purport to make any conclusive finding – that Fibre-Tek’s impecuniosity and its consequent inability properly to prosecute its claims, to ensure that procedural steps were taken, and to provide security for costs – were the product of the very conduct on the part of the defendants of which it now complains in the second action. For all of these reasons I do not consider this a proper case for the application of an Anshun estoppel. Abuse of process The Court’s power [54] The court’s inherent power to prevent an abuse of process may be exercised to prevent re-litigation of issues, notwithstanding that principles of estoppel do not apply. In those circumstances as in any other, “a discretion to stay proceedings as an abuse of the process of the court … while it should be exercised fearlessly where it is required, ought always to be exercised with great caution”57 Relevant considerations [55] In Haines v Australian Broadcasting Corporation58 Hunt CJ propounded the following criteria: “The issue determined in the earlier case which is sought to be litigated in the later case must be one which the party propounding it in the latter lost in the former … It must be an issue which was necessarily determined in the earlier case, and one of importance to 57 Effem Foods v Trawl Industries (1993) 43 FCR 510 at 532. 58 (1995) 43 NSWLR 404 at 414. -- 17 of 18 -- 18 the final result. It must have been properly argued – by which I mean that … the tribunal which decided it was an appropriate one to do so, that the parties were appropriate contradictors and that the issue was regarded by them as one of importance… In normal circumstances the decision disposing of the issue must have been a final one.” [56] In State Bank of New South Wales Ltd v Stenhouse59 Giles CJ said: “The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice, and amongst the matters to which regard may be had are – (a) the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or ultimate issue; (b) the opportunity available and taken to fully litigate the issue; (c) the terms and finality of the finding as to the issue; (d) the identity between the relevant issues in the two proceedings; (e) any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceedings; … (f) the extent of the oppression and unfairness to the other party if the issue was re-litigated and the impact of the re-litigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and (g) an overall balancing of justice to the alleged abuser against the matters supported for abuse of process.” Application to the present case [57] For the reasons I have given earlier, I do not consider that Fibre-Tek is seeking to litigate an issue already decided against it. The issues in the present proceeding are in the main different; and there was, in any event, no determination made by the default judgment on particular issues. There were reasons, already identified in my discussion of Anshun estoppel, for Fibre-Tek’s failure to advance all its claims in the first action. There is nothing in this case which would suggest an attempt to abuse the process of the court. [58] For the reasons I have given, the applications of the first and second defendants must be dismissed. 59 [1997] Aust Torts Rep. 81-423 at 64-089. -- 18 of 18 --