Adicho v Dankeith Homes Pty Ltd

Supreme Court of NSW|2013-02-14

Judgment 1This is the hearing of the defendant's Notice of Motion filed 16 November 2012 in which the defendant seeks the proceedings be dismissed and an order under s 91 of the Civil Procedure Act 2005 that the plaintiff not bring fresh proceedings or claim the same relief in fresh proceedings. 2The parties have been in litigation in the District Court which has gone to the Court of Appeal and the present proceedings have been brought by the present plaintiff concerning matters which were dealt with in earlier matters in the District Court.

Background 3Helpfully the parties' submissions have included some of the history which I will incorporate with some modification into this judgment. 4Dankeith is a builder and developer. In 2005, it completed the construction of eight town houses on land it owned at Ingleburn. In August 2007, it exchanged separate contracts for each of the eight town houses with Mr Adicho. 5The contracts contained the usual provision for a deposit of 10% of the price, but Mr Adicho did not pay the deposits, before or on exchange. 6Dankeith served notices to complete on Mr Adicho, requiring settlement of the contracts by 11 February 2008. Mr Adicho did not settle, and Dankeith terminated. The date of termination was 14 February 2008. 7The eight town houses went back on the market in March 2008. They were sold by contracts completed by March 2009. The total deficiency in the resale prices was $283,500. In seven of the eight contracts, the deficiency exceeded the deposit; in one contract, the deposit exceeded the deficiency. 8Dankeith sued Mr Adicho in the District Court for damages for breach of contract. It also sued its solicitor Mr Doherty for professional negligence. 9Mr Adicho defended the action on several bases including: (a)The transactions were a sham, intended to deceive Dankeith's bank; (b)The parties did not intend to enter into legal relations; and (c)Mr Adicho did not agree to the terms appearing in the written contract, and in particular did not agree to pay deposits on exchange of contracts. 10On 4 May 2011, the trial judge gave judgment for Dankeith against Mr Adicho. 11The trial judge found: (a)That Mr Adicho and Dankeith exchanged contracts with an intention to enter into legal relations; and (b)That Mr Adicho and Dankeith agreed orally that Adicho would pay deposits of $500 for each town house, $4,000 in all. 12But he held that the agreement was unenforceable, because s 54A(1) of the Conveyancing Act 1919 required the contracts to be in writing and It was a subsidiary or collateral agreement inconsistent with the written contracts. 13The trial judge noted that Mr Adicho did not apply to have the matter transferred to the Supreme Court to seek an order for rectification. 14The trial judge awarded damages that included the deficiencies on resale (in respect of the seven where the deficiency exceeded the deposit), and the amount of the deposit (in respect of the eighth town house, where the deposit exceeded the deficiency). 15There was an appeal by Mr Adicho from the judgment. 16The amended notice of appeal included challenges to the above-mentioned findings. It raised issues not run at trial, such as whether the contracts had been validly rescinded. One of the grounds was that the trial judge erred in not deciding to transfer the proceedings to the Supreme Court to allow Mr Adicho to bring a cross-action "to seek rectification of the written instruments to give effect to the true contracts between [Adicho] and [Dankeith]". 17On the hearing of the appeal: (a)The Court of Appeal refused leave to the plaintiff to argue that the defendant's notices to complete were invalid; and (b)The plaintiff abandoned the ground of appeal relating to rectification. 18On 28 September 2012, the Court of Appeal dismissed Mr Adicho's appeal with costs. 19The appeal is reported as Adicho v Dankeith Homes Pty Limited [2012] NSWCA 316. 20In the present proceedings, commenced by statement of claim filed 16 October 2012, Mr Adicho seeks relief in respect of the same eight contracts which were the subject of the District Court and Court of Appeal proceedings. 21In particular, in paragraph 3, after reciting the entry into the contracts, the Statement of Claim pleads the intention of the plaintiff known to the defendant that: (a)No deposit was to be paid by the plaintiff upon exchange of the contracts; (b)At settlement of the contracts the plaintiff was to pay 65% of the purchase price as stated in each of the contracts; (c)Following settlement the defendant as vendor was to give vendor finance of 35% of the purchase price of the subject properties for a period ending 18 months after the settlement date of the contracts; and (d)The said vendor finance was to be secured by an unregistered second mortgage until 1 month after the plaintiff became registered proprietor of the subject properties and thereafter by bank guarantees. 22Thereafter the pleading continues making allegations that the written contract did not reflect the common intention and alleging that the plaintiff is entitled to rectification of the contracts to be bring them into conformity with the matters set forth in paragraph 3 and specific performance of those contracts in accordance with their terms as rectified.

The defendant's submissions 23The defendant submitted that there were three bases why the proceedings should be dismissed. They were: (a) that an issue estoppel arose in relation to the District Court proceedings preventing them bringing the second proceedings as the matter has res judicata between the parties; (b) that the plaintiff is prevented from bringing these proceedings on the basis of the Anshun principle because it should have made an application to transfer the proceedings to the Supreme Court in the previous proceedings so that the question of rectification could be determined. (c) that the proceedings are pointless because the properties have been sold and in these circumstances the claim for specific performance or damages is not available. 24I turn to the question of estoppel. 25The submissions of the defendant on this point are as follows.

Defendant's estoppel submissions 26The judgment of the District Court entailed findings that Dankeith and Mr Adicho had entered into, and were bound by, the eight contracts for sale. 27The judgment also entailed a finding that the contracts obliged Adicho to pay 10% deposits. This was a necessary finding in relation to the one contract where damages were quantified by the amount of the deposit. It was also a necessary finding in relation to the other seven contracts, where the Court awarded damages on the basis that the deficiency on retail exceeded the deposit, and thus had to determine the amount of the deposit. (In any event, the contracts were identical, apart from the property references, and a finding in relation to one would apply equally to all of the others.) 28The Court found that Mr Adicho breached the contracts when he failed to complete in accordance with the notices to complete. This implies that Dankeith served effective notices to complete on Mr Adicho. 29The quantification of loss and damage suffered by Dankeith by reference to the deficiencies on resale required a finding that the eight properties had been sold at the time of judgment, at particular prices. 30In the present proceedings, Mr Adicho is estopped from alleging anything different from the findings referred to. He cannot properly allege that the parties were bound by terms different from the terms of the documents that they exchanged. Nor can he properly deny that he was in breach of those contracts, or that he is liable to Dankeith for damages in the amount that the District Court determined. 31In particular, the defendant claims that the plaintiff cannot properly allege that Dankeith "refused to settle the purchases" on terms different from those that the District Court found, implying that Dankeith was obliged to settle on those terms. 32The defendant also claims that the plaintiff cannot properly allege that Dankeith "purported to terminate the contracts", implying that Dankeith did not effectively terminate the contracts. 33The defendant claims that the plaintiff cannot properly allege, as he does in the statement of claim, that Dankeith repudiated the contracts. 34As to the plaintiff's allegation that he is entitled to rectification of the contracts, the consequences of rectification in the terms that the plaintiff seeks would be that its failure to complete the contracts would not have been a breach and that he would not have been liable to Dankeith for damages. Furthermore, the defendant would have been in the wrong in refusing to abide by the terms of the contract and by purporting to terminate it. 35Finally, the defendant asserts that the claim for rectification requires the plaintiff to allege things that the previous judgment estops him from alleging. If granted, it would lead to findings and orders completely inconsistent with the previous judgment. It is an abuse of process for the plaintiff to claim relief in these terms. 36The plaintiff's submissions were that, of course, the trial judge did not deal with the issue of rectification but this was no doubt because of his lack of jurisdiction. It was submitted by the plaintiff that only decisions on matters which are fundamental or necessary to decide can create an issue estoppel. 37The plaintiff conceded that there had been an overlapping on some factual issues, but submitted that there was no finding on the fundamental questions of law going to the rectification issue. 38It is necessary to note that the estoppel alleged is not confined to the final legal conclusion expressed in the judgment, decree or order. The determination concludes not merely the point actually decided, but any matter which it was necessary to decide which was actually decided in the groundwork of the decision itself even though it is not directly a point at issue: Handley, K R, "Res Judicata: General Principles and Recent Developments" (1999) 19 Australian Bar Review 214, at p 216. 39As was stated in Spencer Bower and Handley, Res Judicata, 4th ed (2009) at 103: "A decision will create an issue estoppel if it determined an issue in a cause of action as an essential step in its reasoning. Issue estoppel applies to fundamental issues determined in an earlier proceeding which formed the basis of the judgment." 40In my view, the submissions which the plaintiff has made relating to the conclusions that had to be reached in the first proceedings concerning the amount of the deposit are obviously necessary matters which had to be decided for determining the damages in the District Court. In these circumstances, there is plainly an issue estoppel between them and what is sought to be done in the present case is quite contrary to that. 41In my view, the present case is prevented by an issue estoppel which arises from the earlier decision in the District Court.

Anshun Estoppel 42In Port of Melbourne Authority v Anshun [1981] HCA 45; (1981) 147 CLR 589 at 598 Gibbs CJ, Mason and Aickin JJ considered what was described as the principle in Henderson v Henderson (1843) 67 ER 313. In that case Sir James Wigram VC said at 319: "Where a given matter becomes the subject of litigation in, and of adjudication by a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time." 43The decision in Port of Melbourne Authority v Anshun, and the cases that have followed, have developed the principle of Anshun estoppel which has been described to be an extension of the res judicata doctrine: Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; (2010) 75 NSWLR 245, 252 [39]. 44Whether such an estoppel will arise is "based on the reasonableness ... of the conduct of a litigant": Meriton Apartments Pty Ltd v Industrial Court of New South Wales [2009] NSWCA 434 (23 December 2009) [60]; Champerslife Pty Ltd [39]. 45The "unreasonableness" criterion involves evaluation of what the party could reasonably have been expected to do in the first proceeding. In Port of Melbourne Authority v Anshun Pty Ltd at 602 Gibbs CJ, Mason and Aickin JJ stated: "There will be no estoppel unless it appears that the matter relied upon as a defence 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." 46Although expressed in reference to the failure to raise a defence, the principle equally applies with respect to a claim. As Priestley JA held (agreed with by Meagher JA and Hope AJA) in Rahme v Commonwealth Bank of Australia [1991] NSWCA 230, an Anshun estoppel can arise both where a cause of action in second proceedings could have been relied upon as a defence in the first proceedings and where a cause of action raised in a second proceedings could have been raised in the first proceedings but was not. The decision has been followed in a number of cases including by the Full Federal Court in Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287. 47The courts have warned that caution must be used in applying an Anshun estoppel in strikeout proceedings. Referring to the power of the court to summarily terminate proceedings, the High Court's decision in Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 states at [24] per French CJ and Gummow J: "The exercise of powers to summarily terminate proceedings must always be attended with caution. That is so whether such disposition is sought on the basis that the pleadings fail to disclose a reasonable cause of action or on the basis that the action is frivolous or vexatious or an abuse of process. The same applies where such a disposition is sought in a summary judgment application supported by evidence. As to the latter, this Court in Fancourt v Mercantile Credits Ltd said: 'The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried' . More recently, in Batistatos v Roads and Traffic Authority (NSW) Gleeson CJ, Gummow, Hayne and Crennan JJ repeated a statement by Gaudron, McHugh, Gummow and Hayne JJ in Agar v Hyde which included the following: 'Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.'" (citations omitted) 48Ormiston JA in Triantafilidis v National Australia Bank Ltd (1995) VConvR 54-536 at 66,637, stated, in relation to requirements of the unreasonableness test: "If this be the kind of necessary enquiry which Anshun's Case requires, then it is not ordinarily appropriate that it be dealt with upon an application for a summary judgment or stay. Unless the alleged unreasonableness is manifest (eg if the potential judgment would be plainly inconsistent), the appellant is entitled to have both the questions of principle and the issues of fact resolved upon a trial and upon the basis of precisely pleaded defences." 49However, in that case Ormiston JA was in the minority on this issue. Phillips JA (with whom Brooking JA agreed) did not share the view of Ormiston JA concerning the appropriateness of dealing with the issue at a summary stage in that case. 50Other courts have not insisted on dealing with Anshun points only at a final hearing. In Rahme v Commonwealth Bank of Australia, Bryant v Commonwealth Bank of Australia and R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 232, the issue was dealt with on a summary or interlocutory basis rather than at a final hearing. 51It was submitted that the failure of the plaintiff to run the current claim as a cross-claim in the initial proceedings is unreasonable such that an Anshun estoppel precludes the claim from being brought. 52It was always available to the defendant in the District Court action to apply to the Supreme Court under s 140(1) of the Civil Procedure Act to transfer the proceedings to the Supreme Court so that the question of rectification could have been dealt with in that court. The defendant suggests that the fact that an application was necessary distinguishes this situation from the usual case where something could simply be raised by a cross-claim in the District Court proceedings. 53As pointed out the critical test is whether it was unreasonable not to have taken the step to transfer the proceedings to the Supreme Court. 54In my view it certainly was unreasonable for the plaintiff not to have applied for leave. The question that remains is the fact that a transfer requires a decision of the Supreme Court. Bearing in mind the discretionary factors, one of which would be the absence of jurisdiction, it would likely be granted. 55Having regard to the discretionary nature of such an application and discretionary considerations which may be applied in any decision by the Court of Appeal, I would prefer not to dismiss the proceedings because of a breach of the Anshun principle.

Lack of Utility 56The relief sought in the present proceedings are firstly declarations as to the common intention of the parties and the rectification to give effect to such intention. The consequential result is an order for specific performance of the contract and alternatively an order that the defendant pay damages to the plaintiff in lieu of specific performance. 57It is plain that the properties are no longer in the possession of the defendant, having been sold some time ago. In these circumstances the court cannot grant specific performance as it would be futile and it cannot award damages in substitution for specific performance pursuant to s 68 of the Supreme Court Act 1970. See The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547. 58The actual claim for damages was "alternatively an order that the defendant be ordered to pay damages to the plaintiff in lieu of specific performance". This I would take clearly to be a reference to s 68(b) of the Supreme Court Act which derives from Lord Cairns' Act. The plaintiff conceded that no damages could be awarded in lieu of specific performance in this case but suggested that "the prayers for relief may need to be expanded". 59The way in which the prayers for relief needed to be expanded was not further elucidated in oral submissions. In particular there are no submissions that there would be an available claim for common law damages. 60Absent anything to suggest some proper further relief, it seems in my view that the proceedings are frivolous and vexatious and should be dismissed on this basis as well.

Orders (1) I order that the proceedings be dismissed and order that the plaintiff pay the defendant's costs of the proceedings. (2) I order that the plaintiff may not bring fresh proceedings to claim the same relief as is claimed in these proceedings. (3) I reserve to the defendant the right to make application that the orders for costs payable by the plaintiff are paid by the solicitors for the plaintiff. (4) Liberty to apply.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 February 2013

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