Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd

48] VLR 496 - Monroe Schneider Associates (Inc) & Anor v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234; (1992) 109 ALR 137 - Najjar v Alfayhaa Cheese Pty Ltd (in liq) [2011] NSWSC 791 - Ogilvie-Grant v East (1983) 1 ACLC 742 - Owens Bank Ltd v Bracco [1992] 2 AC 443; [1992] 2 WLR 621 - Patch v Ward (1867) LR 8 Ch App 203 - Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) [2009] NSWCA 387; 78 NSWLR 190 - Price v Stone [1964] VR 106 - Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432; (1983) 1 ACLC 742 - Re Gordon Grant and Grant Pty Ltd (in liq) (1982) 6 ACLR 727 - Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314; (1983) 7 ACLR 669 - Re HIH Casualty and General Insurance Ltd [2006] NSWSC 6 - Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129; (2004) ACSR 681 - Skinner v Jeogla Pty Ltd [2001] NSWCA 15; 37 ACSR 106 - Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749; (2009) 72 ACSR 627 - Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 - SZFE v Minister for Immigration [2007] HCA 35; (2007) 232 CLR 189 - Teoh v Hunters Hill Council (No 5) [2012] NSWCA 75 - Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 - Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 - Zinc Corporation Pty Ltd v Pasminco Australia Ltd (subject to a deed of company arrangement) [2004] NSWSC 339; (2004) 49 ACSR 129 Texts Cited: - Spencer Bower and Handley, Res Judicata, 4th ed (2009) Category: Principal judgment Parties: Ke Qin Ren (First Plaintiff) Pei Xu (Second Plaintiff) Yi Cheng Jiang (Third Plaintiff) Gloconnect Pty Limited (Fourth Plaintiff) Wan Ze Property Development (Aust) Pty Limited (in liquidation) (First Defendant) Hong Jiang (Second Defendant) Yong An Xie (Third Defendant) Representation: Counsel: F.M. Douglas QC/M.R. Ellicott (Plaintiffs) D.C. Eardley (First Defendant) D.A. Smallbone (Second and Third Defendants) Solicitors: James Lee & Co (Plaintiffs) Downeys Lawyers (First Defendant) Austin Haworth Lexon (Second and Third Defendants) File Number(s): 12/304559

Judgment 1By Originating Process filed on 2 October 2012, the Plaintiffs, Ke Qin Ren ("KQR"), Pei Xu ("PX"), Yi Cheng Jiang ("YCJ") and Gloconnect Pty Limited ("Gloconnect") seek leave under s 471B of the Corporations Act 2001 (Cth) to bring proceedings ("Proposed Proceedings") against Wan Ze Property Development (Aust) Pty Limited (in liq) ("Company"). The Proposed Proceedings seek to set aside a judgment that I delivered on 24 May 2012 (Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722) ("Earlier Judgment") in earlier proceedings ("Earlier Proceedings") on the basis that it was procured by fraud or by conduct in bad faith of the plaintiffs in those proceedings. KQR, PX and YCJ also seek corresponding orders by an Interlocutory Process filed on the same date. I will refer to KQR, PX and YCJ as "the Plaintiffs" since they are the plaintiffs in these proceedings although they were the defendants in the Earlier Proceedings. 2By leave, Hong Jiang ("HJ") and Yong An Xie ("YX") were heard in respect of the application under r 2.13 of the Supreme Court (Corporations) Rules. In order to avoid confusion, I will refer to HJ and YX (who were the plaintiffs in the Earlier Proceedings but are interveners in this application) by those initials. The liquidator of the Company also appeared, but appropriately did not put substantive submissions in respect of the application where the matters that were raised were largely if not entirely outside his personal knowledge. Background 3Before turning to the evidence led in the application and the applicable legal principles, it is necessary to say something as to the background to the application. In the Earlier Proceedings, HJ sought orders in respect of oppression under s 233 of the Corporations Act; orders for the winding up of the Company; certain relief on her own account; orders under s 237 of the Corporations Act granting leave for her to bring proceedings in the name of the Company in respect of certain allegations; and substantive relief in respect of those allegations. HJ alleged in those earlier proceedings that the Company had transferred townhouses 16 and 20 in a property development at Baulkham Hills to YCJ and PX respectively for stated purchase prices that she alleged were not paid. 4In the Earlier Judgment, I dealt first with the application for leave to bring derivative proceedings and reviewed the relevant authorities. Relevantly for the purposes of this application, I observed (at [13]-[14]) that: "The second criterion, specified in s 237(2)(b) of the Corporations Act, is that HJ is acting in good faith and HJ must establish this matter to the Court's satisfaction: Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780; 227 FLR 43; 65 ACSR 661; Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618 at [77]. Relevant factors include whether HJ honestly believes that a cause of action exists and has reasonable prospects of success and whether she is seeking to bring the action for a collateral purpose. It is not essential that HJ say by sworn evidence that she believes that a good cause of action exists, since inferences can be drawn from the nature and circumstances of the case sought to be brought: Maher v Honeysett and Maher Electrical Contractors Pty Ltd [2005] NSWSC 859. In my view, it is clear that HJ and YX are acting in good faith. HJ is a substantial shareholder in the Company and HJ and YX are substantial creditors of the Company and a recovery of funds by the Company will increase the value of their shares and increase the likelihood that the debt owed by the Company to them will be repaid. There is no collateral purpose to be served by them in promoting the proceedings and they have acted diligently in their pursuit of the application under s 237 of the Corporations Act. I find that the application is brought in good faith." 5In assessing whether the grant of leave was in the best interests of the Company, I observed (at [16]) that: "The evidence before me indicates that two units of significant value have been transferred by the Company to PX and YCJ without payment being made for them; a large number of payments have been made by the Company which were not authorised by HJ or by any meeting of the Company's Board; and those payments are not presently explained, and have not been explained despite diligent efforts by the Plaintiffs over an extended period to obtain such an explanation. The prospects of success of the proceedings are substantial, particularly in circumstances that the Defendants have not sought to lead evidence to explain their conduct, and the likely recovery would be to the advantage of the Company, its shareholders and its creditors." 6I also reviewed the history of the earlier proceedings, in dealing with an application for summary judgment brought by HJ in those proceedings. I noted (at [27]) the history of serious and prolonged non-compliance with the Court's orders by the Plaintiffs (ie KQR, PX and YCJ, the defendants in the Earlier Proceedings), including twice failing to comply with orders for discovery made by the Court and failing to comply with an order made by the Court for filing of an Amended Defence. I noted that Barrett J had granted HJ leave to file an application for summary determination of the proceedings; that the Plaintiffs had not led any evidence in explanation of the defaults before me or suggested that a further extension of time would lead to rectification of those defaults; and held (at [28]) that the case was a proper one in which to make orders under s 61 of the Civil Procedure Act 2005 (NSW) and Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 12.7(2) striking out the Defence. 7I also indicated that, on the evidence then before the Court, I was satisfied that summary judgment should be given in favour of HJ, YX and the Company under UCPR r 13.1. I observed (at [30]) that: "The question whether summary judgment should be given in favour of [HJ, YX] and the Company needs to be approached on the basis that, as I have noted above, HJ and YX have filed extensive evidence to support their and the Company's claims and the [KQR, PX and YCJ] have not filed either an Amended Defence in accordance with directions made by the Court or any substantive evidence over an extended period. This is not a matter where a defence could not exist to the relevant claims, as a matter of fact, but instead a matter where [KQR, PX and YCJ] have not sought to establish such a defence by evidence, whether in accordance with the Court's original directions, or in the period after Barrett J granted leave for the Plaintiffs to seek summary judgment in the proceedings or at the hearing before me." I then addressed the application for summary judgment on the basis that the evidence that would be available at a final hearing was the evidence that had been filed by HJ and YX in the Earlier Proceedings. 8The Further Amended Points of Claim, as amended by leave of the Court, filed in the Earlier Proceedings pleaded the history of dealings between HJ and YX, the Plaintiffs and the Company, which I outlined in the Earlier Judgment. In respect of the sale of townhouses 16 and 20, the Further Amended Points of Claim relevantly pleaded that: "Sale of Unit 16 24. In or about January 2011, Unit 16 was transferred by the Company to [YCJ] for a stated purchase price of $485,000. 25. The transfer of Unit 16 to [YCJ] was made for no consideration. Alternatively, [YCJ] has breached the sale of land agreement by failing to pay the purchase price of $485,000 causing the Company to suffer damages to that extent. 26. As a result, [YCJ] holds Unit 16 on trust for the Company. Sale of Unit 20 27. In or about February 2011, Unit 20 was transferred by the Company to [PX] for the stated price of $520,000. 28. The transfer of Unit 20 to [PX] was made for no consideration. Alternatively, [PX] has breached the sale of land agreement by failing to pay the purchase price of $520,000 causing the Company to suffer damages to that extent. 29. As a result, [PX] holds Unit 20 on trust for the Company." 9The Plaintiffs' written outline of submissions indicated that they contended that PX and YCJ: "caused the Company to transfer to each of them a townhouse (Units 16 and 20) for no consideration (with an apparent combined value of approximately $1 million". 10In oral submissions, Counsel who then appeared for HJ and YX observed (at T4) that townhouse 16 was transferred to YCJ and townhouse 20 to PX and the allegation was put that: "there was no consideration paid for those. It was simply transferred across, sort of divvying up the properties as it were without consent or knowledge". Counsel also observed (at T7-8) that: "Your Honour I said that our primary case is that insofar as the transfer of these two units is concerned to [YCJ and PX], it was for no consideration therefore any contract for sale is a sham. But your Honour might not find that, and might say prima facie there's a contract case in which case I then say, then you should pay what's due under the contract because you haven't paid and therefore it's a debt to the Company." Counsel confirmed that these propositions were put as alternative propositions (at T8), observing that: "Your Honour might I have my cake and eat it and say that my primary case is that it isn't a real contract executed by the defendants both their company director and as a purchaser but if your Honour doesn't accept that submission, the case is put by way of amendments to say alternatively if it is a real contract there is a debt that hasn't been paid." 11Counsel also emphasised that, on either basis, what was put against YCJ and PX was that they had not paid for the townhouses. Counsel also pointed out that, if YCJ and PX sought to refute that proposition, then they would have put on evidence to say that they had in fact provided the consideration to acquire the townhouses. Counsel also referred (at T26) to "the two sham transactions in January and February when [YCJ and PX] helped themselves to two of the Units". 12I summarised those allegations in the Earlier Judgment (at [9]) as follows: "In January 2011, the Company transferred Unit 16 in the Baulkham Hills Development for YCJ for a stated purchase price of $485,000 which, it is alleged, was not paid. In February 2011, the Company transferred Unit 20 to PX for a stated purchase of $520,000 which, it is alleged, was also not paid." I also noted evidence of multiple withdrawals from the Company's account, that HJ had given evidence, without objection, of inquiries indicating that payments of approximately $278,348 had been made by the Company to YCJ on 24 December 2010 and $300,000 on 31 December 2010 and noted that HJ's uncontested evidence was that she did not authorise the transfer of townhouse 16 to YCJ or the transfer of townhouse 20 to PX. 13In dealing with HJ's and YX's claim for proprietary remedies, I noted (at [50]) that: "In the Second Further Amended Originating Process, the Plaintiffs sought a declaration that YCJ holds unit 16 on trust for the Company and that PX holds unit 20 on trust for the Company, and orders that PX and YCJ respectively do all things necessary to transfer title to the units to the Company. The claim in respect of those units is founded on the basis that unit 16 was transferred to YCJ and unit 20 to PX for no consideration. It is therefore not dependent on the claim for knowing assistance against YCJ as to which I did not order summary judgment for the reasons noted above." I held (at [51]-[54]) that the transfer of townhouses 16 and 20 under the sale contracts where YCJ and PX did not pay the stated consideration supported declarations that they held the respective townhouses on trust for the Company under the principles recognised in Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 and the other authorities to which I there referred. The finding that the transfer of the townhouses took place without consideration is essential to this aspect of the Court's reasoning. That finding was, of course, readily made where HJ had pleaded that allegation and the Plaintiffs had not filed an Amended Defence or led evidence to contest the allegation or made any submission in the course of the Earlier Proceedings that the finding was not supported by the evidence. 14It is useful at this point to pause to identify what is involved in the claim in the Earlier Proceedings that YCJ and PX did not pay the consideration for townhouses 16 and 20, which is a necessary step in determining whether that claim was properly advanced or, as the Plaintiffs contend, involved fraud or bad faith. It seems to me that claim could be supported on the alternative bases that (1) amounts of money were not in fact paid by, or on behalf of, PX and YCJ, as distinct from by a third party or from the Company's assets; (2) if monies were in fact paid by PX and YCJ, those payments were not referable to the purchase of townhouses 16 and 20 respectively; and (3) arguably, those payments were not in the nature of consideration in that they were not referable to a contract to acquire the respective townhouses. (However, I note that the third proposition would not have supported the proprietary relief granted in favour of the Company by way of trust over the relevant townhouses.) It does not seem to me that HJ, YX or their legal representatives can, as the Plaintiffs now contend, have known or "ought to have known" that YCJ and PX in truth paid the consideration for the respective townhouses unless they knew or "ought to have known" the contrary of these matters. When a judgment will be set aside for fraud 15As I noted above, the Plaintiffs' application for leave is directed to the commencement of separate proceedings against the Company to set aside the Earlier Judgment on the ground that it was procured, it is contended, by fraud and bad faith on the part of HJ and YX. The Plaintiffs rightly point out that separate proceedings must be brought in order to set aside a judgment on that basis: McDonald v McDonald (1965) 113 CLR 529; Teoh v Hunters Hill Council (No 5) [2012] NSWCA 75. 16There is, of course, no doubt that the Court has a jurisdiction to set aside a judgment procured by fraud. The authorities emphasise that what is required is actual fraud, involving "a mediated and intentional contrivance to keep the parties and the Court in ignorance of the real facts of the case": Patch v Ward (1867) LR 8 Ch App 203 at 207, where Sir John Rolt LJ there also observed that acts tending possibly to deceive or mislead without any such intention or contrivance" would "probably not be sufficient" to set aside such an order." A party alleging fraud bears the onus of establishing the fraud alleged and will fail unless that onus is discharged: Cabassi v Vila (1940) 64 CLR 130 at 147, where Williams J noted that in an action based on fraud the allegation must be established by strict proof that such a charge requires; McDonald v McDonald (1965) 113 CLR 529 at 535. 17In McHarg v Woods Radio Pty Ltd [1948] VLR 496 at 498, in an application to strike out a claim to set aside a judgment for fraud, Herring CJ observed that: "In considering actions of this kind the Courts have naturally been pressed by the necessity in the public interest of putting some limit to litigation. And they have refused to allow such actions to proceed, unless satisfied that there was a reasonable probability of the fraud alleged being established. Thus when an application is made to stay proceedings, the burden is not on the defendant, as in an ordinary action, to show that the action is frivolous or vexatious or some other reason for staying it. The very fact that what the plaintiff seeks is to set aside a judgment binding upon him, is sufficient to place the onus upon him of showing that he has reasonable prospects of success and to satisfy this onus the plaintiff must produce evidence of facts discovered since the judgment complained of, which raise a reasonable probability of the action succeeding. ... 18In Price v Stone [1964] VR 106 at 109, Gillard J observed that: "The action is for fraud, something not merely incidental or accidental, but deliberate and intended. Secondly, the fraud must be clearly averred in the Statement of Claim." His Honour there noted that false evidence was not sufficient to establish the necessary element of fraud, which "must be deliberate and designed, not merely adventitious in the case of a trial". In that case, his Honour also held that a judgment could not be set aside where contrary evidence was available to the other party at the time, although that other party had not relied on it. I will return to the significance of that proposition below. 19In Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 539, Kirby P (with whom Hope and Samuels JJA agreed) further observed that: "... The burden of establishing the components necessary to warrant the drastic step of setting aside a judgment, allegedly affected by fraud or other relevant taint, lies on the party impugning the judgment. It is for that party to establish the fraud and to do so clearly. In summary, he or she must establish that the case is based on newly considered facts; that the facts are material and such as to make it reasonably probable that the case will succeed; ... and that the opposing party who took advantage of the judgment is shown, by admissible evidence, to have been responsible for the fraud in such a way as to render it inequitable that such party should take the benefit of the judgment." Kirby P also observed that it was not sufficient for an applicant seeking to set aside a judgment for fraud to raise a "mere suspicion of fraud" and that he must or she must establish that it is "reasonably probable" that the action will succeed, in order to defend a summary dismissal application. The President noted that: "This rule is founded squarely in the public interest in finality of public litigation and in upholding judgments duly entered at the termination of proceedings in the Courts." 20In Owens Bank Ltd v Bracco [1992] 2 AC 443 at 483; [1992] 2 WLR 621 at 626-627, Lord Bridge summarised the principles on which a judgment may be attacked on the ground of fraud in delivering the decision of the House of Lords that: "... The common law rule [is] that the unsuccessful party who has been sued to judgment is not permitted to challenge that judgment on the ground that it was obtained by fraud unless he is able to prove that fraud by fresh evidence which was not available to him and could not have been discovered with reasonable diligence before the judgment was delivered. ... This is the rule to be applied in an action brought to set aside an English judgment on the ground that it was obtained by fraud. The rule rests on the principle that there must be finality of litigation which would be defeated if it were open to the unsuccessful party in one action to bring a second action to relitigate the issue dismissed against him simply on the ground that the opposing party had obtained judgment in the first action by perjured evidence. Your Lordships were taken, in the course of argument, through the many authorities in which this salutary English rule has been developed and applied and which demonstrate the stringency of the criterion which the fresh evidence must satisfy if it is to be admissible to impeach a judgment on the ground of fraud. I do not find it necessary to examine these authorities. The rule they establish is unquestionable and the principle on which they rest is clear." Those principles were applied by the Full Court of the Federal Court in Monroe Schneider Associates (Inc) & Anor v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234 at 240-241; (1992) 109 ALR 137 at 143. 21It must be recognised that the Court's ability to set aside a judgment for fraud is a qualification to the finality of judgments, and it is in the public interest that the finality of judgments be preserved. Thus, in Council of the City of Greater Wollongong Corporation v Cowan (1955) 93 CLR 435 at 444, Dixon CJ observed (Williams, Webb, Kitto and Taylor JJ concurring) that, with certain exceptions including "surprise, malpractice or fraud": "It is essential to give effect to the rule that the verdict, regularly obtained, must not be disturbed without some insistent demand of justice." In DJL v Central Authority [2000] HCA 17, (2000) 201 CLR 226 at [36]-[38], a unanimous High Court referred to the Court of Chancery's jurisdiction to enjoin the enforcement of judgments that were fraudulently obtained, noting that the jurisdiction originated before the creation of the statutory appellate structure in England, and noted that the equity jurisdiction remains in Australia "at least with respect to the impeachment of judgments for fraud". In SZFDE v Minister for Immigration [2007] HCA 35; (2007) 232 CLR 189 at [16], a unanimous High Court observed that: "Particular principles, or at least practices, have been developed with respect to collateral attacks in later litigation upon the outcome in earlier litigation where this was alleged to have been vitiated by fraud ... The precept engaged here has been identified as that favouring the finality of litigation." In D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 at [34], the plurality of the High Court observed that: "A central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances. That tenet finds reflection in the restriction upon the reopening of final orders after entry and in the rules concerning the bringing of an action to set aside a final judgment on the ground that it was procured by fraud. The tenet also finds reflection in the doctrines of res judicata and issue estoppel. Those doctrines prevent a party to a proceeding raising, in a new proceeding against a party to the original proceeding, a cause of action or issue that was finally decided in the original proceeding. It is a tenet that underpins the extension of principles of preclusion to some circumstances where the issues raised in the later proceeding could have been raised in an earlier proceeding." (citations omitted) The applicable principles in respect of a grant of leave under s 471B of the Corporations Act 22The application before me does not involve a trial on the merits of the Plaintiffs' claim to set aside the Earlier Judgment for fraud or bad faith on the part of HJ, YX or their legal representatives. The question before me is the narrower question whether leave should be granted under s 471B of the Corporations Act to bring proceedings against the Company advancing such a claim. 23Section 471B of the Corporations Act provides that a person cannot bring or proceed with a proceedings in a court against a company in liquidation or in relation to the company without the leave of the court and in accordance with such terms (if any) as the Court imposes. The starting point is that a claimant must lodge a proof of debt unless he or she can demonstrate there is good reason to depart from that procedure, so that a liquidator's attention and resources should not be diverted by litigation where the simpler procedure of proof of debt with a right of appeal under s 1321 of the Corporations Act: Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314 at 317; (1983) 7 ACLR 669; (1983) 1 ACLC 742; Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749; (2009) 72 ACSR 627 at [26]. It is not necessary that the applicant for leave show "exceptional circumstances" that warrant the grant of leave: Re Gordon Grant and Grant Pty Ltd (in liq) (1982) 6 ACLR 727 at 730 per William AJ; Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq) [2012] NSWCA 435 at [34]. 24An applicant for leave must show that its claim has a solid foundation and gives rise to a serious question to be tried or has "arguable merit"; and factors relevant to the exercise of the court's discretion may include the degree of complexity of the legal and factual issues in respect of the claim: Re Gordon Grant & Grant Pty Ltd above; Ogilvie-Grant v East (1983) 1 ACLC 742 at 743-5 per McPherson J (Campbell CJ and Sheahan J concurring). In Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 554-556, the Full Court of the Federal Court (Wilcox, Burchett and Beazley JJ) reviewed the authorities at length and observed that the Courts have not required applicants for leave to demonstrate a "prima facie case" in the technical sense, but instead to be "affirmatively satisfied that the claim has a solid foundation and gives rise to a serious dispute". In Skinner v Jeogla Pty Ltd [2001] NSWCA 15; 37 ACSR 106, Spigelman CJ (with whom Powell JA and Ipp AJA generally agreed) referred, with apparent approval, to the formulation in Vagrand and specifically observed that (at [31]): "The Court would not exercise the discretion in s 471B of the Corporations Law in order to permit a person to proceed with proceedings which are not reasonably arguable." The same approach was adopted in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2003] NSWSC 307; (2003) 45 ACSR 224; Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (recs and mgrs apptd) (in liq) (No 2) [2009] FCA 42 at [17]-[23]; Swaby v Lift Capital Partners Pty Ltd above at [29] and Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq) above at [32]. 25It follows from the principles applicable to setting aside a judgment for fraud and to the grant of leave under s 471B of the Corporations Act that the Court should not grant leave for the commencement of proceedings alleging fraud if, consistent with the principles noted above, the evidence does not establish at least a solid foundation for the allegation of fraud at the time the leave application is brought. The Court would also not grant such leave if the proceedings, when commenced, would be unable to survive an application for summary dismissal under UCPR r 13.4 on the basis that no reasonable cause of action is disclosed. That approach is reinforced by the approach adopted in the somewhat similar case of applications to stay judgments for fraud, to which I have referred above. I will address the Plaintiffs' alternative claim to set aside the judgment for bad faith, or lack of good faith, in paragraphs 95-99 below. The Plaintiffs' position in respect of the claims against YCJ and PX in respect of townhouses 16 and 20 respectively 26The proceedings for which leave is sought are to be initiated by a draft Statement of Claim (Ex KQR 5), although some of the allegations advanced in it have been qualified or abandoned in the course of oral submissions and other evidence has been identified as potentially relied upon. The allegations advanced in the draft Statement of Claim were initially summarised in the Plaintiffs' written submissions as follows: "... [I]t is in substance alleged that [HJ and YX]: (a) subpoenaed a party to produce documents, collected those documents from that party and retained them at their offices without delivering them to the Court; (b) the subpoenaed documents contained evidence vital to the determination of the issues before the Court; (c) [HJ and YX] were aware of the contents of the subpoenaed documents; (d) [HJ and YX] tendered evidence to the Court and did not refer the Court to material in that evidence which flew in the face of a significant submission made by them and that evidence was supported by the subpoenaed material withheld by them; (e) [HJ and YX] withheld evidence of an agreement between them and the Plaintiffs which was material to the issues before the Court." That summary is, of course, necessarily a simplification of the draft Statement of Claim that comprises 184 paragraphs over 53 pages. 27Paragraphs 42-72 of the draft Statement of Claim deal with the position in respect of townhouse 16 and set out, in detail, the inquiries made by HJ, YX and their solicitors concerning that townhouse. In paragraph 68 of the draft Statement of Claim, the Plaintiffs plead that: "By reason of the matters above, as at 28 September 2011 and thereafter, HJ and YX by themselves and/or by their agent Haworth knew or ought to have known or deliberately shut their eyes as to the existence of the facts that: (a) Y[C]J had entered into a Contract to purchase Lot 16 for a consideration of $485,000.00; (b) Unit 16 was settled on 7 January 2011; (c) Y[C]J had been requested to provide a bank cheque to 'Wan Ze Property Development (Aust) Pty Ltd' in the amount of $485,000 for use at settlement of his purchase of Unit 16 on 7 January 2011; (d) On 7 January 2011, the sum of $485,000 was paid into the Wan Ze business account; ... (g) Of the remaining four townhouses, Townhouse 16 and Townhouse 20 had been sold by the Company to Y[C]J and PX respectively and Townhouse 5 and Townhouse 13 had been sold by the Company to [HJ's and YJ's son ("BX")] but such sales had not been completed by [BX]. It is notable that this paragraph stops short of an allegation that HJ, YX or their legal representatives knew or ought to have known or deliberately shut their eyes to any fact that YCJ, as a matter of fact, funded the relevant payment into the Company's account, or indeed a contention that that was the fact. While paragraphs 68(c)-(d) refer to a request that YCJ provide a bank cheque and to the fact of a payment into the Company account without identification of its source, they do not in terms plead that the relevant payment was made by YCJ or that HJ, YX or their legal representatives knew or ought to have known such a fact. 28Paragraph 71 of the draft Statement of Claim in turn relies on a letter dated 24 December 2010 to YCJ, said to have been produced by AustLeg under subpoena, which is said to have advised YCJ that settlement was to take place on 7 January 2011. The Plaintiffs now accept that the version of that letter which was produced to HJ's and YX's solicitor in fact did not include the settlement date and a later version of that letter that did include such a date was not produced to HJ's and YX's solicitors. I address this issue in paragraph 67 below. 29The Plaintiffs contend that townhouse 16 was purchased by YCJ by payment of full consideration of $485,000 by way of bank cheque on 7 January 2011. The Plaintiffs tendered, as an exhibit to their solicitor's affidavit dated 2 October 2012, an affidavit of YCJ dated 6 September 2012 filed in bankruptcy proceedings in the Federal Court. In summary, YCJ's evidence in the bankruptcy proceedings was that he obtained two bank cheques on 7 January 2011 for an amount of $485,000 in favour of the Company and for an amount of $8,677.50 in favour of the Office of State Revenue and deposited the first cheque into the Company's account. YCJ's affidavit annexes a letter dated 24 December 2010 from AustLeg to him confirming that settlement was to take place on 7 January 2011 and that the money to be paid to the Company was $485,000 and requesting a bank cheque on the day before settlement for that amount. This evidence was not led in the Earlier Proceedings, and YCJ did not swear an affidavit or give evidence in these proceedings. 30Paragraphs 84-119 of the draft Statement of Claim deal with the position in respect of townhouse 20 and set out, in detail, the inquiries made by HJ, YX and their solicitors concerning that townhouse. Paragraph 115 pleads in respect of townhouse 20 that: "By reason of the matters above, as at 28 September 2011 and thereafter HJ and YX, by themselves or by their agent Haworth, knew or ought to have known or deliberately shut their eyes as to the existence of the facts that: (a) PX had entered into a Contract to purchase Lot 20 for a consideration of $520,000; (b) Unit 20 was settled by 18 February 2011; (c) On 15 February 2011, the National Australia Bank as the incoming mortgagee had been requested to provide a cheque to "Wan Ze Property Development (Aust) Pty Ltd" in the amount of $415,605; (d) On 15 February 2011, the sum of $415,605 was paid into the Wan Ze business account; (e) On 18 February 2011, the sum of $114,000 was paid into the Wan Ze business account; (f) On 18 February 2011, the sum of $114,000 paid into the Wan Ze business account had been paid from the joint account of K[Q]R and PX and deposited into the Wan Ze business account by PX. ... (i) Of the remaining four townhouses, Townhouse 16 and Townhouse 20 had been sold by the Company to Y[C]J and PX respectively and Townhouse 5 and Townhouse 13 had been sold by the Company to [BX], but such sale had not been completed by [BX]." 31In paragraph 117 of the draft Statement of Claim, the Plaintiffs point out that, in HJ's affidavit affirmed 16 March 2012, she noted at paragraph 31(d) that there was a deposit of $415,605 to the Company's account on 15 February 2011. It might be noted that, first, the reference to that amount in that affidavit is inconsistent with any intention to conceal the fact of it from the Court. Second, the same paragraph of HJ's affidavit draws attention to other transactions, including a withdrawal of $410,000 from the Company's account on the day after the deposit of $415,605 into that account. 32The Plaintiffs also contend that: "Lot 20 was purchased by PX by payment of full consideration in two amounts. The first amount was from the proceeds of a loan made to PX by the National Australia Bank and the sum of $415,605 was paid into the Wan Ze account on the settlement date of 15 February 2011. The balance was paid by deposit of the sum of $114,000 into the Wan Ze account on 18 February 2011. The transfer was registered on 11 March 2011." 33The Plaintiffs tendered, as an exhibit to their solicitor's affidavit, an affidavit of PX dated 6 September 2012 sworn in bankruptcy proceedings in the Federal Court of Australia. PX's evidence in the bankruptcy proceedings, was, in effect, that she received approval for a bank loan of $416,000 in respect of the purchase of townhouse 20 from National Australia Bank Limited ("NAB") on 10 February 2011; she instructed AustLeg to prepare a transfer in an amount of $530,000; she received notification of the amount applied by NAB to the purchase on 15 February 2011 as $415,605, which amount was credited into the Company's account on that date; and she then wrote a cheque for $114,000 from her personal account for what she understood to be the balance of the purchase price. PX's evidence in the bankruptcy proceedings is that she was under an incorrect impression that the purchase price for townhouse 20 was $530,000 and wrongly calculated that 20% of that amount was $114,000. The amount of $114,000 is broadly comparable to the difference ($114,395) between a purchase price of $530,000 and the amount paid by NAB of $415,605. It does not correspond to 20% of that purchase price, which would be $106,000. This evidence was not led in the Earlier Proceedings, and PX did not swear an affidavit or give evidence in these proceedings. 34By paragraph 156 of the draft Statement of Claim, the Plaintiffs plead that, by reason of the matters referred to in paragraphs 154-155 of the draft Statement of Claim (which in turn refer to paragraphs 1-130 and 146-149 of the draft Statement of Claim respectively), HJ and YX, by themselves or by their solicitors, in relation to, relevantly, townhouses 16 and 20: "(a) Knew or intentionally shut their eyes to the fact that consideration had been paid; (b) Intentionally represented to [the Court] despite such knowledge and/or with such intentional shutting of their eyes as to the truth that no consideration had been paid and that the subject contracts entered into were shams; (c) Intentionally withheld evidence in their possession, being the facts and documents referred to in paragraphs 64, 112, 113(a), 113(d), 113(e) and 113(f), from the Court which evidence tended to establish that consideration had been paid." The cross-reference to paragraph 64 is to documents produced by AustLeg containing a request for payment of $485,000 by bank cheque in favour of the Company and a copy of the front page of the contracts which refer to a sale price of $485,000 in respect of townhouse 16. Those documents do not establish that HJ, YX or their legal representatives knew or ought to have known that amount had in fact been paid by YCJ. The cross-reference to paragraphs 112-113 is to the documents produced by AustLeg, which contained the letter to NAB directing that a cheque in favour of the Company for $415,605 was payable; the record of the deposit of $415,605 and $114,000 into the Company's account; the record of the drawing of $114,000 from the joint account of K[Q]R and PX and the record of the deposit of that amount into the Company's business account. 35The basis of the alleged fraud or alternatively bad faith is further elaborated by the Plaintiffs as follows: "(a) [HJ and YX] up to and at the time of the hearing knew of the settlement dates of the above properties (Lot 16 - 7 January 2011 and Lot 20 - 15 February 2011); (b) [HJ and YX] up to and at the time of the hearing had in their possession the settlement documents relating to the above properties which they had subpoenaed from the conveyancers, AustLeg & Co. [HJ and YX] collected these subpoenaed documents from the conveyancers and retained them in their possession and they were never filed with or forwarded to the Supreme Court. These documents were not tendered at the hearing; (c) [HJ and YX] up to and at the time of the hearing had in their possession copies of bank statements for the Wan Ze business accounts with Westpac Banking Corporation for the dates referred to above, which bank statements showed the deposits of the consideration amounts referred to above. These bank statements were tendered at the hearing but were referred to for other purposes and his Honour's attention was not drawn to the consideration amounts entries; (d) [HJ and YX] prior to the hearing conducted 'tracing' exercises whereby they compared the AustLeg & Co settlement documents which they retained in their possession with the Westpac banking statements on or about the settlement dates. This is apparent from legal cost invoices, copies of which were forwarded to the current Plaintiffs; (e) As a result of the above [HJ and YX] at all times knew that the true position was that consideration had been paid yet submitted to the Supreme Court that the transactions were sham transactions and that consideration had not been paid; (f) [HJ and YX] part performed an oral agreement between them and K[Q]R, PX and Y[C]J pursuant to which they were to be given two townhouses as part payment of their loans and did not refer his Honour to that agreement or the part performance thereof. The part performance involved them entering into contracts to purchase Lots 5 and 13 in the development. This fact was known to their solicitors who told [HJ and YX] that by engaging in these acts they were acting contrary to the advice given them by the firm. The agreement also enabled Gloconnect Pty Limited, K[Q]R, PX and Y[C]J to repay loans made by them in the course of the development and the amounts of those loans comprise a significant component of the 2.3 million dollars damages award made by his Honour. [HJ and YX] made no reference to this part performance or the full terms of the agreement in their evidence to the Court." 36The basis of the Proposed Proceedings was summarised (at T29 14 February 2013) by Mr Douglas QC, who appeared with Mr Ellicott for the Plaintiffs, as that: "It is quite one matter, we submit, for one to say that in ordinary adversarial litigation the plaintiff is free to parade its strengths and hope that the defendant does not uncover its weaknesses. It is entirely different where the plaintiff conceals from the Court facts and documents known to it and which directly challenge the factual case presented by the plaintiff. Their case has presented to the Court that transactions in relation to Lots 16 and 20 were a sham, that they were in possession of documents that showed that there had been a transfer of consideration." This summary encapsulates a number of key propositions within the Proposed Proceedings; first, that facts and documents known to HJ and YX or their legal representatives were inconsistent with the factual case presented by them in the Earlier Proceedings and, in particular, showed that there had been a transfer of townhouses 16 and 17 for consideration and second, that HJ and YX or their legal representatives concealed from the Court those facts and documents. Mr Douglas QC went on to submit (at T30) that: "... You can't advance a case contrary to the facts you know to be true. You can't tell the Court there was a transfer for no consideration when you know there were facts that show there was consideration paid." Mr Douglas QC also submitted (at T33) that: "The question which arises is what did Counsel and solicitors do to satisfy themselves that they could present a case which they presented before the Court. It is one thing to put us to proof of various things. It is another to present a case to your Honour which says these transactions were a sham and there was no consideration received. To present that case to your Honour they had to satisfy themselves that no consideration had been received. If they wanted to present a case based on their clients' instructions that consideration had been received, but that consideration was, may I put it this way, fraudulently extracted from the Company but paid to the Company. They didn't do that. They presented the case they did which is effectively we took two properties from the Company." 37The Plaintiffs accept that they must establish actual fraud, involving conscious and deliberate dishonesty, but contend that this would embrace each of the first three categories of knowledge in Baden Delvaux and Lecuit v Societé Generale [1992] 4 All ER 161 at 235, namely actual knowledge, wilfully shutting one's eyes to the obvious and "wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make". I will return to whether a solid foundation is established for knowledge in any of those categories below. The Plaintiffs also contend (in their Further Submissions) that "[t]o put forward a false case (which would include putting a case that one does not know to be true) is to engage in fraudulent conduct even if the party upon whom the deception is perpetrated is represented by legal advisers". This proposition seems to me to require qualification, since a plaintiff will rarely know with absolute certainty that any explanation of the facts is objectively true, as distinct from a likely or the most likely explanation, particularly where relevant evidence is at least in part in the defendant's possession and the defendant does not give discovery and does not lead evidence. The matters known to HJ, YX and their legal representatives 38I turn now to review the matters alleged to constitute fraud or bad faith on the part of HJ, YX and their legal representatives. I should emphasise that I do not do so in order to reach factual findings as to the ultimate merits of the allegations, which would be a matter for a hearing of the Plaintiffs' claim if leave is given to bring it. I nonetheless deal with these matters at some length, first, because it is necessary to review the allegations to determine whether the Plaintiffs' claim to set aside the judgment has a solid foundation so as to support a grant of lease under s 471B of the Corporations Act; second, because both parties devoted substantial effort to addressing them in the hearing before me; and, third, because they involve serious allegations that warrant at least some preliminary comment. 39I will refer below to a number of criticisms advanced by the Plaintiffs of the conduct of HJ and YX's legal representatives in respect of the Earlier Proceedings. Those criticisms should be understood in the context that those legal representatives are alleged to have engaged in fraud or acted with a lack of good faith because they put submissions to the Court that were inconsistent with inferences or possible inferences that could be drawn from several documents, or did not draw the Court's attention to inconsistent or possibly inconsistent evidence or inferences, when the Defendants were party to the Earlier Proceedings, were legally represented at the hearing of them and did not at any point lead evidence or make submissions that, contrary to HJ's and YX's case, they had paid for townhouses 16 and 20 or otherwise to support the contrary propositions that they submit that HJ and YX should have brought to the Court's attention. 40The Plaintiffs placed substantial reliance on memoranda of costs and disbursements of HJ's and YX's solicitors that were provided to the Plaintiffs in support of a claim for costs in respect of the Earlier Proceedings, in order to establish that those solicitors had made inquiries in respect of particular matters, which it was suggested should have led those solicitors to identify the contrary evidence or draw the contrary inferences on which the Plaintiffs now rely. An initial difficulty with the Plaintiffs' reliance on that material is that it is consistent with an explanation other than fraud or lack of good faith, namely that HJ's and YX's solicitors were, over a considerable period, seeking to identify what had occurred in circumstances that the Plaintiffs had not provided discovery and had not led any evidence to explain the events at issue in the Earlier Proceedings. A second difficulty with that material is that it goes to the question of what HJ's and YX's solicitors could have known as to the underlying transactions, based on the analysis which the Plaintiffs contend they should have undertaken. However, had they undertaken that analysis, the most they could have known was what the Plaintiffs already knew, namely what (the Plaintiffs claimed) had occurred in those transactions. Since the Plaintiffs already knew those matters, it was open to them to lead evidence of those matters in the earlier proceedings, so as to avoid the suggested "fraud" or lack of good faith affecting the Court's judgment. I will return to the significance of that matter below. 41Turning now to the relevant events, the contract for the sale of townhouse 16 to YCJ was dated 21 December 2009 and recorded a price of $485,000, payable by way of a deposit of $24,250 and a balance of $460,750. The contract for the sale of townhouse 20 to PX was dated 25 May 2010. 42The Plaintiffs point out that, on 28 January 2011, HJ and YX obtained a print out of transactions for the Company's account that included a deposit of $485,000 on 7 January 2011. That account statement was tendered in the Earlier Proceedings (Ex HJ-1 pp 213-214) although specific reference was not made to that deposit in submissions and I did not refer to it in the Earlier Judgment. That entry does not indicate who made that payment or what it was made for, but a possible inference was that the amount of $485,000 received on that date was paid by YCJ and related to the purchase of townhouse 16. Other possible inferences were that it was paid by a third party or from monies ultimately sourced from the Company in relation to the purchase of that townhouse or that it was paid in relation to another transaction. The Court may have been less likely in the Earlier Proceedings to draw the inference for which YCJ now contends where YCJ did not lead evidence to support it or put any submission that it should be drawn in the course of the Earlier Proceedings. 43The Plaintiffs point out that, by 16 February 2011, HJ knew that a "sale" of townhouse 20 had been settled on 15 February 2011 with no funds received by NAB for the discharge as there was no debt owing by the Company to the Bank (HJ Affidavit 16.2.2011 [75]; Ex HJ-1 pp 220-221). This matter did not indicate that the Company had in fact received such monies or that PX had paid them, but only that NAB did not receive such monies. It was not concealed from the court, since it was addressed in affidavit and documentary evidence. 44As I noted in the Earlier Judgment, Barrett J had made directions requiring discovery on 21 February 2011. The categories for discovery nominated by HJ and YX included: "All documents in relation to the sale of each of the townhouses at Dobson Crescent, Baulkham Hills" (Ex DS1, pp 257-258). By email dated 18 July 2011, HJ's and YX's solicitors followed up as to the Plaintiffs' discovery (Ex DS1, p 281) and did so again on 31 July 2011 (Ex DS1, p 283) and once more on 8 August 2011 (Ex DS1, p 285). The Plaintiffs throughout failed to comply with the discovery orders, depriving HJ, YX and their legal advisers of the information that would have been available to them from access to discovery. 45The Plaintiffs point out that, by 10 March 2011, HJ, YX and their legal representatives obtained a copy of the Company's internet bank statement detailing transactions between 4 February 2011 and 2 March 2011 which referred to a deposit of $415,605 on 15 February 2011 and a deposit of $114,000 on 18 February 2011 (HJ 16.3.2011 Affidavit [30]; Ex "HJ2" pp 37-38). That matter was not concealed from the Court since that affidavit was read and the exhibit tendered, although any relevance of the deposit of $114,000 does not seem to have been identified and was not drawn to the Court's attention. 46By letter dated 21 April 2011 (Ex DS1, pp 261-262), HJ and YX's solicitor wrote to the then solicitor for the Plaintiffs requesting documents and particulars relating to the transfer of townhouse 16 to YCJ, including "How the price of $485,000 was paid for, including supporting documents evidencing payment of same" (Ex DS1, p 261). They followed up on that letter by an email dated 5 May 2011 (Ex DS1, p 267). By letter dated 18 May 2011 to the Plaintiffs' then solicitor, HJ's and YX's solicitors identified their concern that the transaction concerning townhouse 16 was unauthorised and not in ordinary course of business and had "purportedly" occurred for a consideration of $485,000 (Ex DS1, pp 269-270). They followed up that letter by an email dated 25 May 2011 (Ex DS1, p 273) and by a further email dated 15 August 2011 (Ex DS1, p 291). There was no substantive response to those inquiries. 47The Plaintiffs contend that, by 5 July 2011, HJ and YX, by themselves or by their solicitors knew by documents produced by Westpac Bank pursuant to a subpoena issued on 16 June 2011 in the Earlier Proceedings that a withdrawal by cheque of $114,000 had been made on 18 February 2011 from the joint account of KQR and PX. The plaintiffs point out that, by 16 August 2011, Westpac had produced documents to the Court in response to a subpoena issued at the request of HJ and YX on 22 July 2011, which included a copy of a cheque dated 17 February 2011 payable to the Company in the amount of $114,000.00 drawn from KQR's and PX's joint account and a deposit slip dated 18 February 2011 which notes that the amount of $114,000 was deposited by PX into the Company's account (Lee 2.10.2012 Ex JL-3 pp 221-224, 248-249). 48On 12 September 2011, a Further Amended Originating Process and Further Amended Points of Claim were filed by HJ and YX in the Earlier Proceedings alleging that the transfers of townhouses 16 and 20 were made for no consideration. The Plaintiffs were directed to file their Defences by 12 October 2011 and did not do so, this being one of the defaults which led Barrett J to grant leave to bring an application for summary judgment and led me to grant that application. The failure to file that Defence meant that HJ, YX and their legal representatives were never met with a denial of the allegation that the transfer of the townhouses was made for no consideration. 49By letter dated 23 September 2011 (Ex DS1, pp 307-309), HJ's and YX's solicitors again sought information as the circumstances of the transfers of townhouses 16 and 20 and referred to the "purported" consideration for those transfers. On 23 and 29 September 2011, they were advised by HJ's and YX's son ("BX") of his belief that the Company's funds had been used by YCJ to acquire the townhouse (Ex DS1, pp 310-311, 312-313). 50The Plaintiffs point out that, by letter dated 23 September 2011, the conveyancing firm that acted in the relevant transactions, AustLeg & Co advised HJ's and YX's solicitors that "[t]hese two matters were settled in the early (sic) of this year ..." (Sheen affidavit 22.12.2012 Ext DS1, p 338). This advice was obviously in general terms and, for reasons that will emerge below, I do not consider that HJ's and YX's solicitors were obliged to treat a statement by AustLeg as determinative of any factual issue. The Plaintiffs also complain that HJ and YX's solicitors did not provide a copy of a subpoena served on AustLeg on or about 9 September 2011 to the Plaintiffs' then solicitors in the proceedings, as was required by UCPR r 33.5. The Plaintiffs also rely on the fact that, on 26 September 2011, HJ's and YX's solicitors attended AustLeg and collected documents in answer to the subpoena but did not produce those documents to the Court or send those documents to the Plaintiffs' solicitors. I address these matters in paragraphs 65-71 below. 51The Plaintiffs contend that, by 26 September 2011, HJ's and YX's solicitors had obtained documents produced by AustLeg in relation to townhouse 16 including counterpart copies of the contract and an email dated 4 January 2011 from AustLeg to YCJ advising that the settlement of townhouse 16 had been booked at 7 January 2011 and requesting provision of cheques for $485,000 (purchase price) and $8,677.50 (stamp duty) and a subsequent email from YCJ advising that he would attend at the offices of AustLeg & Co on 7 January 2011 around 11:00am (Ex DS2 p 816). The Plaintiffs contend that, by 26 September 2011, HJ's and YX's solicitors had also obtained documents produced by AustLeg in relation to townhouse 20 including counterpart copies of the contract and other transaction documents including a letter dated 15 February 2011 addressed to NAB confirming that settlement would take place on 15 February 2011 at the offices of NAB and directing that a cheque in favour of the Company for $415,605 was payable (Ex DS2 p 529) and a chain of emails between AustLeg and NAB in relation to preparations for settlement and loan amount available on settlement (EX DS2 pp 530-531). 52The Plaintiffs point out that, on 4 October 2011, a paralegal spent some 40 minutes undertaking a tracing of the transactions relating to whether the Company received payment for the sale of townhouses 16 and 20 by comparing the bank statements with the settlement figures for those townhouses (Lee affidavit 2.10.2012 Ex JL-7 p 58). 53On 11 October 2011, an employee of the solicitors for HJ and YX emailed AustLeg referring to documents received in response to the subpoena to produce filed on 9 September 2011 in respect of townhouse 16 and noted email correspondence between AustLeg and YCJ dated 24 December 2010 referring to attachments such as a letter, direction to pay and tax invoice and noting that those attachments had not been provided. An email dated 24 December 2010 from AustLeg to YCJ was provided in response, which requested a bank cheque in favour of the Company for an amount to be advised after settlement had been booked, and attached a letter which left the settlement date recorded as "00/00/00" and recorded the money to be paid to the Company as $485,000. 54A file note made by a solicitor then employed by the solicitors for HJ and YX, following her inspection of documents provided by AustLeg on or about 14 October 2011, recorded her observation of deposits of $485,000 and $415,000 to the Company's bank account on settlement date, but also observed withdrawals by the Plaintiffs from the same account on several occasions (Sheen affidavit 22.12.12, Ex DS1 p 320). The Plaintiffs also rely on an undated handwritten note of HJ's and YX's solicitors recording that "$415,605 payable to [Company]" (Sheen affidavit 22.12.12 Ex DS1 p 321). 55By paragraph 17 of her affidavit affirmed 16 March 2012, HJ stated that, on or about 7 January 2011, the Company transferred townhouse 16 to YCJ for a stated consideration of $485,000. By paragraph 23 of that affidavit, HJ referred to various withdrawals from the Company's bank account, but, the Plaintiffs point out, did not specifically refer to the $485,000 that had been deposited into the Company's bank account on 7 January 2011. By paragraph 24 of that affidavit, HJ stated that, on or about 15 February 2011, townhouse 20 was transferred by the Company to PX for a stated consideration of $520,000. That affidavit referred (at paragraph 25) to the mortgage dated 15 February 2011 from PX to NAB (Ex HJ-2 pp 14-16). The Plaintiffs point out that affidavit refers (at paragraph 31) to various withdrawals from the Company's bank account and to the $415,605 that was deposited into the Company's account on 15 February 2011 but not to other amounts deposited into that account. 56On 19 March 2012, HJ's and YX's solicitors, inter alia, consulted with a former Counsel retained by HJ and YX and conducted title searches in respect of lots 16 and 20 and a mortgage facility search in respect of townhouse 20 (Lee affidavit 2.10.2012 EX JL-7 p 73). It follows that, at least by that date, HJ and PX's solicitors were aware that PX had taken out a mortgage on townhouse 20. 57By letter dated 15 May 2012 (Ex DS1, pp 370-375), the solicitors for HJ and YX again wrote to the solicitors for the Plaintiffs noting that the transfer of townhouse 16 to YCJ in January 2011 for a "purported consideration of $485,000 (which is disputed)" and the transfer of townhouse 20 to PX "for a purported consideration of $520,000 (which is disputed)". The letter continued: "As you are aware, it is our clients' contention that the said transactions were conducted without our clients' prior knowledge or consent. Please would you provide us with proof that the purchase consideration was paid in respect of each of the above transactions and evidence of from where the funds were derived?" That letter requested a response by close of business on 16 May 2012. Mr Sheen, a principal in the solicitors for HJ and YX, gives evidence that, based on his review of the file in the earlier proceedings, the solicitors for the Plaintiffs did not respond to that request for proof of payment of consideration. 58The Plaintiffs rely on an exchange of emails between an employee of the solicitors for HJ and YX and Counsel then retained in the Earlier Proceedings on 18 and 20 May 2012, shortly before the hearing of the Earlier Proceedings on 24 May 2012. By an email dated 18 May 2012 from Counsel to the solicitor (Ex DS1, pp 376-377), Counsel referred to his attempt to reconcile the unauthorised amounts claimed in the Points of Claim with the bank statements and raised queries as to that matter; asked whether HJ and YX had "checked all the bank accounts to see if the purchase price for Units 16 and 20 were paid" and noted the importance of that matter since "if the consideration was paid, then there is not much for the Court to get excited about unless we say the sale was at under-value (which we haven't said)"; noted that Counsel was not convinced that the amount of $415,605 referred to in HJ's second affidavit was referrable to the sale of townhouse 16, because the amount did not match with the contract price after the deposit was taken into account; and queried whether HJ and PX had a complete set of bank statements for all company accounts from the opening of the accounts, so that it could be put to the Court that there was no evidence of the receipt of the money. 59By an email dated 20 May 2012 (Ex DS1, p 378-404), the solicitor responded to Counsel's queries as to the payment of the purchase price for townhouses 16 and 20 noting that: "Our clients' assertion is that each of [the Plaintiffs] 'paid' for the units by first withdrawing monies of similar amounts out of the Company's account, then deposit them into their own bank accounts, and thereafter 'pay' them to the Company's accounts upon settlement. So, there were monies being paid into the Company's account purportedly as consideration for the townhouses but they were monies previously taken out from the Company's account." The solicitor also noted that paragraph 31(d) of HJ's second affidavit was referrable to the sale of townhouse 20 rather than townhouse 16, correcting Counsel's previous misunderstanding of that matter; provided information as to when townhouse 20 was settled; noted that she did not know when townhouse 16 was settled; and also noted that, in a document contained in the file recording sales of the property "the particulars of townhouses 16 and 20 are left blank, along with 5 and 13 (which were not sold and now the subject of the restraining orders)". The sales summary table referred to in that email was sent on 9 January 2011 to an entity apparently associated with YCJ and recorded the sales price, commission and other information relating to sales of townhouses, but contained no information indicating the receipt of payment for a sale of townhouses 16 or 20 (Ex DS1, p 2). The solicitor also advised Counsel that HJ and YX did not have a complete set of bank statements and the solicitors would contact the NAB and see if it would advise when townhouse 16 was settled. 60Counsel in turn responded to that email (Ex DS1, pp 405-409) noting that he understood the claim that the Plaintiffs had "paid" for the townhouses but had not seen any evidence which confirmed that assertion; that the reference to $415,615 was "not very convincing" as it was not the correct amount; and asking whether the Plaintiffs had ever asserted that they paid for the townhouses. Counsel also noted that, if the reference to $415,000 in HJ's affidavit in fact referred to townhouse 20, then that amount was significantly different from the purchase price of $520,000 for that townhouse, and asked whether "anyone [has] ever claimed that the $415K was for Unit 20". Counsel then responded to the further information concerning settlement dates by noting "have we ever asked the [Plaintiffs] when they paid?". The correspondence to which I have referred above indicates that question had been repeatedly asked by HJ's and YX's solicitors but not answered. 61The Plaintiffs contended that this exchange supported an inference of fraud or lack of good faith on the part of the legal representatives for HJ and PX. I do not consider that this exchange provides any support, still less establishing any solid basis, for such an inference. First, this exchange provides no basis for any suggestion that, at that time, they were conscious of the evidence that townhouse 16 had settled on 7 January 2011 and concealed, or wilfully failed as to inquire further about, that matter. In any event, a subsequent letter from National Australia Bank confirming that settlement of townhouse 16 had taken place on 7 January 2011 was tendered at the hearing of the Earlier Proceedings, resolving any uncertainty as to that question. Second, this exchange provides no basis for a suggestion that Counsel or the solicitor had concealed, or wilfully failed to make inquiry about, the possibility that the amount of $485,000 was payment for townhouse 16; to the contrary, the exchange indicates that Counsel was then seeking to identify an amount referable to the balance due after the deposit payable under the contract for that townhouse. The absence of reference to payment of $114,000 (to which I will refer further below) in this exchange provides no basis for an inference that HJ's and YX's legal representatives were aware of and concealed, or wilfully failed to inquire about, the relevance of that payment in respect of townhouse 20, since it is at least equally consistent with a failure to recognise that amount as possibly referable to a payment for townhouse 20. 62In my view, this exchange of emails is strong contemporaneous evidence that HJ's and YX's legal representatives were at that point diligently seeking to analyse the transactions and determine the proper inferences to be drawn from them. In particular, it shows how Counsel, having properly been instructed of BX's belief that YCJ and PX had paid for the townhouses with monies taken from the Company, appears to have formed the view that such payments were not established, a position consistent with the case that he then put before the Court. 63On 21 May 2012, HJ's and YX's solicitors made further inquiries with the Company's bank, NAB, seeking settlement details in respect of townhouse 16. Those inquiries were tendered in the Earlier Proceedings and marked as Ex P8 in those proceedings. 64The Plaintiffs also point to a statement in the liquidator's report to creditors dated 1 November 2012 that: "I have conducted a review of the Company's bank statements and confirm that the sale proceeds were actually paid to the Company". The liquidator's solicitor stated, from the bar table, that the liquidator's inquiries were continuing. Nonetheless, there does not appear to be any real dispute that amounts claimed by YCJ and PX to be referable to the purchase of townhouses 16 and 20 were paid to the Company. The question before me is a different one, namely whether a solid foundation or serious question for a case of fraud or a lack of good faith on the part of HJ, YX or their legal representatives is established so as to support the leave sought. The treatment of the subpoenaed documents and documents produced by AustLeg & Co generally 65The first issue on which the Plaintiffs placed considerable weight was the treatment by HJ's and YX's solicitors of documents produced by AustLeg on subpoena. Paragraphs (a)-(d) of the Plaintiffs' summary of their case, as set out in paragraph 26 above, refer to the failure to deliver those documents to the Court; and contend that those documents contained "vital" evidence that was to the contrary of the Plaintiffs' submission that YCJ and PX had not paid the consideration for townhouses 16 and 20. Paragraph (b) of the expanded submissions of the Plaintiffs, as set out in paragraph 35 above, also addresses that matter. 66As I noted in paragraph 50 above, the Plaintiffs complain that HJ and YX's solicitors did not provide a copy of a subpoena served on AustLeg on or about 9 September 2011 to the Plaintiffs' then solicitors in the proceedings, as was required by UCPR r 33.5. Mr Sheen, who is a principal solicitor in the firm which acted for HJ and YX in the proceedings, gives evidence that it was and is the usual practice of his firm to notify the solicitors for the other parties of any subpoena issued in Court proceedings and that this was and is a standing instruction to all solicitors and law clerks in the firm's employment. That evidence was not contested before me. The failure to give notice of that subpoena is regrettable, but it does not seem to me, alone or in conjunction with other matters, to support an inference of fraud or bad faith where error or inadvertence is at least an equally likely explanation. The Plaintiffs also rely on the fact that, on 26 September 2011, HJ's and YX's solicitors attended AustLeg and collected documents in answer to the subpoena but did not produce those documents to the Court or send those documents to the Plaintiffs' solicitors. This matter is more serious than, and compounded, the initial failure to give notice of the subpoena, since documents that are obtained by the compulsory process of the Court must be produced to it so that the Court has the ability to make access orders in favour of all parties to the proceedings. Having said that, I do not understand the Plaintiffs to submit that either of these matters would in themselves create a separate basis for setting aside the Earlier Judgment unless material matters had emerged from the documents produced by AustLeg. 67The Plaintiffs at one point relied on documents provided to their solicitor by AustLeg (on 13 September 2012) which AustLeg then claimed were "the same" as had been provided to HJ's and YX's solicitors on 26 September 2011. I am not prepared to accept the correctness of that out of Court assertion by AustLeg, where there was no admissible evidence to support it in these proceedings and it is now accepted by the Plaintiffs that the most significant document provided to the Plaintiffs' solicitors by AustLeg in September 2012 had not in fact been provided to HJ's and YX's solicitors in September 2011 and exists in several different forms. Thus, the Plaintiffs initially contended that a settlement letter disclosed to HJ's and YX's solicitors that AustLeg had required that $485,000 be paid by YCJ prior to the sale of townhouse 16 by 7 January 2011. It now appears to be accepted that that the documents produced on subpoena to HJ's and YX's solicitors contained an earlier version of that document that recorded the settlement date as "00/00/00", which would not have suggested that settlement had occurred on 7 January 2011, if at all. 68The documents produced by AustLeg to HJ's and YX's solicitors were largely correspondence and transactional documents to which the Plaintiffs were party, which it would ordinarily be expected would be within their possession. Whether that is the case here is, of course, not known since the Plaintiffs did not comply with the discovery orders made by the Court in the Earlier Proceedings. The Plaintiffs would not, of course, have required access to documents subpoenaed from AustLeg to give them knowledge of payments or transactions that they claim to have made or undertaken. The Plaintiffs also initially alleged that the fraud and lack of bad faith on HJ's and YX's part included omitting settlement sheets in respect of townhouses 16 and 20 from HJ's affidavit affirmed 16 February 2011, which was read in the Earlier Proceedings. I understand that allegation is no longer pressed. There is no evidence that settlement sheets for those townhouses have ever existed, and it appears they have never been produced by AustLeg to the parties' respective solicitors (Sheen 22.12.2012, Ex DS2, Lee 2.10.2012 Ex JL8). 69This is a convenient point to refer to wider issues arising from documents produced by AustLeg at various points in the Earlier Proceedings and these proceedings. It seems to me to be a significant and possibly essential premise of the Plaintiffs' wider claim that HJ, YX and their legal representatives had acted fraudulently or in bad faith that they were obliged to accept the authenticity, integrity and accuracy of documents produced by AustLeg and conform their claim and their submissions to the information stated in those documents, so that a submission that was contrary to, or not expressly qualified by, inconsistent evidence in the documents produced by AustLeg was therefore made fraudulently or in bad faith. I do not consider that the Plaintiffs have established a solid foundation for that premise or the conclusion that is said to follow from it. 70In particular, I can see no basis on which HJ and YX and their legal representatives were obliged to treat the documents produced by AustLeg on subpoena as proof of the matters contained in them so as to be required to conform their case to those documents. First, the production of documents by AustLeg did not prove their authenticity or their accuracy, and the Plaintiffs did not seek to establish the authenticity or accuracy of those documents at the hearing of the Earlier Proceedings (or, indeed, in these proceedings). Second, HJ and PX and their legal representatives had reason not to assume, and contemporaneous correspondence and inquiries indicate that they did not in fact assume, the accuracy of those documents. 71It is not necessary, for the purposes of the view that I have expressed above, to reach a determination whether, if the matter were reheard, the Plaintiffs could in fact establish that the documents produced by AustLeg on which they seek to rely are authentic and accurate records of what they purport to record. Nonetheless, I should note that, in written submissions, HJ and YX have drawn attention to several matters which raise a real issue as to the authenticity of documents produced by AustLeg, and at least a possibility that some of those documents were altered in material respects prior to their production to the Defendants' solicitors or the Court. At the least, it appears that, after the completion of the Earlier Proceedings, an employee of AustLeg altered the electronic record maintained by it in respect of the purchase of townhouse 16 to enter "completion date 07/01/2011" (Zhang 1.2.2013 [15]), thereby providing apparent support for a key part of the claim now put by the Plaintiffs. The electronic record of the settlement letter relating to townhouse 16 shows that a first version was amended on 24 December 2010 (Zhang 1.2.2013 [24], LEAP Ex 1 p 13) and further amended shortly afterwards (LEAP Ex 1 p 13); however, a third version including a settlement date of 7 January 2011 which was not included in both earlier versions was created on 13 January 2013, after the Earlier Judgment and indeed after the first day of the hearing of this application, and on the date on which HJ's and YX's solicitors were due to inspect files maintained by AustLeg (Zhang 1.2.2013, LEAP Ex 1, pp 12, 15). 72The electronic file maintained in AustLeg's LEAP system in relation to townhouse 20 was opened on 29 January 2011 and, on 15 February 2011, an AustLeg employee entered an exchange date of 25 May 2010 and amended the instruction date from 19 January 2011 (the date on which the file was opened) to 25 May 2010 and entered a completion date of 15 February 2011 (Zhang 1.2.2013 [35]). Two versions of a direction to pay to NAB in respect of townhouse 20 were created on 15 February 2011 but a third was created on 19 December 2012, again after judgment had been delivered in the Earlier Proceedings. 73AustLeg has also indicated that its physical file for the relevant transactions has been lost. I do not consider it necessary or appropriate to express any final view as to these matters in determining this application, although they would be a significant issue in any trial of proceedings that the Court had otherwise granted leave to bring. Whether HJ, YX and their legal representatives knew or ought to have known an amount of money was in fact paid by, or on behalf of, YCJ and PX in respect of townhouses 16 and 20 respectively 74The second issue on which the Plaintiffs placed weight was a submission that the Plaintiffs placed evidence before the Court and did not refer the Court to material contrary to their submission that YCJ and PX had not paid the consideration for townhouses 16 and 20. 75It does not seem to me that evidence of the deposit of $485,000 into the Company's business account was such as to require HJ and YX or their representatives to conclude that YCJ had himself paid for townhouse 16, particularly given the lack of information in the bank statement as to who paid the relevant amount; the evidence of other unexplained payments out of the Company's account at that time, including uncontested evidence of payments of approximately $278,348 by the Company to YCJ on 24 December 2010 and $300,000 on 31 December 2010; and YCJ's continuing failure over a long period to respond to repeated inquiries by claiming to have paid the purchase money for the townhouse or providing any evidence of that payment. 76It also does not seem to me that a solid foundation has been shown for the claim that the evidence available to HJ, YX and their legal representatives was such that they knew (or ought to have known in any relevant sense) that PX had paid for townhouse 20. PX had not herself led evidence or contended at the hearing of the Earlier Proceedings that she had in fact paid the consideration for townhouse 20. It seems to me that the Plaintiffs have established that HJ, YX and their legal representatives knew, or at least ought to have known, that an amount of $415,605 was in fact transferred by NAB to the Company in respect of that townhouse. However, the amount of $415,605 initially paid by NAB on 15 February 2011 was substantially less than the alleged purchase price for townhouse 20 of $520,000 and an amount of $410,000 was immediately thereafter withdrawn from the Company's account and KQR and PX had not led evidence in the Earlier Proceedings to explain any relationship between those transactions. Second, the further payment of $114,000 was not made until 18 February 2011, and the two amounts then exceeded the suggested purchase price by $9,605. There is no obvious reason why HJ, YX or their legal representatives should have drawn the inference that two amounts exceeding the purchase price, one of which was paid after the claimed date of settlement, amounted to payment of the relevant consideration, or have identified the amount of $114,000 as comprising part of the purchase price. 77HJ and YX had led evidence of, although they did not emphasise in submissions in the Earlier Proceedings, the mortgage granted by PX to NAB, the Company's internet bank statement recording the payment of $415,605 to the Company's account on 15 February 2011 as well as significant withdrawals from that account, including $410,000 on the next day (Ex HJ2 pp 11-38). The $114,000 payment was expressly drawn to the Court's attention, correcting an earlier reference in HJ's affidavit to that payment as a debit to the Company's account (T12, 38 (24 May 2012), Further Amended Points of Claim [35]). What did not occur is that any of HJ and YX on the one hand, the Plaintiffs on the other, or the Court connected those matters so as to draw any inference that PX had paid for the relevant property. 78Returning to the three categories in Baden Delvaux and Lecuit v Societé Generale above on which the Plaintiffs rely, I do not consider that the evidence to which I have referred establishes a solid foundation for a claim of fraud relying on any of those categories of knowledge. The evidence of monies withdrawn from the Company's account at the same time the purported payments were made into them (including by NAB in respect of townhouse 20) is sufficient to exclude actual knowledge by HJ, YX and their legal representatives that YCJ and PX had (as a matter of substance) paid the consideration for the townhouses, because, even if payments into the accounts were identified, the real possibility of a round robin remained open. For the same reason, a solid foundation is not established for the proposition that they wilfully shut their eyes to the obvious, since the conclusion that consideration was paid is not obvious from the evidence on which the Plaintiffs rely. The proposition that HJ, YX and their legal representatives wilfully and recklessly failed to make such inquiries as an honest and reasonable man would make does not seem to me to be seriously arguable in circumstances that they had repeatedly, but without success, requested the Plaintiffs to explain and provide evidence of the relevant payments. 79For completeness, I should note that HJ and YX also contend that fraud cannot be established by proof of silence, unless they had a duty to the Court to reveal the undisclosed facts: Spencer Bower and Handley, Res Judicata, 4th ed [17.11]. While I accept the correctness of that proposition, the case put by the Plaintiffs does not depend upon mere silence, but attacks the affirmative proposition put by HJ and YX that YQR and PX had not paid the consideration for the relevant townhouses. I do not consider this submission assists HJ and YX. Whether HJ, YX and their legal representatives knew or ought to have known money payments by PX were in the nature of consideration for townhouses 16 and 20 80HJ and YX also seek to support the submissions made before the Court in the Earlier Proceedings on the basis that, as I held in the Earlier Judgment, the transfers of the relevant townhouses by the Company to YCJ and PX were unauthorised. That finding is not challenged and could not be challenged in this application. HJ and YX contend that the contracts for sale of townhouses 16 and 20 can properly be described as a "sham" where they were unauthorised, and that there was no consideration where there was no authorised contract. I would not accept that submission as warranting a refusal of leave to commenced the proceedings had a basis for it otherwise been established. First, a contract which is unauthorised may nonetheless be legally effective, unless set aside by a Court, so as not to constitute a "sham" in the usual sense. Second, the submission previously put to the Court was that no consideration was paid as a matter of fact, rather than that no consideration was paid as matter of legal analysis because the contract was liable to be set aside on the basis that it was unauthorised. The latter proposition would not have founded the proprietary relief over townhouses 16 and 20 that HJ sought and obtained on the Company's behalf. 81For completeness, I should add that the Plaintiffs relied in this application on an email dated 4 January 2011, by which AustLeg had advised YCJ that settlement for Lot 16 had been booked for 7 January 2011, YCJ had responded that: "As mentioned over the phone, I will give you early indication if we don't want to this property. Otherwise, the settlement can be done on time." That response is, of course, wholly inconsistent with YCJ then considering that he was under any legally effective obligation to settle on the purchase of the property under the relevant contract. However, that does not alter the conclusion that I have expressed in paragraph 80 above. The agreement relating to townhouses 5 and 13 82The third issue on which the Plaintiffs placed weight was that, they contend, HJ and PX withheld evidence of an agreement between them and the Plaintiffs that was material to the issues before the Court. Paragraph (e) of the Plaintiffs' summary of their case set out in paragraph 26 above, and paragraph (f) of the expanded submissions of the Plaintiffs as set out in paragraph 35 above, refer to that matter. That agreement is said to have been made in October 2010 in a telephone conversation, and varied in December 2010, and to have provided for the sale of two townhouses to or for the benefit of HJ and YX. It would strictly be sufficient to note that this matter could not support an application to set aside the Earlier Judgment for fraud or bad faith, since it is not pleaded, in paragraphs 154-156 of the draft Statement of Claim, as the basis for that application. I will nonetheless address the substance of the matter. 83It appears that, on 15 February 2011, Bin Xie ("BX"), the son of HJ and YX, signed a statutory declaration in respect of a caveat lodged over townhouses 5 and 13 claiming "an equitable interest in the land pursuant to contracts for sale of land entered into between the registered proprietor and the caveator". The Plaintiffs point out that BX made and subscribed the contents of the statutory declaration in the presence of a solicitor employed by HJ's and YX's solicitors who had the carriage of the Earlier Proceedings. It is contended that the transfer of townhouse 20 to PX was effected pursuant to that agreement and that those matters were not disclosed by HJ and YX in the earlier proceedings. 84I do not consider that these matters could have established an arguable defence by the Plaintiffs to the matters on which HJ and YX relied in the Earlier Proceedings. In my view, they were simply irrelevant and HJ and YX had no obligation to bring them to the attention of the Court, to be met with the inevitable question why they were relevant. If the Company had in fact transferred townhouses 16 and 20 to PX and YCJ for no consideration, it would not be a defence to its claim to recover those townhouses that it at one point intended to undertake a similarly inappropriate transaction with BX. Moreover, even if (contrary to my view) these matters were relevant or could have established an arguable defence to the claim brought by the Company, it was open to the Plaintiffs to advance that defence in the Earlier Proceedings and I can see no reason why HJ, YX or their legal representatives were obliged to raise it when the Plaintiffs did not. The requirement for newly discovered facts 85The next issue that arises is whether the Plaintiffs' application to set aside the Earlier Judgment requires, and whether the Plaintiffs can establish, newly discovered facts, that is, relevant facts not known to them at the time of the Earlier Proceedings. 86In McHarg v Woods Radio Pty Ltd above at 498, Herring CJ observed that, in order to satisfy the onus of showing that it has reasonable prospects of success, a plaintiff who seeks to set aside a judgment binding upon it: "must produce evidence of facts discovered since the judgment complained of, which raise a reasonable probability of the action succeeding". His Honour there referred to Birch v Birch [1902] P 130 at 135-136 where the question was formulated as: "Has there been a new discovery of something material in this sense, that it would be a reason for setting aside the judgment if it were established by proof?" 87There is authority that, while the newly discovered facts indicating fraud must be "fresh" evidence, they need not be admissible on the issues between the parties in the earlier action; it is also not necessary that they would probably be conclusive of those issues; and that it would be sufficient to justify setting aside a judgment if the Court concludes upon the fresh evidence before it that the judgment was obtained by fraud, although whether the Court does so will depend on the Court's view as to whether or not the interests of justice require that course: McDonald v McDonald above at 533 per Barwick CJ (with whom Kitto J agreed). In Monroe Schneider above at ALR 145, the Full Court of the Federal Court referred to Barwick CJ's observation in McDonald v McDonald and observed that, nonetheless "it is necessary to establish the perpetration of the fraud alleged and the fraud must be 'directly material' to the judgment" and that, in cases other than evidence going to a collateral issue: "the question is whether the alleged fraud can be said to have probably affected the result." 88In Wentworth v Rogers (No 5) above at 538, Kirby P (with whom Hope JA and Samuels JA agreed) observed that: "There is a public interest in finality of litigation. Parties ought not, by proceeding to impugn a judgment, to be permitted to relitigate matters which were the subject of the earlier proceedings which gave rise to the judgment. Especially should they not be so permitted, if they move on nothing more than the evidence upon which they have previously failed. If they have evidence of fraud which may taint a judgment of the Courts, they should not collude in such a consequence by refraining from raising their objection at the trial, thereby keeping the complaint in reserve. It is their responsibility to ensure that the taint of fraud is avoided and the integrity of the Court's process preserved." 89The draft Statement of Claim seeks to address the requirement for newly discovered facts by referring to the Plaintiffs' discovery of information (defined as "Fresh Evidence") provided by HJ's and YX's solicitors as to their accounts rendered in the period 31 January 2011-4 September 2012. It is then pleaded that: "165. A consideration of the Fresh Evidence disclosed the knowledge of HJ and YX by themselves and/or by their agent Haworth, in relation to the transfers of Lots 16 and 20 and the payment of consideration with respect thereto at the time of the hearing of the 2011 Supreme Court matter on 24 May 2012. 166. In the absence of the Fresh Evidence and the documents to which they referred, referred to above [the Plaintiffs] would not have been able to plead the allegations of knowledge pleaded in those paragraphs and the allegations of fraud pleaded in paragraphs 154 to 158 hereof and the bad faith allegations pleaded in paragraph 159 above. 167. The Plaintiffs were not aware of the Fresh Evidence at the time of the hearing on 24 May 2012 before [the Court]." 90The facts that were relevant in the Earlier Proceedings were facts relating to the transactions relating to townhouses 16 and 20, which were already in the possession of the Plaintiffs since they were parties to the actual or purported purchase of the townhouses. Even if they did not have every document possessed by AustLeg in respect of those transactions, they knew the facts (if they were facts) and had all the knowledge necessary to give evidence in the Earlier Proceedings that they had paid for the relevant townhouses from their own resources. Nonetheless, it seems to me that the matters referred to as "Fresh Evidence" potentially constitute newly discovered facts within the wider meaning of that term adopted in McDonald v McDonald above, notwithstanding that there would have been no occasion to plead such an alleged fraud or bad faith in the Earlier Proceedings, since all that would then have been required would have been a defence based upon the matters which were in fact known to the Plaintiffs, namely that (they contended) YCJ and PX had paid for the relevant properties. 91However, the materiality of such newly discovered facts must still be tested in the manner contemplated in Monroe Schneider. If that test were not applied, the Plaintiffs' reliance on the "Fresh Evidence" as, in effect, evidence that HJ, YX or their legal representatives knew matter(s) of evidence on which the Plaintiffs might have, but did not, rely to raise a defence would prove too much. If any such matter could be treated as newly discovered facts, without reference to its materiality to the result of the proceedings, then any defendant who did not rely on a particular matter to raise a defence would have open to it an application to set aside a judgment for fraud if it later discovered that the plaintiff also knew the matter on which it had not relied but also had not raised that matter. 92I do not consider that, in the present case, the Plaintiffs have a solid foundation or a reasonably arguable basis for a claim that the alleged fraud, in the sense of a non-disclosure of matter(s) that might have supported a claim by the Plaintiffs that they had paid consideration for the townhouses "probably affected the result" of the Earlier Proceedings. Any submissions as to those matters by HJ and YX could properly have been qualified by reference to the other matters that cast doubt on that claim, to which I have referred above, and by reference to the fact that the Plaintiffs had not denied by a verified pleading or led evidence to contest or submitted to the contrary of the case put by HJ and YX. Applying the principles for which Wentworth v Rogers (No 5) and Monroe Schneider above are authority, the Plaintiffs' claim to set aside the Earlier Judgment must fail because no new facts directly material to the result of the Earlier Proceedings, or that would probably have affected that result, are advanced in its support. Leave to bring that claim should also not be granted under s 471B of the Corporations Act for the same reason. Intention and knowledge 93The Plaintiffs' claim to set aside the Earlier Judgment for fraud seems to me also to depend on aggregating the intent and knowledge of various persons, none of whom are alleged individually to have had either wrongful intent or knowledge of each of the essential facts of the alleged fraud or bad faith. (I put aside, for this purpose, the fact that there is real difficulty, in the way the Plaintiffs' case is put, in isolating the material facts said to give rise to the fraud from the Plaintiffs' wider criticisms of the conduct of HJ's and YX's legal representatives.) HJ and YX submit that: "It is not possible to combine the innocent beliefs or conduct of two persons to make one aggregate fraudster. For a party to be responsible for fraud that party must be personally dishonest, or vicariously responsible for an agent's personal dishonesty ..." 94That proposition is supported by authority. In Armstrong v Strain [1952] 1 KB 232 at 246, Devlin J observed that: "You cannot add an innocent state of mind to an innocent state of mind and get as a result a dishonest state of mind". In Ford Excavations Pty Ltd v Do Carmo [1981] 2 NSWLR 253 at 266, Hutley JA in turn referred to: "[t]he exception to the treatment of the knowledge of the agent as aggregated, with that of the principal, namely, that the honest statements of a principal and of an agent cannot be added together to make a case of fraud". His Honour observed that principle resulted from the fact that actual mala fides are required to establish fraud, referring to Armstrong v Strain above. In Franich v Swannell (1993) 10 WAR 459, Ipp J held that the conduct of an innocent estate agent could not be combined with the knowledge of his principal to produce a misrepresentation. Those principles were applied by Young J in Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 at 15,196, and his Honour's judgment was approved in Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280 at [203] where Basten J referred to the need for "unitary awareness" to support an allegation of fraud or dishonesty. 95It appears that the Plaintiffs contend that different parts of the information on which they rely were available to, variously, a clerk or paralegal within HJ's and YX's solicitors, a former solicitor with the firm who left its employment part way through the Earlier Proceedings, a solicitor with primary carriage of those proceedings, junior counsel who was initially retained in those proceedings and a second junior counsel who was retained later and appeared at the hearing of the Earlier Proceedings. It is not alleged, and it is not apparent, that any of those persons had all or substantially all of the relevant information and the Plaintiffs do not identify which of them are said to have had enough of the information to draw the conclusions which the Plaintiffs say they (collectively) had drawn or should have drawn from the different information known or alleged to have been knowable to them individually. This does not seem to me to merely a pleading defect - although a defect of that kind would not be insignificant where an allegation of fraud is to be advanced - but a fundamental structural difficulty arising from the way in which the Plaintiffs' case of fraud is assembled from different matters known to different persons. The authorities to which I have referred in paragraph 94 above indicate that difficulty is not avoided by seeking to attribute all the information, parts of which were known to or knowable by those several persons, to HJ and PX under agency principles, although it is not sought to establish they knew that information or had any wrongful intent in fact. 96In my view, the pleading of fraud adopted in the draft Statement of Claim, so far as it seeks to aggregate knowledge of several persons who are not individually alleged to have wrongful intent, is not properly available to support that allegation. A claim pleaded in that manner would be struck out and, for that reason, the Plaintiffs should not be granted leave under s 471B of the Corporations Act to bring proceedings upon it. Whether there is a serious question to be tried that the judgment should be set aside as not obtained in good faith 97I now turn to the alternative basis of the Plaintiffs' application to set aside the judgment, namely that the Earlier Judgment would be set aside, even if fraud in any relevant sense is not established, on the basis that it was obtained by conduct not in good faith on the part of HJ and YX and their legal representatives. I understand this proposition to be advanced against the contingency that what would be established by the Plaintiffs is not fraud in the senses referred to above. This contention is put on the basis that several claims in the Earlier Proceedings were derivative claims brought by HJ on the Company's behalf by leave of the Court granted under s 237 of the Corporations Act. The Plaintiffs contend that, because HJ and YX were seeking to act on behalf of the Company under s 237 of the Corporations Act, they were required "to act in good faith in so doing". 98I have referred above to the basis on which that leave was granted in the Earlier Judgment. Section 237 of the Corporations Act permits such leave to be granted where the Court is, inter alia, satisfied that the applicant is "acting in good faith". The purpose of that requirement was considered in the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill, which introduced the relevant provisions, which noted (at [6.36]) that: "In assessing whether an applicant is acting in good faith, the Court could be expected to have regard to whether: There was any complicity by the applicant in the matters complained of; and The application is being made in pursuit of an interest other than that of the company. The good faith requirement is designed to prevent proceedings being used to further the purposes of the applicant, rather than the company as a whole." 99In Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [36]-[41], Palmer J observed that the phrase "acting in good faith" must take its content in any particular case from the context in which it is used and observed that factors relevant to the good faith requirement including the applicant's honest belief that a good cause of action exists and has reasonable prospects of success (although that belief will be tested against whether a reasonable person in the circumstances would hold that belief); and whether the applicant is seeking to bring the action for a collateral purpose, and that it would be relatively easy to satisfy this requirement if an application is made by a current shareholder who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased. These factors have frequently been applied in subsequent case law: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [29]; Chahwan v Euphoric Pty Ltd [2008] NSWCA 52 at [44], [71]; (2008) 65 ACSR 661; Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91 at [110]-[111]; Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 at [58]. 100The Plaintiffs' submission in this regard depends on treating the good faith requirement under s 237 of the Corporations Act not only as a prerequisite for leave to commence proceedings raising the matters to which Palmer J referred, but as a continuing requirement as to the conduct of the proceedings, importing an obligation of full disclosure by the Company of matters that may be raised by the other party to those proceedings in its defence, analogous to that which would apply in an ex parte application. In my view, that contention should not be accepted. First, it is not supported by the purpose of the requirement as identified by the Explanatory Memorandum or the authorities to which I have referred. Second, it seems to me to be undesirable in policy and in practice. The grant of leave by the Court operates to permit the commencement of proceedings where, for whatever reason, the board of a company cannot or will not authorise the commencement of those proceedings. I can see no reason, in policy, why a party that is conducting a contested derivative action on behalf of a company (relying on leave granted by the Court) should be subject to differing requirements as to the conduct of those proceedings than if they had been commenced against the same party in the same circumstances under the authority of a board resolution. In each situation, that party, the company and their legal representatives should be treated as subject to the same requirements, namely those imposed by 56 of the Civil Procedure Act and by applicable professional standards. 101The practical outcome of the Plaintiffs' submission would also be destructive of the just, quick and cheap conduct of derivative proceedings and of the statutory purpose served by the requirement for leave for such proceedings. In particular, it would open the possibility that a defendant in such a proceeding could obtain a significant strategic advantage by not actively participating in the proceeding, leaving the plaintiff to anticipate its potential defences without its having given discovery or filed evidence, and then applying to set aside any adverse judgment on the basis that the plaintiffs' case did not disclose the defences that could have been raised had the defendant participated in the proceedings. That would allow that defendant to take advantage of the possibility that a case run without discovery or evidence from it would fail, while reserving the option to set aside the judgment if it did not. That approach would be destructive of the finality of, and the just, quick and cheap resolution of, statutory derivative proceedings. Other issues relevant to the grant of leave 102The Plaintiffs also refer to the Law Society of New South Wales Professional Conduct and Practice Rules (revised 11 December 1995) and the New South Wales Barrister's Rules (revised 8 August 2011). Principle A.21 of the Law Society's Professional Conduct and Practice Rules provides that a practitioner "must not knowingly make a misleading statement to a Court on any matter". Similarly, Rules 26 and 27 of the Barrister's Rules require that a barrister "must not deceive or knowingly or recklessly mislead the Court" and "must take all necessary steps to correct any misleading statement" made by him or her as soon as possible after he or she "becomes aware that the statement was misleading". The former rule is directed to a solicitor's knowledge that a statement is misleading, and the latter rules are directed to a barrister's state of knowledge although they extend to prohibit reckless conduct. It is, in my view, not sufficient to establish a contravention of either rule that a legal practitioner properly takes one view of the facts on the basis of the evidence then available after proper inquiries, which is different to that which would or could have been taken if other information was available to the practitioner; or puts a submission as to the facts to the Court, having undertaken a proper analysis of potentially incomplete or confusing information, which might have been falsified of other information had been disclosed by the other party. I do not consider that a solid foundation was established for a submission that either rule was contravened in the Earlier Proceedings, given the extensive inquiries made by HJ's legal representatives to which I have referred above and the continuing failure of the Plaintiffs to explain the relevant transactions or offer evidence that the consideration for the townhouses had been paid. 103The Plaintiffs also contend that no evidence was filed by HJ, YX or any other responsible person that in the belief of the person giving the evidence, the Plaintiffs had no defence to the claim or part of the claim, including, but not limited to the claim that no consideration had been paid in respect of the transfer of townhouses 16 and 20. However, as I observed in the Earlier Judgment, such evidence is not necessarily required in an application for summary judgment. There is also a reference in the draft Statement of Claim to UCPR r 36.15(1) which applies where an order is given, made or entered "irregularly, illegally or against good faith". No emphasis was placed on that rule in oral submissions before me and I do not understand that rule to be relied upon in respect of the application for leave to bring the Proposed Proceedings. Although the hearing before me involved an application for summary determination of the proceedings, the determination I reached was nonetheless made on the merits, in circumstances where both parties were legally represented, and having regard to the evidence and submissions then before the Court. I note that, in any event, the focus of that rule is on the relevant orders, not the merits of a judgment underlying them. I do not understand that rule to provide a freestanding basis to set aside a final judgment of the Court, if it could not otherwise be set aside in accordance with the principles to which I have referred above: cf Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) [2009] NSWCA 387; 78 NSWLR 190 at [17]. 104I should also note that, at various points in their submissions, the Plaintiffs submitted that a failure to grant leave to bring the relevant proceedings would leave them exposed to an injustice, namely the outcome of the Earlier Proceedings. That proposition would have some force if, as they contended, the outcome of the Earlier Proceedings reflected failures on the part of their former legal adviser rather than any failure to defend the proceedings on their part. However, it must be borne in mind that the only evidence of these matters led in these proceedings was that of their newly retained solicitor, on information and belief; the Plaintiffs did not personally give evidence of their dealings with their former solicitor; and their former solicitor has not had an opportunity to be heard. Mr Douglas accepted, in the course of oral submissions, that the Court should proceed on the basis that it was established that the Plaintiffs had not effectively defended the Earlier Proceedings but why that had occurred was not established. 105Once it is accepted that the Plaintiffs did not establish that their approach in the earlier proceedings in fact resulted from any failure on the part of their former solicitors, then the proposition that there was injustice in the outcome of the earlier proceedings is not self-evident. In the ordinary course, a defendant who fails to comply with Court orders over an extended period faces the risk of adverse results that may follow from the striking out of his or her defence. If a defendant fails to lead evidence, then adverse results may also follow from the absence of that evidence and, in particular, the Court may more readily accept uncontradicted evidence led by the plaintiff or a contention advanced by the plaintiff which is not contested by the defendant. In any case where this occurs, the Court may reach a result that is different from that which would have been reached had the defendant conducted itself differently. It does not follow that there is injustice in that result, if it is in truth the consequence of the defendants' choice as to how to participate, or not, in the proceedings. Nor would public policy be served by setting aside final judgments in the ordinary course if a defendant which had not advanced a substantive defence was disadvantaged by his or her approach. 106On the other hand, HJ and YX relied on various discretionary grounds on which the Court should not grant leave to commence the proceedings, including issues as to the fact that the Company now faces an application for leave to appeal and an associated application under s 471B of the Corporations Act filed in the Court of Appeal, proceedings brought by the Plaintiffs to set aside bankruptcy notices in the Federal Court and this application; the difficulties in any future rehearing of the proceedings, where the Plaintiffs have not to date complied with the directions made by the Court in the Earlier Proceedings and where there are significant issues as to AustLeg's compliance with subpoenas served upon it and (as I have noted above) as to the authenticity and accuracy of documents to the extent that they have now been produced by it; and also point out that the main remaining asset of KQR and PX is a substantial loan made to a person in China, who at one point resided at the same address as them. 107Notwithstanding these matters, it seems to me that, if the Plaintiffs had otherwise established a case that had a solid foundation or was reasonably arguable that the Earlier Judgment would be set aside for fraud or lack of good faith, then the other relevant discretionary considerations would have supported the grant of leave under s 471B of the Corporations Act. The amount involved is substantial and the Proposed Proceedings involve complex legal and factual issues; the relief sought could not be obtained by lodgement of a proof of debt in the liquidation; and the factual circumstances are unique so the grant of leave will not expose the liquidator to numerous similar claims. While the cost of the hearing is likely to be substantial, the liquidator may well be able to take a limited role, on the basis that the real contest would be between the Plaintiffs on the one hand and HJ and YX on the other. I would have granted leave to bring the Proposed Proceedings if it had been established that the Plaintiffs' claim had a solid foundation or was reasonably arguable, and subject to the question of whether it is open to the Court to impose conditions on that leave which I will address below. Other matters that would have arisen had leave been granted 108I should address two other issues that would have arisen had leave to bring the proceeding been granted. First, the Plaintiffs contend that, if fraud is perpetrated upon the Court, the whole judgment is affected and is liable to be set aside. This matter is of some significance, since the draft Statement of Claim purports to provide explanations of various payments by the Company as to which I had made adverse findings in my Earlier Judgment in the absence of any such explanation. There is no suggestion that there was any fraud, lack of good faith, lack of disclosure or other misconduct by the Plaintiffs or their legal representatives in respect of the submissions as to those payments made in the Earlier Proceedings. If that were the only matter in issue in the Earlier Proceedings, I can see no basis on which the Earlier Judgment, so far as it dealt with those payments, could be set aside for fraud or lack of good faith. 109However, in Hip Foong Hong v H Neotia & Company [1918] AC 888 at 894, the Privy Council observed that: "A judgment that is tainted and affected by fraudulent conduct is tainted throughout, and the whole must fail ..." Similarly, in Jonesco v Beard [1930] 2 AC 298 at 301-302, Lord Buckmaster observed that: "Fraud is an insidious disease, and if clearly proved to have been used so that it might deceive the Court it spreads to an infects the whole body of the judgment." In Cabassi v Vila above, Williams J similarly noted that a judgment procured by fraud is "tainted and vitiated throughout"; see also Farley (Aust) Pty Ltd v JR Alexander & Sons (Qld) Pty Ltd [1946] HCA 29; (1946) 75 CLR 487 at 493; Lazarus Estates v Beasley [1956] 1 QB 702 at 712 - 713; SZFDE v Minister for Immigration above at 196. If I had been satisified that leave should be granted, I would have granted it for the whole of the proceedings sought to be brought by the Plaintiffs and the question of their ability to set aside any particular part of the Earlier Judgment would have been a question for the hearing of the substantive proceedings. 110Second, HJ and YX contend that, if leave is not refused, it should only be granted on conditions that the Plaintiffs provide, in advance, security for the existing judgment debt; for the costs claimed in respect of the earlier proceedings; for the costs of all defendants of the proposed claim; for additional administration expenses likely to be incurred by the Company in respect of the claim; and complying within a reasonable time for reasonable requests for document production or the provision of information for the purpose of the proposed proceeding. 111It is plain that the Court may impose conditions or, to use the language of s 471B, "terms" upon the grant of leave. A condition is commonly imposed on the grant of such leave that, for example, the leave extends only to obtaining a judgment and not to its enforcement: Ex parte Walker (1982) 6 ACLR 423 at 426; Lawrence v Brighton Hall Securities Pty Ltd (in liq) [2009] FCA 1425; La Trobe Wholesale Finance Pty Ltd v Silkwax Pty Ltd t/as Acval Turner Valuers (in liq) [2011] FCA 1102; and see the review of the authorities in Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq) above per Ward JA at [40]. In Zinc Corporation Pty Ltd v Pasminco Australia Ltd (subject to a deed of company arrangement) [2004] NSWSC 339; (2004) 49 ACSR 129, Austin J made an order granting leave to commence proceedings under s 443E of the Corporations Act, a corresponding provision, on condition that the plaintiffs commence the proceedings in a specified Court. In Najjar v Alfayhaa Cheese Pty Ltd (in liq) [2011] NSWSC 791, I declined to impose three conditions sought by a liquidator upon the grant of leave, but there was no suggestion in that case that such conditions could not be imposed in an appropriate case. Similarly, in Cassegrain v Gerard Cassegrain & Co Pty Ltd above, Ward JA ultimately did not impose a condition on the grant of leave, but instead made a specific order restraining conduct of the appellant, but did not doubt the power to impose such a condition. 112If I had otherwise been persuaded that leave should be granted under s 471B of the Corporations Act to bring the proposed proceedings, I do not consider that imposition of a condition requiring security for the existing judgment debt would be a proper condition, since the grant of that leave would depend on a finding that at least there was a solid foundation for, or serious question to be tried as to, a claim that the Earlier Judgment should be set aside. It seems to me that several of the conditions sought by HJ and PX, including security for costs of the proposed claim and document production in respect of the proposed claim would be matters for a judge dealing with that claim, if leave were granted to bring it. 113However, had I been satisfied, contrary to the views which I have expressed above, that this would be a proper case for the grant of leave under s 471B of the Corporations Act, I would have only granted that leave subject to a condition that, prior to such leave taking effect, the Plaintiffs pay an amount into Court or provide a bank guarantee of an amount sufficient to secure HJ and YX for the costs wasted as a result of setting aside the Earlier Judgment. There seems to me a compelling basis for imposing such a condition, in circumstances that one possible outcome of the Plaintiff's claim would be that the Earlier Judgment would be set aside for something falling well short of intentional wrongdoing on the part of HJ, YX or their legal representatives. The operative cause of the issues arising in this application is that the Plaintiffs did not raise any contention that they had paid for townhouses 16 or 20 prior to the determination of the Earlier Proceedings. In that situation, it is the Plaintiffs rather than HJ and YX who would have brought about the waste of those costs. Orders 114For these reasons, I order that the Originating Process and the Interlocutory Process dated 2 October 2012 be dismissed. 115My preliminary view, subject to hearing the parties, is that the Plaintiffs should pay the Company's, the liquidator's and HJ's and YX's costs of the proceedings. In expressing the preliminary view that the Plaintiffs should pay HJ's and YX's costs, I have not neglected the fact that HJ and PX were granted leave to be heard in the proceedings under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW). In Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129; (2004) ACSR 681 at [20], Barrett J observed that the Court had power to make an order to a party to proceedings in favour of non-parties, but also noted that a person who is granted leave to be heard without becoming party under r 2.13(1) of the Supreme Court (Corporations) Rules chooses a course that involves limited costs exposure to it and can have little expectation of being awarded costs, and that such an award, if appropriate, would be "extraordinary and exceptional" and require "some very special factor outside the ordinary and expected course of events and in gendering a justifiable expectation of compensation in the mind of the non-party". In Pan Pharmaceuticals, Barrett J held that such special factors were not present. On the other hand, in Re HIH Casualty and General Insurance Ltd [2006] NSWSC 6, Barrett J observed that parties heard under r 2.13 made separate submissions that where highly relevant to the task of the Court in reaching its decision and special and unusual circumstances therefore warranted a costs order in the particular circumstances, although his Honour considered that only one set of costs should be ordered in the particular circumstances. 116In this case, it seems to me that unusual and special circumstances do exist that warrant an order for costs in favour of HJ and YX against the Plaintiffs, where the real contest as to what occurred in the Earlier Proceedings was between the Plaintiffs on the one hand and HJ and YX on the other, notwithstanding the Plaintiffs had not joined HJ and YX as party to the proceedings and left them to seek leave to be heard under r 2.13 of the Supreme Court (Corporations) Rules.

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