Ayoub v Perpetual Trustee Company Limited & Ors

Supreme Court of NSW|2011-05-17

Judgment 1His Honour : This is the hearing of the defendant's amended notice of motion filed 13 May 2011. The defendants seek, inter alia, that the statement of claim filed 24 March 2011 be summarily dismissed or struck out. The other relief contained in the notice of motion concerned a subpoena that has been referred to a registrar for his consideration. 2At the conclusion of the hearing on 13 May 2011, I directed the parties to serve their written submissions and I indicated that when I received them I would reserve by my decision or list the matter further argument. This was to enable the plaintiff, whose adjournment application I had refused that day, to make submissions that I could then consider. Instead of filing any submissions, the solicitors for the plaintiff advised my Chambers that their instructions had been withdrawn and on 6 June 2011 they filed a notice of ceasing to act. In these circumstances I will deal with the defendant's application in the absence of any submissions from the plaintiff.

Background to the proceedings 3These are helpfully set out in the defendant's submissions, which I will adopt with some modifications. 4Mr Ayoub is the sole shareholder and director of Enviro Energy Australia Pty Ltd ('Enviro'). That company was engaged in the business of (amongst other things) property development. 5In about March 2007, Mr Ayoub and Enviro applied to the second defendant, Challenger Managed Investments Limited ('Challenger'), to borrow monies for the acquisition and development of real property situated on Five Islands Road, Cringila ('the property'). Subsequently, Challenger agreed to and did advance, on terms, certain monies that were secured by way of a mortgage over the property and by way of a fixed and floating charge over the assets of Enviro. 6On and from about July 2008, Enviro defaulted under the Loan Facility. 7On 17 December 2008, Challenger commenced proceedings against Enviro, for possession of the property. Enviro filed a defence and cross claim (the "possession cross claim") in possession proceedings. Mr Ayoub verified both. Relevantly, the matters pleaded in the possession cross claim have been substantially repeated in paragraphs 3 to 28 of the present statement of claim. 8On 1 March 2010, the Commission of State Revenue succeeded in obtaining orders that Enviro be wound up. The third defendant, Mr Gleeson, was appointed as liquidator. 9On 7 April 2010, the possession proceedings were resolved between the parties with the execution of a consent judgment that was filed with and ordered by the Court on 8 April 2010. The consent judgment included orders that Enviro give possession of the property to Challenger and that the possession cross claim be dismissed. 10On 8 April 2010, Mr Ayoub filed an interlocutory process for orders that the winding up of Enviro be stayed and terminated. 11In about July 2010, Mr Gleeson, pursuant to section 568(1)(d) of the Corporations Act 2001 (Cth) ('the Act') , disclaimed any interest in the property on the basis that it was contaminated and was subject to onerous obligations . 12On 23 September 2010, Justice White heard the application to stay or terminate the winding up process. Justice White dismissed that interlocutory process together with an order that Mr Ayoub pay costs, which included an order for indemnity costs: In the Matter of Enviro Energy Australia Pty Ltd (in Liquidation) [2010] NSWSC 1222. 13On 24 March 2011, Mr Ayoub commenced these proceedings with the filing of the Statement of Claim. 14There is no evidence of any order having been made under Part 2F.1A of the Corporations Act granting leave to Mr Ayoub to bring proceedings on behalf of Enviro. 15On 15 April 2011, Challenger filed the motion to which the amened notice of motion filed 13 May 2011 relates.

Repeated interlocutory applications 16There is a principle that parties are not permitted to bring repeated interlocutory applications covering the same material. In Nominal Defendant v Manning [2000] NSWCA 80, (2000) 50 NSWLR 139 a majority of the Court of Appeal declined to apply the view held in D A Christie Pty Ltd v Baker [1996] 2 VR 582 that an applicant making a second interlocutory application is guilty of an abuse of process, except when the other party is guilty of fraud or if the application is based on evidence that could not reasonably have been previously relied on (at [71]). 17However, Heydon JA, at [72], stated the following: "Nothing in the above reasoning rejecting the Nominal defendant's submission is intended to encourage litigants to avoid putting their best cases forward in any interlocutory application. The deliberate non-tender of evidence for use in a second interlocutory application should the first fail, or for use in an interlocutory appeal from the interlocutory application, might of itself be fatal to success; and even the non-deliberate non-deliberate failure to tender evidence is extremely risky. The Nominal defendant's proposition that no second interlocutory application can be entertained unless there is a change of circumstances or unless evidence is relied on which could not reasonably have been obtained earlier is too extreme, but a litigant bringing a second application where circumstances have not changed on evidence available earlier is facing serious and self-created risks of an adverse exercise of judicial discretion. The real evils to which Hayne JA referred in D A Christie Pty Ltd v Baker [1996] 2 VR 582 at 602-3 - the risk of conflicting decisions, the unnecessary vexing of respondents, judge-shopping and the diminution of certainty in the conduct by respondents of their affairs - and others - damaging public confidence in the integrity of judicial decisions, expending time and money on litigation unnecessarily - are evils which each court in its individual discretion will rightly strain to avoid." 18Foster JA also in the majority accepted the words of Charles JA and at paragraph 122 said the following: "With respect, I have found the reasoning of Charles JA more persuasive than that of the majority. His Honour reached the following conclusions, with which I respectfully agree and which I adopt for present purposes (at 611): 'For these reasons I conclude that it is not possible for this court to adopt a rule which would preclude an unsuccessful applicant for interlocutory orders from repeating the application, on the ground of abuse of process, simply because the applicant sought to rely on additional relevant facts which did not amount to fresh evidence. Some other factor must, in my view, be present before an abuse of process is established, although, since the respondent is being faced a second time with an application for extension of time to bring proceedings, the potential for the second application to amount to an abuse is readily apparent.' 19The Court of Appeal commented on this aspect in National Parks and Wildlife Service v Pierson [2002] NSWCA 273 where Palmer AJA, who gave the judgment of the court, said the following at paragraph 17: "It should be remembered that the majority in Manning differed from the President only to the extent that they would not, without more, hold it an abuse of process for an applicant to make a second interlocutory application on the basis of evidence which could reasonably have been adduced in the first application. But nothing said by their Honours could be construed as indicating a permissive or relaxed attitude of the Court to the bringing of more than one interlocutory application for the same order - indeed, quite the contrary: see e.g. per Heydon JA at 156, para.72." 20The first two claims in the statement of claim seek a termination of the winding and consequential orders. This is the same relief in substance as in the proceedings heard and determined by Justice White who refused to terminate the winding up. 21Justice White's important findings at paragraph [45], was that Enviro "is clearly insolvent". Further, and more relevantly, Justice White concluded, at [46] and [47], that Mr Ayoub failed to comply with his statutory obligations as a director of Enviro and at [39] said: "I am not satisfied that it would be in the public interest, and in the interests of commercial morality, to restore the stewardship of the company to the control of (Mr Ayoub)" 22There is nothing in the evidence to show that the position has changed since then and there is no explanation as to why this claim has been repeated. 23There is always a need for exceptional caution when exercising the power whether it is inherent or under statutory rules to either summarily dismiss proceedings or strike out parts of a statement of claim. Dixon J (as he then was) sums up a number of authorities in Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 where he says at page 91: "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process." 24In General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at page 130 after referring to this quote, Barwick J said: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 25Earlier at p129 his Honour had said: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense". 26Having regard to these authorities, which are relevant to the claim of the first and second defendants, I am satisfied that the claims for relief in paragraphs one and two of the statement of claim should be dismissed.

Paragraphs 3 to 28 of the statement of claim 27Paragraphs 3 to 28 of the claim include allegations that are almost identical to those pleaded in the possession proceedings cross claim. The Court has ordered, by consent, that that cross claim be dismissed. 28In Justice White's decision on the stay application, the only relevant reference to the land the subject of the property claim is as follows: "[13] Mr Cachia assumed, on the basis of a document provided to him by a firm of real estate agents, that the company's land had a value of between $5.5 million and $6 million. He adopted what he said was a conservative figure of $5.8 million as the value of the land. [14] For reasons which I then gave, I rejected the evidence from the real estate agent upon which Mr Cachia relied as being evidence of value of the land. There is no evidence which substantiates the assumption as to the value that Mr Cachia adopted. [15] In any event, in July of this year, the liquidator disclaimed that property on the grounds that it is contaminated land and subject to onerous obligations (Corporations Act, s 568(1)(d)). The liquidator gave evidence that a secured creditor, Challenger Managed Investments Ltd, appointed a receiver to the property, that the receiver retired following receipt of an expert's report on environmental aspects of the land, and subsequently the liquidator disclaimed the property. [16] The effect of the disclaimer is that the company's rights, interests, liability and property in, or in respect of the property, disclaimed are taken to have been terminated (Corporations Act, s 568D). It is thus clear that unless in some way the disclaimer is set aside, the company does not have the principal asset on which the applicant's evidence as to solvency was based. [17] There is no reason to assume that the disclaimer could or should be set aside." 29Notwithstanding the presence of paragraphs 3 to 28, no relief is sought in the statement of claim under either the Trade Practices Act 1974 (Cth) or the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), (which is the subject of paragraphs 3 to 18 and 24 to 28) and no relief is sought for the estoppel (which is the subject of paragraphs 19 to 23) 30Assuming for the moment that this relief were sought, it is submitted that the bringing of such a claim would constitute an abuse of process in that it would be an attempt to re-litigate the possession cross claim. 31The defendant's submissions referred to State Bank of New South Wales Ltd v Alexander Stenhouse Ltd (1997) Aust Torts Reports 81-423 where Justice Giles, at 64,089, identified the following matters as being relevant to the determination of whether there was an abuse: "The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice, and amongst the matters to which regard may be had are - (a) the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or an ultimate issue; (b) the opportunity available and taken to fully litigate the issue; (c) the terms and finality of the finding as to the issue; (d) the identity between the relevant issues in the two proceedings; (e) any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceedings; all part of - (f) the extent of the oppression and unfairness to the other party if the issue is relitigated and the impact of the relitigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and (g) an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process." 32The submissions were: "In respect of the matters referred to in paragraphs (a) and (d) of Stenhouse , a comparison of the Possession Cross Claim and paragraphs 3 to 28 of the Claim demonstrate the very close similarity between those proceedings. In respect of the matters referred to in paragraph (b) of Stenhouse , Mr Ayoub had every opportunity to join in the Possession Proceedings and prosecute any claim which may have been available to him. In this regard, although Mr Ayoub was not a party to the Possession Proceedings, he was actively involved in those proceedings and, in particular, he verified the Defence and the Possession Cross Claim. In respect of the matters referred to in paragraph (c) of Stenhouse , the matters raised in the Possession Cross Claim have been finally disposed of, with the entry of the Consent Judgment. The fact that the matter was resolved by consent does not change the finality of the Court's orders. In respect of the matters referred to in paragraph (e) of Stenhouse , the Claim does not refer to any "fresh evidence" and there is otherwise no explanation why he did not participate in the Possession Proceedings. In respect of the matters referred to in paragraph (f) of Stenhouse , the matters raised in the Claim were directly relevant to the Possession Proceedings and should have been litigated in those proceedings. In circumstances where those proceedings have been finalised for over a year, it is prejudicial to Challenger to have to deal with those issues again." 33A questionable point is the lack of the parties' identity. If Mr Ayoub is not seen as being sufficiently connected to the proceedings there may be problems relating to res judicata and issue estoppel. Davies J explained this in Solak v Registrar of Titles [2009] VSC 614. In that case, the Registrar asserted a right to challenge a mortgagor's liability to pay money to a mortgagee under the mortgage, notwithstanding the judgment of Pagone J in the original proceeding. Based upon the reasoning that the Registrar was not a party to the original proceeding and was therefore not bound by the explicit or implicit findings, Davies J stated: "[26] In my opinion, the Registrar cannot agitate in these proceedings the issues raised in the third party claim in proposed para 5A nor seek the declaratory relief contained in para A(a) and (b). I hold this view not for the reason that the Registrar is bound by the decision and orders of Pagone J as res judicata but, rather, for the reason that Mr Solak and Bank West have had those issues conclusively and finally determined as between them and they are bound by the orders and decision of Pagone J. In my view, the Registrar must accept the decision and orders. The law is clear that principles of res judicata will preclude re-litigation of an issue between the same parties. The principle is founded on the consideration that the decision of a court, unless set aside or quashed, must be accepted as incontrovertibly correct. ( Rogers v R (1994) 181 CLR 251 at 273 (Deane and Gaudron JJ)). The principle gives expression to the need in the public interest that a judicial determination be final, binding and conclusive. ( Ibid, 273 (Deane and Gaudron JJ); Spencer Bower, Turner and Handley, The Doctrine of Res Judicata (3rd ed, 1996) 9-11.) In Spalla v St George Motor Finance Ltd [2004] FCA 1699; (Unreported, French J, 20 December 2004). French J observed that the doctrines of res judicata and issue estoppel establish the most precisely defined circumstances in which re-litigation will be identified and barred. ( Ibid [64].) Where a cause of action has been the subject of final adjudication, the order of the court is conclusive in relation to the rights inter se of the parties to the proceedings in which the order was made. As between those parties, their rights have been decided. ( Gray v Dalgety and Co Ltd (1916) 21 CLR 509 at 543 (Isaacs J); O'Toole v Charles David Pty Ltd (1990) 171 CLR 232 at 245 (Mason CJ), 257-8 (Brennan J)). [27] It does not follow that a person, although not a party to that litigation but whose rights may be affected by that litigation, is able to re-litigate the rights of the parties, inter se, which have been determined. As the learned authors of The Doctrine of Res Judicata ( 9-11 ) stated: This is not the result of estoppel: it is a consequence of being compelled to accept facts. ( Ibid 119 [230]). In Executor Trustee and Agency Co of South Australia Ltd v Deputy Federal Cmr of Taxes (SA) (1939) 62 CLR 545. the High Court held that the Commissioner of Taxation was bound to assess on the basis of the rights of beneficiaries in a trust estate as determined in separate proceedings to which the Commissioner of Taxation was not a party, as the nature of those rights had been determined. As Latham CJ reasoned: The order of the Supreme Court is certainly conclusive in relation to the rights inter se of the parties to the proceedings in which it was made. It could have been challenged upon appeal, but so long as it stands, the rights of the annuitants to receive income from the trustee are the rights declared in the order - no more and no less. ... The case would not be the same when the question was one of ownership of property which did not consist solely of rights enforceable against a person such as a trustee. A and B may litigate about the ownership of a horse. The court may order B to return the horse to A on the ground that A and not B is the owner of the horse. But C may, independently of any dealings with A, challenge A's ownership, and he would not be affected in any way by the decision in the case of A versus B. In such a case C would not be bound by the previous decision because he was neither a party to it nor privy to any party in interest. ... The other judges similarly reasoned that the rights had been defined and thus were determinative on others who must accept that the rights were correctly declared. [28] In the present case, the Registrar seeks declaratory relief in relation to the same parties concerning the same subject matter which has been decided on already and which is binding on, and conclusively determined as binding on, those parties. In my opinion, the Registrar cannot in this litigation, agitate the very matter determined in the original proceeding in respect of the rights, inter se, between Mr Solak and Bank West in relation to the construction of the mortgage and the effectiveness of the mortgage as security for the obligation to Bank West created under the Home Loan contract." 34In summary, as previously stated, Mr Ayoub was the sole shareholder and director of Enviro. Mr Ayob verified Enviro's defence and cross claim in the possession proceedings that were subsequently finalised by way of consent judgment. Mr Ayob filed the interlocutory process to terminate of stay the winding up of Enviro. 35Although Mr Ayoub was aware of the proceedings, they were not proceedings for his benefit. The claim is one by the company, Enviro, which claims an agreement for provision of financial services, the breach thereof and misrepresentation in respect of the agreement. They are all claims that belong to the company as it suffered the damages. 36Part 2F.1A of the Act is the new regime that replaces the rule in Foss v Harbottle (1843) 2 Hare 461. The basis on which a derivative action may be brought under the Act is now governed by this part. However, as a result of the decision in Chahwan v Euphoric Pty Ltd (2008) 26 ACLC 262, that part of the Act does not apply where the company is in liquidation. However, the inherent power of the Court still survives. See Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 9 ACLC 1,530; Brightwell v RFB Holdings Pty Ltd (2003) 21 ACLC 355 at 364; Roach v Winnote Pty Ltd (in liq) [2001] NSWSC 822 at [10] ; BL&GY International Co Ltd v Hypec Electronics Pty Ltd (2001) 19 ACLC 1622 at 1,643; and Carpenter v Pioneer Park Pty Ltd; Ragless v IPA Holdings Pty Ltd (in liq) (2008) 26 ACC 404 at 1,643. As stated in the Australian Corporations & Securities Law Reporter at [78,022]: "The NSW Supreme Court in Brightwell , per Austin J, reasoned as follows (emphasis in original): "I respectfully agree that the inherent jurisdiction has survived after the commencement of Part 2F.1A. Literally s236(3) abolishes only the right of a person to bring derivative proceedings. Aliprandi and similar cases recognise a discretionary power of the Court, which, unlike the true exceptions to the rule in Foss v Harbottle , cannot be said to generate any rights in the applicant creditor or contributory until the discretion is exercise. Nothing in the explanatory memorandum to the Bill that introduced Part 2F.1A (set out at length by Einstein J in the BL&GY case) suggest any intention to remove or qualify the Court's inherent jurisdiction." In making an application for the court to grant relief in its inherent jurisdiction, the plaintiff has to be able to demonstrate an arguable case for the relief sought in the litigation. This test has been expressed in various ways. It has been said that the proposed action to be taken in the company's name must have some arguable foundation ( Aliprandi ), or that the plaintiff must satisfy the court that the claim has a solid foundation and would give rise to serious dispute: Vagrand Pty Ltd (in liq ) v Fielding (1993) 11 ACLC 411. In Magarditch v Australia & New Zealand Banking Group Ltd (1999) 17 ACLC 1,275, the Full Court of the Federal Court said that the principle requires the court to determine whether there was a serious claim under real dispute, and in so determining to have regard to the quality and strength of the proposed case. Even in a case where there may be no drain on the assets of the company, the court nevertheless has a responsibility to see that any action taken in the company's name under the court's authority is not vexatious or merely oppressive. Further the court is entitled to have the assistance of the liquidator in making its assessment as to whether an arguable case has been demonstrated, and the court will normally give weight to the liquidator's view." 37Given what has already happened to the company's action on the cross claim - namely a consent dismissal, there would be no prospect of relief being granted. The matter is res judicata between the relevant parties. 38Although the pleading does not contain the relevant allegations and application for relief, even if it did, the application would be hopeless.

The statement of claim 39Claims 3, 4, 5 and 7 for relief in the statement of claim concern the disclaimer of the lease made by Mr Gleeson, the liquidator, because of onerous conditions. The reference to 568B(3) of the Act is an error as there was no application to disclaim before it took effect. Assuming it was an application under 568E, the defendant's submissions were: "The third difficulty is that even if relief under section 568E were pleaded, section 568E (1) requires that the applicant obtain the Court's leave and section 568E (2) provides that the Court will only grant leave if it is satisfied that it was unreasonable for the applicant to have applied before the disclaimer took effect. The "pleadings and particulars" of the Claim do not include any allegation that the Court has granted leave under section 568E (1) and do not otherwise set out any reason which would justify such leave being granted. The fourth difficulty is that sections 568B (3) and 568E (5) of the Corporations Act provide that the Court will only set aside a disclaimer if satisfied that that it has caused prejudice to the person with a relevant interest in the Property that is "grossly out of proportion to the prejudice that setting aside would cause to the company's creditors". The "pleadings and particulars" of the Claim do not include any allegation that Mr Ayoub, being only a shareholder in Enviro, has any interest in the Property, let alone any interest that is "grossly out of proportion to the prejudice that setting aside would cause to the company's creditors". Further, the objective evidence establishes the contrary. Firstly, Justice White has, after a contested hearing, concluded that Enviro is insolvent - see paragraph [45] of the Judgment at tab 11 of JAH-1 . Secondly, the Court has already ordered that Enviro give possession of the Property to Challenger pursuant to the terms of the Mortgage which secures a debt of almost $4 million - see paragraph 39 of Mr Holmes' affidavit . Thirdly, a second mortgage was granted over the Property in favour of the Arab Bank ( see tab 2 of JAH-1 ) and as at 23 September 2010, the Arab Bank maintained that Enviro was indebted to it for in excess of $7.9 million - see paragraph [28] of Justice White's Judgment at tab 11 of JAH-1 . Presumably these matters caused Justice White to say, at [17]: "There is no reason to assume that the disclaimer could or should be set aside."" 40Once again, the telling part in these submissions is that there is no relevant interest held by Mr Ayoub. In these circumstances and with regard to the other matters in the submission, this claim is hopeless.

Claim for relief 6 41There are no pleaded facts to support this claim. 42Paragraph 8 provides for an order that Challenger be restrained from drilling on the Property. 43Mr Ayoub has no standing to seek such an injunction. The registered proprietor of the property is Enviro and the Court has ordered Enviro to give possession of the property to Challenger. 44Another difficulty is that there is no present threat of any drilling being carried out on the property by Challenger and indeed the evidence is to the contrary. 45The third difficulty suggested is that given the conclusion of Mr Gleeson, in his capacity as liquidator of Enviro, that the property is contaminated; there can be no utility in such an order being made.

Paragraphs 9, 10, 11 and 12 of the relief claimed 46Paragraphs 9, 10, 11 and 12 include claims that are incidental to the relief sought in paragraphs 1 to 8. Any dismissal of those paragraphs must result in a dismissal of paragraphs 9 to 12.

Orders

I order that the statement of claim be dismissed.
As the filing of the statement of claim is completely unfounded, I order the plaintiff to pay the defendant's costs on an indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 June 2011

Trade Practices Act 1974(Cth)

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