Brown v King

Background

1. At the relevant times, Mr and Mrs Brown were the owners of land known as 203 Thompsons Road, Milbrodale (the "property"). They were also the directors and shareholders of the Company. One way or another, at least for a period, Mr and Mrs Brown and the Company operated a winery and developed other business ventures.
2. In 2020, Mr King commenced proceedings in this Court against Mr and Mrs Brown and the Company. He sought possession of the property as well as judgment sums. On 29 July 2020, Davies J made an order for possession (see King v Brown [2020] NSWSC 1010; King (No 2")). His Honour found that in January 2016 a deed of loan had been executed between Mr King and Mr and Mrs Brown, recording a loan for a sum of approximately $794,000, which was repayable on 26 August 2020 and was secured over, inter alia, the property. Davies J found that the money was not paid (at [17]). His Honour also found that the Company had guaranteed the loan. Although Davies J made an order for possession, his Honour left the outstanding debt claims, as well as the matters that Mr and Mrs Brown might want to pursue by way of a cross-claim, to be determined.
3. In the meantime, on 17 April 2020, Mr King appointed Mr Pleash of the accounting firm Hall Chadwick to be the receiver of the Company, by which I understand to be the receiver of the Company's assets and undertakings. On 11 November 2020, Mr Pleash was appointed the receiver of the property.
4. Over three days from April to July of 2011, Schmidt AJ heard the balance of Mr King's claims, as well as Mr and Mrs Brown's cross-claim. On 24 August 2021, her Honour published King v Brown (No 2). Her Honour effectively upheld Mr King's claims as to how the debt was to be calculated and rejected all aspects of Mr and Mrs Brown's cross-claim. Part of that judgment dealt with the position of Hall Chadwick and Mr Pleash, whose conduct, as I will explain, was the subject of Mr and Mrs Brown's cross-claim.
5. On 2 September 2021, her Honour entered judgment for various sums in favour of Mr King and made consequential orders (see King v Brown (No 3) [2021] NSWSC 1116).
6. Since that time, Mr and Mrs Brown have filed a Notice of Appeal against her Honour's judgment. That appeal is still pending. In the course of his submissions, Mr Brown referred to some part of that appeal that sought to rely on further evidence to that which was tendered before Schmidt AJ, although that evidence was not placed before me.

Res Judicata and Estoppel

1. To the extent that Mr and Mrs Brown bring claims against Mr King, then the case certainly involves actions between the same parties to the proceedings determined by Schmidt AJ. As I have already indicated, the position of Mr Pleash will need to be considered separately. The inter-relationship between res judicata, estoppels arising from judicial determinations, abuse of process, and double recovery was described in Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28 at [20] to [27] per French CJ, Bell, Gageler and Keane JJ ("Tomlinson"). The principle of double recovery can be put aside. It will be necessary to return to the concept of abuse of process after I have considered the position of Mr Pleash.
2. For the present, it is sufficient to note the following concerning res judicata and estoppel. In Tomlinson at [20], their Honours observed that the rendering of a final judicial judgment operates to quell the controversy between the parties such that the rights and obligations in controversy, as between those persons, cease to have an independent existence and merge in the final judgment. Their Honours noted that the doctrine of estoppel in relation to judicial determination is of a different nature, being a common law doctrine informed by considerations of finality and fairness. Their Honours then described the three relevant forms of estoppel as follows (at [22]): "Three forms of estoppel have now been recognised by the common law of Australia as having the potential to result from the rendering of a final judgment in an adversarial proceeding. The first is sometimes referred to as "cause of action estoppel". Estoppel in that form operates to preclude assertion in a subsequent proceeding of a claim to a right or obligation which was asserted in the proceeding and which was determined by the judgment. It is largely redundant where the final judgment was rendered in the exercise of judicial power, and where res judicata in the strict sense therefore applies to result in the merger of the right or obligation in the judgment. The second form of estoppel is almost always now referred to as "issue estoppel". Estoppel in that form operates to preclude the raising in a subsequent proceeding of an ultimate issue of fact or law which was necessarily resolved as a step in reaching the determination made in the judgment. The classic expression of the primary consequence of its operation is that a "judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies". The third form of estoppel is now most often referred to as "Anshun estoppel", although it is still sometimes referred to as the "extended principle" in Henderson v Henderson [(1981) 147 CLR 589; [1981] HCA 45]. That third form of estoppel is an extension of the first and of the second. Estoppel in that extended form operates to preclude the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding. The extended form has been treated in Australia as a "true estoppel" and not as a form of res judicata in the strict sense. Considerations similar to those which underpin this form of estoppel may support a preclusive abuse of process argument."
3. Further, in Tomlinson, their Honours described the operation of all three forms of estoppel as each potentially precluding the "assertion of a right or obligation, or the raising of an issue of fact or law, between parties to a proceeding or their privies" (at [23]). In light of that observation, there is some doubt as to whether the form of estoppel known as Anshun estoppel is applicable where a later claim is brought against an entity who was not a party to the previous proceeding (see Hana v Shad Legal Services Pty Ltd [2021] NSWCA 258 at [34]). It is for that reason that it will be necessary to consider the position of Mr Pleash separately.

Comparison Between Earlier Claims and Present Claims

1. On or about 8 November 2021, Mr and Mrs Brown filed their amended statement of claim in these proceedings (the "ASOC"). Although they are both accomplished in business and articulate, it is clear that the document does not reflect the drafting of someone with legal expertise. Nevertheless, the essence of the claims made can be identified and compared to what was raised before Schmidt AJ and determined by her Honour in King v Brown (No 2).
2. In the relief section of the ASOC, prayer 1 seeks an order ending Mr Pleash's appointment as the receiver of the Company. It is clear from the balance of the pleading that the facts, matters and circumstances that are said to warrant that order appear to all relate to events prior to Schmidt AJ's determination of the controversy between the parties. As noted I will outline the particular position of Mr Pleash before her Honour later. At this point it suffices to note that her Honour found that there was no basis for the removal of Mr Pleash as receiver (King v Brown (No 2) at [180]).
3. Prayers for relief 2 and 3 of the ASOC seek judgment in respect of activities concerning so called "proprietary intellectual property" said to be owned by Mr and Mrs Brown. Paragraph 11 of their amended cross-claim before Schmidt AJ sought an order in respect of the alleged financial gain that was said to have been made by Mr King and Mr Pleash in respect of proprietary intellectual property, which was rejected by her Honour.
4. Prayer 5 of the claim for relief and prayer 7 of the claim for relief in the ASOC appear to seek orders against the Company. To the extent that the statement of claim seeks relief against the Company, then that is not affected by this notice of motion and does not appear to be affected by her Honour's judgment in King (No 2).
5. Prayer 6 of the ASOC seeks an order for payment of $552,062 for wine said to be forfeited under an agreement between Mr and Mrs Brown and the Company in circumstances where the wines were "illegally seized by the defendants", that is Mr King and Mr Pleash. The exact same claim for relief for that precise sum was made in the amended statement of cross-claim determined by Schmidt AJ (at [12] and [13]) and rejected by her Honour. Prayer 4 of the claim for relief in the ASOC seeks damages for the destruction of various business values. In light of the balance of the pleading, it is clear that that claim rises no higher than the particular claims to which I will now turn.
6. Paragraphs [1] to [9] of the ASOC purport to recite various background facts. The only claim potentially giving rise to a cause of action is para [5] which pleads that Mr and Mrs Brown own certain machinery and equipment which was partially removed from the property when they were evicted in February 2021. Prayer 9 of the amended cross-claim before Schmidt AJ sought an order prohibiting the use of equipment and machinery for financial gain. The transcript of the proceedings before Schmidt AJ reveals that this claim was effectively not pressed, in the sense it was not contended that any of this equipment was in fact seized by the first and second defendants. Further, in one part of her Honour's judgment, which is applicable to this and many other claims, her Honour found "[t]here is also no basis in the evidence for any order in favour of Mr and Mrs Brown in respect of any assets which they claim they own" (King v Brown (No 2) at [228]).
7. Paragraphs 10 to 23 of the ASOC plead that, in effect, Mr and Mrs Brown owned various forms of intellectual property, and perhaps other contractual rights, relating to a wine club business and website. They plead that in August 2021 Mr King and Mr Pleash purportedly seized domain names and other intellectual property, presumably on the basis it was property of the Company and not, as Mr and Mrs Brown contend, their property. One paragraph of this part of the ASOC contends that Mr King and Mr Pleash have enriched themselves using the plaintiffs' intellectual property rights.
8. In the amended cross-claim at [10] before Schmidt AJ, Mr and Mrs Brown sought an order prohibiting Mr King from deriving financial gain through the use of their proprietary intellectual property being a wine club and website. In [11], they sought an order that there be judgment in respect of the financial gain of Mr King and Mr Pleash of their proprietary intellectual property for the wine club, website and equipment. At [20] of the amended cross-claim, they sought relief for damages for the unauthorised use of their assets. The substantive part of the cross-claim pleads that Mr and Mrs Brown owned intellectual property in relation to that wine club, including domain names.
9. In King v Brown (No 2) under the heading "Other Assets" her Honour dealt with various assets that Mr and Mrs Brown claimed were theirs that had been wrongly appropriated, including "domain name searches which identified as the owner of ascellawine.com.au and hunterecoresort.com.au domain names" (at [218]). This part of the judgment also deals with claimed ownership by Mr and Mrs Brown to various aspects of the wine club business and intellectual property. It concludes with the paragraph that I have noted above in which her Honour rejected any claim for any order in favour of Mr and Mrs Brown in respect of any assets which they claim they own.
10. Paragraphs 26 to 39 of the ASOC are part of a section entitled "Breach of Contract". In substance, they appear to contend that there was a contract for the sale of grapes and, perhaps, wine between Mr and Mrs Brown and other entities, including the Company, which was not honoured, with the result that whatever grapes and wine existed were owned by them. Paragraph 33 of the ASOC pleads that Mr King and Mr Pleash seized wine inventories despite there being a default under that agreement and that they have "illegally used the first and second [plaintiffs'] intellectual and other assets to conduct the sale of the illegally seized wine." Paragraph 37 of the ASOC identifies the sum of $552,062 as the value of the wine that was claimed rightfully belonged to Mr and Mrs Brown.
11. As already noted, the exact same claim was pleaded in the statement of cross-claim determined in King v Brown (No 2). Paragraph 13 of the cross-claim sought an order that the amount of $552,062 be deducted from the mortgage debt said to be owed to Mr King. Her Honour dealt with the claim in respect of the seized wine in a number of parts of King v Brown (No 2). Her Honour identified the contention (at [77(4)]), noted Mr Brown's affidavit making this claim (at [105]) and ultimately concluded (at [117]), "I am thus satisfied that Mr Brown and Mrs Brown's claimed ownership of the wine was not established."
12. Paragraphs [40] to [53] of the ASOC are part of a section entitled "Intellectual and Other Property Particulars - Hunter Eco Resort". They recite various facts said to have occurred in which Mr Brown was involved in the development of a proposal for such a resort. They complain about the use by Mr King of various intellectual property, including domain names and trademarks associated with that resort. They also appear to make a claim against the Company which, as I have already noted, is not the subject of this notice of motion.
13. In the amended cross-claim before Schmidt AJ, claims were made in respect of the appropriation of intellectual property. As already noted, in [218] of the judgment in King v Brown (No 2), her Honour specifically referred to intellectual property in respect of the Eco Resort and (at [228]) her Honour rejected all the claims in respect of any assets which Mr and Mrs Brown said they owned.
14. The last part of the ASOC is entitled "Debt to The Plaintiffs". It contains generalised assertions about the stripping of the assets of the Company, all of which pre-date Schmidt AJ's judgment. To the extent it makes claims against Mr King or, for that matter, Mr Pleash, it appears to simply recount the particular matters that I have identified. It also makes a claim in respect of the debts said to be owed by the Company to the plaintiffs which, as I understand it, is based on a book entry in the accounts. As noted, that is not the subject of this motion.
15. In the end result, at least so far as Mr King is concerned, it is clear that every one of the claims made against him in the ASOC in these proceedings was raised and determined adversely to Mr and Mrs Brown by Schmidt AJ. It follows from Tomlinson that, one way or another, these claims are barred because they either involve one or more of a res judicata, a cause of action estoppel or, at the very least, an issue estoppel. The claims made in the ASOC against Mr King cannot be sustained. They must be dismissed.

Position of Mr Pleash

1. Before Schmidt AJ, Mr and Mrs Brown identified one of the cross-defendants as "Hall Chadwick", being the business name of the firm of accountants which Mr Pleash is either a partner of or employed by. It seems that Mr King placed Mr and Mrs Brown on notice that it was not a legal entity and that it was necessary for them to join Mr Pleash if they wanted to seek separate relief against him as receiver.
2. Her Honour addressed this issue in King v Brown (No 2) (at [28] to [45]). Her Honour concluded that Mr Pleash was not a party and that no orders could be made against him. Her Honour recorded that it had been made clear to Mr and Mrs Brown that they had the opportunity to join Mr Pleash to the proceedings. Notwithstanding that Mr Pleash was not a party, her Honour nevertheless made findings in respect of all of the claims that relate to him, including the claim for termination of the receivership.
3. On the hearing of his motion, Mr Brown accepted that he knew that Mr Pleash was not a party. He said that he and his wife had decided not to join Mr Pleash, but decided to consider bringing proceedings against him later.
4. In the proceedings that were determined in King v Brown (No 2), Mr Pleash verified part of Mr King's defence in that some of the factual allegations made against Mr King concerned Mr Pleash's conduct. Mr Pleash gave evidence, or at least provided an affidavit that was read before Schmidt AJ.
5. I have already observed what appears to be the fact that the Anshun estoppel is not available in respect of a non‑party to the earlier proceedings. The principles of res judicata and estoppel do, however, extend to so-called privies, that being a reference to someone who is represented by, or claims through, another. It is an interesting question as to whether, in the circumstances that transpired before Schmidt AJ, where an entity called Hall Chadwick was named and Mr Pleash had such an apparently significant role in the proceedings and was placed on notice of all the allegations, whether he amounts to a privy. However, it is not necessary to determine that. Instead, it is sufficient to consider the next part of Tomlinson which considered the doctrine of abuse of process.
6. In Tomlinson at [26], their Honours stated as follows: "Accordingly, it has been recognised that making a claim or raising an issue which was made or raised and determined in an earlier proceeding or which ought reasonably have been made or raised for determination in that earlier proceeding, can constitute an abuse of process even where the earlier proceeding might not have given rise to an estoppel. Similarly, it has been recognised that making such a claim or raising such an issue can constitute an abuse of process where the party seeking to make the claim or to raise the issue in a later proceeding was neither a party to that earlier proceeding, nor the privy of a party to that early proceeding, and therefore could not be precluded by an estoppel." (emphasis added)
7. This statement of principle is potentially applicable to Mr Pleash in that, for the reasons I have already outlined, every single claim now made against him was in fact made in the proceeding before Schmidt AJ and determined, even though he was not, strictly speaking, a party to those proceedings, and it is doubtful that he was a privy of a party.
8. In Hana v Shad Legal Services Pty Ltd [2021] NSWCA 258 at [43], Payne JA identified a useful but "non-exhaustive" list of considerations which can inform a finding of abuse of process in such circumstances which in turn was derived from State Bank of New South Wales v Alexander Stenhouse Ltd & Ors (1997) Aust Torts Reports 81-423, namely: "(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) 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 [f] an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process."
9. When one considers those factors, this is a clear case of abuse of process. The issues now sought to be litigated were at the very core of the cross-claim that Mr and Mrs Brown litigated before Schmidt AJ. Although they might not take the same view, by litigation standards they were given the full opportunity to litigate them. Clearly her Honour made final findings on the relevant issues and the identity between the relevant issues was complete. The relative closeness of the parties, both then and now, favours this conclusion.
10. To allow these claims against Mr Pleash to be relitigated when they all relate to matters that occurred before the time of the judgment of Schmidt AJ and were fully litigated at that time would clearly be an abuse of process.

Other Matters

1. It follows from this that the proceedings will be dismissed against Mr King and Mr Pleash. What will be left in the proceedings is a claim by Mr and Mrs Brown against their own company. In light of the conclusion that I have reached, it is not necessary to address the balance of the claims for relief sought by Mr King and Mr Pleash. So far as strike-out is concerned, certainly the form of the statement of claim is such that it is very unlikely that it could have survived in its current state.

Orders:

1. Accordingly, I order that pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 these proceedings be dismissed against the first and second defendants.

Costs [Parties addressed on costs]

1. Mr King and Mr Pleash seek an order for costs of the motion on an indemnity basis. They point to the unreasonable behaviour of Mr and Mrs Brown in continuing to sue on the same case that they have lost, in circumstances where they are already in the Court of Appeal. They also point to an email sent to them soon after they filed the original statement of claim, pointing out that the proceedings were misconceived. Further, by a letter dated 26 November 2021, their solicitors pointed that out in some detail. They also outlined the basis upon which they charged and the likely cost to get to this point. The ultimate figure quoted was $56,720 exclusive of GST based upon an estimate that the hearing of this motion would take two days where it has occupied one.
2. There clearly has been unreasonable behaviour by Mr and Mrs Brown in the conduct of this case. The letters pointed out the difficulty in seeking to relitigate the same matter. In the course of the morning I had repeatedly sought to focus the plaintiffs on that issue. Instead, I was confronted with a concern about the underlying merits of their claim. On the issue of costs I was advised that there was some event that had happened since the time of Schmidt AJ's judgment which they rely on. The short answer is that that was not pleaded in the ASOC.
3. The potential deficiency in this application is that the plaintiffs were not told that costs would not be sought on an indemnity basis. However, at least so far as lay people are concerned, it might better they be told what the costs would be. I consider the best course is to order that the costs to be paid on an indemnity basis but cap them at a certain amount. I suspect in the long run of litigation this will all be caught up in the wash. At the very least, the cap imposed will be an amount that is not ruinous.
4. Accordingly, I order that the first and second plaintiffs pay the first and second defendants' costs of the proceedings on an indemnity basis, such sum not to exceed $55,000.
5. I order that the notice of motion filed 4 February 2022 be otherwise dismissed.

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: 08 June 2022