Grounds of the Application pursuant to S.418A of the Corporations Act, 2001 (Cth)
A. The plaintiff was not and is not in default of the mortgage and the charge.
B. The first defendant is not entitled to rely upon a purported notice of default dated 27 October 2009.
C. The first defendant is in breach the loan agreement, the charge and the mortgage.
D. Alternatively, the first defendant is estopped from denying that the plaintiff was not on 11 February 2010 and is not in default of the mortgage and the charge.
E. The first defendant has failed to demand repayment of the sum secured by the mortgage and the charge and/or has failed to allow the plaintiff a reasonable time to remedy the alleged default.
F. The first defendant has contravened s.52 of the Trade Practices Act.
G. Alternatively, the first defendant has contravened s. 12DA of the ASIC Act.
H. Other grounds.
66The Statement of Claim filed 2 March 2010 pleaded the loan facility agreement dated 5 June 2007 as well as the two Deeds of Variation dated 13 November 2007 and 16 January 2009.
67Paragraph 13 pleaded:
13. On 2 April 2009, in writing, the plaintiff and Bankwest further agreed to vary the Loan Agreement ('the Third Variation') by:
(a) extending the repayment date to 10 April 2010 or alternatively to the date of completion of the Development,
(b) requiring the plaintiff to make specified monthly interest payments to Bankwest from May to October 2009; and
(c) obtaining variations of the dates by which plaintiffs contracts of sale to purchasers of units in the Development would become unconditional to 10 April 2010.
Particulars
(i) Email dated 2 April 2009 from Mario Caliete, Bankwest Business Director, Property Finance, NSW.
(ii) Email dated 2 April 2009 from Hector Ekes on behalf of the plaintiff to Mario Caliete.
68The Company then pleaded that by letters of 4 August and 27 October 2009 the Bank asserted an event of default by reason of the failure by the Company to repay the loan in full on 30 June 2009 as well as two other events of default being an application to wind up the Company filed in this Court and the Part X arrangement entered into by Hector Ekes, the Second Defendant in these present proceedings.
69Under a heading in the Statement of Claim which said "BANKWEST IS NOT ENTITLED TO RELY ON THE ALLEGED DEFAULTS" the following was pleaded:
Election
20. Further and in the alternative:
(a) on 30 June 2009, Bankwest was entitled at its option pursuant to clause 10(l)(b) of the Loan Agreement to treat the Loan as immediately due and payable;
(b) Bankwest did not exercise that option on 30 June 2009;
(c) on and after 28 July 2009, Bankwest elected to exercise its option and decided not to treat the loan as immediately due and payable and instead affirmed the Loan Agreement by:
(i) accepting an interest payment of $60,000 on 28 July 2009 from the plaintiff as required by Bankwest in the emails referred to in paragraph 13(c) above; and
(ii) thereafter granting the plaintiff further accommodation under the Loan Agreement and permitting it to make further drawings of principal; and
(iii) requiring and accepting regular interest payments from the plaintiff.
(d) In the premises, Bankwest is estopped on and after 28 July 2009 from asserting that failure by the plaintiff to repay the Loan by 30 June 2009 constituted an event of default pursuant to the Loan Agreement, the Charge and the Mortgage.
Promissory Estoppel
21. Further and in the alternative:
(a) From about 2 April 2009, Bankwest represented to the plaintiff ('the Representations') that:
(i) Bankwest would extend the term of the Loan Agreement to 10 April 2010 or until completion of the Development, whichever was the later date, and
(ii) would permit the plaintiff to make further drawings of principal,
on the condition that the plaintiff made specified interest payments to Bankwest.
PARTICULARS
(1) Email dated 2 April 2009 from Mario Caliete.
(2) Conversation between Hector Ekes and Mario Caleite on 2 April 2009 (refer to paragraph 16 of the affidavit of Hector Ekes sworn on 25 February 2009.)
(3) Email dated 1 June 2009 from Ingrid Lipovz.
(4) Meeting in early June 2009 attended by Mario Caliete, Cran Mullin (Bankwest's State Manager, Property Finance), Ingrid Lipovz, David Muray (Plaintiffs project Manager) and Hector Ekes (refer to paragraph 47 of the affidavit of Hector Ekes sworn on 25 February 2009.)
(5) Email dated 15 June 2009 from Mario Caliete.
(6) Email dated 18 June 2009 from Mario Caliete.
(7) Email dated 7 July 2009 from Ingrid Lipovz.
(8) Conversation between Hector Ekes and Mario Caliete on 5 August 2009 (refer to paragraph 70 of the affidavit of Hector Ekes sworn on 25 February 2009).
(9) Conversation between Hector Ekes and Ingrid Lipovz on about 5 August 2009 (refer to paragraph 70 of the affidavit of Hector Ekes sworn on 25 February 2009).
(10) Email dated 10 August 2009 from Ingrid Lipovz.
(11) Conversation between Hector Ekes and Mario Caliete on 5 August 2009 (refer to paragraph 72 of the affidavit of Hector Ekes sworn on 25 February 2009).
(12) Email dated 19 August 2009 from Ingrid Lipovz.
(13) Email dated 8 September 2009 from Ingrid Lipovz.
(14) Email dated 8 October 2009 from Ingrid Lipovz.
(15) Email dated 5 November 2009 from Ingrid Lipovz.
(16) Email dated 9 November 2009 from Ingrid Lipovz.
(17) Telephone conversation between Hector Ekes and Mario Caliete on 2 December 2009 (refer to paragraph 115 of the affidavit of Hector Ekes sworn on 25 February 2009).
(18) Conversations between Elise Cockerell and Hector Ekes on 2 December 2009.
(b) In reliance upon the Representations:
(i) the plaintiff assumed that the Loan Agreement would be extended in accordance with the Representations; and
(ii) acted to its detriment
PARTICULARS OF RELIANCE
The plaintiff:
(1) made all interest payments required by Bankwest after 30 June 2009;
(2) incurred liabilities to its building contractors working on the development
(3) made further drawings of principal under the Loan Agreement;
(4) used those drawings of principal to pay its building contractors; and
(5) varied the dates by which plaintiff's contracts of sale to purchasers of units in the Development would become unconditional to 10 April 2010.
(6) Further particulars will be supplied after discovery has taken place.
(c) Bankwest intended the plaintiff to act in that manner.
(d) The plaintiff will suffer severe detriment if its assumption that the repayment date of the Loan was not extended to 10 April 2009 or until completion of the Development, whichever is the later.
PARTICULARS OF DETRIMENT
(1) Lost profit from the development when completed.
(2) Interest paid after May 2009.
(3) Principal drawn down after 20 June 2009.
(4) Further particulars will be supplied after discovery has taken place.
(e) By appointing the Receivers, the plaintiff has failed to act to avoid that detriment.
22. In the premises, Bankwest is estopped from:
(a) relying upon the Events of Default referred to in the Notices of Default; and
(b) denying that the repayment date of the loan is 10 April 2010 or the date of Completion of the Development whichever is the later.
Estoppel by Convention
23. Further and in the alternative, from 30 June 2009 the plaintiff and Bankwest agreed to conduct their business relationship upon the basis that:
(a) the term of the Loan Agreement was extended to 10 April 2010 or until completion of the Development, whichever was the later date,
(b) Bankwest would permit the plaintiff to make further drawings of principal to enable the Development to be completed, and
(c) the plaintiff would make monthly interest payments to Bankwest,
PARTICULARS
Refer to paragraph 13 above.
24. Alternatively, the plaintiff and Bankwest assumed that their business relationship would be conducted upon that basis, and that assumption was adopted by both of them.
PARTICULARS
Refer to the particulars given in paragraph 21(a) above.
25. In the premises, Bankwest is estopped from:
(a) relying upon the Events of Default referred to in the Notices of Default; and
(b) denying that the repayment date of the loan is 10 April 2010 or the date of Completion of the Development whichever is the later.
THE APPOINTMENT OF THE RECEIVERS IS NOT VALID
26. By reason of the matters alleged in paragraphs 18 - 25 above, the plaintiff is not in breach of the Loan Agreement, the Charge or the Mortgage,
27. Alternatively, by reason of the matters alleged in paragraphs 20 - 25 above Bankwest is estopped from denying that the plaintiff is not in breach of the Loan Agreement, the Charge or the Mortgage,
28. In the premises:
(a) the Notices of Default are of no effect and Bankwest is not entitled to rely upon them; and
(b) Bankwest was not entitled to enforce the Charge and the Mortgage
29. Further and in the alternative:
(a) Clause 10(1) of the Loan Agreement prevails over the default provisions of the Charge and the Mortgage referred to in paragraphs 9 and 10 above; and
(b) upon the true construction of clause 10(1), Bankwest must demand repayment of the loan before enforcing the Charge and the Mortgage if it elects not to treat the Loan as immediately due and payable.
(c) By reason of the matters set out in paragraph 20 and by the Second Notice of Default, Bankwest has elected not to treat the Loan as immediately due and payable and has reserved to itself the right to make a future demand for payment
30. Further and in the alternative, by reason of the matters set out in paragraph 20 - 25 and by the Second Notice of Default, Bankwest has waived its right to enforce the Charge and Mortgage without demanding that the plaintiff repay the Loan and granting to the plaintiff a reasonable time to make repayment
31. The plaintiff seeks orders and declarations pursuant to S.418A of the Corporations Act.
CONTRAVENTION OF S.52 OF THE TRADE PRACTICES ACT AND THE ASIC ACT
32. Bankwest is a corporation within the meaning of the Trade Practices Act, 1914 (Cth) and the ASIC Act, 2001 (Cth).
33. Bankwest made the Representations in trade or commerce and in relation to the provision of financial services.
34. The Representations are misleading or deceptive or likely to mislead or deceive because Bankwest asserts that the plaintiff is in default of the Loan Agreement as asserted in the Notices of Default.
35. Bankwest has thereby contravened s.52 of the Trade Practices Act, 1974 (Cth) and s.12DA of the ASIC Act, 2001 (Cth).
36. To the extent that the Representations were as to future matters, the plaintiff relies on s.51A of the Trade Practices Act and/or S.12BB of the ASIC Act.
37. The plaintiff relied upon the Representations and has suffered and will continue to suffer loss and damage.
PARTICULARS
(1) Loss of profits caused by the delay in completing the Development
(2) Penalty interest paid but not payable under the Loan Agreement.
(3) Penalty interest accrued but not paid.
(4) Further particulars will be provided in due course.
38. The plaintiff is entitled to recover damages from Bankwest pursuant to s.82 of the Trade Practices Act and/or s. 12GF of the ASIC Act.
BREACH OF CONTRACT
39. In breach of the Loan Agreement as varied, Bankwest has asserted that the Charge and the Mortgage are immediately enforceable the appointed the Receivers.
40. The plaintiff has thereby suffered damage, and seeks damages in contract.
PARTICULARS
Refer to paragraph 37
UNCONSCIENTIOUS CONDUCT
41. If Bankwest was legally entitled to enforce the Charge and the Mortgage, which the plaintiff denies, then the appointment of the receivers was an unconscientious use of that power in the light of the conduct of Bankwest set out in paragraphs ### (sic) above.
PARTICULARS OF UNCONSCIENTIOUS CONDUCT
(1) From May 2009, by the Representations and its conduct in accepting interest payments and permitting the plaintiff to make further drawings of principal, Bankwest induced the plaintiff to assume that if it paid interest as required from time to time, Bankwest would support the Development until completion, and thereby lulled the Plaintiff into a false sense of security.
(2) On 4 August 2009, Ingrid Lipovz told the (sic) Hector Ekes that the plaintiff should disregard a notice of default.
(3) On 8 February 2010, Elise Cockerell said Hector West (sic) that no receivers had been appointed to the plaintiff thereby inducing the plaintiff to assume that Bankwest had no intention of appointing receivers.
42. The plaintiff is entitled to equitable compensation.
PARTICULARS
Refer to paragraph 37
UNCONSCIONABLE CONDUCT
43. Further and in the alternative, Bankwest has in trade or commerce in connection with the supply of services and financial services has engaged in conduct that is, in all the
circumstances, unconscionable.
PARTICULARS
Refer to paragraphs 20 and 21above
44. Bankwest has thereby contravened s.51A Trade Practices Act, 1974 (Cth) and S.12CB of the ASIC Act, 2001 (Cth).
45. The plaintiff is entitled to recover damages from Bankwest pursuant to s.82 of the Trade Practices Act and/or s 12GF of the ASIC Act.
70On 26 February 2010 the receivers gave undertakings to the Federal Court not to carry out any work on the property at 4-6 Walton Crescent, Abbotsford and not to sell the property on condition that security for costs in the sum of $20,000 was provided.
71On 8 March 2010 an application was made by the defendants in the Federal Court proceedings for the Company to provide further security for costs as well as security for the Plaintiff's undertaking as to damages which had been given for interlocutory relief that had been sought.
72An amended originating process and an Amended Statement of Claim were filed on 9 March 2010. The only significant alterations made to the Statement of Claim for present purposes were changes to paragraphs 18, 21(a)(i), 21(d), 22, 23(a) and 25(b) which substituted for the words "10 April 2010 or until completion of the Development, whichever is the later" the words "the date of completion of the Development or a date to be agreed by the parties".
73In a judgment of 16 March 2010 Jacobson J ordered security as set out in that judgment: 888 Projects Pty Ltd (Receivers and Managers Appointed) (ACN 121 369 793) v Bank of Western Australia Ltd (ACN 050 494 454) [2010] FCA 296. The security was to be provided within seven days. It was not so provided.
74On 13 April 2010 consent orders were made by Jacobson J as follows:
1. The proceedings be dismissed.
2. The plaintiff pay the first, second and third defendants' costs of the proceedings, as agreed or assessed.
There was a subsidiary order for the payment out of $20,000 paid into Court by way of security for costs.
75Order 35 r 10A of the Federal Court Rules in force at the relevant time provided in sub-r (1) that a judge might make an order in accordance with the terms of a written consent of the parties to a proceeding and that the order must state that it is made by consent. Sub-rule (3) provided:
The order is of the same force and validity as if it had been made after a hearing by the Judge.
76In that regard Order 35 r 6 was relevant because it provided:
(1) Where the Court makes an order for the dismissal of proceedings or for the dismissal of proceedings so far as concerns any cause of action where the whole or any part of any claim for relief, the Court may order that such dismissal should be without prejudice to any right of the applicant or claimant to bring fresh proceedings or to claim the same relief in fresh proceedings.
77The present Plaintiff submitted that it was open to the parties in the proceedings before Jacobson J to include in the Consent Order a further order that the dismissal effected by the Consent Order was without prejudice to the right of the Company to bring fresh proceedings or to make a claim for the same relief in fresh proceedings. In the absence of having done so, the Plaintiff submitted, r 10A had effect with the result that there is a res judicata or an issue estoppel.
78The First Defendant submitted that no issue estoppel arises by reason of the dismissal of the Federal Court proceedings. This is because, it was submitted, the dismissal was only an interlocutory order as was held in Bank of Western Australia Ltd v Tannous (No. 4) [2013] NSWSC 182 at [44] and the cases discussed therein. The First Defendant pointed further to the fact that all that had occurred was that an order for security for costs had been made and the security was not provided leading to a consent dismissal.
79That submission of the First Defendant does not appear to me to take account of the terms of the Federal Court Rules coupled with the fact that an order was not made at the time which would have permitted the Company to make the same claim in subsequent proceedings.
80In Bailey v Marinoff; (1971) 125 CLR 529 the Court of Appeal had made this order on 10 February 1970:
It is ordered that the Appellant file and serve the appeal books herein on or before the 31st day of March 1970 and it is further ordered that if the Appellant does not file and serve the appeal books herein on or before the 31st day of March 1970 the appeal is to stand dismissed for want of prosecution and it is further ordered that the costs of this motion be costs in the appeal of the Respondent.
81Although the appeal books were filed on 31 March they were not served until 6 April. The result was that the appeal stood dismissed.
82Notwithstanding the dismissal the Court of Appeal on 28 September 1970 on the application of the Respondent ordered that the filing and service of the appeal books that had been effected should be deemed to be a sufficient compliance with the order of 10 February 1970. The Respondent in the Court of Appeal appealed to the High Court on the basis that the Court of Appeal had no power to make that order because the appeal had been earlier concluded.
83Menzies J said (at 531):
However wide the inherent jurisdiction of a court may be to vary orders which have been made, it cannot, in my opinion, extend the making of orders in litigation that has been brought regularly to an end.
84Barwick CJ said (at 538):
Once an order disposing of a proceeding has been perfected by being drawn up as the record of a court, that proceeding apart from any specific and relevant statutory provision is at an end in that court and is in its substance, in my opinion, beyond recall by that court. It would, in my opinion, not promote the due administration of the law or the promotion of justice for a court to have a power to reinstate a proceeding of which it has finally disposed.
85It is significant that the order which resulted in the dismissal of the proceedings in Bailey was not an order made as a result of the hearing of the appeal but from a procedural order. The same position obtains in the present case. It cannot be said, therefore, that the principle derived from Bailey is one dependent upon there having been a final hearing on the merits. That position is, in any event, reinforced by what appears in O 35 r 10A FCR.
86In SCF Finance Co Ltd v Masri (No 3) [1987] 1 QB 1028 it was held that an order of the Court dismissing proceedings gave rise to an issue estoppel even though the Court had not heard argument or evidence on the merits. The judgment of the Court was given by Ralph Gibson LJ who said (at 1047 - 1049):
The decision in Khan v Golechhi International Limited [1980] 1 WLR 1482 makes it clear that an order dismissing proceedings is capable of giving rise to issue estoppel even though the court making such order has not heard argument or evidence directed to the merits. ... If a party puts forward a positive case, as the basis of asking the court to make the order which that party seeks, and then at trial declines to proceed it accepts that the claim must be dismissed, then that party must, in our view, save in exceptional circumstances, lose the right to raise again that case against the other party to those proceedings....
The principle of the decision of this court in Khan ... is, in our judgment, applicable to this case: a litigant who has had an opportunity of proving the fact in support of his claim or defence and has chosen not to rely on it is not permitted afterwards to put it before another tribunal. In this case the second defendant had her opportunity to establish the case upon which her application was based; and she chose not to establish her alleged ownership of the dollar account. Her counsel on her instructions acknowledged that her application must be dismissed. (emphasis added)
87The highlighted words in the passage above must be doubted as representing the law in Australia: Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 (per Brennan J at 504-5 and Dawson J at 512) and Brennan J in Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 at 614 with the result that there is no exception to the rule based on the existence of exceptional circumstances.
88In Chamberlain the Deputy Commissioner commenced proceedings against a taxpayer and claimed $25,557.92 "being a debt due to the Crown from the Defendant" although the amounts particularised totalled $255,579.20. The defendant entered an appearance. Thereafter Terms of Settlement were agreed as follows:
By Consent and without admission of liability:-
1. Judgment for the Plaintiff in the sum of $25,557.92 together with costs to be assessed and agreed at $115.00....
Judgment was entered in these terms:
Terms of Settlement having been filed herein IT IS THIS DAY ADJUDGED that the Plaintiff recover against the Defendants the sum of $25,557.92 for debt and $115.00 for costs.
89Four days later (presumably when the error was realised) the Deputy Commissioner commenced proceedings to recover the balance as "being a debt due to the Crown from the Defendant. The High Court held that the principle of res judicata operated with the result that the second claim must be dismissed. Significantly, for the present case, Deane, Toohey & Gaudron JJ said (at 508);
The fact that a judgment is entered by consent may on occasion make it hard to say what was necessarily decided by the judgment.... But the principle of res judicata holds good in such a case.
90The First Defendant cannot gain any comfort from the decision in Tannous (No. 4). That case involved the striking out of a cross-claim because it disclosed no cause of action. The principle from Re Luck [2003] HCA 70; (2003) 203 ALR 1 was relevant as demonstrating that the order was interlocutory. In any event s 91 Civil Procedure Act was relevant as identifying the effect of what was done. In addition there was no equivalent to O 35 rules 6 and 10A in the Civil Procedure Act or the Uniform Civil Procedure Rules.
91The order made by Jacobsen J was not interlocutory. Notwithstanding that it was made by consent it was a final judgment disposing of the whole proceedings. Even without O 35 R 10A there would be an issue estoppel with respect to the causes of action pleaded in those proceedings: Bailey; Chamberlain; SCF Finance.
92Mr McInerney read an affidavit of his instructing solicitor, Jennifer Alfred, who made a comparison and analysis of material contained in the affidavit of Hector Ekes sworn 25 February 2010 and filed in the Federal Court proceedings and the affidavit of Hector Ekes sworn 21 December 2011 and filed in the current Supreme Court proceedings. The purpose of this comparison was to show the similarity between the facts and evidence relied upon by 888 Projects in the Federal Court on the one hand and the facts and evidence relied upon in support of the Defence and proposed Cross-Claim in the present proceedings. The comparison shows that a large number of the paragraphs in the Federal Court affidavit were identical with those in the affidavit filed in the present proceedings. In a large number of other cases paragraphs were very similar as between the two affidavits. This identity and similarity accounted for the vast majority of the material in the affidavits.
93The defence sought to be raised by both the Further Amended Defence, the proposed Second Further Amended Defence and the proposed Cross-Claim is dependent upon a finding that the Facility Agreement was varied again in April 2009 and in the months following to postpone the repayment date. In that way, the appointment of the receivers was said to be wrongful. Two significant emails of 2 April 2009 and 10 August 2009 are relied upon these pleadings as they were in the Federal Court proceedings. Similar estoppels and statutory breaches are alleged in these pleadings to those alleged in the Federal Court proceedings.
94By reason of the judgment in the Federal Court dismissing the Company's proceedings that defence and claim is no longer available to the Company. The issue is, therefore, whether the First Defendant can raise this issue both to defend the claim brought and to bring any cross-claim against the Plaintiff.
95The Plaintiff submitted that the First Defendant could have made the present claim in the Federal Court proceedings.
96The First Defendant submitted that it was not unreasonable for him not to have joined in the Federal Court proceedings principally because of the urgency with which those proceedings were commenced. The receivers were appointed on 11 February 2010 and the Federal Court proceedings were commenced on 25 February 2010. On 3 March 2010 the defendants in those proceedings gave undertakings in lieu of an interlocutory injunction in relation to the property and works at 4-6 Walton Crescent, Abbotsford. Thereafter application was made by them for security for costs culminating in the judgment and orders of Jacobson J on 16 March 2010.
97Whilst it may be accepted that there was some urgency to commence the proceedings because of the appointment of the receivers the Statement of Claim, nevertheless, pleaded the full panoply of complaints and claims against the Bank including estoppel and contraventions of the Trade Practices Act and the ASIC Act. Further, the affidavit of Hector Ekes in those Federal Court proceedings was sworn as early as 25 February 2010 and ran to 207 paragraphs.
98In all those circumstances the notion of any urgency which did not enable the First Defendant to be a party to those proceedings is rejected. In any event, even if no Anshun estoppel arises against the First Defendant by reason of his failure to join in the Federal Court proceedings the further point is that the company brought the Federal Court proceedings claiming the same relief arising out of the same issues and facts as are raised in the present proceedings and that those Federal Court proceedings were dismissed. Had the First Defendant been a party to those proceedings his position here would have been largely unarguable. There would be a clear res judicata or issue estoppel. The Plaintiff's point is, however, that because the Company took the proceedings, it being the appropriate party to do so, the First Defendant is disentitled from doing so here.
99It is necessary, therefore, to examine the issues of parties given that the First Defendant and proposed cross-claimant is not the Company but the First Defendant.
100In the first place it may be accepted that the doctrine of privity of contract means that a stranger cannot sue on the contract. Notwithstanding the particular result in Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 the doctrine of privity of contract was reaffirmed by all of the judges (Mason CJ and Wilson J at 115, Brennan J at 127, Deane J at 141, Dawson J at 155, Toohey J at 165 and Gaudron J at 172).
101Accordingly, it is not open to the First Defendant to assert that the contract between the Plaintiff and the Company has been varied. Nor can he bring a claim for damages suffered by the Company. In Prudential Assurance Co Ltd v Newman Industries Ltd [No 2] [1982] 1 Ch 204 the English Court of Appeal said (at 210):
A derivative action is an exception to the elementary principle that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested. This is sometimes referred to as the rule in Foss v Harbottle (1843) 2 Hare 461 when applied to corporations, but it has a wider scope and is fundamental to any rational system of jurisprudence. ...
The classic definition of the rule in Foss v Harbottle is stated in the judgment of Jenkins LJ in Edwards v Halliwell [1950] 2 All ER 1064 as follows:
1. The proper plaintiff in an action in respect of a wrong alleged to be done to a corporation is, prima facie, the corporation.
102The statements in Prudential Assurance were followed by the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1 at 35 and by the NSW Court of Appeal in Chen v Karandonis [2002] NSWCA 412.
103The facts in Gore Wood are well summarised by Beazley JA in Chen as follows:
[36] ... The appellant's company, W Ltd, had sued the respondents, a firm of solicitors, in negligence arising out of their conduct in acting for the company in respect of the exercise of an option to purchase land. Prior to the hearing of the claim, the appellant gave notice that he had a personal claim against the solicitors, arising out of the same matters, which he intended to pursue at a later stage. The company's action was settled. During the course of the settlement discussions, the settlement of the appellant's claim was also discussed, but it did not settle. The appellant subsequently commenced proceedings against the respondents.
[37] The respondents applied to strike out the appellant's claim
on the basis that the claim was an abuse of process and also sought the determination as a preliminary issue of the questions whether they owed the appellant a duty of care and whether the damages he claimed were irrecoverable as a matter of law for the pleaded breach of duty.
[38] An order was made that there be a determination of the preliminary issues.
104Lord Bingham said (at 32);
Two subsidiary arguments were advanced by Mr. ter Haar in the courts below and rejected by each. The first was that the rule in Henderson v. Henderson did not apply to Mr. Johnson since he had not been the plaintiff in the first action against GW. In my judgment this argument was rightly rejected. A formulaic approach to application of the rule would be mistaken. WWH was the corporate embodiment of Mr. Johnson. He made decisions and gave instructions on its behalf. If he had wished to include his personal claim in the company's action, or to issue proceedings in tandem with those of the company, he had power to do so. The correct approach is that formulated by Sir Robert Megarry V-C. in Gleeson v. J. Wippell & Co. Ltd. [1977] 1 W.L.R. 510 at 515 where he said:
Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest ... .
On the present facts that test was clearly satisfied.
The second subsidiary argument was that the rule in Henderson v. Henderson did not apply to Mr. Johnson since the first action against GW had culminated in a compromise and not a judgment. This argument also was rightly rejected. An important purpose of the rule is to protect a defendant against the harassment necessarily involved in repeated actions concerning the same subject matter. A second action is not the less harassing because the defendant has been driven or thought it prudent to settle the first; often, indeed, that outcome would make a second action the more harassing.
105The Plaintiff submits that, because the First Defendant is the privy of the Company, he cannot now rely on any defence or claim that is posited upon the further variation of April 2009 because of the issue estoppel arising from the dismissal of the Federal Court proceedings. The First Defendant denies that he is a privy of the Company and says that the dismissal of the Federal Court proceedings, if it gives rise to res judicata or an issue estoppel as far as the Company is concerned, does not prevent the First Defendant relying on the Further Amended Defence nor the proposed cross-claim.
106In Ramsay v Pigram (1968) 118 CLR 271 Barwick CJ said (at 279):
The basic requirement of a privy in interest is that the privy must claim under or through the person of whom he is said to be a privy.
107In Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; (2010) 75 NSWLR 245 it was held that the test for privity in an Anshun case is not the same as the test where a cause of action or issue estoppel is raised (Allsop P at [5], Handley AJA at [104]). Handley AJA went on to say:
[131] I see no reason in principle why an issue estoppel binding on a company should not bind its controlling shareholder/director and vice versa where, as will generally be the case, the shareholder has a real financial "interest" in proceedings brought by the company. Nor do I see any reason why the converse should not also apply, although ordinarily a company will have no equivalent interest in proceedings by or against its controlling shareholder/director.
[132] An alternative ground for reaching that result may be the principle that identity of parties is a matter of substance, not form. In Carl Zeiss (above) at 911 Lord Reid said:
There does, however, seem to me to be a possible extension of the doctrine of privity as commonly understood. A party against whom a previous decision was pronounced may employ a servant or engage a third party to do something which infringes the right established in the earlier litigation and so raise the whole matter again in his interest. Then if the other party to the earlier litigation brings an action against a servant or agent, the real defendant could be said to be the employer, who alone has the real interest, and it might well be thought unjust if he could vex his opponent by relitigating the original question by means of the device of putting forward his servant.
108Giles JA said at [64]:
That Mr Lawrence was sole director and shareholder of Champerslife did not give rise to privity of interest in the sense considered in Ramsay v Pigram. Regrettably, the submissions on behalf of Messrs Manojlovski and Grech did not initially draw attention to Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd.
109He went on to refer to the decision in Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (Receivers and Managers appointed - in liq) (1993) 43 FCR 510 and, in particular, to the acceptance by Birchett J (at 542) of the position that a director and shareholder of a company is not, as such, its privy in reliance on Clegg v Abel (1898) 14 WN (NSW) 131. Giles JA thought that Clegg v Abel may not provide strong authority for that point because the basis for its decision could be identified as otherwise.
110However, Giles JA placed some reliance upon what was said in Belton v Carlow County Council [1997] 1 IR 172 at 181 that just because the third parties were owners of all the shares in a company and were the only directors did not mean that privity of interest existed between them and the company (see Champerslife at [68]). He allowed, nevertheless, for the position that an Anshun estoppel may arise where a person controls a company and can cause it to act in a particular way: Champerslife at [69].
111On the other hand, Handley AJA said (at [137]) that he was not persuaded that the decision in Belton was the last word on this topic partly at least because a res judicata estoppel might bind one way (e.g. a tenant bound by an estoppel on the landlord) but not the converse (the landlord not bound by an estoppel on the tenant).
112The First Defendant submitted that he was not a privy of the Company for any purpose. Nor was he the controlling mind of the Company. The submission was based on the ASIC search of the Company as at 14 November 2011. That search showed that the First Defendant was appointed a Director of the Company of 26 September 2006 and ceased to be a director on 15 March 2010. It showed that Hector Ekes was appointed a Director on 18 August 2007 and remained in that position. The search showed that only two shares were issued. One Class A share was held by the First Defendant although it was said not to have been held beneficially. The other share was held by Mr Bechara and was held beneficially.
113However, what was asserted in the present case in the proposed Cross-Claim is relevantly this:
1. At all material times:
a. 888 Projects Pty Limited (ACN 121 369 793) C'888 Projects") was:
i. a company duly incorporated and able to sue and be sued in its corporate name and style;
ii. a sole purpose vehicle originally incorporated with a 50% shareholding by the cross claimant ("Mr Ekes") and a 50% shareholding by Mr Christian Beccara ("Mr Beccara"), to carry on the business of a development at the property contained within folio identifiers 1/499738 and 1/179874 also known as 4-6 Walton Crescent, Abbotsford ("the Property");
b. 888 Projects was a customer of the cross defendant ("the Bank"); and
c. over the period 26 September 2006 to 15 March 2010, Mr Ekes was a director and secretary of 888 Projects.
...
3. Prior to October 2006, Mr Ekes, through 888 Projects, proposed to purchase, maintain and refurbish an existing building on the Property and construct 8 new villa style homes and 5 terrace style homes ("the Development").
4. Around October 2006, Mr Ekes, through 888 Projects, commenced seeking finance to assist with funding the purchase of the Property and undertaking the Development.
...
7. Mr Ekes, through 888 Projects, commenced negotiations with the Director with respect to the possibility of the Bank providing funding to 888 Projects to undertake the Development.
...
14. On 5 August 2007, Mr Beccara died.
...
17. In or about late August 2007, Mr Ekes purchased the shares of 888 Projects from Mr Beccara's estate ("the Estate Purchase") for the sum of $1,400,000.
114Since I am considering an application for leave to file the cross-claim it is necessary to accept the allegations in the cross-claim at their highest to determine if the causes of action pleaded therein should be allowed to go forward.
115Whilst on the face of the search the First Defendant does not appear to have been the controlling mind of the Company, in that there was another equal shareholder and another director at the time the Federal Court proceedings commenced, the proposed Cross-Claim and what it pleads cannot be ignored. What was sought to be put forward by the First Defendant in the Cross-Claim shows that he was the controlling mind of the Company and was acting through the Company in the project (paragraphs, 1, 3, 4, 7, 15 and 17 tend to show that). His oral evidence was that he controlled the company from the time he purchased Mr Bechara's share.
116The First Defendant relied on what Conti J said in Australian Associated Motor Insurers Limited v NRMA Insurance Limited [2002] FCA 1061; (2002) 124 FCR 518 at [74]:
Barwick CJ observed in Ramsay at 279 that "[t]he basic requirement of a privy in interest is that the privy must claim under or through the person of whom he is said to be a privy", being a requirement found not to have been satisfied in Ramsay. An insurer and the entity insured per se is on the other hand perhaps the most common example of a privy, and may be further contrasted with the principle that a surety is not a privy of either the principal creditor or the principal debtor (Lloyds Bank Plc v Independent Insurance Co Ltd [1999] 2 WLR 986), where the respective interests involved do not sufficiently coincide.
117The assertion that Lloyd's Bank Plc v Independent Insurance Co Ltd [1999] 2 WLR 986 is authority for the proposition that a surety is not the privy of the principal debtor appears also in an article by Stewart Maiden, Recent steps in the evolution of res judicata, cause of action estoppel and the Anshun doctrine in Australia (2004) 25 Australian Bar Review 130 at 148. I have carefully read that case and with all due respect to both Conti J and Mr Maiden I can see nothing in the case which justifies the conclusion that each has reached.
118In the present case, however, the claims (except the claim relating to the Murray mortgage) which the First Defendant seeks to bring and upon which he seeks to defend the Bank's claim are matters which pertain to the Company. He is, in effect, seeking that defences and cross-claims available to the Company should be available to him to defend the Bank's claim and to bring the cross-claim he seeks to bring.
119As a guarantor he is, generally speaking, entitled to defend the claim in reliance on any defence and claims available to the principal debtor, the Company. In that way, the First Defendant is claiming through the Company and the Company is the person of whom he is said to be the privy. Indeed, the First Defendant asserted in his written submissions that he is entitled to rely on any defence which would establish that the amounts demanded under the guarantee were not properly owing by the Company.
120As far as his defence is concerned, any defence based on a further variation of the agreement is a defence only available to the First Defendant if it is a defence available to the Company. By reason of the Federal Court judgment that defence is no longer available to the company. The First Defendant's liability for the claim must be determined without regard to that defence.
121To the extent that the First Defendant is entitled to bring any claims against the Plaintiff, he cannot, nevertheless claim what is called reflective loss. This was explained in Chen at [34] to [47] relying in particular on Prudential and Johnson v Gore Wood & Co. It is the loss that is "merely a reflection of the loss suffered by the company": Prudential at 223.
122The First Defendant submitted that the loss he claims cannot be regarded as reflective loss. He submitted that the loss identified in paragraph 72(a) of the proposed Cross-Claim [any liability to the Bank under the guarantee the subject of these proceedings] is claimed because it is a necessary element of the s 52 claim. However, to the extent that damages are claimed equivalent to the amount of any liability the First Defendant has as guarantor that claim falls to be considered with regard to the matter of issue estoppel.
123The result is, therefore, that this claim is not available to the First Defendant. The matter has been determined by the judgment in the Federal Court proceedings.
124The second head of damage in paragraph (b) [loss of $832,600 (being the total of payouts referred to at paragraphs 28, 30-31, 36, 39-45, 47-49 and 51) [those payments referred to in paragraph [33] above] is submitted by the Plaintiff to be reflective loss relying on Chen at [48] and [52].
125The First Defendant pointed to what was said by McDougall J in David Ballard v Multiplex Limited [2008] NSWSC 1019. In that case the first particular of loss and damage by the Plaintiff in relation to losses sustained by his Company Stoneglow Pty Ltd was this:
(i) Stoneglow was deprived of funds, and so was unable to make payments that the plaintiff had guaranteed and/or for which he was liable as a director of Stoneglow, with the result that the plaintiff became liable to, and did, make those payments, and lost the use of the money that he thereby paid.
Particulars
The plaintiff made payments to the Westpac Banking Corporation and the Australian Taxation Office that in total amounted to about $115,000.
126In relation to those payments McDougall J said:
[42] I do not think that the Prudential principle, as explained in the cases to which I have referred, would deny recovery of the payments in question. From the particulars to the particulars, it would appear that Mr Ballard claims to have paid amounts owed by Stoneglow to its bank or to the Australian Taxation Office. Stoneglow did not suffer any loss by not making those payments. Presumably, it was legally obliged to pay them, and would have paid them but for its lack of funds. Mr Ballard paid them, pursuant to legal obligations which for present purposes must be assumed to have bound him, because Stoneglow, being incapable of paying them, did not. If Mr Ballard recovers judgment for the payments, there will be no question of the defendants' being exposed to double liability. Nor will there be any question of Stoneglow's assets being depleted by Mr Ballard's recovery. (In each case, I leave aside the not insignificant practical consideration that Stoneglow has been wound up and dissolved.)
[43] This head of claim seems to me to fall within the exception recognised by Lord Millett in Johnson at 67, and recognised - at least as a possibility - by McPherson JA in Thomas (see, respectively, at [35] and [40] above).
[44] I conclude that this aspect of Mr Ballard's claim for damages is not barred by what I have called the Prudential principle.
127In Chen Beazley JA said:
[48] His Honour identified the losses suffered by Karandonis as
being: (i) the loss of salary in China; (ii) the loss of salary as managing director in Australia; (iii) the loss of the benefit of a promised 20% interest in Total Win, who had a 60% interest in SKS; and (iv) the loss of his 20% interest in KSA and the $73,500 lent to KSA to fund the acquisition of the Karandonis Shoes business. His Honour also observed that "by reason of the [appellants'] actions [Karandonis] has [lost] the right to trademark his goods under his own name", although, correctly, he does not appear to have included that matter in the catalogue of claimed losses. (emphasis added)
128Her Honour then dealt with category (iv) as follows:
[52] That leaves the third and fourth claims. His Honour found
that Karandonis was led by the appellants to believe that as part of his package in the Chinese joint venture he would hold a 20% interest in Total Win. The effect of his Honour's finding was that there was an agreement to this effect with the appellants. This is not challenged on appeal. Sometime after 9 January 1996, a decision was made not to allocate any such interest to Karandonis. This loss, therefore, falls into the same category as the loss of the salary whilst in China and is recoverable from the appellants.
[53] The loss of the 20% interest in KSA, however, is not. It was
a loss of Karandonis' investment in the company. The loss was caused by the depletion of the assets of that company due to the appellants' breach of their fiduciary duty to the company. The recovery of such a loss is directly denied by the principles stated in Prudential Assurance v Newman. The loan of $73,500, being the second amount referred to in (iv), is also not recoverable. They were monies lent to KSA and are only recoverable from it. On the principles in Prudential Assurance v Newman it is irrelevant that KSA's inability to repay was caused by the appellants' conduct. Accordingly, the principles in Gould v Vaggelas, to the extent they might otherwise have applied, are of no assistance: see Actionable Misrepresentation, Bower, Turner and Handley at para 223.
129It is difficult to see how the payments made by the First Defendant can be distinguished from loans to the Company which were held in Chen at [53] not to be recoverable. At the time the payments were made the guarantee that the First Defendant had given to the Plaintiff had not been called upon. The First Defendant was under no obligation to make the payments and it is difficult to see how they can be characterised otherwise than as loans to enable the Company to pay various debts.
130Further, in the particulars of loss in the Federal Court Statement of Claim (paragraph 21(d) - see paragraph [65] above) a claim is made in respect of the payments of interest after May 2009 which were alleged to have been paid by the Company. In his Further Amended Defence the First Defendant alleges the Company made the interest payments for July 2009 (paragraph 11), for September (paragraph 17), for October (paragraph 19) and November (paragraph 21).
131This allegation of payment by the Company is generally supported by the First Defendant's affidavit of 21 December 2011 in these present proceedings, although his use of "we" in relation to the payments in a number of places suggests an identification of himself with the Company. However, in the proposed Cross-Claim the First Defendant said that he paid the interest payments for July (paragraph 30), August (paragraph 31), September (paragraph 40), October (paragraph 47) and November (paragraph 51).
132Those contrasting or inconsistent allegations suggest strongly, and I infer, that the interest payments were loaned by the First Defendant to the Company. At the time they were paid the First Defendant was under no obligation to pay them because no demand had been made under the Guarantee. The position is indistinguishable from the position in Chen.
133The third head of damage in paragraph (c) [consequential liability pursuant to the Murray Mortgage: $2,700,000] is, as I have said, difficult to understand. The purchase of Mr Bechara's share and the Murray mortgage took place almost two years prior to the representations which are alleged to have caused this loss. Even if liabilities under that mortgage extended beyond the date the representations were allegedly made by the Plaintiff the First Defendant's liability under that mortgage was incurred before those representations. This matter was not ventilated in any detail at the hearing of the Motions and I cannot reach a view about this causation issue at this time. However, the loss, if established, could not be a reflective loss.
134For the reasons I have given, the losses claimed in paragraph 72 (a) and (b), are reflective losses only with the result that the First Defendant cannot be given leave to bring them. The claim based on the Murray mortgage does not involve reflective loss. It was not a claim the company could have brought.
135All of the defences pleaded arise from the allegation that the Plaintiff extended the repayment date, which means the Further Amended Defence should be struck out and leave should not be given to file the Second Further Amended Defence. As far as the proposed Cross-Claim is concerned, apart from the claim based on the Murray mortgage the only other claim is for relief under the Contracts Review Act. Reliance on the CRA amounts to a defence or partial defence to the claim even if framed as a cross-claim for relief under that Act. If leave is given for the filing of the proposed Cross-Claim it would be inappropriate to order summary judgment for the Plaintiff although no other defence is shown.
136The First Defendant submitted that, as it is agreed (subject to discretionary matters involving delay) that the First Defendant is entitled to make his own CRA claim in respect of the guarantee, the matter will have to go to trial. It was submitted that that was a discretionary consideration against the grant of a summary disposal in relation to the other claims and defences raised.
137Where claims or defences are discrete there can be no basis for allowing untenable claims or defences going to trial simply because others are arguable. Summary judgment can be obtained for part of a claim: Costain Australia Limited v State Superannuation Board (Supreme Court of NSW - Brownie J, 22 February 1991, unreported). Those claims and defences which I have determined should not go to trial do not depend on a resolution of any factual issue which the arguable claims could supplement, (cf Wickstead v Browne (1992) 30 NSWLR 1) or, indeed on any factual issue at all.