Five D Pty Ltd v Impact Building Pty Ltd

A short history of the relevant proceedings 2. The background to this application is not in contest. On 14 October 2005, Impact filed a statement of claim against a Mr Kirk May, a director of Five D, alleging that the parties had had an agreement pursuant to which Impact carried out certain building works at the Mayfield Plaza in Newcastle but had not been paid a sum of nearly $15,000 to it claims entitlement. Mr May filed a defence and the matter came before Her Honour Magistrate Carmel Forbes on 28 August 2006. Her Honour entered a verdict and judgment for the plaintiff Impact in the sum of $14,968.29, together with the usual orders as to interest and costs.

Impact's statement of claim had asserted an oral agreement made by Daniel Vujic (for Impact) and Mr May in November 2003. It alleged that there was an implied term of the agreement that the plaintiff would issue invoices and that Mr May would pay them in timely fashion and that the final invoice had remained unpaid.

In response to a request for particulars, the works that were the subject of the contract were identified as the demolition of the interiors of two shops; the stripping out of the shops; the construction of a dividing wall between the shops; the construction of a switchboard cupboard, a grease trap and a new loading dock; and the repairs of some water leaks.

In his defence, Mr May denied that there had been a verbal agreement, denied that the plaintiff had carried out works pursuant to it, denied the implied terms concerning invoices, and denied that, in breach of the agreement, he had refused to pay the final invoice. He did not admit being served with the relevant invoice. He filed no cross-claim and did not join any other party. Nor did the defence raise any allegation of failure of performance by the plaintiff or claim a set-off.

The statement of claim filed by Five D against Impact alleges that "in or about 2003" Five D and Impact had entered a contract pursuant to which Impact agreed to provide construction management services at Mayfield Plaza.

Five D then alleges that, in breach of the agreement, Impact carried out works in a negligent fashion and refused to rectify the defects. It claims damages in the sum of $10,165.83.

In the trial at the Newcastle Local Court, statements from Mr Vujic and Mr May were tendered. It is clear from them that, after Impact had done some work at Mayfield Plaza, there had been a lengthy correspondence between Impact and Mr May concerning allegations of defective workmanship. The allegations made in that correspondence appear to be those made in the statement of claim. Some evidence in relation to the claims of defective workmanship was before Her Honour Magistrate Forbes in the statement of Mr Vujic but the two paragraphs in Mr May's statement relating to defective workmanship were not read by him.

Mr May was legally represented at the trial. His advocate asked no questions of Mr Vujic concerning the issue of defective workmanship. The parties do not appear to have joined issue in relation to that question. The correspondence concerning workmanship annexed to Mr Vujic's evidence was, however, relevant to the identification of the contracting parties and was used for that purpose.

It appears from Magistrate Forbes's reasons for her decision that, when the matter was litigated before her, the only substantive issue between the parties was whether Mr May was one of the contracting parties. Mr May's defence, among other things, consisted in his claim to have been a representative or agent of another party when the agreement was formed, namely, a company of which he was a director, May Company.

Her Honour found that the contract had been formed between Impact and Mr May personally, not with his company. In the relevant parts of her judgment, she noted that the plaintiff bore the onus of proving "that the contracting parties were the parties as named in the statement of claim", which had nominated Mr May as the defendant. She then discussed the evidence, expressed her view that Mr Vujic had given honest evidence, found that the documentary evidence corroborated him and reached a conclusion that the contracting parties were Impact and the named defendant, Mr May. Transcript of proceedings in the Newcastle Local Court on 28 August 2006 at pp 36-40.

I note that the question whether Mr May had been an agent for an undisclosed principal does not appear to have been raised or argued and was not discussed by Her Honour. Is Five D abusing the court's process? 13. The applicant asserts, and the respondent denies, that Five D is seeking to re-litigate issues already determined by Her Honour Magistrate Forbes. In particular, Impact says that Five D seeks by its statement of claim to traverse the finding of Her Honour that the contract in question was between Impact and Mr May rather than between the two parties now before the court.

14. In support of its argument that the statement of claim ought be struck out as an abuse of process, Impact relies on the decision of the Court of Appeal in Rippon v Chilcoton Pty Ltd (2001) 53 NSWLR 198. In that case, purchasers of a business sued the vendors. After a trial and appeal, it was concluded that the purchasers had not relied on the accuracy of certain financial statements provided to them by the vendors. Their action under s.52 of the Trade Practices Act therefore failed (although they were successful on their contractual claim.) They then sought to take action against the accountants who had prepared the financial statements. The Court of Appeal held that the fresh proceedings were an attempt to litigate or re-litigate issues decided or barred by the earlier proceedings and were therefore an abuse of process.

15. Handley JA held (at 202) that the accountants could have been joined in the earlier proceedings because "there would have been common issues of reliance, falsity and damage" in relation to the financial statements. He went on to say (at 203): In those circumstances it could fairly have been said, in the language of the joint judgment in Anshun (at 602), that the claims against the accountants were so relevant to the subject matter of the first action that it was unreasonable for the purchasers not to rely upon them in that action. Compare Morris v Wentworth-Stanley [1999] QB 1004 (CA), 1011, 1017. Counsel for the appellant did not contend for an Anshun estoppel, but the fact that the present claim could, and perhaps should, have been included in the Supreme Court proceedings, emphasises the close connection between the two proceedings and is relevant in considering whether the present action is an abuse of process.
16. In the course of his judgment, Handley JA also referred with approval to the House of Lords decision of Reichel v McGrath (1889) 14 App Cas 665 in which Lord Halsbury said (at 668): …it would be a scandal to the administration of justice if, the same question having been disposed of by one case, the litigant were to be permitted by changing the form of the proceedings to set up the same case again… There must be an inherent jurisdiction in every Court of Justice to prevent such an abuse of its procedure…
17. In Rippon, the Court of Appeal made the careful distinction between cases in which an issue estoppel or res judicata estoppel arises, that is, cases in which one party seeks to re-litigate a question already decided in another action between the same parties, and cases which, despite the fact that the parties are not the same, would, nevertheless, be an abuse of process for one of them to seek to re-litigate a question previously determined in another action.

18. In Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 (at 411) Hunt CJ at CL cited with approval the following passage from the judgment of AL Smith LJ in Stephenson v Garnett (1898) 1 QB 677 at 680-681: … the Court ought to be slow to strike out a Statement of Claim or Defence, and to dismiss an action as frivolous and vexatious, yet it ought to do so when, as here, it has been shown that the identical question sought to be raised has already been decided by a competent court.
19. In Hunter v Chief Constable of the West Midlands (1982) AC 527 (at 529), another decision of the House of Lords cited by Hunt CJ at CL (at 412 of Haines) with approval, Lord Diplock emphasised that the categories of circumstances in which the court has a duty to prevent abuse of its process are not fixed.

20. Summarising the principles drawn from Reichel and the line of authority that flowed from it Hunt CJ said (at 414): There are obviously limitations to striking out pleadings or causes of action as an abuse of process upon the basis stated in Reichel v Magrath and elaborated in the cases to which I have referred. The issue determined in the earlier case which is sought to be litigated in the later case must be one which the party propounding it in the latter lost in the former. The principle does not work in reverse to enable the party who won the issue in the earlier case to prevent it being litigated in the later proceedings by someone who was not a party in the former. It must be an issue which was necessarily determined in the earlier case, and one of importance to the final result. It must have been properly argued - by which I mean that it is readily apparent from whatever records there are of the earlier case that the tribunal which decided it was an appropriate one to do so, that the parties were appropriate contradictors and that the issue was regarded by them as one of importance in that case. In normal circumstances, the decision disposing of the issue must have been a final one - by which I mean that it is not subject to appeal. (The filing of a notice of appeal may clearly be seen in some circumstances as merely seeking to delay the inevitable.) There may also be circumstances in which, notwithstanding the absence of an appeal, it is clear that the earlier decision has overlooked some binding authority, or that it has caused the unsuccessful party a manifest injustice. As most of the cases have emphasised, all the circumstances of the determination in the earlier case may be considered, and there can be no definitive statement of the circumstances which will inevitably lead to a finding of abuse of process.
21. A collateral estoppel is an estoppel barring the re-litigation by a party, on a different cause of action, of issues previously litigated and determined. That is, it may be used by a defendant against a plaintiff regarding issues that were previously litigated against another defendant by that plaintiff or used by a plaintiff to prevent re-litigation by a defendant who lost against another plaintiff on the same issue. While this concept is well-known to American law, it is not known to, or accepted as part of, Australian law. Hence the distinction made in Rippon between cases in which an estoppel arises and those in which one does not but in which, nevertheless, there may be an abuse of process. Five D, without referring to collateral estoppel in terms, appears to me to contend that this is the foundation for Impact's argument.

Impact submits that the claim now brought by Five D is an abuse of process because it directly traverses the finding made by Magistrate Forbes that the parties to the contract in question were Mr May, not Five D or any other company in which he had an interest, and Impact.

Five D submits that this matter is distinguishable from the Rippon line of cases because there are different parties involved in this matter and the subject matter of the claim is different. It is, therefore, not a re-litigation of the issues previously determined and, in any event, the parties are different. Five D submits that it was not a privy for Mr May and therefore is not bound by the previous findings of the court.

Five D submits that the decision of the Supreme Court in Clegg v Abel (1898) 14 WN (NSW) 131 supports its contention that its claim is not an abuse of process. In that case an information was first laid against a company for an offence under the Factories and Shops Act 1896. The information was dismissed by a stipendiary magistrate. An information alleging the same offence was then laid against a director of the company who argued that the matter was res judicata. It was held by Cohen J that the matter was not res judicata. He said (at 132) that "there may be only one offence but all persons who take part in the offence are liable for the part they have taken." He found that the director had never previously been in jeopardy in respect of the first information and that therefore the information could be laid against him.

In my view, however, Clegg v Abel is not apposite to the issue here. In that case, while there was only one offence alleged, there were (it seems) two alleged offenders. The proceedings against the company were dismissed for reasons which are unclear, leaving Mr Abel. In this case, however, Impact formed its contract with one party only, not two entities. Magistrate Forbes found that it was with Mr May, not his company. Once that was determined, the company could not be held liable on the contract. Had Magistrate Forbes found that the contract had not been formed with Mr May, Impact could then have pursued its remedy against the company.

True it is that the subject matter in respect of this claim is different from that raised in the Impact v May case. It has the characteristics of what would have been a cross-claim or a defence of set-off had it been pleaded in the previous proceedings. That much is clear from the correspondence in which Mr May wrote to Impact complaining about defective work.

It is obvious from a comparison of the correspondence and the particulars of the claim that there was one contract formed between Impact and another party to do work at Mayfield Plaza. The defects in Impact's work alleged in the present statement of claim match those complained of by Mr May in the evidence that was prepared for the hearing at Newcastle Local Court. It is evident that the contract which was the subject of the litigation in the Newcastle matter and the contract which is the subject of Five D's claim is one and the same.

In Rippon, Handley JA stressed that, although an Anshun estoppel was not sought, "in the language of the joint judgment in Anshun Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. (at 602), that the claims against the accountants were so relevant to the subject matter of the first action that it was unreasonable for the purchasers not to rely upon them in that action." In my view, the subject matter of the dispute between Five D and Impact was so closely related with the Impact's claim against Mr May - being the reverse side of the coin as it were - that it was probably unreasonable for Mr May not to join Five D as a third party and to raise there and then the whole issue of defective work. On that basis alone, it might be considered reasonable to strike out Five D's claim as an abuse of process. In my view, however, it would not be appropriate to do so without more. But there is more.

To succeed in its claim, Five D would have to prove, among other things, that the contract it alleges was breached was formed between itself and Impact. That would necessarily bring into question the finding of Magistrate Forbes. Although there are other questions arising in this claim not ventilated in the previous litigation, this is the foundational issue: who were the parties to the contract? However Five D tries to dress this claim up, it cannot skirt that basal question.

29. In State Bank of NSW Ltd v Stenhouse Ltd (1997) Aust Tort Rep 81-423, another case involving abuse of process in seeking to re-litigate an issue, Giles CJCommD said (at 64,089): 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 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; … (f) the extent of the oppression and unfairness to the other party if the issue was 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. 30. Considering those factors, we find that the question of the identity of the contracting parties was, in the previous litigation, and is now in the current proceedings, of paramount importance. Mr May was a director of Five D, the owner of the Mayfield Plaza. Through his agency, Five D could readily have been joined in the previous litigation. The issue of the identity of the contracting parties is identical in both proceedings but the question of defective workmanship was not pursued in the Newcastle matter for reasons that are obscure. It seems likely that evidence that was available to Mr May concerning the alleged defects would most likely be utilised by Five D in pursuing its claim. Whether there would be additional fresh evidence is unclear. Impact has obtained a judgment against Mr May but has, so far, not received the fruits of its victory. For Impact to be forced into a further round of litigation relating to the same contract dealt with previously may well be oppressive. On the other hand, if Impact's work was defective and Five D suffered loss as a result, Five D would suffer the further indignity of being shut out of court without a remedy if the motion is granted.

Finally, however, it is apparent that Mr May did not appeal against the findings of Magistrate Forbes. That was the proper way to contest her decision. Now to allow a company he directs to traverse the court's decision would be to breach the principle of the finality of judicial determination and to undermine public confidence in the administration of justice. This is not an assertion that courts always reach the correct conclusions. That is not what the principle of the finality of judicial decisions is all about: it is about the rights of litigants, subject always to the appeal process, to regard judicial decisions as settling their rights conclusively. Impact is entitled, as a result of Magistrate Forbes's decision and Mr May's decision not to appeal against it, to rely on her determination.

It is also important to consider the principles analysed or distilled by Hunt CJ at CL in Haines (see [20] above). First, is the issue determined in the earlier case now to be re-litigated by the party who lost the point in that case? Here the point is not raised by Mr May but by another party, Five D. Hunt CJ at CL commented that "The principle does not work in reverse to enable the party who won the issue in the earlier case to prevent it being litigated in the later proceedings by someone who was not a party in the former." On the face of it, the point, so far as it goes, favours Five D.

Second, the issue was one which "was necessarily determined in the earlier case, and one of importance to the final result." This point favours Impact.

Third, the point must have been "properly argued". There is nothing to suggest that it was not in the Newcastle Local Court: quite the contrary. This point also favours Impact.

Fourth, the decision was a final determination. It is not now subject to an appeal. Mr May did not appeal and the time for an appeal has elapsed. This is a key pillar of Impact's argument in favour of the motion.

Finally, Hunt CJ at CL stated, "As most of the cases have emphasised, all the circumstances of the determination in the earlier case may be considered, and there can be no definitive statement of the circumstances which will inevitably lead to a finding of abuse of process." When all the circumstances are considered, they favour Impact's application for the reasons I have outlined above but principally because to allow the claim to be maintained would be to create the potential for inconsistent judgments and thus to undermine the integrity of the original proceedings and the court's process generally, an intolerable prospect. Conclusion 37. In my opinion, Five D's claim is an abuse of process and its statement of claim ought, therefore, be struck out pursuant to Rule 14.28(1)(c). Accordingly, the motion is granted. Costs will follow the event. Hugh Dillon Magistrate

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