Leveraged Equities Limited v Gregory John Huxley; Leveraged Equities Limited v Jason Wilkinson; Leveraged Equities Limited v Prudence Anne Wilkinson

Supreme Court of NSW|2010-10-05

Background 7 In August 2007, Leveraged Equities commenced arbitration proceedings in accordance with clause 78 of the written Agreement in relation to the repayment of these loans. 8 The arbitrations concerning Mr Huxley and the Wilkinsons were consolidated and heard at the same time. On 4 August 2008, Mr Alan Limbury heard the arbitration. I shall refer to these proceedings in more detail later in this judgment. A determination was made in favour of Leveraged Equities. Huxley and the Wilkinsons have failed to pay in accordance with the awards. 9 In proceedings 4032/2008 and 5497/2008 Leveraged Equities commenced proceedings in the Supreme Court to enforce the awards pursuant to s 33 of the Commercial Arbitration Act 1984. At first instance, Nicholas J in Dadd & Ors v Leveraged Equity Pty; Leveraged Equity Pty Ltd v Huxley & Anor (Supreme Court of New South Wales, 21 September 2009, unreported) declined to make the orders sought by Leveraged Equities. His Honour decided that the arbitrations that had been conducted were not final and binding. 10 Following that decision, Leveraged Equities commenced these proceedings, which concern exactly the same subject matter (the written agreement) as the dispute that was the subject of the arbitration. 11 In 281448/2008, Leveraged Equities also appealed the orders made by Nicholas J. On 19 July 2010, the Court of Appeal (per Allsop ACJ, Macfarlan JA and Handley AJA) allowed the appeal and made orders pursuant to s 33 of the Commercial Arbitration Act 1984 (Leveraged Equities Pty Ltd v Huxley [2010] NSWCA 179). The Court of Appeal held that the decision of the arbitrator was final and binding. The Court of Appeal also granted leave to Leveraged Equities to enforce the awards and entered the following judgments: Judgment in favour of the appellant against Gregory John Huxley in the amount of $1,026,144.78 plus interest from 19 July 2010. Judgment in favour of the appellant against Prudence Anne Wilkinson in the amount of $1,052,096.16 plus interest from 19 July 2010. Judgment in favour of the appellant against Jason Wilkinson in the amount of $1,053,211.03 plus interest from 19 July 2010. 12 On 7 April 2010, Huxley and the Wilkinsons filed their defences in these proceedings. On 6 September 2010 (after the decision of the Court of Appeal was handed down), Huxley and the Wilkinsons filed their the cross claims in these proceedings. As Leveraged Equities had already obtained the relief sought in the statements of claim from the Court of Appeal, it discontinued its statements of claim.

13 Huxley and the Wilkinsons' solicitor opposed the striking out of the cross claims. He submitted that, in essence, as Huxley and the Wilkinsons had not appeared at the arbitration hearing, nor had they raised the variation to the agreement issue before the arbitrator, they have never had the opportunity to argue this issue on its merits. This is their only opportunity to do so.

The arbitration proceedings 14 To determine whether or not Huxley and the Wilkinsons have had an opportunity to raise the alleged oral variation to the agreement, it is necessary to refer to the history of the proceedings before the arbitrator. At times Huxley and the Wilkinsons were legally represented but chose not to comply with directions made by the arbitrator. They were represented when they sought to delay the arbitration hearing. They filed equity proceedings three days prior to the date upon which the arbitration hearing was to begin. 15 On 30 January 2008, a preliminary conference was held before the arbitrator. Huxley and the Wilkinsons were represented by a solicitor Mr Foley. Leveraged Equities was directed to serve its evidence, documents and outline of submissions by 3 March 2008. On 11 March 2008, Leveraged Equities complied with those directions. 16 On 11 March 2008, another directions hearing was held. Huxley and the Wilkinsons were again represented by Mr Foley. The arbitrator directed that the evidence of witnesses be by way of signed witness statements, to be verified on oath or affirmation in the event that cross examination be required. The arbitrator also made directions for Huxley and the Wilkinsons serve any cross claims, evidence, documents and submissions by 6 May 2008. Leverage Equities was to respond to those documents on or before 10 June 2008. The date for hearing of the arbitration was allocated, namely 4 August 2008. A copy of these directions was also forwarded to Mr Foley. 17 At the last directions hearing held on 19 June 2008, there was no appearance of Huxley and the Wilkinsons or their solicitor Mr Foley. On 30 June 2008, by email, Mr Foley advised the arbitrator that neither he nor his firm continued to act "and for some time past now have not acted". 18 On 14 July 2008, Mr Warners, a solicitor who did not hold a current practising certificate, sought leave to appear and made an application to have the hearing date of the arbitration adjourned. While leave was granted for Mr Warners to appear the arbitrator declined to vacate the hearing date, on the basis that there was no evidence in support of the application. The arbitrator gave Huxley and the Wilkinsons a further opportunity to file affidavits and cross claims. They chose not to avail themselves of that further opportunity. 19 On 4 August 2008, the arbitration hearing took place. There was no appearance for Huxley and the Wilkinsons. However, Mr Foley did appear representing Huxley and the Wilkinsons for one purpose only. That purpose was to seek a stay on the arbitration hearing pending determination by the equity division of this court of an application (filed on 1 August 2008). The arbitrator rejected that application and the arbitration hearing took place. 20 Nevertheless, by letter dated 7 August 2008, (after the hearing had concluded) Mr Foley requested the arbitrator's consent to that application being determined by the court. Not surprisingly, by letter dated 8 August 2008, the arbitrator declined to give his consent. The law 21 The cross-claim would be an answer to Leveraged Equities' claim in the arbitration. As previously stated, it had not been raised as a cross claim by Huxley and the Wilkinsons in any earlier proceedings including the arbitration. It was on 25 August 2010 some months after the arbitration had been finalised that variation of the agreement issue was first ventilated in these cross claims in these proceedings. 22 Counsel for Leveraged Equities submitted that the matters raised in these proceedings falls squarely within the estoppel described in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45, (1981) 147 CLR 589 (see especially Gibbs CJ, Mason and Aickin JJ at 602 and 604) where it was stated: "The judgment which the Authority seeks to obtain in the present action is one which would contradict the judgment which has been entered in the Soterales action. … It is this inconsistency between the judgment obtained in the first action and the judgment sought to be obtained now that is of importance. The distinction between res judicata (in England called "cause of action estoppel") and issue estoppel was expressed by Dixon J in Blair v Curran (1939) 62 CLR 464 at 532, in these terms: "In the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order." The rule as to res judicata comes into operation whenever a party attempts in a second proceeding to litigate a cause of action which has merged into judgment in a prior proceeding. …

…we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim and its subject matter it would be expected that the defendant would raise the defence thereby enable the relevant issues to be determined in the one proceeding. …" 23 Their Honours continued: "The Authority did not adduce evidence at the trial to show why it failed to raise the indemnity issue in the first action. Apart from considerations such as the ability to overcome any prejudice to Anshun by orders for costs and the fact that O'Bryan J refused to strike out the action summarily - matters mainly associated with the conduct of this action - the Authority's case is that the principle in Henderson v Henderson (1843) 3 Hare 100 [67 ER 313] does not apply. There is, however, one other factor which should be mentioned. It is that the defence of an indemnity required to be specially pleaded at common law. It was not covered by a general or particular traverse. Consequently the failure to plead it would not have founded an estoppel under the old law in its strictest formulation. But the evolutionary development of that rule evidence by the decision in Humphries v Humphries (1910) 2 KB 531 may well have resulted in releases and indemnities being equated to traversable allegations for the purposes of estoppel. In any event the fact that the defence required to be specially pleaded at common law is not now a material consideration. It does not derogate from the conclusion that it was unreasonable for the Authority to refrain from raising its case of indemnity for disposition in the first action." 24 There has been no evidence adduced at this hearing to explain why Huxley and the Wilkinsons did not raise the variation of the agreement issue at the arbitration. 25 At [58] of the arbitral award the arbitrator found that Leveraged Equities was entitled, under the terms of the written agreement, to demand payment from the claimants. As previously stated, the arbitral award was final and binding and the awards have been entered as judgments of this Court. 26 Counsel for Leveraged Equities submitted that the finding in [58] of the arbitral award was 'legally indispensable to the conclusion' reached by the arbitrator. In Blair & Perpetual Trustee v Curran (1939) 62 CLR 464 at 532 Dixon J stated, "Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established." 27 In Port Melbourne Authority v Anshun the High Court explained: "The distinction between res judicata (in England called 'cause of action estoppel') and issue estoppel was expressed by Dixon J in Blair v Curran [(1939) 62 CLR 464, at 532] in these terms: 'in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.' The distinction was restated by Fullagar J in his dissenting judgment in Jackson v Goldsmith (1950) 81 CLR 446, at 466. His Honour expressed the rule as to res judicata by saying: 'where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action. This rule is not, to my mind, correctly classified under the heading of estoppel at all. It is a broad rule of public policy based on the principles expressed in the maxims " interest reipublicae ut sit finis litium " and " nemo debet bis vexari pro eadem causa ".' His Honour went on to discuss issue estoppel, citing the comment of Dixon J in Blair v Curran: '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.'" 28 According to counsel for Leveraged Equities, following Blair v Curran, if the cross-claimants' cross claims were successful, that would be 'necessarily to assert that the [arbitrator's] decision was erroneous'. 29 Huxley and the Wilkinsons' allege in their cross claims that there was a variation to the written agreement. The agreement, provided that Leveraged Equities would not demand repayment of the loan, which it had provided for a term of 12 months. The cross claims are based on a cause of action said to arise out of an alleged breach of that term. The purported oral variation to the agreement was, in my view, so closely connected with that claim that it was unreasonable not to raise it in the earlier proceedings. In my view the Wilkinsons are estopped from raising this issue in these current proceedings. 30 It does not matter that the claims that underpin this litigation were determined by way of arbitration. This is consistent with the policy that there should be finality in litigation. Arbitral awards can give rise to estoppels: see Onerati v Phillips Construction Pty Ltd (1989) 16 NSWLR 730, 739 per Giles J; and more recently Nicholls v Michael Wilson & Partners Limited [2010] NSWCA 222 at [103] and [399]. 31 Counsel for Leveraged also submitted that the considerations outlined by Handley JA (with whom Mason P and Heydon JA agreed) in Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198, 204 at [32] may be of some assistance in determining whether to strike out the cross claims. These considerations are set out in State Bank of New South Wales Limited v Stenhouse Ltd (1997) Aust Torts Reports 81-423 (64,077) at 64,089 where Giles CJ Comm D (as he then was) said: "…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 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 is relitigated and the impact of the relitigation upon 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." 32 These considerations as approved by the Court of Appeal in Rippon v Chilcotin at [33], "turn on a precise identification of the issues". 33 Most of those considerations have already been dealt with above. Further considerations relate to evidence. The cross-claimants have not provided any evidence relating to the issue in their cross-claims (despite many chances to do so, both during the arbitration process and in this Court), nor have they provided any evidence as to why that issue (or evidence relating to it) was not raised at the arbitration (again, despite numerous chances to do so). So far as unfairness is concerned, Leveraged Equities has already been put to the cost of the arbitration proceedings, two Supreme Court proceedings and one appeal. It would be unfair to allow Huxley and the Wilkinsons to relitigate the same subject matter again. 34 Counsel for Leveraged Equities also referred to Finance & Equity v Leveraged Equities [2007] NSWSC 886 at [26] where Hammerschlag J. In that case Hammerschlag J referred to an oral conversation between Mr Huxley and Mr Mackellar. His Honour then considered the argument which Huxley and the Wilkinsons sought to raise to be 'illusory'. 35 At [22] to [25] Hammerschlag J stated: "22 The affidavit material establishes that before the Loan was entered into, Mr Huxley had conversations with a Mr MacKellar, a stock broker with Bell Potter Securities Ltd whose knowledge I shall assume for the purposes of this judgment is to be attributed to the defendant. He also had a conversation with Mr Shane Butler, the Business Development Manager employed by the defendant.

23 The conversations with Mr MacKellar were to the following effect: 'Mr Huxley: I understand that you have an interesting leveraged facility available to enable trading in stocks and options. Mr MacKellar: Yes I do.

Mr Huxley: I understand the concept of leveraging very well from my experience in the property industry. I understand that this product effectively funds 100% of the purchase price for stocks and interest is charged at bank rates.

Mr MacKellar: The funder is Leveraged Equities. They fund a purchase of stock or bought put options which is secured against the value of that stock or bought put options. There are certain stocks that are approved by Leveraged Equities. Here is a brochure for Leveraged Equities. You should call Shane Butler who is the business development manager for Leveraged Equities.' 24 The conversation with Mr Butler was to the following effect: 'Mr Huxley: I have been referred to you by Brendan MacKellar from Bell Potter Securities. I understand that Leveraged Equities has a facility that will finance purchase of stocks and bought and sold put options and I've given the application forms to Mr MacKellar to forward to you.

Mr Butler: Yes I have them. Someone will call you when it is approved and you can start then.

25 In my view, taken at its highest, nothing in the promotional material, strategy paper or conversations is capable of giving rise to an arguable case that the defendant communicated anything to suggest that it would not rely upon the terms of the Loan according to its tenor." 36 According to Leveraged Equities, while the decision of Hammerschlag J is not binding in these proceedings, and even if evidence had been put on as to the oral variation to the agreement, it would be unlikely to succeed. To my mind, the conversation referred to above between Mr Huxley and Mr Mackellar seems to have taken place prior to the parties entering into a written agreement. Therefore, I do not consider it to be of any assistance here. 37 As previously stated, the issue of whether there was a variation to the agreement was so relevant to the subject matter in the arbitration proceedings that it was unreasonable for Huxley and the Wilkinsons not to rely upon it in those proceedings. They had ample opportunity to raise this issue at the arbitration proceedings. They had legal representation. They were given directions to put on evidence but chose not to do so. Rather than rely on this variation to the agreement they chose not to participate in the arbitration, other than to have it delayed. The decision of the arbitrator is binding and final. Judgments have been entered against them in relation to those written agreements. In my view, the matters raised in the cross claims constitute an abuse of process. Further, even on their own pleaded version of events, the time for repayment passed some years ago and the moneys under the written agreements had become due and owing. For these reasons the cross claims should be dismissed. 38 Costs are discretionary. Costs usually follow the event. The defendants/cross claimants are to pay the plaintiff/cross defendant's costs of the motions as agreed or assessed.

(2) The defendants/cross claimants are to pay the plaintiff/cross defendant's costs of the motions filed 14 September 2010.

(3) In each matter the defence is struck out. **********

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.

CITATION : Leveraged Equities Limited v Gregory John Huxley; Leveraged Equities Limited v Jason Wilkinson; Leveraged Equities Limited v Prudence Anne Wilkinson [2010] NSWSC 1149

Blair & Perpetual Trustee v Curran (1939) 62 CLR 464 Dadd & Ors v Leveraged Equity Pty; Leveraged Equity Pty Ltd v Huxley & Anor (Supreme Court of NSW South Wales, 21 September 2009, unreported) Finance & Equity v Leveraged Equities [2007] NSWSC 886 Henderson v Henderson (1843) 3 Hare 100; 67 ER 313 Humphries v Humphries (1910) 2 KB 531 CASES CITED : Jackson v Goldsmith (1950) 81 CLR 446 Leveraged Equities Pty Ltd v Huxley [2010] NSWCA 179 Nicholls v Michael Wilson & Partners Limited [2010] NSWCA 222 Onerati v Phillips Construction Pty Ltd (1989) 16 NSWLR 730 Port Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198 State Bank of New South Wales Limited v Stenhouse Ltd (1997) Aust Torts Reports 81-423

At a glance

Court

Decision date

Source

Judgment (12 paragraphs)

Cases Cited (10)