Lewis v Nortex Pty Ltd

S D Rares SC & J T Johnson (P & Respondent) COUNSEL : S J Motbey (Applicant) P A Somerset, Solicitor (Liquidator) Kemp Strang (P & Respondent) SOLICITORS : Lyons & Lyons (Applicant) Abbott Tout (Liquidator) CATCHWORDS : PROCEDURE [89] - Supreme Court procedure - Practice under Supreme Court Rules - Parties - Joinder and addition of parties - Persons parties to proceedings but not joined as defendants to claims for fraud involving them - Constitution of proceedings so as to make them defendants to fraud claim - Summary disposal - Application to strike out portions of claim on basis defences of res judicata and issue estoppel must succeed - Principles applicable. LEGISLATION CITED : Supreme Court Act 1970 s 63 Supreme Court Rules 1970 Part 1 r 3, Part 8 CASES CITED : General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 DECISION : Parties involved in the proceedings but not defendants to claims for fraud involving them to be made defendants to fraud claims; portions of claim subject to defences of res judicata and issue estoppel not struck out.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3081/97 PETER LAWRENCE LEWIS v NORTEX PTY LTD (In Liq) JUDGMENT 1 HIS HONOUR: What is before me for consideration in this judgment is a notice of motion filed by Kation Pty Limited ("Kation") seeking in various ways to limit the issues in the trial of these proceedings that is to commence before me on 10 April 2002. The motion asks for the striking out of various items in the Scott Schedule, which is the document that I have directed as the primary mode of defining the issues in these somewhat complex proceedings. 2 Mr Rares, of Senior Counsel for Kation, has, with his usual succinctness, divided the issues that arise under the motion into three categories and that has proved a useful basis for debate. Put shortly, those bases for strike out are (1) that the items do not arise in the statutory application under the Corporations Act 2001 (Cth) ("the CA") that is the underlying form of these proceedings; (2) that in respect of some of the issues they were determined by the judgment Young CJ in Eq on 22 June 2001 on separate questions for decision in this case, so that those matters are now res judicata or are issue estopped; (3) that as to certain allegations of fraud those allegations are made in a way that is improper or inadequate and that it is not appropriate that they be made in proceedings constituted in the present way, rather than in separate proceedings joining not only the liquidator to represent the company (as is the case in the statutory application) but the persons who are actually alleged to have perpetrated the fraud or dishonest conduct involved. These at the moment appear to be Mr Lewis or Mr Lewis junior. They are in various ways parties to these complex proceedings, but not clearly at the moment defendants to a claim of this nature. 3 As to the first of those matters, the debate before me has been diffuse and I have formed the view that the parties do not at the moment have the real issues sought to be taken by this part of the motion defined between them. A number of items which Mr Rares set out to attack for Kation were conceded by Mr Motbey, of counsel for Lamru Pty Ltd ("Lamru"), not in fact to be the subject matter of claim. Before the Court determines this matter, the parties must go away and work out between them precisely what is in contest under this heading. It seems to me that a number of the items will probably be regulated by agreement if there is sensible and cooperative discussion among counsel, solicitors and the parties. If after that there remains any real issue under this aspect of the motion, it may, of course, be brought back before me for determination by the Court. However, I have been able to come to views as to the two other bases for the strike out application agitated by Mr Rares. 4 As to the allegation that items should be struck out by reason of being precluded by the doctrine of res judicata or issue estoppel, these defences are usually determined at the trial on evidence in the usual way. The only basis on which it is appropriate for them to be determined in a strike out application such as the present is that in effect the defendant is entitled to summary judgment on the test in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 on the basis that the defences raised are unarguably correct. There has already been in the proceedings the determination by Young CJ in Eq of five separate questions in the judgment I have referred to above. Without going into it in great detail, Mr Rares' argument appeared to be that the whole question of what was the "free net income" in various years was finally determined as between the parties by his Honour in that judgment. It is true that the parties chose to frame question 5 in wide terms and that his Honour answered the question, No. But it seems to me that an examination of the relevant portion of his Honour's judgment indicates that only one matter was determined by his Honour in that judgment for the purpose of answering the question and that that matter was solely whether or not determinations made under clause 4(1) of the trust deed but, on their face and on the evidence made after the end of the relevant accounting period, could operate to remove certain sums from the free net income and cause them to be directed to different destinations under the deed otherwise than in accordance with the general formula for the distribution of the free net income left at the end of the accounting period. 5 It seems to me on the face of it that that is all that his Honour has determined. However, I do not have to come to a final conclusion even about that and at this stage it is important I do not. All I have to determine is that the test in General Steel has not been met, that it is not plain the items referred to are precluded from being claimed by virtue of the doctrine of res judicata or the doctrine of issue estoppel, so that the questions of whether or not those doctrines operate in anybody's favour may be argued at the trial. There certainly should be no strike out on that basis. The Kation motion as far as it makes a claim in that regard will be dismissed. 6 However, I think there is more substance in the claim made by Mr Rares on Kation's behalf in relation to the allegations of fraud. Mr Motbey has argued against this, and the arguments he has put are not without cogency. He says that issues may be raised in proceedings to be determined between particular parties and that the moving party may choose those issues. Here, in the statutory application, his client has chosen to raise the issue as between it and the liquidator, in effect, as to whether the liquidator ought have pursued fraud claims against particular individuals, which the liquidator has determined that he ought not to do. Once that is raised the Court is able to, and indeed obliged to, determine the issue as raised by the moving party. He further says that the Court is not entitled to attach to its determination of or willingness to determine those issues a requirement that other issues be raised and determined at the same time. 7 However, I am against Mr Motbey on those submissions. There are two bases on which I reject them. The first is the requirement of the Supreme Court Act 1970 ("the SCA") s 63: "The Court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided." 8 Mr Lewis senior and Mr Lewis junior are already in some ways party to the litigation in which these questions arises. The litigation is not, however, at present constituted in a way appropriate for those particular issues to be determined between them. To carry out the purpose of s 63 I propose to make such orders as are necessary to ensure that the proceedings are constituted to permit those issues to be determined finally between all relevant parties and concluded by judgment binding upon everyone when judgment is given in the proceedings. 9 There is an even more traditional basis for adopting the course which I propose. Dilatory pleas were never available in courts of equity, so that a plea in abatement could not be raised as a defence to proceedings, as it could at law, to compel the parties to desist from proceedings until all appropriate parties had been joined. But all equity courts always had power to require all parties whose rights were affected to be joined before it would determine questions in controversy between some parties. Without going into all the detail of it, those rules are now embodied in their various different varieties in Part 8 of the Supreme Court Rules 1970 ("the SCR"). The power under the SCR to require joinder of necessary parties, and their joinder in a fashion appropriate to the issues to be determined, provides another avenue available for me to take the course which I think appropriate and propose to take. Those things having been said, I again leave the parties to devise by way of the filing of a statement of claim against the parties deemed appropriate, or cross claim, or in some other way for the fraud claims to be formulated so that judgment upon them will bind all necessary parties, including those parties alleged to be guilty of the fraud. 10 In respect of the first issue, I have reminded counsel, no doubt unnecessarily, of the provisions of Part 1 r 3 of the SCR. It is important to mention it in this case because the proceedings are particularly embattled. I have no doubt counsel will explain to the parties that they are required by the Court, little as they may like each other, to engage cooperatively in the processes necessary for these proceedings to be determined as economically and expeditiously as is possible. I do not doubt that the legal practitioners, both barristers and solicitors, will engage with each other in attempting to sort those matters out. 11 There will be liberty to restore the matter on 12 hours' notice. The sooner these matters can be formulated the better, so that the fixture may be maintained for 10 April 2002. I bear in mind that it may be necessary to consider possible separate representation for Mr Peter Lewis junior, although hopefully this may be avoided. I have indicated to the parties that if some separate representation for Mr Peter Lewis is deemed necessary, I shall cooperate in any way possible to minimise the degree of that participation so as to minimise costs. 12 The costs of the motion are reserved.

Last Modified: 03/11/2002 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.