20 In proceedings 1750 of 2002, Nortex Pty Limited (in liquidation), through its liquidator, seeks leave to bring a Second Cross Claim against Mr Peter Lewis. Nortex is the Fourth Defendant in those proceedings. The proposed Second Cross Claim seeks to recover from Mr Lewis an amount being the value of stock said to have been misappropriated by Mr Lewis from the assets of a trust of which Nortex was trustee.
21 In a prior judgment in these proceedings, Hamilton J has found that Mr Lewis did in fact misappropriate the subject stock. That finding was in the context of a claim brought by a beneficiary of the trust, Lamru, against Mr Lewis personally. The liquidator of Nortex was a party to the proceedings on other issues, but was not a party to this particular claim by Lamru against Mr Lewis. The circumstances in which the liquidator did not join as a party on this claim have been explained in affidavit evidence tendered by the liquidator in this application.
22 The liquidator says that he came into the matter as a third party having no independent knowledge of what transpired between Mr Lewis, Mr Lamb, their interests and the trust's assets back in the 1990s when the relevant events occurred. He says that it became apparent to him from his investigations that assets of the trust were missing. He inquired from Mr Lewis as to whether Mr Lewis had misappropriated those assets.
23 Mr Lewis strongly denied having misappropriated those assets and said that if any assets of the trust were missing, then it was Mr Lamb who had taken them.
24 The liquidator, having no independent means of ascertaining the truth, felt that he could not verify a pleading alleging fraudulent misappropriation against Mr Lewis. He remained in that position, so he says, despite the fact that Mr Lamb and his interests had prosecuted such a claim in these proceedings, and it was not until the judgments of Hamilton J that the true facts as to Mr Lewis's misappropriation were found.
25 The liquidator now seeks leave to cross claim in these proceedings against Mr Lewis for an order that Mr Lewis restore to the trust fund the whole of the value of the stock misappropriated.
26 Mr Lewis opposes this application on a number of grounds to which I will come shortly.
27 The liquidator says that the Court has jurisdiction to grant leave to issue a Cross Claim even at this stage of proceedings pursuant to the Uniform Civil Procedure Rules, Rule 9.1(1). That rule provides that:
"A party … may make a cross claim within the time limited for the party to file a defence or within such further time as the court may allow."
28 It will be seen from the last words of the rule that the court has a wide discretion to exercise - a discretion that must be exercised having regard to the particular facts of each case and also with a view to promoting the quick, just and efficient resolution of all matters in dispute between the parties.
29 Proceedings 1750 of 2002 have been conducted in a number of stages by direction of Hamilton J in order that the issues to be resolved may be resolved in some orderly fashion. That is why the issue raised by Lamru as to misappropriation of stock by Nortex has resulted in factual findings by his Honour and certain relief has been ordered while the proceedings still remain on foot.
30 As the proceedings have not been finally disposed of for all purposes, in my opinion the Court still has jurisdiction to grant leave to file a Cross Claim under UCPR 9.1 if it considers it in the interests of justice to do so and in the interests of promoting quick, just and efficient resolution of all issues between the parties.
31 A primary objection taken by Mr Cotman is that by seeking leave to file a Cross Claim the liquidator of Nortex is trying to sidestep an issue which would arise if a claim were to be made by the liquidator against Mr Lewis in a fresh proceeding. That issue is a bar which may be raised by the Limitation Act 1969 (NSW) since the relevant wrongdoing is said to have occurred more than six years ago. Mr Cotman says that the liquidator ought not to be allowed to use a Cross Claim to avoid having to satisfy the requirements which he would otherwise have to satisfy were he to commence fresh proceedings against Mr Lewis.
32 Mr Gray of Counsel, in his submissions for the liquidator, brings to the fore the very issue that Mr Cotman raises, rather than seeking to evade it. He says that the Court would, in the exercise of its discretion whether to grant leave to file the Cross Claim, consider the impact of that leave in the context of a Limitation Act defence. Mr Gray frankly concedes that the Court would have to be satisfied that there was a solid ground for a reply by the liquidator that the Limitation Act defence would not be available because Mr Lewis' fraud was concealed from the liquidator until well after the time bar expired.
33 In support of this submission, Mr Gray relies upon affidavit evidence filed on behalf of the liquidator to the effect that, after he was appointed, he confronted Mr Lewis with an accusation that Mr Lewis had misappropriated the stock, only to be met with vehement denials. Indeed, so the liquidator says, Mr Lewis went further and repeatedly asserted that if any of the stock of the trust was missing, then it was Mr Lamb who had taken it. The liquidator, in this evidence, asserts that this was the position maintained by Mr Lewis up until the commencement of the trial in April 2002.
34 Mr Cotman opposed the tendering of such evidence from the liquidator; however, when I asked Mr Cotman whether, on his instructions, Mr Lewis would put on an affidavit asserting that he had admitted to the liquidator taking the stock, Mr Cotman told me that no such affidavit would be put on.
35 The facts, therefore, are that at all times before and during the trial and up to judgment, Mr Lewis' strongly stated position was that he was not guilty of misappropriating the subject stock. He did not choose to give evidence in the trial in his own behalf. Mr Cotman says that when that position became known, the liquidator should have realised that the allegations of fraud against Mr Lewis were well founded and he should have then chosen to bring forward a claim on behalf of the trust against Mr Lewis for restoration to the trust fund. Mr Cotman says that, having chosen not to bring forward such a claim at a time when Mr Lewis indicated that he would not give evidence, the liquidator is bound by the consequences of his act, has elected not to prosecute such a claim, is irrevocably bound by such an election, and has now missed his chance absolutely of prosecuting such a claim.
36 I am unable to accept these submissions, for the following reasons.
37 I am of the view that, in the exercise of the discretion afforded by UCPR 9.1(1), the Court, in the particular circumstances of this case, should take account of those considerations which would be relevant if this were an application by the liquidator for leave to bring a new proceeding outside the limitation period. In my view, the evidence adduced by the liquidator establishes that, at all times up to the commencement of the trial in April 2002, the liquidator was justified in concluding that, in the face of Mr Lewis' repeated denials of wrongdoing, he had insufficient evidence to warrant verifying a pleading of fraud against Mr Lewis.
38 I am satisfied that, in the sense required by the Limitation Act, the fraud of Mr Lewis, which has been found to have been committed by Hamilton J, was concealed by Mr Lewis from the liquidator, certainly up to the commencement of the trial in April 2002.
39 As to the conduct of the trial after that date, I am by no means satisfied that the position was materially altered by the indication from Mr Lewis through his Counsel that he would not give evidence. That, indeed, is a separate point from the question whether or not there was a concealed fraud, and I will come to it in a moment.
40 It is sufficient for the purposes of the limitations point to find that, up until April 2002, the fraud of Mr Lewis was concealed by him from the liquidator so that, in my opinion, a trial Court could find that the limitation period did not commence to run against the liquidator at least until April 2002.
41 There is a solid argument to the effect that for such time as Mr Lewis, through his Counsel, continued to deny any fraud - that is, all throughout the conduct of the proceedings - Mr Lewis was also endeavouring to conceal his fraud from the liquidator but, as I have said, I do not think that that is a decisive consideration for present purposes.
42 I come now to Mr Cotman's point that the liquidator has, in effect, elected against pursuing the claim which he now seeks to bring by the conduct of the proceedings up to date. I do not think that this submission is made out.
43 What has happened is that Lamru, as a beneficiary of the trust, brought a claim for restoration of the trust fund as a whole, not having prima facie on its pleading the status to do so. Hamilton J pointed out in his judgment - see [2005] NSWSC 482 - that Lamru could have pleaded that it was bringing the claim for the benefit of the trust fund in the circumstance where the trustee failed or refused to bring such a claim in its own name. Because Lamru had not pleaded or conducted its case in that way, his Honour was of the view that the relief sought by Lamru for the benefit of the whole of the trust fund ought not to be granted. This was in the context of a submission made by the liquidator of Nortex in support of the relief sought by Lamru for the benefit of the trust fund. However, it is clear, I think, from his Honour's judgment at paragraphs 12 to 17 that when he said that it was too late for such a claim for relief to be advanced his Honour was referring to the claim which could properly have been made by Lamru as beneficiary and not to a claim which might have been made by Nortex as trustee.
44 I do not think that anything in the judgment of his Honour in [2005] NSWSC 482 was intended by his Honour to preclude the liquidator himself from bringing the claim based on the finding of fraud as against Mr Lewis. It would, of course, be a matter for the liquidator to justify to a Court why such leave should now be given. His Honour did not embark upon that exercise; that is the exercise upon which I am now engaged. Suffice it to say that I do not think that his Honour's judgment is intended to preclude the liquidator from seeking leave to bring the Cross Claim against Mr Lewis as he now endeavours to do.
45 I do not accept Mr Cotman's submission that the liquidator has somehow made an irrevocable election during the course of the trial before Hamilton J not to pursue this claim. In order to found an assertion of irrevocable election Mr Lewis would have to satisfy the Court that the liquidator was in possession of all facts necessary to found the claim which he could have brought, and that the liquidator elected against making that claim with knowledge of those facts. All that Mr Cotman has pointed to is the fact that during the course of the proceedings Mr Lewis made it known through his Counsel that he would not give evidence.
46 There was no concession by Mr Lewis at any time before judgment that he had in fact been guilty of misappropriation; his case was conducted on the basis that he was not guilty of that accusation. The liquidator was, therefore, justified in thinking that he was on no surer ground in verifying an allegation of fraud against Mr Lewis during the course of the hearing than he was when he was first contemplating that cause of action before the trial commenced.
47 It seems to me that this application ought to be judged in the light of the following considerations. It has been found as a fact by Hamilton J that Mr Lewis fraudulently misappropriated assets of the trust. That fact must be accepted by me as the truth, there having been no reversal of his Honour's findings in that regard by the Court of Appeal. The liquidator now seeks recovery from Mr Lewis of the value of the assets misappropriated for the benefit of the trust as a whole. That is an action which the liquidator, as liquidator of the trustee of the trust, would be entitled to bring: there is no suggestion otherwise from Mr Cotman.
48 I do not think that the liquidator's earlier abstention from bringing forward a claim against Mr Lewis for the benefit of the trust as a whole precludes him from bringing such a claim now that the truth has been revealed and Mr Lewis' earlier denials of wrongdoing have been found to be false.
49 Mr Cotman suggested that the liquidator for the purpose of establishing the facts in the Second Cross Claim could not rely on the factual findings of Hamilton J as to Mr Lewis's misappropriation because there could be no issue estoppel or res judicata on those findings as between the liquidator and Mr Lewis. That was because the liquidator and Mr Lewis were not parties to that particular claim in the proceedings.
50 However, there is a solid argument, at the very least, that in support of the Second Cross Claim the liquidator could rely upon the well established principle that a party cannot, in one proceeding, challenge findings on exactly the same issue made by a Court in prior proceedings. The principle has been expressed in cases such as Hunter v Chief Constable of the West Midland Police [1982] AC 529; Stephenson v Garnett [1898] 1 QB 677 at 680; and Reichel v Magrath (1889) 14 App Cas 665 at 668.
51 True it is that the liquidator was not a party with Mr Lewis in the claim based upon misappropriation of stock. However, there was a finding of fact made by his Honour in relation to that claim. Mr Lewis was a party in the proceedings to which the liquidator also was a party in respect of other claims. It could well be argued, in my opinion, that in those circumstances it would be unfair and unjust to permit Mr Lewis to deny and put in issue in the Second Cross Claim the factual findings made by his Honour as to misappropriation.
52 I have had regard to the other detailed submissions made by Mr Cotman in opposition to leave being granted. I do not think that I need to deal with them in any detail. The points which I have discussed are those which, in my opinion, are determinative of this application. For those reasons, the liquidator will be granted leave to bring the Second Cross Claim in the form proposed in the liquidator's Notice of Motion.
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