Court of Appeal (Qld)|2008-09-12|Before: Muir JA, Mackenzie AJA and Douglas JSeparate, reasons for judgment of each member of the Court, each concurring as to the, order made
in the event that a shareholder “commits an act of bankruptcy, becomes
Source
Original judgment source is linked above.
Catchwords
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND –JURISDICTION AND GENERALLY – GENERALLY – where adeed provided thatin the event that a shareholder “commits an act of bankruptcy, becomesbankrupt, or unable to pay its debts”,the first respondent was given theright to acquire the first and second defendants’ shares in the thirddefendant –where the first respondent commenced proceedings on the basisthat those circumstances had arisen – where the first and seconddefendants argued that it was in fact they who had the right to acquire thefirst respondent’s shares as the first respondentfailed to notify them ofthe appointment of a director, Mr Thompson to the first respondent– where the appellant wasadded as fourth defendant upon the firstdefendant’s bankruptcy – where a guillotine order on 3 April 2007struck outthe appellant’s defence and gave judgment for the firstrespondent on the counter-claim – where there were persistent
failures by
the appellant to make proper disclosure as required by the guillotine order
– whether the appellant’s amended
defence and counter-claim amounted
to an abuse of process – whether the primary judge’s findings in
relation to abuse
of process extended to the issue of the appointment of Mr
Thompson as director of the first respondent
ESTOPPEL – FORMER ADJUDICATION AND MATTERS OF RECORD OR QUASI OF
RECORD – FORMER ADJUDICATION – JUDGMENT INTER PARTES
– RES
JUDICATA – where the first respondent submitted in the alternative to the
abuse of process argument, that the doctrine
of res judicata prevented
the appellant from pursuing its counter-claim – where the guillotine order
struck out paragraphs of the appellant’s
defence and counter-claim and
gave judgment to the first respondent on the counter-claim – where a
default judgment may give
rise to res judicata – whether in the
circumstances, the judgment for the first respondent on the counter-claim gave
rise to res judicata
Uniform Civil Procedure Rules 1999 (Qld), r 72, r 225
Arrow Nominees Inc v Blackledge [2000] EWCA Civ 200
[2000] All ER (D) 854,
consideredBaines v State Bank of NSW (1985) 2 NSWLR 729,
distinguishedBatistatos v RTA (NSW) (2006) 226 CLR 256
[2006]
HCA 27, citedBirkett v James [1978] AC 297,
citedCarl Zeiss Stiftung v Rayner & Keeler Ltd (No 2)
[1967] 1 AC 853, consideredChamberlain v Deputy Commissioner
of Taxation (1988) 164 CLR 502
[1988] HCA 21, citedEffem
Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (in liq) [1993] FCA 342
(1993) 43 FCR
510, citedFavell v Queensland Newspapers Pty Ltd (2005) 79
ALJR 1716
[2005] HCA 52, citedJackson v Goldsmith (1950) 81
CLR 446
[1950] HCA 22, citedKGK Constructions Pty Ltd v East
Coast Earthmoving Pty Ltd [1985] 2 Qd R 13, citedKok Hoong v
Leong Cheong Kweng Mines Ltd [1964] AC 993, consideredLinprint
consideredLogicrose Ltd v Southend United Football Club
sub nom
Unreported, Chancery Division, 5 February 1988,
consideredMorlea Professional Services Pty Ltd v Richard Walter
Pty Ltd (in liq) (1999) 96 FCR 217
[1999] FCA 1820, citedNew
Brunswick Railway Company v British and French Trust Corporation
Ltd [1939] AC 1, citedPort of Melbourne Authority v Anshun Pty
Ltd (1981) 147 CLR 589
[1981] HCA 45, consideredRe Riddell
Ex parte Earl of Strathmore (1888) 20 QBD 342, citedRogers v
Legal Services Commission (1995) 64 SASR 572,
distinguishedRogers v The Queen (1994) 181 CLR 251
[1994] HCA
42, citedSamuels v Linzi Dresses Ltd [1981] 1 QB 115,
distinguished
Tak Ming Co Ltd v Yee Sang Metal Supplies Co (1973) 1 WLR 300,
citedThirteenth Corp Pty Ltd v State (2006) 232 ALR 491
[2006] FCA 979, distinguishedTrawl Industries of Australia Pty Ltd
(in liq) v Effem Foods Pty Ltd [1992] FCA 272
(1992) 36 FCR 406, citedVoth v
Manildra Flour Mills Pty Ltd (1990) 171 CLR 538
[1990] HCA 55,
consideredWalton v Gardiner (1993) 177 CLR 378
[1993] HCA 77,
considered
Judgment (137 paragraphs)
[1]
The application under r 72 was made because sequestration orders had been made against Spencer and Perovich.
[2]
**[13] The appellant applied to be substituted for Spencer as a party and for variation of the 3 April order. The latter application was abandoned. It was agreed by all parties that the appellant should be added as a defendant, that it should file its defence and counter-claim in the form in which it had been delivered and that Mango should proceed with an application to have those pleadings struck-out and for summary judgment on the appellant's counter-claim. The parties had exchanged written submissions before the hearing. In its written submissions, Mango made it plain that it would be seeking to retain the benefit of the 3 April and 4 October 2007 orders and that it would be relying on res judicata and abuse of process.
[3]
[14] Spencer held his shares in Kinsella in his capacity as trustee of the Spencer Family Trust. The deed acknowledged that the shares were so held. It is the role of a trustee to sue and be sued in respect of the property held in trust by him. The trustee represents all beneficiaries who, except in particular circumstances, are not proper parties to such proceedings.[1] The appellant, being Spencer's successor as trustee, was joined in the proceedings as trustee of the Trust. That being so, the appellant, succeeding to Spencer's rights and obligations as trustee, took subject to any estoppels or claims against Spencer by other parties to the proceedings.[2] Counsel for Mango submit and I accept that to the extent that such rights were determined, limited or extinguished while in Spencer's hands, the appellant cannot place itself in a better position, as against Mango, than Spencer.
[4]
The ground that the primary judge erred in finding that the appellant's amended defence and counter-claim filed by leave on 3 March 2008 was an abuse of process
[5]
[15] The following argument was advanced on behalf of the appellant:**
[6]
"... The foundation of any abuse of process was correctly limited by [the primary judge] to unfairness to [Mango] and that the prosecution of the action would reflect badly on the administration of justice. (Reasons at [62])
[7]
... However, the unfairness and the adverse reflection upon the administration of justice was ... limited to litigation of the insolvency issue as the documents which were not disclosed related solely to that issue.
[8]
... Therefore, any relief by way of a stay ought to have been tailored only to address that unfairness and that aspect which reflected upon the administration of justice.
[9]
... The appellant pleaded that, among other things, the appointment of Russell Thompson as a director of the first respondent disentitled the first respondent from acquiring the shares the subject of the action ... The continued litigation of the Thompson point could not be adversely affected by any failure to comply with the disclosure orders.
[10]
... The primary position is that parties ought to be permitted to litigate their cases on the merits. (The State of Queensland v J L Holdings Pty Ltd[1997] HCA 1; (1996) 189 CLR 146 at 152 - 154)
[11]
...The court's function is to achieve the "just ... resolution of the real issues in the proceedings". (Barker v Linklater & Anor[2007] QCA 363 paragraphs [53] - [55]) The staying of proceedings is a last resort where there are no other available means to overcome the effects of an abuse of process. (Williams v Spautz[1992] HCA 34; (1992) 174 CLR 509 at 518 - 519). A stay of proceedings is only granted in the clearest of cases. (Oceanic Sun Line Special Shipping Company Inc v Fay[1988] HCA 32; (1988) 165 CLR 197 at 247 - 8 and Voth v Manildra Flour Mills Pty Ltd & Anor[1990] HCA 55; (1990) 171 CLR 538 at 555 are both cited with approval in Batistatos v Roads and Traffic Authority of New South Wales[2006] HCA 27; (2006) 226 CLR 256 at 281.)
[12]
... [The primary judge] did not find that the conduct of the appellant (through the second respondent) was "so serious a fair trial was not possible" on the Thompson point (Batistatos v Roads and Traffic Authority of New South Wales[2006] HCA 27; (2006) 226 CLR 256 at 291) and therefore the real issue in the appeal in the matter raised by the notice of contention namely whether res judicata effectively shut the appellant out of an opportunity to run the Thompson point."
[13]
The findings in the reasons relevant to the issue of abuse of process
[14]
**[16] It is appropriate at this stage to refer to the primary judge's explanation of why prosecution by the appellant of its defence and counter-claim, having regard to its failure to give disclosure, would constitute an abuse of process.
[15]
[17] In paragraph [49] of his reasons the primary judge stated:**
[16]
"I am satisfied that to allow Mio Art's action to proceed would amount to unacceptable unfairness to the plaintiff such as to amount to oppression and, as well, to question the integrity of the administration of justice."
[17]
[18] His Honour then went on to explain the significance of disclosure and the extent of the appellants' failure to meet their obligations in that regard.
[18]
"[50] I reach that conclusion because of the fundamental importance to the litigation of the disclosure of documents relevant to the defendants' insolvency at or about the time the plaintiff delivered its notices of default in February 2006. This was the key to the plaintiff's claims against the defendants. Initially the defendants denied insolvency: now they (or Mio Art) confesses insolvency but seeks to avoid its consequences. In both cases the extent to which the defendants had incurred debts and their capacity of pay those debts was a critical question. It is a question which must of necessity have produced an abundance of documentary evidence.
[19]
[51] The tale of the defendants' failure to comply with their obligations to make disclosure is set out in the affidavit of Melinda Smith filed 28 February 2008. I give only the briefest of summaries.
[20]
[52] On 2 June 2006 the defendants were ordered to make disclosure by 14 July 2006. On 6 July the date was extended to 28 July 2006. They did not serve a list until 15 September 2006. The list was inadequate and details of the inadequacy were identified by Ms Smith in her affidavits of 9 October 2006, 21 November 2006, 13 February 2007, 19 February 2007, 21 March 2007, 2 April 2007, 30 April 2007, 30 May 2007, 14 June 2007 and 15 June 2007. On 12 occasions between 1 August 2006 and 5 February 2007 the plaintiff's solicitors complained to the defendants' solicitors about their inadequate disclosure. The inadequacy was the subject of three separate orders; 21 November 2006, 20 March 2007 and 3 April 2007. In her affidavit of 29 May 2007 Ms Smith identified in detail the respects in which the defendants had not complied with the order of the Chief Justice of 3 April 2007.
[21]
[53] The defendants did make further disclosure but this, too, was inadequate as was pointed out by Ms Smith in her affidavits of 13 and 14 June 2007."
[22]
[19] The primary judge proceeded to discuss the reasons for judgment of Wilson J of 4 October 2007 in which her Honour described the defendant's "purported compliance" with the order of the Chief Justice as "quite inadequate". The primary judge then said:**
[23]
"[61] What is significant in this case is that the guillotine order was made because of the recognition that without proper disclosure there could not be a fair trial of the action. Despite the passage of a further year the defendants have not remedied their failure and have not provided any basis for thinking they will ever do so. The action which Mio Art wishes to prosecute cannot be tried fairly and the issue, critical to the outcome, of insolvency cannot be resolved satisfactorily because of the lack of documentation. In the circumstances the prosecution of the action would be an abuse of process.
[24]
[62] The two aspects relevant to abuse of process are present. There is an element of vexation, oppression and unfairness to Mango Boulevard in Mio Art's prosecution of its defence and counter-claim in circumstances where the defendants had adamantly refused to produce documents relevant to their case and where their assertions cannot be effectively scrutinised without their documents. To allow the action to proceed in those circumstances would reflect badly on the administration of justice. The guillotine order was thought to be necessary to protect Mango Boulevard against unfairness. Judgment was entered to achieve that end. If Mio Art's action proceeds that protection will be set at nought and the Court's judgment seen to be worthless and its powers of protection negligible.
[25]
[63] Ordinarily an abuse of process is rectified by an order staying further prosecution of the abusive proceeding. The plaintiff makes specific objections to the new pleading. It submits that upon examination the amended defence and counter-claim do not disclose a reasonable defence or cause of action. It seeks, pursuant to UCPR 171, an order striking the pleading out and a consequential order for judgment. For reasons which will appear I accept that the pleading is deficient and should be struck out. A consequence of striking out the pleading will be that there is no proceeding to stay." (emphasis added)
[26]
[20] It is desirable to reiterate briefly the background against which the primary judge made the orders under appeal. On 3 April 2007 the Chief Justice made a guillotine order which operated on 27 April to strike out the defendants' defence and to give judgment for Mango on the counter-claim.
[27]
[21] On 28 June 2007 the hearing of an application by the appellant to extend time for compliance with the 3 April 2007 order took place before Wilson J. Attempts to remedy the default which had resulted in the 3 April 2007 order were described by Wilson J as "quite inadequate". The reasons advanced by Spencer and Perovich to explain non-compliance were found to be "untenable". Her Honour concluded that there "was no basis for confidence" that Spencer and Perovich would meet their disclosure obligations were the 3 April order to be set aside or varied and that Mango would be prejudiced in the litigation by incomplete disclosure. The primary judge, after referring to these remarks of Wilson J, observed, "nothing has changed". His Honour noted that no affidavit had been filed "indicating a willingness to give such disclosure in the near future or at all".[3] Critically for present purposes, the primary judge found that the central issue of insolvency of Spencer and Perovich could not "be resolved satisfactorily because of the lack of documentation".[4]
[28]
[22] The appellant argues, in effect, that the primary judge failed to take into account the fact that deficiencies in disclosure were not shown to exist in respect of the allegations concerning the appointment of Mr Thompson as a director of Mango. The fact that the deficiencies in disclosure did not relate directly to the Thompson issues is no doubt relevant, but did the primary judge err in not excluding the Thompson allegations from the scope of his orders?
[29]
[23] A party's failure to comply with its obligations under the Uniform Civil Procedure Rules, including those relating to disclosure, may constitute an abuse of process even if the failure directly affects only some of the pleaded issues. An object of the rules is to ensure that all the pleaded issues between the parties to a proceeding are tried fairly. That is also the parties' entitlement. A party cannot be permitted to gain a forensic advantage by wilfully, recklessly or negligently failing to give proper disclosure on an issue of substance. Here, the failure to disclose went to an issue central to the Mango's case and also to one of the defences pleaded by Spencer, Perovich and the appellant.
[30]
[24] Under r 225 where a party fails to "disclose a document" the party entitled to disclosure may apply "for an order dismissing all or part of the proceeding". Whether it is appropriate to dismiss all, none or part of the proceeding calls for the exercise of a judgment by the tribunal, having regard to all relevant facts. In this case, relevant considerations were: the potential significance of the defective disclosure to material issues in the case; the importance of those issues; the persistence of the failures; whether genuine attempts had been made to remedy default in compliance with court orders and disclosure obligations; and whether the appellant demonstrated any willingness and ability to remedy default and minimise prejudice to Mango.
[31]
[25] The principles applicable to the exercise by the court of its power to stay or dismiss proceedings on the basis of abuse of process are explored in the following passage from the reasons of Mason CJ, Deane and Dawson JJ in Walton v Gardiner[5] quoted by the primary judge:[6]**
[32]
"... The inherent jurisdiction of a superior court to stay its proceedings on grounds of abuse of process extends to all those categories of cases in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness. Thus, it has long been established that regardless of the propriety of the purpose of the person responsible for the institution and maintenance, proceedings will constitute an abuse of process if they can be clearly seen to be foredoomed to fail .... Again, proceedings within the jurisdiction of a court will be unjustifiably oppressive and vexatious of an objecting defendant, and will constitute an abuse of process, if that court is, in all the circumstances of the particular case, a clearly inappropriate forum to entertain them. Yet again, proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances did not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings. The jurisdiction ... in such a case was correctly described by Lord Diplock in Hunter v Chief Constable ofthe West Midlands Police ... as 'the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party ... or would otherwise bring the administration of justice into disrepute among right thinking people.' "
[33]
[26] Counsel for Mango relied on the following passage from the reasons of Millett J in Logicrose Ltd v Southend United Football Club,[7] cited with approval by Chadwick LJ in Arrow Nominees Inc v Blackledge:[8]
[34]
"...that the object of the rules as to discovery is to secure the fair trial of the action in accordance with the due process of the court; and that, accordingly, a party is not to be deprived of his right to a proper trial as a penalty for disobedience of those rules - even if such disobedience amounts to contempt for or defiance of the court - if that object is ultimately secured, by (for example) the late production of a document which has been withheld. But where a litigant's conduct puts the fairness of the trial in jeopardy,..., or where it amounts to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice, the court is entitled - indeed, I would hold bound - to refuse to allow that litigant to take further part in the proceedings and (where appropriate) to determine the proceedings against him. The reason, as it seems to me, is that it is no part of the court's function to proceed to trial if to do so would give rise to a substantial risk of injustice. The function of the court is to do justice between the parties; not to allow its process to be used as a means of achieving injustice. A litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial has forfeited his right to take part in a trial. His object is inimical to the process which he purports to invoke.
[35]
Further, in this context, a fair trial is a trial which is conducted without an undue expenditure of time and money; and with a proper regard to the demands of other litigants upon the finite resources of the court. The court does not do justice to the other parties to the proceedings in question if it allows its process to be abused so that the real point in issue becomes subordinated to an investigation into the effect which the admittedly fraudulent conduct of one party in connection with the process of litigation has had on the fairness of the trial itself."
[36]
**[27] There is no allegation of fraudulent conduct on the part of the appellant or Spencer but the discussion in the final paragraph of the passage just quoted is pertinent to the
[37]
matters under consideration. An inordinate amount of time, energy and, no doubt, money has been consumed in the course of Mango's attempts to obtain a fair trial. If the evidence before the primary judge had demonstrated that all reasonable steps had been taken and would continue to be taken by the appellant to meet its disclosure obligations, the outcome of the application may have been different. But even then, it would have been necessary to consider whether Spencer's and the appellant's past conduct had removed or greatly reduced the possibility that due disclosure could be made.
[38]
[28] As counsel for the appellant submitted, the jurisdiction to grant a stay or dismiss the action is to be exercised "with great care" and "extreme caution".[9] The rationale for the exercise of such a power "is the avoidance of injustice between parties in the particular case",[10] the need to prevent the administration of justice being brought into disrepute,[11] and the protection by the court of the integrity of its processes.[12] In considering whether the striking out of the defence and counter-claim would be productive of injustice to the appellant, it was of particular significance that the 3 April 2007 order, which had struck out most of the defence and had given Mango judgment on the appellant's counter-claim, had not been set aside or varied by Wilson J and was the subject of an abandoned application before the primary judge. The primary judge said, in effect, that Mango had the benefit and protection of the orders and was not to be deprived of such benefit and protection without good reason. That conclusion was open to the primary judge on the evidence before him, as was his conclusion in relation to the appellants' conduct that "nothing has changed." And it must be appreciated that before the primary judge the appellant did not abandon the claims pleaded in its defence and counter-claim and, as is the case now, seek to rely only on the Thompson issue. It was not for the primary judge to fashion for the appellant the case which it ought present.
[39]
[29] In these circumstances I am not persuaded that the primary judge erred in concluding as he did.
[40]
Did the abuse of process finding extend to the Thompson issue?
[41]
[30] It was argued on behalf of the appellant that the primary judge's finding in paragraph [43] of the reasons that the appellant's "proceeding is an abuse of process" did not extend to the Thompson issue.
[42]
[31] Counsel for the appellant referred to paragraph [63] of the reasons which state:**
[43]
"Ordinarily an abuse of process is rectified by an order staying further prosecution of the abusive proceeding. The plaintiff makes specific objections to the new pleading. It submits that upon examination the amended defence and counter-claim do not disclose a reasonable defence or cause of action. It seeks, pursuant to UCPR 171, an order striking the pleading out and a consequential order for judgment. For reasons which will appear I accept that the pleading is deficient and should be struck out. A consequence of striking out the pleading will be that there is no proceeding to stay."
[44]
**[32] Counsel for the appellant submitted that there would have been no point in the primary judge's addressing the merits of the pleading and Thompson issues if he had intended his finding of abuse of process to apply to them.
[45]
[33] In explaining why the allegations in the defence relying on Mr Thompson's appointment were not exempted from his order the primary judge said:**
[46]
"[77] The appropriate relief in the circumstances is to order that the defence and counter-claim filed by leave on 3 March 2008 be struck out. There should be no leave to re-plead because the proceedings are an abuse of process. There is no point in exempting the defence from Thompson's (sic) from the order. It is res judicata. Mango Boulevard is entitled to judgment pursuant to UCPR 293 for these reasons and because Mio Art cannot make out its case that it asked for consent to the mortgaging of the shares." (emphasis added)
[47]
[34] The basis for his Honour's conclusion may be seen by reference to paragraph [27] of the reasons in which it is stated:
[48]
"[27] In my opinion both analyses demonstrate that the claim which Mio Art wishes to adumbrate is the same as that which the defendants were prevented from litigating by reason of the guillotine order. The essentials have not changed. Both cases raise for decision:
[49]
Whether Mr Thompson's appointment put the plaintiff in default under the deed.
Whether any such default deprived the plaintiff of the right to issue a notice of default to the defendants in the event that they were themselves in default under the deed.
The extent of the defendants' indebtedness when the plaintiff delivered the notices of default to them.
Whether the plaintiff refused to consent to a mortgage of the defendants' shares -
[50]
Whether the refusal deprived the defendants of the ability to pay their debts."
[51]
[35] Counsel for the appellant did not submit that paragraph [27] was affected by error. It was submitted, however, that the express finding of res judicata in respect of the Thompson issue in the context provided by paragraph [63] demonstrated that the primary judge's finding was that the Thompson issue could not be raised because it was a res judicata and not that the litigation of the Thompson issue would constitute an abuse of process.
[52]
[36] This argument, in my view, pays insufficient heed to the primary judge's express findings. The finding in paragraph [61] that "the prosecution of the action would be an abuse of process" was not limited to part of the defence and counter-claim. Nor were the primary judge's observations in paragraph [62] to the effect that to allow the action to proceed would reflect badly on the administration of justice as the defendants' disclosure had been marked by their adamant refusal to disclose and the 3 April judgment had been pronounced to protect Mango against unfairness.
[53]
[37] In the passage in paragraph [77] of the reasons emphasised above the primary judge again finds, without qualification, that "the proceedings are an abuse of process." The primary judge did not state, expressly or impliedly, that the advancing of the Thompson issue did not constitute an abuse of process. He explained, in effect, that as the doctrine of res judicata applied to the Thompson issue, exempting the allegations relevant to it from the proposed strike-out order in the exercise of a discretion would be pointless. It is apparent from the earlier findings that the primary judge would not have been disposed to treat the Thompson issue any differently from the other issues for the purposes of his abuse of process determination. The primary judge deliberately and reasonably conformed in this regard to the approach taken in the 3 April 2007 orders and the 4 October 2007 orders and reasons.
[54]
[38] Accordingly, I find that this contention has not been made out.**
[55]
The ground that the primary judge erred in finding that the claims wereres judicata
[56]
**[39] In view of the foregoing conclusions it is unnecessary to decide whether and to what extent the doctrine of res judicata operated to prevent the appellant from litigating issues raised in the counter-claim the subject of the 3 April 2007 order. In deference however, to the arguments advanced by counsel I intend to express my views on the question.
[57]
[40] Mango contended before the primary judge that the doctrine of res judicata prevented the appellant from pursuing its counter-claim, as the issues raised in the counter-claim were raised in Spencer's and Perovich's counter-claim and determined by the 3 April order.
[58]
[41] After discussing the authorities at some length, the primary judge concluded:[13]**
[59]
"The question whether, in this case, the judgment gives rise to res judicata is a difficult one. There is no clear statement that I have found which would indicate with precision when a default judgment will give rise to the plea. In my opinion, on balance, the judgment in question does have the effect the plaintiff contends for. It was a judgment, not an order dismissing the counter-claim for want of prosecution or because it disclosed no cause of action, or because the court had no jurisdiction to entertain it, as was the case in Rogers v Legal Services Commission[1995] 64 SASR 572 and R v Middlesex Justices ex parte Bond[1933] 2 KB 1, respectively. The fact that it was a judgment entered in default of pleading which could be set aside does not deprive it of the capacity to give rise to a res judicata. I accept the authority of Linprint on this point. It is true that the res judicata will not extend beyond what the judgment necessarily determined but, as I have indicated, the defendants' counter-claim and Mio Art's claim are one and the same, so that the latter is precluded by the judgment."
[60]
**[42] The primary judge then said that as he had reached his conclusion "with some hesitation" he preferred not to base his judgment on it. However, he did make and act on a finding of res judicata in respect of the Thompson issue.
[61]
[43] Mango was given leave to file a notice of contention in which it sought to uphold the reasons on the basis that the primary judge's orders could have been supported by application of the doctrine of res judicata.
[62]
[44] The appellant's argument is as follows. The self executing order was a procedural judgment based on alleged failures to comply with procedural requirements, not a judgment on the merits.**
[63]
"... There is a long line of authority to the effect that it is only a decision "on the merits" which founds res judicata. (The Sennar (No 2)[1985] 1 WLR 490 at 499 and 494; Pople v Evans[1969] 2 Ch 255; and Birkett v James[1978] AC 297)
[64]
... A dismissal of an action for failure to comply with an order for discovery is not a decision on the merits and does not give rise to res judicata. (Baines v State Bank of New South Wales(1985) 2 NSWLR 729)
[65]
... There are two statements which may suggest that the striking out of a pleading as a result of a guillotine order gives rise to res judicata, that of McPherson J (as his Honour then was) in KGK Constructions Pty Ltd v East Coast Earthmoving Pty Ltd ((1985) 2 Qd R 13 at 16) and that of Kirby P in Linprint Pty Ltd v Hexham Textiles Pty Ltd ((1991) 23 NSWLR 508). However:
[66]
... The statement in KGK Constructions that a defendant "who fails to deliver a defence, or suffers it to be struck out, is taken to have admitted the allegations of fact in the statement of claim" (KGK Constructions Pty Ltd v East Coast Earthmoving[1985] 2 Qd R 13 at 16) is at odds with the rules which provide simply that upon striking out of the pleading the party is in the same position as if he had never defended. No admission is involved and certainly any party seeking to set aside a default order does not have to withdraw an admission.
[67]
... The statement by Kirby P in Linprint Pty Ltd v Hexham Textiles Pty Ltd ((1991) 23 NSWLR 508 at 518) postulates that res judicata arises notwithstanding that the judgment can be set aside. However, as already submitted there is a long line of authority to the contrary; namely that where the judgment may be set aside, and is not a decision on the merits res judicata does not arise."
[68]
**Consideration of the application of the doctrine of res judicata
[69]
[45] The doctrine of res judicata is explained in the discussion of the differences between issue estoppel and res judicata in the following passage from the reasons of Gibbs CJ and Mason and Aickin JJ in Port of Melbourne Authority v Anshun Pty Ltd:[14]**
[70]
"The distinction between res judicata (in England called 'cause of action estoppel') and issue estoppel was expressed by Dixon J in Blair v Curran (37) http://thomsonnxt4/links/Handler.aspx?tag=ffe7bc83208fd46a8640ab29e565e3f0&product=clin 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.'
[71]
The distinction was restated by Fullagar J in his dissenting judgment in Jackson v Goldsmith (38)http://thomsonnxt4/links/Handler.aspx?tag=650e982a12c099c3b5c58efc815e9c07&product=cl. 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 (39): '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.'
[72]
The difference between res judicata (cause of action estoppel) and issue estoppel has been expressed in similar terms in the House of Lords - see Carl Zeiss Stiftung v Rayner & Keeler Ltd (40) ((1967) 1 A.C. 853 at pp 913, 964)"
[73]
[46] Where there is a res judicata "by operation of law the cause of action relied on by the respondent has ceased to exist."[15]
[74]
[47] The reasons of Lord Wilberforce, in Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2)[16] contains the following discussion of the doctrine:
[75]
"A convenient starting point, as regards the English doctrine, is to be found in the judgments of the Court of Appeal in Fidelitas Shipping Co. Ltd. v. V/O Exportchleb. The case was concerned with an interim award made in a commercial dispute embodied in a special case on which the court had given a decision and it was held that an issue raised by the special case so determined was the subject of 'issue estoppel' so that it could not be raised again. Lord Denning M.R. said this:
[76]
'The law, as I understand it, is this: if one party brings an action against another for a particular cause and judgment is given on it, there is a strict rule of law that he cannot bring another action against the same party for the same cause. Transit in rem judicatam; see King v. Hoare. But within one cause of action, there may be several issues raised which are necessary for the determination of the whole case. The rule then is that, once an issue has been raised and distinctly determined between the parties, then, as a general rule, neither party can be allowed to fight that issue all over again. ...'
[77]
He goes on to deal with 'points' within issues, including those which though not actually raised could have been raised, an argument which is not material here, and which I prefer to leave open.
[78]
Similarly in the judgment of Diplock L.J. there is a useful passage which contains these words.
[79]
'The final resolution of a dispute between parties as to their respective legal rights or duties may involve the determination of a number of different 'issues,' that is to say, a number of decisions as to the legal consequences of particular facts, each of which decisions constitutes a necessary step in determining what are the legal rights and duties of the parties resulting from the totality of the facts. ...' "
[80]
[48] Shortly after that passage Lord Wilberforce continued:[17]
[81]
"Mr. Spencer Bower, in his work on Res Judicata states the principle as being 'that the judicial decision was, or involved, a determination of the same question as that sought to be controverted in the litigation in which the estoppel is raised' (Res Judicata, p. 9) - a formulation which invites the inquiry how what is 'involved' in a decision is to be ascertained. One way of answering this is to say that any determination is involved in a decision if it is a 'necessary step' to the decision or a 'matter which it was necessary to decide, and which was actually decided, as the groundwork of the decision' (Reg. v. Inhabitants of Hartington Middle Quarter Township and from this it follows that it is permissible to look not merely at the record of the judgment relied on, but at the reasons for it, the pleadings, the evidence (Brunsden v. Humphrey) and if necessary other material to show what was the issue decided (Flitters v. Allfrey). The fact that the pleadings and the evidence may be referred to, suggests that the task of the court in the subsequent proceeding must include that of satisfying itself that the party against whom the estoppel is set up did actually raise the critical issue, or possibly, though I do not think that this point has yet been decided, that he had a fair opportunity, or that he ought, to have raised it."
[82]
[49] In his discussion of the doctrine of issue estoppel Lord Reid[18] sounded a note of caution:
[83]
"And there may well be a difference between a case where an issue was in fact decided in the earlier case and a case where it was not in fact decided because the earlier judgment went by default or was founded on an assumption. Indeed, I think that some confusion has been introduced by applying to issue estoppel without modification rules which have been evolved to deal with cause of action estoppel, such as the oft-quoted passage from the judgment of Wigram V.-C. in Henderson v. Henderson."
[84]
[50] The following discussion of the principles underlying the doctrine of res judicata is in the reasons of Lord Upjohn:[19]
[85]
"The broader principle of res judicata is founded upon the twin principles so frequently expressed in Latin that there should be an end to litigation and justice demands that the same party shall not be harassed twice for the same cause. It goes beyond the mere record, it is part of the law of evidence for, to see whether it applies, the facts established and reasons given by the judge, his judgment, the pleadings, the evidence and even the history of the matter may be taken into account (see Marginson v. Blackburn Borough Council. Res judicata itself has two branches: (1) cause of action estoppel - that is where the cause of action in the second case has already been determined in the first. To such a case the observations of Wigram V.-C. in Henderson v. Henderson apply in their full rigour. These observations have been so often approved in your Lordships' House that I will not repeat them ... "
[86]
[51] A little before the passage just quoted Lord Upjohn observed:[20]
[87]
"Res judicata may be divided into a number of classes or branches. The most ancient is estoppel by record, strictly so called. It still exists, though is usually overtaken by the broader principles I shall next discuss. A defendant who has failed even to enter anappearance and who has taken no part in the earlier litigation may be estopped by record if his defence in the second action was necessarily and with complete precision decided by the previous judgment (see per Lord Maugham L.C. in New Brunswick Railway Co. v. British & French Trust Corporation Ltd.). How narrow is the estoppel in such a case is shown by the actual decision there. This narrow concept of estoppel has no application to the present case, for the questions are different; the first is as to the authority of the council to initiate proceedings on behalf of the Stiftung in West Germany, and the second as to the authority to initiate proceedings in these courts. Nor is the judgment of the foreign court one of record." (emphasis added)
[88]
[52] A judgment or order dismissing proceedings for want of prosecution, being interlocutory in nature, is not a decision on the merits and does not give rise to a res judicata.[21] Consent judgments or orders, however, may attract the application of the doctrine.[22] Whether such a judgment or order does give rise to a res judicata may depend on considerations such as the capacity of a party to enter into the underlying transaction or to give consent; the power of the Court to make the orders in question and whether the consent amounted to agreement to pay a specified sum without admission of liability.[23]
[89]
**[53] A judgment or order by default may also give rise to a res judicata.[24]
[90]
[54] In Linprint Pty Ltd v Hexham Textiles Pty Ltd[25] the respondent withdrew from a trial in the County Court of Victoria and its counter-claim was dismissed. Later, the respondent sued the appellant in the Supreme Court of New South Wales in which it pleaded a course of action substantially identical to its Victorian counter-claim. It was held that the Victorian order was a final order and, unless set aside or successfully appealed from, grounded a plea of res judicata.
[91]
[55] In the course of his reasons, Kirby P observed, in respect of an argument that the Victorian judgment was one which could be set aside:**
[92]
"It may be understood that if a judgment, on its face, is contingent or provisional, it will not have that element of finality which it is the purpose of the law of res judicata to defend. But whether judgment is on its face final, the mere fact that a party has a privilege to apply to have the judgment set aside cannot convert it to a contingent or provisional judgment forever flawed and incapable of giving rise to res judicata."[26]
[93]
[56] In Kok Hoong,[27] a decision of the Privy Council, the court was of the view that although a default judgment gave rise to a res judicata "a much more restricted operation must be given to any estoppel [so] arising" than to a judgment pronounced after a hearing on the merits.[28] Their Lordships, by referring to New Brunswick Railway Company v British and French Trust Corporation Ltd,[29] concluded:
[94]
"... that default judgments, though capable of giving rise to estoppels, must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essentials of what they must necessarily have decided and, to use the words of Lord Maugham L.C., they can estop only for what must 'necessarily and with complete precision' have been thereby determined."
[95]
**[57] In order to ascertain what a default judgment decided, their Lordships regarded it appropriate to "notice what case it is that a plaintiff has set up in order to found the order that he claims."[30]
[96]
[58] There are dicta in Baines v State Bank of NSW[31] to the effect that an order dismissing proceedings pursuant to a self-executing order for discovery would not give rise to a defence of res judicata. Samuels v Linzi Dresses Ltd[32] was cited as authority for that proposition. Samuels v Linzi Dresses, however, like Baines v State Bank of NSW, was a case which concerned the power of the court to extend the time for compliance under a self-executing order once the time limited by the order had expired and was not a case in which judgment had in fact been entered in favour of the non-defaulting party. In Baines the subject order merely struck out the statement of claim. Judgment was not entered. The guillotine order in Samuels provided that in the event of default in the delivery of further and better particulars, the defence and counter-claim would be struck out and the plaintiff would be at liberty to sign judgment for damages to be assessed.
[97]
[59] There are dicta in Thirteenth Corp Pty Ltd v State[33] that the doctrine of res judicata does not apply where proceedings have been dismissed on account of default in compliance with orders for discovery or on account of default in the provision of particulars. Bains v State Bank of NSW was cited as authority for the former proposition and Samuels v Linzi Dresses Ltd was cited as authority for the latter. The decision, however, was one concerned with abuse of process, not the application of the doctrine of res judicata.
[98]
[60] If Baines, Samuels and Thirteenth Corp Pty Ltd are to be regarded as authority for the proposition that a default judgment may not give rise to a res judicata, they are inconsistent with a long line of authority including New Brunswick Railway Company v British and French Trust Corporation Ltd, Kok Hoong, KGK Constructions and the other decisions referred to in footnote 23.[34] Although the learned author of Spencer, Bower, Turner and Handley, Res Judicata 3rd ed states that only a judicial decision on the merits gives rise to a res judicata,[35] that conclusion is qualified by the view that decisions on the merits include "final judgments by default or consent". That view, with respect, derives ample support from the authorities.
[99]
[61] I can see no good reason in principle why the judgment for Mango on the counter-claim, given after a hearing on notice to the appellant that such an order would be sought, should not be held to give rise to a res judicata. It is not disputed that the Thompson issue as pleaded in the counter-claim the subject of the 3 April order is, in substance, the same as that pleaded in the amended defence and counter-claim.
[100]
[62] As counsel for Mango point out in their outline of submissions in reply, the premises upon which the doctrine of res judicata is based are engaged in the circumstances under consideration. Those premises are:
[101]
(a) the public interest that there be an end to litigation and that the finality and conclusiveness of a judicial decision is recognised;
[102]
(b) the private right of an individual to be protected from vexatious and oppressive suits arising out of the same circumstances.[36]
[103]
[63] The purpose of the order of 3 April was to determine the counter-claim once and for all. That is why the order does not merely strike out the counter-claim.
[104]
[64] The judgment, operating as it did to extinguish the counter-claim was final in nature.[37] The word "judgment" describing the making of a final judgment, was used in its strict sense of "a judgment obtained in an action by which the question whether there was a pre-existing right of the plaintiff against the defendant is finally determined in favour either of the plaintiff or the defendant."[38]
[105]
[65] There is, however, one aspect of the 3 April order which gives rise to concern. It orders, in effect, that all allegations in the counter-claim be struck out as well as ordering that there be judgment for Mango on the counter-claim. If the result of the striking out is that the counter-claim upon which judgment was given is one which contains allegations of fact or causes of action, it is arguable that there is no basis for a res judicata, as all that has been decided is that the counter-claim be dismissed.[39] In my view, however, that approach would elevate form over substance.
[106]
[66] The counter-claim in respect of which judgment was given was, and was intended to be, that part of the defence and counter-claim containing paragraphs [22] to [285]; not merely a prayer for relief. The striking out order and the giving of judgment occurred simultaneously. The striking out of the allegations in the counter-claim was sought by Mango and ordered at its request. But if there was to be judgment on the counter-claim, as was always intended, there was no point in striking out any part of it. The inclusion in the 3 April order of the order striking out paragraphs of the defence and counter-claim in the circumstances outlined, should not be regarded as preventing a court from having recourse to the allegations in the counter-claim in order to ascertain the issues determined by the judgment. That is because those allegations were in the counter-claim at the time of judgment and the striking out order should be regarded as having no effect as a result of the judgment on the counter-claim.
[107]
[67] Another argument advanced on behalf of the appellant was that the dismissal of a claim or counter-claim could not give rise to a res judicata. In such a case, it was submitted, the claimant or counter-claimant would always be free to re-commence proceedings. No authority was advanced in support of the proposition and it is inconsistent with the way in which the doctrine has been formulated in many authorities.
[108]
[68] I would order that the appeal be dismissed with costs.
[109]
[69] MACKENZIE AJA: I agree with Muir JA that the order proposed by him should be made, for the reasons given by him.
[110]
[70] DOUGLAS J: I agree with the reasons for judgment of Muir JA and the order proposed by his Honour.**
[111]
[1]48 Halsbury's Laws of England 4th ed, paragraph 932.
[21]Birkett v James[1978] AC 297 and Spencer, Turner and Handley The Doctrine of Res Judicata 3rd ed, paragraph 35 and Fn 91.
[123]
[22]Tak Ming Co Ltd v Yee Sang Metal Supplies Co (1973) 1 WLR 300, PC.; KGK Constructions Pty Ltd v East Coast Earthmoving[1985] 2 Qd R 13 at 16; and Kok Hoong v Leong Cheong Kweng Mines Ltd[1964] AC 993 at 1011.
[124]
[23] See The Doctrine of Res Judicata(supra) para 38 and the cases there cited.
[125]
[24]Kok Hoong v Leong Cheong Kweng Mines Ltd (supra) at 110 - 113; Linprint Pty Ltd v Hexham Textiles Pty Ltd(1991) 23 NSWLR 508; New Brunswick Railway Co v British & French Trust Corporation Ltd[1939] AC 1; Hume v Munro[1942] NSWStRp 23; (1942) 42 SR NSW 218 at 229, 230; Re South American and Mexican Co[1895] 1 Ch 37, 45; Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2)(supra) at 946; and The Doctrine of Res Judicata (supra) paras 44 - 51.