Plaintiff v Defendant

2 Mercury Brands Group experienced financial difficulties in 2009. Under an agreement described below, the plaintiff, Milfoil Pty Ltd, assisted Mercury by purchasing clothing stock from Mercury's Chinese suppliers, for on-sale by Mercury to its wholesale customers, on Mercury's behalf. Milfoil's assistance was, however, insufficient to resolve Mercury's financial difficulties. In September 2009:

(1) Mercury Brands Group was placed in administration and entered into a deed of company arrangement; and

(2) the defendant, Commonwealth Bank of Australia ('CBA'), appointed receivers and managers of Mercury Brands Group.

3 With the consent of the receivers, the administrator negotiated a sale of Mercury's business to Australian Horizons Trading Pty Ltd. By the sale agreement, Mercury Brands Group sold, among other assets, all of its trade debts 'other than amounts owed by third parties to Milfoil Pty Ltd which are collected by [Mercury Brands Group] on behalf of Milfoil'. The reason for this exclusion arises out of an oral agreement entered into in July 2009 between Terrence Reynolds, a director of Milfoil, and Brendan Santamaria and Anthony Blumberg of Mercury. Under that oral agreement, Milfoil made various payments totalling $509,471.16 (the 'principal sum') to 13 Chinese clothing manufacturers. The principal sum was paid for the purchase of clothing stock (the 'Milfoil stock') to be delivered to Mercury on agreed terms, including that:

(2) Mercury was to keep the Milfoil stock separate and identifiable from its other stock (which was subject to CBA's debenture charge);

(3) Milfoil was to have title to and be repaid the full proceeds of all sales by Mercury of the Milfoil stock to its customers until the principal sum, agreed monthly interest charges and a fee of $70,000 was paid to Milfoil; and

(4) once those payments had been made in full, any further proceeds of sale of the Milfoil stock would be retained by Mercury.

4 At the time the administrator was appointed, Mercury was in breach of the oral agreement. It had only paid interest for the month of July 2009, and one payment of $92,186.82 in respect of the proceeds of sale of Milfoil stock.

5 On his appointment, the administrator was informed by Mercury officers that the principal sum had been paid by Milfoil under an agreement between Milfoil and Mercury. In general terms, two of Mercury's directors, Michael Abela and Christopher Burrell, informed the administrator that Milfoil had paid Mercury's suppliers for some clothing stock which had been sold by Mercury, and that Mercury was 'collecting the proceeds of those invoices on behalf of Milfoil'. In this context, the administrator was provided with a list headed 'Milfoil Pty Ltd Reconciliation Working Paper'. From the administrator's affidavit in a Federal Court application, to which I will refer below, it appears that the reconciliation working paper was prepared for submission to Australia Horizons, as purchaser of Mercury's business and assets, and led to the above-quoted exclusion from the definition of 'assets' sold under the sale agreement. As appears below, the reconciliation working paper lists a mix of Milfoil stock which had been sold and invoiced by Mercury to retailers, and Milfoil stock which had not then been sold and invoiced.

(1) Australian Horizons received $237,029.33 under various invoices identified in the reconciliation working paper;

(2) $35,499.43 was paid to the receivers under invoices identified in the reconciliation working paper; and

(3) $22,246.91 was paid to the administrator under invoices identified in the reconciliation working paper.

7 The three amounts total $294,775.67. I will refer to them collectively as the 'three funds'. Each of the three amounts was held in a separate account by the recipient, pending resolution of Milfoil's claims to those amounts.

8 Having been informed of Mercury's arrangement with Milfoil, the administrator was uncertain as to what course to follow, because there were two conflicting letters dated 3 July 2009, the first from Mercury to Milfoil and the second from Milfoil to Mercury, each purporting to record the oral agreement. In these circumstances, the administrator decided that he would apply to the Federal Court under s 447D of the Corporations Act 2001 (Cth) for directions as to how to apply the three funds. He swore an affidavit in support of the application, in which he noted that the claimants to the three funds were Milfoil, Australian Horizons and the CBA.

9 The Federal Court application was heard and determined by Finkelstein J. His Honour delivered two judgments, one on 17 June 2010 (the 'first judgment')[1] and the second on 21 October 2010 (the 'second judgment').[2]

10 In the first judgment, Finkelstein J noted that both Australian Horizons and CBA acknowledged that Milfoil's claim, if established, had priority over their claims and that, in these circumstances, they agreed to 'put over consideration of their claims until that of Milfoil is resolved'.[3] In other words, CBA and Australian Horizons agreed to abide the result of the Court's determination of Milfoil's claim to the three funds. Thereafter, as Finkelstein J noted in his second judgment, the application for directions proceeded with the addition of Milfoil as a defendant and the application for directions was 'transformed into a suit inter-parties'.[4]

11 In support of its claims, Milfoil relied upon affidavits sworn by Terrence Reynolds and by his son, Steven Reynolds. I will refer to them as 'Mr Reynolds' and 'Steven' respectively.

12 Mr Reynolds gave a detailed account in his affidavit of his conversations with Mr Santamaria and Mr Blumberg during which the agreement was reached on 2 and 3 July 2009. In his affidavit, Steven confirmed the account given by his father, on the basis that he had either been present at face to face meetings or a party to speakerphone conversations.

13 From reading Finkelstein J's two judgments, it is apparent that the administrator adopted an adversarial approach to the Federal Court application, as he had done in his dealings with Mr Reynolds described in Mr Reynolds' affidavit.

14 Finkelstein J decided all issues in Milfoil's favour. Following his second judgment, he declared that Milfoil was entitled to payment of the whole of the three funds, plus interest accrued on those amounts. He also ordered that:

(1) the parties, including Milfoil, have liberty to apply in the Federal Court proceeding 'for further relief, whether against a party or any other person, concerning the goods identified in [the reconciliation working paper]'; and

(2) Milfoil's costs be paid on an indemnity basis and be costs in the administration.

15 Milfoil did not make any further application in the Federal Court proceeding. Instead, it has commenced this proceeding against CBA. In summary, Milfoil alleges that:

(1) the agreement was a 'trust agreement' under which Milfoil 'agreed to purchase clothing stock from overseas suppliers to be sold by [Mercury] as trustee for [Milfoil], to enable [Mercury] to continue its business';[5]

(2) the trust agreement contained express terms to the effect that: (a) if Mercury received any proceeds of the sale of the Milfoil stock from retailers, it would hold the proceeds on trust for Milfoil;[6] (b) Mercury would render invoices to retailers on behalf of Milfoil; and (c) Mercury would direct each retailer to make payments direct to Milfoil;

(3) CBA knew of the trust agreement from early July 2009;[7]

(4) following appointment of the administrator and the receivers in September 2009, Milfoil informed them of the trust agreement;[8]

(5) Mercury breached the trust agreement by procuring retailers to pay the proceeds of sale of Milfoil stock direct to it, rather than to Milfoil;[9]

(6) CBA appropriated the proceeds of sale of Milfoil stock when paid to Mercury, knowing that the proceeds were held on trust for Milfoil;[10]

(7) upon appointment of the administrator and the receivers, the trust agreement came to an end and, from that time, CBA held and holds, proceeds received by it from the sale of the Milfoil stock and any unsold Milfoil stock, on a constructive trust for Milfoil;[11]

(8) subsequent sales of Milfoil stock by the administrator or the receivers were in breach of trust, the proceeds of sale were paid to CBA with knowledge of the breach of trust, and thus CBA holds the proceeds of sale after appointment of the receivers on a constructive trust for Milfoil;[12] and

(9) alternatively, CBA has been unjustly enriched by the receipt of proceeds of the sale of Milfoil stock, both before and after the receivership.[13]

16 Milfoil claims declarations, orders for the taking of accounts and payment. It is necessary to note here that the claim is not limited to the proceeds of sale of the Milfoil stock. By an unsatisfactory pleading commencing with paragraph 12 of the amended statement of claim, Milfoil implicitly alleges that the trust agreement extended beyond the Milfoil stock to cover all further stock supplied to Mercury after payment of the principal sum (defined in paragraph 12 as 'the stock'), on the apparent basis that all such stock was supplied to Mercury 'as a result of' or 'because of' payment of the principal sum (the 'further stock'). For example, paragraph 16 alleges that Mercury received 'all the proceeds of sale of all the stock as trustee for [Milfoil]'.

17 Tables in the schedule to the further and better particulars of the amended statement of claim reveal that Milfoil alleges it paid the principal sum ($509,470.85) and, in return, acquired title to not just the Milfoil stock but also acquired title to:

(1) the further stock purchased by Mercury for the sum of $2,043,250.38; and

(2) the proceeds of sale of the further stock, which was on-sold by Mercury to retailers for $3,090,538.

This claim is inconsistent with the trust agreement alleged in paragraph 9 of the statement of claim, which alleges an express term that Milfoil would pay the principal sum to the 13 Chinese suppliers 'for the purchase of clothing stock'. By using the defined term 'the stock', most of the remaining paragraphs of the amended statement of claim proceed on the express or implied basis that the trust agreement related to both the Milfoil stock and the further stock.

18 The fact that Milfoil's principal claim is that the alleged trust agreement extended to all 'the stock' - ie both the Milfoil stock and the further stock - is also apparent from the alternative claim made in paragraph 17, which alleges that the trust agreement related to the Milfoil stock only; which is defined as 'the goods'. Thereafter, the amended statement of claim confusingly proceeds on the assumption that the trust agreement relates to 'the stock and the goods'.[14]

(1) The whole of the terms agreed between Milfoil and Mercury in relation to Milfoil's payment of the principal sum were contained in Milfoil's 3 July 2009 letter.

(2) The agreement extends only to clothing stock 'purchased as a result of the payment' of the principal sum. Although clumsy in light of Milfoil's unsatisfactory pleading, in the context of CBA's pleading as a whole, it should be understood as referring only to the Milfoil stock.

(3) Only the Milfoil stock and the proceeds of sale of it were held on trust for Milfoil until payment of the amounts due under the agreement.

(4) The Milfoil stock is recorded in the reconciliation working paper, except insofar as that paper contains reference to stock acquired by Mercury before the oral agreement.

20 By summons filed 14 December 2015, CBA seeks a variety of relief which may be summarised as follows:

(1) an order pursuant to r 23.01(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015, alternatively s 18 of the Civil Procedure Act 2010, that Milfoil's claim be stayed or dismissed on the ground that it is an abuse of process;

(2) alternatively, summary judgment under s 62 of the Civil Procedure Act 2010;

(3) alternatively, that a range of paragraphs in the amended statement of claim be struck out 'on the ground that they are an abuse of process, alternatively because they are embarrassing';

(4) an order restraining Milfoil from prosecuting this proceeding without leave of the Court; and

(5) alternatively, an order that CBA have leave to amend its defence.

21 The judge managing the proceeding directed that paragraph 1 of the summons be heard and determined first, on the basis that it would be unnecessary to consider the other issues if the whole proceeding is an abuse of process. As appears above, and below, it has been necessary to consider the adequacy of the amended statement of claim in the context of the abuse of process application.

22 The abuse of process application is founded primarily on issue estoppel. If the issue estoppel contention fails, CBA nevertheless contends that the proceeding is an abuse of process because it amounts to an attempt to re-litigate issues which have already been judicially determined.

23 The parties agree that CBA was sufficiently affiliated with the subject matter of the Federal Court proceeding, so that it was able to rely on issue estoppel against Milfoil in respect of necessary factual findings by Finkelstein J.[15] This is because it abided the result in circumstances where it could have participated and advanced a positive case, but did not do so because its interests were the same as the administrators - ie to advance a case that the three funds formed part of Mercury's assets and were not beneficially owned by or specifically charged to Milfoil. The Court was referred to the statement of EM Heenan J in Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 5], that:

if a person closely affiliated with the subject matter of an action and with notice of the claim stands by and takes no steps to advance or to defend his own personal interest, he will become bound as a matter of issue estoppel by the result determined between those other parties on an identical issue which affects him.[16]

24 CBA's principal contention based on issue estoppel is that the entirety of the terms of the oral agreement were determined by Finkelstein J and that the trust agreement alleged by Milfoil is inconsistent with the agreement as found by his Honour. In substance, CBA contends that Milfoil is estopped from alleging any terms of the agreement which are inconsistent with, or additional to, the terms of the oral agreement as expressly found by Finkelstein J. Further, CBA contends that Milfoil is estopped from alleging that the oral agreement relates to any clothing stock other than the Milfoil stock.

25 In considering CBA's issue estoppel contentions, it is necessary to keep in mind that issue estoppel extends only to those findings which were 'legally indispensable' to the previously decided case. In Linsley v Petrie,[17] the Court of Appeal held issue estoppel did not preclude a plaintiff injured in a motor vehicle collision from taking proceedings for personal injuries, notwithstanding an earlier proceeding for property damage which exculpated the defendant. Hayne JA said:

The essence of the doctrine of issue estoppel was defined by Dixon J in Blair v Curran[18] in the following terms:

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. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. [...]

But as Dixon J points out in Blair v Curran:[19]

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. [...]

It is therefore of the first importance to identify with care the issue of fact or law which is said now to be the subject of an issue estoppel.[20]

26 In considering whether an issue estoppel applies, 'any material may be looked at which will show what issues were raised and decided.'[21] This is to be contrasted with the position where res judicata is pleaded, in which case 'only the actual record is relevant'.[22] However, the reasons for judgment 'are likely to be particularly important in determining a plea of issue estoppel.'[23]

What findings were legally indispensable to Finkelstein J's decisions?

27 In his first judgment, Finkelstein J was required to decide whether Milfoil was entitled to the three funds. In the course of doing so, it was first necessary for Finkelstein J to determine the relevant terms of the oral agreement reached between Mr Reynolds and Mr Santamaria on 2 and 3 July 2009.[24]

28 Finkelstein J accepted that the agreement was to the effect that Milfoil would purchase stock from the Chinese manufacturers and sell the stock to Mercury's customers.[25] Mercury's 3 July 2009 letter had suggested that, under the agreement, Mercury 'would assign invoicing for $500,000' to Milfoil. In context, this must have meant that Mercury would assign the payments due under invoices from Mercury to Australian retailers in respect of the stock purchased from the Chinese manufacturers with Milfoil's $500,000 (ie the principal sum). Finkelstein J accepted that this was not what had been orally agreed, and found that the terms of the agreement were best evidenced by Mr Reynolds' letter to Mercury sent later on 3 July 2009, which expressly stated that:

(1) the Milfoil stock would 'remain the property of Milfoil Pty Ltd when shipped CIF';

(2) the Milfoil stock was to be 'kept separate and identifiable from other [Mercury] stock'; and

(3) 'title [would] be retained by Milfoil Pty Ltd over the [Milfoil stock], and the debtor payments post invoicing, until [the principal sum] plus interest is paid in full'.

29 Before Finkelstein J the administrator had relied upon Mercury's letter as recording the true arrangement under the agreement. Finkelstein J rejected that contention and held that the terms of the oral agreement were 'those recorded in Milfoil's letter', because he accepted Mr Reynolds' account of what had been discussed on 2 July and on the telephone on 3 July 2009.[26]

30 In my opinion, Finkelstein J was not required to and did not determine the whole of the terms of the oral agreement. It was only necessary for him to determine the terms relevant to the dispute before him between Milfoil and the administrator, as to who had the better claim to the three funds. My reasons follow.

31 First, Finkelstein J made a general finding accepting Mr Reynolds' evidence of the oral agreement reached and confirmed during his conversations with Mr Santamaria on 2 and 3 July 2009.[27] He summarised Mr Reynolds' evidence in the following terms:

1. At the meeting Mr Santamaria outlined the difficulties with the CBA. He explained that new season stock was being held by Chinese manufacturers who would not release it until they received payment for outstanding debts. Mr Reynolds put forward a proposal for the release of the goods. He suggested MBL arrange for a third party to purchase the goods from the Chinese manufacturers. The goods would then be delivered to MBL's customers on the basis that invoices be raised in the name of the third party who would then recover its purchase price and costs, plus a fee. Any surplus proceeds would be paid to MBL.
2. Mr Blumberg enquired whether Mr Reynolds would invest $500,000 in MBL. Mr Reynolds said he was not interested in investing in MBL but would enter into an arrangement along the lines he had just suggested. Mr Santamaria agreed.
3. The next morning, Friday 3 July 2009, Stephen delivered to his father a letter from MBL. The letter which was addressed to Milfoil on 'Mercury Brands' letterhead reads:

Assignment of invoicing related to direct stock payments

Firstly, thank you for supplying the short term AUD$500,000 working capital facility to Mercury Brands Limited and I am pleased to confirm the following:

• Milfoil Pty Ltd will make payments to Mercury Brands Chinese suppliers directly up to the value of AUD$500,000 - such payment to be mutually agreed and made by Milfoil Pty Ltd.
• Mercury Brands Limited will assign invoicing for $500,000 from the order(s) to Milfoil Pty Ltd.
• Mercury Brands Limited acknowledges that the invoices are the property of, and for the benefit of Milfoil Pty Limited and has no equitable interest in these invoices. Milfoil Pty Ltd's bank details are to be clearly displayed on the invoices as the payee and as the beneficial owners. In the event that the payment is paid to Mercury Brand [sic] Limited in error, Mercury Brands Limited agrees that the payment is held in trust for Milfoil Pty Ltd and will pay the funds across immediately to Milfoil Pty Ltd.
• Mercury Brands Limited will pay 9.95% per annum on the outstanding balance to be calculated on a month by month basis and invoiced by Milfoil Pty Ltd such invoice to be paid within 7 days of issue.
• In consideration of the facility; 6,250,000 share [sic] in Mercury Brands Limited [ASX:MCB] will be issued to Milfoil Pty Ltd with immediate affect [sic].

1. Mr Reynolds saw that the letter did not accord with what had been agreed. He telephoned Mr Santamaria and told him that Milfoil would not provide a loan or a working capital facility to MBL. He said that Milfoil would purchase the stock from the Chinese manufacturers and sell the stock to MBL's customers.
2. Shortly after the phone call, Stephen handed his father invoices from the 13 Chinese manufacturers. The invoices had been issued to MBL or Mercury Brands. Milfoil arranged for the payment, by bank transfer, of the face value of each invoice. The payments totalled AU$509,471.16. Each payment was made with the instruction that 'CIF prepayment by Milfoil Pty Ltd for new goods to be shipped August 2009 and invoiced to Milfoil Pty Ltd or order'.
3. Immediately after the payments were made Mr Reynolds wrote to MBL as follows:

MERCURY BRANDS LTD

As requested Milfoil Pty Ltd, has transferred the sum of $509,471.16 including bank charges to the appended Chinese manufacturers bank accounts.

As agreed good [sic] will remain the property of Milfoil Pty Ltd when shipped CIF and will be received and prepared for delivery to the respective purchaser distribution centers [sic] in terms of your Company's firm written orders. All GST issues and other costs are for your account.

We will be charged for interest for July on 31 July 2009 and ask that you remit the sum of $3,888.73 on or before that day directly into Milfoil Pty Ltd., Westpac, 360 Collins Street, Melbourne account: 003-055 62 0945 under advice to us on the above fax number.

We will calculate the next months [sic] interest on the basis of the outstanding sum and advise before 31 August 2009.

We are advised goods will be shipped during July 2009 for receipt before end of July 2009 and be ready for dispatch and invoicing to the retailers in the first week of August 2009.

The goods are to be kept separate and identifiable from other Company stock, which we understand is subject to a Debenture charge from the Commonwealth Bank and its successors.

Title to be retained by Milfoil Pty Ltd., over the goods and the debtor repayments post invoicing until our aforementioned sum plus interest is paid in full.

Milfoil Pty Ltd., are to be repaid the principal sum on each payment made today from the proceeds of those invoices. You will retain the rest.[28]

32 These findings accord with the evidence in the affidavits of Mr Reynolds and his son Steven concerning the oral agreement and the two letters.

33 Second, Finkelstein J gave only a summary of Mr Reynolds' evidence as to the oral agreement.[29] That summary contains no reference to a number of matters about which Mr Reynolds gave evidence in his affidavit concerning the details of his conversations with Mr Santamaria. In his affidavit before Finkelstein J, Mr Reynolds gave evidence which went beyond the terms summarised by Finkelstein J and those recorded in Milfoil's letter. Indeed, some of what Mr Reynolds said about his conversations with Mr Santamaria is consistent with Mercury's letter. For example:

(1) Paragraph 16 - Mr Reynolds deposed that if proceeds of sale were 'inadvertently' paid by the retailer to Mercury: 'then such funds would have to be held on trust ... Santamaria agreed that would be the case.' This part of the discussion is contained in Mercury's letter but not in Milfoil's letter, which contains no reference to funds being held in trust.

(2) Paragraph 22 - Mr Reynolds deposed that Mr Santamaria told him that he had been authorised to negotiate 'a fee of $70,000 by way of cash or fully paid shares'. Finkelstein J found that Mr Santamaria orally agreed to pay Milfoil's 'purchase price and costs, plus a fee.'[30] He made no finding as to what that fee was and Milfoil's letter made no reference to the fee. The only reference to the fee is in Mercury's letter, by reference to the issue of shares in Mercury Brands Ltd. The fee was obviously an important part of the terms of the agreement, as otherwise Milfoil would be recovering nothing other than its borrowing costs on the principal sum. I note that the parties now agree that the fee was to be $70,000.[31]

(3) Paragraph 32 - Mr Reynolds swore that, during the course of the telephone conversation with Mr Santamaria on 3 July 2009, in addition to Finkelstein J's findings,[32] he repeated that '[a]ny cash that was inadvertently paid to [Mercury] would be held on a trust basis by [Mercury] for Milfoil.'

34 Third, it was necessary for Finkelstein J to decide an issue raised by the administrator, namely, whether the terms of the agreement constituted an unregistered charge on personal property, and whether such charge was therefore void against the administrator by reason of s 266 of the Corporations Act 2001 (Cth). Finkelstein J introduced this topic by the words: 'Having found an agreement between [Mercury] and Milfoil on the terms set out in the second letter, the next question which arises is ...'.[33] In considering that issue, and resolving it in Milfoil's favour by finding that Milfoil purchased the Milfoil stock from the Chinese manufacturers as owner, rather than providing finance and taking a charge over that stock as Mercury's property, Finkelstein J referred to the terms of Milfoil's letter, but also referred to the content of the discussions between Mr Reynolds and Mr Santamaria which constituted the oral agreement.[34] For example, Finkelstein J held that 'there was nothing said in the discussions between Mr Reynolds and Mr Santamaria which suggests they had in mind a charge. Indeed, what was said and written is consistent with an outright transfer.'[35]

35 Fourth, reading the first judgment as a whole, it is apparent that the principal issue which concerned Finkelstein J was the distinction between an arrangement involving Milfoil purchasing the Milfoil stock directly from the Chinese suppliers, and thus becoming the owner of that stock, and a situation under which Milfoil was a financier to Mercury for the purchase of the Milfoil stock by Mercury, and, as security, took a charge in the form of an agreement to 'assign invoicing for $500,000'. In that context, it was unnecessary for Finkelstein J to determine all the terms of the oral agreement. As a result, there is no issue estoppel preventing Milfoil from alleging further terms of the oral agreement to those found by Finkelstein J, provided that such terms are not inconsistent with the terms found by his Honour. This means that Milfoil is not estopped from alleging that the agreement included terms that any proceeds of the sale of the Milfoil stock would be held by Mercury on trust for Milfoil. Nor is it estopped from alleging the $70,000 fee and other matters pleaded in paragraphs 8 and 9 of the amended statement of claim, none of which is inconsistent with its 3 July 2009 letter.

36 Having found that Milfoil purchased the Milfoil stock under the oral agreement, it was necessary for Finkelstein J to determine whether Milfoil was able to identify that stock with precision. This was because his Honour accepted the submission on behalf of the administrator that 'a buyer cannot acquire title until it knows to what goods the title relates.'[36] The administrator argued that the Milfoil stock had been 'mixed with other clothing in [Mercury's] possession, making it impossible to distinguish which belonged to Milfoil'.[37]

37 Finkelstein J resolved this issue in Milfoil's favour, by reference to the reconciliation working paper which Mercury's Chief Financial Officer, Sue Dunlop, had provided to Mr Reynolds 'to indicate which goods belonged to Milfoil and to whom those goods had been sold.'[38] Finkelstein J:

(1) rejected hearsay evidence from Ms Dunlop that the reconciliation working paper 'was simply seeking to identify invoices which, upon payment, would generate sufficient funds to cover the amount due to Milfoil';[39]

(2) specifically found that there was 'no reason to think that the [reconciliation working paper] is not an accurate record';[40] and

(3) on this basis, found in favour of Milfoil on the identification issue also, although he did note that the reconciliation working paper mistakenly listed Mercury invoices for goods which had been 'despatched' by Mercury prior to its agreement with Milfoil - a reference to Mercury invoices included in the reconciliation working paper which pre-date the oral agreement.

38 Following publication of the first judgment, Finkelstein J asked the parties to agree on the amounts payable to Milfoil from the three funds, having regard to the fact that the reconciliation working paper included some pre-agreement goods. The parties could not agree. It was accordingly necessary for there to be a further hearing, resulting in the second judgment.

39 At the second hearing, the administrator sought to adduce fresh evidence as to the identity of the Milfoil stock, by disavowing the reconciliation working paper on the basis of a 'complex reconciliation' of the proceeds of sale presently held by the administrator, the receivers and Australian Horizons.[41] Unsurprisingly, Milfoil opposed the admission of fresh evidence. As it had done at the first hearing, Milfoil contended that the reconciliation working paper 'recorded the garments which it had acquired, and the [three funds] represented the proceeds of sale of most of those garments ... [subject only to] some (but very few) pre-agreement garments'.[42]

40 Finkelstein J treated the administrator's attempt to rely upon the 'complex reconciliation' prepared after the first judgment as an application to re-open his case. He rejected that application.[43] In particular, Finkelstein J held that the fresh evidence, if admitted, would not 'probably change the result',[44] because the circumstances in which Ms Dunlop provided the reconciliation working paper to Mr Reynolds contained a representation that the paper 'identified the garments which belonged to Milfoil and to whom those garments had been sold', and this representation caused Milfoil to act to its detriment. Accordingly, Mercury was estopped from denying that the reconciliation working paper identified Milfoil's goods.[45]

41 In my opinion, Finkelstein J's specific finding that the subject matter of the agreement was the Milfoil stock described in the reconciliation working paper, excluding the pre-agreement goods, was legally indispensable to his decision. This issue estoppel is relevant to Milfoil's unsatisfactory pleading, referred to above, that the trust agreement for which it contends applied not only to the Milfoil stock but, in addition, to any other goods delivered by the 13 Chinese manufacturers to Mercury 'as a result of' payment of the principal sum to those suppliers - ie to the further stock.[46]

(3) Summary of Finkelstein J's legally indispensable findings

42 For the reasons given above, the following findings by Finkelstein J were legally indispensable to his decision:

(1) the oral agreement included the terms set out in Milfoil's 3 July 2009 letter;

(2) the subject matter of the oral agreement was the Milfoil stock as described in the reconciliation working paper (excluding the pre-agreement goods);

(3) Milfoil was the owner of the Milfoil stock, and entitled to the proceeds of any sale of that stock by Mercury, until Mercury complied with all of its financial obligations under the oral agreement; and

(4) the three funds represented the proceeds of sale of some of the Milfoil stock.

(1) Milfoil's pleading of the 'trust agreement' in paragraph 9 of its amended statement of claim is not subject to issue estoppel, as Finkelstein J did not decide the content of all the terms of the oral agreement - findings (1) and (2);

(2) Milfoil's pleading in paragraph 12, and subsequent paragraphs which depend on it, to the effect that it acquired title to the further stock is barred by issue estoppel, as Finkelstein J specifically decided that the subject matter of the oral agreement was the Milfoil stock as described in the reconciliation working paper (excluding the pre-agreement goods) - finding (3). Moreover, Milfoil's pleadings in this regard are also inconsistent with the trust agreement pleaded by it in paragraph 9 of the amended statement of claim;

(3) Milfoil is not estopped from raising claims relating to its interests in the Milfoil stock which had not been sold at the date of the reconciliation working paper, or the proceeds of sale of that stock, as Finkelstein J decided that such stock was owned by Milfoil and was subject to the terms of the oral agreement - finding (4); and

(4) Milfoil is not estopped from pursuing constructive trust claims against CBA in respect of the proceeds of sale of any of the Milfoil stock which were paid to CBA.

Are Milfoil's constructive trust claims an abuse of process?

44 As mentioned above, if CBA is unsuccessful in its issue estoppel contentions, in whole or in part, it nevertheless contends that the continuation of this proceeding, in whole or in part, is an abuse of process because it involves re-litigation of issues which have been decided by Finkelstein J. I do not accept that contention. For the reasons given above, it was unnecessary for Finkelstein J to determine all of the terms of the oral agreement, and he did not do so. Moreover, as appears above, Finkelstein J accepted Mr Reynolds's evidence concerning the oral agreement made and confirmed during his conversations on 2 and 3 July 2009. Mr Reynolds gave evidence in his affidavit that it was agreed that 'any cash that was inadvertently paid to [Mercury] would be held on a trust basis by [Mercury] for Milfoil.' Mercury's own 3 July 2009 letter also includes reference to this term:

In the event that the payment is paid to Mercury ... in error, Mercury ... agrees that the payment is held in trust for Milfoil ... and will pay the funds across immediately to Milfoil ...

45 In these circumstances, the abuse of process challenge to the trust agreement must fail. No oppression or unfairness to CBA is involved.[47] For the reasons given above, the abuse of process challenge to Milfoil's claim to the proceeds of sale of the further stock has been accepted.

46 Paragraph 1 of CBA's summons does not seek to strike out portions of the amended statement of claim, because it proceeds on the basis that the whole of the proceeding is an abuse of process. For the above reasons, I have found that part of the proceeding is an abuse of process on the basis of an issue estoppel. Those portions of the amended statement of claim which offend the issue estoppel, namely, paragraphs 12, 13, 16, 19-24, 27-37 and 39-47, and paragraphs AA, AB, AC and D of the prayer for relief are liable to be struck out on that ground. All references to 'the stock' as defined in paragraph 12 are inconsistent with the issue estoppel I have found. In all the circumstances, however, Milfoil should have the opportunity to re-plead its claim. I will accordingly strike out Milfoil's amended statement of claim and give it leave to re-plead a further amended statement of claim in accordance with these reasons for judgment.

47 In my view, these reasons make further consideration of CBA's summons unnecessary.

48 I will hear the parties as to further directions, and as to costs.

[1] Traianedes in his capacity as Deed Administrator of Mercury Brands Group Pty Ltd (Subject to Deed of Company Arrangement) v Mercury Brands Group Pty Ltd [2010] FCA 583.

[2] Traianedes in his capacity as Deed Administrator of Mercury Brands Group Pty Ltd (Subject to Deed of Company Arrangement) v Mercury Brands Group Pty Ltd (No 2) [2010] FCA 1140.

[11] Ibid [27]-[28], [32]-[33].

[15] Milfoil conceded this position in its written outline of argument dated 26 February 2016.

[16] [2009] WASC 141 [72]; see also Ann Street Mezzanine Pty Ltd (in liq) v Beck & Ors [2009] FCA 333; (2009) 175 FCR 532, 542 [33]-[35].

[17] [1998] 1 VR 427.

[18] [1939] HCA 23; (1939) 62 CLR 464, 531-2.

[20] [1998] 1 VR 427, 429 (emphasis added) (citations in original).

[21] Jackson v Goldsmith [1950] HCA 22; (1950) 81 CLR 446, 467.

[28] Ibid [5]-[10]. Emphasis added.

[30] Ibid [5]; see also [27] ('and its fee').

[31] Amended statement of claim [9(e)(ii)]; defence to amended statement of claim [13(a)].

[32] First judgment [5], [6], [8].

[46] Amended statement of claim [12].

[47] For example, Kermani v Westpac Banking Corporation [2012] VSCA 42; (2012) 36 VR 130, 154-5 [97(14)].