Plaintiffs v Defendants

1 The plaintiffs obtained orders on 1 December 2010 for the taking of accounts and inquires following a trial in which the plaintiffs successfully sued the first defendant ("Nolten") and companies associated with him for breaches of Nolten's duties as a director of the first plaintiff ("GA").[1] The accounts were taken by an Associate Justice who determined the profits made by the defendants by reason of Nolten's impugned conduct. An issue has now arisen as to whether Nolten and the corporate defendants are liable to make payment of those profits on a joint and several basis. Nolten disputes that he can be made jointly liable to account to the plaintiffs for the profits made by the corporate defendants. Two questions have been put to the Court for determination:

(a) Has the Court determined whether Nolten is jointly liable to account for the profits made by the other corporate defendants as the result of his breaches of duty?

(b) If not, is Nolten jointly liable to account for the profits made by the corporate defendants as the result of his breaches of duty?

2 In short compass, the plaintiffs contended that the judgment delivered on 22 November 2010[2] gave rise to a res judicata which has decided all questions of liability between the plaintiffs and the defendants, including the question of joint liability so as to make Nolten and each relevant corporate defendant jointly and severally liable for the profits attributable to Nolten's conduct as a defaulting fiduciary. Nolten contended that the issue of joint liability was not before the Court at trial or in relation to the accounts that were ordered to be taken and has not been determined. It was further submitted that joint liability does not arise between a defaulting fiduciary and his accessories and that he cannot, in law, be made liable to account for the profits made by the corporate defendants.

3 For the reasons that follow I have concluded that the question of joint liability is res judicata and that Nolten is estopped from making the claim that he should not be made jointly liable for the profits determined by the Associate Justice. I have accordingly concluded that the plaintiffs are entitled to orders that the profits determined by the Associate Justice are to be paid by Nolten and the relevant corporate defendants on a joint and several basis.

4 The doctrine of res judicata is a broad rule of public policy which comes into operation when a judicial determination directly involving an issue of fact or of law disposes once and for all of that issue.[3] The doctrine is founded on the tenet that there should be finality in litigation[4] and the doctrine operates to prevent a party from re-litigating a question which has already been decided in a judgment that is final and binding on the parties.[5]

5 The test for a res judicata estoppel is objective: for issue estoppel, it is whether the precise question of fact or law sought to be litigated in a later proceeding was decided in the earlier proceeding as a fundamental basis for the decision; for cause of action estoppel, it is whether the cause of action in the later proceedings is in substance the same as that litigated to judgment in the former proceeding.[6]

6 For the doctrine to apply, it is not necessary for the Court to have adjudicated on the claim or on a particular issue of fact or law which a party seeks to raise in other proceedings. It is well established that a consent order can create a res judicata estoppel because the order "gives judicial sanction and coercive authority to an agreement"[7] and the issues in the proceeding will have been taken to have been conclusively determined.[8] It is also well established that the doctrine of res judicata extends to matters that were not raised but which could have, and should have, been raised.[9] In Henderson v Henderson[10] Wigram VC said:

... where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest ...

Parties are obliged to put forward their whole case in a proceeding so that the finality and binding nature of a decision is not affected because a party may want to raise an argument not relied on in the earlier proceeding.[11]

7 The doctrine of res judicata cannot apply unless there has been a final judgment[12] and the essential characteristic of a final judgment is that some right or liability has been finally determined.[13] However, finality for the purposes of the operation of res judicata does not require complete resolution of all issues in a proceeding so that there is nothing left to be judicially determined. That is to say, finality for the purpose of the operation of res judicata is not whether the proceeding has been completed or terminated but whether there has been an order or decision of the Court in that proceeding which is final, in the sense that it was determinative of the rights and liabilities of the parties. It is well established that a decision can be final for the purposes of the operation of the doctrine even though litigation in the same proceedings continues on other issues, such as the assessment of the amount recoverable.[14] A decision which determines questions of liability can set up a res judicata, although the amount recoverable remains to be assessed or to be worked out by accounts and inquiries in the same proceeding.[15] The authorities recognise that a judgment given on liability will be final for the purposes of res judicata and thus binding on the parties for the purposes of the assessment or the taking of accounts and inquiries in that proceeding.[16]

8 A cause of action or question of law or fact is res judicata if the matter was "necessarily decided" by the earlier judgment and orders made.[17] If the right or claim sought to be advanced by a party was fundamental to the subject matter of the concluded litigation, the matter in issue must have been "necessarily decided".[18] Accordingly it is necessary to examine whether the question of joint liability that Nolten wants to agitate now following the taking of accounts was "necessarily decided" by the judgment delivered and orders made on that judgment.

9 The Fourth Further Amended Statement of Claim ("FFASC") alleged, amongst other claims, a number of causes of action for misuse by Nolten of his position as the managing director of GA to obtain a profit or gain with the assistance of the relevant corporate defendant that he controlled. Those causes of action were identified as:

(a) the C&CT IT services claim (paragraphs 34 to 41 FFASC);

(b) the Groeneveld distribution fee claim (paragraphs 42 to 57 FFASC);

(c) the vehicle sale claim (paragraphs 58 to 66 FFASC);

(d) the unauthorised travel claim (made against Nolten only) (paragraphs 67 to 76 FFASC);

(e) the Groeneveld South Island ("GSI") franchise fee claim (paragraphs 91 to 101 FFASC);

(f) the Perth Office lease claim (paragraphs 102 to 114 FFASC);

(g) the Barkley Street claim (paragraphs 115 to 121 FFASC);

(h) the Barry Road claim (paragraphs 122 to 130 FFASC);

(i) the vehicle finance claim (paragraphs 131 to 138 FFASC).

10 Contrary to the submission put on behalf of Nolten[19] it is clear from a consideration of the FFASC that an element of the causes of action sued upon, and as pleaded, was the claim that Nolten was liable to account to GA for, or pay equitable compensation comprising, payments received, or profits made, by the relevant corporate defendant(s) by reason of Nolten's conduct as defaulting fiduciary. This is pleaded:

(a) on the C&CT IT services claim: at paragraphs 39, 40, 41;

(b) on the Groeneveld distribution fee claim: at paragraphs 55, 56, 57;

(c) on the vehicle sale claim: at paragraphs 64, 65, 66;

(d) on the GSI franchise fee claim: at paragraphs 94, 99, 100, 101;

(e) on the Perth Office lease claim: at paragraphs 112, 113, 114; and

(f) on the Barkley Street claim: at paragraphs 118, 121;

(g) on the Barry Road claim: at paragraphs 130, 130H; and

(h) on the vehicle finance claim: at paragraphs 132.5, 136[20].

The defendants responded with a denial or non-admission of the allegations.

11 GA did not seek an account of profits or equitable compensation from Nolten on a joint and several basis on the unauthorised travel claim as no claim was made against a corporate defendant that it had received any profit or payment by reason of Nolten's conduct as alleged.[21] GA sought those remedies only against Nolten.

12 The defendants, prior to trial, consented to judgment against them on four of the claims[22] to pay, on a joint and several basis, the impugned monies received by the corporate defendants plus interest. The consents to judgment were notified in an open letter dated 5 July 2010. The letter stated:

Each of Mr Nolten and TTM will consent to judgment in respect of the payments made by the Ostwalds to TTM, plus interest, as pleaded in paragraphs 56 and 57 of the [FFASC].

(b) as to the vehicle sale claim:

Each of Mr Nolten and C&CT will consent to judgment in respect of the payments made by [the Ostwalds] to C&CT in respect of the van, plus interest, as pleaded in paragraphs 65 and 66 of the [FFASC] less the sum of $21,055.98...

(c) as to the Barry Road claim:

Each of Mr Nolten and TTM will consent to judgment in respect to the sum of $2,750 plus interest.

(d) as to the vehicle finance claim:

... Mr Nolten will consent to judgment in respect of the vehicle payments received by him and/or any or any and all of the corporate defendants identified in paragraph 132.5 of the [FFASC] plus interest.

Each of the said corporate defendants will also consent to judgment in respect of the vehicle payments respectively received by them, plus interest.

13 Additionally Nolten consented to judgment against him on the unauthorised travel claim to pay the sum of $67,730.20 plus interest.

14 The letter went on to state in respect of the remaining claims against the corporate defendants that they admitted that Nolten was their directing mind at the relevant time so that each of them had a duty to account to GA for relevant monies received by them pursuant to the remaining breaches of duty pleaded against Nolten and in respect of which they were joined as accessories "assuming those breaches are proved at trial".

15 Before the trial commenced in September 2010, the issues for determination by the Court were further narrowed by the defendants' concessions that the plaintiffs were also entitled to an account of profits on all the remaining claims, save for the GSI franchise fee claim in respect of which Nolten continued to dispute that there had been any breach of duty by him. Moreover, they conceded that the plaintiffs were entitled to an account of profits on this claim also if the claim was established against Nolten, as the Court in due course found. Critically and significantly, the concessions were not made on the basis that Nolten contested his liability to account for the profits of, or make equitable compensation for the payments received by, the corporate defendants as the result of his defaulting conduct.

16 A joint list of issues in dispute was prepared and submitted to the Court by the parties for the purposes of the trial. The list identified three matters only for the Court to determine on the causes of action pleaded in the FFASC for breach of duty:

(a) in respect of the GSI franchise fee claim: whether Nolten was a defaulting fiduciary;

(b) in respect of the Perth Office claim: issues which affected the amount which would be required to be disgorged to GA by way of remedy (but not the issue of Nolten's liability for those amounts as alleged against him in paragraphs 112, 113, 114 of the FFASC);

(c) in respect of the Barkley St claim: whether there should be an allowance in the calculation of the profits that Nolten and the sixth defendant must account to GA.

17 The list was consistent with a position that Nolten was not contesting the allegation that he was liable to account for the profits made by the corporate defendants by reason of his breaches of duty and at trial the case was conducted by all parties on the basis that the matters set out in the joint list of issues were the only issues before the Court which required the Court's determination on the plaintiffs' claims against Nolten for breaches of duty.[23] At no stage during the course of trial or before orders were made was any argument raised on behalf of Nolten that he should not be made jointly liable for amounts which were received, or profits made, by the corporate defendants by reason of his conduct as a defaulting fiduciary. That issue was not raised by Nolten until the accounts of profits were taken.

18 Judgment was given only on the issues which required the Court's determination, as identified in the joint list of issues.

19 Orders were made on 1 December 2010 (which are attached to these reasons). The Court ordered Nolten to pay GA the sum of $214,325, calculated by reference to the matters set out in "Other Matters". In respect of that sum, the fourth defendant ("C&CT") was ordered to pay $23,445 on a joint and several basis and the fifth defendant ("TTM") was ordered to pay $119,777, also on a joint and several basis, in accordance with the concessions made in the open letter containing the consents to judgment.

20 At the hearing on 25 August 2011, senior counsel for Nolten initially disputed that Nolten should be made jointly liable for any of the profits determined by the Associate Justice. Senior counsel however accepted that Nolten had consented to judgment against him on a joint and several basis with respect to the profits determined on the claims referred to in paragraphs 4(b)[24] and (f)[25] of the 1 December 2010 orders, and on that basis that the plaintiffs were entitled to final orders on those claims. Those orders were made on 7 September 2011. This leaves for determination only whether the profits determined on claims referred to in paragraphs 4(a),[26] (c),[27] (d)[28] and (e)[29] should also be ordered to be paid by Nolten and the relevant corporate defendant(s) on a joint and several basis.

21 Contrary to the submissions on behalf of Nolten, here the judgment delivered on 22 November 2010 finally decided the rights of the parties in circumstances where the entitlement of GA to relief against the defendants on a joint and several basis was an element of the claims sued on and the basis of the consent judgments given effect to in paragraphs 1, 2 and 3 of the orders pronounced on 1 December 2010 and the further orders made on 7 September 2011. If Nolten sought to dispute that he could be made jointly liable for profits made or payments received by the corporate defendants that were attributable to his conduct as a defaulting fiduciary (contrary to the position taken by him on those claims in respect of which he consented to judgment against him on a joint and several basis) he should have raised the defence at the hearing of the trial. He could have done so because joint liability was an issue in the proceeding raised by the pleadings. It was necessary to do so because of the long established principle that the rights of the parties in proceedings for an account of profits must be established at the trial.[30] This principle was recently referred to and applied by the NSW Court of Appeal in White and Libut v Thompson[31] in which Handley AJA (with whom Basten and Young JA agreed) noted that:

Any accounts and inquiries ordered at the trial "follow merely consequentially" as Viscount Haldane said in a related context in McGrory v Alderdale Estate Co Ltd [1918] AC 513, 511. Accounts and inquiries are ordered for the purpose of working out the rights established at the trial and determining issues of quantum.

His Honour further noted that the same principle applies where the issues of liability and damages are tried separately. Thus an interlocutory judgment for damages to be assessed binds the parties and the Court and damages must be assessed in accordance with the decision on liability.[32]

22 This long standing principle is applicable in the circumstances of this proceeding. The orders for taking of accounts followed "merely consequentially" from the Court's determination of liability on the one claim that was adjudicated on[33] and from the concessions made on the other remaining claims that the plaintiffs were entitled to an account of profits. The taking of accounts and the making of inquiries by the Associate Justice were for the purpose of determining the quantum of the profits that must be disgorged, not for determining any substantive liability.[34] Nolten therefore had to raise at the trial for determination of his defence that he should not be made jointly liable for the profits so determined. As the learned authors of Res Judicata stated at paragraph 5.21,[35] the rights of parties in proceedings for a judicial account must be established at trial as it will be too late to raise issues about the rights of the parties in the course of accounts and inquiries directed by the judgment based on the rights declared at the trial.[36]

23 Although there was no declaration by the Court that GA is entitled to an account of profits from Nolten on a joint basis, that was because the case was conducted on the basis that the entitlement of GA to obtain orders against Nolten jointly was not under challenge, not because the issue was not raised in the proceeding. The subject matter of the litigation concluded by the judgment and orders made which were binding on Nolten on the taking of accounts thus included GA's right to an order that Nolten account to it on a joint and several basis for the profits determined. The plaintiffs had pleaded their entitlement to relief on that basis. It is too late for Nolten to raise the matter now after judgment and in the course of and following the taking of the accounts and inquiries directed by the orders on judgment. The doctrine of res judicata prevents Nolten from now disputing his liability to pay the profits determined by the Associate Justice on the taking of accounts pursuant to the orders made on 1 December 2010.

24 It was also argued for Nolten that he could not, as a matter of law, be made liable for the profits determined by the Associate Justice that were made by the corporate defendants and not by him. This argument is also no answer to the operation of the doctrine of res judicata. The doctrine of res judicata will apply even though the result may be wrong in law.[37] Here the judgment and orders have concluded that issue once and for all, whether rightly or wrongly about which I express no view.

25 In view of my conclusion on the first question it is unnecessary to determine the second question. It is also undesirable in the circumstances that I express a view on that question given that my view would be obiter and may require findings of fact as well as conclusions of law in order to determine the question.[38] In this regard I note that there is authority, relied on by Nolten, which indicates that there is no absolute bar in law on making a defaulting fiduciary liable for profits made by an accessory. A defaulting fiduciary may be liable to account for payments or profits received by a company where the company "is a mere cloak or alter ego of the fiduciary" or where the fiduciary receives the profit and then diverts it to a company.[39]

26 For the above reasons the plaintiffs are entitled to orders that Nolten and the relevant corporate defendants are jointly and severally liable to pay GA the profits determined by the Associate Justice.

GROENEVELD TRANSPORT EFFICIENCY INTERNATIONAL HOLDING BV

GROENEVELD AUSTRALIA PTY LTD (ACN 070 025 795) and others

GROENEVELD AUSTRALIA PTY LTD and GROENEVELD TRANSPORT EFFICIENCY INTERNATIONAL HOLDING BV

On 22 November 2010 the Court gave a judgment that included findings to the following effect:

1. In respect of the claim alleged in paragraphs 112 to 114 of the fourth amended statement of claim the First Defendant and Fifth Defendant are liable to the Plaintiffs the sum of $53,336.00, and $16,880.00 as interest. [excess rent]

1. The First Defendant is liable to pay to the First Plaintiff an amount equivalent to the dividends paid to the First Defendant by the First Plaintiff, namely $71,926.62.

1. The First Plaintiff is liable to pay the First Defendant $58,000.00, being the amount of the consideration for the shares referred to in these orders.

In addition, the parties consented to judgment in respect of the following matters:

1. In respect of the claim alleged in paragraphs 42 to 57 of the fourth amended statement of claim the First Defendant and Fifth Defendant are liable to the Plaintiffs the sum of $30,000.00, and $19,561.00 as interest. [GCQ distrib]

1. In respect of the claim alleged in paragraphs 67 to 76 of the fourth amended statement of claim the First Defendant is liable to the Plaintiffs the sum of $103,000.00, and $41,224.00 as interest. [travel]

1. In respect of the claim alleged in paragraphs 112 to 114 of the fourth amended statement of claim the First Defendant is liable to the Plaintiffs the sum of $2,750.00 and $790.00 as interest. [Barry road]

1. The First Plaintiff (First Defendant by Counterclaim) is liable to pay the First Defendant (Plaintiff by Counterclaim) $83,412.00 in respect of the statutory entitlements claim by the First Defendant (Plaintiff by Counterclaim) by his counterclaim plus interest of $7,175.00.

1. In respect of the claim alleged in paragraphs 58 to 66 of the fourth amended statement of claim the First Defendant and the Third Defendant are liable to the Plaintiff in the amount of $15,444.00 being the difference between the amount claimed by the Plaintiffs ($36,500.00) and the costs alleged by the First Defendant and Third Defendant to be deductible against the amount claimed by the Plaintiffs ($21,056.00), plus interest of $8,001.00. The issue of whether the First Defendant and Third Defendant are entitled to deduct costs alleged from the amount owing to the Plaintiffs will be referred for an account in accordance with these orders. [GCQ Car]

Orders 1 to 3 set out below are intended to give effect to this part of the judgment.

1. The First Defendant shall pay the First Plaintiff the sum of $214,325.00.

1. In respect of the sum payable in paragraph 1, the Fourth Defendant (C&CT) is jointly and severally liable for $23,445.00 and shall pay that amount to the First Plaintiff.

1. In respect of the sum payable in paragraph 1, the Fifth Defendant (TTM Australia Pty Ltd) is jointly and severally liable for $119,777.00 and shall pay that amount to the First Plaintiff.

1. The following accounts and enquiries be taken and made by an Associate Justice:

(a) an account of all profits made by Nolten or C&CT by reason of the matters alleged in paragraphs 34 to 41 of the fourth further amended statement of claim; [C&CT dealings with GA]

(b) an account of all profits made by Nolten or C&CT by reason of the matters alleged in paragraphs 58 to 66 of the fourth amended statement of claim; [GCQ vehicle claim]

(c) an account of all profits made by Nolten or C&CT (or by C&CT New Zealand) by reason of the matters alleged in paragraphs 91 to 101 of the fourth further amended statement of claim; [C&CT dealings with GSI]

(d) an account of all profits made by Nolten or TTM by reason of the matters alleged in paragraphs 102 to 114 of the fourth further amended statement of claim; [Perth claim]

(e) an account of all profits made by Nolten or Nolten Investments by reason of the matters alleged in paragraphs 115 to 121 of the fourth further amended statement of claim; [Barkly street temporary staff claim]

(f) an account of all profits made by the Defendants, or any of them, by reason of the matters alleged in paragraphs 131 to 138 of the fourth further amended statement of claim; [vehicle finance claim]

1. On or before 20 December 2010 the Defendants shall make, file and serve affidavits disclosing their profits in respect of the accounts.

1. On or before 21 January 2011 the Plaintiffs shall serve on the Defendants a notice identifying any documents, or categories of documents, that the Plaintiffs require the Defendants to discover relevant to the accounts ("the discovery notice").

1. On or before 4 February 2011 the Defendants shall make, file and serve an affidavit of discovery in relation to all documents identified in the discovery notice.

1. On or before 18 February 2011 the Plaintiffs shall file and serve any affidavit material they wish to rely on at the hearing to take the accounts.

1. The proceeding be referred to an Associate Justice for a directions hearing on a date to be fixed.

1. The Court declares that the transaction allotting shares in the First Plaintiff to the First Defendant is void and hereby set aside, and the First Defendant shall deliver up to the First Plaintiff all share certificates or other indicia of ownership of shares in the First Plaintiff in the possession, power or control of the First Defendant.

1. Save for the payments to the Plaintiff by Counterclaim identified in other matters and reflected in order 1, the counterclaim is otherwise dismissed.

1. The Defendants (excluding the Second Defendant, Barry Woods, against whom proceedings were discontinued in July 2009; and the Third Defendant, Lubecore Australia Pty Ltd) shall pay the Plaintiffs' costs of the proceeding, including the costs of the counterclaim and any reserved costs, and the First Defendant shall pay the costs of proceeding number S CI 2009 07585, including any reserved costs.

GROENEVELD TRANSPORT EFFICIENCY INTERNATIONAL HOLDING BV

GROENEVELD TRANSPORT EFFICIENCY INTERNATIONAL HOLDING BV

[1] Groeneveld Australia Pty Ltd & Ors v Wouter Nolten & Ors (No. 3) [2010] VSC 533.

[3] Jackson v Goldsmith [1950] HCA 22; (1950) 81 CLR 446, 466 (Fullagar J), cited with approval by the High Court of Australia in Port of Melbourne Authority v Anshun Proprietary Limited [1981] HCA 45; (1981) 147 CLR 589, 597 (Gibbs CJ, Mason and Aickin JJ).

[4] Burrel v R [2008] HCA 34; (2008) 238 CLR 218, 223 [15]; Spencer Bower and Handley, Res Judicata (4th ed, 2009), 3-5 [1.10].

[5] Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, 531-32 (Dixon J).

[6] Champerslife Pty Ltd v Manojlovski & Anor [2010] NSWCA 33; (2010) 75 NSWLR 245, 263 [106] (Handley AJA).

[7] Spencer Bower and Handley, Res Judicata (4th ed, 2009) 20 [2.16]; Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1987) 164 CLR 502.

[8] Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1987-1988) 164 CLR 502.

[10] [1843] EngR 917; (1843) 3 Hare 100, 114-115.

[11] Arnold v National Westminster Bank Plc (No 1) (1991) 2 AC 93, 104.

[12] Carl Zeiss Stiftung v Rayner and Keeler Ltd (No 2) (1967) 1 AC 853.

[13] Licul v Corney [1976] HCA 6; (1976) 180 CLR 213, 225; Carr v Finance Corp of Australia Ltd (No 1) [1981] HCA 20; (1981) 147 CLR 246, 248.

[14] White and Libut v Thompson (2011) NSWCA 161, [38]-[47].

[16] Ibid, and the cases referred to therein.

[17] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589, 597; Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1987-1988) 164 CLR 502, 507.

[18] Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, 531-32 (Dixon J).

[19] 1st to 6th Defendants' Written Outline 24 August 2011, para 10a.

[20] The relief sought was pleaded against the defendants in the alternative but was taken by the defendants to be a claim for relief on a joint and several basis: Open letter 5 July 2010 paragraphs 13 and 14.

[22] The Groeneveld distribution fee claim, the vehicle sale claim, the Barry Road claim and the vehicle finance claim.

[23] There were other issues for determination by the Court with respect to put and call options exercised by Nolten but they are not relevant for present purposes.

[30] White and Libut v Thompson [2011]NSWCA 161, [38]-[43] and the cases referred to therein

[32] Ibid, [47]; see also Strachan v The Gleaner Co Ltd [2005] UKPC 33; [2005] 1 WLR 3204.

[34] White and Libut v Thompson [2011] NSWCA 161, [38]-[47].

[35] Spencer, Bower and Handley, Res Judicata (4th ed, 2009) 76-77.

[36] White and Libut v Thompson [2011] NSWCA 161, [38]-[47].

[37] Arnold v National Westminster Bank Plc (No 1) (1991) 2 AC 93, 98-99.

[38] Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd [2010] VSCA 355.

[39] Ultraframe (UK) Ltd v Fielding and ors [2005] EWHC 1638 (Ch), [1576] (Lewison J).