Plaintiffs v Defendants

Supreme Court of Victoria|2013-11-14|Before: FERGUSON J

PRACTICE AND PROCEDURE - Application to reopen defendant's case - Trial complete and judgment reserved - Whether mistaken apprehension of the facts - Whether interests of justice served if leave to reopen granted.

1 A number of serious claims of fraud are alleged in this proceeding. The claims arise out of the operations of a shipping container repair and storage business and its purchase in late February 2008 by the first Plaintiff, CC Containers Pty Ltd ('CCC'). The business was purchased from a company that is referred to by the parties as CCC Old Co. That company is in liquidation. The Plaintiffs allege that the proceeds of the fraud were shared by CCC Old Co and two of the Defendants, one being Kain Chong and the other being Christopher Neale. The trial of the proceeding took place between 15 July and 22 August 2013 and judgment is reserved. However, Kain Chong has made application to reopen his case.

2 Evidence was given at the trial, including evidence given by Kain Chong, about the payments that were made to his company, Ackland Forge Pty Ltd over a number of years and about moneys that Ackland Forge received on the sale of the business and payment of part of those moneys to Mr Neale's company, Dawn Trading Pty Ltd. Some of those payments were referred to in the records of CCC Old Co as 'commissions'. Kain Chong also gave evidence that he was not involved in the business of CCC Old Co at the relevant time when the fraud is alleged to have taken place and when the business was sold to CCC.

3 Kain Chong sought leave to reopen on the basis that the reopening would be limited to the following issues:

(a) the character of the payment made to Ackland Forge following the sale of the business;

(b) the nature and character of the payments that were made progressively over a period of time to Ackland Forge by CCC Old Co; and

4 The events that led to the application to reopen are as follows. On 19 August 2013, Mr Bock, the solicitor for Kain Chong, received from his client a copy of a letter dated 13 August 2013 from the solicitor who acts for the liquidator of CCC Old Co. The letter demanded repayment of an amount of $1.5 million paid to a Westpac account jointly in the name of CC Technologies Pty Ltd and Kain Chong. The payment was alleged to have been made on 11 March 2008, a date shortly after the sale of the business. Kain Chong instructed Mr Bock that the payment was a gift given to him by his son, Kevin Chong. Kevin Chong is also a Defendant in these proceedings. He did not attend or take part in the trial, although Mr Bock had acted for him until the commencement of the trial when he was given leave to file a notice of ceasing to act.

5 Mr Bock sought information from Kevin Chong concerning the $1.5 million payment. Kevin Chong informed him that the former tax agent for CCC Old Co, Mr Martin Jurblum, would have all the information and be able to provide details concerning payments by CCC Old Co to Kain Chong. Mr Bock then met with Mr Jurblum on 27 August 2013. Mr Jurblum informed Mr Bock that the corporate structure for the CCC group of companies was different from the diagram that was prepared by KPMG for the Plaintiffs during the due diligence process for the purchase of the business. That diagram forms part of the evidence in the substantive case. In essence, Mr Jurblum said that CCC Old Co was treated as a trustee of the CC Containers Unit Trust and that CCC Old Co owned nothing and earned nothing in its own right or capacity but rather did so as the trustee of a unit trust. Mr Jurblum said that he had not sighted a unit trust deed for such a trust. Mr Jurblum also told Mr Bock that after he was appointed as CCC Old Co's accountant in the second half of 2004, he obtained all his instructions from Kevin Chong and had no discussions with Kain Chong until after the sale of the business to the Plaintiffs. He informed Mr Bock that Kevin Chong told him that Kain Chong should have been removed as a director a few years earlier. Finally, Mr Jurblum told Mr Bock that at his instigation, payments made by CCC Old Co to Ackland Forge Pty Ltd described as 'consultant's fees' in some of the company records had been altered so that they were described as 'commissions'.

6 On 4 September 2013, Mr Bock contacted my chambers and said that Kain Chong wished to make application to reopen his case. Due to religious observances, Mr Bock was not able to make the application on behalf of Kain Chong immediately. However, a summons was filed on 20 September 2013 and was supported by an affidavit of Mr Bock, in which he deposed as to his discussions with Mr Jurblum and exhibited to his affidavit various financial statements of CCC Old Co, the CC Containers Unit Trust and other documents that he had received from Mr Jurblum. The application was heard on 17 October 2013.

7 If leave to reopen is granted, the only witness that Kain Chong proposes to call is Mr Jurblum. Kain Chong expects that the evidence Mr Jurblum would give would be along the lines of what Mr Jurblum told Mr Bock.[1]

8 In InspectorGeneral in Bankruptcy v Bradshaw,[2] Kenny J refused an application to reopen. In the course of her judgment, Kenny J noted that there are four recognised classes of case in which a court may grant leave to reopen as follows:

(a) where fresh evidence, unavailable or not reasonably discoverable before, becomes known and available;

(d) where there has been a mistaken apprehension of the law.[3]

These classes are not closed and the overriding principle is that leave to reopen will be granted if, taken as a whole, the justice of the case favours such a course.[4] Her Honour's categorisation of the recognised classes of case in which a court may grant leave to reopen was approved by the Court of Appeal in Spotlight Pty Ltd v NCON Australia Limited.[5] In that case, after judgment had been reserved, the trial judge caused a memorandum to be sent to the parties in which he said that he proposed to reconvene the hearing of the proceeding to hear submissions about whether the plaintiff wished to apply to reopen its case on damages. The plaintiff duly applied to reopen its damages case and leave to reopen was granted. The defendant successfully appealed the decision granting leave. The Court of Appeal observed:

There are good reasons why the circumstances must be exceptional before a court may allow a case, having been closed and judgment reserved, to be reopened. The need for finality in litigation is one. It is no answer to this point to say that the further evidence sought to be adduced by the respondent in this case is confined to the quantum of damages. Were applications to reopen to be allowed almost as of course, such applications would be regularly made. That would add enormously to inefficiencies in the administration of justice, even if the reopened hearing was strictly confined. The discipline which ought to attend the conduct of litigation by highly competent litigators would also inevitably decline.

The very strict rule that, subject to any applicable process of appeal or review, the presentation of their cases by parties to litigation must conclude with the end of the trial, has another important justification. It is that, very often, the boundaries of the reopened issues would be hard to define and as difficult to protect. The reopened hearing would then be bedevilled by arguments about whether one party or the other was seeking to take advantage of the reopening to polish parts of its case which were more or less within the scope of the reopened proceeding but not clearly on one side or the other of the prescribed limits.[6]

9 In Urban Transit Authority of New South Wales v Nweiser,[7] the defendant closed his case. On the same day, he began his closing submissions. The next morning he sought leave to reopen his case. Counsel for Kain Chong relied on the following passage from the reasons of Clarke JA (Mahoney and Meagher JJA agreeing):

The principle which should guide the court in determining whether to grant an application for leave to re-open is whether the interests of justice are better served by allowing or rejecting the application as the case may be. No doubt it is relevant to take account of a number of matters such as likely prejudice to the party resisting the application and the reasons why the evidence was not led in the first place, but there is not, in my opinion, any hard and fast rule which requires the court to reject an application where the decision not [to] call the witness in the party's case was a deliberate one. Of course that does not mean that that is not a very relevant consideration. It is. Where, for instance, a decision was based on tactical grounds it may be difficult to resist the conclusion that the interests of justice were better served by the rejection of the application. But even in that circumstance there may be cases in which it is felt that the client whose application it is should not have to suffer for his or her counsel's deliberate decision. Where the decision is not made for tactical reasons and is based on a mistaken apprehension of the law or the facts the case is more appropriately to be considered as one in which the application has resulted from an error by counsel.

Similar views were expressed by Sheppard J in Joyce v GIO (NSW) (Ritchie's Supreme Court Procedure, New South Wales, val 2 [13,028]) and Jeffery J in Henning v Lynch [1974] 2 NSWLR 254. It is the fact, as Sheppard J observed in Joyce, that there are a number of decisions which support the view that the principles relating to the calling of fresh evidence on appeal are relevant when what is under consideration is an application to re-open. That view may be correct where the application to re-open is made after the delivery of judgment but I can see no justification for importing those principles into an application to re-open which is made before the hearing is concluded: see Smith v New South Wales Bar Association [No 2] [1992] HCA 36; (1992) 66 ALJR 605 at 608-609; [1992] HCA 36; 108 ALR 55 at 61-62 of the judgment of Brennan, Dawson, Toohey and Gaudron JJ.

In Henning, the late Jeffrey J said (at 259):

... The applicable principle is one which in the circumstances obtaining here strongly favours the re-opening of the prosecution case: where the defendant's case has not been gone into and there is ready to be tendered some additional evidence which by accident, mistake or want of foresight has not been tendered before the prosecution case is closed it is - to use the words of Cave J in Hargreaves v Hilliam (1894) 58 JP 655 'a very fit and proper thing to allow the evidence to be given unless there is some very good reason'.

That particular statement was approved by this Court in Brown v Petranker (1991) 22 NSWLR 717 and accurately expresses the principle which should have been applied by his Honour.

I would conclude, therefore, that the evidence which the appellant sought to lead was relevant and important and his Honour erred in failing to allow the appellant to re-open. In these circumstances the appeal should be upheld and a new trial ordered.[8]

10 Counsel for Kain Chong nominated the third category identified by Kenny J as the relevant category here (mistaken apprehension of the facts). He submitted that there was a mistaken apprehension of the facts as to :

(a) the nature of the payment that was made to Ackland Forge following the sale of the business by CCC Old Co;

(b) the character of the payments made over time to Ackland Forge;

(d) the extent to which Kain Chong participated in the conduct and management of CCC Old Co;

(e) where or from whom Mr Jurblum obtained instructions to prepare the accounts for CCC Old Co.

11 Counsel submitted that if the Court was not satisfied that the third category gave a basis for reopening in this case, nevertheless, the application should be granted because this would be in the interests of justice. Counsel was not able to articulate any new category into which this application may fall. However, this may be of no real moment as I accept that the Court must apply the overriding principle that leave will be granted where, taken as a whole, the justice of the case favours reopening.[9]

12 Kain Chong submitted that the evidence of Mr Jurblum and the documents that he will produce will clarify the ownership structure of the CCC group in the following way:

(a) It will show that at all times CCC Old Co was the trustee of the CC Containers Unit Trust.

(b) The Unitholders were initially the KP and K Chong Trust and Westgate Transport Trust, and later, the KP and K Chong Trust with PJ Sim Nominees Pty. Ltd.

(c) The income of the KP and K Chong Trust was distributed to Colebridge Investments Pty Ltd as trustee of the Colebridge Investment Trust.

(d) The capital gain made upon the sale of the business of CCC Old Co as trustee of the unit trust was distributed to KP & Kevin Chong Trust and PJ Sim Nominees Pty Ltd.

(e) The KP & Kevin Chong Trust distributed the capital gain to Colebridge Investment Trust at the direction of Kevin Chong.

(f) Kevin Chong then directed the accountant to treat the payments made to various parties including Kain Chong as made on his behalf and to be debited to his loan account. Kain Chong submitted that this explains and supports his evidence that what he received from Kevin Chong was a gift and not a payment in respect of his interest in CCC Old Co or in respect of the alleged participation in the alleged conspiracy.

13 Kain Chong submitted that these facts are significant because:

(a) the sale of business agreement was prepared upon the premise that CCC Old Co was the beneficial owner of the business;

(b) Kain Chong was crossexamined at length on the nature of his entitlements or, as counsel for the Plaintiffs put it, 'interest' in CCC Old Co and on the character of payments made to him between 1998 to 2008 and upon the sale of the business.

14 He submitted that the additional evidence would show:

(a) that he could not, at law, have an 'interest' of any kind in the KP & Kevin Chong Trust other than a possible entitlement to be considered as a discretionary object of a power of appointment (it is not possible to say whether Kain Chong was an object of the power of appointment as there is no evidence of the trust deed of the KP & Kevin Chong Trust);

(b) the payment made by Kevin Chong to Kain Chong upon sale of the business was a payment from Kevin Chong personally as he received the sale proceeds as a trust distribution from his family trust Colebridge Investment Trust. It was incorrect to suggest, in crossexamination, that the payment to Kain Chong upon sale of the business was made in respect of his 'interest' in CCC Old Co or a payment for the sale of business. It is necessary for the Court to make a finding as to whether or not the payment was in respect of Kain Chong's interest in CCC Old Co. As a matter of law, the payment to Kain Chong could not be in respect of any interest in CCC Old Co;

(c) CCC Old Co paid a settlement discount (the description given to some of the payments made to Ackland Forge) as far back as the financial year beginning 1 July 1998. In crossexamination, the time at which the settlement discount was paid was put in issue, yet those documents show unequivocally that such an arrangement existed well before the alleged conspiracy, pleaded to be 'from at least late October 2002 to about late February 2008';

(d) further, in crossexamination it was suggested that the evidence that the payment arrangement dated back to 1998 was 'created'. The evidence proposed to be led would show that that is not correct.

15 Kain Chong contended that any fault for not producing the accounts and other documents that Mr Jurblum would provide and for not clarifying that CCC Old Co acted as a trustee should be laid at the feet of the Plaintiffs, who had not included those documents in the Court Book and had taken no step to correct that misapprehension. Counsel for Kain Chong contended that instead, their side had assumed that CCC Old Co beneficially owned the business when it is now clear that it did not. In the circumstances, counsel submitted that the Plaintiffs cannot complain of any prejudice because any fault lay with them.

16 Consequently, Kain Chong submitted that he ought be allowed to reopen his case to address these issues and other matters concerning his involvement in the conduct and management of the affairs of CCC Old Co and the character of the payments made to Ackland Forge.

17 The other Defendant who attended and was represented at the trial was Mr Neale. He supported Kain Chong's application to reopen to a limited extent. Mr Neale submitted that leave to reopen ought be granted in respect of the alteration of the description given to the payment by CCC Old Co to Ackland Forge in the accounts from 'consultancy fee' to a 'commission'. He submitted that if the Court is of the view that the documentary evidence containing references to a 'commission' is significant then evidence that Mr Jurblum could give about the change in description probably meets the test of whether it is of the type that might change the result. In essence, Mr Neale submitted that the evidence that Mr Jurblum could give would place in context some of the documents that were put in cross-examination to the last witness in the case, Kain Chong. Mr Neale submitted that the evidence of Mr Jurblum would be responsive to that documentary evidence which was tendered by the Plaintiffs. He contended that the evidence would be confined to that going to the payments that were made shortly after the settlement of the sale.

18 Counsel for Mr Neale observed that the time at which an application to reopen is made will have some bearing on the outcome of the application. So, for example, counsel noted that where a party closes its case one day and overnight changes its view about the case and seeks to reopen the following morning, that application will almost always be allowed because nothing has happened overnight with the consequence that there is no real prejudice possible to any other party.[10] Next is the case, such as the present, where the trial has concluded and judgment has been reserved. Next in the continuum, there is the case of an application being made to reopen after judgment has been reserved, when the court contacts the parties about an aspect of the case, such as happened in Spotlight Pty Ltd v NCON Australia Ltd,[11] or where there has been a judgment on liability but not quantum.[12] Lastly is the situation where application to reopen is made after judgment has been delivered.[13]

19 Counsel submitted that in this case, the only thing that has occurred since Kain Chong closed his case is that the parties have made closing submissions. Counsel submitted that the reopening of Kain Chong's case for Mr Jurblum to give evidence about the description of the payment as commission rather than a consultant's fee would not impact on the course of the trial except for closing submissions, and that could easily be remedied by the parties each making supplementary submissions about the additional evidence.

20 Counsel for the Plaintiffs contended that before leave to reopen may be granted, an applicant must satisfy the Court that there is a good reason why it did not call the evidence during the trial and now wants to do so after its case is closed and judgment has been reserved. Here, he submitted, all of the issues that Kain Chong wants to reopen were live during the trial and relate to matters about which Kain Chong was crossexamined by the Plaintiffs. The Plaintiffs' counsel referred to the following passage from the cross-examination of Kain Chong:

You remained a shareholder, as I understand it, of this company [CCC Old Co]?---Yes.

Up until the business was sold?---Yes.

Who held your shares?---I think is Ackland Forge.

Can I take you to 32 - - -?---No, CC Container Services Victoria Pty Ltd. Is that right?

You're looking at the chart,[14] are you?---Yeah, yeah.

2486?---24, what?

So that company?---Yeah.

CC Containers Victoria, is that the company ACN 082679141?

---Yes.

So that was a shareholder along with P & J Sim at the time the company was liquidated after its business was sold?---I have no idea because CC Container Services Vic Pty Ltd or which one you're talking about?

Mr Chong, your evidence is you were paid $2.6m when the business was sold to MSCA, is that right?---Yes, that's right.

That was for your interest in the company? That was for your shareholding?---No, that is a gift.

A gift?---Yes.

I put to you it was for your interest in the company?---Yes, sort of, yeah.

...

You've just agreed with me for your interest in the business, in the company I said?---Yeah, as I unit trust for the company.

Where are those unit trust documents?---I think is with Kevin.

21 Counsel submitted that this passage shows that Kain Chong's position that there was a unit trust was fully exposed in evidence. Counsel noted that no trust deed has been produced and that Mr Jurblum told Mr Bock that he did not see a trust deed.

22 Counsel submitted that nothing prevented Kain Chong from giving evidence in chief or calling additional witnesses in relation to these matters and noted that no explanation as to why he could not have done so has been proffered. The Plaintiffs' counsel submitted that the application to reopen was an application to make more submissions now that judgment has been reserved.

23 Counsel also pointed to part of Kain Chong's closing submissions in which he submitted that the Plaintiffs knew that the accounts and books of CCC Old Co were highly inaccurate and lacked integrity, yet he now wished to rely on some of those records.

24 The Plaintiffs also submitted that the issue in the case is not what the accounting scenario was but rather the substance of the transactions at the time. They contended that that is not a matter for the accountant.

25 The Plaintiffs further submitted that the appropriate witness to give any further evidence would be Kevin Chong, and that Kain Chong clearly made a forensic choice not to call him at trial.

26 Additionally the Plaintiffs submitted that the proposed additional evidence would not affect any substantive finding in the proceeding. On the other hand, the Plaintiffs contended that they would suffer substantial prejudice. First, they say that if Kevin Chong gave evidence, then all of the issues involving him would be reopened and the case would run for a significantly longer time. There was, however, no suggestion that Kain Chong would call Kevin Chong to give evidence. Rather, counsel for Kain Chong stated that the only additional witness would be Mr Jurblum and his evidence would take no longer than a day. Secondly, the Plaintiffs say that they would lose the forensic advantage of the inference that might be drawn from the fact that Kevin Chong did not give evidence if Mr Jurblum gives evidence.[15] In this regard, the Plaintiffs submitted that they would be prejudiced in the way that they forensically conducted the trial and that is a real prejudice. In my opinion, any prejudice suffered in this way would have been suffered had Kain Chong called Mr Jurblum as a witness at the trial, whose evidence would have been given after the Plaintiffs' case had closed. If leave to reopen were granted, then the consequence of that may be that the Plaintiffs would be permitted to call evidence in reply.

27 The Plaintiffs submitted that there was no basis upon which to grant the application. They concluded that Kain Chong's legal advisers had made forensic choices during the course of the trial and he ought not now be permitted to revisit them by in effect being given 'a second bite of the cherry'. They contended that this is not the type of exceptional case in which leave ought be granted, particularly where no reasonable explanation has been given as to why the evidence had not been called during the trial.

28 In my view, leave to reopen should not be granted. First, the application is based on the tenet that how payments were described and what the asserted legal structure of the CCC group was will be determinative of critical issues in the case. However, that is misconceived. The allegations are of fraud. In part, the task of the Court is to look to the true nature of the payments that were made - not how they were described in the books of CCC Old Co and Ackland Forge. In this case, it does not matter what the purported legal structure was if the payments are the fruits of a fraud. As counsel for the Plaintiffs observed, Kain Chong's intended reliance on the evidence of Mr Jurblum (as CCC Old Co's former tax agent) and the documents that he would produce flies in the face of his closing submission that the CCC Old Co accounts were unreliable. Evidence of Mr Jurblum that he was responsible for the change of description for payments from CCC Old Co to Ackland Forge from 'consultant's fees' to 'commissions' would be of no real assistance in determining for what in truth the payments were made. Nor would it assist with determining what the true nature of the payment made to Mr Neale's company was shortly after the sale was concluded. Quite likely, it makes no difference that payments were described as 'commissions' rather than as 'consultant's fees.' In many respects, the terms might be used interchangeably - both could be legitimate types of payment; both could be wrongful payments. Their label does not determine the issue. Nor, in this case, is the description of the payment likely to have much, if any, probative value. It is not evidence of the type that is so material that it would be likely to bear upon the result in the case.

29 Secondly, evidence from Mr Jurblum that he did not receive instructions from Kain Chong when he was acting for CCC Old Co is of so little probative value in regard to the issue of Kain Chong's involvement in the business, that reopening on this basis is not warranted. Any other evidence that Mr Jurblum might give in regard to what he was told by Kevin Chong would very likely be inadmissible hearsay. The person who most likely could have given probative evidence is Kevin Chong. However, he did not participate in the trial and was not called by his father to give evidence.

30 Thirdly, the matters for reopening were all live during the trial. I accept the Plaintiffs' submissions in this regard. This is not so much a case where there has been a misapprehension of the facts. Rather, it more likely falls within the category of reopening based on fresh evidence. However, the difficulty with that is that the further evidence was always available and could likely have been reasonably discoverable before or during the course of the trial. Kain Chong was crossexamined on Ackland Forge accounts which he confirmed had been prepared by Mr Jurblum. If there was a question about the preparation of those accounts, or about how matters were recorded in the books of CCC Old Co upon which Mr Jurblum could throw light, then no doubt he could have been called as a witness before Kain Chong closed his case, or at least, with leave before the trial concluded. In this regard, there was a break of more than two working days after Mr Neale (as the last defendant) closed his case and closing submissions began. However, no satisfactory explanation has been given as to why it was that Mr Jurblum was not called as a witness during the trial.[16] This is all the more perplexing given that Mr Bock acted not only for Kain Chong but also for Kevin Chong until the start of the trial and had been the solicitor for CCC Old Co in relation to the sale of the business.

31 Fourthly, this is a case where the application has not been made until after judgment has been reserved. It is not in the interests of justice to permit reopening unless there is a very good reason to do so, and here there is not. This case is distinguishable from the cases such as Urban Transit Authority of New South Wales v Nweiser,[17] where the application was made during the course of the trial, and where counsel has had a change of heart overnight. Here, Kain Chong had closed his case. Mr Neale had then presented his case (albeit by the tender of documents without calling any witnesses, such that Kain Chong was the last witness in the case). There was then a short break of a few days, closing submissions by each of the parties were made and judgment was reserved.

32 Fifthly, the scope of the reopening would be difficult to confine. Whilst it might be expressed in words, when it came time for evidence to be restricted to remain within the confines of the permitted reopening, I have little doubt that significant difficulties would be encountered in practice.

33 Sixthly, it is far from clear to me that there has been any misapprehension of the facts as contemplated by the authorities. Certainly, for the reasons given in [28], I do not think that there has been any misapprehension that would affect the outcome of the matters required to be determined by the Court in the substantive proceeding.

34 In all the circumstances, I am not satisfied that the interests of justice would be served by permitting Kain Chong to reopen his case. This is not the type of exceptional case that would support such a course. Rather, granting the application would unjustifiably undermine the principle of finality in litigation.

[4] Ibid; Spotlight Pty Ltd v NCON Australia Limited [2012] VSCA 232 [26].

[6] [2012] VSCA 232 [17]-[18] (footnote omitted).

[9] Spotlight Pty Ltd v NCON Australia Ltd [2012] VSCA 232.

[10] Urban Transit Authority of New South Wales v Nweiser (1992) 28 NSWLR 471.

[12] Nicholson v Hilldove Pty Ltd [2013] VSC 231.

[13] Commonwealth Bank of Australia v Quade (1991) 178 CLR 134.

[14] This is the KPMG corporate diagram that was prepared for the Plaintiffs as part of the due diligence process when the business was purchased and which Mr Jurblum told Mr Bock is not correct. See above [5].

[16] See Smith v New South Wales Bar Association [1992] HCA 36; (1992) 176 CLR 256, 266-267 as to the need to inquire why evidence was not called at the hearing.

At a glance

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Judgment (78 paragraphs)

Parties

Cases Cited (6)