Supreme Court of WA|2004-06-23

Ridout & Anor v O'Brien & Ors [2004] WASC 137 (23 June 2004)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : RIDOUT & ANOR -v- O'BRIEN & ORS [2004] WASC 137

CHRISTOPHER JOHN RIDOUT (as Executors of the Estate of the late GEORGE EDWARD RIDOUT)

Practice and procedure - Application to strike out plaintiffs' claim - Claim that prior judgment obtained by fraud - Relevant principles - Whether facts relied on to establish fraud must not have been discoverable by reasonable diligence before the trial - Turns on own facts

Blair & Perpetual Trustee Co Ltd v Curran (Adams' Will) [1939] HCA 23; (1939) 62 CLR 464

Burton v Shire of Bairnsdale [1908] HCA 57; (1908) 7 CLR 76

Dart v Norwich Union Life Australia Ltd [2002] FCA 168

General Steel Industry Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

Gould v Vaggelas (1985) CLR 215

Haines v Australian Broadcasting Corp [1995] NSWSC 136; (1995) 43 NSWLR 404

Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589

Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204

Reichel v Magrath (1889) 14 App Cas 665

State Bank of New South Wales Ltd v Alexander Stenhouse Ltd (1997) Aust Torts Rep 81423

1 MASTER NEWNES: This is an application by the second defendant for orders striking out the plaintiffs' writ of summons and dismissing the action on the ground that it is an abuse of process. The second defendant contends, in essence, that by this action the plaintiffs seek to relitigate matters already determined in earlier proceedings in this Court. The plaintiffs' action against the other defendants has been dismissed.

2 At a directions hearing in this application I suggested that it would be desirable for the plaintiffs' claim to be articulated in a statement of claim. The plaintiffs, who were temporarily unrepresented, were willing to see what could be done to prepare a statement of claim, but the solicitors for the second defendant ("the Bank") were not at all attracted to the idea, believing that it would cause delay and add nothing to the affidavit material filed on behalf of the plaintiffs. In the end, the matter has proceeded on the basis of the indorsement on the writ and the affidavit evidence.

3 In 1995, the Bank brought an action in this Court in CIV 1495 of 1995 against the present plaintiffs (in both their personal and representative capacities) and a number of other parties claiming, among other things, a determination of the amount due and payable to it in under various mortgages and guarantees in respect of loans it had made to certain of the defendants, judgment for the amount so found and declarations as to its entitlement to possession of the properties which were the subject of the mortgages.

4 The trial of the action took place before Wheeler J over 12 days in June and September 1999. The Bank and the defendants in the original action were each represented by Senior Counsel at the trial. In the result, the Bank was successful against certain of the corporate defendants and the estate of the late George Ridout (whom I shall refer to as "George Ridout"), and in March 2000 judgment was entered for the Bank against those defendants in the sum of $4,041,822.25, plus interest, and a declaration made that the Bank was entitled to possession of the mortgaged properties. The Bank's claims against the present plaintiffs in their personal capacities, and against Dorothy Ridout, failed.

5 The unsuccessful defendants in the original action subsequently appealed against the decision. The appeal was heard by the Full Court in June 2003 and dismissed.

6 In this action, the plaintiffs, who as executors of the estate of George Ridout were the fourth defendants in CIV 1456 of 1995, seek to have judgment in that action set aside and a new trial ordered on two grounds, the first being that judgment was obtained by false evidence given by a Bank officer and the second that a mortgage document was altered as part of a fraudulent scheme to provide the Bank with security which it did not in fact have. The plaintiffs contend that the judgment is so tainted by fraud that it should be set aside.

7 The Bank submits that the matters alleged by the plaintiffs were determined by Wheeler J at the trial of the action and, in any event, there is no basis upon which the plaintiffs are entitled to a retrial.

8 It is unnecessary for present purposes to canvass all of the matters dealt with at the trial. The findings made by Wheeler J are set out in detail in her Honour's reasons for decision, which are reported as Commonwealth Bank of Australia v Ridout Nominees Pty Ltd & Ors [2000] WASC 37. Suffice it to say that the action arose out of advances made by the Bank to a group of companies, referred to in the action as the Ridout Group. Those companies were controlled by George and Dorothy Ridout and their adult children, the present representative plaintiffs. The companies were also trustees of various trusts and the Ridout Group thus came to comprise a complex group of companies and trusts. The entities involved became engaged in a variety of businesses involving farming, silverware and motel units. Over time, George and Dorothy Ridout, and interests associated with them, bought seven farming properties, ending up eventually with two family farms, Camballan and Brantwood. Brantwood was held by Ridout Nominees Pty Ltd ("Ridout Nominees") as trustee for the Cloverdale Trust. Substantial business activities were conducted in another company, Ranleigh Ware Pty Ltd ("Ranleigh").

9 The decisions in relation to the activities of the Ridout Group were taken by George Ridout, with some input from other family members and under George Ridout's direction. As the businesses expanded, the Group's requirements for capital increased and over the years George Ridout approached a variety of financial institutions for assistance. As a consequence, George and Dorothy Ridout signed many documents associated with loan transactions and provided security as required.

10 In an attempt to manage the very high interest rates prevailing in the 1980s, George Ridout accepted advice from Ranleigh's then bankers, Westpac, and caused Ranleigh to take out a $800,000 foreign currency loan to assist in the purchase of Brantwood. The loan funds and other funds were on-lent by Ranleigh to Ridout Nominees to enable Ridout Nominees to purchase Brantwood.

11 In the early 1990s, problems developed as wool prices plummeted, so the farms were no longer making large profits, and currency fluctuations saw the amount of the foreign currency loan escalate in Australian dollars to almost $1.3 million. At about the same time, the silverware business declined and in about 1990 the health of George Ridout began to deteriorate.

12 Borrowings by the Ridout Group began in 1973 and continued over the years through various financial institutions leading up to a complex refinancing arrangement with the Bank in late 1990 and early 1991. The Bank relied in the action, in the first place, upon security documents signed in that refinancing arrangement, and, alternatively, if those documents were set aside, on arrangements in force as at March 1990.

13 The transactions which are the subject of the first ground relied upon by the plaintiffs in this action are guarantees dated 14 December 1990, signed by each of the plaintiffs in their personal capacities and by Dorothy Ridout, by which they guaranteed the indebtedness of various companies in the Ridout Group. In each case, the signature has been witnessed by an officer of the Bank. The plaintiffs and Dorothy Ridout each say in affidavits filed in this application that they did not sign the guarantees in the Bank officer's presence and that the documents were not explained to them.

14 The second-named plaintiff ("Christopher") says he recognises the guarantees as documents which were brought to his house by his father, George Ridout, just prior to Christmas 1990 and signed by Christopher and his wife.

15 The first-named plaintiff ("Peter") says that he has never signed documents in the Bank officer's presence. Peter says the guarantees he signed were not explained to him by the Bank officer, or any other Bank officer, or by his father. He says that he met the Bank officer in October 1990, but did not meet him again until after the date upon which the guarantees were signed.

16 Dorothy Ridout says that she does not specifically recall signing the guarantees which bear her signature, but says she does recall that some Bank documents were brought home by George Ridout in December 1990 and she signed them. Dorothy Ridout says George Ridout then took them to Christopher and Peter at their respective homes to be signed. Dorothy Ridout says she has never signed documents in the Bank officer's presence. Dorothy Ridout says that the Bank officer never spoke to her about the guarantees and she says she does not recall ever meeting the Bank officer.

17 The question of the validity of the guarantees was a live issue at the trial of the action. It is dealt with at [186] to [208] of the reasons for judgment of Wheeler J. The passages most relevant for present purposes are as follows:

"186 In December 1990, personal guarantees were executed by George and Dorothy guaranteeing the debts of Ridout [Nominees]; by George, Dorothy, Christopher and Peter guaranteeing the debts of Cloverdale; and by George, Dorothy, Christopher and Peter guaranteeing the debts of Ranleigh. Mr Bassett, then the manager of the Boyup Brook branch, witnessed the documents. Much time during the course of the evidence was devoted to the question of precisely when and how the documents were executed.

187 Generally, the evidence of each of Dorothy, Christopher and Peter was to the effect that at about this time George had simply presented them with numbers of documents requiring to be signed just prior to Christmas 1990. He explained, broadly, that they were to do with the motel units, but did not go into any further detail. They do not recall signing the documents in front of Mr Bassett. The guarantees were not explained to them, they said, either by Mr Bassett, George, or any other person.

188 By contrast, Mr Bassett, although he said that he could not recall the circumstances in which the documents were executed, gave evidence that he had never purported to witness documents that had not been signed in front of him. His evidence was also that he had not ever been to the farms, so that it follows that the documents must have been signed at some other place, most probably at the bank. His evidence was that with guarantee documents, prior to execution by the guarantors, his invariable practice was to inquire whether the guarantors understood the nature of their liabilities and to provide them with an explanation of the nature of the transaction.

189 I was impressed with the manner in which Mr Bassett gave evidence. Notwithstanding cautions that have been expressed about relying on evidence of "invariable practice", it seems to me unlikely that he would have departed from his usual practice so far as to witness these documents if they had not been signed in his presence.

190 It is relatively easy to reconcile the evidence of Mr Bassett with that of Dorothy, because it is clear from the evidence that Dorothy signed very large numbers of documents relating to the affairs of the Ridout Group. She did from time to time go into the Boyup Brook branch. Further, although in my view she appeared to have a good memory for most of the various transactions in which she was involved at the time, she gave evidence that she was diagnosed with "some type of epilepsy" in 1978 and since then has been taking medication which occasionally affects her ability to concentrate. In that context, it would be understandable if Dorothy had signed these documents at the Boyup Brook branch in front of Mr Bassett but had simply forgotten the occasion.

191 However, Christopher and Peter rarely signed documents of this kind, although each of them was naturally required to sign documents from time to time - mostly cheques but on occasions other documents such as orders or leases or agreements to purchase equipment - in relation to the farming businesses. It is less likely that they would simply have forgotten or been mistaken about the occasion.

192 Further, during the same series of transactions, and at about the same time, guarantees were executed by Christopher, Peter, Jillian and Lynette [their wives] on behalf of Kacana and Kamberoo. Jillian and Lynette rarely were called upon to sign any business documents, and they too could not recall executing anything in the presence of Mr Bassett; rather, they were of the view that documents (although they were unable to describe them clearly because they had not paid a great deal of attention to them) had been brought to them by George for execution at home.

193 None of Christopher, Peter, Jillian or Lynette were very clear about the circumstances in which the documents came to be executed; much of their evidence about where the various company seals came from, what colour ink was used, and things of that kind, had a flavour of reconstruction. This is not surprising, because the documents were not seen to have been of great significance by them until some years later, when it became apparent that the Ridout Group of companies would be unable to meet their debt and that the bank might need to enforce the guarantees.

194 It is difficult to accept that these five Ridout witnesses could be mistaken. Further, my observation of the Ridout witnesses suggested that they were occasionally prone to understating their understanding at the time and to exaggeration of some aspects of the evidence of significance to their case (particularly the extent to which George would discuss the affairs of the family businesses) but I do not think it likely that there was any agreement among them to give evidence about the execution of the documents which they did not believe to be true. However, if it were necessary to do so, I would still be inclined to prefer the evidence of Mr Bassett; he recognised during the course of cross-examination, I think, that his practice might be seen as over scrupulous by some and his reaction when asked about that practice, suggested to me that he had indeed insisted upon having documents signed in his presence even on occasions when it was inconvenient to do so."

18 In the event, her Honour concluded that nothing turned on whether or not the documents were executed in the Bank officer's presence. Her Honour was satisfied that the personal guarantees that Peter, Christopher and Dorothy Ridout signed had not been satisfactorily explained to them and accordingly the guarantees were set aside.

19 It was submitted on behalf of the plaintiffs that at the trial it was not put in evidence that the execution of the guarantees by the guarantors in the Bank officer's presence would have required all six signatories, plus Peter and Christopher's young children, to be present in the Bank officer's small office in the Bank's Boyup Brook branch. It was submitted that the fact that eight people would have been present together in the office is something that would have been remembered by those present. That, it was submitted, was fresh evidence.

20 I was also urged by counsel for the plaintiffs to attach weight to the fact that the Bank had not answered the allegations in the affidavits filed in these proceedings that the guarantees were not executed in the Bank officer's presence.

21 Counsel for the plaintiffs contended that it was relevant to the enforceability of the guarantees given by companies in the Ridout Group that Dorothy Ridout had had the guarantees presented to her without explanation and that she had signed them without knowing what she was signing. As a director of the companies, Dorothy Ridout had to have an understanding of what she was executing for the guarantees to be enforceable against the companies. In particular, it was submitted, that went to the enforceability of the guarantees by Ridout Nominees and Cloverdale Pty Ltd, which Wheeler J had held to be enforceable.

22 In my opinion, there is no substance in this ground. As I have said, the question of whether or not the guarantees were signed in the Bank officer's presence, and whether the signatories were given any explanation of the effect of the documents they signed, was canvassed at trial and was the subject of specific findings of fact by Wheeler J. Moreover, the proposition that the presence of all signatories, their young children and the Bank officer, all crowded at one time into the small office at the Boyup Brook branch of the Bank would have been a memorable occasion cannot, in my view, be regarded as fresh evidence. Assuming for the moment it was the Bank's case that all signatories were present and signed on the same occasion in the Bank officer's office - and I was not directed to any evidence to that effect - what was proposed by counsel for the plaintiffs as fresh evidence was no more than material upon which a possible submission as to credibility might have been based at the trial. In any event, the fact that the guarantees had been signed was not in issue and Wheeler J accepted that the effect of the guarantees had not been satisfactorily explained. The guarantees given by Christopher, Peter and Dorothy Ridout in their personal capacities were set aside for that reason. The guarantees by Ridout Nominees and Cloverdale Pty Ltd were nevertheless held to be enforceable for the reasons which are set out in her Honour's reasons for judgment.

23 The other ground relied upon by the plaintiffs is that a mortgage executed on behalf of Ridout Nominees on 14 December 1990 was fraudulently altered by someone on behalf of the Bank to change the name of the party whose debts were secured by the mortgage from Ranleigh to Ridout Nominees.

24 It appears from the copy of the mortgage which was produced in evidence on this application that when originally prepared the name of the party whose debt was secured had appeared as Ranleigh, but that had subsequently been crossed out and the name of Ridout Nominees inserted in its place. The initials of George and Dorothy Ridout appear against that alteration.

25 In her affidavit in opposition to this application, Dorothy Ridout says she believes that at the time she signed the mortgage, in her capacity as secretary of Ridout Nominees, it showed the party whose debt was secured as Ranleigh and that nothing had been crossed out. Dorothy Ridout says it was not until after the trial and the appeal, when details of the events that had occurred had been explained to her, that she realised the mortgage had been altered after she had signed it. I should mention that Dorothy Ridout gave evidence for the defendants at the trial.

26 In argument, counsel for the plaintiffs contended that the initials of George and Dorothy Ridout adjacent to the alteration were not evidence that the alteration had been acknowledged by them, but were consistent with the manner in which mortgages had been executed by George and Dorothy Ridout on behalf of companies in the Ridout Group. That is, that in each case they had placed their initials on the front page of the mortgage, whether or not there were alterations on it.

27 In support of that contention, counsel for the plaintiffs referred me to copies of three other mortgages executed by George and Dorothy Ridout as officers of companies in the Ridout Group. That, however, did not appear to bear out the plaintiffs' contention. In two instances (which were exhibits DR7 and DR8 to Dorothy Ridout's affidavit in this application), George and Dorothy Ridout had initialled the front page twice, once against the description of the land mortgaged and once against the name of the mortgagor, neither of which had been altered. In the third case, the front page was not initialled at all. On the mortgage in question, the initials of George and Dorothy Ridout appear on the front page only once, adjacent to the alteration. I should also mention that on the last page of that mortgage, containing the attestation clause, an attestation clause for Ranleigh had been crossed out and George and Dorothy Ridout's initials also appeared alongside that alteration.

28 Whilst the issue of the alleged alteration to the mortgage document was apparently not raised at the trial and was not, therefore, the subject of any findings by Wheeler J, the relevant financial arrangements between the Bank and the entities in the Ridout Group were covered in considerable detail in her Honour's reasons for judgment.

29 As I have mentioned, it appears that in 1985 Ranleigh borrowed $800,000 from Westpac by way of a foreign currency loan. Westpac took by way of security a first registered mortgage granted by Ridout Nominees over certain assets it held, including Brantwood. The assets were the assets of the Cloverdale Trust of which Ridout Nominees was the trustee. The loan funds of $800,000 and some further funds were loaned by Ranleigh to Ridout Nominees to enable Ridout Nominees to purchase Brantwood for $1.6 million.

30 Subsequently, George Ridout became dissatisfied with Westpac and obtained additional financial assistance from the Bank. Eventually, he sought to refinance the Ridout Group's entire borrowings with the Bank.

31 In March 1990, the Bank refinanced the Westpac loan, which then stood at approximately AUD$1.17 million. Under the refinancing arrangements with the Bank, among other things, the Westpac debt was paid out, the mortgages held by Westpac were discharged and Ridout Nominees mortgaged Brantwood to the Bank as security for Ranleigh's indebtedness.

32 Late in 1990 a further rearrangement of the Ridout Group's borrowings was proposed. In the course of that rearrangement, the Bank became aware that there might be an issue as to the capacity of Ridout Nominees to provide a mortgage of Brantwood by way of security for Ranleigh's debts, as there was a question as to whether such a transaction was authorised by the Cloverdale Trust deed. As part of the rearrangement, a significant amount of the total borrowings of the Group was therefore redirected by way of a direct advance to Ridout Nominees, secured by a mortgage granted by Ridout Nominees over Brantwood, and the other borrowings from the Bank by companies in the Group, including Ranleigh, were reduced.

33 In the original action, the defendants contended that the financing re-arrangements and, in particular, the direct borrowing by Ridout Nominees and the grant by Ridout Nominees of the mortgage over Brantwood to secure those borrowings, were not for the benefit of Ridout Nominees and the Cloverdale Trust, but were to their detriment. It was argued that the purpose was simply to enable the Bank better to secure a pre-existing liability of Ranleigh. The defendants argued that that was a breach of trust by Ridout Nominees and, in addition, that George and Dorothy Ridout were also, to the knowledge of the Bank, in a position of special disability. The defendants argued that the mortgage was liable to be set aside.

34 Those contentions were canvassed and rejected by her Honour at [151] to [162] of her reasons for judgment.

35 The Bank contended that none of the essential elements required for an action of this nature existed in this case. It submitted that in a claim of this nature the fraud alleged must be proved by fresh evidence which was not available, and could not have been discovered with reasonable diligence, before the judgment was delivered and it must be so material that its production at the trial would probably have affected the outcome. Counsel referred to Bourke v Beneficial Finance Corporation Ltd (1993) 47 FCR 264 and Monroe Schneider Associates (Inc) v No 1 Raverem Pty Ltd (No 2) [1992] FCA 367; (1992) 37 FCR 234. It was submitted that where the charge consists of perjury, the fresh evidence must be so strong that it would reasonably be expected to be decisive at a rehearing and, if unanswered, must have that result.

36 The plaintiffs accepted that in respect of perjury, the Court must be satisfied that the evidence sought to be adduced was not able to be ascertained at the time of the trial and, if proved, it would have altered the result.

37 I would note in passing that in Cabassi v Vila [1940] HCA 41; (1940) 64 CLR 130, Williams J said, at 147 - 8:

"I have been unable to find any case in which a judgment has been set aside where the only fraud alleged was that the defendant or some witness or witnesses alone or in concert had committed perjury. In fact the court has said that except in very exceptional cases perjury is not a sufficient ground for setting aside a judgment."

38 The plaintiffs contended that, on the other hand, where it is sought to set aside a judgment for fraud, if fraud is proved and it was relevant to the issues in the action, the original judgment can be set aside regardless of whether or not there is fresh evidence which could not reasonably have been discovered before the original trial. The plaintiffs' counsel referred to Hip Foong Hong v H Neotia & Company [1918] AC 888, Cabassi v Vila (supra) and McDonald v McDonald [1965] HCA 45; (1965) 113 CLR 529 in support of that proposition.

39 It is clearly established that a party who claims that an adverse judgment was obtained by the fraud of the other party can bring an action to set aside that judgment. The appropriate procedure is to bring a new action: Jonesco v Beard [1930] AC 298; McDonald v McDonald (supra). In such an action, the fraud complained of is put in issue and that fraud only: McHarg v Woods Radio [1948] VicLawRp 86; [1948] VLR 496. It is not necessary in order to obtain a new trial to establish all the elements of an action for damages. It is enough to establish affirmatively that the earlier action was tainted by fraud: McDonald v McDonald (supra), Nicholls v Carpenter (1974) 1 NSWLR 369.

40 But, as in all actions based on fraud, particulars of the alleged fraud must be stated with specificity and clarity: Spies v Commonwealth Bank (1991) 24 NSWLR 691; McHarg v Woods Radio Pty Ltd (supra), and the allegation must be established by the strict proof which such a charge requires: Jonesco v Beard (supra); Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 per Kirby P at 538. Mere suspicion of fraud, raised by fresh facts later discovered, will not be sufficient to secure relief. The plaintiff must show that the new facts are so evidenced and so material that it is reasonably probable that the action will succeed. This rule is founded in the public interest in the finality of litigation: Wentworth v Rogers (No 5) (supra) per Kirby P at 538 - 9.

41 On the question of whether the evidence relied upon to establish the fraud must be such that it could not have been discovered with reasonable diligence before judgment was delivered, the starting-point is the decision of the High Court in McDonald v McDonald (supra), where the Court distinguished between the position where a new trial was sought on the ground of discovery of fresh evidence and one where a verdict was obtained by fraud. Barwick CJ (with whom Kitto J agreed) said, at 533:

"But if the fresh evidence does not satisfy all these requirements so that a new trial could not be ordered on the basis of the discovery of fresh evidence, but does tend to establish that the verdict was obtained by fraud ... the court may grant a new trial ... if the court itself, on a trial of such issues, finds the fact of the fraud ... to be proved to its reasonable satisfaction ... It is not necessary in that event that the evidence of the fraud ... though it should be 'fresh', should be evidence which would be admissible on the issues between the parties in the action; or that it should be found to be probably conclusive of those issues. The court's conclusion upon the fresh evidence before it that the verdict was obtained by fraud ... is sufficient to justify setting aside the verdict and ordering a new trial."

" ... if a new trial is sought upon the ground of the discovery of fresh evidence which, if believed, show that a fraudulent case had been presented to the court at the original trial, and if it is also shown that this evidence was not available at the original trial notwithstanding the exercise of reasonable diligence, then a new trial will be ordered if the case made out is such as to satisfy the court that, in the interests of justice, the matter in question should be tried afresh. This proposition, which relates only to the granting of a new trial on the ground of the discovery of fresh evidence, leaves untouched the rule that, if by any means it be affirmatively proved that the earlier judgment was tainted by fraud, it will, without more, be set aside."

42 There is, however, conflicting authority on the question of whether a party seeking to set aside a judgment for fraud must establish that since the judgment fresh facts have been discovered which could not have been discovered earlier by the exercise of reasonable diligence.

43 In Owens Bank Ltd v Bracco [1992] 2 AC 443, and again in Owens Bank Ltd v Etoile Commerciale SA (1995) 1 WLR 44, there is dicta which appears to support the requirement of reasonable diligence. Both cases involved proceedings to enforce a foreign judgment where the fact that the judgment was obtained by fraud was, without more, a defence. In Owens Bank Ltd v Bracco, Lord Bridge said, at 483 - 484:

"The common law rule [is] that the unsuccessful party who has been sued to judgment is not permitted to challenge that judgment on the ground that it was obtained by fraud unless he is able to prove that fraud by fresh evidence which was not available to him and could not have been discovered with reasonable diligence before the judgment was delivered ... [T]his is the rule to be applied in an action brought to set aside an English judgment on the grounds that it was obtained by fraud ... Your Lordships were taken ... through the many authorities in which this salutary English rule has been developed and applied and which demonstrate the stringency of the criterion which the fresh evidence must satisfy if it is to be admissible to impeach a judgment on the ground of fraud. I do not find it necessary to examine these authorities. The rule they establish is unquestionable and the principle on which they rest is clear. The question at issue in this appeal is whether the defendant who is seeking to resist the enforcement against him of a foreign judgment ... is placed in the same position as if he were a plaintiff in an action seeking to set aside the judgment of an English court on the ground that it was obtained by fraud ... "

44 In Owens Bank Ltd v Etoile Commerciale, Lord Templeman said, at 48:

"An English judgment is impeachable in an English court on the ground that the first judgment was obtained by fraud but only by the production and establishment of evidence newly discovered since the trial and not reasonable discoverable before the trial."

45 In Monroe Schneider Associates (Inc) v No 1 Raverem (supra) the Full Court of the Federal Court referred to the dicta of Lord Bridge in Owens Bank and continued, at 241:

"These remarks were delivered obiter, with a view to contrasting the law as regards the impeachment of domestic judgments with the lesser degree of finality which the common law accorded foreign judgments when actions were brought upon them in a domestic court ... [I]t is not disputed on the present appeal that the law in Australia is to the same effect as that described by Lord Bridge. The stringent principles established by the authorities to confine the jurisdiction have been summarised by Gordon QC ['Fraud or New Evidence as Grounds for Actions to Set Aside Judgments' 1961 77 Law Quarterly Review 358, 533] at 376 - 377 as setting the following requirements:

'(a) Evidence newly discovered since the trial

(b) Evidence that could not have been found by the time of the trial by exercise of reasonable diligence

(c) Evidence so material that its product at the trial would probably have affected the outcome; and when the fraud charge consists of perjury, then:

(d) The evidence must be so strong that it would reasonably be expected to be decisive at a rehearing, and if unanswered must have that result'."

46 The dicta of Lord Bridge in Owens Bank was cited again by the Full Federal Court in Bourke v Beneficial Finance Corporation (supra). In that case, the appellants sought, on the ground on fraud, to go behind a judgment of the Federal Court. The Court said, at 271:

" ... a classic example of the circumstances in which a court will go behind a judgment is where the judgment has been obtained by fraud. The fraud must be proved by fresh evidence which was not available and could not have been discovered with reasonable diligence before the judgment was delivered. We refer to the judgment of this Court in Monroe Schneider Associates (Inc) v No 1 Raverem Pty Ltd (No 2) [1992] FCA 367; (1992) 37 FCR 234 ...

The passages cited from Lord Bridge's speech in Owens Bank were referred to by this Court in Monroe Schneider. The court said (at 241) that his Lordship's remarks were obiter, but added that it was not disputed that the law relating to Australian judgments was to the same effect as that described by Lord Bridge."

47 That line of authority, however, would appear, with respect, to be contrary to the decision of the High Court in McDonald v McDonald. Indeed, in that case Menzies J (at 542 - 543) specifically referred to the article by D M Gordon QC and rejected the view expressed by the learned author because he had not referred, among others, to the decision of the House of Lords in Hip Foong Hong.

48 In Nicholls v Carpenter (supra), the Court of Appeal of New South Wales declined to order a new trial on the ground of discovery of fresh evidence because the requirement of due diligence had not been satisfied, but on the same evidence set aside the judgment on the ground that it had been obtained by fraud.

49 The position was considered recently by the Court of Appeal of New South Wales in Toubia v Schwenke (2002) 54 NSWLR 46, where Handley JA (with whom Heydon JA and Hodgson JA agreed), having reviewed the authorities, concluded that, in light of the decision of the High Court in McDonald v McDonald, it was now settled in Australia that a plaintiff does not have to prove that the evidence could not have been discovered by the exercise of due diligence before trial. His Honour considered that the dicta in Owens Bank Ltd v Bracco and Owens Bank Ltd v Etoile Commerciale SA, and in the Federal Court decisions to which I have referred, were contrary to principle and authority, including the decision in McDonald v McDonald, and he declined to follow them. His Honour said, at 54:

"The assumption [in that dicta] is that the court and the losing party were successfully imposed on by the fraud of the successful party, but relief should nevertheless be denied and the judgment allowed to stand because the defrauded party was careless or lacking in diligence in the preparation of his case. Such a result would be contrary to long established and fundamental principles. Contributory negligence is not a defence to an action for fraud whether the relief claimed is rescission or damages. As Brennan CJ said in Gould v Vaggelas [1984] HCA 68; (1895) 157 CLR 215 at 252: 'A knave does not escape liability because he is dealing with a fool'"

"In an action for fraud, the plaintiff must prove that he was deceived but need not prove that he was diligent. Where the action seeks the judicial rescission of a judgment, the plaintiff must prove that he and the court were deceived and he can only do this by showing that he has discovered the truth since the trial. Where this is done and the fresh facts are material fraud is established."

50 In my respectful opinion, the decision of the Court of Appeal of New South Wales in Toubia v Schwenke correctly states the law and I would follow it in this case.

51 It is therefore necessary for the plaintiffs to establish that they and the Court were deceived and that since the trial they have discovered something material in the sense of fresh facts that either in themselves or in combination with previously known facts would prove fraud. It follows from the public interest in the finality of litigation that a party cannot seek to litigate matters that were the subject of earlier proceedings by reliance on evidence on which the party failed at trial. Nor is a party entitled to keep evidence of fraud by another party up its sleeve as a card to be played for a retrial of the action if all else fails. It is the responsibility of all parties to ensure that the taint of fraud is avoided and the integrity of the court's process is preserved: Wentworth v Rogers No 5 (supra).

52 The position of a plaintiff in proceedings of this kind was summarised by Kirby P in Wentworth v Rogers No 5 at 539, as follows:

"In summary, [the plaintiff] must establish that the case is based on newly discovered facts; that the facts are material and such as to make it reasonably probable that the case will succeed; that they go beyond mere allegations of perjury on the part of witnesses at the trial; and that the opposing party who took advantage of the judgment is shown, by admissible evidence, to have been responsible for the fraud in such a way as to render it inequitable that such party should take the benefit of the judgment."

53 The question of whether proof that the judgment was obtained by fraud must inevitably lead to the judgment being set aside was considered by the Court of Appeal in Queensland in Johns v Cosgrove (2002) 1 Qd R 57. In that case, Thomas JA (with whom De Jersey CJ and McMurdo P agreed) said, at 92:

"McDonald's case does not contain a clear majority opinion that there is a residual discretion in the court to decline to set aside a verdict after proof that it has been obtained by fraud.

However, I am inclined to favour the view taken by Barwick CJ that a residual discretion exists. A tension will always exist between aversion of courts to fraud in its own process and recognition by courts of the danger of too readily granting a retrial. Some degree of materiality and causation is implied in the requirement that the judgment be 'tainted', 'affected' or 'obtained' by the fraud, and the concept of automatic extinction of a judgment upon an ill-defined degree of connection by means of those terms seems too blunt an instrument with which to govern this area. Further, the need for some supervisory discretion on the part of the court seems recognised in Wentworth v Rogers (No 5) where it was stated that it was necessary for the party alleging fraud to show that the other party was 'responsible' for the fraud in such a way as to render it inequitable that such a party should take the benefit of the judgment."

54 The authorities suggest, however, that it will be a rare case where a party who is shown to have been privy to fraud which has misled the court in proceedings resulting in a judgment in that party's favour will be permitted to retain the benefit of the judgment. The High Court observed in McCann v Parsons [1954] HCA 70; (1954) 93 CLR 418 at 428 that "there was never any hesitation at common law to use the power to grant a new trial, once it appeared from further evidence that the verdict had been obtained by putting forward a false case". And as all the members of the High Court acknowledged in McDonald v McDonald, fraud cases stand on a different footing from other "fresh evidence" cases.

55 In the present case, it is not suggested that fresh facts have come to light since the trial which suggest the alleged fraud. The essence of the plaintiffs' case is stated in Dorothy Ridout's affidavit as follows:

"I recognise my signature on the mortgage signing as secretary of Ridout Nominees. I believe I signed the mortgage at our home at Camballan at the time [sic] I also signed on the front page of the mortgage as I believed it was the standard practice of the bank having also had done the same on the mortgages annexed hereto as DR7 and DR8. I believe that at the time I signed the mortgage annexed hereto as DR16 that nothing had been crossed out of any section of the mortgage. I believe that in the panel showing who received the consideration that it showed Ranleigh Ware Pty Ltd. I do not recall anything having been crossed out when I signed the mortgage.

...

It was not until after the trial of this matter and the appeal when explained the details of the events that occurred that I realised the document annexed as DR16 has been altered after I had signed it."

56 As I have said, it was not contended at the trial that the mortgage, which was put into evidence in its altered form, had been altered after it was executed. As appears from her Honour's reasons, the defendants' case at trial was not that the financial rearrangement of late 1990 did not occur, or that security over Brantwood was not given to the Bank by Ridout Nominees, but rather that the transactions were not to the benefit of Ridout Nominees or the Cloverdale Trust and should be set aside for that reason, and because of the special disability of the directors, George and Dorothy Ridout.

57 It was not submitted on this application that the allegation of fraud on the part of the Bank is based on anything more than Dorothy Ridout's further thoughts - which I must say seem to bear the hallmarks of reconstruction - after the completion of the trial and appeal. It is also not apparent from Dorothy Ridout's affidavit how she came to "realise" only after the trial and the appeal that the document had been altered after she signed it. Nor, in my view, have the plaintiffs been able satisfactorily to explain, consistent with the case they now wish to advance, how the relevant alteration came to be initialled by George and Dorothy Ridout.

58 Moreover, the alteration of the mortgage to delete Ranleigh as the debtor and to substitute Ridout Nominees appears to be consistent with the transaction which Wheeler J found occurred at the time the mortgage was executed, namely, that Ridout Nominees then became a direct debtor of the Bank, in an amount of almost $2,000,000, and Ranleigh's indebtedness was substantially reduced. The Bank already held a mortgage over Brantwood granted by Ridout Nominees in March 1990 to secure Ranleigh's debt; that is, a mortgage to the same effect as the mortgage in question in its unaltered form. It is not apparent what purpose a further mortgage in December 1990 to that effect would have been intended to serve.

59 To set aside a judgment on the ground that it has been obtained by fraud is a drastic step. Fraud is a grave allegation and is not lightly to be entertained. In an action of this kind, both the nature of the allegation and the public interest in the finality of litigation require that it be based on substantial grounds. In this case, nothing has emerged since the trial apart from Dorothy Ridout's recent, unsatisfactorily explained "realisation" that, when she signed it, the mortgage was in its original, unaltered form rather than the amended form tendered at the trial.

60 In my view, on the material before me there is nothing that is capable of founding an action of this kind. I consider there is no reasonable basis for the plaintiffs' claim and it is an abuse of the process of the Court.

61 The Bank also says that the plaintiffs have no standing to bring this action, the claim of fraud being directed to a mortgage to which they were not a party. The plaintiffs say that once fraud is shown the whole judgment is infected, including those parts which relate to the claim against the estate of George Ridout. In the circumstances, it is unnecessary for me to decide that further ground.

62 I would strike out the writ of summons and dismiss the action.

Ridout & Anor v O'Brien & Ors [2004] WASC 137

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Judgment (93 paragraphs)

Ridout & Anor v O'Brien & Ors [2004] WASC 137 (23 June 2004)

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Cases Cited (18)