JUDGMENT OF: Gleeson CJ; Meagher JA; Handley JA

(3) Abignano & (4) Genallco: C T Barry QC/G F Cohen

RES JUDICATA - Anshun principle - unlitigated cause of action

RES JUDICATA - parties - third party or cross defendant - party to proceedings against defendant - entitled to rely on issue estoppels from judgment in those proceedings

RES JUDICATA - Anshun principle - unlitigated cause of action.

RES JUDICATA - parties - third party or cross defendant - party to proceedings against defendant - entitled to rely on issue estoppels from judgment in those proceedings.

Sandtara Pty Ltd leased premises to Cenrin for 10 years from 1 March 1986. Abigroup guaranteed the liabilities of Cenrin under the lease. In 1990 Cenrin defaulted in its rent payments and Sandtara sued Abigroup for rent for the period between 16 March 1990 and 31 August 1992. Abigroup cross-claimed against Cenrin and others for indemnity. Cenrin then cross-claimed against Sandtara seeking relief under the Trade Practices Act 1946 including a reduction in the rent. Sandtara did not claim or cross claim against Cenrin for the unpaid rent. Cenrin's cross-claim was dismissed and Sandtara obtained judgment for $668,493.91 against Abigroup for the unpaid rent. Sandtara then sued Cenrin for additional rent for the same period payable under an escalation clause. Hodgson J held that the claim for additional rent against Cenrin was barred by an Anshun estoppel arising from the earlier proceedings.

HELD: Per Curiam (dismissing the appeal): (1) Cenrin could not rely on res judicata against Sandtara as no judgment for rent was given against it in the earlier proceedings. However it could rely on issue estoppel from the earlier proceedings as it had become a party to the original proceedings between Sandtara and Abigroup as a result of Abigroup's cross-claim against it. Supreme Court Act s 78 and Barclays Bank v Tom [1923] 1 KB 221 applied. (2) Cenrin as cross defendant was bound by the judgment for rent against the defendant and as res judicata estoppels are mutual it was entitled to rely on that judgment. The claim for additional rent was therefore barred by an issue estoppel. Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, Ramsay v Pigram [1968] HCA 34; (1968) 118 CLR 271 at 276, Reg v Humphrys [1977] AC 1 and Hunter v Chief Constable [1981] UKHL 13; [1982] AC 529 applied. Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 considered.

THE COURT: These appeals and cross-appeals arose out of decisions of Hodgson J in the Equity Division.

Most aspects of the appeals and cross-appeals were disposed of, during the course of the hearing, by orders made either by consent or following argument. The outstanding issue which remains to be resolved concerns the appeal by Sandtara Pty Ltd ("Sandtara") against Cenrin Pty Ltd (in liquidation) ("Cenrin"), the second respondent. The appeal is against the findings by Hodgson J that the appellant was estopped, on the basis of the principles enunciated by the High Court in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 (Anshun), from propounding a claim for rent.

The essential facts relevant to the outstanding issue, at the risk of some over-simplification, are as follows. Sandtara leased commercial premises to Cenrin for ten years from 1 March 1986. The obligations of Cenrin under the lease were guaranteed by Abigroup Limited ("Abigroup") which was indemnified by the third and fourth respondents.

The lease divided the term into annual rent periods. A base rent was payable subject to annual increments. The minimum increase in respect of the second and each subsequent rent period was 8% (cl 2.04). There was, however, the potential for greater increases, either by reference to the Consumer Price Index, or as a consequence of a procedure of valuation and rent review (cll 2.05, 2.06).

In 1990 Cenrin defaulted in its rent payments and there was an outbreak of litigation. The proceedings included a claim by Sandtara against Abigroup for unpaid rent for the period 16 March 1990 to 31 August 1992. Abigroup brought a cross-claim against Cenrin and the third and fourth respondents for a declaration that they were liable to indemnify it in respect of any liability to Sandtara, and sought an order that they pay Sandtara the amount claimed from Abigroup. Cenrin cross-claimed against Sandtara seeking relief under the Trade Practices Act, including a reduction in the rent. Sandtara did not claim or cross claim against Cenrin for the unpaid rent.

Those proceedings were disposed of by judgment in September 1992. Cenrin's cross-claim against Sandtara was withdrawn and dismissed. Sandtara obtained judgment against Abigroup for $668,493.91, for rent up to 31 August 1992, and Abigroup obtained the declaration and orders against Cenrin and the third and fourth respondents to which reference has been made. Abigroup satisfied this judgment.

Shortly after the disposal of the above proceedings Sandtara asserted, for the first time, that it was owed additional rent of $187,824.37 for the period to 31 August 1992. This is the amount, together with interest, which is the subject of the outstanding question in the present appeals.

The basis of the claim was that, in calculating the amount of $668,493.91, Sandtara had not applied the provisions relating to increases in the base rent. There was no evidence before Hodgson J as to how this had come about. In particular, there was no evidence, and Hodgson J made no finding, that it was the result of some oversight. There were other possibilities. Sandtara may have wished to keep open the possibility of an increase, either by reference to the Consumer Price Index (cl 2.05) or by market valuation (cl 2.06) which would have been greater than the 8% under cl 2.04. However that may be, Sandtara sued Abigroup and Cenrin for the additional $187,824.37 upon the basis that its original claim understated the rent owing for the relevant period because no account had been taken of the minimum increase in base rent provided for by cl 2.04.

Hodgson J dismissed the claim against Abigroup as res judicata on the ground that the rights Sandtara had against Abigroup in respect of rent up to 31 August 1992 had merged in the judgment for $668,493.91. See Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502. The appeal against that decision was not pursued, and has been dismissed.

In the original proceedings Sandtara obtained judgment against Abigroup for rent but made no claim against the lessee, Cenrin. Hodgson J considered that the question he had to decide, in accordance with Anshun, was whether Sandtara had acted unreasonably in the earlier proceedings in failing to claim from Cenrin the rent it claimed from Abigroup. This could have been done by joining Cenrin as a defendant in the original action, or by a cross-claim to Cenrin's cross-claim. The judge held that Sandtara had acted unreasonably, and referred to s 63 of the Supreme Court Act which requires the Court, "as far as possible", to finally determine all matters in controversy "between the parties" so that "all multiplicity of legal proceedings concerning any of those matters" may be avoided.

Mr Meagher SC for Sandtara submitted that there had been no adjudication on Sandtara's claim for rent against Cenrin and referred to Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332 at 346, where Brennan and Dawson JJ said:

"A plaintiff who has an unadjudicated cause of action which can be enforced only in fresh proceedings ... cannot be precluded from taking fresh proceedings merely because he could have and, if you will, should have counter-claimed on that cause of action ... in proceedings in which the opposite party sued him. We do not read the majority judgment in Port of Melbourne Authority v Anshun Pty Ltd as holding the contrary except in a case where the relief claimed in the second proceedings is inconsistent with the judgment in the first".

The other Judges expressed no view on this question and there is, as yet, no decision of the High Court which establishes that the broad principles in Anshun are subject to the qualification favoured by Brennan and Dawson JJ. It is certainly not self evident that Sandtara would be barred by an Anshun estoppel from suing Cenrin for $668,493.91 as unpaid rent had Abigroup failed to satisfy the judgment against it.

In these circumstances we prefer to decide this appeal on a narrower ground. The earlier proceedings commenced with a claim by Sandtara for rent against Abigroup as guarantor. Cenrin was not a party, and not being a privy of Abigroup, on ordinary res judicata principles, it would not have been bound by or entitled to the benefit of any res judicata estoppel flowing from a judgment in those proceedings. A principal debtor does not claim through or under the guarantor and is not a privy of the guarantor for present purposes. See generally Ramsay v Pigram [1968] HCA 34; (1967) 118 CLR 271 at 279.

This situation changed when Abigroup cross-claimed against Cenrin. The cross-claim was authorised by s 78 of the Supreme Court Act which provides, so far as relevant:

"(1) ... the court may grant to the defendant in any proceedings (in this section called the first proceedings) all such relief against any person as the court might grant against that person if the person were a defendant in separate proceedings commenced by the defendant for that purpose.

(4) Subject to the Rules, a person against whom relief is claimed under this section:

(a) shall, if not a party to the first proceedings, become a party to the first proceedings; and

Accordingly when Abigroup cross-claimed against Cenrin, the latter "became a party to the first proceedings". Section 78 can be traced through the Law Reform (Miscellaneous Provisions) Act s 3 to s 24 (3) of the Judicature Act 1873 . The nature and purpose of third party proceedings authorised by the latter provision were explained in Barclays Bank v Tom [1923] 1 KB 221 by Scrutton LJ at 223-4 as follows:

"... it is important to keep clearly in mind what the third party procedure is. The plaintiff has a claim against the defendant. The defendant thinks if he is liable he has a claim against the third party. With that matter between the defendant and the third party the plaintiff has obviously nothing to do. He is not concerned with the question whether the defendant has a remedy against somebody else. His remedy is against the defendant. But the defendant is much interested in getting the third party bound by the result of the trial between the plaintiff and himself, for otherwise he might be at a great disadvantage if, having fought the case against the plaintiff and lost, he had then to fight the case against the third party possibly on different materials, with the risk that a different result might be arrived at. The object of the third party procedure is then in the first place to get the third party bound by the decision between the plaintiff and the defendant ...".

This passage was followed in Standen v G H Varley Ltd (1956) 56 SR (NSW) 346 at 348. A third party bound by the decision between the plaintiff and the defendant must also be entitled to rely on it because res judicata estoppels are mutual. See Ramsay v Pigram [1968] HCA 34; (1968) 118 CLR 271 at 276; Reg v Humphrys [1977] AC 1 at 20, 33; Hunter v Chief Constable [1981] UKHL 13; [1982] AC 529 at 540-1.

Cenrin cannot rely on res judicata based on merger of the cause of action because no judgment was given against it on the cause of action for rent. However, as a party to the earlier proceedings, it can rely on issue estoppels flowing from that judgment, which include an estoppel as to the amount of rent due up to 31 August 1992. The distinction was explained in Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 by Dixon J at 532:

"The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment ... the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous".

The claim by Sandtara against Cenrin for additional rent for the period up to 31 August 1992 necessarily asserts that the former decision, as to quantum, was erroneous. The claim is therefore barred by issue estoppel. Sandtara's appeal fails and should be dismissed with costs.