Spalla v St George Motor Finance Ltd

Spalla v St George Motor Finance Ltd - [2004] FCA 1262 - FCA 2004 case summary — Zoe

REASONS FOR JUDGMENT ON STRIKE OUT MOTION Introduction 1 On 27 April 1999, a judge of this Court (Finkelstein J) dismissed an application by companies which had formerly operated the Essendon Mitsubishi car dealership and, by their principal, Anthony Spalla, challenging the appointment of receivers and managers to the companies. The receivers and managers had been appointed by the St George finance group which had provided ongoing finance for the dealership. On a cross-claim by companies in the St George finance group, the Court awarded judgments in respect of money sums owing to it by the Spalla companies. An appeal against that decision was dismissed. 2 The receivers disposed of the dealership business and the companies were subsequently wound up. Mr Spalla and his company secretary, Mr Still, were prosecuted unsuccessfully by the Australian Securities and Investments Commission (ASIC) on charges of dishonest false accounting. That prosecution took place in 2002. 3 The present proceedings, which were commenced in October 2002, are brought by Mr Spalla and Mr Still and by one of the dealership companies, Irlmond Pty Ltd (Receivers and Managers Appointed; In Liquidation) (Irlmond). They sue two of the St George finance companies, namely St George Motor Finance Ltd (St George Motor Finance) and St George Wholesale Finance Pty Ltd (St George Wholesale Finance). They sue the former receivers and managers, Messrs. Beck and Home, and their firm, Deloitte Touche Tohmatsu. They also sue ASIC and a receiver appointed in 2003, Mr Wallace-Smith. The causes of action against the St George parties and the Deloitte parties are various. They include allegations of breaches of various duties by the St George parties and by the receivers and managers they appointed and unlawful conversion of Irlmond's assets by them. They also involve allegations of malicious prosecution on the part of the Deloitte parties and ASIC. 4 The litigation has had a convoluted procedural history to this point. A further amended statement of claim, filed by the applicants pursuant to leave granted by Goldberg J on 9 December 2003, has been attacked by both the St George parties and the Deloitte parties who have moved to strike out substantial parts of it and the reply. The bases of the attack on the statement of claim are various but central to them is the contention that a number of the important allegations directly contradict findings of fact on issues joined between substantially the same parties in the first proceedings. 5 On a consideration of the pleadings and the earlier judgment, I accept that contention. I accept also that the attempt in a proposed second further amended statement of claim and third further amended application to set aside part of the judgment in the previous proceedings on the basis that it was obtained by fraud, cannot succeed. For these reasons, in my opinion, the statement of claim as it presently exists should be struck out and leave to amend the statement of claim and the application along the lines of the proposed second further amended statement of claim and the proposed third further amended application should be refused. However, in my opinion the applicants should be allowed one further opportunity to replead by filing a substituted application and statement of claim consistent with these reasons. The First Proceedings 6 From 1994 to 1999, Anthony Patrick Spalla controlled two companies, Irlmond and APS (Wholesale) Pty Ltd (APS). Irlmond carried on the business of a motor vehicle dealer operating as Essendon Mitsubishi. It did so in conjunction with the related company, APS. Irlmond sold both new and used cars. For reasons to do with the Sales Tax Assessment Act 1992 (Cth) new cars were acquired for the dealership by APS and title passed through Irlmond to customers upon sale. Dealings in used cars were conducted by Irlmond alone without the interposition of APS. 7 Prior to 1994, Irlmond had conducted the Essendon Mitsubishi dealership and the Heidelberg Mitsubishi dealership with an unrelated company, Zeldon Pty Ltd (Zeldon). These two companies went their separate ways at the end of 1993. They then owed their financiers about $2,400,000. The financiers were companies which now form part of the St George finance group. At the time those companies were part of the Barclays Bank group. 8 Irlmond assumed $1,100,000 of the joint debt as part of its dissolution agreement with Zeldon. In February 1994, arrangements were made for finance for the Essendon Mitsubishi dealership to be provided by the St George group, which included St George Wholesale Finance and St George Motor Finance. The finance was provided by way of facilities known as a Bailment Plan, a Deferred Payment Plan and a Demonstrator Agreement. In addition, St George Wholesale Finance and St George Motor Finance agreed to accept $700,000 in satisfaction of the $1,100,000 debt which Irlmond had assumed under its agreement with Zeldon. This was to be repaid by an initial instalment of $300,000 and ten monthly payments of $40,000 thereafter. 9 The securities provided in respect of the St George facilities were by way of debentures over the assets of Irlmond and APS and guarantees by Mr Spalla and another company, Anstella Nominees Pty Ltd (Anstella Nominees). 10 The history of Irlmond and APS from 1994 to 1999 was one of generally increasing difficulty which led to the appointment of receivers over their assets in February 1999 by St George Wholesale Finance and St George Motor Finance. The receivers were Andrew Stewart Home and Andrew William Beck of Deloitte Touche Tohmatsu. 11 Mr Spalla and his two companies commenced proceedings in this Court in 1999 seeking declarations, including a declaration that the appointment of Messrs. Home and Beck as receivers and managers was invalid. They also sought injunctive relief. Each debenture contained a provision for redemption. Mr Spalla and his companies sought orders that the St George companies provide a statement of the amount due under each debenture or that such amount be determined on the taking of accounts and orders that, upon payment of the amounts due, the property of the companies be relieved from the burden of the charges. They also sought damages and other relief at common law and under the Trade Practices Act 1974 (Cth). 12 St George Wholesale Finance and St George Motor Finance cross-claimed against Mr Spalla and his companies and against Mr Spalla's wife. They sought a declaration that the appointment of the receivers was authorised and judgment on a number of money claims. They claimed damages for alleged interference with contractual arrangements on the part of Mr Spalla, Irlmond and APS. 13 The case went to trial before Finkelstein J in March and April 1999. The factual matters set out in this section reflect findings of fact in his Honour's judgment. It is of relevance to the current proceedings that there is another member of the St George finance group, namely St George Motor Wholesale Pty Ltd (St George Motor Wholesale), which is not mentioned in his Honour's judgment. According to the amended statement of claim in the present case St George Motor Wholesale was in fact the party with whom APS and Irlmond entered into their Bailment Agreements with respect to new and used cars respectively. This factual contention lies at the heart of much of the debate about the pleadings in this case. 14 On 27 April 1999, Finkelstein J made orders declaring that the right of redemption in the property the subject of the debentures was subsisting. He directed that accounts be taken of what was due to St George Wholesale Finance and St George Motor Finance under the Irlmond debenture and the APS debenture respectively and that accounts be taken of the costs and expenses incurred by the receivers. He ordered that if Irlmond and APS paid the amounts certified pursuant to the taking of accounts, St George Wholesale Finance and St George Motor Finance were to surrender and release the debentures free of encumbrances. The payments were to be made by 30 April 1999. In the event that Irlmond failed to pay, its claim for redemption of the Irlmond debenture would be dismissed and an interim injunction granted on 4 March 1999 would be dissolved. There would be an inquiry as to damages on the undertaking given in connection with the injunction. In the event that APS failed to pay the claim for redemption, the APS debenture would be dismissed. His Honour declared that Irlmond was not liable to St George Wholesale Finance or St George Motor Finance for any debt owed to either of them by APS. The proceeding was otherwise dismissed. The applicants were required to pay 80% of the respondents' costs. 15 On the cross-claim his Honour declared that the appointment of the receivers had been authorised. He awarded judgment in favour of St George Wholesale Finance against Irlmond in the amount of $45,672.74 with interest fixed in the sum of $390.41. It was also ordered that St George Motor Finance recover against Mr Spalla and Anstella Nominees the sum of $45,672.74 with interest in the amount of $409.93 less any sum received in satisfaction of the judgment against Irlmond. 16 Judgment was awarded in favour of St George Wholesale Finance against Irlmond in the sum of $418,978.46 with interest fixed in the sum of $3,760.48. Judgment was awarded against APS in favour of St George Wholesale Finance in the amount of $2,337,455.22 together with interest in the sum of $20,979.46. St George Wholesale Finance was awarded judgment against Mr Spalla and Anstella Nominees in the sum of $2,756,433.60 with interest fixed in the sum of $24,739.93 less any sum received in satisfaction of the judgments against Irlmond and APS in favour of St George Wholesale Finance. The total amount certified by Registrar Seccombe on 29 April 1999 was $911,991.59. The cross-claim was otherwise dismissed. The judgment of Finkelstein J is cited as Spalla v St George Wholesale Finance Pty Ltd [1999] FCA 513. 17 An appeal and cross-appeal against the decision of Finkelstein J was dismissed on 12 November 1999 - Spalla and Others v St George Wholesale Pty Ltd (1999) 95 FCR 359. The Present Proceedings 18 The present proceedings were instituted on 17 October 2002. They are brought by Mr Spalla, Irlmond and Andrew Still an accountant who was Irlmond's company secretary until 12 February 1999. Mr Spalla is described in the statement of claim as the 'dealer principal and managing director' of Irlmond and APS who conducted the business of a motor car trader under the business name of Essendon Mitsubishi. The respondents are St George Motor Finance and St George Wholesale Finance, the receivers, Andrew William Beck and Andrew Stewart Home, their firm, Deloitte Touche Tohmatsu, ASIC and Simon Alexander Wallace- Smith. Mr Wallace-Smith was appointed receiver and manager of Irlmond and APS by St George Wholesale Finance and St George Motor Finance on 23 September 2003. 19 Defences were filed to the statement of claim by the Deloitte parties, the St George parties and ASIC respectively. Replies to the defences have also been filed. The St George parties have filed a cross-claim against the Deloitte parties and the solicitors, Corrs Chambers Westgarth. The proceedings have had a long and convoluted history thus far. It is unnecessary and would be tedious to set it out. On 23 and 24 August 2004, argument proceeded on a motion by the Deloitte parties to strike out various paragraphs of the statement of claim and reply. Argument to like effect, albeit initially on an oral motion and then pursuant to their written motion filed on 24 August 2004, was heard from the St George parties. 20 At a case management conference held on the following day, 25 August 2004, directions were made which took into account the foreshadowing by senior counsel for the applicants of proposed amendments to the application and statement of claim, designed in part to meet objections to the existing pleading which had been advanced in argument on the strike out motions. The directions were as follows: '1. The applicants file and serve by Friday 27 August 2004, any proposed amended pleading and application. 2. The respondents notify the applicants, in writing, by 5pm on 31 August 2004: (a) if they consent to the proposed amended pleadings and application; alternatively (b) if they oppose the proposed amended pleadings and application and if so detail the reasons for that opposition. 3. The parties exchange by 5pm on 2 September 2004 any written submissions which they desire to make concerning the applicants' proposed amendments to the pleadings and to the application. 4. The parties provide the submissions referred to in 3 directly to the Chambers of the Honourable Justice French by 5pm (EST) on 2 September 2004. ...' The question of the applicants' leave to file and serve amended pleadings and an amended application and the strike out application were to be determined without further oral submissions. The further hearing of other outstanding notices of motion was adjourned to 26 October at 10.15am. Affidavits or other material to be relied on at the hearing on 26 October were to be filed and served not later than 19 October and any reply affidavits by 22 October. Directions were also given in respect of claims for privilege, which it is unnecessary to refer to for present purposes. The respondents persist in their strike out motions and proposed leave to amend in terms of the proposed amended application and statement of claim. The Amended Statement of Claim - 16 December 2003 21 The existing statement of claim is as amended pursuant to leave granted by Goldberg J on 9 December 2003. It was filed on 16 December 2003. It identifies the parties and pleads that Irlmond and APS (which is not a party) are both in liquidation having been the subject of members' winding up resolutions on 7 February 2000. It identifies a member of the St George group which is not named as a party in these proceedings and was not a party in the first proceedings. That is St George Motor Wholesale Pty Ltd which is said to have been, at all material times, a 'motor vehicle floor plan financier'. 22 Mr Beck and Mr Home are respectively a partner in, and a consultant to, Deloitte. They were appointed as receivers and managers of Irlmond and APS respectively by St George Motor Finance and St George Wholesale Finance on 12 February 1999 and took possession of the businesses of the two companies on the same day. Mr Home resigned as receiver and manager of Irlmond and APS on 25 July 2003 and Mr Beck on 8 August 2003 (pars 9A and 9B). Mr Wallace-Smith was also at all material times a partner in Deloitte and was appointed receiver and manager of Irlmond and APS by notice of appointment dated 23 September 2003 (pars 11 and 12). 23 The statement of claim sets out what are referred to collectively as the St George facilities. At all material times St George Motor Wholesale bailed new vehicles to APS and used vehicles to Irlmond (par 13A). St George Motor Finance, St George Motor Wholesale, Irlmond and APS were parties to the following agreements: (a) A Bailment Plan Agreement dated 21 February 1994 between St George Motor Wholesale as bailor, APS as bailee and St George Motor Finance as guarantor. (b) A Bailment Plan Agreement dated 21 February 1994 between St George Motor Wholesale as bailor, Irlmond as bailee and St George Motor Finance as guarantor. (c) A Deferred Payment Agreement dated 21 February 1994 between St George Motor Wholesale as bailor, APS as bailee, St George Motor Finance as guarantor and Irlmond, Mr Spalla and Anstella Nominees as indemnifiers. (d) A Demonstrator Plan Agreement dated 21 February 1994 between St George Motor Finance as bailor and Irlmond as bailee/hirer. (e) A Deferred Retail Delivery Agreement dated 18 May 1998 between St George Motor Wholesale as bailor, APS as bailee, St George Motor Finance as guarantor and Irlmond, Anstella and Mr Spalla as indemnifiers. (f) A letter of offer from what is described as 'St George' dated 11 February 1994. (g) A supplementary letter of offer from St George dated 12 April 1994 (par 13A and B). 24 St George held the following securities: (a) A Debenture Charge dated 24 February 1994 given by Irlmond to St George. (b) A Debenture Charge dated 24 February 1994 given by APS to St George (par 13D). The term 'St George' is defined in par 9 as comprising St George Motor Finance and St George Wholesale Finance 'collectively'. It does not include St George Motor Wholesale. 25 At all material times Irlmond sold and delivered to its customers used and demonstrator vehicles bailed to it by St George Motor Wholesale and St George Motor Finance respectively, while APS sold new vehicles bailed to it by St George Motor Wholesale (par 14). 26 The amended statement of claim sets out the following findings by Finkelstein J in the first proceedings: (a) APS was indebted to St George in the total sum of $2,337,455.22. (b) Irlmond was indebted to St George in the total sum of $468,802.09 of which $45,672.74 was owing by Irlmond to St George Motor Finance in respect of demonstrator vehicles. (c) The receivers were validly appointed by St George Motor Finance and St George Wholesale Finance to APS and Irlmond pursuant to the APS debenture and the Irlmond debenture respectively. (d) Irlmond was not indebted to St George pursuant to any obligation incurred by APS under the bailment agreements (par 14A). 27 In those proceedings Finkelstein J did not find, nor was it contended on behalf of St George, that the sums referred to in pars (a) and (b) were owing to St George Motor Wholesale (par 14B). Paragraph 14C then asserts that Finkelstein J did not find, nor was it contended on behalf of St George,: (a) that St George Motor Wholesale was a party to any debenture agreement with APS or Irlmond; (b) that any demand on behalf of St George Motor Wholesale to Irlmond or APS pursuant to their debentures had been made; (ba) that the moneys due and payable to St George to meet the condition of the proviso for redemption included any moneys due and payable to St George Motor Wholesale; (c) that any claim had been made by St George Motor Wholesale to St George Motor Finance pursuant to the guarantee in the Bailment Plan Agreements with Irlmond or APS respectively, or that St George Motor Finance had paid any sum to St George Motor Wholesale pursuant to such a claim or that St George Motor Wholesale had made a demand pursuant to the guarantee on Irlmond or APS to recover any sum so paid (par 14C). 28 The amended statement of claim pleads the provision for redemption in the Debentures. Paragraph 20A then says: 'Given that neither APS nor Irlmond were indebted to St George in respect of any money sum owing under any bailment plan agreements and given that no demand was made on Irlmond or APS pursuant to clause 4.1 or 7.2 of the Irlmond or APS debenture, St George had no right to refuse to comply with the proviso for redemption referred to in paragraph 20 above given that Irlmond and/or Mr Spalla was ready, willing and able to pay St George the sum of $45,672.74 referred to in paragraph 14A(b)...' Paragraph 20B says: 'Further, on their true construction and in the circumstances alleged in paragraphs 13A to 20A, St George was not entitled to appoint Mr Wallace Smith as receiver and manager of APS and Irlmond as it purported to do on 23 September 2003.' The amended statement of claim alleges that as at 12 February 1999 Irlmond had current assets of approximately $10,102,000 (par 21). 29 On the basis of all of these matters it is said that on 12 February 1999 and thereafter APS was not indebted to St George in any sum, Irlmond was indebted to St George Motor Finance in the sum of $45,672.74, and St George Motor Wholesale, which was the bailor to APS and Irlmond, was not a party to any debenture agreement with either of them. The only money sum owing by APS and Irlmond to St George was the sum of $45,672.74, which is referred to in the pleading as 'the secured sum'. On this basis it is said that Irlmond was entitled to redeem all of its assets under the Irlmond debenture upon payment of the secured sum and that APS remained the absolute owner of all of its assets and undertakings (par 24A). 30 An unlawful conversion claim is raised by Irlmond against St George and the receivers. The conversion claim is brought against Messrs Beck and Home as receivers of Irlmond and APS in 1999. It is said that they did not immediately repay the secured sum owing by Irlmond to St George, wrongfully acted as receivers of APS, treated Irlmond and APS as one administration and failed to maintain a separate bank account for Irlmond (par 108A). This appears to be premised on the pleading in par 24 that the only money sum owed by APS and Irlmond to St George was the sum of $45,672.74. 31 There are pleaded various findings allegedly adverse to Messrs. Home and Beck made by the Companies Auditors and Liquidators Disciplinary Board on 8 August 2003 and 13 August 2003 respectively (par 108B). It may immediately be observed that there is no basis upon which these findings are able to be pleaded as matters of fact relevant to any cause of action. On any view of the pleadings as a whole this paragraph is embarrassing and cannot stand. 32 It is alleged that the receivers breached their duties to Irlmond. The allegation is premised on the proposition that Irlmond was not legally liable to pay St George for any debts owed by APS to St George and that Irlmond only owed St George Motor Finance $45,672.74 and had no other indebtedness to St George. It is said that the Irlmond debenture only secured that sum. The receivers were obliged to ascertain the amount of the secured sum by asking St George. They were obliged then to terminate the receivership and to repay the secured sum as soon as possible which, in the circumstances referred to, was within a matter of days. On that basis Irlmond says it could have redeemed its assets under the Irlmond debenture (par 108C). Had the receivers complied with their duty, Irlmond says it would have had full legal and beneficial ownership of those assets from shortly after 12 February 1999 and its business would not have been sold, as it was, on 20 May 1999 to RPBJ Gorell Pty Ltd (par 108D). The sale of Irlmond's assets by the receivers is said to have been a wrongful conversion of them. Moreover at least $2,831,163.81 was used to pay APS' alleged indebtedness to St George from the proceeds of their sale (pars 109 and 109A). St George's conduct in receiving and accepting the benefit of the receivers' action is said to have constituted a conversion by St George (par 109B). There is then a claim for damages and for equitable compensation arising out of the receivers' alleged breaches of duty. 33 Irlmond alleges against St George that the appointment of the receivers was wrongful. It is said that St George, knowing that Irlmond was not liable to St George for APS' indebtedness to it and that the bailment debt due by Irlmond was owed to St George Motor Wholesale, misused their power to appoint receivers to the assets of Irlmond. Again, Irlmond claims to have suffered loss and damage and to have an entitlement to equitable compensation (pars 110C and 110D). 34 The next section of the statement of claim is headed 'Clog on the Equity of Redemption (Claim by Irlmond against St George and the Receivers)'. St George is said wrongfully to have created a clog on the equity of redemption and to have prevented Irlmond from exercising it in a timely fashion or at all. There are various particulars of this plea which seem to reflect a proposition that St George prevented Irlmond from exercising its equity of redemption. This is said to have been done in various ways which are the subject of particulars. They are centred around St George's alleged assertion of a falsely higher level of indebtedness under the debenture. Moreover St George is said to have treated money owing to it by Irlmond to St George Motor Wholesale under their Bailment Plan Agreement as though it were secured by the Irlmond debenture. It thereby included, in moneys it claimed as owing by Irlmond under the debenture, the sum owed to St George Motor Wholesale. In addition it is said that St George's solicitors, Corrs, instructed the receivers to maintain the claimed level of debt owing by Irlmond to St George 'as high as possible so as to prevent the Spalla interests from exercising Irlmond's equity of redemption'. It is also alleged that St George had sought and obtained a judgment against Irlmond pursuant to the Bailment Plan Agreement with St George Motor Wholesale but in the name of St George Motor Finance which was not owed debt at that level (par 110E). 35 Irlmond says that it is entitled to equitable compensation as a result of being wrongly denied the right to exercise its equity of redemption and redeem its assets and business (par 110F). It alleges that the receivers knew of its equity of redemption, its intention to redeem the assets, its desire to exercise its equity of redemption and St George's intention to prevent it from doing so in a timely fashion or at all (par 110G). The receivers are alleged to have participated in St George's wrongful conduct (par 110H). There are various particulars given of the alleged participation. On that basis Irlmond also claims equitable compensation from the receivers (par 110I). Their conduct is said to have been in bad faith. They are therefore not entitled to be indemnified by Irlmond for any costs, expenses and fees incurred in acting as receivers of Irlmond (par 110J). 36 A distinct claim is made of malicious prosecution of Messrs Spalla and Still. This claim is raised against the receivers and ASIC. Messrs Spalla and Still say that on 13 August 1999 the receivers made a report to ASIC pursuant to s 422 of the Corporations Law. The report made allegations of improper conduct against them. It was sent under cover of a letter alleging that they had been guilty of a number of offences in relation to Irlmond and APS, that their conduct had had a severe financial impact upon creditors and, impliedly, that they should be prosecuted for false accounting (par 121 and 122). The matters contained in the receivers' report of 13 August are said to be false in various respects (par 123-127). 37 It is alleged that the receivers knew, and it was the fact, that St George wanted Mr Spalla and Mr Still to be charged with criminal offences arising from Mr Spalla's conduct as a director of Irlmond and APS. At the time of lodging the report of 13 August and writing the letter, Deloittes and the receivers are said to have been aware that ASIC held them in high regard and were likely to act upon any recommendations made by them that Mr Spalla and Mr Still be prosecuted (par 127B).

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39 In par 127H the plea of malicious prosecution is put back on track when it is alleged that in preparing and lodging the report of 13 August the receivers intended to carry out St George's stated intention to harm Mr Spalla and to cause him and Mr Still to be charged and thereby to prevent Mr Spalla from continuing to challenge the conduct of St George in the appointment of receivers to Irlmond and APS and the conduct of the receivers since the date of their appointment (par 127H). Various matters said to have been known to the receivers at the time they prepared their report are set out (par 127I). It is said that the receivers prepared and lodged the 13 August report and wrote the letter maliciously intending that Mr Spalla and Mr Still be charged. 40 The malicious prosecution pleading turns to ASIC and asserts that within a few days of receiving the report of 13 August it commenced an investigation into matters alleged in that report. The investigation was carried out by two officers of ASIC, Ms Croda and Mr Aloi, together with a Commonwealth police officer (sic), Mr Salmon (par 133B). Mr Spalla and Mr Still were interviewed as part of the investigation (par 133D). Mr Spalla informed the officers of the matters earlier pleaded as known to the receivers (par 133E). Mr Spalla told the officers that shortly before the receivers were appointed he had been told by Mr Phillips of St George that St George would pay Mrs Spalla the sum of about $500,000 if Mr Spalla caused Irlmond to continue trading and to incur liabilities and pay all moneys received by Irlmond during that period to St George (par 133F). This is referred to in par 133F as 'the bribe allegations'. Mr Salmon allegedly told Mr Spalla that his bribe allegations would not be believed as he was 'a tainted man' (par 133H). It is alleged that during the trial of the criminal proceedings brought against Mr Spalla and Mr Still, Mr Salmon denied these matters and that his evidence was deliberately untruthful and constituted perjury (pars 133I-133J). He is said not to have made any or any reasonable inquiries about the matters raised in the report of 13 August but accepted them at face value (par 133K). 41 It is alleged that Mr Salmon and the ASIC officers involved in the investigation knew that it was Mr Still's first job, that he was 26 years old, that he was an accountant employed by Essendon Mitsubishi and that he had no equity or like financial interest in the business of Essendon Mitsubishi (par 133M). Mr Salmon and the ASIC officers are said to have ignored statements given to them by Mr Spalla and Mr Still (par 133O). Nobody on behalf of ASIC made any check, inquiry or search about the matters which they put to Mr Salmon and the ASIC officers (par 133P). ASIC's conduct in laying charges against Mr Spalla and Mr Still and in doing no more than referring their complaints about the receivers to the Board was inconsistent and showed a bias against them (par 133U). It is asserted that Mr Salmon and the ASIC officers acted maliciously against Mr Spalla and Mr Still as they were not aware of evidence that justified them being charged. They had not conducted sufficient investigations to be honestly and reasonably of the opinion that such evidence as they knew existed warranted Mr Spalla and Mr Still being charged (par 133V). 42 It is then pleaded that Mr Spalla and Mr Still were charged by an ASIC officer, Mr Orchard, on 14 April 2000 on 22 counts of dishonest false accounting. This was in respect of three cheques:

$200,000 drawn by Castrol dated 20 January 1999;
$350,707.34 drawn by Mitsubishi dated 18 January 1999;
$200,000 drawn by Delta dated 5 February 1999 (par 134).

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The charges are said to have been based on the endorsement of the Castrol and Mitsubishi cheques to Mr Spalla in January 1999, the making of entries in Irlmond's ledger treating the moneys from the three cheques as an advance by Mr Spalla to Irlmond without any debit in those or any other sum to that loan account, and the absence of any journal entry correcting the ledger entries or otherwise recording the moneys as an advance by Irlmond to Mr Spalla (par 135). Mr Spalla and Mr Still maintained their innocence. The judge directed their acquittal on 19 September 2002. He is said to have described 'the remaining charges' as 'fanciful'. It is not clear what is meant by the reference to 'the remaining charges' in par 140. 43 The statement of claim goes to what it calls 'The Moving Force' and alleges that in effect the receivers were 'the moving force' behind the prosecution (par 150). ASIC was the prosecutor of Mr Spalla and Mr Still. ASIC was vicariously liable for the torts committed by its officers involved in the investigation and laying of the charges (par 150B). The conduct of the receivers and ASIC constituted the malicious prosecution of Mr Spalla and Mr Still (par 152). Mr Spalla and Mr Still claim to have suffered loss and damage and claim exemplary damages. 44 It will be observed that the amended statement of claim involves the pleading of facts which contradict findings by Finkelstein J on matters of fact which were in issue in the first proceedings. These include: 1. the identity of the St George parties to the Bailment Agreements. In the amended statement of claim the relevant party is said to have been St George Motor Wholesale. 2. the level of indebtedness of Irlmond and APS under the debenture agreements. 3. the validity of the appointment of the receivers. Given the identity of these issues with issues determined in the first proceedings and the overlap of parties between the first proceedings and the present proceedings, the amended statement of claim in these respects cannot stand against the res judicata estoppel and issue estoppels generated by the judgment in the first proceedings. However, as will be seen below the applicants seek to deal with this question in their replies by alleging, in effect, that various of the findings made in the judgment in the first proceedings were obtained by fraud. In my opinion it is not open to them to raise fraud by way of reply. It is convenient at this point to refer to the replies. Replies 45 In their reply to the Deloitte parties' defence the applicants allege, inter alia, that the judgment of Finkelstein J was wrong in that Irlmond was not indebted to St George Wholesale Finance in any sum and that any debt owed by it was due to St George Motor Wholesale which was not a mortgagee under the Irlmond debenture. They say further that Finkelstein J's finding was wrong in that APS was not indebted to St George Wholesale Finance in any sum and that any debt owed was due to St George Motor Wholesale which was not a party to the APS debenture. They say that Finkelstein J's findings that the bailment debts of Irlmond and APS were payable to St George Wholesale Finance were obtained by the fraud of St George Motor Finance and St George Wholesale Finance who falsely claimed that the bailment debts were payable to St George Wholesale Finance. The fraud was allegedly done by those companies making the claim that the bailment plan debts of Irlmond and APS were payable to St George Wholesale Finance while knowing that, in fact, St George Motor Wholesale was the bailor of the new and used vehicles and that there was no debt owed to St George Wholesale Finance. This knowledge is said to be inferred from various facts, particulars of which are then set out (par 14A(a) - Reply). 46 It is not necessary to refer to the balance of the reply for present purposes. 47 The reply to the defence filed by the St George parties is considerably shorter than that filed to the defence of the Deloitte parties. It incorporates by reference the fraud allegations raised in the reply to the Deloitte defence. 48 The applicants have also filed a reply to ASIC's defence. General Conclusions on the Existing Amended Statement of Claim 49 It is not necessary to canvass all of the submissions made in respect of the existing amended statement of claim. Certain aspects of the pleading have already been identified as embarrassing. The pleading suffers from the serious difficulty that a number of the allegations contained in it are unsustainable in the light of the res judicata estoppel and issue estoppels generated by the first proceedings. This difficulty is not cured by raising an allegation of fraud in a reply. 50 The question that then arises is whether the proposed 'second further amended statement of claim' and the associated 'third further amended application' can stand. The Proposed Second Further Amended Statement of Claim 51 The proposed second further amended statement of claim is based on its predecessor with various amendments. It identifies the parties (pars 1-12) and adds the allegation that St George Motor Wholesale was known as Barclays Motor Wholesale Pty Ltd until 6 April 1994 (par 6A). 52 The St George facilities and securities are identified with minor amendments to define terms for each of the facilities (par 13B). It is now alleged, of the Irlmond debenture, that it 'did not secure the payment or repayment of monies owing by Irlmond to Motor Wholesale' (par 13E). Irlmond was not liable to St George for money owed by APS to St George, nor did the Irlmond debenture secure such money (par 13F). 53 After describing the respective functions of Irlmond and APS in selling used and new vehicles bailed by St George Motor Wholesale (par 14), the second further amended statement of claim pleads the matters relied upon to establish that the judgment or certain of the findings and orders in the first proceedings were obtained by fraud (pars 14AA-14BI). 54 In substance it is alleged that, in the first proceedings, Irlmond pleaded that St George Wholesale Finance had previously been called Barclays Motor Wholesale Pty Ltd until 6 April 1994 (the Motor Wholesale allegation) (par 14AB). This was a mistake. It was St George Motor Wholesale which had previously been known as Barclays Motor Wholesale Pty Ltd. St George Wholesale Finance was previously known as Barclays Wholesale (Finance) Pty Ltd. It is alleged that 'St George well knowing the Motor Wholesale allegation to be false, concealed the truth from the Court' (par 14AE). St George and the receivers 'admitted the Motor Wholesale allegation' and St George cross-claimed against Irlmond for sums owing under the Irlmond Bailment Plan Agreement (par 14AC). 55 The allegation of fraud on the facts raised in these proceedings does not, at first blush, seem inherently plausible. It is not in dispute that the true position could have been ascertained upon examination of the relevant transaction documents. The similarity of the names attaching to the various members of the St George Finance group no doubt could be invoked to support an inference that there was a common mistake in the first proceedings. 56 It is said by the applicants that Irlmond did not discover the true position about the Motor Wholesale allegation until October 2003 when its solicitors reviewed the relevant transaction documents (par 14AF). The findings made by Finkelstein J in the first case are said to have proceeded on the wrong assumption that St George Wholesale Finance was the bailor of the used vehicles under the Irlmond debenture and the holder, with St George Motor Finance, of the Irlmond debenture (par 14BC). Then it is said, in par 14BF, that if Irlmond would otherwise be estopped from making allegations based on the proposition that St George Motor Wholesale and St George Wholesale Finance are different entities, the matters alleged (ie wilful non-disclosure by the respondents) constituted 'special circumstances why such an estoppel should not operate' (par 14BF(a)). Moreover it is not unreasonable, it is said, for Irlmond to make allegations based on that proposition (par 14BF(b)). The applicants also say, it would be unconscionable for St George and the receivers to rely upon such an estoppel (par 14BF(c)). 57 The proposed second further amended statement of claim then invokes O 37. This is a mistake for O 35, the relevant parts of which read: '7(2) The Court, where it is not exercising its appellate or related jurisdiction under Division 2 of Part III of the Act, may if it thinks fit vary or set aside a judgment or order after the order has been entered where: ... (b) the order was obtained by fraud; ... (e) the order does not reflect the intention of the Court;...' Neither invocation is a proper pleading of material fact, but rather a claim for relief and is indeed reflected in claims for relief set out in the third further amended application. 58 In relation to par (e), in my opinion, no claim for relief can be based upon that rule under these pleaded facts. The case in which a judge makes an order on a mistaken understanding of the facts, whether procured by fraud or otherwise, is not a case in which the order does not reflect his or her intention. In my opinion, par 14BH, where this limb of the rule is raised, cannot stand. 59 Paragraph (b), which allows the Court to vary or set aside a judgment where the order was obtained by fraud, is more apposite, but again is a claim for relief and the paragraph in which it appears, par 14BI, cannot stand. That does not mean it cannot be invoked as the basis of a claim for relief. 60 The pleading of fraud depends for its sustainability on the proposition that the judgment in the first proceedings or part thereof can be set aside and alternatively that the issue estoppels generated by the findings of fact in the reasons for that judgment can be defeated. The circumstances in which a judgment can be set aside for fraud were considered by the Court of Appeal in Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 by Kirby P, with whom Hope JA and Samuels JA agreed. That case involved an appeal from a decision of Young J striking out a statement of claim which sought an order that the verdict of a jury and a judgment previously entered pursuant to that verdict should be set aside on the ground that the verdict and judgment were procured by fraud. Kirby P set out the essential criteria for success in an action seeking to set aside a judgment on the basis of fraud. In summary they were as follows: 1. The essence of the action is fraud and particulars of the fraud claimed must be exactly given and the allegations established by the strict proof which such a charge requires. 2. It must be shown by the party asserting that the judgment was procured by fraud that there has been a new discovery of something material in the sense that fresh facts have been found which, by themselves or in combination with previously known facts, would provide a reason for setting aside the judgment. 3. Mere suspicion of fraud raised by fresh facts later discovered will not be sufficient to secure relief. 4. Although perjury by the successful party or a witness or witnesses may, if later discovered, warrant the setting aside of a judgment on the ground that it was procured by fraud and although there may be exceptional cases where such proof of perjury would suffice, without more to warrant relief of this kind, the mere allegation or even the proof of perjury will not normally be sufficient to attract such drastic and exceptional relief as the setting aside of a judgment. 5. It must be shown by admissible evidence that the successful party was responsible for the fraud which taints the judgment under challenge. 6. The burden of establishing the components necessary to warrant the drastic step of setting aside a judgment allegedly affected by fraud or other relevant taint, lies on the party impugning the judgment. It is for that party to establish the fraud and to do so clearly. Kirby P said, at 539: 'In summary [the applicant] 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.' 61 In Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234, the Full Court of the Federal Court also reviewed the general principles governing the equitable jurisdiction to set aside a judgment on the basis that it was obtained by fraud. In particular, reference was made, with apparent approval, to 'the stringent principles established by the authorities to confine the jurisdiction' which were summarised by Mr DM Gordon QC in Fraud or New Evidence as Grounds for Actions to Set Aside Judgments (1961) 77 LQR 358. Those principles set the following requirements: '(a) evidence 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 production 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. (at 241) See also Magarditch v Australia and New Zealand Banking Group Ltd (1999) 17 ACLC 1275 and Pembroke School Incorporated v Human Rights and Equal Opportunity Commission [2002] FCA 1020. 62 It is not in dispute that the fact said to have been concealed from the Court in this case was in plain view for all to see. It was in the relevant transaction documents. The evidence relied upon to establish the fraud could not be described as fresh. The fact that the party seeking to set aside the judgment had made a mistake about a material fact which it pleaded and that the party on the other side had knowingly failed to disclose that mistake to the Court, are not facts which, when they come to light, constitute fresh evidence. The fresh evidence is not the fact of non-disclosure. It is that which was not disclosed. That which was not disclosed was in plain sight for all to see. What was fresh was that somebody took the trouble, long after the trial, to read the transaction documents carefully. 63 In considering the viability of this aspect of the second further amended statement of claim, I have regard to the high threshold that is set by the authorities for striking out a statement of claim or part thereof on the basis that it does not disclose any reasonable cause of action. The pleading must be manifestly untenable. 64 In my opinion the pleading in this case is fatally flawed because, for the reasons I have already set out, the factual material on which it rests does not involve the discovery of fresh evidence. The pleading also alleges a knowing non-disclosure of the applicants' error in the first proceeding by the St George parties. The knowledge attributed to the St George parties is particularised in par 14AE as a matter to be inferred from various facts. It does not, however, seem to me to indicate the existence of evidence that is so strong that it would reasonably be expected to be decisive at a rehearing and if unanswered, must have that result - see Monroe Schneider (at 241). 65 At least as plausible as the pleaded inference, if not more so, is the inference that St Georges' solicitors and/or counsel, through their defences and cross-claims, accepted the mistaken plea in the statement of claim without themselves carefully perusing the transaction documents. The similarity of the names of the various St George companies renders such a mistake the more likely. 66 The stringency of the criteria for reopening litigation on the basis that a judgment has been obtained by fraud is emphasised by the remarks of Lord Bridge in delivering the decision of the House of Lords in Owens Bank Ltd v Bracco [1992] 2 AC 443 (at 483), quoted with approval in Monroe Schneider (at 240): '[T]he 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... This is the rule to be applied in an action brought to set aside an English judgment on the ground that it was obtained by fraud. The rule rests on the principle that there must be finality of litigation which would be defeated if it were open to the unsuccessful party in one action to bring a second action to relitigate the issue determined against him simply on the ground that the opposing party has obtained judgment in the first action by perjured evidence. Your Lordships were taken, in the course of argument, 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 Full Court in Monroe Schneider observed (at 241): 'It is not disputed on the present appeal that the law in Australia is to the same effect as that described by Lord Bridge.' In my opinion the proposed amended pleading and application in so far as it seeks to set aside the judgment of Finkelstein J in the first proceedings does not disclose any reasonable cause of action. Consequently it is not open to the applicants to plead facts inconsistent with the facts found on the issues joined in the first proceedings. This latter conclusion affects much of the balance of the second further amended statement of claim. 67 The remaining paragraphs of the second further amended statement of claim fall broadly into the following categories:

Allegations of failure by the receivers to act in good faith (pars 108C-110B). 2. Claim by Irlmond against St George on the basis that Irlmond was not liable for APS indebtedness to St George or to St George Motor Wholesale (pars 110C-110CB). 3. St George acting in breach of its duty by preventing Irlmond from exercising its right of redemption in a timely fashion (pars 110E-110F). 4. Breach of duty by the receivers (pars 110G-110J). 5. Malicious prosecution by the receivers (pars 119-127K). 6. Malicious prosecution by ASIC (pars 133A-152). 7. Injurious falsehood on the part of the receivers by publication of their report of 13 August (pars 152A). Each of the groups of allegations, save for those relating to malicious prosecution and injurious falsehood, involve allegations of fact that contradict factual findings in the first proceedings. This is by reason of their reliance upon the proposition that St George Motor Wholesale was party to the relevant Bailment Plan Agreement and not St George Wholesale Finance. This appears, inter alia, from pars 108C, 110C(b), 110E(d) and 110G(d). 68 As to the malicious prosecution plea, for reasons stated in respect of the existing amended statement of claim, pars 127D-127G are irrelevant and embarrassing and cannot stand. 69 It may be that some aspects of the claims against the St George parties and the Deloitte parties, apart from the malicious prosecution and injurious falsehood aspects, can be repleaded without reliance upon facts which would traverse findings made on issues joined in the first proceedings or which could and should have been raised in those proceedings. In my opinion the statement of claim in its present form requires major surgery. The same is true of its proposed form. It seems to me therefore that the most convenient procedure at this stage is to strike out in its entirety the statement of claim as it presently stands with liberty to replead by way of a substituted statement of claim and, if necessary, a substituted application, on a basis consistent with these reasons. I have not canvassed here all other objections which have been argued in respect of various aspects of the pleading. It seems to me that these are the major issues which have to be addressed before the case can go forward. I appreciate that in striking out the amended statement of claim I do not do so on the basis that there is no reasonable cause of action disclosed with respect to the claims against the Deloitte parties and ASIC arising out of the prosecution of Messrs. Spalla and Still. I consider, however, that the balance of the pleading is so flawed for the reasons I have given that the only reasonable course is to require the drafting and filing of a fresh document rather than leaving a barely intelligible remnant in place. Conclusion 70 For the preceding reasons I will make the following orders: A. On the motion of the third, fourth, fifth and seventh respondents filed 21 May 2004 and the motion of the first and second respondents filed 24 August 2004IT IS ORDERED THAT:
1. The further amended statement of claim is struck out. 2. Leave to file the second further amended statement of claim and the third amended application is refused. 3. The applicant has liberty to file and serve a substituted application and statement of claim on or before 21 October 2004. 4. The applicants are to pay the costs of the third, fourth, fifth and seventh respondents' motion filed 21 May 2004 and the costs of the first and second respondents' motion filed 24 August 2004. I certify that the preceding seventy-seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

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