Spalla v St George Motor Finance Ltd [2004] FCA 1262 | Case summary

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.

Spalla v St George Motor Finance Ltd

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