Spalla v St George Motor Finance Ltd [2004] FCA 1699 | Case summary

REASONS FOR JUDGMENT Introduction 1 The former corporate operators of the new and used motor vehicle business known as Essendon Mitsubishi, their principal, Anthony Spalla, and the company secretary, Andrew Still, sue their former financiers, receivers who were appointed to the companies and the Australian Securities and Investments Commission (ASIC). There is a variety of causes of action pleaded including numerous breaches of the duties of the financiers as mortgagees, breaches of the duties of the receivers, as officers of the companies, claims for moneys had and received and for conversion, malicious prosecution and injurious falsehood. This is the second round of proceedings in this Court arising out of the appointment of the receivers in February 1999, their conduct of the receivership and their management and disposal of the business of Essendon Mitsubishi. 2 The present proceedings have already had a long history. The previous version of the applicants' statement of claim was struck out on 28 September 2004. A third further amended statement of claim was subsequently filed. It has now been the subject of motions by the former financiers and receivers largely on the basis that it is an abuse of the processes of the Court. This is because it is said to raise issues which were decided in the previous proceedings or could reasonably have been raised in them. 3 For the reasons that follow, in my opinion, that contention succeeds for the most part. There is a discrete cause of action clearly post-dating the previous proceedings which is not on its face an abuse of process. That relates to the disposition of the sale proceeds of Essendon Mitsubishi. There is also a cause of action against the receivers and ASIC for malicious prosecution which is not said to be untenable save for the contention that the Court has no jurisdiction to entertain it. Involving as it does consideration of prosecutions for offences under the laws of the Commonwealth I am satisfied, for reasons explained at greater length below, that it involves a matter arising under the laws of the Commonwealth and is therefore within the jurisdiction of the Court. The claim for injurious falsehood is closely associated with the malicious prosecution claim and would fall, in my opinion, within the accrued jurisdiction of the Court. The Original Proceedings before Finkelstein J 4 Anthony Patrick Spalla carried on the business of a motor vehicle dealer operating as Essendon Mitsubishi from 1994 to 1999. He carried on that business through two companies which he controlled namely Irlmond Pty Ltd (Irlmond) and APS (Wholesale) Pty Ltd (APS). Irlmond sold both new and used cars. The new cars were acquired for the dealership by APS for reasons to do with the Sales Tax Assessment Act 1992 (Cth). Title passed from APS through Irlmond to customers upon the sale of new cars. Used cars were sold by Irlmond directly. 5 Irlmond had conducted the Essendon Mitsubishi dealership and a dealership at Heidelberg with an unrelated company, Zeldon Pty Ltd prior to 1994. At the end of 1993 the two companies split up. They owed their financiers about $2,400,000. The financiers were companies in the Barclays Bank Group, which now form part of the St George finance group. 6 Upon the split up with Zeldon, Irlmond assumed $1,100,000 of their joint debt. Arrangements were made for finance for the Essendon Mitsubishi dealership to be provided by the St George group, which included St George Wholesale Finance Pty Ltd (Wholesale Finance) and St George Motor Finance Pty Ltd (Motor Finance). These arrangements were made in February 1994. The finance was provided by way of facilities known as a Bailment Plan, a Deferred Payment Plan and a Demonstrator Agreement. In addition, Wholesale Finance and 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. 7 The securities provided by Irlmond and APS were debentures over their assets and guarantees by Mr Spalla and another company, Anstella Nominees Pty Ltd (Anstella Nominees). 8 From 1994 to 1999 both companies experienced increasing difficulty. This culminated in the appointment of receivers over their assets in February 1999 by Wholesale Finance and Motor Finance. The receivers were Andrew Stewart Home and Andrew William Beck of Deloitte Touche Tohmatsu. 9 Mr Spalla and his two companies commenced proceedings in this Court in 1999 seeking, inter alia, 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). 10 Wholesale Finance and 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 set up a number of money claims. They claimed damages for alleged interference with contractual arrangements on the part of Mr Spalla, Irlmond and APS. 11 The trial of the action was heard by Finkelstein J in March and April 1999. The factual matters set out in this section reflect findings of fact in his Honour's judgment. There is another member of the St George finance group, namely St George Motor Wholesale Pty Ltd (Motor Wholesale), which was not mentioned in his Honour's judgment. According to the amended statement of claim previously before the Court and the subject of the strike out order made on 28 September 2004, 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. Its omission in the pleadings in the proceedings before Finkelstein J was in error and the case was conducted upon that erroneous basis. That fact lay at the heart of much of the debate about the pleadings, which led to the strike out order made on 28 September 2004. 12 On 27 April 1999, Finkelstein J made a declaration 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 Wholesale Finance and 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, Wholesale Finance and 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 of the APS debenture would be dismissed. His Honour declared that Irlmond was not liable to Wholesale Finance or 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. 13 His Honour also made a declaration, on the cross-claim, that the appointment of the receivers on 12 February 1999 had been authorised. He awarded judgment in favour of Motor Finance against Irlmond in the amount of $45,672.74 with interest fixed in the sum of $390.41. He also ordered that 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. 14 Judgment was awarded in favour of 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 Wholesale Finance in the amount of $2,337,455.22 together with interest in the sum of $20,979.46. 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 Wholesale Finance. 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. 15 The amounts owing, as determined by taking of accounts ordered by his Honour on 27 April 1999, were certified by Registrar Seccombe on 29 April 1999. The Registrar certified that: '(a) $911,991.69 is due to St George Wholesale and St George Finance under and by virtue of the Irlmond Debenture; (b) $2,150,667.90 is the amount of the costs and expenses incurred by the receivers in and about the receivership and management of the property of Irlmond; (c) $2,780,105 is due to St George Wholesale and St George Finance under and by virtue of the APS Debenture; (d) $157,819 is the amount of the costs and expenses incurred by the receivers in and about the receivership and management of the property of APS.' 16 An appeal and cross-appeal against the decision of Finkelstein J was dismissed on 12 November 1999 - Spalla and Others v St George Wholesale Finance Pty Ltd (1999) 95 FCR 359. The History of the Present Proceedings 17 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. The respondents are Motor Finance, Wholesale Finance and, by recent joinder, Motor Wholesale (the St George parties), the receivers, Andrew William Beck, Andrew Stewart Home, Simon Alexander Wallace-Smith, their firm, Deloitte Touche Tohmatsu (the Deloitte parties) and ASIC. Mr Wallace-Smith was appointed receiver and manager of Irlmond and APS by Wholesale Finance and Motor Finance on 23 September 2003. 18 Defences were filed to the statement of claim by the Deloitte parties, the St George parties and ASIC respectively. Replies to the defences were filed. The St George parties filed a cross-claim against the Deloitte parties and the solicitors, Corrs Chambers Westgarth. The interlocutory history of the proceedings has been long and complicated. It is unnecessary to set it out in great detail. On 23 and 24 August 2004, argument proceeded on a motion by the Deloitte parties to strike out various paragraphs of the further amended statement of claim which had been filed on 16 December 2003 pursuant to leave granted by Goldberg J on 9 December 2003. 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. 19 On 25 August 2004, directions were made allowing for a proposed second further amended statement of claim to be filed and served by 27 August 2004. Directions were given for the exchange of written submissions in relation to the proposed amendments to the statement of claim and also any proposed amendments to the application. A proposed second further amended statement of claim was filed pursuant to the direction given on 25 August. Written submissions attacking the proposed second further amended statement of claim were received. 20 On 28 September 2004, for reasons then published, I ordered that the further amended statement of claim which had been filed on 16 December 2003 be struck out. I refused leave to file the second further amended statement of claim and a proposed third amended application - Spalla v St George Motor Finance Ltd (No 5) [2004] FCA 1262. The applicants were, however, given liberty to file and serve a substituted application and statement of claim on or before 21 October 2004. A third further amended application and a third further amended statement of claim were filed pursuant to that leave on 19 October 2004. 21 On 8 November 2004, the St George parties filed a motion seeking an order that paragraphs 16 to 76 inclusive and 85 of the third further amended statement of claim be struck out on the grounds that they: '(a) disclose no reasonable cause of action; (b) have a tendency to cause prejudice, embarrassment or delay in the proceeding; (c) are otherwise an abuse of the process of the Court' On the same day, the Deloitte parties sought an order pursuant to O 20 r 2 of the Federal Court Rules that the proceedings be dismissed and alternatively an order that the third further amended application and the third further amended statement of claim be struck out. 22 Following the filing of written submissions, the hearing of those motions proceeded on 26 November 2004. Subsequently, written submissions going to the question of jurisdiction were filed on 30 November and 1, 7 and 10 December 2004. The Third Amended Statement of Claim and Application - An Overview 23 It is convenient to outline the content of the Third Amended Statement of Claim. 24 The pleading begins by identifying the parties. Mr Anthony Spalla was, at all material times, the dealer/principal and managing director of Irlmond and APS which conducted the business of Essendon Mitsubishi and North City Daewoo (SC 1). Mr Still was, at all material times until 12 February 1999, company secretary to Irlmond and APS and an accountant employed at Essendon Mitsubishi (SC 2). 25 Motor Finance and Wholesale Finance were at all material times financiers to motor dealers (SC 5 and SC 6). The new party and eighth respondent, Motor Wholesale, was at all material times a motor vehicle floor plan financier (SC 7). 26 Messrs. Beck and Home were partners in Deloitte Touche Tohmatsu and were appointed receivers and managers of Irlmond and APS by Motor Finance and Wholesale Finance on 12 February 1999 (SC 8-10). They resigned as receivers and managers on 25 July 2003 and 8 August 2003 respectively (SC 11 and 12). Simon Alexander Wallace-Smith, who is named as seventh respondent, was at all material times a partner in Deloittes. He was appointed receiver and manager of Irlmond and APS respectively by Wholesale Finance and Motor Finance on 23 September 2003 (SC 14 and 15). 27 ASIC is a body corporate established by the Australian Securities and Investments Commission Act 1989 (Cth) and continued in existence by the Australian Securities and Investments Commission Act 2001 (Cth) (SC 13). 28 The statement of claim identifies various written agreements between Motor Finance, Wholesale Finance, Irlmond and APS under which Motor Finance bailed demonstrator vehicles to Irlmond and Wholesale Finance bailed new vehicles to APS and used vehicles to Irlmond for sale and display (SC 16, 17 and 18). At all relevant times Wholesale Finance and Motor Finance held securities in respect of the financial arrangements which they had with Irlmond and APS. These comprised: (a) A Debenture Charge dated 24 February 1994 given by Irlmond to Wholesale Finance and Motor Finance (Irlmond Debenture). (b) A Debenture Charge dated 24 February 1994 given by APS to Wholesale Finance and Motor Finance (APS Debenture) (SC 19). The Irlmond Debenture did not secure the payment or repayment of any money owed by APS to Wholesale Finance and Motor Finance (or either of those companies) and the Irlmond Debenture contained a proviso for redemption (SC 20 and 21). 29 At 12 February 1999, which was the date upon which the receivers and managers were appointed to Irlmond and APS by Motor Finance and Wholesale Finance, the following amounts were due and payable by Irlmond: (a) $45,672.74 owing to Motor Finance (b) $349,683.41 owing to Wholesale Finance (SC 22). These amounts were secured by the Irlmond Debenture (SC 23). Irlmond says that at that date it was entitled to redeem all of its assets the subject of the Irlmond Debenture upon payment of $395,311.15, being the total of the amounts owing to Motor Finance and Wholesale Finance together with a sum sufficient to secure the payment of disbursements and expenses incurred by the receivers and their reasonable remuneration (SC 24). Each of Motor Finance, Wholesale Finance and Motor Wholesale is said to have known of the existence of the facilities, the level of indebtedness and the entitlement to redemption (SC 25). 30 The applicants claim that, as at 12 February 1999, Irlmond had assets of approximately $10,102,000. A table sets out the assets by item description and value. It also incorporates reference to the evidence in support of the existence and value of each of the assets. The assets so identified include goodwill valued at $3 million and directors' loans amounting to $1,230,000 (SC 26). 31 The applicants allege that at the date of appointment of the receivers Irlmond had $162,243.46 in account with St George Bank Limited, $361,804.95, being Irlmond cheques payable to Motor Wholesale which had been drawn on the National Australia Bank (NAB) prior to 12 February 1999 and reversed by the receivers upon appointment, $210,000 cash at bank with the NAB, vehicle debtors and trading stock and $1,508,688.50 available from the Spalla family to pay any Irlmond indebtedness to Wholesale Finance and Motor Finance (SC 27). 32 It is alleged that Wholesale Finance and Motor Finance as mortgagees under the Irlmond Debenture owed Irlmond a duty to use their powers in good faith and solely for the purpose of obtaining payment of the moneys owing and secured by the Irlmond Debenture (SC 28). They are said to have breached these duties in a variety of ways which are particularised. The first of these breaches was the appointment of the receivers (SC 29). Wholesale Finance and Motor Finance are said to have failed to inform Irlmond of the amounts secured by the Irlmond Debenture and the sum required to discharge it. They are said to have caused or permitted the receivers to treat Irlmond and APS as one receivership with one bank account and not to repay or obtain payment forthwith of the secured sum out of available liquid funds. Their instruction to the receivers to sell the business of Essendon Mitsubishi forthwith is alleged. It is also said they caused or permitted the receivers to use Irlmond's assets to pay the costs of the joint administration of Irlmond and APS. They are said to have failed to cause the receivers to act in accordance with a finding of Finkelstein J in earlier proceedings that the Irlmond Debenture did not secure the payment or repayment of any money owed by APS to Wholesale Finance and Motor Finance or either of those companies. Other particulars of the breaches of duty by the mortgagees refer to matters subsequently pleaded in the statement of claim (SC 29). 33 The applicants say that, as a result of the pleaded breaches of the mortgagees' duties, Irlmond suffered loss and damage (SC 30). The loss is particularised as the sums paid by Irlmond to Motor Wholesale, the loss of its assets, the loss of opportunity to sell the business of Essendon Mitsubishi at an opportune time, the receivers' remuneration, costs and expenses, the costs of the earlier proceedings before Finkelstein J, costs ordered against Irlmond in those proceedings and the liquidator's costs and expenses (SC 30). Further, and in the alternative, Irlmond claims an account against Wholesale Finance and Motor Finance on the footing of their wilful default and also claims equitable compensation in the alternative (SC 31). 34 The statement of claim pleads a cause of action under the Trade Practices Act. It is alleged that Wholesale Finance and Motor Finance, in appointing the receivers, represented to them that Irlmond was liable to them and/or Motor Wholesale for the indebtedness of APS to Wholesale Finance and Motor Finance and/or Motor Wholesale. Particulars of this representation are rather diffuse. The first particular asserts that the representation was express or implied or partly both. It is said to have been made by representatives of Wholesale Finance and Motor Finance whose identity is not yet known to Irlmond. The particulars relied upon to support the implied representation include particulars of conduct on the part of the receivers (SC 32(b), (e), (f), (i), (m) and (n)). Other particulars include the use by the mortgagees of a common notice of appointment for the receivers in relation to both Irlmond and APS. The conduct of Wholesale Finance and Motor Finance in causing or permitting the receivers to write Irlmond cheques to Motor Wholesale in respect of APS indebtedness and failing to take any action to revoke their appointment or take other remedial action is set up (SC 32(c)). Another particular is the conduct of Wholesale Finance and Motor Finance in causing or permitting the receivers to not immediately satisfy Irlmond's indebtedness out of available liquid funds (SC 32(g) read with (f)). Reliance is placed on the conduct of Wholesale Finance and Motor Finance in instructing the receivers to sell the business of Essendon Mitsubishi on and from 12 February 1999 (SC 32(h)). Wholesale Finance and Motor Finance are also said to have caused or permitted the receivers to use proceeds from the sale of Irlmond's assets to meet APS indebtedness to Wholesale Finance. 35 An instruction by letter from Corrs Chambers Westgarth to the receivers dated 3 June 1999, written on behalf of Wholesale Finance and Motor Finance, is included in the particulars. The letter is said to have instructed the receivers to apply all proceeds of sale in reduction of the indebtedness of APS to Wholesale Finance, to pay the proceeds from Irlmond to APS, to pay the proceeds from APS to Wholesale Finance and to keep the amount owing by Irlmond to Wholesale Finance and Motor Finance as high as possible. It is said to have identified, in an enclosed letter of 27 May 1999, 'legal and tactical reasons' as the rationale for keeping the amount owing by Irlmond to Wholesale Finance and Motor Finance as high as possible. Also invoked is the conduct of Wholesale Finance and Motor Finance in permitting the receivers to cause Irlmond to pay or reimburse the receivers' remuneration costs and expenses of both receiverships (SC 32(o)). 36 It is alleged that the pleaded representation was misleading and deceptive or likely to mislead or deceive in that Irlmond was not liable to Wholesale Finance and Motor Finance or Motor Wholesale for APS indebtedness to Wholesale Finance (SC 33). The representation is said to have been made in trade or commerce and to have constituted a contravention of s 52 of the Trade Practices Act (SC 34 and 35). 37 The receivers are said to have acted in reliance upon the misleading representation and to have conducted the receiverships of Irlmond and APS as one and to have done various other things which, it is said, resulted in Irlmond suffering loss and damage (SC 36 and 37). Irlmond, it is said, would not have brought the earlier proceeding if the receivers had repaid the secured debt. For this reason Irlmond incurred legal costs as ordered against it in the earlier proceeding (SC 37). 38 This represents the totality of the Trade Practices Act claim. 39 Then it is said that the receivers breached their duties: '. to act in good faith; . to ascertain the amount of the secured sum by, inter alia, asking Wholesale Finance and Motor Finance; . to repay the secured sum as soon as possible ...; . to terminate the receivership as soon as possible' Reliance is placed upon s 233(4) of the Corporations Law, now reflected in s 180(1) of the Corporations Act 2001 (Cth) and also upon equitable principle (SC 65). 40 The receivers are said to have breached their duties in various ways which mirror the classes of breach of duty alleged against Wholesale Finance and Motor Finance (SC 36 and 39-62). Most prominent is the allegation that they treated the Irlmond and APS receiverships as one (SC 39). This general claim is elaborated by the allegation that the receivers caused or permitted Irlmond to write cheques in favour of Motor Wholesale in respect of debts owed by APS under the APS Bailment Plan Agreement (SC 40 and 62). Cheques totalling $5,381,622.90 drawn by Irlmond in favour of Motor Wholesale between February 1999 and May 1999 are said to have been set out in a general ledger account maintained by the receivers (SC 62). The use of the proceeds of the sale of Irlmond's assets to meet APS's indebtedness is pleaded (SC 43). The payment by Irlmond of the receiver's remuneration, costs and expenses from both receiverships is alleged (SC 46). Circumstances surrounding the sale of the business of Essendon Mitsubishi to the Gorell Family Group Pty Ltd for $2,501,367 in May 1999 are raised (SC 50). The receivers are said to have endorsed the cheque, payable to Irlmond, in favour of Motor Finance and Motor Wholesale (SC51). Irlmond was not indebted to Motor Wholesale (SC 63(a)). Nor was it liable for the indebtedness of APS to Motor Wholesale (SC 63(b)). In endorsing the cheque in favour of Motor Finance and Motor Wholesale the receivers are said to have acted on instructions from Wholesale Finance and Motor Finance (SC 45). 41 The failure of the receivers to immediately pay or satisfy Irlmond's indebtedness under the Irlmond Debenture is cited (SC 41). So too is the conduct of the receivers in acting upon the instructions of Wholesale Finance and Motor Finance to sell the business of Essendon Mitsubishi (SC 42). 42 The applicants plead the declaration made by Finkelstein J that Irlmond was not liable to Wholesale Finance and Motor Finance for APS indebtedness to Wholesale Finance and Motor Finance (SC 47-48). They then plead the conduct of the receivers in continuing to run Irlmond and APS as one administration notwithstanding that declaration (SC 49). 43 All of the above matters are said to have constituted breaches of the receivers' duties (SC 65-66). The loss and damage suffered by Irlmond is the same as that alleged against Wholesale Finance and Motor Finance for their alleged breaches of duty as mortgagees. 44 A cause of action in conversion is raised in respect of the endorsement of the Gorell cheque, being the proceeds of sale of the business of Essendon Mitsubishi, and the making of payments to Motor Wholesale. The making of the payments and the endorsement of the cheque are said not to have been authorised by the Irlmond Debenture. In the premises it is said that the receivers converted Irlmond's property, being the money the subject of the Motor Wholesale payments and the Gorell cheque. The loss and damage claimed is the value of the Motor Wholesale payments and the Gorell cheque (SC70-72). 45 By 23 September 2003, Irlmond no longer had any assets (SC 74). Its indebtedness to Wholesale Finance and Motor Finance was or should have been repaid out of its assets (SC73). On that basis Wholesale Finance and Motor Finance should not have appointed Mr Wallace-Smith as receiver of Irlmond to obtain payment of moneys owed and secured by the Irlmond Debenture and they breached their mortgagees' duties in doing so. The appointment of Mr Wallace-Smith, it is said, should be terminated by the Court and Wholesale Finance and Motor Finance should indemnify Irlmond for all the costs and expenses incurred in connection with the receivership since 23 December 2003 (SC 76). 46 The statement of claim then turns to the cause of action in malicious prosecution raised by Mr Spalla and Mr Still against the receivers and ASIC. It is said that on 13 August 1999 the receivers sent a report to ASIC pursuant to s 422 of the Corporations Law (SC 77). The report contained allegations of improper conduct by Mr Spalla and Mr Still in connection with the operation of the Irlmond and APS businesses. (SC 78). It was sent by the receivers to ASIC under cover of a letter that said that Mr Spalla and Mr Still may have been guilty of a number of offences in relation to Irlmond and APS, that their conduct had had a severe financial impact on both secured and unsecured creditors and that the report was provided to assist ASIC in determining whether or not it should take action against them (SC 79). For this reason it is said the receivers impliedly recommended that Mr Spalla and Mr Still be prosecuted for false accounting in respect of three cheques, either inadequately or improperly recorded and applied (SC 79). 47 Messrs Spalla and Still allege that various of the matters contained in the report of 13 August 1999 were false (SC 80-84). Prior to lodging the report and writing the letter to ASIC the receivers knew, and it was the fact, that Wholesale Finance and Motor Finance through their officer, Mr Phillips, wanted Mr Spalla to be punished by having him, and necessarily Mr Still, charged with criminal offences arising from Mr Spalla's conduct as a director of Irlmond and APS (SC 85). The receivers were well known to ASIC and were aware that ASIC held them in high regard and would be likely to act upon any recommendations made by them (SC 86). From about April 1999 they were aware that ASIC was interested in prosecuting Mr Spalla and Mr Still as Mr Beck had discussed the matter with an officer of ASIC in about April 1999 (SC 87). It is said that in preparing and lodging their report of 13 August and the covering letter, the receivers intended to carry out Mr Phillips' stated intention to harm Mr Spalla and to cause him and Mr Still to be charged in respect of matters raised in the report and thereby to prevent Mr Spalla from continuing to challenge the conduct of Wholesale Finance and Motor Finance in the appointment of receivers to Irlmond and APS and the conduct of the receivers since the date of their appointment (SC 88). 48 The receivers are said to have known at the time of Mr Spalla's belief that the business of Essendon Mitsubishi was viable when they were appointed. They also knew that the proceeds of endorsed cheques had all been paid from his personal bank account into Irlmond's bank account and used to meet Irlmond's liabilities prior to 12 February 1999 and that on 10 February 1999 the sum of $264,000 was paid from Mrs Spalla's personal account into Irlmond's account to meet its liabilities (SC 89). 49 A three page draft report was prepared by Mr Beck in June 1999 pursuant to s 422 of the Corporations Law. He provided that draft report to Mr Richard Vanderloo, an ASIC employee seconded to Deloittes from about February 1999 to about 30 June 1999. He asked if the type of format would be acceptable to an ASIC prosecutor (SC 91 and 92). Mr Vanderloo redrafted the report and provided several drafts of it to Mr Beck. It is said he intended that it would be acted upon by ASIC to have Mr Spalla and Mr Still prosecuted (SC 93 and 94). 50 The receivers prepared the 13 August 1999 report on Deloittes' letterhead and thereby represented to ASIC that it was their report. They adopted Mr Vanderloo's draft of the report and were bound by his conduct. They sent the letter 'maliciously, intending that Mr Spalla and Mr Still be charged in respect of matters referred to in that report' (SC 98). 51 As against the ASIC it is said that it commenced an investigation into the matters alleged in the report of 13 August (SC 99). Mr Spalla informed the investigators of his belief that the business of Essendon Mitsubishi was viable when the receivers were appointed and of his intention, in having cheques endorsed and presented to his personal bank account, to save the business (SC 103). He told the investigating officers that shortly before the receivers were appointed Mr Phillips had told him that Wholesale Finance and Motor Finance would pay Mrs Spalla the sum of about $500,000 if Mr Spalla caused Irlmond to continue trading and incurring liabilities and would pay all moneys received by Irlmond during that period to Wholesale Finance and Motor Finance (SC 104). It is alleged that one of the investigating officers from the Commonwealth Police seconded to ASIC, a Mr Salmon, did not make any or any reasonable inquiries as to the matters raised in the report but simply accepted them at face value (SC 105). Mr Spalla is said to have informed the investigating officers of other matters explaining allegations against him in the report (SC 106). Moreover the investigators knew at the time that Mr Still was in his first job, was an accountant employed by Essendon Mitsubishi, was 26 years old and had no equity or financial interest in the business (SC 107). 52 Mr Salmon and the other ASIC officers are said to have ignored the statements of Mr Spalla and Mr Still by way of explanation of the matters alleged against them (SC 109). No other person on behalf of ASIC made any check, inquiry or search (SC 110). It is said that the investigating officers acted maliciously against Mr Spalla and Mr Still in that they were not aware of evidence that justified them being charged and had not conducted sufficient investigations to be honestly and reasonably of the opinion that such evidence which they knew existed warranted them being charged (SC 113). Mr Spalla and Mr Still were charged on 22 counts of dishonest false accounting in respect of three cheques (SC 114). The number of charges was reduced to four on 10 September 2002 and on 19 September 2002 a jury, by direction of the trial judge, acquitted Mr Spalla and Mr Still (SC 119). 53 The receivers are said to have been the moving force behind the prosecution of Mr Spalla and Mr Still (SC 121). Further, and alternatively, ASIC was the moving force in their prosecution in that had it not conducted the investigation in the manner alleged it would not have submitted a brief of evidence to the Director of Public Prosecutions ( DPP) in respect of their conduct, the DPP would not have advised ASIC to charge them and the charges would not have been signed by an informant (SC 122). The conduct of the receivers and ASIC was said to constitute the malicious prosecution of Mr Spalla and Mr Still (SC 125). 54 The publication by the receivers of the report of 13 August 1999 is said to have amounted to injurious falsehood published against Mr Spalla and Mr Still (SC 126). The loss and damage alleged comprises: '(a) their legal costs of the criminal proceedings; (b) their loss of employment and employment and business opportunities; (c) damage to their reputations; (d) severe mental distress to themselves personally and by their observation of the stress so caused to their respective family members.' (SC127) Exemplary damages are also claimed (SC 128). Statutory Framework - The Rules of Court 55 The present motions are brought under Orders 11 and 20 of the Federal Court Rules. Order 11 r 16 provides: 'Where a pleading - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceeding; or (c) is otherwise an abuse of the process of the Court, the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out.' 56 Order 20 r 2 provides: '(1) Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding - (a) no reasonable cause of action is disclosed; (b) the proceeding is frivolous or vexatious; or (c) the proceeding is an abuse of the process of the Court, the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding. (2) The Court may receive evidence on the hearing of an application for an order under sub-rule (1).' Statutory Framework - Jurisdiction of the Court 57 Section 39B of the Judiciary Act 1903 (Cth) provides, inter alia: '(1) The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter: ... (c) arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter.' Relitigation as Abuse of Process 58 Much of the argument directed against the third further amended statement of claim involved the contention that the applicants seek to relitigate matters decided against them by Finkelstein J or which should reasonably have been raised in those proceedings. It is appropriate therefore to have regard to some of the general law dealing with this species of abuse of process. 59 The Federal Court, like every Court of Justice, has an implied incidental power to prevent abuse of its processes. There are many ways in which the processes of a court may be abused. One form of such abuse is to invoke the procedures of the court to attempt to relitigate controversies which have already been decided by the court. The court may be protected against such use of its procedures by the doctrines of res judicata and issue estoppel and their analogical extension to issues which ought reasonably to have been litigated in original proceedings as enunciated in Henderson v Henderson (1843) 3 Hare 100; 67 ER 313 and Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. 60 The protection afforded the administration of justice by the general concept of abuse of process in this context subsumes that afforded by the specific doctrines of res judicata, issue estoppel and their Anshun extension. In Reichel v Magrath [1889] 14 App Cas 665 a vicar who had resigned from his benefice and failed in proceedings for a declaration that his resignation was void and that he was still in office. His successor brought proceedings for a declaration that he was vicar and claimed associated injunctive relief. The former vicar sought to defend the proceedings on the basis that he retained the benefice. His defence was struck out. The decision to strike it out was upheld in the Court of Appeal and in the House of Lords where Lord Halsbury said (at 668): 'My Lords, I think it would be a scandal to the administration of justice if, the same question having been disposed of by one case, the litigant were to be permitted by changing the form of the proceedings to set up the same case again.' And further: 'I believe there must be an inherent jurisdiction in every Court of Justice to prevent such an abuse of its procedure and I therefore think that this appeal must likewise be dismissed.' The other Law Lords agreed. 61 Reichel v Magrath was decided upon abuse of process grounds. It was not based upon any finding of res judicata or issue estoppel although as observed in Spencer, Bower and Turner, 'Res Judicata', 3rd Edition (Butterworths 1996) at 444: 'It would appear that the issue was res judicata, because the earlier decision was in rem, and the plaintiff was a privy of the successful parties, but this has not affected the vitality of the principle applied by the House.' Commenting upon an argument that Reichel v Magrath could have been decided upon res judicata grounds on the basis that the first decision was in rem, Handley JA said in Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198 (at 202): '... the availability of a narrow ground for decision does not displace the actual ratio if the court decides the case on a wider basis.' And as his Honour noted, Reichel v Magrath has been followed in Walton v Gardiner (1993) 177 CLR 378 (at 393) and Rogers v R (1994) 181 CLR 251 (at 287-288). 62 The breadth of abuse of process protection against attempted relitigation was considered in Walton v Gardiner per Mason CJ, Deane and Dawson JJ (at 393): '... proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings.' Their Honours cited Reichel v Magrath and Connelly v Director of Public Prosecutions [1964] AC 1254 at 1361-1362. They also adopted and approved the description of the relevant jurisdiction of superior courts given by Lord Diplock in Hunter v Chief Constable of the West Midland Police [1982] AC 529 (at 536): '... the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.' The category of 'right-thinking people' is elusive. However the passage may be taken as emphasising that the task of the judge in such a case is evaluative. 63 In Rogers v R, a majority of the High Court, comprising Mason CJ, Deane and Gaudron JJ, held that the tender of records of interview at a criminal trial which records had been rejected as involuntary at another trial on other charges, would be an abuse of process. Mason CJ said (at 255): 'The concept of abuse of process is not confined to cases in which the purpose of the moving party is to achieve some foreign or ulterior object, in that it is not that party's genuine purpose to obtain the relief sought in the second proceedings. The circumstances in which abuse of process may arise are extremely varied and it would be unwise to limit those circumstances to fixed categories. Likewise, it would be a mistake to treat the discussion in judgments of particular circumstances as necessarily confining the concept of abuse of process.' 64 The doctrines of res judicata and issue estoppel can be regarded as serving a public policy which protects against abuse of process by supporting the finality of judicial dispositions of particular controversies. Those doctrines establish the most precisely defined circumstances in which relitigation will be identified and barred. Anshun introduced an evaluative element based upon what a litigant could reasonably have been expected to do in earlier proceedings. In that case, which involved an attempt to litigant as a plaintiff, a matter which could have been raised in the defence in earlier proceedings, the majority, Gibbs CJ, Mason and Aicken JJ, said (at 602): 'In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it.' 65 The application of that principle requires the evaluative judgment whether it would have been 'reasonable' to have raised in the first proceedings the matter now raised in the second. That represents a development of the principle expressed by Wigram VC in Henderson v Henderson (at 319): '..., in litigation, requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.' As the Full Federal Court said in Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 (at 295), the principle is allied to, but not co-extensive with, res judicata and issue estoppel. The Court applied the approach of the New South Wales Court of Appeal in Rahme v Commonwealth Bank of Australia (unreported, Court of Appeal, NSW, 20 December 1991) that the effect of Anshun is to apply the Henderson principle to a second proceeding where 'it was unreasonable for the party asserting the cause of action in that second proceeding to refrain from raising it in the earlier proceeding against the same opponent party'. The unreasonableness criterion was also applied in Ling v The Commonwealth (1996) 68 FCR 180 at 195 (Sundberg J, Wilcox and Whitlam JJ agreeing). 66 The doctrines of res judicata, issue estoppel and Anshun do not exhaust the circumstances in which a proceeding may be regarded as amounting to an abuse of process by way of attempted relitigation of a dispute already judicially determined. As another Full Court said in Coffey v Secretary, Department of Social Security (1999) 86 FCR 434 (at 443): 'An attempt to litigate in the Court a dispute or issue which has been resolved in earlier litigation in another court or tribunal may constitute an abuse of process even though the earlier proceeding did not give rise to a res judicata or issue estoppel: see Sea Culture International v Scoles (1991) 32 FCR 275 at 279 and Walton v Gardiner (1993) 177 CLR 378 at 393-394. Whether it does depends on the facts of the particular case.' 67 The considerations of public policy which underlie res judicata and issue estoppel help to define the scope of abuse of process by relitigation generally. As Lord Hoffman said in Arthur JS Hall & Co v Simons [2000] 3 WLR 543 at 572, the underlying policies are that a defendant should not be troubled twice for the same reason and that there is 'a general public interest in the same issue not being litigated over again'. Lord Hoffman observed that the second rationale could be used to justify the extension of the rules of issue estoppel to cases in which the parties are not the same but the circumstances are such as to bring the parties within the spirit of the rule. In that regard he referred to Reichel v Magrath and Hunter v Chief Constable of the West Midland Police. 68 In Johnson v Gore Wood & Co [2002] 2 AC 1 (at 31),Lord Bingham referred to what he called 'Henderson v Henderson abuse of process' as separate and distinct from cause of action estoppel and issue estoppel although having much in common with them: 'The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.' The judgment required in such cases was described by Lord Bingham as (at 31): '... a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focussing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not.' The other Law Lords agreed with Lord Bingham on the abuse of process question. 69 The public interest considerations underlying the power of courts to stay or dismiss the proceedings for abuse of process extend to preventing the waste of judicial resources and their use for purposes unrelated to the determination of genuine disputes. They include the necessity of maintaining confidence in, and respect for, the authority of the courts - Sea Culture International v Scoles (1991) 32 FCR 275 (at 279 French J); Djaigween v Douglas (1994) 48 FCR 535 (at 545 Carr J). 70 The power to strike out a statement of claim or to dismiss an application as an abuse of process is to be exercised sparingly and upon an examination of the relevant circumstances of the particular case before the Court. As Giles CJ said in State Bank of New South Wales Ltd v Stenhouse Ltd (1997) Aust Torts Reports 81-423 (at 64, 089): '... whether proceedings are, or an aspect of proceedings is, an abuse of process because a party seeks to relitigate a issue already decided depends very much on the particular circumstances. The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice...' His Honour set out a non-exhaustive list of matters relevant to the determination whether there was an abuse of process in connection with the issue to be litigated in the second proceedings. These factors were: '(a) the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or an ultimate issue; (b) the opportunity available and taken to fully litigate the issue; (c) the terms and finality of the finding as to the issue; (d) the identity between the relevant issues in the two proceedings; (e) any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceedings; all part of - (f) the extent of the oppression and unfairness to the other party if the issue is relitigated and the impact of the relitigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and (g) an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process.' These considerations offer a non-exhaustive guide and an indication of the nature of the Court's task in such cases. It is now necessary to turn to that task. The Causes of Action Against the St George Parties 71 The causes of action raised against the St George parties are as follows: 1. Against Wholesale Finance and Motor Finance - breach of duties as mortgagees under the Irlmond Debenture (SC 22-31). 2. Against Wholesale Finance and Motor Finance - misleading or deceptive conduct and contravention of s 52 of the Trade Practices Act (SC 32-38). 3. Against Motor Wholesale - money had and received (SC 50-64). 4. Against Wholesale Finance and Motor Finance - conversion (SC 70-72). 5. Against Wholesale Finance and Motor Finance - wrongful appointment of Mr Wallace-Smith as receiver (SC 73-76). Breach of Duty by the St George Parties - The Appointment of the Receivers 72 The allegation that Wholesale Finance and Motor Finance appointed the receivers in breach of their duties as mortgagees involves the following claims: 1. That the amount required to redeem the Irlmond Debenture as at 12 February 1999 was the sum of $395,311.15 plus the receivers' remuneration and expenses (SC 24). 2. That Wholesale Finance, Motor Finance and Motor Wholesale knew this (SC 25). 3. That Irlmond had assets of $10,102,000, cash in the bank and access to other funds (SC 27). 73 Finkelstein J found that at the time the receivers were appointed both Irlmond and APS were insolvent. Mr Spalla himself had conceded in those proceedings that the companies were 'technically insolvent'. The word 'technical' imported, as his Honour observed, a distinction which he could not appreciate 'between one form of insolvency and another'. He accepted evidence that as at 2 February 1999 Irlmond and APS had a deficiency of assets of $2,200,000. The dealership had a working capital deficiency of 'at least $1,177,000 and a balance sheet deficiency of $5,559,000'. Irlmond's credit with NAB was 'drawn to its limit and the dealership had no other ready means of obtaining cash' (judgment [140]). In his Honour's view '... the fact that the companies were insolvent [was] an inescapable conclusion from the evidence' (judgment [140]). His Honour found and declared that the appointment of the receivers was authorised by both the Irlmond Debenture and the APS Debenture. 74 In dealing with a claim that the appointment of the receivers was unconscionable conduct in contravention of s 51AC(1) of the Trade Practices Act his Honour said (at [152]): 'In my view the true position was that the St George companies had given Mr Spalla every reasonable opportunity to make arrangements to avoid the appointment of receivers. He had been told in September 1998 to obtain another financier or sell the dealership. When the notices of demand were served Mr Spalla was told that they would not be acted upon because the parties were hopeful that Capital could take over the finance. St George Wholesale offered to release some of the debt due to it to assist in that regard. It continued to accept late payment without real complaint. It allowed Irlmond and APS to exceed the limits of their facility. It did all these things with the risk that its own financial position may suffer. In the end the St George companies appointed receivers to protect their position. They were entitled to do so and were not acting unconscionably in making that appointment.' 75 The applicants submit that this aspect of their claim does not involve going behind the judgment of Finkelstein J. The applicants say they do not challenge the validity of the appointment. Their complaint, so they say, does not go to the legal validity of the appointment but to whether equity would intervene by way of account or other remedy. This argument imports the contention that the appointment was unconscionable in some sense relevant to the grant of equitable relief. In effect what the applicants pleading appears to say is that the appointments were made in bad faith. 76 In my opinion, the claim now made against the St George parties arising out of the appointment of the receivers in substance seeks to reopen the litigation before Finkelstein J. It is a clear abuse of the Court's process. The claim for breach of duty on the part of the St George parties arising from the appointment of the receivers will be struck out. 77 Even were it not an abuse of process the prospects of its success would be minimal. As is pointed out in O'Donovan, 'Company Receivers and Administrators' LBC at 3.130: '... the debenture holder need not take into account the interests of the company, its unsecured creditors or the guarantors of the mortgage debt before appointing a receiver and manager.' See: Re Potters Oils Ltd (No 2) [1986] 1 All ER 890 (at 894 Hoffman J) : 'The debenture holder is under no duty to refrain from exercising his rights merely because doing so may cause loss to the company or its unsecured creditors.' Breach of Duty by St George Parties - Failure to Inform of Amount Due under Irlmond Debenture 78 The allegations of breach of duty on the part of Wholesale Finance and Motor Finance set out in paragraphs (b), (c), (d) and (f) all depend for their utility upon the proposition that but for their non-disclosure of the amount due under the Irlmond Debenture and their misstatement of the amount, Irlmond would have paid out the Irlmond Debenture at or about the time of the appointment of the receivers or that the Debenture could have been paid out by the receivers from available liquid funds 'forthwith' - subpar (f). What consequences followed from these alleged breaches of duty by Wholesale Finance and Motor Finance does not appear from the pleading. It is plain enough that on the findings of Finkelstein J and the certificate of Registrar Seccombe, Irlmond was in no position to discharge the Debentures whatever the position with respect to disclosure or non-disclosure of the amount due under it. When given the opportunity to do so following the certificate, Irlmond did not discharge the Debenture. This is hardly surprising given that the amount certified in respect of the Debenture at 29 April 1999 was $911,991.69 plus $2,150,667.90, a total of $3,062,659.59. The breaches of duty raised in pars (b), (c) and (d) effectively involve reopening the substantive dispute before Finkelstein J. To the extent therefore that the claim is based on subpars (b), (c), (d) and (f) of par 29 of the third further amended statement of claim, it is an abuse of process and must be struck out. Breach of Duty by the St George Parties - Treating the Receiverships of Irlmond and APS as One 79 Another important aspect of the breaches of duty alleged is the claim that Wholesale Finance and Motor Finance allowed or caused the receivers to treat Irlmond and APS as one receivership with one bank account (SC 29 pars (e), (k) and (l)). The St George parties say that the applicants by this aspect of their pleading ignore the findings by Finkelstein J that inter-company debt existed between Irlmond and APS in respect of new cars sold by APS to Irlmond. They say that, even though APS was a creditor of Irlmond, it was within the power of the receivers to pay off debts between those companies which they did. But the fact that APS was thereby put in a position to paying out debt it owed to the bailor of the new cars, namely Motor Wholesale, did not affect the power of the receivers to make the payments. 80 Finkelstein J in the first proceedings rejected a contention, advanced by Wholesale Finance, that Irmond was obliged to account to it for the proceeds of the sale of new vehicles. The proposition and its rejection were based upon the erroneous assumption that Wholesale Finance rather than Motor Wholesale was the bailor. In the cross-claim the St George parties had pleaded cross-collateralisation, that is they pleaded that Irlmond became liable to the relevant St George party for the obligations of APS. 81 Counsel for the receivers submitted that a critical issue before the Full Court on appeal was whether Irlmond was liable for the debts of APS to the relevant St George party. It was Irlmond's position that it was not and that from 12 February 1999 the receivers and the St George parties used Irlmond's money to repay APS indebtedness to the St George parties and that, for that reason, Irlmond was unable to exercise its equity of redemption. This matter was raised in the notice of appeal when it was said, for the purposes of the accounting before Registrar Seccombe, Finkelstein J ought to have found: 'Irlmond must be given credit for all money payable by the Receivers as receivers and managers of Irlmond to the St George parties and that no such money could, in the circumstances, be appropriated or credited to APS so as to reduce the indebtedness of APS to St George Wholesale.' 82 On appeal, the Full Court rejected argument, advanced by the St George parties, that Irlmond was liable in respect of the purchase moneys for new vehicles, ie that there was cross-collateralisation of the liability of Irlmond and APS. The cross-collateralisation argument was based upon the provisions of a Deed Poll - 95 FCR at [133]-[140]. It is important to bear in mind the course of dealings found by Finkelstein J who observed at [127) of his judgment that payment of the purchase price for new vehicles did not follow the process required by the documentation arrangements under which the customer was obliged to pay the purchase price to Irlmond, Irlmond was obliged to pay the purchase price to APS and APS was obliged to pay the purchase price to Wholesale Finance (for which now read Motor Wholesale). His Honour said (at [127]): 'In practice, payments of the purchase price did not follow this course. On the receipt of the purchase price from the customer Irlmond did not make any payment directly to APS. Instead Irlmond remitted the money to [Wholesale Finance] on behalf of APS and also made payments of sales tax on behalf of APS. It thereby discharged the obligations of APS to pay the purchase price to [Wholesale Finance] and to pay sales tax to the ATO. But this practice did not alter the legal relations between the parties. In particular, it did not constitute Irlmond as trustee of the proceeds of sale of new vehicles. On the sale of a new vehicle Irlmond became a debtor of APS and it discharged that indebtedness by making payments for the benefit of APS.' His Honour went on at [130] and [131] to reject the contention advanced by the St George parties that under the terms of a Deed Poll made on 26 May 1998 Irlmond assumed the obligations owed by APS to [Wholesale Finance] and [Motor Finance]. 83 There was nothing wrong with the receivers applying money received from Irlmond to pay its debts to APS and, in their capacity as the receivers of APS, to pay its debts to the St George parties. The Irlmond Debenture provided in cl 14.1: 'In addition to the other powers conferred by this charge, the Mortgagee may at any time: ... (e) (Pay money on company's account) pay any sum it may think fit to pay towards any indebtedness or obligation of the Company.' 84 Counsel for the receivers submitted that it is Irlmond's position in these proceedings that it was denied the opportunity to redeem its Debenture because the receivership of Irlmond and APS were run as one with Irlmond's money being used to pay APS's debts. This, it was said, was equally the position taken in the Full Court. It was a position reflected in the ground of appeal, cited earlier, related to the basis upon which accounts were to be taken by the Registrar. 85 Counsel for the receivers submitted that it was open to the applicants to have applied to the Full Court to put in new evidence on the point that Irlmond's moneys had been used to repay APS's debts so that Irlmond was denied the opportunity to redeem its Debenture. Counsel for the receiver referred to O 52 r 36. It is not clear to me however that a party should be held to a kind of Anshun estoppel by its failure to bring new evidence on an appeal. However, given the findings at the original trial, of indebtedness which existed, as a matter of practice, between Irlmond and APS in relation to the sale of new cars, the present claim in that respect seeks to impugn those findings. 86 The applicants submit that for the purposes of the present application the Court should assume that what is alleged in the statement of claim will be proved and that all available inferences will be drawn in favour of Irlmond. While it may have regard to the judgment of Finkelstein J, it cannot entertain disputed questions of fact raised by the St George parties. 87 In respect of the inter-company debt arrangement advanced by the St George parties the applicants say that both the St George parties and the receivers proceeded before and after the judgment of Finkelstein J on the assumption that Irlmond was liable to the bailor of new vehicles to APS for any amounts owing by APS to that bailor upon the sale of a new vehicle. This 'cross-collateralisation' argument was false. Irlmond was not liable to the bailor of new vehicles for the bailment amount of new vehicles sold by Irlmond. Given the amounts paid by the receivers out of Irlmond's funds to Motor Wholesale ($5.4 million) it was submitted by the applicants that the receivers were not exercising their powers pursuant to cl 14.1(e) of the Irlmond Debenture. Rather, they were having recourse to Irlmond's assets based upon the cross-collateralisation assumption. 88 The applicants say that if the St George parties, by way of defence, plead reliance upon cl 14.1(e) of the Irlmond Debenture, Irlmond will plead an abuse of that power on the basis that the payments were made under the cross-collateralisation assumption and not bona fide to ensure payment or repayment of the sums secured by the Irlmond Debenture. 89 A weakness in the argument advanced by the St George parties on this question is that they are unable to demonstrate on the face of the materials presently before the Court, that all of the payments said to have been made out of Irlmond to satisfy APS's liabilities could be supported by the power in cl 14.1(e) of the Irlmond Debenture. On the other hand, the Motor Wholesale payments, referred to in par 62 of the statement of claim and underpinning the claim of breach of duty contained in SC 29(g), were made between 12 February 1999 and May 1999. The making of those payments to Motor Wholesale was plainly a matter which went to the amount of money necessary to redeem the Irlmond Debenture. It is a question which if not raised squarely before Finkelstein J should reasonably have been. In my opinion, to seek to raise it in these proceedings as an aspect of a breach of the mortgagees' and receivers' duties would amount to an abuse of process. In my opinion SC 29(g) should be struck out. 90 Paragraph SC 29(h) alleges a breach of duty arising from the instructions of the receivers on and from 12 February 1999 to sell Essendon Mitsubishi. This was plainly a matter within the scope of the dispute before Finkelstein J. To reopen the question of the instructions to sell at this stage would be, in my opinion, an abuse of the process of the Court. 91 Paragraph SC 29(i) concerns the application by the receivers of the proceeds of sale of the business of Essendon Mitsubishi. The application of the proceeds of the sale of Essendon Mitsubishi was a discrete event which post-dated the judgment of Finkelstein J and the certificate of Registrar Seccombe. The allegation made is that $1.3 million out of the proceeds of that sale was paid into the bank account of Irlmond with St George Bank, transferred to the bank account of APS and then transferred to Motor Wholesale. Motor Wholesale is said not to have been entitled to receive the money. That is because Irlmond was not indebted to it or liable for the indebtedness of APS to it. This, of course, does not meet the contention that, based on the finding by Finkelstein J, there was an ongoing indebtedness from Irlmond to APS in respect of new cars bailed to APS and sold by Irlmond. 92 It is submitted that the payments made to the bailor cannot now be impugned. These were matters properly before Finkelstein J and, in effect, dealt with in his judgment, albeit there was an erroneous assumption that the bailor was Wholesale Finance and not Motor Wholesale. I am doubtful whether the impugned payment of $1.3 million to Motor Wholesale from the proceeds of sale of Essendon Mitsubishi, will be shown to be anything other than a continuation of that practice. But in the context of a strike out application I will not make that assumption adverse to the applicants. 93 The loss suffered as a result of the breaches of duty complained of is set out in fairly broad terms in SC 30. I would require that they be spelt out with more clarity in relation to the particular breach which survives, being that set out in SC 29(j). It will be necessary to demonstrate on the face of the pleading the logical connection between the alleged breach and the associated loss. 94 Paragraph (l) of SC 29 is uninformative and while it may raise matters of evidentiary significance going to the propriety of the disposition of the proceeds of the sale of the business, it should not stand as a pleading of any material fact. It is unparticularised and would seem to import, by implied reference, the breaches previously alleged. Paragraph (l) of SC 29 should be struck out. The Trade Practices Act Claim against the St George Parties 95 The applicant alleges misleading and deceptive conduct by the St George parties comprised in a representation that 'Irlmond was liable to Wholesale Finance and Motor Finance and/or Motor Wholesale for the indebtedness of APS to Wholesale Finance and Motor Finance and/or Motor Wholesale'. No material facts are pleaded to disclose the time or place, or author, or mode of the alleged representation. It is said to have been done by Wholesale Finance and Motor Finance 'by appointing the receivers'. Plainly the mere appointment of the receivers could not convey any such representation. It appears that this part of the statement of claim may contain a typographical error and the allegation intended is that the representation was made in appointing the receivers. 96 There are various matters said to support an implication of such a representation. These are set out at length in par SC 32. Particulars (b), (d), (f), (i), (m) and (n) all relate to the conduct of the receivers and cannot, on any view, support an implication of a representation attributed to the St George parties. Particulars (a) and (c) relate to the fact of the appointment, the use of the same notice of appointment and the conduct of Wholesale Finance and Motor Finance in allowing the receivers to apply Irlmond money to reduce APS's indebtedness under its Bailment Plan. Another fact relied upon is the conduct of Wholesale Finance and Motor Finance in causing or permitting the receivers to not immediately pay or satisfy, or take steps to pay or satisfy, Irlmond's indebtedness out of its available liquid funds. The implication is also said to be supported by the conduct of Wholesale Finance and Motor Finance in instructing the receivers to sell the business of Essendon Mitsubishi on and from 12 February 1999. The conduct of Wholesale Finance and Motor Finance in causing or permitting the receivers to apply the proceeds of the sale of Irlmond's assets to meet APS's indebtedness are also invoked. 97 What emerges is that the conduct of the receivers, said to have been permitted by the mortgagees, in 'treating the receiverships as one' implies the existence of the relevant representation. This is, in my opinion, a very dubious application of s 52 of the Trade Practices Act. Moreover it is a transparent attempt to utilise the Trade Practices Act to revisit issues which were, as already discussed, litigated or able to be litigated before Finkelstein J. In my opinion, for that reason alone, this cause of action constitutes an abuse of process. 98 Counsel for the St George parties said that if there were a representation capable of being inferred from the facts particularised it could not conceivably have continued after the litigation before Finkelstein J had begun. Any lingering effect of the alleged representation must have ended by the time judgment was delivered. The findings of Finkelstein J prevent the applicants from impeaching the receivership up to the date of judgment. Nothing done by the receivers thereafter could have been done under a misapprehension caused by the alleged representation of the St George parties. I agree with that proposition which supports my opinion that this cause of action is doomed to failure and is, in any event, an abuse of process. For these reasons pars 32 to 38 should be struck out. Breach of Duty by the Receivers 99 The breaches of duty alleged against the receivers are set out in pars 39 to 66 of the statement of claim. For the most part they have already been dealt with in relation to the breaches alleged against the St George parties. The allegations of breaches of mortgagees' duties made against the St George parties include allegations that they caused or permitted the receivers to do the various things by which the receivers are said to have breached their duties as receivers. 100 The basis upon which the breaches of duty alleged against the receivers are attacked is in substance the same as the basis upon which the claims against the St George parties are attacked. That is, that they in effect traverse matters which were before Finkelstein J or which could properly have been raised before his Honour in relation to the earlier proceedings. In addition, in certain respects it is said they traverse findings made by his Honour. 101 Without repeating the analysis undertaken in relation to the claims against the St George parties, it follows from that analysis and the conclusions which I reached in relation to it, that I would strike out all claims against the receivers for breach of their duties other than the claim which relates to the disposition of the proceeds of sale of the business of Essendon Mitsubishi. This means that I would strike out pars 39 to 49 and par 62. In addition I would strike out par 54 as embarrassing. It appears to raise no material fact relevant to the cause of action. 102 The question which then arises is how the disposition of the proceeds of sale of the business is alleged to constitute a breach of the receivers' duty. Paragraph 65 sets out what are said to be the duties of the receivers and par 66 in a rolled up way says that the receivers breached their duties by engaging in the 'receivers' conduct', evidently a reference to the conduct pleaded in pars 39 through to 64. 103 The allegation made in par 66 does not specify which duty was breached by what conduct. In particular, it incorporates by reference an allegation of want of good faith. That is a serious allegation, which should never be made lightly and without clear particulars to show the basis upon which it is made. The same is true of the allegation of bad faith in par 69. 104 In my opinion, as presently pleaded pars 66 and 69 cannot stand. Paragraph 67, which asserts loss and damage and incorporates, by reference, the particulars in par 30, does not disclose the way in which particular conduct gave rise to particular damage. I would strike out pars 66 to 69 as they fail to make the case linking particular breaches to particular loss and damage. They will have to be redrawn in a repleaded statement of claim to identify the loss or damage said to flow from the disposition of the proceeds of sale of the business. The Conversion Claim Against the St George Parties and the Receivers 105 If it stands at all, this cause of action could only stand in respect of the disposition of the proceeds of sale of Essendon Mitsubishi. Conversion is the 'intentional exercise of control over a chattel which so seriously interferes with the right of another to control it that the intermeddler may justly be required to pay its full value' - Fleming, The Law of Torts 8th Edition, 1992 p 54. In Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204, Dixon J said (at 229): 'The essence of conversion is a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel.... An intent to do that which would deprive "the true owner" of his immediate right to possession or impair it may be said to form the essential ground of the tort.' In relation to money, Lord Templeman said in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 (at 559): 'Conversion does not lie for money, taken and received as currency... But the law imposes an obligation on the recipient of stolen money to pay an equivalent sum to the victim if the recipient has been "unjustly enriched" at the expense of the true owner.' Lord Bridge agreed with Lord Templeman. As did Lord Griffiths and Lord Ackner. 106 Fleming observes, in a footnote to his 8th Edition, that although choses in action cannot be 'converted', intangible rights represented by documents are in fact protected by including their value in assessing the worth of the converted instrument and refers to Lloyds Bank v Chartered Banks [1929] 1 KB 40 at 55-56; Arrow Transfer v Royal Bank (1971) 19 DLR (3d) 420 - a case involving a cheque; Bavins v L & S W Bank [1900] 1 QB 270 inter alia. The conversion plea in the present case, as set out in par 71, alleges the conversion of Irlmond's money. Having regard to the essential character of the tort of conversion, this cause of action is unsustainable and will be struck out. 107 The applicants recognised the deficiency in their conversion plea and offered a revised version of it in their written submissions. The revised version proposes that there was a conversion of the cheques comprising the 'Motor Wholesale payments' and the Gorell cheque which was payment for the proceeds of sale of the business of Essendon Mitsubishi. 108 So far as the Motor Wholesale payments are concerned, I would not allow that matter to be raised under the guise of conversion for the reasons already stated for which I would strike out the paragraphs impugning those payments as an abuse of process. So far as the Gorell cheque is concerned, it is clear from the disclaimer as to the availability of the particulars of its handling and disposal that the allegation of conversion of this 'cheque' now proposed is based on sheer guesswork. I am not prepared to allow an amendment to raise conversion of the cheque as a separate and speculative cause of action. The Appointment of Mr Wallace-Smith 109 The appointment of Mr Wallace-Smith is impugned on the basis, as set out in par 73 of the statement of claim that, by 23 September 2003, Irlmond's indebtedness to the St George parties was or should have been repaid out of Irlmond's assets as set out in par 26. Then it is said that by 23 September 2003 Irlmond no longer had any assets. On that basis it is alleged that the St George parties should not have appointed Mr Wallace-Smith as receiver of Irlmond to obtain payment of moneys owing and secured by the Irlmond Debenture and that they breached the mortgagees' duties in doing so. This, by necessary implication, incorporates issues as to the sufficiency of Irlmond's assets originally to meet its liabilities under the Debenture which were or should have been canvassed before Finkelstein J. It sets up no current basis upon which the appointment should be impugned. For those reasons, pars 73 to 76 of the statement of claim will be struck out. Jurisdiction to Entertain the Cause of Action in Malicious Prosecution 110 The jurisdiction of the Court to entertain the proceedings generally depends upon the existence of a relevant statutory conferral of jurisdiction. The only surviving causes of action, other than the causes of action for malicious prosecution and injurious falsehood, are those raised against the St George parties and the receivers in respect of the disposition of the proceeds of sale of the business of Essendon Mitsubishi. As against the receivers, that conduct is said to have been, inter alia, in breach of their duties as officers of the company Irlmond and to constitute a contravention of s 180(1) of the Corporations Act 2001 (Cth) or s 234 of the Corporations Law - SC 65. Whether the applicants have invoked the correct provisions of the Corporations Law and the Corporations Act requires careful consideration. Conduct in breach of statutory duties of officers under the law as it stood before 13 March 2000, when the Corporate Law Economic Reform Program Act 1999 (Cth) (CLERP Act) took effect was not covered by the new provisions of the Corporations Act 2001 (ss 180 and 181). Rights and liabilities arising before 13 March 2000 were preserved by the transitional provisions of the CLERP Act. These transitional provisions were in turn preserved by s 1408 of the Corporations Act 2001. A detailed explanation of the operation of the successive transitional provisions is given by Austin J in Shum Yip Properties Development Pty Ltd v Chatswood Investment and Development Co Pty Ltd (2002) 40 ACSR 619 at [6]-[12]. It suffices for present purposes to say that the cause of action for breach of the statutory duties of the receivers involves an alleged liability which ultimately owes its existence to the Corporations Act 2001. The action for damages in respect of that alleged liability is a matter arising under a law of the Commonwealth within the meaning of s 39B(1A)(c) of the Judiciary Act and so within the jurisdiction of the Court. As was said by Latham CJ in R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 (at 154): '... a matter may properly be said to arise under a Federal law if the right or duty in question in the matter owes its existence to Federal law or depends upon Federal law for its enforcement, whether or not the determination of the controversy involves the interpretation (or validity) of the law. In either of these cases, the matter arises under the Federal law. If a right claimed is conferred by or under a Federal statute, the claim arises under the statute.' See also Felton v Mulligan (1971) 124 CLR 367. 111 The claim against the St George parties is related to causing or permitting the receivers to breach their duty in connection with the disposition of the proceeds of sale. If it directly arises as an accessorial liability under the statute then it would fall squarely within the primary federal jurisdiction of the Court. But in any event it would, in my opinion, fall within the accrued jurisdiction of the Court, being part of the same controversy as that which encompasses the breach of duty claim against the receivers. On that basis the Court would be exercising federal jurisdiction with or without the malicious prosecution claim. 112 The prosecutions to which the cause of action in malicious prosecution relates were commenced by an indictment filed against Messrs Spalla and Still in the County Court of Victoria on 17 July 2001. It contained 22 counts alleging breaches of the Crimes Act 1958 and provisions of the Corporations Law. On 10 September 2002 a new indictment was filed alleging four counts against the provisions of the Corporations Law '... as taken to be included in the Corporations Act 2001 by s 1401 of that Act ...'. 113 The prosecutions commenced against Messrs Spalla and Still were brought in federal jurisdiction. This applies to the counts of the first indictment relating to breaches of the Corporations Law as it was filed on 17 July 2001, two days after the Corporations Act 2001 came into effect. A fortiori it is true of the indictment filed on 9 September 2002. The question for decision is whether a claim for malicious prosecution of offences under a law of the Commonwealth is a claim which is part of a matter arising under that law. If so it is within the jurisdiction of the Court under s 39B(1A)(c) and no question of the accrued or associated jurisdictions arises. 114 It is well settled that an action in contract or tort or for breach of trust or fiduciary duty may involve federal jurisdiction where the subject matter of the action is a right or liability which owes its existence to a law of the Commonwealth. In Moorgate Tobacco Co Ltd v Philip Morris Ltd (1980) 145 CLR 457, the applicants sought declarations as to the ownership of certain trade names and a trade mark. The claims for relief were founded on common law and equitable causes of action in contract, tort, trust and fiduciary obligations. The jurisdiction exercised by the Supreme Court of New South Wales when the proceedings were brought in that case was federal involving, as it did, a matter arising under the Trade Marks Act 1955 (Cth). For what was in issue was the proprietorship of a trade mark albeit it was to be established on the basis of the general law. 115 A contract action where the subject matter of the contract was import quotas conferred under the Customs (Import Licensing) Regulations (Cth) was also held to be in federal jurisdiction in LNC Industries Ltd v BMW (Australia) Ltd (1983) 151 CLR 575. The High Court said (at 581): 'When it is said that a matter will arise under a law of the Parliament only if the right or duty in question in the matter owes its existence to a law of the Parliament that does not mean that the question depends on the form of relief sought and on whether that relief depends on federal law. A claim for damages for breach or for specific performance of a contract, or a claim for relief for breach of trust, is a claim for relief of a kind which is available under State law, but if the contract or trust is in respect of a right or property which is the creation of federal law, the claim arises under federal law. The subject matter of the contract or trust in such a case exists as a result of the federal law.' 116 The cause of action in malicious prosecution in this case involves allegations going to whether ASIC made reasonable inquiries into matters relevant to the question whether Messrs Spalla and Still had committed any offences - see eg SC 110. The construction and application of the relevant provisions of the Corporations Law as applied by the Corporations Act 2001 are a necessary part of that cause of action in malicious prosecution. In my opinion therefore the cause of action in malicious prosecution arises under a law of the Commonwealth and is within the jurisdiction conferred on this Court by s 39B(1A)(c) of the Judiciary Act. The injurious falsehood claim is sufficiently connected to it to fall within the accrued jurisdiction of the Court. Conclusion 117 The effect of the preceding reasons is that the only causes of action that are permitted to stand are based on disposition of the proceeds of sale of the business of Essendon Mitsubishi and the causes of action based on malicious prosecution and injurious falsehood. All other causes of action pleaded will be struck out. 118 I will permit the applicants to reframe a substituted statement of claim pleading, in substantially the present form, the causes of action which I have mentioned as surviving this process. Consequential programming orders for the filing of defences and replies and the cross-claim and so forth can be discussed at the directions hearing which will follow.

Spalla v St George Motor Finance Ltd

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Judgment (10 paragraphs)

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