Stott v West Yorkshire Road Car Co Limited

REASONS FOR JUDGMENT ON MOTION TO DISMISS CROSS CLAIM The primary proceedings in this matter concerned monies paid to the first and second respondents, New Zealand Guardian Trust Limited (NZGT) and NZI International Trustee Company Limited (NZIIT) by Century Insurance Limited (Century) through its agent Quenward Pty Ltd (Quenward). The monies had been paid by investors purchasing bonds designated "Century Insurance Bonds". The action was brought by Century and certain investors. Payments of these monies to third parties by NZGT at the direction of NZIIT were said to have constituted breaches of trust by NZGT in which NZIIT participated. NZGT was also said to have acted negligently in making the payments without adequate enquiry. Donald Davies an officer of Century was said to have breached his fiduciary obligations to that company by causing NZGT to pay monies subscribed to Century out of its account to third parties. NZGT is said to have participated in those breaches. Premium monies were also alleged to have been paid directly to NZIIT by Quenward to hold for Century. Payments out of such monies at the direction of Davies and Mr David Gunson the cross respondent were said to have been made negligently on the part of Davies and NZIIT and to have constituted a breach of fiduciary duty by Davies in which NZIIT participated. The relief claimed in the principal proceedings was by way of equitable compensation and damages for breach of contract and negligence. By a cross claim against Gunson, NZGT and NZIIT said that if either of them were held to be liable to Century and/or the other applicants then they would claim as against Gunson to be entitled for damages for negligent misrepresentation and/or breach of warranty of authority and an indemnity or contribution against the claims of the applicants. The proceedings generally and the cross claim in particular have been the subject of a number of motions in this Court to date. The original application was served outside Australia pursuant to leave granted by Lee J. A motion by NZGT and NZIIT to set aside the order for leave to serve outside Australia was dismissed on 16 May 1996. On 31 October 1996 Lee J gave leave to NZGT and NZIIT to serve their cross claim outside Australia on Gunson who was resident in Hong Kong. On 26 February 1997 his Honour dismissed an application by Gunson to set aside the Order subject to the amendment of the Statement of Claim in the cross claim by the deletion of claims made under the Fair Trading Act 1987 (NSW). On 13 June 1997 I made Orders that pars 27 to 29A of the Statement of Claim in the cross claim be struck out and there be leave to the cross claimants to amend their pleading consequentially and in relation to their claim for indemnity and contribution. On 27 June 1997 I made an order for security for costs to be provided by the cross claimants and ordered that the cross claim be stayed if the security had not been provided at the expiry of twenty one days. There was liberty to apply to vary the terms of that Order. That security was provided but outside the time limited by the Order and so proceedings on the cross claim remained stayed. Following court annexed mediation of the proceedings the primary claim by Century and other applicants against NZGT and NZIIT was settled. The terms of the settlement required NZGT and NZIIT to pay a sum of $2,000,000 to Century and the other applicants by 22 August 1997. In consideration of the payments NZGT and NZIIT were to be released from all claims by Century and the other applicants. Mr Gunson now seeks an Order that the cross claim be dismissed as oppressive, vexatious or an abuse of process of the Court. The substance of the attack upon the cross claim lies in the proposition that with the discontinuance of the application there is now no liability enforceable against NZGT and NZIIT which would support their bringing the cross claim within the jurisdiction of the Court under O 8 r 1(1)(d). NZGT and NZIIT would be in the position of having to plead and establish their own liability in tort, identify damage suffered by one or other of them as a result of that tort and establish the liability of Gunson in tort for the same damage. This, it is said, will amount to the trial of an action which has been discontinued, a situation both oppressive and vexatious to the cross respondent and an abuse of process. In addition it was contended that the Court is now an inappropriate forum for the resolution of the cross claim on the basis that all parties to it reside outside the jurisdiction of the Court and did so at all material times. All transactions between the NZGT and NZIIT on the one hand and Gunson on the other which were material to the cross claim occurred over a period of time when both were resident outside Australia. The most real and substantial connection of the cross claim was with either New Zealand, where NZGT and NZIIT undertook to provide trustee custodial services, or Hong Kong which was the origin of all of Gunson's communications with NZGT and NZIIT. Preparation for trial in the hearing of the cross claim in this Court, it is said, would involve great inconvenience and cost. Moreover the law to be applied to the issues to be tried is more likely to be foreign law (New Zealand or Hong Kong) and not necessarily the law of New South Wales or any other Australian State. Pursuing the litigation in this Court is said to amount to forum shopping by "foreigners" at the expense of the taxpayers of Australia. In response, NZGT and NZIIT submit that the cross claim initiates a separate and independent action by NZGT and NZIIT against Gunson. Thus a respondent wishing to serve a cross claim on a third party residing outside the jurisdiction must obtain leave and the Court approaches the application for leave on the basis that the cross claimant must establish jurisdiction independently of the principal proceedings. NZGT and NZIIT sought and were granted leave to issue and serve Gunson out of the jurisdiction. The grant of leave was made independently of the jurisdiction exercised by the Court over the principal proceedings. Gunson had applied unsuccessfully to set aside service and any argument that the causes of action asserted by NZGT and NZIIT arose wholly in Hong Kong was rejected in the determination of that motion. Proceedings for third party cross claims, it was submitted, are not dependent upon the original action for their continued existence. If an applicant and respondent settle the original action the respondent may pursue a third party cross claim against a cross respondent - Stott v West Yorkshire Road Car Co Limited [1971] 2 QB 651; Harper v Gray and Walker (A Firm) [1985] 2 All ER 507. It was also argued that it would be contrary to the public interest in promoting settlement of litigation if a cross claim were to be struck out simply on the basis that the principal proceedings had been compromised. The reamended cross claim sets out in paragraph 1 the general nature of the claims made against NZGT and NZIIT and in paragraph 2 says: "2. The first and second cross claimants dispute the claims of the applicants on the grounds appearing in their defence, but if they or either one of them is held to be liable to the first applicant and/or the second applicants, they or whichever one of them is held liable claims as against the cross-respondent to be entitled to: (a) damages for negligent misrepresentation and all costs incurred in defending this action and the costs of this cross-claim on the grounds appearing below; (b) an indemnity or to a contribution against the claims of the first and/or second applicants made in the applicants' statement of claim and the costs of the first and second cross-claimants in defending those claims and the costs of this cross-claim on the grounds appearing below." Paragraphs 3 to 22 inclusive set out various factual matters relevant to the holding of investors funds and also pleads instructions said to have been given by Gunson before the disbursement of monies out of holding accounts. Then at paragraph 23 of the reamended cross claim it is said: "23. The remaining paragraphs of this cross-claim are pleaded on the assumption that contrary to the denials made by the first and second cross-claimants in their defence, the Court finds that, as alleged in the applicants' statement of claim: (a) the first and second cross-claimants dealt with the money deposited into the First and Second Accounts without the first applicants' authority by acting on and giving effect to the instructions given to them by the cross-respondent and the third respondent; and/or (b) the first cross-claimant breached any duty of care which it might be held to have owed to the second applicants." It can be seen from the paragraphs which have been referred to that the entire cross claim as presently pleaded is posited upon the proposition that liability is established in favour of Century and the applicants and as against NZGT and NZIIT. Plainly the Statement of Cross Claim as presently pleaded cannot stand because it has been overtaken by the event of the settlement. Nevertheless I accept, as Mr Corboy counsel for NZGT and NZIIT submitted, that the cross claim can be amended to seek contribution and/or indemnity upon the basis that the settlement was a reasonable settlement of a liability that could be shown to exist. As he submitted, there is a public interest in the negotiated resolution of proceedings and as a general rule the Court should not impede the amendment of the cross claim to take account of the events that have occurred. I do not accept the submission for Mr Gunson that the cross claim is not viable because of the settlement of the primary claim. In Stott v West Yorkshire Car Co [1971] 2 QB 651 Lord Denning MR quoted with approval a passage from Glanville Williams on Joint Torts and Contributory Negligence that considerations of policy are "overwhelmingly in favour of allowing a tortfeasor to settle out of court and then claim contribution rather than go to the trouble of defending an action merely to qualify for the right to contribution". So far as the question of the appropriateness of this Court as forum is concerned that matter, in my opinion, has already been dealt with by Lee J and should not now be revisited because of the settlement of the principal proceedings. Public interest considerations of the same kind as allow amendment of the cross claim in the circumstances would militate against the Court's withdrawal of its jurisdiction as a consequence of the settlement. The question of the validity of the cross vesting scheme was raised in submissions by senior counsel for Mr Gunson but the present position is that, subject to the outcome of an appeal presently reserved before the High Court of Australia, the Full Court of the Federal Court has upheld the validity of the arrangements and it is not for me to question the correctness of that decision to delay dealing with this matter on the basis that the High Court may soon deliver judgment dealing with that question. In the circumstances therefore I intend to dismiss the motion. Having regard to the provision of security for the costs of the cross claim I will lift the stay order in relation to the cross claim and give leave to further amend it. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice French