White & Libut v Thompson & Ors

Judgment 1BASTEN JA : Orders should be made as proposed by Handley AJA, for the reasons he gives. 2YOUNG JA : I agree with Handley AJA. 3I do, however, feel considerable sympathy for Mr White. He has lost out in a commercial venture where he may well be justified in believing that, morally, he should have received a significant amount of money. 4However, the die was cast back in 2003 when Mr White, acting for himself, limited the issues in the principal litigation heard by Gzell J. 5Thereafter the decision made in the current proceedings by Windeyer AJ had to follow. 6HANDLEY AJA : This appeal by Mr Julian White and Mr Romeo Libut (the appellants) from a decision of Windeyer AJ on 15 October 2009 in matter number 4817 of 2008 (the 2008 proceedings) is the latest step in a saga of litigation arising out of a joint venture for the purchase, development and sale of land at Ellery Parade, Seaforth (Seaforth). The saga gave rise to defences of res judicata estoppel which Windeyer AJ upheld. 7The appellants seek to trace joint venture funds into the interests of the first and second respondents in 710 Wiseman's Ferry Road Somersby (Somersby). 8The joint venture began with the purchase of Seaforth in the name of the first respondent (Mr Thompson) some time in 1996 or 1997. The appellants were the other parties to the joint venture. Contracts for the sale of Seaforth as developed by the joint venture were exchanged on 24 April 2003. 9On 30 March 2003 the second respondent (Mrs Thompson) contracted to purchase Somersby. The contract was later novated to Mr and Mrs Thompson jointly. 10The appellants' caveats on the title to Seaforth lead to proceedings number 2685 of 2003 (the 2003 proceedings) commenced by Mr Thompson on 6 May 2003. Interlocutory orders were made on 9 and 13 May 2003 for the removal of the caveats, the retention of $1 million from the proceeds of Seaforth in a controlled moneys account, and the use of the balance to complete the purchase of Somersby. The orders of 13 May restrained Mr Thompson from selling or disposing of any interest in Somersby (blue 2/148, 518). The sale of Seaforth, and the purchase of Somersby were completed on 15 May. 11No injunction was sought against Mrs Thompson. This was not overlooked at the time. The transcript of the proceedings on 13 May records the following (blue 2/166). "WHITE: The only thing I brought up ... was in Order 2 'the plaintiff by himself and servants and agents. I said Mrs Thompson but she is not a party. We will in the future make Mrs Thompson a party because there are several loans involved. HIS HONOUR: She may become a party to your cross-claim. If you are seeking relief against her you will need to add her as a defendant to your cross-claim as she is not currently a party to the proceedings." 12The first appellant (Mr White) filed a cross-claim in the 2003 proceedings on 3 June 2003 (blue 1/82). Mrs Thompson was not joined as a cross defendant and there was no claim for relief in respect of Somersby. Prayer 1 sought a declaration that there was a joint venture over Seaforth. Prayers 2 and 3 sought an account of the profits of the joint venture and an order that Mr Thompson pay the first appellant the latter's share of the profits. Prayer 4 sought directions for the taking of accounts. Any cross-claim by the second appellant, (Mr Libut), is not in the appeal books. 13On 7 November 2005, the first day of the trial of the 2003 proceedings before Gzell J, the first appellant filed Points of Claim in court (blue 1/84). Paragraph 23 alleged that Mr Thompson had been guilty of equitable fraud, and particularised paras 10, 14, 16 and 20. In para 24 the first appellant claimed damages for equitable fraud. The relevant allegations in para 16 (xxxi), 20(i) and (vii) alleged appropriations by Mr Thompson of more than his profit entitlements to pay the deposit and "finalise the purchase" of Somersby. There was no proprietary or tracing claim to Somersby and no allegation that would support such a claim. 14Gzell J published reasons for judgment on 8 December 2005 [2005] NSWSC 1257 and stood the proceedings over to 15 December for the making of formal orders. Relevantly he declared that Seaforth was purchased in the name of Mr Thompson as an asset of a joint venture between himself and the appellants. He also determined the shares of the parties to the profits. Mrs Thompson was not a party to the 2003 proceedings and the appellants obtained no relief in respect of Somersby. 15On 15 December 2005 the first appellant attempted to raise a tracing claim to Somersby before Gzell J. His draft short minutes sought a declaration that Somersby was a joint venture asset and that the appellants had equitable interests in that property. He also sought an inquiry into "the financial equity position" of the joint venture in Somersby (blue 1/116, 118). 16Gzell J said that Somersby was "not a matter which is before me today, Mr White". Later he said (ibid): "You must make some application. There is no application with respect to [Somersby] before me at the moment and nor is it dealt with in the judgment". 17Gzell J made final orders on 15 December which referred defined accounting questions to a referee for inquiry and report. No order was made in respect of Somersby. Mr Thompson appealed to this Court but on 12 December 2006 the appeal, subject to presently immaterial exceptions, was dismissed and the orders of Gzell J were affirmed: [2006] NSWCA 350. 18The Somersby issue was not raised before the Court of Appeal. 19The orders of Gzell J of 15 December 2005 provoked further litigation. On 21 December the first appellant lodged a caveat on the title to Somersby but on 2 March 2006 his motion to extend that caveat, to which Mr and Mrs Thompson were respondents, (the 2006 proceedings) was dismissed. He lodged another caveat on 3 March and on 4 May a consent order in the 2006 proceedings extended that caveat until further order. The 2006 proceedings have never gone to trial. 20The reference ordered by Gzell J did not proceed and on 25 July 2006 the accounting issues were referred to an Associate Judge (blue 2/533). In the result those proceedings were heard by Biscoe AJ over 6 days in November and December 2007. Mrs Thompson was still not a party. 21On 21 November, the first day of the hearing before Biscoe AJ, the first appellant filed a statement of issues "remaining for determination" (blue 1/130) which included (par 9): "The Somersby property is a Seaforth joint venture asset and liable to the Orders of this most respected Court ..." 22On 15 January 2008 Biscoe AJ delivered his reserved judgment [2008] NSWSC 1 and stood the proceedings over for the making of formal orders. He did not deal with the first appellant's claim to an interest in Somersby. 23On 8 February 2008 Mr Thompson became bankrupt on his own application and the third respondent was appointed trustee in the bankruptcy. 24On 29 January, 12 and 22 February Biscoe AJ heard argument on the form of his orders. On 29 February he made final orders which declared that the profit of the joint venture was $855,557, and the joint venture owed the first appellant $505,500 and the second appellant $301,000. Mr Thompson was found to owe the joint venture $561,571, and subject to the Bankruptcy Act 1966 (Cth) he was ordered to pay that amount to the joint venture. 25On 22 February the appellants made another attempt before Biscoe AJ to raise their tracing claim to Somersby. The transcript records (blue 2/440): His Honour: "That certainly was not an issue before me. May be an issue which arises later. ... You say there will be claims you are pursuing, or can pursue, against some Somersby property. ... White: We thought that would all be resolved as part of your scope of works. His Honour: Nothing to do with what is before me at the moment." 26The Judge referred to this matter again (2/441-2): "His Honour: I think Mr White, there seems to be ongoing issues between the parties relating to what should happen with this fund, the Somersby property and perhaps other issues. I don't think I am seized of those issues and I think I should finalise the matter of which I am seized which was the subject of my judgment and move on, and any further applications that you make will have to be made separately. ... His Honour: Mr White, I cannot deal with Somersby ... It is not part of the proceedings. I think I have dealt with everything that was before me. If there is some further relief you are seeking, you will have to make, if you have not already done it, an application. ... I had some matters assigned to me to be dealt with. I had delivered a judgment on that. I have now made, I think, all the orders which arise from that judgment. There may be other aspects of the proceedings you wish to pursue. I think it relates to the fund. I can see a contest looming over Somersby or anything else ... you need to make another application. White: Somersby is under orders not to be disposed of in any manner. At the last minute Mr Thompson decides to be bankrupt. That has the effect of moving control over the Somersby property to another party, bankruptcy trustee, a legal disposition and not allowable as to present Court orders. His Honour: I cannot get involved in bankruptcy issues in a matter before me. White: I am trying to get it resolved as the joint venture. Assets of one million ... controlled moneys and Somersby money." 27On 18 February 2008 the first appellant filed a notice of motion seeking to enforce the appellants' claims to Somersby. On 29 February Biscoe AJ referred the motion to the Duty Judge. 28The notice of motion initiated the 2008 proceedings. The appellants were the plaintiffs, Mr and Mrs Thompson and the Trustee in Bankruptcy were the defendants. On 15 October 2009 Windeyer AJ dismissed those proceedings and his judgment is the subject of the present appeal. 29The 2008 proceedings included claims for declarations that the Thompsons held Somersby in trust for the joint venture and orders for its sale and the application of the net proceeds as an asset of the joint venture. The case for the plaintiffs was that, to the knowledge of Mrs Thompson, money from the sale of Seaforth could be traced into Somersby. Windeyer AJ found that Somersby had been purchased with $774,709 obtained by Mr Thompson from funds of the joint venture [8], [13]. 30Mr Thompson raised a defence of res judicata based on the findings and orders of Gzell J, the Court of Appeal and Biscoe AJ (the orders) that he was indebted to the joint venture for his excess drawings used for the purchase of Somersby. The defence was that those findings and orders barred any claim by the appellants to a proprietary interest in those funds which could be traced into Somersby. 31Mrs Thompson raised the same defences, although she was not a party to the 2003 proceedings. She also claimed that she contributed $285,000 of her own money to the purchase of Seaforth and that the amount of $457,913 shown in the joint venture accounts as the capital contribution of her husband was a debt due to her from the joint venture [14], [21]. 32Windeyer AJ held that the orders treated the funds invested in Somersby as payments to Mr Thompson which, to the extent of any overdrawings, created a debt due to the joint venture [24], [27], [35]. The question which the Judge asked himself was whether "having proceeded on that basis, and accepted the accounts were to be taken on that basis the plaintiffs can in another action seek to have [Somersby] brought to account as a joint venture asset" [25]. 33He held that the plaintiffs had elected to claim for a debt, and any proprietary claim against Mr Thompson traceable through the withdrawals had merged in the orders [27], [28] and was barred. The relevant principles were summarised by Brennan J in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45, 147 CLR 589 at 611-2: "When the same facts support rights to different remedies against the same defendant, the plaintiff cannot recover a judgment giving a remedy in respect of more than one right ... He may pursue his remedies concurrently in the same action, but he is put to his election before judgment as to which remedy he shall have. And when judgment is entered, all of the rights which he might have claimed in that litigation are merged in the judgment. Lord Atkin in United Australia Ltd. v. Barclays Bank Ltd ... defined the effect of a judgment upon alternative remedies: 'Up to that stage the plaintiff may pursue both remedies together, or pursuing one may amend and pursue the other: but he can take judgment only for the one, and his cause of action on both will then be merged in the one.' The party entitled to relief cannot improve his position by bringing separate actions. Though he may elect between inconsistent remedies pursued in the one action, or between the actions to be pursued in order to recover a judgment giving the remedy he chooses, the merger in the judgment first recovered of a right to another remedy takes effect by operation of law. When those rights (or causes of action) are extinguished, no further litigation may be pursued to recover a second judgment upon them. Accordingly, inconsistency between judgments against the same defendant is avoided by the merger in the judgment first recovered of the right to the remedy thereby given and of all other rights which arise on the same facts. 34Mrs Thompson, not having been a party to the 2003 proceedings, can only rely on res judicata if she was a privy of her husband. Windeyer AJ thought she may have been, but the point was not argued and he did not decide it [34]. 35He held that proceedings against Mrs Thompson to enforce a proprietary tracing claim were an abuse of process because the accounting before Biscoe AJ proceeded on a different basis, and the payments from joint venture funds had repaid a debt due from her husband to herself which had been credited to him in the judicial accounts [35]. 36He also held that a judgment enforcing a proprietary claim against her would conflict with the judgment against her husband which treated the same amount as a debt, resulting in a clear abuse of process [36]. 37The appellants, represented by Mr White in person, relied on the injuction granted by Hamilton J on 13 May 2003 restraining Mr Thompson from alienating his interest in Somersby, their attempts to raise a proprietary claim before Gzell J, the caveats on Somersby from March 2006 onwards, the consent order of 4 May 2006 extending Mr White's caveat until further order, their attempts to raise this claim before Biscoe AJ, the notice of motion of 18 February 2008 and the proceedings before Palmer J on 20 May and 8 September 2008. 38The appellants' fundamental difficulties arise from the long established principle that the rights of the parties in proceedings for a judicial account must be established at the trial. Any accounts and inquiries ordered at the trial "follow merely consequentially" as Viscount Haldane said in a related context in McGrory v Alderdale Estate Co Ltd [1918] AC 513, 511. Accounts and inquiries are ordered for the purpose of working out the rights established at the trial and determining issues of quantum. 39This principle is well established. In M'Mahon v Burchell (1846) 2 Ph 127, 136-7 [41 ER 889, 893] Lord Cottenham LC said: "... when an enquiry is ... directed, it should be very strictly confined ... and should not leave it open to the party to make an entirely new case before the Master." 40In Smith v Armitage (1883) 24 Ch D 727, 729 Denman J said: "... the hearing is the proper time to dispose of questions of [this] kind." 41In Sanguinetti v Stuckey's Banking Company (No 2) [1896] 1 Ch 502, 506 Chitty J said that substantive questions "must be brought forward at the right time" and not "during what I may term the mechanical operation of taking an ordinary account". In that case therefore it was "too late after the judgment has gone, for the defendant ... to raise this defence". 42In Squire v Rogers (1979) 39 FLR 106, 123, a decision of the Full Federal Court which involved an account between co-owners, Deane J, delivering the principal judgment of the Court said: "The definition of those receipts and outgoings goes to the basis on which an account is to be taken ... Those questions should ... be decided at this stage and not left to be resolved either on a taking of the account or subsequently upon further consideration by the Court after attempts to take the appropriate account have been completed. In the light of the resolution of those questions the order for an account should be varied so as to make clear precisely what receipts and outgoings of a revenue or capital nature are to be brought to account by the defendant and allowed in his favour." 43These principles are of general application to final orders in equity directing accounts and inquiries: Spencer Bower & Handley "Res Judicata" 4 th ed 2009 at pp 76-81. 44These principles were applied in Meehan v Glazier Holdings Pty Ltd [2002] NSWCA 22, 54 NSWLR 146. In proceedings by a beneficiary against the trustee the Court made an order by consent for the taking of the accounts of the trust and an order that the trustee pay to the new trustee "the amount found to be due on the taking of such accounts". 45This was an order for the taking of common accounts and under an order in that form the beneficiary was not entitled to charge the trustee with wilful default (ibid at 149-150). 46Accounts on the basis of wilful default can only be ordered if this is charged in the pleadings and at least one instance of wilful default is established at the trial. A plaintiff who has obtained an order for common accounts may amend before final judgment to obtain an order for accounts on the basis of wilful default, but the plaintiffs in Meehan v Glazier Holdings Pty Ltd could not do so because they had taken final judgment for the amount found to be due on the taking of common accounts and it was too late to amend (ibid at 154-5). Thus the Court applied the principle that the rights of the parties must be established at the trial (ibid at 152, 153). 47The same principles apply where the issues of liability and damages are tried separately. An interlocutory judgment for damages to be assessed binds the parties and the Court and damages must be assessed in accordance with the decision on liability: Strachan v The Gleaner Co Ltd [2005] 1 WLR 3204 PC, 3209. 48The appellants therefore had to plead and litigate their claim to a proprietary interest in Somersby in the 2003 proceedings heard by Gzell J. They could have done this by pleading an alternative claim that Mr Thompson's drawings from joint venture funds were unauthorised and fraudulent (in the equitable sense), so as to give rise to a tracing claim over Somersby. Instead they went to trial on a claim that Mr Thompson's withdrawals created a debt to be treated as such in any accounting that might be ordered. Any tracing claim to Mr Thompson's share in Somersby was barred by the final orders of Gzell J on 15 December 2005, and of the Court of Appeal on 12 December 2006. 49This involved an election to treat Mr Thompson's drawings as loans under which beneficial title to the moneys passed to him. He could therefore pass a beneficial title in those moneys to Mrs Thompson. 50Any tracing claim against Mrs Thompson's half share depended upon tracing the funds through her husband. Since a tracing claim against him was barred, it was an abuse of process to attempt to trace the funds through him to Mrs Thompson. 51The leading case on this form of abuse of process is Reichel v Magrath (1889) 14 App Cas 665. In earlier proceedings the appellant failed to establish that he had successfully withdrawn his resignation as rector of a parish: Reichel v Bishop of Oxford (1889) 14 App Cas 259. When sued by his successor for possession of the vicarage his defence that he was the vicar was struck out as an abuse of process. Lord Halsbury LC said at 668: "... 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 ... it surely must be in the jurisdiction of the Court of Justice to prevent the defeated litigant raising the very same question which the Court has decided in a separate action." 52The present case is somewhat different because the appellants' case involved a different claim based on the same facts. However it raised the same question viz the effect of Mr Thompson's excess drawings from joint venture funds and the title to those drawings. The attempt to rely on the same facts but change the form of the proceedings was therefore an abuse of process. 53The relevant principles were reviewed in Rippon v Chilcotin [2001] NSWCA 142; (2001) 53 NSWLR 1981. The purchasers of a business sued the vendor for misrepresentation and breach of warranty as to the profits of the business in the accounts for the last full financial year before the sale. Their claim for misrepresentation failed because they had relied on the warranty in the contract and not on any representations by the vendor, and they only recovered modest damages for the breach of warranty. 54The purchasers then sued the accountants for misrepresentation in the same accounts. The accountants were not parties to the earlier proceedings and were not privies of the vendor, and could not rely on res judicata estoppel. 55In the first action the purchasers failed to prove that they had relied on the vendor's representations. Their second action could only succeed if they could prove that they relied on the accountants' representations about the same profits. This was an attempt to relitigate what, in substance, was the same issue against a different party. It was therefore an abuse of process. This Court ordered summary dismissal, and the High Court refused special leave. 56The decision in MCC Proceeds Inc v Lehman Bros International (Europe) [1998] 4 All E R 675 CA is another example. The litigation arose from the collapse of the corporate empire of the late Robert Maxwell. In the first action a Maxwell company unsuccessfully sued a Lehman company to recover shares in another public company. The second action, brought in respect of the same shares, by the successor in title of the original plaintiffs against the subsidiary of the original Lehman defendant was struck out as an abuse of process. 57Mummery LJ, who delivered the principal judgment, held (at p 694) that the successor of the original plaintiff was not entitled to relitigate the issues relating to the shares. At p 696 he said: "... the substantial issue raised ... (ie title to the Berlitz shares) has already been decided ... in the first action in circumstances which preclude the parties in this action from attempting to litigate that issue again." 58In the present case the substantial issue, title to the money Mr Thompson withdrew from joint venture funds, was litigated in the 2003 proceedings, and the appellants cannot be permitted to relitigate that question. 59The appellants filed a motion on 5 April 2011 seeking leave to appeal, out of time, from the judgment of Biscoe AJ of 29 February 2008. It would be futile for this Court to grant leave because Biscoe AJ was bound by the orders of Gzell J and the Court of Appeal and could only deal with the issues referred to him. Leave to appeal out of time from Gzell J cannot be granted because an appeal from his judgment has already been dismissed by this Court. 60The appeal and the notice of motion must therefore be dismissed with costs, and I would make those orders.