FEDERAL COURT OF AUSTRALIA Devon v Capital Finance Australia Ltd [2014] FCA 1363 Citation: Devon v Capital Finance Australia Ltd [2014] FCA 1363 Parties: KATHLEEN LINDA DEVON v CAPITAL FINANCE AUSTRALIA LTD, AKYMAN INVESTMENTS PTY LTD and MARK NICOLAU File number(s): VID 312 of 2014 Judge(s): DAVIES J Date of judgment: 12 December 2014 Catchwords: PRACTICE AND PROCEDURE – Application for summary dismissal under r 26.01(1) of the Federal Court Rules 2011 (Cth) – whether claims were an abuse of process – whether principles of Anshun estoppel apply Legislation: Competition and Consumer Act 2010 (Cth) Sch 2 ss 18 and 87 Corporations Act 2001 (Cth) s 1041H Australian Securities and Investments Commission Act 2001 (Cth) ss 12DA, 12GM Goods Act 1958 (Vic) ss 16, 17, 18, 19, 41 Federal Court Rules 2011 (Cth) r 26.01(1) Cases cited: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45 Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 146 FCR 10; [2004] FCAFC 242 Young v Murphy (1994) 13 ACSR 722 Collie (As Trustee for the Terracol Trust) v Merlaw Nominees Pty Ltd [1998] VSC 203 Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Limited [2012] FCAFC 31 Macchia v Nilant (Trustee) [2006] FCA 213 Date of hearing: 28 November 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 16 Counsel for the Applicant: The applicant's husband, Mr Devon, appeared on behalf of the applicant, with leave Counsel for the Respondents: Mr M Koroneos Solicitor for the Respondents: Koroneos Lawyers IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 312 of 2014 BETWEEN: KATHLEEN LINDA DEVON Applicant AND: CAPITAL FINANCE AUSTRALIA LTD First Respondent AKYMAN INVESTMENTS PTY LTD Second Respondent MARK NICOLAU Third Respondent JUDGE: DAVIES J DATE OF ORDER: 12 DECEMBER 2014 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The proceeding against the first respondent be dismissed pursuant to r 26.01(1) of the Federal Court Rules 2011 (Cth). 2. The applicant pay the first respondent's costs of the proceeding, including all reserved costs, such costs to be taxed in default of agreement. 3. The applicant's application for leave to issue a subpoena to the third respondent is refused. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 312 of 2014 BETWEEN: KATHLEEN LINDA DEVON Applicant AND: CAPITAL FINANCE AUSTRALIA LTD First Respondent AKYMAN INVESTMENTS PTY LTD Second Respondent MARK NICOLAU Third Respondent JUDGE: DAVIES J DATE: 12 DECEMBER 2014 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The first respondent ("Capital Finance") has applied to dismiss the claims made by the applicant ("Mrs Devon") against it in this proceeding: (1) as an abuse of process on the ground that the principles of Anshun estoppel apply with respect to those claims; (2) on the ground that Mrs Devon does not have standing to sue on those claims. Mrs Devon in turn has applied for leave to amend the name of the applicant to sue in her capacity as trustee of the Melbourne South Trust and for leave to issue a subpoena to the third respondent ("Mr Nicolau"), the director of second respondent ("Akyman"). background 2 In March 2011, a company called Melbourne South Pty Ltd ("Melbourne South") in its own right and as trustee for the Melbourne South Trust ("the Trust") entered into a term purchase agreement with Capital Finance in respect of goods described as "new" computer hardware equipment to be supplied by Akyman. Mrs Devon, who was then the sole director and shareholder of Melbourne South, signed a guarantee and indemnity in favour of Capital Finance in relation to the payment obligations of Melbourne South to Capital Finance. The total amount financed together with charges under the term purchase agreement was $109,710.36, which was repayable in 36 monthly instalments. Melbourne South never collected the equipment and only paid the first instalment. Capital Finance terminated the term purchase agreement by written notice to Melbourne South in March 2012 and sued both Melbourne South and Mrs Devon for recovery of the sum of $101,747.71 which was then owed under the term purchase agreement. Proceedings were instituted in the County Court of Victoria. Ultimately Capital Finance only proceeded with its claim against Mrs Devon, as Melbourne South went into liquidation in October 2012. 3 A trial was held in September 2013 and in October 2013 the County Court gave judgment for Capital Finance against Mrs Devon in the sum of $118,975,61, comprising the principle amount of $101,774.11 plus interest, and ordered Mrs Devon to pay Capital Finance's costs. Mrs Devon appealed that decision to the Court of Appeal of the Supreme Court of Victoria which, in April 2014, dismissed her appeal. In June 2014, Mrs Devon commenced proceedings in the Federal Court of Australia against Capital Finance, Akyman and Mr Nicolau. further background 4 In the County Court action, Mrs Devon's third amended defence made several positive allegations against Capital Finance by way of defence to the debt claim against her based on the guarantee and indemnity. The allegations included that: (a) It was a term of the term purchase agreement that Capital Finance would not pay the settlement proceeds to Akyman until Melbourne South had approved the inspection and notified Capital Finance that the equipment was ready for collection ("the further term"); (b) The equipment to be supplied by Akyman was not fit for the purpose or of merchantable quality. The particulars included that Mr Devon had inspected the equipment at the offices of Akyman and discovered that the computer and other equipment being supplied was not new as agreed but second hand and in poor condition; and (c) By reason that the equipment to be supplied by Akyman was not fit for the purpose or of merchantable quality, Melbourne South cancelled the contract. 5 These allegations founded claims by Mrs Devon by way of defence: (a) In breach of the further term, Capital Finance released the settlement sum to Akyman without advice from Melbourne South that the equipment was ready for collection ("the breach of contract claim"); (b) Capital Finance, in providing finance to Melbourne South, owed Mrs Devon a duty to take reasonable care in the provision of such services and in breach of its duties to her, Capital Finance released the settlement sum to Akyman: (1) without advising Melbourne South or her; (2) without obtaining written confirmation from Melbourne South that the goods were fit for the purpose or of merchantable quality; and (3) did not comply with the settlement checklist according to the conditions contained in the offer of finance by failing to receive payment of the initial instalment prior to settlement ("the breach of duty claim"); (c) Capital Finance represented to Mrs Devon that the settlement sum would only be released to Akyman upon advice from Melbourne South that the equipment was ready for collection ("the representation"), that Mrs Devon, induced by and in reliance on the representation continued to provide a guarantee and indemnity for and on behalf of Melbourne South and Capital Finance was estopped from claiming the settlement sum from Mrs Devon ("the estoppel claim"); (d) The offer by Melbourne South included the further term and Capital Finance's acceptance of the term purchase agreement on some other basis did not constitute proper acceptance of that offer ("the no contract claim"); and (e) By reason of the representation Capital Finance engaged in conduct that was false and misleading in breach of s 18 of the Australian Consumer Law (Competition and Consumer Act 2010 (Cth) Sch 2) ("the Australian Consumer Law"), s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"), and Mrs Devon was entitled to have the term purchase agreement declared void under s 87 of the Australian Consumer Law and s 12GM of the ASIC Act. 6 No counterclaim was made against Capital Finance nor was any claim for damages made. 7 The Court of Appeal summarised the claims in this way: It is readily apparent that the principal complaint in the defence is the payment of the 'settlement sum' prior to Mr Devon's inspection of the goods. That is the sole basis for the estoppel claim, the claim no agreement was made, and the misleading and deceptive conduct claim. The negligence claim is based upon that complaint and a complaint about a failure to comply with the settlement checklist. As to the claim for breach of agreement, the only term pleaded and the only breach alleged relates to that same complaint of payment before inspection. The trial judge dealt with that issue at length. In substance, the defence failed on that issue because the judge preferred the evidence of Capital Finance's employee, Ms Julieanne Morcos, to that of Mr Devon. The trial judge also dealt with the alleged failure by Capital Finance to comply with its own procedures (the settlement checklist, amongst others). 8 One of the grounds of appeal was that the trial judge failed to address a defence that Mrs Devon had relied upon, namely that Melbourne South had been entitled to terminate the term purchase agreement because the equipment was not new and that she was relieved of her liability as guarantor because the principle debt had been extinguished. The Court of Appeal rejected that ground, finding that the postulated defence had neither been pleaded nor raised as an issue by Mrs Devon at trial. The Court of Appeal also considered whether Mrs Devon was then able to raise that defence and have it ruled upon by the Court of Appeal. It held that she was not entitled to raise the defence as it was a new point that was sought to be taken on appeal and it could not be said that it was a point that was not capable of being affected by further evidence. It had been submitted for Capital Finance that had the postulated defence been raised at trial, there certainly would have been evidence given by Akyman as to the state of the goods supplied and whether or not they were new. Whelan JA (with whom Santamaria JA agreed) concluded at [89]-[90]: Mrs Devon had counsel appearing for her. Reliance on any lack of competence in counsel was expressly disavowed in the oral submissions on the application. It is clear that a forensic decision was made to advance the defences based on the inspection issue and issues related to Capital Finance's compliance with its own procedures. No explanation has been given as to why the point now sought to be advanced was not advanced at trial. One consequence of reliance on the inspection issue was that the issue as to condition was merely part of the narrative. If Mrs Devon had established the term she relied upon as to inspection she would have established breach by Capital Finance, regardless of the condition of the equipment. If a new trial were ordered now, the applicant could effectively run a whole new case, on new contested factual issues, having tried and failed to succeed on the issues she chose to advance at the first trial. I do not think that the interests of justice require that course to be taken. In any event, a new trial on the issue now sought to be raised would inevitably involve prejudice to the respondent. The case would, in effect, begin again. There would inevitably be unrecoverable costs. There would inevitably be inconvenience. This is not a case like Macarthur where a defined point can be addressed in a confined contest without improper prejudice to the respondent. 9 An application for Mrs Devon for special leave to appeal to the High Court was dismissed on 14 September 2014. the federal court proceeding 10 Mrs Devon, who represents herself in this proceeding, commenced this proceeding by originating process supported by an affidavit sworn by herself and an affidavit sworn by her husband, Mr Devon. The claims in this proceeding against the respondents are not easy to follow, but as best as can be made out they appear to be based on the allegations that: (1) the terms of the purchase agreement were for the supply of new computer equipment; and (2) the computer equipment supplied was not new as agreed but second hand and in poor condition. It is alleged that Capital Finance breached ss 16, 17, 18, 19 and 41 of the Goods Act 1958 (Vic), s 18 of the Australian Consumer Law, s 12DA of the ASIC Act and breached the term purchase agreement. It is further alleged that Melbourne South had a right to rescind, and did rescind, the term purchase agreement for the false representation that the goods were new and, further, that the contract is void under s 12GM of the ASIC Act. Mrs Devon seeks damages and compensation for losses arising out of the non-supply of the new equipment and the loss of income on the value of her shareholding. Are the Federal Court proceedings an abuse of process? 11 The Court has the power to dismiss a proceeding summarily as an abuse of process: Federal Court of Australia Act 1976 (Cth), s 31A(2) and Federal Court Rules 2011 (Cth), r 26.01(1)(d). In the present case, the application by Capital Finance for summary dismissal is founded on the contention that the Anshun estoppel principles apply. 12 An Anshun estoppel will arise in circumstances where a party to a subsequent proceeding seeks to litigate a claim or defence "which could and should have been litigated in the earlier proceedings": Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 598; [1981] HCA 45 at [23]. The estoppel operates to preclude a litigant from bringing a particular claim where it was "unreasonable" for the litigant not to have brought that claim, or to rely on that claim as a defence, in an earlier concluded proceeding. If the litigant was unable to raise the claim or defence in the earlier proceeding, no Anshun estoppel will arise. Equally, the fact that the litigant could have raised the claim or defence in the earlier proceeding does not necessarily mean that the estoppel will arise. No estoppel arises unless the new claim relied on was so relevant to the subject matter of the first proceeding that it would have been unreasonable not to rely on it in that proceeding. The test is based on the reasonableness of the conduct of a litigant in earlier proceedings: Anshun at 602-603. The mere fact that the matter could have been raised does not mean that it should have been raised for the operation of the estoppel. The "unreasonableness" criterion involves an evaluative element based upon what a litigant could reasonably have been expected to do in the earlier proceeding. Where the issue was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it, it is an abuse of process to raise it for the first time in a subsequent proceeding: Anshun at 602. Generally speaking, it would be unreasonable not to raise a claim if, having regard to the nature of the plaintiff's claim and its subject matter, it would be expected that the defendant would raise the claim by way of defence or cross claim in that earlier proceeding, and thereby enable the relevant issues to be determined in the one proceeding: Anshun at 602. In Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 146 FCR 10; [2004] FCAFC 242, the Full Federal Court stated at [37]: A plea in bar may be raised in respect of an issue, not only if the Court in the earlier proceeding was actually required by the parties to form an opinion and pronounce a judgment, but also in relation to every issue that properly belonged to the subject of the earlier litigation and which the parties, exercising reasonable diligence, might have brought forward at the time of the earlier litigation: Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 at 598 and 602. Anshun estoppel arises where the issue, now raised for the first time, properly belonged to the subject of the earlier proceeding but, by negligence, omission or accident, was not raised in earlier proceeding. In essence where the issue is so relevant to the subject matter of the earlier action that it would be unreasonable not to have raised it at that time, it is an abuse of process to endeavour to raise that issue for the first time in a subsequent proceeding between the parties: Anshun at 602. Further, at [38], the Full Court said: As foreshadowed in Anshun there will be instances where, even though there is every reason why the matter should have been raised earlier but was not, there are special circumstances that prevail to permit a party to raise the issue in a subsequent proceeding. The Court therefore has a discretion, if it determines that special circumstances exist, to allow an issue to be raised, even where it is found that the point was unreasonably omitted from the earlier proceeding: see Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 at 558. What will be sufficient to constitute "special circumstances" is not fixed and may involve a range of factors that bear upon the general discretion of the Court where justice requires the non-application of the general principle: Wong at [38]. 13 In the present case, Mr Devon (who made submissions on behalf of Mrs Devon at the hearing of the application) submitted that if the estoppel applies, there are "special circumstances" in this case. Three matters were relied upon by Mr Devon. First, Mr Devon stated that the reason the claim was not made in the County Court proceedings was that Mrs Devon had been advised by her legal representatives at the time that the claim for loss and damage against Capital Finance could be made at a later date after the County Court proceedings in separate proceedings. In her affidavit, Mrs Devon deposed: The plaintiff was advised by legal representative [sic] that a counter claim would be made at a later date after the county court proceedings upon calculations of the losses by an accountant. The county court judgement [sic] advised the counter claim and prayer [sic] for relief seeking orders for damages should have been done as there was grounds for relief. We relied on the legal advice at the time. Namely that we had a very strong case to win and two we could make a claim in separate proceedings. Secondly, it was contended that the County Court proceedings were not against Melbourne South or the Melbourne South Trust but only against the guarantor. Thirdly, it was contended that Mrs Devon was the victim of a fraud, there had been a miscarriage of justice and that opportunity should be given to her to pursue the claims. 14 For the reasons that follow I am of the view that this is a clear case where the principle of Anshun estoppel applies. First, it was plainly open to Mrs Devon to raise the claim that she now relies on in the County Court action by way of defence. This is recognised in the arguments advanced on her behalf before the Court of Appeal that the primary judge in the County Court action had failed to address her defence that Melbourne South had, and was entitled, to terminate the term purchase agreement because the equipment was not new and that she was relieved of her liability as guarantor because the principal debt had been extinguished. Secondly, she had by her defence in the County Court proceeding put into issue that the equipment to be supplied by Akyman was not fit for the purpose or not of merchantable quality as it "was not new as agreed but second hand and in poor condition" but, as the Court of Appeal stated, it was clear that a forensic decision had been made to advance the defences based on the inspection issue and issues related to Capital Finance's compliance with its own procedures, and not to rely on the defence based on termination for breach of an essential term as to the equipment being new. Thirdly, the claims that she now advances against Capital Finance in the Federal Court proceeding were claims that could have been raised in the County Court proceeding. If, as she contends, she was the trustee of the Melbourne South Trust, having replaced Melbourne South as trustee upon its liquidation, she had, in that capacity as the new trustee, standing in the County Court on behalf of the Trust to bring the claim for damages and other relief that she now seeks to advance: Young v Murphy (1994) 13 ACSR 722 at 733; Collie (As Trustee for the Terracol Trust) v Merlaw Nominees Pty Ltd [1998] VSC 203 at [65]; Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Limited [2012] FCAFC 31 at [133]. In my view, the claims she now makes against Capital Finance were so relevant to the subject matter of the first action that it was unreasonable for them not to have been made by Mrs Devon in that action. 15 Moreover, I do not accept the argument for Mrs Devon that the Anshun estoppel principles should not apply because of special circumstances. First, the fact that the claim now sought to be advanced was not advanced in the earlier proceedings on legal advice will not, normally be sufficient to amount to a "special circumstance": Macchia v Nilant (Trustee) [2006] FCA 213. In Nilant, Siopos J stated at [76]: [I]t will usually be the case that a client relies upon legal advice as to which claims should be pursued in a legal proceeding. Advice as to which claims to pursue is a matter of professional judgment by a legal representative. There may be any one of a number of reasons why a legal representative may advise a client that a claim should not be pursued – for example, there may be no merit in the claim, the claim may undermine the credibility of the other claims or of the applicant. I do not regard the fact that Mrs Devon acted on legal advice as constituting a "special circumstance" in this case. Secondly, Melbourne South Trust is not a legal entity and could not be joined as a party to the County Court action, nor is it a special circumstance that Melbourne South, which was a defendant to the proceeding, did not defend the action or bring the claim that Mrs Devon now seeks to bring. Mrs Devon, as the replacement trustee (as she claims), had the ability in the County Court proceeding to make the claim in that proceeding that she now seeks to bring against Capital Finance. Finally, the fact that Mrs Devon considers that an injustice has been done to her does not afford a "special circumstance". She appears stubbornly to refuse to accept the outcome of the County Court action, which was upheld by the Court of Appeal and her application for special leave to Appeal to the High Court refused. 16 I am satisfied that this is a clear case where the Anshun estoppel principles apply in respect of the claims that Mrs Devon makes against Capital Finance in the Federal Court action and I would accordingly dismiss the proceeding against it. In view of my conclusion, it is unnecessary to rule on Mrs Devon's application to amend the name of the applicant. I will however refuse leave to issue the subpoena to the third respondent that she seeks, as her proposed use of the subpoena process is totally misconceived. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate: Dated: 12 December 2014