Reported Decision : 53 NSWLR 198 New South Wales Court of Appeal CITATION : RIPPON v CHILCOTIN [2001] NSWCA 142 FILE NUMBER(S) : CA 40229/00 HEARING DATE(S) : 11 May 2001 JUDGMENT DATE : 13 July 2001 PARTIES : Paul Rippon v Chilcotin Pty Ltd and Gemeden Pty Ltd and Peter Lever JUDGMENT OF : Mason P at 1; Handley JA at 2; Heydon JA at 38 LOWER COURT JURISDICTION : District Court LOWER COURT DC 5665/97 FILE NUMBER(S) : LOWER COURT Price DCJ JUDICIAL OFFICER : Appellant - Ms C E Adamson COUNSEL : Respondents 1 and 2 - Mr T Jucovic QC/Mr J Burchett Respondent 3 - Submitting Appearance Appellant - Phillips Fox SOLICITORS : Respondents 1 & 2 - John M Fitzgerald & Associates Respondent 3 - Hunt & Hunt CATCHWORDS : PRACTICE AND PROCEDURE - abuse of process - res judicata - defendant not party to earlier proceedings - plaintiffs seeking to re-litigate issue they lost in earlier proceedings against new defendant - action dismissed as abuse LEGISLATION CITED : Trade Practices Act Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 James Hardie & Co Pty Ltd v Barry (2000) 50 NSWLR 357 Reichel v Magrath (1889) 14 App Cas 665 Arthur J S Hall & Co v Simons [2000] 3 WLR 543 Walton v Gardiner (1993) 177 CLR 378 Rogers v The Queen (1994) 181 CLR 251 CASES CITED: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Blair v Curran (1939) 62 CLR 464 Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 Trawl Industries Pty Ltd v Effem Foods Pty Ltd (1992) 36 FCR 406 Morris v Wentworth-Stanley [1999] QB 1004 (CA) Sandtara v Abigroup Ltd (1997) 42 NSWLR 5 State Bank of NSW Ltd v Stenhouse Ltd (1997) Aust Tort Rep 81-423 R v O'Halloran (2000) 36 ACSR 315 DECISION : Appeal allowed. Orders made THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40229/00 DC 5665/97 MASON P HANDLEY JA HEYDON JA 13 July 2001 PAUL RIPPON v CHILCOTIN PTY LIMITED & ORS PRACTICE AND PROCEDURE - abuse of process - res judicata - defendant not party to earlier proceedings - plaintiffs seeking to re-litigate issue they lost in earlier proceedings against new defendant - action dismissed as abuse The respondents contracted to purchase a business under contracts which contained warranties of the reliability and accuracy of certain financial statements. The purchasers became dissatisfied with their purchase and brought proceedings in the Supreme Court against the vendor. In 1996 Brownie J awarded the purchasers damages for breach of warranty as to the nett profit of the business for 1991 but dismissed their claims for misleading and deceptive conduct. The Judge found that the purchasers had relied on the warranty, not the representations. In 1997 the purchasers commenced proceedings in the District Court against the vendor's accountants who prepared the financial statements claiming damages for negligent misrepresentations in respect of the years 1988-1991 upon which they had relied in entering into the contracts. The accountants sought to have this action stayed or dismissed for abuse of process, claiming the purchasers were seeking to re-litigate in the District Court the issue of reliance which they had lost in the Supreme Court. Their motions for stay or summary dismissal were dismissed. One of the accountants appealed by leave. HELD, allowing the appeal: (1) The proceedings against the accountants were an abuse of process because the purchasers were attempting to re-litigate the issue of reliance on the representations which they had lost in the earlier proceedings. (2) The claims against the accountants were so relevant to the subject matter of the first action that it was unreasonable for the purchasers not to rely upon them in that action. The fact that the present claim could have been included in the first proceedings emphasised the close connection between the two proceedings and was relevant in considering whether the present action was an abuse of process. (3) The addition of misrepresentations about years other than that upon which the earlier proceedings were based was mere camouflage, a distinction without a difference, because the purchasers could not be bothered suing the vendor for those years and were now barred from doing so by an Anshun estoppel. (4) The Judge had ignored the fundamental fact that the purchasers would first have to prove that they relied upon the representations before the question of reliance on the accountants' expertise could even arise. (5) Although there was no question of oppression and unfairness because the accountants were not parties to the earlier action, the new proceedings threatened the integrity of the administration of justice and raised the prospect of conflicting judgments. ORDERS (1) Appeal allowed; (2) Judgment of the District Court of 3 February 2000 set aside; (3) In lieu thereof order that the action be dismissed pursuant to DCR Pt 11A r 3; (4) The first and second respondents to pay the appellant's costs of the appeal, and the costs of the third respondent as a submitting respondent; (5) Plaintiffs to pay the defendants' costs of the action and the appellant's costs of the notice of motion of 6 November 1998; (6) First and second respondents to have a certificate under the Suitors Fund Act in respect of the costs of the appeal, if qualified. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40229/00 DC 5665/97 MASON P HANDLEY JA HEYDON JA 13 July 2001 PAUL RIPPON v CHILCOTIN PTY LIMITED & ORS JUDGMENT 1 MASON P: I agree with Handley JA. 2 HANDLEY JA: This is an appeal by leave granted from the decision of Price DCJ who dismissed the appellant's motion for summary dismissal of the action for abuse of process. 3 The proceedings arise out of the sale of a business to the first and second respondents in 1991. A contract of sale between the vendor and the first respondent entered into on 5 August 1991 (blue 1/7) was rescinded on 28 September and replaced by two contracts to sell part of the business to the first respondent and the balance to the second. Both contained warranties by the vendor and its directors, referred to as the covenantors, of the reliability and accuracy of financial information provided in annexures A to F to the contracts (1/57). Completion took place on 30 September. 4 The relevant annexures are annexure A (1/43-5), the vendor's financial statements for the years ending 30 June 1988, 1989, and 1990, and annexure D (1/47-8) which covered the same ground but included financial statements for the 1991 year. Annexure A was prepared by the accountants for the vendor, a firm comprising the appellant and the third respondent (the accountants). It was covered by a formal report on their letterhead. Annexure D was not covered by a formal report but had been prepared by the firm and their name appeared on the facsimile record. 5 The purchasers became dissatisfied with their purchase and brought proceedings against the vendor and the covenantors in the Supreme Court. The amended statement of claim (1/209) pleaded a warranty that the nett profit of the business for the year ending 30 June 1991 was $187,921 as stated in annexure D and a breach in that the correct figure was $106,713 (pars 6, 7, 8). Paragraph 14 pleaded that the representations in annexure D had been made fraudulently, and para 15 that they had been made in contravention of s 52 of the Trade Practices Act. 6 There was also an allegation that the gross income of the business for the year ended 30 June 1991 had been negligently misrepresented in annexure E. 7 The action was heard by Brownie J. The plaintiffs only pressed their claims for breach of contract and breach of s 52 (1/8). On 25 June 1996 the Judge awarded damages of $22,722 for breach of contract and dismissed the claim under s 52 because he was not satisfied that the purchasers had been misled or deceived. 8 The Judge found that Mr Hoefl, who controlled the purchasers, was a witness without credibility. He held that Mr Hoefl had not relied upon the accuracy of any particular figure or figures in annexure D, but relied on the warranty which would provide a remedy if the figures were wrong. The Judge also referred to a further difficulty for the purchasers because the figures were historical rather than promissory for the future. 9 The purchasers appealed to this Court and relied on additional evidence, but only pressed their claims in contract (1/116). They sought to establish further errors in annexures D and E which would increase their damages. The Court refused to admit the additional evidence and the appeals were dismissed with costs on 8 April 1999. 10 Meanwhile on 10 September 1997, approximately 3 weeks before the 6 year limitation period expired, the purchasers commenced proceedings in the District Court against the accountants claiming damages for negligent misrepresentation. The claim as pleaded was based on misrepresentations in annexures A and D. The accountants were not served until 11 May 1998. 11 The statement of claim, as amended, alleged that the purchasers entered into the contracts in reliance on representations covering the 1988, 1989, 1990 and 1991 years, in annexures A and D. The earlier proceedings had been confined to the figures for the 1991 year. 12 The accountants filed notices of motion seeking to have the District Court action stayed or dismissed for abuse of process. They claimed, in substance, that the purchasers were seeking to re-litigate in the District Court the issue of reliance on which they had failed in the Supreme Court. 13 The primary Judge referred to the decision of Hunt CJatCL in Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 and analysed the issues in the two proceedings. The issues in the Supreme Court were the amount of damages for breach of contract and the entitlement of the purchasers to damages for misleading and deceptive conduct. The issues in the District Court were whether the accountants had prepared the financial information in annexures A and D (this was not in issue at all) and if so whether they owed a duty of care to the purchasers which they had breached. The question of damages also necessarily arose. The issues of duty, breach and damages had not been litigated in the Supreme Court. He continued: "Whilst the issue of reliance was considered by Brownie J his consideration of that issue was confined to the entitlement to the plaintiffs of damages for misleading conduct as against the vendors. The negligent misrepresentations relied upon by the plaintiffs in the present proceedings are different although similar to the representations in the Supreme Court action. Annexure A is relied upon, the figures cover a wider period being 3-4 years and are alleged to have been represented by the makers of the accounts rather than being passed on by the vendor. The issue of reliance upon the expertise of the defendants in the production of the figures was not litigated in the Supreme Court. A finding in these proceedings that there was reliance by the plaintiffs upon the expertise of the defendants … would not in my view necessarily conflict with the findings of Brownie J". 14 The Judge was not satisfied that "the issues in the present proceedings" were determined in the Supreme Court and the notices of motion were dismissed. 15 The accountants were not parties to the action in the Supreme Court, nor were they privies of the vendor, and they cannot claim the benefit of any cause of action estoppel or issue estoppel. See James Hardie & Co Pty Ltd v Barry (2000) 50 NSWLR 357, 362 per Spigelman CJ. However in Reichel v Magrath (1889) 14 App Cas 665 the House of Lords held that a defence which was not barred by res judicata estoppel may nevertheless be struck out as an abuse of process. Lord Halsbury 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 … There must be an inherent jurisdiction in every Court of Justice to prevent such an abuse of its procedure …". 16 Mr Jucovic QC, who appeared for the respondents, said that that case could have been decided on the ground that the defence of the former rector was res judicata because the new rector claimed under the Patrons and the Bishop, who were parties to the former action, or because the first decision related to the status of the former rector and was a decision in rem. See Spencer Bower & Ors "Res Judicata", 3rd Ed 1996, p 121, and Arthur J S Hall & Co v Simons [2000] 3 WLR 543, 572 per Lord Hoffmann. However 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 in any event Reichel v Magrath has been followed by the High Court. See Walton v Gardiner (1993) 177 CLR 378, 393 and Rogers v The Queen (1994) 181 CLR 251, 287-8. 17 The issue of reliance or causation was an essential constituent of the purchasers' cause of action for misleading and deceptive conduct. See Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525. The finding by Brownie J that the purchasers had not relied upon the vendor's representations in the 1991 figures in annexure D related to an ultimate fact, fundamental to the decision, which formed part of the right in issue. See Blair v Curran (1939) 62 CLR 464, 532 per Dixon J. 18 The purchasers did not make a claim based on the figures for the earlier years in annexures A and D. If, as Brownie J held, Mr Hoefl had not relied upon the representations in the 1991 figures he would hardly have been accepted if he had claimed to have relied on the earlier figures. 19 Fresh claims for misleading and deceptive conduct against the vendor based on the earlier figures would not be barred by cause of action or issue estoppel because those claims were not litigated. Nevertheless, in the terms of the joint judgment of Gibbs CJ, Mason and Aickin JJ in Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589, 602 (Anshun) those claims were "so relevant to the subject matter of the first action that it would have been unreasonable not to rely on [them]" and they would therefore be barred by the wider form of estoppel applied in that case. 20 The purchasers could have been expected to bring forward any claims against the vendor based on the earlier figures so that all relevant issues could be determined in the one proceeding. Moreover a judgment in favour of the purchasers based on the earlier figures would conflict with the judgment in favour of the vendor based on the 1991 figures because the judgments would declare inconsistent rights in respect of the same transaction (Anshun 603-4). 21 The judgment in favour of the vendor on the cause of action for misleading and deceptive conduct created a cause of action estoppel against any claim against the vendor for negligent misrepresentation. See Trawl Industries Pty Ltd v Effem Foods Pty Ltd (1992) 36 FCR 406, 418-22. Accordingly Brownie J's decision barred all causes of action against the vendor based on the representations in annexures A and D. 22 The purchasers could have included their claim against the accountants for negligent misrepresentation, based on the 1991 figures, in their Supreme Court proceedings. They knew that the figures came from the accountants and there would have been common issues of reliance, falsity and damage. If the claims based on the earlier figures were not worth pursuing against the vendor they were not worth pursuing against the accountants either. 23 In those circumstances it could fairly have been said, in the language of the joint judgment in Anshun (602), that the claims against the accountants were so relevant to the subject matter of the first action that it was unreasonable for the purchasers not to rely upon them in that action. Compare Morris v Wentworth-Stanley [1999] QB 1004 (CA), 1011, 1017. 24 Counsel for the appellant did not contend for an Anshun estoppel, but the fact that the present claim could, and perhaps should, have been included in the Supreme Court proceedings, emphasises the close connection between the two proceedings and is relevant in considering whether the present action is an abuse of process. 25 The vendor and the covenantors might have raised cross-claims against the accountants for damages for professional negligence and negligent misrepresentation to cover any liability to the purchasers. The accountants would then have been parties to the proceedings and entitled to the benefit of res judicata estoppels arising from the judgment of Brownie J. See Sandtara Pty Ltd v Abigroup Ltd (1997) 42 NSWLR 5. Those estoppels would have been a complete answer to these proceedings. 26 The vendor now has no liability to the purchasers for misleading and deceptive conduct or negligent misrepresentation for which it could claim indemnity from the accountants. Its success in the Supreme Court proceedings thus operated for the benefit of the accountants and this further emphasises the close connection between the two proceedings. 27 The issues of duty and breach by the accountants did not arise in the earlier proceedings. The Judge said that the negligent representations were "different although similar" to those previously relied on because the purchasers now relied on the earlier figures. This would not avail the purchasers in respect of the 1991 year and in my judgment the accountants would be entitled in any event to have that part of the statement of claim struck out as an abuse of process. However the addition of the earlier years is mere camouflage, a distinction without a difference, because the purchasers could not be bothered suing the vendor for those years and are now barred from doing so by an Anshun estoppel. 28 The present proceedings are an attempt to litigate or re-litigate issues which were either decided in or are barred by the earlier proceedings. In substance, ignoring the camouflage, the purchasers are attempting to re-litigate the issue of reliance on the 1991 figures which they lost. If they cannot succeed against anyone in respect of the 1991 figures because they did not rely on them, they could hardly succeed in establishing reliance on the earlier figures. 29 The Judge also held that the issue of reliance on the expertise of the accountants had not been litigated in the Supreme Court and that a finding of reliance on that expertise would not conflict with the findings of Brownie J. This is true enough but ignored the fundamental fact that the purchasers would first have to prove that they relied upon the figures themselves before the question of reliance on that expertise could even arise. If they did not rely on the figures, they could not possibly have relied on the expertise required for their production. 30 The substance of the matter therefore is clear. The purchasers, disappointed with their bargain, sued their vendor in contract and in misrepresentation. They lost their case in misrepresentation and were disappointed with their modest recovery in contract. A few weeks before the expiration of the limitation period they sued the accountants for what is in substance the same misrepresentations. In the first proceedings they had to prove that they relied upon those misrepresentations. This turned on the evidence of Mr Hoefl, the contemporary documents, and the surrounding circumstances. The purchasers lost that issue and seek to re-litigate it against the accountants on substantially the same evidence in the hope that this time Mr Hoefl will be believed. 31 In Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 at 414 Hunt CJatCL distilled the following statement of principle from the authorities: "There are obviously limitations to striking out pleadings or causes of action as an abuse of process upon the basis stated in Reichel v Magrath … The issue determined in the earlier case which is sought to be litigated in the later case must be one which the party propounding it in the latter lost in the former … It must be an issue which was necessarily determined in the earlier case, and one of importance to the final result. It must have been properly argued - by which I mean that … the tribunal which decided it was an appropriate one to do so, that the parties were appropriate contradictors and that the issue was regarded by them as one of importance … In normal circumstances the decision disposing of the issue must have been a final one … There may also be circumstances in which, notwithstanding the absence of an appeal, it is clear that the earlier decision has overlooked some binding authority, or that it has caused the unsuccessful party a manifest injustice … all the circumstances of the determination in the earlier case may be considered …". 32 In State Bank of NSW Ltd v Stenhouse Ltd (1997) Aust Tort Rep 81-423, another case involving abuse of process in seeking to re-litigate an issue, Giles CJCommD said at 64,089: "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, and amongst the matters to which regard may be had are - (a) the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or 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; … (f) the extent of the oppression and unfairness to the other party if the issue was 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". 33 These considerations, as Heydon JA pointed out in R v O'Halloran (2000) 36 ACSR 315, 344, "turn on precise identification of the issues". 34 The first four matters have already been considered. The purchasers made an attempt to rely on fresh evidence in the form of an affidavit by Andrea Hoefl sworn 13 December 1998. She is a daughter of Mr Hoefl who had graduated from the University of New South Wales as Bachelor of Laws and Bachelor of Commerce in Accounting, Finance and Systems and she was a director of both purchasers. She stated that in late August or early September 1991 her father visited her in Munich where she was living with her husband and baby daughter and asked her to look at the vendor's sale of business proposal and a copy of annexure D. Over the next few days she did so and then told her father that the family trust should buy the business. She said that she would not have let the trust, which owns the purchaser companies, proceed with the purchase if she had known the true performance of the business over the relevant years. 35 There are difficulties with this evidence apart from the fact that it is not fresh evidence in the technical sense. Andrea Hoefl said she saw the documents "in late August or early September 1991". Her evidence therefore is not relevant on the reliance issue because the first contract of sale was entered into on 5 August 1991. That contract was rescinded and replaced by two contracts on 28 September. The representations in annexure D continued but the critical reliance was that which preceded the contract of 5 August because on that date Mr Hoefl, the first purchaser, and the family trust, became committed legally or commercially to the purchase. Accordingly Andrea Hoefl's reliance on the figures in annexure D was not causative of the loss sued for in these proceedings. Her evidence also demonstrates that her father effectively controlled the purchasers and the trust because he had not fully consulted her before the first contract was entered into. 36 There is no question here of oppression and unfairness because the accountants were not parties to the earlier action, but these proceedings do threaten the integrity of the administration of justice and raise the prospect of conflicting judgments. 37 In my opinion therefore these proceedings are an abuse of process and this appeal should be allowed. The following orders should be made: (1) Appeal allowed; (2) Judgment of the District Court of 3 February 2000 set aside; (3) In lieu thereof order that the action be dismissed pursuant to DCR Pt 11A r 3; (4) The first and second respondents to pay the appellant's costs of the appeal, and the costs of the third respondent as a submitting respondent; (5) Plaintiffs to pay the defendants' costs of the action and the appellant's costs of the notice of motion of 6 November 1998; (6) First and second respondents to have a certificate under the Suitors Fund Act in respect of the costs of the appeal, if qualified. 38 HEYDON JA: I agree with Handley JA. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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