New South Wales Supreme Court CITATION : Sheahan v Slattery [2003] NSWSC 438 HEARING DATE(S) : 22 May, 2003 JUDGMENT DATE : 23 May 2003 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Notice of Motion dismissed. CATCHWORDS : PRACTICE AND PROCEDURE - ABUSE OF PROCESS - "ANSHUN" ESTOPPEL - Defendant moves to strike out Statement of Claim as abuse of process because prior proceedings raised same factual issues - neither present Plaintiff nor present defendant was a party to prior proceedings - present defendant had not yet filed defence. Held: "Anshun estoppel" does not apply where neither party to present proceedings was a party to prior proceedings - it was impossible to say, prior to filing of defence, whether any factual issues in present proceedings would be the same as in prior proceedings - subsequent proceedings will not be stayed unless there will be a conflict in judgments, not merely a conflict in fact finding. LEGISLATION CITED : Supreme Court Rules 1970 - Pt 13 r(1), Pt 15 r26(1) - Barnes v Addy (1874) LR 9 Ch App 244 CASES CITED : - Foodco Group Pty Ltd v Northgan Pty Ltd (1998) 83 FCR 356 - Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 - State Bank of New South Wales Ltd v Stenhouse Ltd (1997) Aust Torts Reports 81-423 PARTIES : John Sheahan - Plaintiff John Joseph Slattery - Defendant FILE NUMBER(S) : SC 5573/02 COUNSEL : W.G. Muddle - Plaintiff D.R. Stack - Defendant SOLICITORS : Deacons - Plaintiff Kemp Strang - Defendant Introduction 1 By Notice of Motion filed on 26 February 2003, as amended by consent yesterday morning, the Defendant, Mr Slattery, seeks orders under Part 13 r(1) and Part 15 r26(1) of the Supreme Court Rules 1970 or pursuant to the inherent jurisdiction of the Court that the Plaintiff's Statement of Claim be struck out as an abuse of process or pursuant to the principles enunciated in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. Alternatively, Mr Slattery seeks an order staying these proceedings until the conclusion of the taking of accounts ordered by Windeyer J in proceedings 2000/98. 2 The background facts to this application are set out in a judgment of Windeyer J delivered on 16 February 2001 in proceedings number 2000/98. Mr Stack, who appears for Mr Slattery, says that that judgment has already decided issues which arise in the present proceedings, so that these proceedings are an abuse of process or are estopped upon Anshun principles. The earlier proceedings 3 In proceedings 2000/98, the parties were Dr Brian McMahon as plaintiff and Kenneth Livingstone, John Scott and Ophix Finance Corporation Pty Ltd ("Ophix") as defendants ("the McMahon Proceedings"). By the time that the McMahon Proceedings came on for hearing before Windeyer J, Mr Livingstone had been made bankrupt and the claims against him were discontinued on the first of the trial. His trustee in bankruptcy did not actively participate in the proceedings because no relief was sought against the bankrupt's estate. There were several causes of action pressed by Dr McMahon against Mr Scott and Ophix, but only two are relevant for present purposes. 4 First, Dr McMahon claimed that Mr Livingstone, as trustee and agent for Dr McMahon, had invested Dr McMahon's money with either or both of Ophix and Mr Scott, so that Dr McMahon as creditor was entitled to repayment of the money by Ophix or Mr Scott as debtors. Alternatively, he alleged that Mr Livingstone collected money from him as agent for Ophix and Mr Scott, so that, again, Dr McMahon was entitled to repayment from them as a creditor. 5 Windeyer J found that Mr Livingstone had received money from Dr McMahon and from others as a trustee for investment. He found that this money was deposited into a bank account called "the Clearing Account" operated by Mr Scott and Mr Slattery (the Defendant in the present proceedings), and that money deposited in the Clearing Account was on-lent, in the name of Ophix, to other borrowers or was used by Ophix itself to finance its own investment or development ventures. Mr Scott and Mr Slattery were the only directors and shareholders of Ophix. His Honour noted in the course of his judgment that Mr Slattery had not been joined as a defendant in the McMahon Proceedings "for some unexplained reason" . That failure has not been explained to me either. 6 Windeyer J found that Messrs Scott and Slattery knew that the moneys deposited by Mr Livingstone into the Clearing Account included a significant amount of the funds of Mr Livingstone's clients, although a small proportion of the deposits may have been Mr Livingstone's own money. His Honour found that neither Mr Scott nor Mr Slattery knew the exact portion of the funds deposited by Mr Livingstone which represented funds of Mr Livingstone's clients, but his Honour found that Mr Scott certainly knew that the deposits included substantial funds of Dr McMahon. His Honour made no finding as to the knowledge of Mr Slattery in this regard. 7 All funds deposited by Mr Livingstone into the Clearing Account and all transactions involving those funds were recorded in the ledgers of Ophix in an account styled "the Ken Account". 8 Although his Honour found that the funds paid by Dr McMahon to Mr Livingstone for investment were received by Mr Livingstone as trustee he held that when Mr Livingstone deposited those funds into the Clearing Account, as recorded in the Ken Account, the funds were not received by Ophix or Mr Scott as trustees for Dr McMahon or the other clients of Mr Livingstone. Rather, the true character of the relationship between Mr Livingstone as depositor and Ophix and Mr Scott as recipients of the funds was that of creditor and debtor. His Honour found that the balance in the Ken Account in the Ophix ledgers, together with interest, was a debt owed by Mr Scott and Ophix to Mr Livingstone and that Mr Livingstone held that debt as trustee for those persons, including Dr McMahon, who had entrusted their funds to him for investment. 9 His Honour therefore held that no part of the Ken Account represented a debt due directly to Dr McMahon so that the first cause of action pleaded in the McMahon Proceedings failed. 10 The second cause of action was founded upon the second limb of Barnes v Addy (1874) LR 9 Ch App 244. It was alleged that Mr Livingstone was a trustee of the funds which Dr McMahon had paid him, to the knowledge of both Ophix and Mr Scott; that an agreement was made between Mr Livingstone, Ophix and Mr Scott in 1994 whereby Ophix and Mr Scott would be entitled to deduct from moneys in the Ken Account money owed to them by Mr Livingstone personally and that Mr Livingstone personally would be responsible for any claim by any of his clients in respect of that money; that the making of that agreement by Mr Livingstone was a breach of trust and that Ophix and Mr Scott, in making that agreement with Mr Livingstone, knowingly participated in Mr Livingstone's breach of trust whereby they could not rely upon the agreement to retain deductions which they had made from the Ken Account in their own favour. 11 His Honour found that Ophix and Mr Scott were in knowing receipt of trust funds from Mr Livingstone even though they did not know the amounts held for particular beneficiaries. He made no finding in that regard in respect of Mr Slattery. His Honour said that any agreement between Mr Livingstone and Ophix and Mr Scott which would have had an adverse effect on Mr Livingstone's trust beneficiaries would be an obvious breach of trust by Mr Livingstone and any action by Ophix and Mr Scott to give effect to such an agreement would be knowing participation in such breach. His Honour went on to find that various deductions which Mr Scott and Ophix had made from the Ken Account in accordance with an alleged agreement made in 1994 were, therefore, unauthorised. 12 His Honour concluded that it was not possible to determine from the evidence before him either the identity of all those persons beneficially entitled to the trust fund held by Mr Livingstone or which deductions made from the Ken Account by Ophix and Mr Scott were authorised and which were not. It followed, his Honour said, that there should be an account taken of what was the balance due by Ophix and Mr Scott to the bankrupt estate of Mr Livingstone. 13 It is clear from his Honour's judgment that he made no finding as to Mr Slattery's participation in any breach of trust by Mr Livingstone, nor as to Mr Slattery's liability to account to Mr Livingstone's bankrupt estate. It would have been extraordinary if his Honour had made any such findings since not only was Mr Slattery not a party to the McMahon Proceedings but he did not give evidence nor did he otherwise participate in any way. 14 The account ordered by Windeyer J in the McMahon Proceedings is in progress and I am informed that it is nearing completion. The accounting will, of course, establish only the liability of Ophix and Mr Scott to Mr Livingstone's bankrupt estate. The present proceedings 15 On 19 November 2002, Mr Livingstone's present trustee in bankruptcy, Mr Sheahan, commenced these proceedings against Mr Slattery. The Statement of Claim, shorn of an irrelevant and embarrassing pleading, pleads a simple common money count in debt against Mr Slattery and, alternatively, a claim in unjust enrichment. 16 No defence by Mr Slattery has yet been filed. Mr Slattery's response to the commencement of the proceedings against him was to file the present Notice of Motion seeking that the proceedings be dismissed or stayed. The consequence is that one does not yet know what are the issues for trial in the present proceedings. Whether abuse of process 17 Mr Stack submits on behalf of Mr Slattery that these proceedings should be struck out on two grounds: first, that the failure to join Mr Slattery to the McMahon Proceedings results in the present proceedings being an abuse of process or "caught by Anshun estoppel" and, second, that the Statement of Claim has not been properly pleaded or particularised. 18 The "Anshun estoppel" submission may be disposed of briefly. The principles in Anshun are applicable only where the second litigation is between parties who were also parties to the prior litigation: see the reasons of Marshall J in Foodco Group Pty Ltd v Northgan Pty Ltd (1998) 83 FCR 356, at 360ff, which I respectfully adopt. Neither the Plaintiff nor the Defendant in the present proceedings was a party to the McMahon Proceedings. 19 As to abuse of process, in the course of argument Mr Stack came to concede, I think, that the failure of Dr McMahon or of Ophix and Mr Scott to join Mr Slattery as a defendant or cross defendant in the McMahon Proceedings was not in itself an abuse of process or that, if it was, it is not something for which the present Plaintiff can be held responsible since he was not a party to the McMahon Proceedings at the time that they came to trial. Further, there could be no abuse of process in the commencement of these proceedings against Mr Slattery in the sense of Mr Slattery being vexed twice with the same litigation because he has never previously been sued in respect of any liability to Mr Livingstone or Mr Livingstone's bankrupt estate. 20 Mr Stack's real point was this: there were findings of fact made by Windeyer J in the McMahon Proceedings upon certain issues which will arise in these proceedings; the parties to these proceedings, being completely different from the parties in the McMahon Proceedings, will not be bound by any estoppel by judgment or issue estoppel arising from the McMahon Proceedings, but there may well be inconsistent findings on those issues in these proceedings; as a matter of public policy to protect the integrity of the system of administration of justice, "a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment" : Anshun at 603; State Bank of New South Wales Ltd v Stenhouse Ltd (1997) Aust Torts Reports 81-423 at 64,089. 21 I am unable to accept this submission for three reasons. First, the Statement of Claim in the present proceeding pleads a simply claim in debt against Mr Slattery. As I have observed there is, as yet, no defence filed so that one does not know if any of the issues upon which Windeyer J passed comment in the McMahon Proceedings will arise in these proceedings. The submission of Mr Stack as to "conflict" between two judgments is, therefore, premature, as I think Mr Stack came to concede. 22 Second, the judgment in the McMahon Proceedings was that Ophix and Mr Scott were liable in debt to Mr Livingstone's bankruptcy trustee. The judgment in the present proceedings will be whether or not Mr Slattery is liable to Mr Livingstone's bankruptcy trustee. Whether he is found liable or not liable, there will be no conflict with the judgment in the McMahon Proceedings. 23 Third, if there is a finding on any factual issue in the present proceedings which is in conflict with a finding on a factual issue raised in the McMahon Proceedings, there will be a conflict of fact finding in the two judgments – perhaps because the evidence is different – but that is not sufficient to invoke the principle enunciated in Anshun at 603, upon which Mr Stack relies. Upon this point, I again respectfully agree with the observations of Marshall J in Foodco at 362. 24 For these reasons, the Defendant's submissions as to abuse of process and estoppel must fail. Pleadings 25 As to the propriety of the pleading in the Statement of Claim, paragraph 5 should be struck out as embarrassing, as is conceded by Mr Muddle who appears for the Plaintiff. Further, in my view, the words in paragraph 14 "and has thereby been unjustly enriched" should be struck out, as such a cause of action is otherwise not pleaded in the Statement of Claim. I give leave to the Plaintiff to re-plead a cause of action in unjust enrichment, although the utility of doing so as an alternative to a simple common money count in debt is difficult to see. 26 Otherwise, I will not strike out the allegations in paragraphs 2 and 3 of the Statement of Claim pertaining to the trust since those allegations found the standing of the Plaintiff, as present trustee of the Livingstone trust, to sue the Defendant for such part of the alleged debt as was owed to Mr Livingstone in his capacity as trustee. 27 I note that the Defendant no longer seeks an order staying these proceedings pending the completion of the taking of accounts in the McMahon Proceedings. Orders 28 Accordingly, paragraph 5 of the Statement of Claim and the words in paragraph 14 "and has thereby been unjustly enriched" are struck out, with leave to re-plead. Otherwise, the Defendant's Notice of Motion is dismissed. I will hear the parties as to costs. – oOo – Last Modified: 05/28/2003 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.