SUPREME COURT OF QUEENSLAND CITATION: Schepis & Anor v Esanda Finance Corp Ltd & Anor [2007] QCA 263 PARTIES: ANTHONY SCHEPIS (first plaintiff/first appellant) MICHELE SCHEPIS (second plaintiff/second appellant) v ESANDA FINANCE CORPORATION LIMITED ACN 004 346 043 (first defendant/ first respondent) JONES CONDON AUSTRALIA PTY LTD ACN 114 210 454 (second defendant/not a party to the appeal) KEMP STRANG LAWYERS PTY LTD ACN 097 942 660 (third defendant/second respondent) FILE NO/S: Appeal No 2542 of 2007 SC No 521 of 2006 DIVISION: PROCEEDING: ORIGINATING COURT: Court of Appeal General Civil Appeal Supreme Court at Townsville DELIVERED ON: 10 August 2007 DELIVERED AT: Brisbane HEARING DATE: 2 August 2007 JUDGES: ORDER: Holmes JA, Mackenzie and Atkinson JJ Separate reasons for judgment of each member of the Court, each concurring as to the orders made Appeal dismissed with costs CATCHWORDS: PROCEDURE JUDGMENTS AND ORDERS AMENDING, VARYING AND SETTING ASIDE ACTIONS TO REVIEW OR SET ASIDE JUDGMENT WHERE FRAUD, MISREPRESENTATION OR SUPPRESSION OF MATERIAL FACTS where the appellants alleged in the Supreme Court of Queensland that in earlier proceedings in New South Wales the judge had erred and the judgment was procured by fraud where the appellants sought leave to appeal from the summary dismissal of their action in the Supreme Court of Queensland whether the appellants were able to succeed without having the New
2 COUNSEL: SOLICITORS: South Wales decision set aside ESTOPPEL FORMER ADJUDICATION AND MATTERS OF RECORD OR QUASI OF RECORD FORMER ADJUDICATION JUDGMENT INTER PARTES RES JUDICATA where the appellants commenced proceedings in the Supreme Court of Queensland subsequent to earlier proceedings in New South Wales where the learned judge held the defence of res judicata to be a complete bar to the action commenced in Queensland whether the learned judge erred in finding that the appellants claim in Queensland was based on the same grounds as the New South Wales proceedings and barred by res judicata Cabassi v Vila (1940) 64 CLR 130, considered Cachia v Westpac Financial Services Ltd [2005] NSWCA 239, considered Emanuel Management Pty Ltd (in liq) v Fosters Brewing Group Ltd [1999] SASC 68, considered The appellants appeared on their own behalf R Lilley SC for the respondent The appellants appeared on their own behalf Thynne & Macartney for the respondent [1] HOLMES JA: This appeal is brought against a summary judgment given for the respondents, who were the first and third defendants to the appellants action for conspiracy. In their claim, the appellants sought damages due to the First Defendants wrongful repudiation of a lease between Anthony s Stainless Steel Fabrications Pty Limited and, the claim continued, subsequent fraudulent, covert and underhanded conduct of the first defendant in conjunction with other co-conspirators being the second and third defendants ; which conduct, it was said, consisted of collusion to fabricate evidence and suborning a witness. The claim went on to assert that fraudulent evidence produced by the three defendants resulted in a miscarriage of justice in the Local Court Proceedings in Sydney. The New South Wales proceedings [2] The background to this case is as follows: the appellants were directors of Anthony s Stainless Steel Fabrications Pty Ltd. In 1992, they guaranteed the company s lease of equipment from the first respondent, Esanda. On 20 October 1992, the lessee, having got into financial difficulties, ceased to trade. The appellants asked a firm of accountants (who subsequently formed the corporation which was the second defendant in the proceedings below) to assist in commencing a voluntary winding up of the lessee company. The leased equipment came back into the possession of Esanda, which sold it, and, in a New South Wales Local Court, sued the appellants as guarantors for the amount outstanding under the lease. Esanda originally obtained a default judgment in August 1993, but it was set aside by consent, because of questions as to service. [3] Esanda did not, in the contested proceedings which followed, rely on any breach of the lease. Rather, it alleged that the lessee had surrendered the equipment to it,
3 entitling it under the terms of the lease to sell it and recover the amount outstanding after the proceeds of sale were received. An employee of Esanda gave evidence that he had a telephone conversation with the male appellant, Mr Schepis, on 5 November 1992, in which the latter advised that the lessee had ceased trading and that the goods were to be picked up, although some of them had been stolen; Mr Schepis was preparing a list of the stolen items for police and the insurance company. That conversation was supported in documentary form by scratch pad entries: an electronic recording system maintained by Esanda in which its employees recorded on computer details of telephone conversations and correspondence. [4] The appellants denied that conversation and gave evidence instead that Mr Schepis had been negotiating with Esanda to obtain a payout figure, so that the lease could be transferred to purchasers of the lessee s business. On 20 October 1992, on Mr Schepis evidence, a representative of Esanda advised that the equipment was to be repossessed, and it was subsequently seized. The magistrate preferred Esanda s account of events: he accepted that the conversation of 20 October 1992 as recorded in the scratch pad entry had occurred, found that the goods were collected at the lessee s behest and gave judgment for Esanda. [5] The appellants sought leave to appeal to the New South Wales Supreme Court on the basis that the magistrate had wrongly rejected evidence from representatives of the proposed purchasers of the lessee s business as to negotiations with them which had failed because of the repossession of the goods. The application for leave was refused, Brownie AJ concluding that the evidence was rightly rejected on a combination of relevance and procedural grounds. The New South Wales Court of Appeal refused leave to appeal that result on 25 October 2000, essentially for the reasons given by Brownie AJ. An application for special leave to appeal to the High Court seems not to have proceeded. The Queensland proceedings [6] In August 2006, the appellants filed the claim the subject of this appeal. Their damages were said to be the loss of the value of the shares in the company because its business could not be sold, Esanda having repudiated the lease; losses incurred in meeting the judgment debt; legal expenses and legal costs; 14 years of anguish ; and loss of opportunity. [7] The statement of claim begins by reprising the appellants case in the Local Court and giving the history of the proceedings there. It pleads, relevantly, that the scratch pad notes were produced in November 1994 fraudulently, as a result of collusion by all three defendants; that in 1998, inspection of the second defendant s documents revealed diary notes showing that the three defendants had colluded to alter evidence; and that the appellants had attempted to introduce the diary notes in the New South Wales Local Court but the magistrate had upheld a claim of privilege and thus excluded this very important evidence which would have discredited the main evidence of the first respondent being the scratch pad notes. (That ruling was not the subject of appeal in the New South Wales proceedings). [8] According to the appellants affidavits on the summary judgment application, in 1994 and again in 1998, there was communication between Esanda s solicitors
4 (whose practice was taken over by the second respondent, once incorporated) and the accountants consulted about the lessee s winding-up, about whether the latter were in a position to give evidence as to who had authorised the auctioneers to pick up the equipment for sale. In the course of those discussions a copy of a file note dated 5 November 1992 and recording a conversation between a Mr Davis from the accountants and Mr Schepis was, on 14 November 1994, provided to the solicitors. The file note records that Mr Schepis informed Mr Davis that a welder and tools had been stolen from the company s premises. Mr Davis, according to the file note, informed Mr Schepis that he ought to report the theft to the police and contact the company s insurance broker. [9] On 15 November 1994, Esanda printed out the scratch pad notes, including the entry of 5 November 1992, which alludes to some goods having been stolen. Apparently because of the reference in both the file note and the scratch pad entry to stolen items and because the printout was made on the day after the file note was received by Esanda, the appellants assert that the entry of 5 November 1992 was actually fabricated on 15 November 1994. In addition, the appellants rely on the fact that the employee of Esanda who gave evidence as to the 5 November conversation had a number of mortgages with ANZ, a company associated with Esanda, to assert that he must, therefore, have been under pressure to perjure himself. [10] The first and third respondents entered separate defences in which each denied the existence of the third respondent as a body corporate at any relevant time; a denial which the appellants appear to have accepted as correct. The respondents also denied alteration or fabrication of evidence. The first respondent, Esanda, relied on res judicata and issue estoppel, pleading that the issues on which the appellants claim was based were determined by the Local Court judgment. [11] The learned judge at first instance observed that since the third respondent was not incorporated at the relevant time, and the evidence suggested that an unincorporated association had carried on the relevant practice, there was little room to resist the third respondent s application for summary judgment. As to the first respondent s application, the appellants were in effect seeking to overturn the judgment given in the Local Court. He accepted that the defence of res judicata was a complete bar, since it had already been determined against the appellants that Esanda properly came into possession of the goods, and a Queensland court had no power to set aside on the basis of fraud a judgment given in another state. For those reasons he gave judgment against the appellants. The appellants contentions on appeal [12] The appellants appeal on the grounds that the learned judge at first instance erred in deciding that the cause of action was based on the unlawful repudiation of the lease contract and unlawful repossession of the equipment, whereas the cause of action was based on the fraudulent conduct and illegal actions of the respondents; that he erred by deciding that the court had no jurisdiction to hear the matter; and that he erred in not taking into account subpoenaed documents. [13] The appellants argue that since their claim for damages arising out of fraud and collusion has not been heard previously, there can be no res judicata; this action, they say, is not based on repudiation of the lease contract or unlawful repossession. Had they been given the opportunity, they could have amended the pleadings to
5 make that clearer. They say that they have applied in bankruptcy proceedings in the Federal Magistrates Court to have that court go behind the Local Court judgment and that the matter is now the subject of a special leave application in the High Court. Their action should have been stood over until those matters were resolved. They ought to have been permitted to amend the claim and statement of claim to join the proper (presumably unincorporated) second and third defendants. Conclusions on the appeal [14] The learned judge at first instance was clearly correct in concluding that the claim could not succeed against the third respondent. It was an entity which did not, on any view, exist at the time of the relevant events; amendment could not cure the fundamental problem that the appellants could not prove against it things allegedly done by individuals before it came into existence. It was entitled to judgment. His Honour s view that the defence of res judicata presented a bar to the proceedings as against the first respondent was also correct. The judgment of the Local Court was that Esanda was entitled to take possession of and sell the leased equipment and to recover the deficiency from the appellants as guarantors. The claim of damages due to wrongful repudiation of the lease agreement clearly amounted to an attempt to impeach that judgment. No amendment of the claim could alter the fact that all the losses claimed arose from the judgment; the damage essential to the cause of action could not be established if the judgment were properly given. His Honour s observation that the appellants could seek to set aside the judgment on the ground of fraud, but any such application had to be made in New South Wales, was not essential to his decision, but was, with respect, appropriately made. [15] The learned judge s view that the action could not succeed as long as the New South Wales Local Court judgment stood is well supported by authority. In Cabassi v Vila (1940) 64 CLR 130, Rich ACJ adopted American authority to the effect that a party could not maintain an action against his opponent for suborning a witness whose false testimony produced a judgment or for fraud as long as the judgment remained in force, because such a proceeding was an attempt to re-examine the merits of a judgment in a collateral suit between the same parties. 1 A judgment could not be impeached in such a way for reasons of public policy and the plaintiff s only remedy was a proceeding to set aside the judgment or petition for a new trial. Starke J agreed with the proposition that such an action could not succeed until the initial judgment was set aside. 2 Williams J noted that at the time the statement of claim in that case was filed there was a binding judgment in existence and until it was rescinded it could not be impugned by civil proceedings other than proceedings directly challenging its validity. 3 As with actions for malicious prosecution, the plaintiff had to be able to allege in his statement of claim that the proceedings had terminated in his favour; the cause of action had to be complete at the date of issue of the writ. [16] It follows that it cannot avail the appellants to say that the judgment might later be set aside; and in any event, there is nothing referred to which would suggest that any proceedings that might produce that result are on foot. Even if a judgment obtained by collusion may in theory be regarded as a nullity, it will still be necessary to prove the alleged collusion in separate proceedings: see the observations of Debelle J in 1 2 3 Cabassi v Vila (1940) 64 CLR 130 at 139. At p 141. At p 148.
6 Emanuel Management Pty Ltd (in liq) v Fosters Brewing Group Ltd [1999] SASC 68 at [27]. [17] More recently, the Court of Appeal in New South Wales in Cachia v Westpac Financial Services Ltd [2005] NSWCA 239 upheld summary dismissal of proceedings in which the claimant had sought damages on the basis that a Federal Court judgment was procured by fraud. That claimant, like the appellants here, asserted that the judicial officer at first instance was mistaken in supposing that he was attacking the Federal Court decision. Hodgson JA noted the difficulty with the submission: damages could not be obtained on the basis that the claimant had lost his Federal Court cause of action or ought not to have been ordered to pay costs without having the Federal Court decision set aside, because until that had occurred the decision conclusively established that the cause of action had no value and that the costs order was properly made. In order to claim damages on the basis that a previous judgment had been obtained by fraud it was necessary to apply to have it set aside. In Markisic v Department of Community Services of New South Wales (No 2) [2006] NSWCA 321 the Court of Appeal adopted that reasoning, observing the claimant could not seek damages for a loss authorised by extant orders of another Court. [18] The respondents were rightly granted summary judgment against the appellants. The appeal should be dismissed with costs. [19] MACKENZIE J: I agree that the appeal should be dismissed for the reasons given by Holmes JA. I agree with the orders proposed. [20] ATKINSON J: I agree for the reasons given by Holmes JA that the appeal should be dismissed with costs.