Federal Court of Australia

Endresz v Commonwealth of Australia [2021] FCAFC 18

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the Commonwealth’s costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(Revised from transcript)

GRIFFITHS J:

1    I also agree with the reasons of Justice Thawley and the orders that his Honour proposes.

Associate:

Dated:    23 February 2021

REASONS FOR JUDGMENT

(Revised from transcript)

THAWLEY J:

2    On 27 August 2020, on the application of the Commonwealth of Australia, an order was made by a judge of this Court (Commonwealth of Australia v Endresz, in the matter of Endresz [2020] FCA 1228, hereafter “J”) sequestrating the appellant’s estate under s 43 of the Bankruptcy Act 1966 (Cth). The debt relied upon by the Commonwealth in its creditor’s petition was the balance of a judgment debt payable under orders made on 21 November 2014 by the ACT Supreme Court. These orders were made to give effect to the judgment of Refshauge J in Commonwealth v Davis Samuel (No 7) (2013) 282 FLR 1. The judgment of Refshauge J found the appellant to be liable for equitable compensation under the two limbs of Barnes v Addy (1874) LR 9 Ch App 244. That liability related to a payment of $6 million of the Commonwealth’s funds to CTC Resources NL in April 1998 and $2.725 million to the Davis Samuel partnership in September 1998. The payments were made by Mr David Muir, an employee of a Commonwealth contractor, Callform Pty Ltd. As summarised by Mr Endresz before the primary judge, Refshauge J found that:

(1)    the April and September 1998 payments were ultra vires of the Commonwealth as they were made without Parliamentary authority and therefore illegal and void;

(2)    Mr Muir and Callform breached fiduciary duties owed to the Commonwealth in making the payments;

(3)    Mr Endresz (among others) was liable under the second limb of Barnes v Addy for knowingly assisting in the breaches of fiduciary duty.

3    Mr Endresz opposed the creditor’s petition on the basis that there was not “in truth and reality” a debt owing to the creditor – cf: Wren v Mahoney (1972) 126 CLR 212 at 224‑225; Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132. The full grounds of opposition relied upon were set out by the primary judge at J[5]. The primary judge was satisfied that “in truth and reality” there was a debt owing to the creditor.

4    Mr Endresz relies on two grounds of appeal. These are:

(1)    In making the sequestration orders on 27 August 2020, the learned primary judge erred in concluding that there was “in truth and reality” a debt owed by the appellant to the Commonwealth in circumstances where the equitable relief grounding the judgment debt in favour of the Commonwealth against the appellant lay outside the amended originating application filed in the underlying proceedings in the ACT Supreme Court (referring to J[44]-[54]). In particular, the learned primary judge erred in:

(a)    finding that the equitable jurisdiction of the ACT Supreme Court had been invoked in the proceedings by:

(i)    the amended originating application; and/or

(ii)    the sixth further amended statement of claim;

(b)    finding that the judgment debt was not:

(i)    a nullity (at J[44], [46]-[50]); or,

(ii)    alternatively, irregular and liable to be struck out (at J[51]-[52]);

(c)    finding that if the judgment debt was a nullity or irregular and liable to be struck out there would still “in truth and reality” have been a debt owed by the appellant to the Commonwealth (at J[53]);

(d)    by reason of the findings referred at (a), (b) and (c) above, finding that there was “in truth and reality” a debt owing by the appellant to the Commonwealth (at J[54]).

(2)    In making the sequestration orders on 27 August 2020, the learned primary judge erred in concluding that there was “in truth and reality” a debt owed by the appellant to the Commonwealth where the equitable relief grounding the judgment debt was precluded by reason of that relief relating to payments of funds out of consolidated revenue without authorisation of Parliament, which payments were for that reason ultra vires and void at law (at J[63]-[68]). In particular the learned primary judge erred in:

(a)    finding that Barnes v Addy accessorial liability is not precluded in respect of payments to which the principles of Auckland Harbour Board v The King [1924] AC 318 apply (at J[63]-[65], [67]);

(b)    finding that a fiduciary duty in relation to payments out of consolidated revenue is not precluded by the principles of Auckland Harbour Board (at J[66]);

(c)    by reason of the findings referred at (a) and (b) above, finding that there was “in truth and reality” a debt owing by the appellant to the Commonwealth (at J[68]).

5    Aside from the argument before the primary judge and on this appeal, substantial aspects of these arguments have been argued and addressed before:

(1)    After judgment was delivered in Davis Samuel (No 7), the defendants applied to the ACT Supreme Court to have the judgment set aside on bases which included those now put. Refshauge ACJ dismissed that application: Commonwealth v Davis Samuel (No 11) (2017) 316 FLR 159. The orders giving effect to the judgment in Davis Samuel (No 11) were not the subject of an appeal.

(2)    A Full Court of this Court considered an appeal from a single judge of the Court in proceedings which had been transferred to this Court from the Federal Circuit Court of Australia: Endresz v Commonwealth of Australia (2019) 273 FCR 286 (Endresz FCAFC No 1). That appeal was allowed on the basis that the Federal Circuit Court invoked the slip rule to extend retrospectively the expiry of the creditor’s petition when it should not have. The arguments now raised, or the majority of them, were addressed and rejected by the Full Court although they did not strictly arise given that the appeal had to be allowed on the basis that the slip rule had not properly been invoked: at [94].

6    The answers to the grounds of appeal may be stated briefly.

GROUND 1

7    The appellant contends that the equitable jurisdiction of the ACT Supreme Court had never been invoked such that its order granting equitable relief should have been treated as a nullity or was irregular and liable to being struck out. This was because, the appellant contended, the amended originating application only made claims for restitution of amounts paid without authority, an accounting or damages for monies had and received, and a claim for damages for breach of contract. The indorsement on the amended originating application was:

Nature of action: Recovery of money payable by the defendants to the plaintiff being funds of the plaintiff paid:-

(a)    to the first defendant without the authority of the plaintiff;

(b)    an accounting or damages for monies paid to the first defendant;

(c)    a claim for breach of contract as against the third defendant;

(d)    to the sixth defendant without the authority of the plaintiff;

(e)    an accounting or damages for monies paid to the sixth defendant; and

(f)    a claim for breach of contract as against the third defendant.

Relief claimed: Repayment of $8,525,000, an accounting for monies had and received by the first defendant and an accounting for monies had and received by the sixth defendant, damages and interest.

8    In Endresz FCAFC No 1, it was concluded that the amended originating application did make a claim for equitable relief, namely an accounting: at [117(1)]. The primary judge also concluded that equitable relief was sought in the amended originating application. The appellant contends that these conclusions are not correct and that the proper construction of the amended originating application was that the accounting sought was for the common law remedy of account for money had and received. The action for money had and received, albeit a common law claim, was developed by analogy from equity: Moses v Macferlan (1760) 97 ER 676 at 679, 680; Clarke v Shee and Johnson (1774) 98 ER 1041 at 1042; see also: Hon Justice W M C Gummow, “Moses v Macferlan: 250 Years On” (2010) 84 ALJ 756 at 757. An account could be given at common law in an action for money had and received, but equity could also grant an account and generally would in a case of any complexity – see generally: Meagher, Gummow and Lehane’s Equity Doctrines & Remedies (5th ed, LexisNexis Butterworths, 2015) at [26-015], [26-020] and [26-070]. The relief claimed in the amended originating application sought repayment of the principal amounts, said to total $8.525 million, and an accounting. This would reasonably be understood as a claim for an accounting in equity given that it was sought in addition to repayment of principal and interest.

9    The sixth further amended statement of claim, filed on 21 June 2001, clearly pleaded claims against Mr Endresz for liability as an accessory. He was alleged to have been an accessory to the receipt of the misappropriated funds and it was alleged that he participated in breaches of fiduciary duty by Mr Muir and Callform. The Commonwealth sought equitable compensation. This pleading was within the scope of the matters raised in the amended originating application.

10    As Charlesworth J observed in Endresz FCAFC No 1 at [150], the “matter” adjudicated by the ACT Supreme Court was one in which the Commonwealth was a party and therefore involved the exercise of federal jurisdiction: Constitution of the Commonwealth of Australia, s 75(iii). The jurisdiction for the ACT Supreme Court to deal with the “matter” was conferred by s 39(2) of the Judiciary Act 1903 (Cth), read with s 78AA. There is no question that the ACT Supreme Court had jurisdiction to adjudicate and determine the matter.

11    Equitable jurisdiction is conferred on the ACT Supreme Court by s 26 of the Supreme Court Act 1933 (ACT). Sections 25 and 26 provide:

Law and equity to be concurrently administered

25.    Subject to the express provision of any other Act, in every civil cause or matter commenced in the court law and equity shall be administered according to sections 26 to 32 (inclusive).

Equities of plaintiff

26.    In proceedings in the court, the plaintiff is entitled to equitable relief where, in pre-Judicature Act proceedings of the same type, the plaintiff would have been entitled to such relief.

12    These provisions applied to the adjudication of the matter: s 79 of the Judiciary Act.

13    When the proceedings were commenced on 29 January 1999, and when the sixth further amended statement of claim was filed, the rules of the ACT Supreme Court (which also applied to the adjudication of the matter) were contained in the Supreme Court Rules 1937 (ACT). Order 2 rule 1 of the Supreme Court Rules provided:

1.     Commencement by originating application

All actions shall be commenced by the filing of an originating application pursuant to this Order, unless otherwise provided by these Rules or any other law of the Territory.

14    Order 2 rules 8 to 10 of the Supreme Court Rules included:

8.    Identification of action

(1)    An originating application shall identify each cause of action sufficiently for the purposes of determining the relevant limitation period under the Limitation Act 1985, or under any other applicable law.

…

9.    Identification of relief sought

(1)    An originating application shall specify the relief claimed in respect of each cause of action.

…

(3)    An originating application shall specify any claim for the taking of an account.

…

(7)     An originating application shall state whether a statement of claim is attached.

10.    Statements of claim

(1)    A statement of claim shall accompany an originating application in the case of the following claims:

(a)     a claim for debt or a liquidated demand;

(b)     a claim for damages in tort other than—

(i)     a claim for damages for death or bodily injury arising out of the use of a motor vehicle; or

(ii)    a claim for damages for death or bodily injury arising out of the negligence of an employer;

(c)    a claim alleging fraud;

(d)    a claim in respect of a trust (other than an express trust wholly in writing).

(2)    A statement of claim shall not accompany an originating application in the case of the following claims:

(a)    a claim for damages for death or bodily injury arising out of the use of a motor vehicle;

(b)    a claim for damages for death or bodily injury arising out of the negligence of an employer.

(3)    A statement of claim may accompany an originating application in any other case.

15    Order 24 rule 3 provided:

3.     Alteration of claim without amendment of writ

Whenever a statement of claim is delivered, the plaintiff may therein alter, modify, or extend his or her claim without any amendment of the originating application.

16    Order 69 of the Supreme Court Rules provided:

Effect of non-compliance

1.    Non-compliance with rules not to render proceeding void

Non-compliance with any of these rules, or with any rule of practice for the time being in force, shall not render any proceeding void, unless the court so directs, but such proceedings may be set aside, either wholly or in part, as irregular, or may be amended or otherwise dealt with, in such a manner, and on such terms as the court thinks fit.

2.     Application to set aside for irregularity

An application to set aside any proceeding for irregularity shall not be allowed unless it is made within a reasonable time, or after the party applying has taken any fresh step with knowledge of the irregularity.

3.    Objections of irregularity

Where an application is made to set aside any proceeding for irregularity, each objection to be relied on, and the ground for it, shall be stated in the notice of motion.

17    The Court Procedures Act 2004 (ACT) and the Court Procedures Rules 2006 (ACT) applied at the time of judgment in Davis Samuel (No 7). Section 68 of the Court Procedures Act provides:

68    Formal defects to be amended

(1)     No proceedings in the court are to be invalidated by any formal defect or by any irregularity, unless the court is of opinion that substantial injustice has been caused and that the injustice cannot be remedied by an order of the court.

(2)    The court may make an order declaring that any proceeding is valid despite any formal defect or any irregularity.

18    Rule 7000 of the Court Procedures Rules provides:

(1)    Unless the Supreme Court otherwise orders, these rules apply to an existing proceeding.

(2)    If a difficulty arises in the application of subrule (1) to a particular proceeding, the court may make any order it considers appropriate to resolve the difficulty.

(3)    The court may make an order under this rule on application by a party or on its own initiative.

(4)    In this rule:

existing proceeding means a proceeding started in the Supreme Court, but not completed, before 1 July 2006.

19    The ACT Supreme Court had jurisdiction to determine the “matter” before it. Its jurisdiction was engaged by the bringing of an action. The Commonwealth brought proceedings in which, at least by the sixth further amended statement of claim, it sought equitable compensation for accessorial liability. The better view is that the amended originating application also sought an accounting in equity – see: [8] above. The ACT Supreme Court had jurisdiction to grant equitable relief by way of accounting and equitable compensation: s 26 of the Supreme Court Act. The defendants appeared in the proceedings without challenge to its jurisdiction. The claims involved in the matter, as pleaded in the sixth further amended statement of claim, were defended by Mr Endresz. No complaint was made by him during the conduct of the proceedings or before judgment that the claim for equitable compensation in the sixth further amended statement of claim had not also been included in the amended originating application or that there had not been a claim for equitable relief in the amended originating application. Even if the amended originating application did not make a claim for equitable relief or identify a cause of action giving rise to that relief, such procedural irregularities, being non-compliance with Order 2 rule 8(1) and Order 2 rule 9(1), would not have the consequence that the ACT Supreme Court’s jurisdiction was not engaged or that the proceedings were a nullity; the orders were and are valid until quashed or set aside – see: Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 at [11], [15], [16]; Endresz FCAFC No 1 at [106] to [117]. Renowden v McMullen (1970) 123 CLR 584, upon which the appellant relied, is distinguishable. Renowden did not involve a situation of an amendment to a statement of claim which was argued to be outside the ambit of the writ. It dealt with the opposite situation: an amendment to the statement of claim which was agreed to be within the ambit of the writ but which had not been included in the statement of claim until after expiry of the limitation period. There is no issue here of amending a statement of claim to rely upon a cause of action within the scope of the originating application but which was statute barred when leave was sought to make the amendment (see at 613).

20    At best, a failure to identify in the amended originating application a claim for accessorial liability and relief in the form of equitable compensation was a procedural irregularity. Refshauge ACJ in Davis Samuel (No 11) did not consider that the failure to amend the originating application each time the statement of claim was amended was such that the orders should be set aside in the inherent jurisdiction of the ACT Supreme Court, concluding that Order 24 rule 3 applied such that the originating application did not have to be amended: Davis Samuel (No 11) at [163]. That conclusion has not been shown to be wrong. The primary judge also noted that s 68 of the Court Procedures Act was inconsistent with the proposition that such a procedural failure could render the proceedings a nullity: J[47]. In the circumstances of this case, any procedural irregularity was not of a kind which a bankruptcy court could, acting reasonably, regard as one which was so fundamental as to result in there not being, in truth and reality, a judgment debt.

21    As noted by the primary judge at J[53], Mr Endresz did not dispute the underlying factual findings or legal conclusions (except to the extent identified by ground 2 of the appeal). It follows that Mr Endresz does not dispute that, if the ACT Supreme Court had jurisdiction to determine the equitable claim, there was in truth and reality a judgment debt.

GROUND 2

22    The appellant’s alternative position is that the Commonwealth’s true remedies lay under the principles of Auckland Harbour Board at 326-327 and not in equity. The principle was expressed by Viscount Haldane speaking for the Privy Council in the following way:

… For it has been a principle of the British Constitution now for more than two centuries, a principle which their Lordships understand to have been inherited in the Constitution of New Zealand with the same stringency, that no money can be taken out of the consolidated Fund into which the revenues of the State have been paid, excepting under a distinct authorization from Parliament itself. The days are long gone by in which the Crown, or its servants, apart from Parliament, could give such an authorization or ratify an improper payment. Any payment out of the consolidated fund made without Parliamentary authority is simply illegal and ultra vires, and may be recovered by the Government if it can, as here, be traced.

23    The appellant submitted that “the application of the Auckland Harbour Board principles ousts the availability of equitable principles such as accessorial liability under Barnes v Addy and the existence of a primary fiduciary liability in respect of payments out of consolidated revenue without parliamentary authority”. No authority was cited for these submissions. None evidently exists. The submission is not correct. There is no law which limits, or reason in principle to limit, the Commonwealth’s ability to seek relief in equity simply because there exists a different, and perhaps more direct, means of recovery. Nor does the principle preclude a finding that there exists a fiduciary relationship on the part of a person misappropriating funds from consolidated revenue.

24    The appellant also submitted that the Commonwealth’s contractors in effecting the April and September 1998 payments had acted in excess of their own authority and also the authority of the Commonwealth. It was submitted that the contractors “had no legal power and control over trust property or property held subject to a fiduciary obligation” and that the Commonwealth could not confer such power on them.

25    In Davis Samuel (No 7), Refshauge J concluded that fiduciary obligations were owed by the contractors. This conclusion was not called into question before the primary judge. The fact that a person acts in excess of their own authority in misappropriating property does not mean that the stolen property is not trust property. Indeed, whether or not the contractors owed antecedent obligations of a fiduciary nature, the April and September 1998 payments constituted trust money: Black v S Freeman & Co (1910) 12 CLR 105; Spedding v Spedding (1913) 30 WN (NSW) 81; Creak v More (1912) 15 CLR 426; Re Hallett’s Estate (1880) 13 Ch D 696 (CA). A claim of accessorial liability against a person for receipt of, or knowing assistance in connection with, stolen property, being trust property in the hands of the thief, was available to the Commonwealth, as was equitable relief, whether or not the payments were effected in excess of the Commonwealth’s authority or that of the contractors.

CONCLUSION

26    The appellant has not demonstrated error on the part of the primary judge. The appeal should be dismissed, with costs.

Associate:

Dated:    23 February 2021

REASONS FOR JUDGMENT

(Revised from transcript)

O’BRYAN J:

27    I agree with the judgment of Justice Thawley and have nothing to add.

Associate:

Dated:    23 February 2021