FEDERAL COURT OF AUSTRALIA

Tresize v National Australia Bank Limited [2005] FCA 1095

PRACTICE AND PROCEDURE ‑ application to strike out statement of claim or part thereof ‑ principal application seeks setting aside of consent judgment ‑ bases upon which consent judgment can be impugned ‑ pleading fraud ‑ pleading deceit and fraudulent misrepresentation ‑ whether statement of claim embarrassing ‑ whether fails to disclose reasonable cause of action.

Federal Court Rules, O 11 r 16

Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 distinguished

Orr v Holmes (1948) 76 CLR 632 cited

Wollongong Corporation v Cowan (1955) 93 CLR 435 cited

Brookfield v Yevad Products Pty Ltd [2004] FCA 1164 distinguished

Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 discussed

Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 cited

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 cited

Harvey v Phillips (1956) 95 CLR 235 cited

Derry v Peek (1889) 14 App Cas 337 cited

Gould v Vaggelas (1984) 157 CLR 215 cited

Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 cited

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 cited

G Dal Pont, ‘Judgments Fraudulently Obtained: The Forgotten Equity’ (1995) 14 University of Tasmania Law Review 129

JOHN COLIN MAXWELL TRESIZE and REMEA PTY LTD (ACN 006 356 047) v NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) and ORS

VID 338 OF 2004

SUNDBERG J

MELBOURNE

11 AUGUST 2005

THE COURT ORDERS THAT:

1.                  On the motion of the first respondent, notice of which was filed on 26 November 2004, paragraphs 79 to 92of the amended statement of claim be struck out.

2.                  The applicants pay the first respondent’s costs of and incidental to the said motion.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

INTRODUCTION

1                     By motion, notice of which was filed on 26 November 2004, the first respondent seeks orders pursuant to O 11 r 16 of the Rules of Court striking out the applicants’ amended statement of claim (“the statement of claim”) on the grounds that it discloses no reasonable cause of action, has a tendency to cause prejudice, embarrassment or delay in the proceeding or is an abuse of the process of the Court.  Such orders are sought in respect of the entirety of the statement of claim or, alternatively, paras 79 to 92 thereof.

2                     The proceeding supported by the statement of claim (“the instant proceeding”) arises out of an earlier proceeding in the Court (VG 200 of 1992) (“the 1992 proceeding”).  In order to put the motion into its proper context, it is necessary to discuss the commencement, disposition and substance of the 1992 proceeding and its relationship with the instant proceeding.

3                     At the outset, though, I note that the instant proceeding is the fourth challenge to the result of the 1992 proceeding.  The first (unsuccessful) challenge was heard by Northrop J at first instance. An appeal to the Full Court was dismissed.  The second (unsuccessful) challenge was heard by French J and an appeal to Full Court was commenced but did not proceed.  The third (unsuccessful) challenge took place in the Supreme Court of Victoria.

THE 1992 PROCEEDING

4                     The applicants, along with the second to tenth respondents, commenced the 1992 proceeding.  The first respondent was the respondent in the 1992 proceeding.  The eleventh respondent was the solicitor acting for the applicants and the second to tenth respondents in that proceeding.

5                     The 1992 proceeding came on for trial before Ryan J on 1 March 1993.  Before the conclusion of the trial:

·                    the proceeding was settled by a deed of settlement (“the settlement deed”) – the parties to which are now parties in the instant proceedings; and

·                    judgment by consent dismissing the proceeding was given on 1 April 1993 and entered the next day (“the consent judgment”).

6                     The applicants in the 1992 proceeding claimed damages for breach of contract, misleading and deceptive conduct, negligence and unconscionable conduct.  In broad terms, those claims arose from alleged conduct on the part of certain officers of the first respondent.  That alleged conduct occurred in relation to the taking of security by the first respondent over properties owned by the applicants in the 1992 proceeding.

7                     At base, the case for the applicants in the 1992 proceeding was as follows:

·                    the applicants conducted a property development business financed through various institutions;

·                    the applicants agreed with the first respondent, through its officer Mr Smallacombe, that all financing of the business would be conducted through the first respondent in consideration for (among other things) advice as to the financing of the business;

·                    this agreement included implied terms that the first respondent and its officers would act in good faith, honestly and with reasonable care; and

·                    the first respondent, through Smallacombe and another officer Mr Pearce, breached those terms on numerous occasions – in particular, by acting in a manner designed to favour their own interests.

8                     Only one of the breaches alleged in the 1992 proceeding is relevant to the instant proceeding and, by extension, the motion.  It is as follows:

·                    the applicants held a number of properties for the purposes of the business and proposed to sell some of them in order to reduce their debt;

·                    Pearce and Smallacombe advised the applicants not to sell any of those properties but to refinance their debt by means of an off-shore loan;

·                    to that end, Pearce and Smallacombe introduced the applicants to a Mr Uren, a finance broker whom they held out as someone capable of arranging the off-shore loan;

·                    the applicants, relying upon Pearce and Smallacombe’s advice, did not sell any of their properties and applied through Uren for the off-shore loan; and

·                    contrary to Pearce’s and Smallacombe’s representations, the off-shore loan was not obtained ‑ placing the applicants in a position where they required ‘bridging’ finance.

9                     By para 12 of their fourth (and final) amended statement of claim in the 1992 proceeding (which is annexed to the original ‑ ie unamended ‑ statement of claim in the instant proceedings), the applicants pleaded that, upon the failure to obtain the off-shore loan:

“… in breach of the … agreement the [first respondent], through … Smallacombe and Pearce, failed to take reasonable care in relation to -

(a)               the provision of prudential advice on matters concerning the financial aspects of the business of the first, second and thirdnamed Applicants;

(b)               actions taken on behalf of the first, second and thirdnamed Applicants -

in that -

…

(ix)       In December, 1990, they advised the first and secondnamed Applicants to arrange to inject mortgage funds from the former solicitor of the firstnamed Applicant into the first and secondnamed Applicants’ business when there was no realistic prospect of repayment of such funds, and thereafter entered into the arrangement set out hereunder:

PARTICULARS

On or about the 12^th day of December, 1990 it was proposed by Smallacombe and Pearce to the firstnamed Applicant that the Nyora property, then mortgaged to the [first respondent], should be refinanced by means of an advance of $600,000.00 from the solicitor for the firstnamed Applicants, at that date, one Brian Kollias (“Kollias”).  Smallacombe advised Kollias on or about the 12^th December, 1990 that the Nyora property was valued at $1.2m.  Shortly thereafter, Kollias was given title in exchange for an advance of $600,000.00.  The said advance was arranged through the Branch of the [first respondent] at Mornington, which was the Branch at which Kollias maintained his account, and was arranged through the direct representations of Smallacombe, alternatively Pearce to the Manager of the said Mornington Branch.  Kollias was advised by Smallacombe that this was a short term advance for two months at the most, as the Applicants were to receive an overseas loan which would enable the loan to be discharged ….  On the basis of these statements … the funds were advanced by [Kollias] on the 18^th December, 1990 ….  At a meeting on or about the 2^nd July, 1991 between Kollias, Pearce and Smallacombe … Pearce and Smallacombe undertook to discharge the debt of $600,000.00 within four days inclusive of interest.  This was not done and still has not been done to the date of the commencement of these proceedings[.]”

Notwithstanding the inclusion of para (b) in that extract, it is clear that sub‑para (ix) goes only to the circumstances outlined in sub‑para (a): ie advice from the first respondent to the applicants rather than actions by the first respondent on behalf of the applicants.

10                  Paragraph 12 of the first respondent’s defence is as follows:

“It denies each and every allegation in paragraph 12.  It says further that:

(a)               If Smallacombe and Pearce each conducted himself as alleged, he was not acting or purporting to act on behalf of the [first respondent].

…

(g)               Any advance by Kollias to the first, second and third Applicants or any of them was not an act of the [first respondent] on behalf of the first, second or third Applicants, and any acceptance by them or any of them of funds so advanced were acts of the first, second and third Applicants and not actions by the [first respondent] on their behalf.”

11                  Therefore, so far as is relevant to the instant proceeding, the 1992 proceeding involved:

·                    a claim by the applicants that the first respondent, through Pearce and Smallacombe, had acted without reasonable care in advising them to obtain an advance of $600,000.00 from Kollias ‑ which advance was to be (a) funded by an advance by the first respondent to Kollias and (b) secured by a mortgage of the Nyora property to Kollias ‑ when there was no reasonable prospect of those funds being repaid; and

·                    by way of defence, a claim by the first respondent that:

o                   in giving that advice, Pearce and Smallacombe were not acting (or purporting to act) on behalf of the first respondent; and

o                   the advance by Kollias and its acceptance by the applicants were not acts of the first respondent on behalf of the applicants.

THE INSTANT PROCEEDING

12                  In the instant proceeding, the applicants ask the Court to:

·                    rescind the settlement deed; or

·                    set aside the settlement deed; or

·                    award damages; and

·                    set aside the consent judgment.

13                  The basis for these claims is an allegation that the first respondent failed to discover three documents in the 1992 proceeding (“the undiscovered documents”).  The undiscovered documents are:

·                    a letter from Kollias to the first respondent dated 22 November 1991 (“the letter”);

·                    a compromise of a dispute between Kollias and the first respondent dated somewhere between 22 November 1991 and 5 June 1992 (“the compromise”); and

·                    an assignment to the first respondent of Kollias’ mortgage over the Nyora property dated 25 June 1991 and registered on 5 June 1992 (“the assignment”).

14                  The applicants plead that the undiscovered documents:

a)                  were discoverable in the 1992 proceeding (para 79 of the statement of claim);

b)                  “in breach of [the first respondent’s] duty to effect full and proper discovery of all relevant documents”, were not discovered in the 1992 proceeding (para 80); and

c)                  were “directly material to the issues pleaded in” sub-para 12(ix) of the applicants’ fourth (and final) amended statement of claim in the 1992 proceeding as set out at [9] above and para 12 of the first respondent’s defence in that proceeding as set out at [10] above (para 83).

15                  Paragraphs 81 and 82 of the statement of claim set out extracts from affidavits sworn by senior counsel in the 1992 proceeding ‑ Mr Davey QC (now Judge Davey of the County Court of Victoria) for the applicants and Mr Finkelstein QC (now Finkelstein J of this Court) for the first respondent ‑ and filed in the earlier proceedings in this Court before French J.  Judge Davey deposed that “the success of [the 1992 proceeding] depended upon being able to establish a number of matters including [that] Pearce and Smallacombe were manipulating [the first applicant] and not the other way around”.  Finkelstein J deposed that “I formed the opinion that [the first applicant] would not be able to convince a court, as he was seeking to do, that [Pearce and Smallacombe], rather than [the first applicant], were the moving force for the acquisitions that had been financed by the [first respondent]”.

16                  The applicants then plead that:

“84.     Discovery by the [first respondent] of the [undiscovered documents] would have had a material affect [sic] on the outcome of the trial of [the 1992 proceeding] had the trial of [the 1992 proceeding] proceeded to judgment.

85.       At the commencement of the trial of [the 1992 proceeding] the plea in paragraph 12 of the [first respondent’s] Defence and Counterclaim therein was, to the [first respondent’s] knowledge, unfounded.

PARTICULARS

The [first respondent’s] said knowledge arises by reason of the [letter] in the context of the matters pleaded in [the following paras 86 to 89].

86.       By proceeding with the trial of [the 1992 proceeding] without withdrawing or amending the plea in paragraph 12 of its Defence and Counterclaim in circumstances where it knew:

(a)        the allegations which had been made by Kollias against the [first respondent] in the … letter;

(b)        that it had compromised its dispute with Kollias by giving a full release to Kollias from all liability to repay the [money he had borrowed from the first respondent in order to fund his advance to the applicants] with an assignment to the [first respondent] of the … Nyora mortgage;

(c)        bound Kollias not to disclose the details of the … compromise;

the [first respondent] fraudulently (as that term is used in the law of deceit) sought to derive an advantage in … [the 1992 proceeding] to the detriment of the Applicants.

87.       By proceeding with the trial of [the 1992 proceeding] without effecting discovery of [the undiscovered documents] in circumstances where it had an obligation to do so, the [first respondent] fraudulently (as that term is used in the law of deceit) sought to derive an advantage in … [the 1992 proceeding] to the detriment of the Applicants.

88.       Further or in the alternative, by reason of the [first respondent] being under a duty in [the 1992 proceeding] to give discovery, circumstances existed whereby the Applicants had an expectation that they would be appraised [sic] by the [first respondent] of any further discoverable documents that were in the power, possession or control of the [first respondent].

89.       By reason of there being circumstances where the Applicants had an expectation that they would be appraised [sic] by the [first respondent] of any changes in the [first respondent’s] discovery, the [first respondent’s] conduct in failing to effect discovery of the [undiscovered documents] constituted conduct by the [first respondent] that was fraudulent (as that term is used in the law of deceit) and the [first respondent] thereby sought to derive an advantage in … [the 1992 proceeding] to the detriment of the Applicants.

17                  Paragraphs 90 to 92 of the statement of claim assert that:

a)                  the applicants have suffered loss and damage by reason of the foregoing;

b)                  the applicants are entitled to rescission of the settlement deed; and

c)                  the consent judgment ought to be set aside.

THE MOTION

18                  As noted at [1], the first respondent seeks an order striking out the whole of the statement of claim or, alternatively, paras 79 to 92 thereof.  The statement of claim can be divided into four parts:

a)                  the substantive allegations in paras 84 to 89 in relation to the failure to discover the undiscovered documents (see [16] above);

b)                  the subsidiary allegations in paras 79 to 83 in relation to the failure to discover the undiscovered documents (see [14] and [15] above);

c)                  the claims for relief in paras 90 to 92 (see [17] above); and

d)                  the remainder in paras 1 to 78.

I shall deal with each of these parts in turn.

19                  Counsel for both the applicants and the first respondent frequently referred to an affidavit of the first applicant and the exhibits thereto.  Notwithstanding this, and counsel’s agreement that I was entitled to look at the entirety of that affidavit, I have not found it necessary to do so in order to dispose of the motion.  I have confined myself to the impugned pleading.

SUBSTANTIVE ALLEGATIONS

20                  I am satisfied that paras 84 to 89 of the statement of claim ought to be struck out as they have a tendency to cause embarrassment in the instant proceeding because, taken as a whole, they:

·                    are susceptible to different meanings in so far as they seek to describe the legal basis upon which the applicants’ claims in the instant proceedings are founded; and

·                    plead fraud on the part of the first respondent without the requisite high degree of specificity and particularity.

Paragraph 84 of the statement of claim

21                  By its written submissions, the first respondent attacked the entirety of the statement of claim in so far as it “proceeds on a fallacious basis in that it relies on … Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 … as the foundation for the causes of action pleaded”.  Counsel for the first respondent identified para 84 ‑ which is set out at [16] above ‑ as seeking to rely upon the decision in Quade.

22                  Quade concerned an appeal, on the basis of fresh evidence, against judgment for a bank entered in consequence of the reasons delivered by the primary judge after the conclusion of the trial.  The fresh evidence was unavailable at the trial because of the bank’s failure to comply with its obligations of discovery.  Unlike the instant proceedings, the Court in Quade:

·                    was not asked to set aside a consent judgment;

·                    was exercising appellate jurisdiction; and

·                    was being asked to consider fresh evidence notwithstanding the stringent rule enunciated in Orr v Holmes (1948) 76 CLR 632 and Wollongong Corporation v Cowan (1955) 93 CLR 435.

23                  The Court in Quade (at 142‑3, footnotes omitted) qualified the stringent rule enunciated in Orr and Cowan as follows:

“The position is, however, different in a case such as the present where the unavailability of the evidence at trial resulted from a significant failure by the successful party to comply with an order for the discovery of relevant documents in his possession or under his control ….

It is neither practicable nor desirable to seek to enunciate a general rule which can be mechanically applied by an appellate court to determine whether a new trial should be ordered in a case where misconduct on the part of the successful party has had the result that relevant evidence in his possession has remained undisclosed until after the verdict.  The most that can be said is that the answer to that question in such a case must depend upon the appellate court’s assessment of what will best serve the interests of justice, ‘either particularly in relation to the parties or generally in relation to the administration of justice’.  In determining whether the matter should be tried afresh, it will be necessary for the appellate court to take account of a variety of possibly competing factors, including, in addition to general considerations relating to the administration of justice, the degree of culpability of the successful party, any lack of diligence on the part of the unsuccessful party and the extent of any likelihood that the result would have been different if the order had been complied with and the non-disclosed material had been made available.  While it is not necessary that the appellate court be persuaded in such a case that it is ‘almost certain’ or ‘reasonably clear’ that an opposite result would have been produced, the question whether the verdict should be set aside will almost inevitably be answered in the negative if it does not appear that there is at least a real possibility that that would have been so.”

24                  In my view, the principle in Quade alone cannot be the basis for setting aside a consent judgment.  Subject to what I say at [28]-[32] below, a consent judgment can only be challenged on the basis that the compromise to which it gives effect cannot stand.

25                  This is no artificial distinction.  The compromise may only partly reflect the merits of the relevant claims and defences.  Indeed, it may not do so at all.  Crucially, this will be in circumstances where (a) none or only some of those claims and defences and their bases in fact and law have been tested in a trial and (b) none of them have been judged on their merits following a trial.  A court being asked to set aside a judgment on the merits on the basis of a party’s failure to comply with its obligations of discovery has the benefit of reasons in deciding whether, but for the failure, there was a “real possibility” of an opposite result.  By contrast, a court being asked to set aside a consent judgment on the basis of such a failure does not have the benefit of reasons in deciding whether, but for the failure, there was a “real possibility” of an opposite result and is, instead, being asked to hazard a guess as to how the trial as a whole would have played out.

26                  Counsel for the applicants also referred to the decision in Brookfield v Yevad Products Pty Ltd [2004] FCA 1164 in which Lander J applied the principle in Quade to set aside a judgment on the merits.  The decision in Brookfield may be authority for the proposition that the principle in Quade is not confined to the exercise of appellate jurisdiction.  However, that is as far as it goes.

27                  Counsel for the applicants submitted that the principle in Quade should be seen as “a species of equitable fraud”.  The Court in Quade (at 140‑1) discussed fraud in the following passage:

“… the general rule formulated by Dixon CJ [in Cowan] is directed to the ordinary case where all that is involved is that relevant fresh evidence has come to the notice of the unsuccessful party after the trial.  It is not directed to the case where the trial itself has miscarried ‘through misdirection, misreception of evidence, wrongful rejection of evidence or other error’ or to a case of ‘surprise, malpractice or fraud’.  Such cases cannot properly be seen as mere cases of ‘fresh evidence’.  Nor can a case where the material constituting the fresh evidence was unknown to the unsuccessful party by reason of misconduct on the part of the successful party, such as an admitted failure to comply with the requirements of the trial court’s order for discovery of documents.  True it is that a case of failure by a party to comply fully with such an order can be distinguished from one in which the trial has miscarried by reason of error or fault on the part of the tribunal itself or a case where the verdict can be seen to have been procured by fraud or perjury.  On the other hand, a case of failure to comply with a discovery order could, particularly where the failure was deliberate or remains unexplained, come within the category of ‘cases of malpractice’, and be a stronger case than the category of ‘cases of surprise’, which were both expressly exempted from the above statement of what we have referred to as the ‘general’ rule.”

That passage shows that the Court in Quade did not purport to elevate the principle it had enunciated to “a species of equitable fraud”. Cf G Dal Pont, ‘Judgments Fraudulently Obtained: The Forgotten Equity’ (1995) 14 University of Tasmania Law Review 129 at 142.  In any case, as will become apparent in the subsequent discussion of para 85 of the statement of claim, common law rather than equitable fraud is what is relevant in the present case.

Paragraph 85 of the statement of claim

28                  According to their written submissions, the applicants “refer to and rely upon [the decision of the Supreme Court of New South Wales Court of Appeal in Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691] to support the plea” in paras 85 and 86.  Those para numbers did not appear in the written submissions filed with the Court.  Counsel for the applicants supplied them in response to my query.  I propose to deal with para 86 separately from para 85.  As will later become clear, the former para shares its vices with paras 87 and 89.

29                  In Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 at 280, Lindley LJ said:

“… nor have I the slightest doubt that a consent order may be impeached, not only on the ground of fraud but upon any grounds which invalidate the agreement it expresses ….

To my mind the only question is whether the agreement upon which the consent order was based can be invalidated or not.  Of course if that agreement cannot be invalidated the consent order is good.  If it can be, the consent order is bad.”

(The emphasis is mine.)  That extract suggests that there are two routes by which the applicants might seek to attack the consent judgment: ‘indirectly’ by impugning the settlement deed or ‘directly’ by alleging fraud on the part of the first respondent.  The latter route was the focus of the decision in Spies.

30                  Spies concerned an attempt to set aside a consent judgment (again, for a bank) on the basis that the bank’spleadings amounted to a fraudulent misrepresentation.  The trial judge described this submission as “nonsense” ‑ presumably on the basis of the established rule that a pleading does not represent that the facts it alleges are true in an objective sense, but rather that they constitute a case that is genuinely put forward.

31                  On appeal, Handley JA (with whom the other members of the Court concurred) said (at 698):

“In Callisher v Bischoffsheim [(1870) LR 5 QB 1449], Cockburn CJ said that if a person made a claim which he knew to be unfounded and as a result derived an advantage his conduct would be fraudulent.  It would be reasonable to suppose that his Lordship’s reference to ‘fraudulent’ referred to the tort of deceit.  In that event he must have considered that a party making a claim made a representation of existing fact to the opposite party.  The references by both Cockburn CJ and Blackburn J to the belief of the claimant suggest that both judges considered that the representation was that he honestly believed he had a valid claim.

The Court in Callisher v Bischoffsheim was concerned with the compromise of a claim before action.  However it is not to be supposed that the validity of a compromise of existing proceedings can depend on different principles.  It seems therefore that claims made by a plaintiff in proceedings, in the pleadings or otherwise, can be construed as representations that he honestly believes that ‘he has a fair chance of success’.

This conclusion can be reconciled with the established rule that assertions in a party’s pleadings are not admissions since the implied representation is not that the facts asserted are true or are even believed to be true, but only that the party believes he that he has a fair chance of success.”

Further, his Honour said (at 700):

“Where such an action is brought after trial the statement of claim … must allege facts which establish that the plaintiff has reasonable prospects of success.  This requires the plaintiff to plead that since the judgment he has discovered fresh facts which alone, or in combination with previously known facts, raise a serious question to be tried.  The statement of claim must also allege that the party entitled to the benefit of the judgment was responsible for the fraud ….

These principles have not hitherto been applied, so far as I am aware, to proceedings to set aside a consent judgment.  However in my opinion they are also applicable to such a case although, for obvious reasons, it will generally be more difficult to set aside a judgment after trial.  Indeed these principles merely work out in this type of case the ordinary requirements in deceit for inducement and reliance.  If the judgment debtor knew that the representations were false, did not rely upon them or consented to judgment for other reasons he cannot impeach that judgment later simply because his circumstances have changed or he has changed his mind.”

(The emphases are mine.)

32                  If para 85 ‑ whether on its own or as a result of what precedes or succeeds it ‑ is meant to disclose a cause of action based on the principle in Spies, it falls well short.  First, it does not plead that the failure to discover the undiscovered documents and the (resulting) allegedly unfounded pleading “raise a serious question to be tried”.  Second, and more importantly, for the reasons outlined at [39]-[42] below, neither it nor the remainder of the statement of claim addresses the essential elements of a claim in deceit ‑ particularly, to adopt Handley JA’s words in Spies, “the ordinary requirements … for inducement and reliance”.

Paragraphs 86, 87 and 89 of the statement of claim

33                  Paragraphs 86, 87 and 89 (which are set out at [16] above) plead that the first respondent acted “fraudulently (as that term is used in the law of deceit)”.  In the light of the problems with paras 84 and 85 already identified, it is unclear whether paras 86, 87 and 89 are intended to:

·                    stand alone as the substantive allegations of fraud in relation to the failure to discover the undiscovered documents; and/or

·                    elucidate the pleadings in paras 84 and/or 85.

Nor did this become any clearer in the course of argument.  In any case, paras 86, 87 and 89 signally fail to plead the alleged fraud distinctly and with particularity: Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563.

34                  A consent judgment gives effect to a compromise that is embodied in an agreement.  In Harvey v Phillips (1956) 95 CLR 235 at 243‑4 (footnote omitted) the High Court said:

“The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like.  The rule appears rather from positive statements of the grounds that suffice … but [the] dictum of Lindley LJ [in Huddersfield Banking Co Ltd which is cited at [29] above] is distinct enough [.]”

35                  A claim in deceit is tortious in nature and cannot alone be the basis for the rescission or setting aside of the settlement deed.  Rather, I will assume that the phrase “fraudulent (as that term is used in the law of deceit)” is partly intended to reflect the fact that a misrepresentation can give rise to a claim in deceit seeking damages ‑ which claim is cumulative upon a right to rescind an agreement on the grounds that the misrepresentation was both fraudulent and induced the claimant to enter into the agreement.  Such a right is the basis for an order of a court that such an agreement be set aside.

36                  Of course, as I have noted at [33] above, it may be that paras 86, 87 and 89 seek to support the attack on the consent judgment that has been mounted in paras 84 and/or 85 in reliance on Quade and/or Spies.  For the reasons outlined at [21]‑[27] above, I am doubtful that Quade alone can be so relied upon.  However, for, and subject to, the reasons that I have outlined at [28]-[32] above, Spies may be.

37                  Nonetheless, whether it seeks to impugn the consent judgment ‘indirectly’ by impugning the settlement deed or ‘directly’ by alleging fraud on the part of the first respondent, the statement of claim must do so by way of the essential elements of a claim in deceit or in respect of fraudulent misrepresentation.  In the case of the former, this is because such a claim is the only basis it discloses for impugning the settlement deed.  In the case of the latter, this is because of what is extracted at [31] above from the decision in Spies.  (Indeed, that may partly explain the use of the phrase “fraudulently (as that term is used in the law of deceit)” in paras 86, 87 and 89.)

38                  The essential elements of a claim in deceit or in respect of fraudulent misrepresentation are as follows:

a)                  a representation of fact (which can be as to the representor’s opinion or intention or the law) that is conveyed to the claimant by the representor’s words or conduct;

b)                  knowledge on the part of the representor that the representation is false or, failing that, (a) the absence of a genuine belief that it is true or (b) recklessness as to whether it is true or false: Derry v Peek (1889) 14 App Cas 337;

c)                  an intention on the part of the representor that the claimant (or a class including the claimant) should act upon the representation;

d)                  actions by the claimant in reliance upon the representation that were induced by the representation: Gould v Vaggelas (1984) 157 CLR 215; and

e)                  in the case of a claim in deceit, damage as a result of that reliance.

39                  One searches paras 86, 87 and 89 in vain for anything approximating an effectual exposition of those elements.  Rather, those paras simply assert that conduct on the part of the first respondent was “fraudulent (as that term is used in the law of deceit)”.  Nor does anything in the remainder of the statement of claim cure this defect.

40                  Indeed, each of those paras falls at the first hurdle because of their failure to articulate a representation upon which a claim in deceit or in respect of fraudulent misrepresentation might be based.  Much the same can be said of para 85.  Paragraph 86 alleges a failure to amend or withdraw a plea in the first respondent’s defence in the 1992 proceeding.  There is nothing as to what that conduct was intended to convey by way of representation.  Paragraphs 87 and 89 allege the failure to discover the undiscovered documents in circumstances where the first respondent was ‘obliged’ to or the applicants ‘expected’ it would do so.  Again, there is nothing as to what that conduct was intended to convey by way of representation.

41                  Further, having failed to articulate a representation upon which a claim in deceit or in respect of fraudulent misrepresentation might be based, those paras inevitably fail to address the elements outlined at [38(b)] to [38(d)] above.  Some sort of knowledge and intention on the part of the first respondent are asserted and implied respectively.  But they are not attached to any articulated or unarticulated though readily apparent representation.  More seriously, there is nothing whatsoever as to inducement and reliance.  Indeed, nowhere in the statement of claim are they even implied.

42                  As to the element outlined at [38(e)] above, all that can be said for paras 86, 87 and 89 is that they speak of the first respondent having “sought to derive an advantage in the [1992 proceeding] to the detriment of the applicants”.  However, there is no attempt to identify the “advantage” and the “detriment”.

Paragraph 88 of the statement of claim

43                  I am unsure what to make of para 88 ‑ particularly in light of the fact that it is silent as to content of the “duty” and the “expectation” pleaded.  On the one hand, it may merely be reflective of the fact that a litigant’s duty to discover relevant documents continues throughout the course of the litigation.  On the other hand, it may merely set up the plea in the next para ‑ which speaks of the same “expectation”.  Whatever the answer, para 88 is redundant.

SUBSIDIARY ALLEGATIONS

44                  Each of paras 79 to 83 ought to be struck out as they have a tendency to cause embarrassment in the instant proceeding.

45                  Paragraph 79 alleges that the undiscovered documents were discoverable in the 1992 proceeding.   Nothing in that para discloses any basis for that allegation.  In particular, there is no attempt to outline the issues in the 1992 proceeding to which the undiscovered documents are relevant.   Nor, inevitably, is there an attempt to explain the relevance of the undiscovered documents to those issues.  The para merely asserts a conclusion of law.

46                  Paragraph 80 alleges that “in breach of [the first respondent’s] duty to effect full and proper discovery of all relevant documents”, it did not discover the undiscovered documents in the 1992 proceeding.  The para is otherwise silent as to the content of the duty.  Further, it is silent as to whether or not the breach was intentional.  Again, the para merely asserts a conclusion of law.

47                  Paragraph 81 is the extract from the affidavit of Judge Davey described at [15] above.  Paragraph 82 is the extract from the affidavit of Finkelstein J also described at [15] above.  They seem to discuss ‑ at a very high level ‑ the main strategic consideration for each of the parties in the 1992 proceedings.  For that reason alone it is not clear why they were included.  It may have been in order to shed some light on what is disclosed by the undiscovered documents.  If so, the paras can only do so in the most oblique fashion by requiring the reader to divine the connection between those extracts and specific aspects of the undiscovered documents.

48                  Paragraph 83 alleges that the undiscovered documents were “directly material to the issues pleaded in” para 12(ix) of the applicants’ statement of claim as set out at [9] above and para 12 of the first respondent’s defence as set out at [10] above in the 1992 proceeding.  Again, nothing in that para discloses any basis for that allegation.  No connection is drawn between anything disclosed by the undiscovered documents and the issues raised by those parts of the pleadings in the 1992 proceeding.  Again, the para merely asserts a conclusion of law.

CLAIMS FOR RELIEF

49                  It is inevitable that paras 90 to 92 ought to be struck out once the basis for them (in paras 79 to 89) has been removed.

REMAINDER

50                  As noted at [1], the first respondent seeks an order striking out the whole of the statement of claim or, alternatively, paras 79 to 92 thereof.  So far I have dealt with the latter alternative.

51                  The first respondent did not attack the remainder of the statement of claim on a paragraph-by-paragraph basis.  Rather, it submitted that the undiscovered documents were immaterial to what was pleaded in either para 12(ix) of the applicants’ statement of claim (see [9] above) or para 12 of the first respondent’s defence (see [10] above) in the 1992 proceeding.  Even if they were discoverable on the ‘train of inquiry’ basis propounded in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 ‑ in relation to only those points in that proceeding ‑ it was contended that they would not have made any difference to its outcome.

52                  This suggests that the first respondent seeks the striking out of the remainder of the statement of claim on the grounds that it discloses no reasonable cause of action.  As Barwick CJ noted in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, such a power should be exercised cautiously and only in circumstances where the claimant’s case is so untenable that it cannot possibly succeed.

53                  Up to this point, I have been able to deal with the motion without resort to the content or nature of the undiscovered documents.  That is no longer so.  As noted at [13] above, the undiscovered documents consist of the letter, the compromise and the assignment.

54                  The content of the letter is pleaded at para 58 of the statement of claim as follows:

“On 22 November 1991 Kollias wrote to [the first respondent] as follows:

I refer to our recent discussions in relation to this matter.  On 12^th December 1990, Tresize approached me regarding a loan of some $500,000.00 to $600,000.00 on Nyora.  At the time he was advised that I didn’t have such funds and he raised the question of a loan through the National Australia Bank.  He had apparently been advised by Smallacombe (a fact which Smallacombe subsequently denied) of my arrangement with the Bank which I utilised from time to time for bridging of mortgage loans.  I said I would discuss the matter with Smallacombe.

I subsequently phoned [the] Somerville [branch] and attended Smallacombe on the same day ie 12^th December as I was due in the area for a client’s settlement.  I was told of refinancing arrangements through a source in Brisbane which occupied the same building as the National Australia Bank.  The bona fides had been checked by National Australia Bank and settlement was to take place late January or February.  The proposed loan requested from me was to be secured on Nyora which was not being mortgaged in the refinancing.  Nyora was apparently to be developed short term to provide cash flows.  Smallacombe advised me that the bank valuation was 1.2 million (again a fact which he later denied) and that the Bank had a mortgage of some $300,000.00

I told Smallacombe that I did not have the mortgage funds available through the practice and even if I had I would not finance a loan of that magnitude in one parcel to Tresize.  I advised I was prepared to finance on my ‘bridging arrangements’ with the Bank subject to the Bank picking up the mortgage when the refinancing took place in late January or February.  I was subsequently advised that the loan was approved.  So far as I am aware, all arrangements were put in place between Somerville, Regional Office and my branch at Mornington.  I should add that I had no involvement or knowledge of the overseas refinancing apart from the mention by Tresize and the advice from Smallacombe.  I was not even aware that I was to take an active part in the matter apart from discharging several mortgages until late January when I immediately applied for rate and planning certificates on all properties in anticipation of a settlement.

… my discussions with Smallacombe I was required to sign a Guarantee at the Bank prior to the … of $600,000.00.  The sum of $300,000.00 was used to discharge the mortgage to the National Bank …. the balance less costs was advanced to Tresize.  Following settlement, John Neilson requested an … of the mortgage at which stage I indicated there was no point having regard to the anticipated duration of the loan.  From February to July I was fed information through M.P. Finance and subsequently through the Brisbane source that the loan will happen next week ‑ next week ‑ next week.

Having formed my own conclusions by June, I made an appointment with Pearce to express my concern about the loan and the circumstances of my original discussions with Smallacombe.  His response was ‘don’t worry ‑ you have nothing to worry about’.  I was not satisfied with that response and on 12^th June I had discussions with Smallacombe at Somerville reminding him of our initial conversation.  To his credit at that stage, there as no backtracking from the statements that were originally made.  At my request a meeting was subsequently arranged with him and Pearce at the Regional Office.

I attended the meeting together with John McLean from this office.  During the course of the meeting Pearce agreed that Nyora had gone longer than promised and in view of the commitments made by Smallacombe the loan would be ‘taken off my books’.  Those arrangements were to be put in place forthwith.  I was also advised that I would be released from further interest payments.  Following that meeting I went on leave for two weeks.  On my return, it transpired that the taking of the loan off my …. Meant that M.P. Finance was instructed to find an alternative financier.  Any confidence I had in Pearce dissipated at that point.  I had a further meeting with Smallacombe and Pearce when I realised the assurance given by Pearce was in my view just a hope.  I had by this time learned of the conflict of interest involving both Pearce and Smallacombe and was not pleased to say the least.  During that meeting and following discussions it was agreed that the land should be sold.  Again I was assured not … worry, I would be looked after by the Bank.

My anger and frustration at that stage was obviously intense.  I only became aware of the conflict situation that has now surface some time after our meeting in July.  Although our firm was apparently involved in the original purchase transaction for Ladybank Fielding [a company owned one sixth by each of the first applicant, his wife, Pearce, Smallacombe and their wives which was the proprietor of a sub-division at Somerville known as ‘Park Lane’] that, as with all other Tresize work other than litigation matters was handled by Phillip McCullough.  Ladybank to me was simply another Tresize Company.  In view of the firm’s involvement the matter was obviously one involving solicitor/client privilege and I could do nothing other than express my displeasure.

With knowledge of the conflict, I obviously had severe doubts as to whose interests were then being promoted.

The original assurance regarding refinancing did not eventuate.  The promise to take the loan off my books did not eventuate.  The promise to remove the interest load was not honoured or at least only honoured in part (one payment was capitalised).  There was an assurance that interest for two quarters would be paid on the Tresize office mortgages.  One interest payment was made.  The continuing assurances that the Bank would look after me looked decidedly hollow.

This is simply an outline of some of the events since the instigation of the Nyora loan.  In short I believe I was ‘set up’ by Smallacombe in respect of this loan and my anger at this has increased as various parts of the story have been pieced together.  It appears that the original initiative for the overseas refinancing was taken by Regional Office.  Assurances given at the outset by Smallacombe about the loan were obviously based more on hope than on reality and a hope inspired by his own parlous position and his conflict of interest.  The situation was compounded and perpetrated by the further conflict at Regional level.  As you know, Nyora is scheduled for auction 30^th November.  If it realises some $700,000.00 one problem resolves itself at least in relation to any guarantee that I have signed.  If that sum is realised, the question of the shortfall and liability in light of the above circumstances must be resolved.

… wish to resort to litigation and don’t believe that in the light of my otherwise happy association … the Bank, that such will be necessary.  It is imperative however that we each determine where we ….

These matters are further complicated by the refinancing which is now proposed to take place at the end of January 1992.  The reality of that settlement will occur only when the event happens.  At the moment Board approval is anticipated about the 11^th December and such approval is subject to ‘the Board’ being satisfied with the accuracy of the financials provided.

I think we share considerable scepticism and perhaps guarded hope in relation to that matter proceeding.  The point is, that decisions have to be made about Nyora in the event that offers are made short of expectation.”

The ellipses are not my own.  Counsel for the applicants informed the Court that those parts of the letter, though it is typed, are not legible.

55                  The nature of the compromise is pleaded at para 59:

“In or about the period 22 November 1991 to 5 June 1992 Kollias and the [first respondent] settled the dispute that had arisen between them arising out of the matters pleaded in paragraphs 31‑34, 37, 38, 42, 45 and 47‑55 hereof, such settlement being effected by means of a written compromise (“the NAB Kollias Compromise”)

PARTICULARS

The NAB Kollias Compromise is partly in writing and partly to be inferred.  Insofar as it is in writing full particulars whereof will be provided after discovery.  Insofar as it is to be inferred it is to be inferred from the contents of paragraph 18 of the Affidavit of Kollias sworn 30 May 2001 in County Court proceeding No. 08581 wherein Kollias deposed:

‘Had I the financial resources at the time, I would certainly have taken on the National Bank for what I believe was fraudulent conduct by both Pearce and Smallacombe.  These issues were however, ultimately resolved by a compromise which was subject to a confidentiality clause.’”

56                  As to the assignment, Kollias’ mortgage of the Nyora property “was transferred by Kollias to [the first respondent] by an Assignment of Mortgage dated 25 June 1991” (para 45) ‑ which transfer “was registered … on 5 June 1992” (para 60).

57                  The applicant submits that the undiscovered documents evidence (to use that term loosely) a scenario.  First, the letter discloses a dispute between Kollias and the first respondent that arose from the applicants’ inability to repay the funds they had borrowed from Kollias on the allegedly imprudent advice of Pearce and Smallacombe ‑ which inability led to Kollias’ inability to repay the funds that he had borrowed from the first respondent.  Second, this dispute was resolved in relatively short order in the terms of the compromise ‑ which Kollias is bound not to divulge.  Third, those terms are then effected by way of the assignment.

58                  In response, the first respondent submitted that:

a)                  none of the undiscovered documents was material to what was pleaded in either para 12(ix) of the applicants’ statement of claim or para 12 of the first respondent’s defence in the 1992 proceeding (see [51] above); and

b)                  the scenario is misconceived because (a) the basis upon which the statement of claim ascribes a date to the compromise is, on the face of the statement of claim, flawed and (b) the fact of the assignment does not necessarily reflect any compromise of any dispute between Kollias and the first respondent.

59                  Counsel for the first respondent submitted that the letter was immaterial because it addressed the conduct of the first respondent, through Pearce and Smallacombe, towards Kollias rather than towards the applicants.  On the one hand, there was a dispute between the applicants and the first respondent as to the circumstances in which they borrowed funds they were eventually unable to repay on the security of the Nyora property.  On the other hand, there was a dispute between Kollias and the first respondent as to the circumstances in which he borrowed funds that he was eventually unable to repay on the security of the same property.  It was said that the first respondent’s alleged conduct in the one does not illuminate its alleged conduct in the other ‑ whether in relation to the causes or the resolution of that dispute.

60                  That characterisation of the letter is accurate.  However, the distinction between the disputes is not so clear.  After all, Kollias would not have found himself in the position he was vis-à-vis the first respondent (as disclosed by the letter) had he not lent funds to the applicants on the security of the Nyora property or, more importantly, had he been repaid those funds.  The 1992 proceeding, so far as it is relevant to the instant proceeding, involved an allegation that the first respondent through Pearce and Smallacombe advised the applicants to borrow the said funds though it knew that the applicants would be unable to repay them.  This may be a tenuous connection.  However, as I have already noted, the Court needs to be cautious in the exercise of its power to strike out pleadings.  That need is amply demonstrated when one considers at a higher level what is disclosed by the letter: namely, that two separate entities had made very serious allegations of a very similar nature against the same officers of the first respondent in relation to the taking of security over the same property.  That said, the applicants should be under no illusion that I have come to a concluded view that the undiscovered documents were (a) discoverable in the 1992 proceeding and (b) would have had a material effect on that proceeding had they been discovered.

61                  In the light of the foregoing, it is apparent that what is disclosed by the compromise and the assignment is, to a large extent, ancillary to what is disclosed by the letter.  Therefore, I do not think:

·                    that it is necessary to deal with the question whether the compromise and the assignment are material in the sense described in [51] above; or

·                    that the points raised at [58(b)] above would warrant the striking out of any part of the statement of claim if they were made out.

In relation to the former point, if the scenario is correct, what I have said about the letter at [60] above means that the materiality or otherwise of the compromise and the assignment is neither here nor there.  But even if the scenario is incorrect, the caution that I referred to at [52] above is a reason for allowing the remainder of the statement of claim to stand.  The same applies in relation to the latter point ‑ which is that the scenario is indeed incorrect.

62                  Counsel for the first respondent submitted that the compromise may well have been concluded after the final date given in the statement of claim.  Certainly the use of the word “ultimately” in the extract from the affidavit of Kollias that is included in the particulars to para 59 (see [55] above) suggests this may be the case.  However, the particulars to that para also make clear that the compromise is partly in writing and that further particulars of it will be given following discovery.  Because the applicants are not party to the compromise and Kollias would be bound not to divulge its content to them, para 59 may be all that the applicants can do in the circumstances.

63                  Finally, counsel for the first respondent characterised the assignment as simply a means by which the first respondent sought to protect its position in relation to the Nyora property once Kollias had indicated his inability to repay the funds that it had lent to him on the security of that property.  That may well be correct.

CONCLUSION

64                  For the above reasons I do not propose to order that the remainder of the statement of claim be struck out.  At the same time, the applicants should be under no illusion that it is free of defects.  Without limiting the generality of that warning, I note that though the applicants ask the Court to set aside the consent judgment, the grounds upon which they do so are confined to only one of the many issues that were raised in the 1992 proceeding.  I therefore fail to see what purpose is served by recounting in detail and at length the entirety of the alleged conduct that gave rise to those proceedings ‑ or even a significant proportion of it.  Much of what is included the remainder of the statement of claim travels far beyond what is necessary or proper to provide a useful context for the instant proceedings. I refer also to what I have said in the last sentence in [60].

65                  I will order that paras 79 to 92 of the statement of claim be struck out.  I will also order that the applicants pay the first respondent’s costs of and incidental to the motion.

Associate:

Dated:              11 August 2005