Bzikadze v Fielders Australia Pty Ltd
[2011] SASC 88
•27 May 2011
SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
BZIKADZE v FIELDERS AUSTRALIA PTY LTD
[2011] SASC 88
Judgment of The Honourable Justice Sulan
27 May 2011
ESTOPPEL - FORMER ADJUDICATION AND MATTERS OF RECORD OR QUASI OF RECORD - FORMER ADJUDICATION - JUDGMENT INTER PARTES - RES JUDICATA - WHETHER CAUSE OF ACTION THE SAME
Appeal from Magistrate refusing to set aside default judgment.
First action brought against appellant for money owing under contract - default judgment entered - winding up and bankruptcy proceedings instituted - sum paid to respondent in satisfaction of judgment debt.
Second action brought against appellant for overdue interest and recovery costs pursuant to the same contract - default judgment entered - application to set aside default judgment refused.
Whether Magistrate erred in refusing to set aside default judgment in second action - whether second action barred by res judicata - whether cause of action pursued in second proceedings was the same as that pursued in the first.
Held: Appeal allowed.
Corporations Act 2001 (Cth) s 459E, s 459G, referred to.
Jackson v Goldsmith (1950) 81 CLR 446; Blair v Curran (1939) 62 CLR 464; Henderson v Henderson (1843) 67 ER 33; Wells v D'Amico [1961] VR 672; Port of Melbourne Authority v Anshun Proprietary Limited [1981] 147 CLR 589; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502; Accordant Investments Pty Ltd v RMBL Investments Pty Ltd [2009] SASC 144; Dickenson v Harrison (1817) 146 ER 465; Van Amstel v Country Roads Board [1961] V.R. 780; Brunsden v Humphrey (1884) 14 QBD 141; Darley Main Colliery Company v Mitchell (1886) 11 App Cas 127, considered.
BZIKADZE v FIELDERS AUSTRALIA PTY LTD
[2011] SASC 88Magistrates Appeal: Civil
SULAN J: This is an appeal from a decision of a Magistrate refusing to set aside a default judgment entered against the appellant on 14 July 2010. This appeal was initially brought by both Wingfield Sand & Metal Pty Ltd (the Company) and Mr Vladimir Bzikadze. The Company went into liquidation on 16 March 2011. This action relates only to Mr Bzikadze.
Background
The first proceeding – 6393 of 2009
The respondent, Fielders Australia Pty Ltd, issued proceedings in the District Court on 16 April 2009 against the Company and Mr Bzikadze. The proceedings concerned the supply of goods on credit by the respondent to the Company. Mr Bzikadze, a director of the Company, executed a guarantee in favour of the respondent for payment by the Company for the goods. The goods supplied were the subject of a credit application (‘the Credit Application’) dated 1 October 2008. The Company’s liability to the respondent was guaranteed under this same document.
It was alleged by the respondent that goods amounting to a value of $42,532.64 were supplied to the Company on credit and never paid for. As such, $42,532.64 was owing and payable by both the Company and Mr Bzikadze. In a defence filed 6 May 2009 the Company and Mr Bzikadze disputed the liability the subject of the respondent’s claim.
On 3 November 2009 the action was transferred from the District Court to the Magistrates Court, assuming action number 6939 of 2009.
On 3 February 2010 the respondent obtained default judgment in the sum of $40,000 plus costs to be agreed or taxed. The respondent’s costs were taxed at $4,540.18.
On 17 February 2010 the respondent joined proceedings instituted by Footers Pty Ltd seeking an order for the winding up of the Company. These proceedings assumed Supreme Court Action Number 1826 of 2009. The respondent was joined as a supporting creditor. The debt relied upon was the amount of $40,000. The respondent was later substituted as the petitioning creditor.
Also on 17 February 2010 a Bankruptcy Notice was issued by the respondent against Mr Bzikadze in reliance upon the default judgment obtained on 3 February 2010. These proceedings were brought in the Federal Magistrates Court and have been adjourned pending the outcome of this matter.
On 28 April 2010 a sum of $40,000 was paid to the respondent on the basis of the judgment from action 6939 of 2009. On 11 May 2010 a further payment of $2,550.00 was paid in relation to the winding up proceedings. The winding up proceedings were subsequently dismissed by Judge Withers with no order as to costs.
On 15 September 2010 the company and Mr Bzikadze lodged an application to set aside the default judgment in the first proceedings. This application was dismissed on 7 October 2010 with a costs order fixed in the sum of $150.00.
The second proceeding – 3085 of 2010
On 17 June 2010 a second action was instituted by the respondent against both the Company and Mr Bzikadze for the sum of $14,390.04. This constituted overdue interest in the sum of $11,855.04 relating to the first debt, and costs of recovery of $2,535.00, being the costs incurred by the respondent in the bankruptcy proceedings instituted against the appellant. This action was based upon the same contractual instrument as the claim, the subject of the first proceeding, that is the Credit Application. No defence was lodged by the Company or Mr Bzikadze in relation to this matter. On 14 July 2010 the respondent obtained default judgment against the Company and Mr Bzikadze in the sum of $15,354.79.
On 15 September 2010 the Company and Mr Bzikadze filed an application to set aside the default judgment. It was claimed by Mr Bzikadze that the debt had already been satisfied, that the respondent had, through his solicitor, agreed to accept $42,550.00 as full and final payment, and that he was not in receipt of any summons.
By affidavit sworn by Alexander Marshall, solicitor for the respondent, it was claimed that a letter of demand had been sent to the Company and Mr Bzikadze, for which no response had been received. Further, that there was no such agreement to accept $42,550 in full and final payment of the debt.
By affidavit sworn by Goran Lovrinov, book-keeper for the Company and Mr Bzikadze, it was claimed that there was no receipt of the summons in the first proceeding, that the second proceeding was a derivative action of the first, and that the amount of $42,550 had been paid to resolve the respondent’s claim.
A further affidavit was then filed by Mr Marshall. I do not need to set out the material in this affidavit in detail here.
On 7 December 2010 the application to set aside the default judgment was dismissed.
The appeal
Mr Sallis, for the appellant, submits that the orders of the Magistrate dated 7 December 2010 refusing to set aside the default judgment entered on 14 July 2010, and the award of costs against the appellant, constitutes an error of law. Mr Sallis submits that the doctrine of res judicata applies so as to prohibit the respondent from seeking to enforce any of its rights pursuant to the Credit Application in the second proceedings, which has merged in the judgment the subject of the first proceedings.
Mr Sallis contends that the cause of action accruing in the first proceedings stems from the respondent’s rights under the Credit Application. Following this, the claim pursued in the second proceedings, namely overdue interest and costs incurred in furtherance of the bankruptcy proceedings arise pursuant, again, to this same instrument.
He submits that once a judgment has been obtained in the first proceedings, a party loses any right that it has to once again issue fresh proceedings, based upon the same cause of action for which the first proceedings were founded upon.
Mr Thomas, for the respondent, submits that the Credit Application which creates the debt fashions a number of distinct debts. He says the Credit Application contemplates the principal debt, interest, as well as the legal costs of recovery, thereby creating three separate causes of action. He contends that this case is not one of damages flowing from a breach of contract but rather a pure debt claim.
It is convenient to set out the relevant clauses of the Credit Application:
3. Payment
3.1 Payment shall be made by the ‘CUSTOMER’ within 30 days from the end of the month of invoice.
3.2. Interest will be charged on overdue amounts at the rate of 2% per month.
3.3 Legal costs of recovery of any overdue amounts shall be recoverable by ‘FIELDERS’ as a debt due by the ‘CUSTOMER’.
Counsel relied on a number of authorities in support of their submissions which I will consider below.
Legal principles
Res judicata, or cause of action estoppel, determines that where an action has been brought and judgment entered in that action, no other proceedings may be maintained on the same cause of action.[1] That is, where a right or cause of action has been claimed and held to exist, so that judgment has been entered in that action, the cause of action is said to have merged in the judgment so that it desists from having any independent existence.[2]
[1] Jackson v Goldsmith (1950) 81 CLR 446 at [466].
[2] Blair v Curran (1939) 62 CLR 464 at [532].
The doctrine is founded on precluding the re-agitation of issues, and prevention of the introduction of matters that parties could and should have raised in earlier litigation.
In Henderson v Henderson[3] it was described in the following terms:
‘…where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to the points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the same time.’ (My emphasis).
[3] (1843) 67 ER 313 at [319].
Res judicata may only be established where the parties in each proceeding are the same, and the plaintiff’s claim is founded in each case on the infringement of the same right. Further, the parties must have been acting in the same capacity.[4] It must be shown that the cause of action in the later proceedings is the same as that which was litigated in the former proceedings. Herein lies the issue to be determined in the case before me; that is, whether it can be said that the cause of action pursued in the second proceedings is the same cause of action that was pursued in the first.
[4] Wells v D’Amico [1961] VR 672.
The meaning of the term cause of action was considered by Brennan J in Port of Melbourne Authority v Anshun Proprietary Limited:[5]
There is an imprecision in the meaning of the term cause of action, which is sometimes used to mean the facts which support a right to judgment; sometimes to mean a right which has been infringed, and sometimes to mean the substance of an action as distinct from its form. (Citations omitted).
…
If cause of action is taken to mean a right, the rule is stated in terms of the passing of the right into judgment, and the rule precludes a party bound by the judgment from maintaining against another party bound by it any subsequent proceeding to recover a judgment giving a remedy to enforce or to compensate for an infringement of that right. The rule does not preclude litigation seeking a remedy to which a party is entitled in virtue of a different right from that which was first put in suit provided that the facts which support the right sued upon in the second action are not the same facts as those supporting the right which passed into the first judgment.
…
If cause of action is taken to mean the facts which support a right to judgment, the rule of res judicata bars an action for relief founded upon the same facts as those upon which an earlier judgment was recovered, though the right sued upon in the second action is different from the right which passed into or was negated by the earlier judgment.
[5] [1981] 147 CLR 589 at [610].
As earlier mentioned, Mr Sallis submits that it is not possible to distinguish between the relevant causes of action in the first and second proceedings. He contends that the respondent’s claim the subject of the second proceedings arises as a consequence of the asserted breach stemming from the same contractual document as the first proceedings. Further, that the second proceedings involve the same parties acting in the same capacities as the first, and would require a court to hear the same evidence, thereby adjudicating on proof of the same matters.
Mr Sallis relies upon Wells v D’Amico[6] which involved the collision of the defendant’s car into the complainant’s shop, resulting in damage to the complainant’s stock as well as damage to the shop itself. By reason of an error by the complainant’s solicitors, only damages for the value of the lost stock were claimed. Solicitors for the two parties agreed to settle the action by the defendant paying the amount claimed and costs. The complainant refused to sign a release, and subsequently sought to litigate for the full amount of the claim, with inclusion of the damage to the premises. Duffy J noted:[7]
“The question”, says Grose, J., in Seddon v. Tutop (1796), 6 T.R. 607, “is not whether the sum demanded might have been recovered in the former action, the only inquiry is whether the same cause of action has been litigated and considered in the former action.” Bowen, L.J., continued, at p. 148, that the application of the rule depended “not upon any technical consideration of the identity of forms of action, but upon matter of substance”.
What I have to determine, therefore, is whether the claim for damage done to the complainant’s stock is in substance the same cause of action as the claim for damages to the shop. I think on the whole that it is. The evidence would be substantially the same, namely, proof of negligence and of the amount of damage suffered in consequence of it.
It remains to answer two further questions: one, was the settlement of the first proceeding binding on the complainant? Secondly, was the tender of payment a good satisfaction of the accord arrived at by the solicitors?
[6] [1961] VR 672.
[7] Ibid at [676].
Ultimately, although there were two avenues in which a claim could be pursued, namely trespass to goods and trespass to property, the failure of the complainant to pursue the second avenue was barred by res judicata because it arose from the same facts which gave rise to the initial breach.
Mr Sallis submits that the distinction in the avenues pursued is even less distinguishable in this case. He says that here there exists one contract, and one breach from which damages flow. Whilst these damages include interest components, it is submitted that it does not follow that a claim for this component is a new cause of action, as the underlying contract remains the source of the rights of the respondent. One cannot, therefore, distinguish between two causes of action in relation to separate components of the debt.
The application of res judicata was further explored in Chamberlain v Deputy Commissioner of Taxation.[8] The Deputy Commissioner of Taxation brought an action for payment of income tax due by a taxpayer for specified years of income. Judgment was entered for less than the amount actually due. The Deputy Commissioner then brought an action for recovery of the balance. Citing Anshun and Jackson v Goldsmith the Court found that the matter fell squarely within a case of res judicata. It was found that the respondent had sued for a debt due to the Crown in respect of the same assessments and the same additional tax for late payment for the relevant years:[9]
Whether one focuses on the facts supporting a right to judgment or on the right impugned or on the substance of the action, the conclusion is inevitable that the cause of action relied upon by the respondent in the second proceeding is that upon which he had earlier relied.
[8] (1988) 164 CLR 502.
[9] Ibid at [508].
Importantly, it was noted in Chamberlain that the fact that a judgment is entered by consent is no bar to the application of res judicata.
Mr Thomas referred to Accordent Investments Pty Ltd v RMBL Investments Ltd,[10] which involved a decision of this Court in relation to an application to set aside a statutory demand under section 459E of the Corporations Act 2001, served pursuant to a default under a loan agreement. It was contended by the appellant that the demand was defective as it claimed only part of an alleged single debt, and that the respondent could not pursue separately its other claims for interest and consequential matters. It was argued by the respondent that the principal owing under the agreement was a separate debt from any other monies due and payable. The observations of Baron Wood in Dickenson v Harrison[11] were considered:
The question…amounts in truth to this – whether, when two distinct sums are due to the same person, on the same day, under the same instrument, he may not sue for either, at his election; or whether he is therefore necessarily compelled to proceed for both in the same action?
I am of the opinion that he may sue for either; and in the present case, I think that the sums are completely distinct and unconnected, notwithstanding that they become due by the same instrument, and that they may therefore be separated by a plaintiff who sues to recover them, so as to be made the subject of separate actions.
[10] [2009] SASC 144.
[11] (1817) 146 ER 465 at [467].
These observations have since been endorsed in texts, including Fisher and Lightwoods Law of Mortgage.[12] In Accordant, Gray J went on to consider the reasons why a creditor might choose not to include a debt in a statutory demand. He remarked:[13]
One debt may be disputed while others are not. If a disputed debt is excluded the debtor would have no basis for making an application under section 459G. If the undisputed debts were not paid, the debtor would be wound up and to include a disputed debt would be to invite an application with attendant expense and delay. (Citations omitted).
[12] Fisher and Lightwood’s, Law of Mortgage (10th ed, 1988) at 45 and 305 [footnotes omitted].
[13] Accordant Investments Pty Ltd v RMBL Investments Ltd [2009] SASC 144 at [33].
It was found that the respondent was aware that the appellant disputed interest and other charges; the statutory demand claiming only the undisputed principal was served on this basis. Ultimately, in light of the above considerations, and considerations of section 459E, Gray J considered that a creditor could demand the principal, owing under the loan, as the whole of a single debt.
Mr Thomas contends that in accordance with Accordant there exists a distinct debt for the principal, a distinct debt for interest and a distinct debt for subsequent enforcements costs, which lie in contrast to a claim for damages for breach of contract, as suggested by the appellant.
Mr Sallis submits that the decision of Accordant has no bearing upon the case before us. He says that there is no finality to a statutory demand, rendering it distinguishable from a judgment. Thus there is no final resolution to a cause of action by a section 459E notice.
I consider that the circumstances of Accordent differ greatly to the case before me. Accordent was decided in the backdrop of a specific statutory regime, where the dispute as to particular debts could be said to be the underlying reason for the choice not to pursue the principal and related costs in one action. Whilst the debts as they relate to the principal and interest may be distinct in the context of a statutory demand, I find that this notion may not be so easily adopted in the context of contractual cause of action for which a judgment has been entered.
In Van Amstel v Country Roads Board[14] the plaintiff instituted proceedings for monies due under a contract for work performed, and recovered judgment. He later brought a second action in which he sought to recover damages sustained by him as a result of the failure of the defendant to pay the money due under the original contract within a reasonable time. Likewise to the matter before us, the plaintiff in Van Amstel instituted further proceedings pursuant to the same contract as that in respect of which he recovered judgment in the previous action. O’Bryan J noted:[15]
A party may be justified in bringing separate actions for the breach of different terms or indeed of the same term in the same contract. This may be necessary in the case of a continuing contract where new breaches may occur after action brought and judgment has been given in respect of an earlier breach. What is prohibited under the estoppel rule and under the maxim nemo debet bis vexari pro eadem causa is the bringing of two suits for the one cause of action. Thus you cannot bring separate actions to recover different items or loss or damage for the breach of the same clause in a contract arising from the same act or omission.
[14] [1961] V.R. 780.
[15] Ibid at [782].
O’Bryan J found that res judicata did apply. He considered that the second proceeding was one for damages alleged to flow from that same breach of contract; that is non-payment on the due date as promised. It was considered to offend the principle espoused by Lord Halsbury in Darley Main Colliery Co. v Mitchell[16] that ‘for one cause of action you must recover al damages incidental to it by law once and for ever.’
[16] (1886) 11 App Cas 127.
The plaintiff also contended that the basis of the claim in the previous action was not for breach of contract but for recovery of a debt. It was argued that a party who sues for a breach of contract sues in a different right from a party who sues for a debt. O’Bryan J considered this argument to be incongruous with the dictum of Bowen L.J. in Brunsden v Humphrey[17] which considered the identity of a cause of action to be concerned with matters of substance and not with the technical forms of action.
[17] (1884) 14 QBD 141 at 148.
It was ultimately found in Van Amstel that the plaintiff’s claim in the original action imported a claim for damages for non-payment of the debt on its due date. Having chosen not to lead evidence in support of this claim, the plaintiff was barred from bringing a fresh action in support of it. The claim for further relief by way of damage was considered to be pursued in respect of the same cause of action of which judgment had already been entered.
Conclusion
I consider that the circumstances in Van Amstel are not dissimilar to this matter. It would appear that the respondent in this action is seeking damages for breach of the same contract as that in respect of which he recovered judgment in the previous action.
The first summons filed in the District Court on 16 April 2009 and the second summons filed in the Magistrates Court on 17 July 2010 both specify the Credit Application as the relevant instrument from which the appellant’s right to pursue the claim arises. The alleged breach articulated in each statement of claim was the failure to pay for the goods in accordance with the plaintiff’s terms and conditions of trading. The cause of action here is the supply and payment for goods under the Credit Application and the breach of this. Whilst the remedies sought differ in the two actions, it would still require a court in the second action to adjudicate on the same factual basis and instrument as already scrutinised in the first proceeding. It can be said that it is the same cause of action in substance which is being sought to be re-litigated. I do not consider that the separate clauses in the agreement amount to separate breaches. It does not follow that there exists separate causes of action. This would be at odds with the notion that one must look at the substance and not the technical form of the action.
It is well known that where there is but one cause of action, damages must be assessed once and for all. There is no reason in principle why the plaintiff could not have pursued the interest component stemming from the breach in the first proceedings. It might have done this had it not elected to transfer the proceedings from the District Court to the Magistrates Court. The second proceeding is merely a claim flowing from the breach by the appellant of the undertaking to pay on the due date. It seems to fall directly within the cases relating to res judicata to which I have already referred. For these reasons I am of the opinion that the cause of action pleaded in the second proceeding does not differ from that in the first. The first proceeding did not reveal the whole of the claim in respect of an amount which included the interest. It was open to the plaintiff in that action to pursue this amount. If one does not avail themselves of this opportunity, one cannot seek to further this at a later stage.
The bankruptcy proceedings instituted in the Federal Magistrates Court have been adjourned pending the outcome of this appeal. The recovery of these costs is a separate claim, and should be determined outside of this action.
A judgment was entered by the Magistrates Court in action number 6393 of 2009 on 3 February 2010. Two sums were paid on 29 April 2010 and 11 May 2010 in respect of this judgment. A second action was instituted on 17 June 2010. Default judgment was entered on 14 July 2010, and an application to set this aside was later refused. For the reasons expressed this was an error.
I would allow the appeal and I make the following orders:
1.That the Magistrate’s refusal to set aside the default judgment dated 14 July 2010 be quashed.
2.That the costs of the second action and the appeal be borne by the respondent.
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