Effem Foods Pty Limited v Lake Cumbeline Pty Limited

[1993] HCATrans 379

!:

'

,

•

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sll7 of 1993

B e t w e e n -

EFFEM FOODS PTY LIMITED

Applicant

and.

LAKE CUMBELINE PTY LIMITED

First Respondent

IDOBOOK PTY LIMITED

Second Respsondent

PETER HORROBIN

Third Respondent

RICHARD SANDS

Fourth Reipondent

RAYMOND PRIDMORE

Fifth Respondent

Effem 1 10/12/93

Application for special leave

to appeal

BRENNAN J
DEANE J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 DECEMBER 1993, AT 3.38 PM

Copyright in the High Court of Australia

MR R.J. BAINTON, oc 7 If the Court pleases, I appear with my

learned friend, MR R.M. SMITH, for the applicant.

(instructed by Sly & Weigall)

MP A.J. SULLIVAN, OC:  May it please the Court, I appear

with my learned friend, MR J.B. WHITTLE, for the

respondents. (instructed by Blake Dawson Waldron)

BRENNAN J: Yes, Mr Bainton.

MR BAINTON:  We have prepared an outline of our submissions,

if I can hand them to Your Honours. Your Honours,

as is obvious, we concede we cannot succeed unless

we can persuade this Court to review Ramsay v

Pigram.

McHUGH J: But have you not got a more fundamental problem

which your submissions do not deal with and that is

that the causes of action are different causes of
action? You did not rely on issue estoppel and you

did not rely on abuse of process. So, at the most,

even if Ramsay v Pigram was overruled, all you

would have is a res judicata in respect of

repudiation of a breach of contract. You have got

none in relation to the Trade Practices actions

unless, in some way, you can extend Anshun.

MR BAINTON:  No, with respect, Your Honour. Step one we

have to make is to persuade this Court to look

again at Ramsay v Pigram ..... that we do, first,

because both English and local courts have started

to nibble away at it somewhat and we have cited

those cases. The next question is then what does

become the appropriate rule for Australian

conditions? The submission we want to make there

is that there is well-developed jurisprudence on

this matter in the USA. If this Court adopts that

jurisprudence it answers the question Your Honour

Justice McHugh put to me because their view is, to

take one simple example of it, if you have what
they call a "close corporationtt which brings an

action, the corporators are estopped from bringing

another one on the same subject-matter.

Now, on our theory of estoppel, one answer to

that would be precisely what Your Honour

Justice McHugh put to me.

McHUGH J:  I cannot see how that could possibly be,

Mr Bainton. It is one thing to say that the

various respondents are estopped under the doctrine
of res judicata from litigating the breach of

contract issue or action but how can the various

respondents who were not parties to the Supreme

Court of New South Wales' proceedings be estopped

from litigating the sections 52 and 53 Trade

Practices action?

Effem 2 10/12/93

MR BAINTON: Because the facts that they want to raise are

identical with the facts that were raised.

McHUGH J: But they are not, are they?

MR BAINTON:	Yes, they are.
McHUGH J:	One is concerned with whether there was a

repudiation and an acceptance, the other one is
questions of whether, by reason of representations,

they were induced to lend money.

MR BAINTON:  That was the matter on which the court below

decided the contract case but after the court

below, having decided the contract case, by

consent, the whole action which included the then Trade Practices question was dismissed. So there was a verdict in favour of the present applicant on

the Trade Practices question in so far as it was

raised by Trawl Industries.

McHUGH J: It was dismissed so there were never any findings

in relation to - - -

MR BAINTON: It was dismissed, a res judicata against Trawl

Industries, beyond argument, with respect.

McHUGH J: Only by reason of Anshun.

MR BAINTON:  No.

McHUGH J: In respect of sections 52 and 53.

MR BAINTON:  No, no. The sections 52 claims were brought in

the supreme court by Trawl and they were dismissed,

true, by consent. They were dismissed. There is

judgment against Trawl in favour of Effem on those

proceedings. They cannot be brought again in the

Federal Court and that is the reason why the

Federal Court, Mr Justice Gummow, stayed the new

proceedings brought by Trawl against us, and there

action had been dismissed and there was	is no appeal from that. That recognized that that
res judicata. Full stop on that.
Now, the next question is whether the persons, the individuals behind Trawl Industries who put it
together, financed it, directed it and caused it to
bring the litigation can bring again, in any court, exactly those same representations, brought - if it
matters and it does not - under the same Act. They
seek to use the same facts as an alternative to
bring a claim in negligence.

BRENNAN J:	Some of the same facts.
Effem	10/12/93
MR BAINTON:	Some of the same facts but that is an

irrelevance to.what Justice McHugh was putting to

me. Now, that situation, the American law says,

generates an estoppel against those persons. There
is a question as to whether it is an appropriate

rule to adopt. It departs significantly in that
respect from the old theory of blood, title and

interest which founded the estoppel and has been

applied here up to Ramsay v Pigram and, I suppose,

beyond it.

The question which we are really inviting this

Court to consider is whether it is appropriate to

modern commercial life, and this case really does

provide a very good example of it because it is the

same people, depends on the same evidence and, if

it matters, the evidence of the crucial person was
disbelieved below. So, my clients have been put to
the expense, if it is allowed to go on, of another
piece of litigation raising precisely the same

complaints, so far as trade practices are

concerned, called "breach of contract" rather than

section 52 in the supreme court.	They are the same
representations, in fact.	We have got to go to

trial again on it when an action brought and

maintained, as we would put it, in the name of

Trawl by the same individuals has been dealt with

in so far as so much of the claim is based in

contract lost, primarily because the principal

witness was not believed on the question.

BRENNAN J: That has got nothing to do with it, has it?

MR BAINTON:  No, except that it illustrates, we would

submit, that there is a lot to be said for ~he

American system.

BRENNAN J: But there is different losses incurred by

different people who seek to recover those losses

based upon the fact on which you succeeded in the

first trial.

MR BAINTON:  Yes, and we have analysed, in paragraph 14

here, the consequences of that. There was an

amount claimed.	The evidence there showed what
Trawl owed.	The rest of it, had they succeeded in

the action, would have gone to these individuals

who now want to sue us again.

BRENNAN J:  What do you say, that this goes to the extent of

anybody who, for example, is induced to lend money

to an unsuccessful party?

MR BAINTON:  No, the American rule - the first thing I

should do now is to hand up some books of

authorities including the American restatement and

one of the leading cases on it. Behind tab 6 is

Effem 10/12/93

the relevant extract from the American

Jurisprudence, Second Edition, April 1992 and it is

paragraph 575, the left-hand margin, and it really

comes down to, at about the middle of the page -

they start to deal with:

relationship exists between a corporation and

an officer -

and in section (3) of that they get down to a close

corporation which is what the Americans call what

we would call a proprietary company. This was a

case where the present respondents among

themselves, either directly or through one of their

own companies, held all of the shares in Trawl

Industries. Trawl Industries has consented to a

judgment in favour of Effem in a claim under

section 52 of the Trade Practices Act which made

all the allegations that are made in the present

set of proceedings.

BRENNAN J:  What is the part of this page that you have

drawn our attention to that you rely on?

MR BAINTON:  Your Honour, it is the first column. The

paragraph number at the top is 575, and if you move

to about the middle of the page, they talk about:

relationship exists between a corporation and

an officer, director, stockholder -

and then down below that there is a paragraph

numbered (3) which deals with the situation:

If the corporation is closely held -

as, I say, an American close corporation is

basically what we would call a proprietary company.

DEANE J: Which would it be here, Mr Bainton, 3(a)?

MR BAINTON:  (a) and/or (b) would fit the bill.

DEANE J: The "and" is a bit hard to follow between (a) and

(b) there.

MR BAINTON:  I think those are a number of situations where

a particular rule applies. The "and" is just

because we are getting down to the position under

close - well, I am not sure. The "and" after (a) I
think simply means that the judgment in the

corporation action is conclusive; it is a final

judgment, if that is the "and" that Your Honour was

referring to.

Effem 10/12/93

BRENNAN J:  (b) is the converse of (a), is it not? (b) is

where the holders have sued and (a) is where the

company has sued.

DEANE J: Yes.

MR BAINTON: There is no doubt the "and" part is satisfied

here. It is a final judgment.

BRENNAN J:  What is the meaning of "as to the issues

determined therein"? Is that an issue estoppel or

is that a res judicata?

MR BAINTON:	I am sorry, which paragraph?
BRENNAN J:	The end of the paragraph (3) just before the

letter (a), "conclusive upon the other of them as

to issues determined therein"?

MR BAINTON:  I would have read that as to the findings if it

is contested or as to the effect of any judgment,

if there is a judgment.

BRENNAN J: It seems to be in contradistinction to

paragraph (2) which refers to ''res judicata".

MR BAINTON: That is the classical English privity of

interest case because that talks about people

"suing derivately". I am not quite sure how they

would. I think that means. What the Americans

have done, in short, is to extend the common law

view of privity in interest to people who take an

active participating interest and/or have a

financial interest in the outcome and if you have

the two together the Americans regard them as

privies.

If you want an illustration of it, and you go

back to tab 5, we have put in one of the American

authorities on this, that action against Boeing

Airplane Company. What had happened, there had

American liquidation which is corporate bankruptcy.	been a dispute: one of the companies went into the	The bank trustee or liquidator or whatever brought an action. It failed. The corporators - more
accurately, I suppose, in our language, members of the company wanted to have a second try at the same action and they were held to be estopped because the American extend privity of interest to that sort of situation whereas the common law here, thus
far, has not.

The Australian cases and some of the English

cases and in New Zealand have started to nibble

away a little, as I tried to put it, by

re-examining the basis of what lies behind the

concept of interest and privity. Without going

Effem 6 10/12/93

through them, unless Your Honours wish to, and they

are listed here - all the ones we have listed could

have been dealt with on the simple statement "no

privity under the 200-year-old principle", but they

have not. They have gone to have a look at what

really was - certainly as it was put expressly in

the English case of Gleeson v Wippell, "What is the

real substantial justice of the situation?" That

obviously does not decide this matter but it does

indicate there is some dissatisfaction or, at

least, want of satisfaction in England with the old

rule.

McHUGH J: But, Mr Bainton, could I come back to the

question which I put to you at the beginning of

your submissions in which, for my part, you have

still have not satisfactorily answered. The damage

that the respondents claim to have suffered is

different damage from the damage that Trawl

suffered and therefore even if the respondents are

estopped by reason of a doctrine of res judicata

from relitigating the causes of action brought by

Trawl in the supreme court, it does not say

anything about their causes of action because you

abandoned issue estoppel and abuse of process and

your whole case is cause of action estoppel.

MR BAINTON:  Yes. Their cause of action depended upon the

same representations as Trawl's.

McHUGH J: That is an issue estoppel. It is not the same

action because damage is the gist of the action.

MR BAINTON:  Your Honour, I have got to answer Your Honour

step by step. The next step is that because Trawl

was the primary contracting party, I would c'oncede

that it would prove a greater loss than those

individuals because when you look at their claim -

and the pleadings are in the book - each of them

really claims that he either lent some money to

Trawl or lent some money to a company called

Cumbeline which was an intermediate family company

which on lent it to Trawl. So, each of them, I

would agree, would recover in his action a

different amount of money, a lesser amount of

money, but possibly, collectively, if all

succeeded, as much as Trawl, no more. The limit

that they can claim collectively is the amount

Trawl got.

Now step three: under the Ramsay v Pigram

rules I do not have an issue estoppel, I agree.

That is why I say we come here to persuade the

Court to have a second look at it.

McHUGH J:  Can I just interrupt you to say Ramsay, of

course, was a case of issue estoppel.

Effem	10/12/93
MR BAINTON:	Yes, I know, but it discussed the principle of

privity.

McHUGH J:	I appreciate that.
MR BAINTON:	And it is the privity principles that I am

concerned with in Ramsay and not the issue

estoppel. If what Your Honour puts to me is of

universal application, the Americans have gone

wrong because if you look at those cases - you look

at the Boeing case, for instance, there was an

action on behalf of a contractor by its liquidator

which was not successful.	Then the shareholders
and controllers had a go.	Now, each of them must

necessarily have only got, if they all had claims,

some part of what the liquidator could have

recovered but privity was held on the American

rules to apply.	Now, if that is right, as a matter
of - - -

BRENNAN J:  What did they sue for?

MR BAINTON: All I can do is read the headnote of Towle v

Boeing. It was an:

Action by promoters of corporation against

helicopter company for alleged fraud and

breach of warranty.

It was dismissed and then obviously - "promoters"

mean, I think, in that context, the shareholders or

people behind it - I am sorry, I have got the facts

a bit wrong. Let me try and describe them as I

understand them. The trustee in a bankruptcy

action, which is the American equivalent of.

litigation in corporate fields, brought proceedings

against the helicopter company. It did not

succeed. The shareholders or promoters brought

one. It was the same cause of action. By that

they must have meant that the matter complained of

was the same matter complained of. In a literal

technical Australian sense it could not have been

the same cause of action because they are different

parties. It was dismissed on the ground of res

judicata even though it contained, as they say

there, some extra allegations which, I suppose, is

our sort of answer - - -

McHUGH J: They held it was the same cause of action. In

the United States they held it was the same cause
of action but no Australian court could hold it was

the same cause of action.

MR BAINTON:  Bound by Ramsay v Pigram, no.

McHUGH J: But quite apart from Ramsay v Pigram. If Ramsay

v Pigram had never been decided, no Australian

Effem 10/12/93

lawyer could say that the action that Trawl

brought, even under the Trade Practices Act, was

the same cause of action as Lake Cumbeline or the

directors' action. Lake Cumbeline says it was

induced to invest in Trawl. The directors say they

were induced to guarantee and Idobook says it was

induced to lend money. Now, they have got nothing

to do with Trawl's action. They are different

causes of action.

MR BAINTON:  Yes, I know, but that is only the starting

point. They then go on to say that Trawl was

induced to do certain things and that is why they

lost money.

McHUGH J: Trawl was induced to contract. If you had put

your case on issue estoppal I could understand the

case but that was abandoned at all stages of the

litigation.

MR BAINTON:  Mr Smith who has been on it all the way through

would wish to quarrel with that proposition to some

extent. What we had maintained was that the

respondents are bound by all that Trawl was bound

by.

McHUGH J: That would raise questions of issue estoppel and

all the judgments say that that was never your

case. You did not rely on abuse of process and you

did not rely on issue estoppel, only res judicata.

MR BAINTON: Whether or not we can get up on a res judicata

argument depends, obviously, as step one, on being

privy; then we have got to show that what was

decided in the Trawl action is involved in the

individual's actions as a complaint, to put it

broadly, and that the complaint in the Trawl action

was that certain representations were made which

induced certain things to happen. The complaint in

the Federal Court proceedings is the same

complaint.	Now, damages may differ, if that is
what Your Honour is talking - - -

McHUGH J: But the whole cause of action differs, that is

the point. If I can take you to page 104 of the

book, line 23:

At the hearing at first instance, the appellant expressly disavowed any reliance

upon the principle of issue estoppel, or upon

the concept of abuse of process. The

appellant did not attempt to resile from this

position upon the appeal.

So, it is cause of action estoppal, not issue

estoppel.

Effem 9 10/12/93

MR BAINTON:  I understand that and so do the Americans, I

would imagine and, with the greatest respect, they deal with it differently from the way we deal with

it and what I am seeking to have this Court do is

to examine whether it might not be more aDpropriate

for us to do the same thing.

Now, everything that Your Honour has said to

me I have to accept if privity is as has been

understood in Ramsay v Pigram was right. If the

Americans are right in their view, or more

accurately, I suppose, I should say - - -

McHUGH J:  I think if you just want to challenge Ramsay,

speaking for myself, you might have some prospects

of getting a grant of special leave but it is these

other points that cause problems, Mr Bainton.

MR BAINTON:  I understand that but the way I seek to get

around what Your Honour is putting to me is to say

Your Honour, on this hypothesis, being with me on

step one, wants to carry over into what we have

just abandoned, figuratively, everything that flows

from the old rule in Ramsay v Pigram and what we

really want to say is that rather than chop off, as

it were, the tail-end of the Ramsay v Pigram thing,
this Court should look again at the whole question

of res judicata and examine whether or not the

principles evolved in America really, to suit

modern commercial life, ought not to be adopted

here as well. If we fail on that, we fail on it.

With the greatest respect, we should be given the

opportunity to try it and this is a suitable case for it because the factual background is probably

as good as you would ever get.

When you look at the pleadings, the

allegations relied upon by the applicants in the

civil court are, in fact, identical with those that

were made on Trawl's behalf in the supreme court

and there is a verdict, a judgment, on that in our

favour against Trawl. So, that is a res judicata

under the oldest of principles, the same flesh and

blood behind Trawl who ran the first case want to

have another go.

BRENNAN J:  I think we have been through this, Mr Bainton.

MR BAINTON:  That is the proposition that we seek to put. I

know I am repeating myself but a little more is

involved in looking at the American thing than just

taking the first step and then saying, "You have
got to engraft what Your Honour is putting to me on

top of it and therefore it is useless to take the

first step." If it were, I would agree it is

useless to take the first step. But if you are

going to take the first one, it would be a good

Effem 10 10/12/93

idea to look at the rest of it, the way the

Americans have dealt with it, in our submission.

BRENNAN J:  We need not trouble you, Mr Sullivan.

This case does not enjoy a sufficient prospect

of success to warrant a grant of special leave to
appeal. Accordingly, special leave will be
refused.

MR SULLIVAN:  I seek costs, Your Honour.

BRENNAN J: Special leave will be refused with costs.

AT 4.10 PM THE MATTER WAS ADJOURNED SINE DIE

Effem 11 10/12/93