FBR Fund Administration Pty Ltd v Chickabo Pty Ltd

[2019] VSCA 314

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2019 0106

BETWEEN

FBR FUND ADMINISTRATION PTY LTD (ACN 622 598 538) & ORS according to the Schedule	Applicants
and
CHICKABO PTY LTD (ACN 074 576 186) & ORS according to the Schedule	Respondents

S EAPCI 2019 0108

BETWEEN

FRANA MAUDE GRACO	Applicant
and
CHICKABO PTY LTD (ACN 074 576 186) & ORS according to the Schedule	Respondents

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JUDGES:	WHELAN, BEACH and NIALL JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	18 November 2019
DATE OF JUDGMENT:	19 December 2019
MEDIUM NEUTRAL CITATION:	[2019] VSCA 314
JUDGMENT APPEALED FROM:	[2019] VSC 580 (Sifris J)

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PRACTICE AND PROCEDURE – Application for leave to appeal dismissal of summonses –Judgment after trial found defendants breached fiduciary duties – Applicants subsequently joined – Plaintiffs claimed against applicants as constructive trustees of traceable proceeds or Barnes v Addy knowing recipients – Applicants’ summonses seeking new trial or to set judgment aside or be removed as parties – Trial judge dismissed summonses holding applicants bound by findings of breach of fiduciary duty – Whether later joined parties bound – Executor Trustee and Agency Company of South Australia Ltd v The Deputy Federal Commissioner of Taxes (SA) (1939) 62 CLR 545 explained – Commissioner of Taxation (Cth) v Thomas (2018) 264 CLR 382 applied.

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APPEARANCES:	Counsel	Solicitors
For the Applicants in S APCI 2019 0106	Mr M C Garner	K & L Gates
For the Applicant in S E APCI 2019 0108	Mr A G Uren QC with Mr R J Harris	Herbert Smith Freehills
For the First to Fifteenth Respondents	Mr J P Moore QC with Ms P Wakhlu (solicitor)	HWL Ebsworth

WHELAN JA
BEACH JA
NIALL JA:

1. After a trial in November 2018, on 22 February 2019 Sifris J handed down a judgment in which he determined that Gary Graco and his company, Zphere Pty Ltd (‘Zphere’), had breached fiduciary duties owed to the plaintiffs, who are the partners in an accounting firm known as the Moore Stephens (Vic) partnership.[1]  He also found that two other companies associated with Mr Graco were liable as accessories under the principles in Barnes v Addy.[2]He did not make orders, and said that he would deal with issues of relief in a separate hearing.

   [1][2019] VSC 73 (‘the February judgment’).

   [2](1874) LR 9 Ch App 244 (‘Barnes v Addy’).

1. On 5 March 2019 the primary judge ordered that Frana Graco (Mr Graco’s wife), FBR Fund Administration Pty Ltd (‘FBR Fund’), Baden Rhain Graco (Mr Graco’s son), Rhian Victoria Graco (Mr Graco’s daughter), and Emily Denise Graco (Baden’s spouse) be joined as defendants in the proceeding.  By a further amended statement of claim dated 15 May 2019, the plaintiffs, relying upon the same allegations of breach of fiduciary duty which were the subject of the February judgment, alleged that Mrs Graco and FBR Fund had received and now held on constructive trust the ‘traceable proceeds’ of amounts obtained in breach of duty by the fiduciaries and were also liable under Barnes v Addy as knowing recipients.  The other added defendants were alleged to have also received ‘traceable proceeds’ and to hold them on constructive trust.[3]

   [3]The further amended statement of claim also made a claim against  Danijel Francis Lloyd (Rhian’s spouse).  Mr Lloyd is not an applicant for leave to appeal.  He was joined as a defendant by an order made 3 May 2019.  Reference hereafter to the ‘other added defendants’ is a reference to FBR Fund, Baden Graco, Rhian Graco and Emily Graco, who are the applicants on one application for leave to appeal.  Mrs Graco is the applicant on a separate application for leave to appeal.  A reference to ‘the added defendants’ is a reference to Mrs Graco and the other added defendants.

1. By a summons filed 20 May 2019 Mrs Graco sought orders that there be ‘a new trial on all issues before a different Judge’ or that ‘the determination … dated 22 February 2019 … be set aside’.  In the alternative, orders were sought removing Mrs Graco as a party and striking out or dismissing the claim against her.

1. By a separate summons filed the same day the other added defendants sought orders that ‘the Judgment … dated 22 February 2019 … be set aside’ or that there be ‘a new trial on all issues before a different Judge’.  Alternatively, orders were sought removing them as parties.

1. The added defendants’ summonses were heard by the primary judge over two days and he delivered judgment on those applications on 30 August 2019.[4]  The judge reached the following relevant conclusions:

1.He rejected a submission put by the added defendants that the February judgment should be set aside on the basis that they had been necessary parties from the point of time at which the plaintiffs had first claimed a constructive trust against the original defendants.  This issue was the first issue addressed by the judge and occupied a very substantial part of the August judgment.[5]

2.He found that the added defendants were bound by, or compelled to accept, the findings made in the February judgment.[6]  This conclusion was founded upon a High Court authority, Executor Trustee and Agency Company of South Australia Ltd v The Deputy Federal Commissioner of Taxes (SA).[7]

3.He held that a new trial for the added defendants would be futile because it was inevitable that the findings would be precisely the same.[8]

[4][2019] VSC 580 (‘the August judgment’).

[5]Ibid [41]–[127].

[6]Ibid [128]–[142].

[7](1939) 62 CLR 545 (‘Executor Trustee’).

[8]The August judgment [161]–[183].

1. On 6 September 2019 the primary judge made an order dismissing the added defendants’ summonses.

1. Mrs Graco and the other added defendants have since filed defences in which (amongst other things) they deny the breaches of fiduciary duty alleged, and plead positive contentions as to why there was no relevant breach of fiduciary duty.

1. The added defendants now seek leave to appeal from the dismissal of their respective summonses.

Proposed grounds of appeal

1. Mrs Graco’s proposed grounds of appeal are as follows:

1.The primary judge was wrong to hold that the Applicant was bound by, and was not entitled to contest, the findings made in the reasons which he delivered on 22 February 2019, which were delivered at a time before the Applicant was made a party to the proceeding in which those reasons were given.

2.The primary judge was wrong to hold that the Applicant was not directly affected by the findings made in the reasons which he delivered on 22 February 2019, or by any orders which might be made in the proceeding in which those reasons were given, and that in consequence the Respondents were not required to join the Applicant as a party before the time at which she was joined.

3.The primary judge was wrong in holding that there should not be a new trial of the proceeding, in which trial the Applicant be entitled to be heard on such of the issues decided in the reasons delivered on 22 February 2019 as affected her interests.

1. The orders sought by Mrs Graco in her application are that leave be granted and the appeal be allowed, that the orders made on 6 September 2019 be set aside, and in lieu thereof there be an order for ‘a new trial on all issues before a different Judge’.  A declaration is also sought that the February judgment is not binding on her.

1. The proposed grounds of appeal of the other added defendants are relevantly as follows:

1.The primary judge erred in finding that the Applicants … were not necessary parties to the proceeding prior to or at the time of the Trial.

2.The primary judge erred in finding that the Applicants were not directly affected by the findings made in the February Reasons or by the findings or orders sought by the Respondents at the time of the Trial.

3.The primary judge erred in finding that the Applicants are bound by, compelled to accept and not entitled to challenge the findings made in the February Reasons.

4.The primary judge erred in finding that even if the First Applicant (FBR Fund) was a necessary party at the time of the Trial, it is not entitled to a new trial on all issues, on discretionary grounds.

5.        The primary judge should have found that:

(a)the Applicants are entitled to a new trial on all issues before a different Judge;  and

(b)the Applicants are not bound by any findings made in the February Reasons;  alternatively if those findings would otherwise be binding on the Applicants, that those findings be set aside.

1. The orders sought in the other added defendants’ application are relevantly the same as the orders sought in Mrs Graco’s application.

Narrowing of the contentious issues

1. In the course of oral submissions it became clear that the critical issue in contention between the respective parties is the judge’s conclusion that the added defendants are bound by the findings made in the February judgment, relying upon Executor Trustee.

1. Notwithstanding the considerable attention given by the primary judge to the issue of whether the added defendants had been necessary parties before they were joined, senior counsel for Mrs Graco and counsel for the other added defendants informed us that if they were not bound by the findings in the February judgment, it was not contended that the added defendants had been necessary parties, and it was not contended that the proceeding had not been properly constituted because they had not been joined earlier.  The submission that the added defendants had been necessary parties, and that a new trial was required in relation to all defendants on all issues because they had not been joined earlier, was premised, so it was said, on the contention, which they disputed, that the added defendants were bound by the findings in the February judgment.[9]

   [9]Transcript of Proceedings (18 November 2019) 30–1, 77–8, 88–90 (‘Transcript’).

1. What was put by counsel on behalf of the applicants before us was that the added defendants were entitled to contest all of the issues pleaded against them and, that being the case, there had to be a ‘new’ trial in relation to the claims against them.  It was then said that there ought to be a new trial in relation to the claims against all defendants so as to avoid the possibility of inconsistent findings.

1. Senior counsel for the respondents, in response to this clarification, accepted that the issue of whether the added defendants were bound by the findings in the February judgment turned entirely upon whether the principle in Executor Trustee applied.[10]

   [10]Transcript 90–6.

Should leave to appeal be granted?

1. Appellate courts are most reluctant to interfere in interlocutory decisions of trial judges.[11]  This reluctance is especially strong when a judge is managing an uncompleted trial.  We are persuaded, however, that, in relation to the issue of whether the added defendants are bound by the findings in the February judgment, and whether the principle in Executor Trustee applies, this case is exceptional.  The judge has found that the principle in Executor Trustee applies and that the added defendants cannot contest the findings in the February judgment.  For the reasons set out below, we have reached a different view of Executor Trustee.  If leave to appeal is refused, the judge will proceed and may then make orders against the added defendants on the basis that they are bound by the findings in the February judgment.  That is, on a basis we consider to be erroneous.  The position will not be able to be rectified on appeal other than by ordering a new trial because the added defendants will not have had a hearing at all on some of the allegations against them.

   [11]In re the Will of F B Gilbert (dec) (1946) 46 SR (NSW) 318, 323; Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981) 148 CLR 170, 177; RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd [2017] VSCA 50, [74]–[77].

1. For this reason, notwithstanding our reluctance to interfere while the trial is not completed, we will grant leave to appeal on proposed ground 1 of Mrs Graco’s proposed grounds and proposed ground 3 of the other added defendants’ proposed grounds.  Otherwise, leave to appeal will be refused.

Absence of orders

1. One matter particularly pressed on behalf of the added defendants was the fact that no orders had been made following, or in consequence of, the February judgment.  It was submitted that parties cannot be bound by reasons, and that no party is bound in the absence of orders.

1. In Blair v Curran[12] Dixon J set out the fundamental principles which apply in relation to res judicata and issue estoppel.  One of those fundamental principles is that issue estoppel is limited to ‘a state of fact or law which is necessarily decided by the prior judgment, decree or order’.  The formal order is itself important.[13]  Findings of fact or conclusions on issues of law are not, in themselves, an operative judicial act.[14]

   [12](1939) 62 CLR 464, 531–3.

   [13]K R Handley, Spencer Bower and Handley:  Res Judicata (LexisNexis, 4^th ed, 2009) [8.02] (‘Spencer Bower and Handley’).

   [14]Patsalis v Attorney-General for New South Wales (2013) 85 NSWLR 463, 469 [23] (Basten JA, with whom Bathurst CJ and Beazley P agreed).

1. It is clear that the trial judge will make orders against the original defendants.  The matter should be decided on the issue of substance rather than on the basis that orders consequent upon the February judgment have not yet been made.  It would hardly be satisfactory for the matter to be determined now on the basis that orders had not yet been made, and to then return to argue the issue of substance once they are made. 

1. We turn then to consideration of the principle in Executor Trustee which is the matter now in contention between the parties, and is the basis for the primary judge’s conclusion that the added defendants are bound by the findings made in the February judgment.

The principle in Executor Trustee

1. Executor Trustee was an unusual case.  The issue was whether a trustee under a will was entitled to certain deductions in relation to a land tax liability.  The relevant legislation provided that the deductions would only be available if the beneficiary recipients of payments from the trustee were joint owners of the land, holding what was described as ‘an original share in the land’.  The Deputy Federal Commissioner of Taxation disallowed the deductions because the relevant beneficiaries had received the payments as a consequence of the exercise of discretion by the trustees and not by virtue of an entitlement as joint owners.

1. The beneficiary entitlements had been the subject of two prior applications to the Supreme Court of South Australia, approximately twenty years apart.  In April 1902 the trustee had sought advice and directions and in March 1903 the Full Court of the Supreme Court of South Australia had made an order declaring that upon the true construction of the will the trustee was empowered to exercise its discretion to make payments from accumulated income to the beneficiaries.  In July 1921 the Full Court of the Supreme Court of South Australia upon a similar application by the trustee made a similar declaration to the effect that the trustee had power in the exercise of its discretion to distribute surplus income.

1. What the trustee sought to contend in the litigation with the Deputy Federal Commissioner was that the two earlier declarations as to the construction of the provisions of the will were wrong, and that the Deputy Federal Commissioner should not have made the relevant assessments based upon them as he was not bound by them.

1. The trustee and all persons interested under the will had been represented in both of the earlier proceedings.  The Deputy Federal Commissioner had not been a party and had not been represented. 

1. The High Court unanimously rejected the trustee’s position. 

1. Latham CJ held that the ‘interposed’ discretion in relation to the payment of income meant that the trustee could not be entitled to the relevant deductions.[15]  As to the submission that the earlier orders had been wrong and did not bind the Commissioner, Latham CJ said:

The order of the Supreme Court is certainly conclusive in relation to the rights inter se of the parties to the proceedings in which it was made.  It could have been challenged upon appeal, but so long as it stands, the rights of the annuitants to receive income from the trustee are the rights declared in the order, no more and no less.  There is no means whatever whereby either the trustee or the annuitants can, as a matter of right, vary those rights. 

…

The question which arises in this appeal depends entirely upon the rights of the annuitants against the trustee.  Those rights have been defined by a court of competent jurisdiction in a manner which excludes the definition of them now preferred by the annuitants — or any other definition inconsistent with the order of the court.  The commissioner is entitled to take, and must take, interests in land as he finds them.  …  A particular decision of a court as to the interests of a person in land, or as to his right to receive monies by way of income, may be wrong.  But the commissioner cannot impose land tax upon interests in land which, if a contrary decision had been given, the taxpayer ought to have, but in fact does not have;  nor can he impose income tax upon income which the taxpayer does not derive but which, upon the hypothesis of a contrary decision, he would have derived.[16] 

[15]Executor Trustee (1939) 62 CLR 545, 560.

[16]Ibid 561–2.

1. A little later Latham CJ continued:

But when, in duly constituted proceedings before a competent court, the rights of a cestui que trust against a trustee and the corresponding duty of the trustee towards the cestui que trust have been defined, there is no means whereby those rights can be otherwise defined, because each party is conclusively bound by the order of the court.  …  When the revenue authorities come to impose a tax in relation to such rights, they must, in my opinion, take them as they in fact actually exist between the parties.  Thus, although the commissioner cannot be said to be ‘bound’ by the order of the Supreme Court as res judicata or in any way, he has no option but to assess the trustee or the cestui que trust upon the basis of their duties and rights as declared by the order.[17]

[17]Ibid 561–2.

1. Starke J dealt with the issue by concluding that the earlier orders had correctly construed the will.  Dixon J also concluded that the earlier orders had correctly construed the will, but he added:

The orders, however, fix the rights of the beneficiaries in relation to the income of the land upon which the tax is levied and, in my opinion, they control the situation.

There is no question of res judicata or issue-estoppel.  But the rights in question being measured by the nature and extent of the interests which are taken in the land … we must look at all operative instruments which define those interests.  The orders define the interests of the six beneficiaries.  It is true that they do not purport to give new interests and that in law they operate only as declarations determining, as between trustee and beneficiary, the interests otherwise existing, that is, arising under the will.  But it is nonetheless true that the beneficiaries can, after the making of the orders, have no interest in the land inconsistent with the orders.[18] 

[18]Ibid 570.

1. Evatt J agreed with Dixon J.  McTiernan J’s analysis was relevantly the same as that of Dixon J.  He found that the will had been correctly construed but also added:

It is true that none of the questions decided in those proceedings is binding on the commissioner as if it were a res judicata.  But the will and the orders made by the Supreme Court determine the interests which according to the law of South Australia the annuitants have in the income from the land.  I agree that the interests were liable to taxation upon the basis that they were correctly declared by the orders. 

1. Recently, the High Court has had occasion to consider the decision in Executor Trustee in the Commissioner of Taxation (Cth) v Thomas.[19]

   [19](2018) 264 CLR 382 (‘Thomas’).

1. Thomas concerned an issue relating to franking credits.  For present purposes it suffices to say that a particular approach to the distribution of franking credits, referred to as the ‘Bifurcation Assumption,’ had been adopted by a trustee and the income tax returns of the trustee and the beneficiaries had been prepared and lodged on that basis.  By the time the matter reached the High Court, it was accepted by the trustee and the beneficiaries that the Bifurcation Assumption was incorrect and was ‘legally ineffective’ under the relevant legislation.  However, after the Australian Tax Office had notified the trustee of the commencement of an audit, the trustee had filed an originating process in the Supreme Court of Queensland seeking directions.  The Australian Taxation Office had been notified of the application but declined to appear.  A judge of the Supreme Court of Queensland then made orders declaring, in effect, that on a proper construction of the relevant legislation it was appropriate for the trustee to proceed in accordance with the Bifurcation Assumption and also declaring that the trustee’s relevant resolutions were effective to confer upon the beneficiaries vested and indefeasible interests in the relevant franking credits.

1. At first instance the Federal Court held that the orders of the Supreme Court of Queensland did not bind the Commissioner and dismissed objections to the assessments which the Commissioner had issued.  An appeal from that decision to the Full Court of the Federal Court was successful on the basis that the principle in Executor Trustee meant that the Commissioner was bound, not by the declaration as to the effect of the taxation legislation, but by the declaration as to the beneficiaries’ rights as against the trustee.

1. The High Court unanimously rejected the Full Court of the Federal Court’s approach. 

1. In a joint judgment, Kiefel CJ, Bell, Keane, Nettle, Gordon and Edelman JJ said the following in relation to Executor Trustee:

Executor Trustee is authority for the proposition that the general law rights of trustee and beneficiary inter se, to the extent that they are defined by a decision made in duly constituted proceedings, are defined as against the Commissioner unless the decision is set aside.  In Executor Trustee, the earlier proceedings had determined rights inter se.  There was no question of res judicata or of issue estoppel, and the separate declaration did not generate rights in rem against third parties.  And, importantly, the earlier proceedings did not determine the application of the taxation law to those rights.

It follows that Executor Trustee is not authority for the proposition that the Commissioner, or a court …, should determine the application of the taxing acts otherwise than according to the law.[20] 

[20]Ibid 407–8 [54]–[55] (citations omitted)(emphasis in original).

1. The plurality interpreted all of the directions and declarations made by the Supreme Court of Queensland as being about, or made on the basis of conclusions as to, how the relevant taxing legislation operated, and that the Full Court had been wrong to conclude that the principle in Executor Trustee applied.[21]

   [21]Ibid 408–9 [56]–[60].

1. In a separate judgment Gageler J agreed with the plurality subject to some additional observations.  He said:

Tax lawyers often speak of ‘taxable facts’.  They mean by that expression to refer to more than just facts.  They mean by it to refer to the combination of events that have occurred and legal consequences of events that have occurred on which a taxing statute fixes to impose a taxation liability or to confer a taxation benefit. 

Most often, taxable facts are independent of and antecedent to their taxation consequences.  That is because, most often, a taxing statute will operate upon ‘the result of a taxpayer’s activities as it finds them’. 

[Executor Trustee] was concerned with identification, on an appeal against an assessment, of taxable facts of that independent and antecedent nature.[22]

[22]Ibid 415 [84]–[86].

1. Gageler J referred to the fact that in Executor Trustee no member of the High Court had accepted the taxpayer’s argument as to the construction of the will, that four of the five members of the Court had also rejected the taxpayer’s position for the reason that it contradicted the legal effect of the will as had been declared by the Supreme Court, and that the explanations given by three of those four were ‘terse’.[23]  Gageler J set out in some detail Latham CJ’s analysis in Executor Trustee.[24]  Gageler J explained that what was significant about what had happened in Executor Trustee was the following:

Put in other words, whether the Supreme Court of South Australia had been ‘right’ or ‘wrong’ in its construction of the will, the Supreme Court had in fact made an order which operated under the general law finally to determine the legal entitlements of the beneficiaries as between them, the trustee and all other persons who had an apparent interest in the will.  The legal entitlements of the beneficiaries under the will, as declared in the order made by the Supreme Court, were the taxable facts on which the taxing statute operated.[25]

[23]Ibid 416 [89].

[24]Ibid 416–17 [90]–[92].

[25]Ibid 417 [93].

1. Gageler J then observed that the order before the Court in Thomas had not been an order of that character.  The order before the Court in Thomas was, Gageler J said, not an order establishing ‘a taxable fact which exists independently of and antecedently to the operation of the relevant taxing statute’ but rather an order relating to the operation of the taxing statute.[26]

   [26]Ibid 418 [97].

1. The primary judge relied upon two decisions of single judges where Executor Trustee had been applied. 

1. In Page v McKensey[27] Gzell J in the Equity Division of the Supreme Court of New South Wales had before him an appeal from a decision of a Master refusing leave to file an amended statement of claim.  In substance, the amended statement of claim sought to introduce claims which had previously been decided against parties in relation to whom the plaintiff was a privy.  Gzell J accordingly held that the Master’s decision to refuse leave was correct on the basis of res judicata.  He then went on to say that, if he were wrong, leave had been correctly refused on the basis of Executor Trustee.  The particular action concerned a dispute between partners as to entitlements upon the partnership’s dissolution.

   [27][2003] NSWSC 759 (‘Page’).

1. In Solak v Registrar of Titles[28] Davies J in the Commercial and Equity Division of the Supreme Court of Victoria had before her an application by the Registrar of Titles to amend a defence.  There had been an earlier proceeding between the plaintiff, Mr Solak, and the Bank of Western Australia in which it had been determined that a mortgage registered by the Bank of Western Australia over land owned by Mr Solak had been forged.  The Registrar wished to ‘put into contest’ the issue of whether the relevant documentation had been forged.  Davies J refused to permit that amendment not because of res judicata, the Registrar not being bound by the earlier decision, but because the earlier decision had conclusively determined the rights inter se between Mr Solak and the Bank of Western Australia and that the principle in Executor Trustee applied.

   [28][2009] VSC 614 (‘Solak’).

1. Executor Trustee has been cited and applied in the context of the effect upon the revenue authorities of prior court determinations.[29]  But otherwise, apart from the two decisions relied upon by the trial judge, there appear to have been only two further occasions when Executor Trustee has been cited outside the taxation context.  One case was decided on the basis of res judicata[30] and Executor Trustee was cited on a different, not presently relevant, issue.[31]  The other was Tedeschi v Legal Services Commissioner.[32]

   [29]Ellison v Sandini Pty Ltd (2018) 263 FCR 460, [26] (Logan J); Whitby Land Co Pty Ltd v Caratti [2017] WASC 131; D. Mark Partnership v Federal Commissioner of Taxation (2016) 245 FCR 247, [47] (Logan J); Kelly v Federal Commissioner of Taxation [2012] FCA 423; Groves v Commissioner of Taxation (No 4) [2012] FCA 658; Danmark Pty Ltd v Forestwood Pty Ltd & Federal Commissioner of Taxation (1944) 2 AITR 527.

   [30]Re Twenty-First Larena Pty Ltd (in liq) [2010] VSC 84, [27].

   [31]Ibid [22].

   [32]Tedeschi v Legal Services Commissioner (1997) 43 NSWLR 20 (‘Tedeschi’).

1. In Tedeschi Rolfe J in the New South Wales Supreme Court had before him an application by a barrister seeking a declaration that the Legal Services Commissioner had no jurisdiction to investigate complaints against him.  The complaints had been dismissed by the Bar Council, but after proceedings in the Supreme Court to which the barrister was not a party, the decisions dismissing the complaints were ‘set aside ab initio’ by consent orders.  The barrister sought the declaration on the basis that insofar as he was concerned the complaints were still dismissed and that the orders made by consent in a proceeding to which he was not a party did not bind him.  One of the contentions relied upon by the Legal Services Commissioner was that the setting aside of the dismissals was a ‘fact’ that the barrister could not challenge.

1. Rolfe J said that the contention that the setting aside orders were a ‘fact’ which could not be challenged did not answer the barrister’s submission that to bind a person not a party to a judgment in personam was prima facie contrary to principle and authority.[33]  Rolfe J rejected the contention that the setting aside orders were a fact the barrister could not challenge and said that he considered this rejection to be supported by Executor Trustee.[34]  Rolfe J then set out a detailed examination of Latham CJ’s judgment, including specific reference to an example postulated by Latham CJ concerning a dispute over ownership of a horse — whereby a determination as to ownership of the horse in a proceeding between A and B would not prevent a subsequent challenge to ownership by a non-party C.[35]  Rolfe J said that the example of the dispute between A, B and C had been distinguished by Latham CJ from the position before the Court in Executor Trustee.  Rolfe J said the distinction was relevant to the case before him.  The barrister’s position was analogous to the ABC example.  As to the contrasting case, Rolfe J described it as follows:

This, so it seems to me, is quite different from requiring a taxing authority to accept the position as determined between the relevant parties in relation to rights to income and property.[36]

[33]Ibid 33.

[34]Ibid.

[35]Ibid 33–5.

[36]Ibid 35.

1. The fourth edition of Spencer Bower and Handley:  Res Judicata, addresses Executor Trustee as follows:

Where the court determined the rights of beneficiaries in an estate the Revenue, although not a party, was bound to assess in accordance with those rights.[37]

[37]Spencer Bower and Handley (LexisNexis, 4^th ed, 2009) [9.32].

Primary judge’s treatment of Executor Trustee

1. In the August judgment the primary judge addressed both Executor Trustee and Thomas, and also referred to and relied upon the decisions in Solak and Page.  The primary judge concluded:

Accordingly, in my opinion, the added defendants, while not bound by issue estoppel or res judicata, are compelled to accept the facts as found and the subject of the [February judgment], in litigation properly constituted in order to determine the rights and obligations of parties to such litigation.[38]

[38]August judgment [139].

1. The trial judge went on to say that, even where a party who had not been joined is ‘directly affected’ by a judgment, the right to a ‘new trial’ might not be absolute and unqualified, and that considerations including procedural history, rules of court, or principles of natural justice may apply to alter or qualify that position.[39]  The judge cited in that regard a passage from a judgment of Leeming JA in Boyd v Thorn.[40]

   [39]Ibid [142].

   [40](2017) 96 NSWLR 390, 422–3 [153]–[158] (‘Boyd v Thorn’).

1. Boyd v Thorn was a case the trial judge had addressed at length in the context of whether the added defendants were necessary parties who should have been joined earlier.  In the passage from Leeming JA’s judgment cited in this context, Leeming JA (with whom Emmett AJA agreed) began by stating:

It may be accepted that a necessary party who is only belatedly joined has an entitlement to adduce evidence, and to be heard, against all aspects of the plaintiff’s cause of action … .[41]

But Leeming JA then said that Mrs Boyd’s capacity to challenge earlier findings in proceedings to which she was not a party was not absolute, and that its scope was to be reflected in the limited scope of the application Mrs Boyd had made.[42] 

[41]Ibid [150].

[42]Ibid [155].

1. The trial judge concluded these observations by saying it was not necessary for him to decide whether the considerations which had limited Mrs Boyd’s rights to challenge earlier findings were applicable to the case before him, although he said they might well be.[43]

   [43]August judgment [142].

1. In Boyd v Thorn the majority (Leeming JA and Emmett AJA) found that Mrs Boyd’s right to be heard on all issues, including those previously decided in proceedings against her husband to which she was not a party, was to be limited by the limited scope of the application she had made.[44]  The majority also held that, if that were wrong, Mrs Boyd’s failure to give any ‘real indication’ of what she wished to put in issue, her failure to file a defence, and her conduct of the relevant proceedings meant that no substantial wrong or miscarriage of justice had occurred.[45]  Macfarlan JA in dissent did not consider Mrs Boyd’s capacity to challenge all the relevant allegations was so limited.[46] 

   [44]Ibid [150]–[156].

   [45]Ibid [158]–[178].

   [46]Ibid [17]–[23], [35]–[40].

Some fundamental principles

1. In Cameron v Cole,[47] Rich J observed, in a passage which has been frequently cited ever since:

It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case.[48]

[47](1944) 68 CLR 571.

[48]Ibid 589.

1. In Blair v Curran, Dixon J said:

A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies.[49]

[49]Blair v Curran (1939) 62 CLR 464, 531.

1. The issue of who is a ‘privy’ is a potentially complex inquiry which has been the subject of much judicial consideration.[50]

   [50]See Spencer Bower and Handley, ch 9.

1. The added defendants here are not said to be privies of the original defendants who contested the trial before the judge in November and who are the subject of the claims adjudicated upon in the February judgment.  The added defendants are not said to be bound by res judicata or issue estoppel, as the primary judge expressly recognised in the passage quoted above. 

Analysis

1. As no orders have yet been made, the issue of the application of the principle in Executor Trustee has not yet formally arisen.  However, for the reason given earlier we consider that we should address the substance of the issue, as orders will be made against the original defendants after a further hearing.

1. In our opinion the principle in Executor Trustee is to be confined to the taxation context in which it arose.  We consider that this is the correct approach for the following reasons:

1.If Executor Trustee were applied expansively it could produce outcomes which are inconsistent with the fundamental principles to which we have referred, being the right to a hearing, and the principles of res judicata and issue estoppel.  It could render much of the law of res judicata and issue estoppel otiose. 

2.In Executor Trustee itself Latham CJ expressed the principle by reference to the manner in which the orders in that case affected ‘the commissioner’ and ‘the revenue authorities’.  The other judges in Executor Trustee primarily determined the issue by concluding that the orders had correctly construed the will, although Dixon J also added the fact that the orders ‘defined’ the interests of the beneficiaries and said that the orders themselves were ‘operative instruments’.  Gageler J said in Thomas that only Latham CJ had addressed the relevant issue in a manner which was other than ‘terse’.

3.In Thomas the plurality did not purport to articulate the limits of the principle, but they expressed it as being a principle which was applicable ‘as against the Commissioner’.  Gageler J was clearer, articulating the principle as one referable to ‘taxable facts’. 

4.Spencer Bower and Handley lends support to the proposition that the principle is one concerning ‘the Revenue’.

5.The principle has been rarely cited outside the taxation context, and has only been applied so as to bind a non-party by single judges on two occasions, Page and Solak.  Both of those were interlocutory applications to amend pleadings.  The primary basis for Gzell J’s conclusion in Page was res judicata.[51]  Rolfe J’s treatment of Executor Trustee in Tedeschi seems to us to be consistent with a limitation to ‘a taxing authority’. 

[51]What Gzell J said about Executor Trustee was obiter. Solak may be explicable on the basis that the role of the Registrar of Titles in the context is analogous to a taxing authority in that the Registrar is a public official administering a statute by reference to facts independent of and antecedent to the statutory consequences for which the Registrar is responsible.

1. Accordingly, we consider that the judge was wrong to conclude that the added defendants are bound by the findings made in the February judgment by reason of the principle in Executor Trustee.

Disposition

1. Leave to appeal will be granted on proposed ground 1 of Mrs Graco’s application and proposed ground 3 of the application of the other added defendants.  The appeal will be allowed on those grounds and the orders made on 6 September 2019 will be set aside.  Otherwise, leave to appeal will be refused.  The summonses will be remitted to the trial judge for re-hearing and determination on the basis that the added defendants are not bound by the findings in the February judgment.

1. Whilst the summonses are now to be determined afresh by the trial judge, we would make the following observations.

1. In our opinion the trial judge should conclude the determination of the claims against the original defendants.  We do not accept the contention advanced on behalf of the added defendants that there should be a new trial in relation to all defendants.  The only basis upon which it was said that that course should be followed was the risk of inconsistent judgments.  The February judgment has been handed down.  That risk already exists.  The original defendants did not seek to contend before us that there should be a new trial on the issues determined in the February judgment. 

1. As to the position of the added defendants, they are not bound by the findings in the February judgment and will not be bound by the orders made against the original defendants.

1. We do not have a full understanding of the history of the proceedings.  We note what the judge said about the possibility that considerations of the kind raised in Boyd v Thorn may well be applicable. On the material before us, given that the added defendants are not bound by the findings in the February judgment, we cannot see how they can be precluded from conducting a trial on all the allegations against them. This may not be as burdensome as might at first appear. Judges in the trial division have wide powers as to trial procedure under s 49 of the Civil Procedure Act 2010.[52]

   [52]In exchanges during the hearing counsel for the other added defendants accepted that it might be possible for the existing evidence from the November trial to be relied upon: Transcript 47-9.

1. Given the trial judge’s expressed conclusions on some of the issues the added defendants wish to contest, it seems to us, on the present material, that that trial would have to be before a different judge.

SCHEDULE OF PARTIES

S APCI 2019 0106

FBR FUND ADMINISTRATION PTY LTD (ACN 622 598 538)	First applicant
BADEN RHAIN GRACO	Second applicant
RHIAN VICTORIA GRACO	Third applicant
EMILY DENISE GRACO	Fourth applicant
and
CHICKABO PTY LTD (ACN 074 576 186)	First respondent
DAKIS NETWORTH PTY LTD (ACN 117 348 633)	Second respondent
GATAYA PTY LTD (ACN 088 653 785)	Third respondent
LA ROCCA INVESTMENTS PTY LTD (ACN 138 952 708)	Fourth respondent
MALECON HORIZON PTY LTD (ACN 135 028 867	Fifth respondent
ZERVOS NOMINEES PTY LTD (ACN 080 056 873)	Sixth respondent
IKOYENIA 5 PTY LTD (ACN 143 742 634)	Seventh respondent
KEVIN JOSEPH MULLEN	Eighth respondent
GEORGE SAMUEL DAKIS	Ninth respondent
MARK MORDERCHAI HAMMERSCHLAG	Tenth respondent
JOHN ANTHONY LA ROCCA	Eleventh respondent
MICHAEL JOHN BRYANT	Twelfth respondent
PETER ZERVOS	Thirteenth respondent
STEVE SAKKAS	Fourteenth respondent
MOORE STEPHENS (VIC) PTY LTD (ACN 052 362 348)	Fifteenth respondent
ZPHERE PTY LTD (ACN 114 716 773)	Sixteenth respondent
GFBR NOMINEES PTY LTD (ACN 005 599 799)	Seventeenth respondent
GLENALDON PTY LTD (ACN 007 338 598)	Eighteenth respondent
GARY CHARLES GRACO	Nineteenth respondent
DRP CONSULTING PTY LTD (ACN 074 057 097	Twentieth respondent
DAVID RAPHAEL POLONSKY	Twenty-first respondent
FRANA MAUDE GRACO	Twenty-second respondent
DANIJEL FRANCIS LLYOD	Twenty-third respondent

SCHEDULE OF PARTIES
S EAPCI 2019 0108

FRANA MAUDE GRACO	Applicant
and
CHICKABO PTY LTD (ACN 074 576 186)	First respondent
DAKIS NETWORTH PTY LTD (ACN 117 348 633)	Second respondent
GATAYA PTY LTD (ACN 088 653 785)	Third respondent
LA ROCCA INVESTMENTS PTY LTD (ACN 138 952 708)	Fourth respondent
MALECON HORIZON PTY LTD (ACN 135 028 867)	Fifth respondent
ZERVOS NOMINEES PTY LTD (ACN 080 056 873)	Sixth respondent
IKOYENIA 5 PTY LTD (ACN 143 742 634)	Seventh respondent
KEVIN JOSEPH MULLEN	Eighth respondent
GEORGE SAMUEL DAKIS	Ninth respondent
MARK MORDERCHAI HAMMERSCHLAG	Tenth respondent
JOHN ANTHONY LA ROCCA	Eleventh respondent
MICHAEL JOHN BRYANT	Twelfth respondent
PETER ZERVOS	Thirteenth respondent
STEVE SAKKAS	Fourteenth respondent
MOORE STEPHENS (VIC) PTY LTD (ACN 052 362 348)	Fifteenth respondent
DRP CONSULTING PTY LTD (ACN 074 057 097)	Sixteenth respondent
DAVID RAPHAEL POLONSKY	Seventeenth respondent
FBR FUND ADMINISTRATION PTY LTD (ACN 622 598 538)	Eighteenth respondent
BADEN RHAIN GRACO	Nineteenth respondent
RHIAN VICTORIA GRACO	Twentieth respondent
EMILY DENISE GRACO	Twenty-first respondent
DANIJEL FRANCIS LLOYD	Twenty-second respondent
ZPHERE PTY LTD (ACN 114 716 773)	Twenty-third respondent
GFBR NOMINEES PTY LTD (ACN 005 599 799)	Twenty-fourth respondent
GLENALDON PTY LTD (ACN 007 338 598)	Twenty-fifth respondent
GARY CHARLES GRACO	Twenty-sixth respondent