Funge Systems Inc v Newcom Technologies Pty Ltd
[2005] SASC 498
•22 December 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
FUNGE SYSTEMS INC & ANOR v NEWCOM TECHNOLOGIES PTY LTD & ORS
Judgment of The Honourable Justice Layton
22 December 2005
PRIVATE INTERNATIONAL LAW - FOREIGN JUDGMENTS - EFFECT AND ENFORCEMENT - GENERALLY - JUDGMENTS IN PERSONAM
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - UNDERTAKING AS TO DAMAGES
ESTOPPEL - GENERAL PRINCIPLES
Application by second defendant seeking the enforcement of orders made in the United States Bankruptcy Court as judgments duly enforceable in the Supreme Court of South Australia - opposed by intervener - application to be determined as a preliminary issue in the overall action - US orders made in the context of complex litigation in the US at the same time as litigation being pursued in Australia - US orders purport to release money held in a trust account of the solicitors for the plaintiff in South Australia as security for an undertaking for damages for an interlocutory injunction granted against the defendants - consideration of common law principles in enforcing foreign judgments - whether the US orders satisfy principles of enforcement - whether final and conclusive - whether orders bind the same parties - whether judgment in relation to merits of the case - whether intervener is estopped from challenging the US orders - whether estoppel by record, issue, omission apply - whether an abuse of process for intervener to seek orders inconsistent with the US orders - whether r 25.04 of the Supreme Court Rules applies to dispose of matter as a summary judgment - Application refused on all grounds sought
Foreign Judgments Regulations 1992 (Cth); Foreign Judgments Act 1991 (Cth); Supreme Court Rules 1987 r 25, referred to.
R v McLeod (1890) 11 LR (NSW) 218; Grant v Spaanderman (Unreported, Supreme Court of Western Australia, 13 March and 21 June 1991, Judgment No 1679 of 1990); Benefit Strategies Group Inc & Anor v Prider (2004) 237 LSJS 1; Benefit Strategies Group Inc v Prider (2005) 91 SASR 544; White v Verkouille [1990] 2 Qd R 191; Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537; Wells v D'Amico [1961] VR 672; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502; Marks v National & General Insurance Co Ltd (1993) 114 FLR 416; Ramsay v Pigram (1968) 118 CLR 271; Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (Receivers and Managers Appointed) (In Liq) (1993) 43 FCR 510; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; Hunter v Chief Constable of the West Midlands Police [1982] AC 529; Walton v Gardiner (1993) 177 CLR 378; Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249, 318, considered.
FUNGE SYSTEMS INC & ANOR v NEWCOM TECHNOLOGIES PTY LTD & ORS
[2005] SASC 498
LAYTON J: This application seeks the enforcement of foreign judgments made in the United States Bankruptcy Court on 27 March 2003 and 20 February 2004 as judgments duly enforceable in the Supreme Court of South Australia. These orders are sought against the background of litigation both here in South Australia (“the Australian Proceedings”) and in the United States (“the US Proceedings”) between the plaintiffs and defendants, as well as Imbros Corporation, an intervener to the action. The orders sought in this application concern a discrete issue arising from a Notice for Specific Directions and are to be determined as a preliminary issue in the overall action.
By leave granted on 22 November 2004, and by the consent of the parties, the second defendant amended paragraph 2 of the Notice for Specific Directions dated 23 August 2004. Paragraph 2 of the Notice (as amended) reads as follows:
2. That the orders of Judge Mayer in the United States Bankruptcy Court Eastern District Virginia (Alexandria Division) made on:
2.1 27th March 2003; and
2.2 20th February 2004
be [enforced] as judgements of this Honourable Court.
It was indicated that for practical purposes the only order sought to be enforced was that made by Judge Mayer on 27 March 2003 in the United States Bankruptcy Court (“the Bankruptcy Court”). This order purports to release $250,000 (“the said sum”) held in a trust account of the first plaintiff’s solicitors, Kelly & Co, to the second and third defendants in these proceedings. The said sum was paid into the trust account of Kelly & Co pursuant to an order made by Lander J on 24 May 2001, to better secure the first plaintiff’s undertaking for damages given by its counsel in court, on the granting by his Honour on an interlocutory injunction against the defendants.
For the purposes of placing the above order of Judge Mayer and the application before me into context, it is necessary to set out the factual background and a chronology to the action before turning to the arguments put forward by the parties.
The evidence before me consisted of two volumes of documents, divided and referred to by tab numbers. This material was to be relied on for the purposes of this interlocutory application only. The book of documents was supplemented by other documents tendered in the course of argument by consent and inserted as new tab references.
This material sometimes consisted of portions of other affidavits or documents. Much of the material was also in a secondary form as narrative by the person deposing to it. It has been no easy task to find a complete chronology of relevant events.
Background
The Parties
The first plaintiff, Funge Systems Incorporated, (“FSI”) is a company incorporated in the United States and before its insolvency was controlled 81 per cent by the second plaintiff Funge Systems International Limited (“FSIL”).[1] FSIL was incorporated in the Cayman Islands and has now been wound up. The remainder of the shareholding in FSI consisted of minority shareholders Messrs Girvan, Schreiber and Porges, who later formed another company, Funge Merger Corporation, (“FMC”) because FSI was likely to become insolvent.
[1] Exhibit DJT 21 to the Affidavit of David John Tucker, sworn 25 August 2004, Factual Background Stipulation and Order dated 27 March 2003, tab 14.
FSI was in dispute with the defendants over a contract for the provision of patents for certain telecommunications technology that FSI entered into with the defendants, on 22 March 2001 (“the said contract”). Two of the defendants are companies in South Australia, namely Newcom Technologies Pty Ltd (In Liq), (“the first defendant”) and Newcom Holdings Pty Ltd (the second defendant, hereinafter referred to as “Newcom Holdings”) which is a holding company of the first defendant. The third defendant, Keith Benson (“Benson”) was a major shareholder of Newcom Holdings and the CEO of both companies. Benson developed communications technology in Australia and sought to obtain patents for the technology worldwide. FSI was incorporated for the purpose of obtaining ownership of the US patent to the technology.
The Intervener Imbros is a company incorporated in the United States. The shareholders are the same minority shareholders, Messrs Girvan, Schreiber and Porges, who formed FMC. Imbros in effect replaced FMC which had previously been incorporated in response to the following circumstances. In May 2000, FSI was likely to become insolvent and as a result, FMC was incorporated for the purpose of lending FSI money to enable FSI to sue the defendants for specific performance of the said contract and also claim damages for fraud. The purpose of the funding was “to pay Hunton & Williams[2] to pursue litigation…to try to get all of the intellectual property brought down into the Funge Systems, Inc. entity…and [t]he funding proposal was accompanied by a proposed plan of reorganization.”[3]
[2] Hunton & Williams were the solicitors for FMC and later Imbros.
[3] Exhibit BCR 28 to the Affidavit of Brendon Roberts, sworn 13 July 2001, 11, tab 34.
The proposed “Joint Plan of Reorganization” included the following consequences:
·if FMC was successful in the action then all of FSI’s assets would be sold to FMC;
·FSI would subsequently be merged with FMC; and
·FMC would succeed to all FSI’s assets and claims.
Imbros was granted leave to intervene in this action by Bleby J on 27 January 2005. This leave was premised on Imbros intervening only “in respect of any application by the defendants or any of them for payment to them of the whole or any portion of the amount ordered to be provided by way of security for the plaintiff’s undertaking as to damages given on 24 May 2001.”
In respect of the application before me, it is the second defendant Newcom Holdings only who is seeking the orders. The first defendant requested leave to withdraw from these proceedings whilst at the same time reserving its position with regard to the fund. I granted leave.[4] I was informed in arguendo that Benson had “disclaimed any interest to the fund”, but he still remains a party on the file. Imbros opposes the orders sought by the second defendant.
[4] Transcript, 25 August 2005, 2 line 34.
The United States and Australian Proceedings
It was agreed by the parties that the substantive issues in dispute between them were to be determined by the United States Bankruptcy Court of Virginia. The proceedings instituted in Australia were for the purpose of seeking injunctions to stop the defendants from dealing with the intellectual property the subject of the said contract, until the issues in the US proceedings were resolved.[5]
[5] Affidavit of James Wrathall sworn 18 November 2004, [24], tab 18.
The US Proceedings
The matters before the United States Bankruptcy Court were threefold. The first of the proceedings began on 18 May 2001, case number 01-12219- RGM (Chapter 11), when FSI filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.[6] In those proceedings, FSI asserted that it was entitled to a transfer of the intellectual property held by the defendants and that the Chapter 11 proceedings would preserve FSI’s alleged rights to that intellectual property.[7]
[6] Affidavit of James Wrathall, sworn 18 November 2004, [17], being exhibit DJT25 to the Affidavit of David John Tucker 19 November 2004, tab 18.
[7] Affidavit of John Henry Horton sworn 31 May 2001, tab 17.
As previously adverted to, before this voluntary petition was filed, minority shareholders of FSI formed FMC and funds were loaned to FSI to pursue the bankruptcy petition and litigation against the defendants in respect of the said contract dated 22 March 2001, seeking specific performance and damages for fraud. The Joint Plan of Reorganization included that FMC be appointed the “agent and attorney-in-fact” of FSI and that plan be approved by the Bankruptcy Court.
Before the approval of the Bankruptcy Court was obtained, FSI through FMC, initiated adversarial proceedings against the three defendants in this action in the Bankruptcy Court. There were two separate complaints. The first being a Specific Performance Complaint filed on 25 May 2001 claiming specific performance of the said contract (Adv Proc No 01-1096). The second, on 8 June 2001 being a Fraud Complaint claiming damages for fraud against the three defendants in these proceedings and John Hogarth, a director of Newcom Holdings (Adv Proc No 01-1105).[8] The allegations of fraud were to a great extent repeated in the specific performance allegations.[9] On 12 June 2001, the Bankruptcy Court conducted a hearing and approved the post-bankruptcy financing.[10]
[8] Affidavit of David John Tucker, sworn 19 November 2004 exhibit DJT25 being the Affidavit of James Wrathall sworn 18 November, 2004, tab 18.
[9] Ibid.
[10] Affidavit of Peter Partee being exhibit BCR 13 to the Affidavit of Brendon Roberts sworn 20 June 2001, [11], tab 10.
On 5 July 2001,[11] FSI obtained an injunction in the Bankruptcy Court against all three defendants which was later amended on 11 July 2001.[12]
[11] Exhibit DJT9 to the Affidavit of David John Tucker sworn 10 July 2001, tab 11.
[12]Exhibit BCR29 to the Affidavit of Brendon Roberts sworn 13 July 2001, tab 12 and Exhibit DJT25 to the Affidavit of David John Tucker, 19 November 2004 being the Affidavit of James Wrathall sworn 18 November, 2004, tab 18.
At some point, which I cannot determine on the material before me, Imbros was incorporated and in effect replaced FMC.
Australian proceedings
Whilst the above activities were occurring in the United States, FSI was concerned that the defendants in South Australia would try and deal with the intellectual property, the subject of the contract between the parties. FSI then instituted proceedings in South Australia on 24 May 2001, taking out an application for an interlocutory injunction to prevent the defendants from being able to trade with the intellectual property. The application was successful and on 24 May 2001 Lander J in this Court ordered that there be an injunction restraining the defendants from trading with regard to the intellectual property the subject of the said contract. His Honour noted the undertaking which was given to the Court by FSI though its counsel, was
to abide by any order of the Court or a Judge may make as to damages in case the Court or Judge should hereafter should be of the opinion that the defendants, or any of them shall have sustained any loss or damage by reason of the granting of the injunction contained in this order.
Lander J further ordered that “[f]or the better securing of the undertaking as to damages, the plaintiff is to pay to Kelly & Co, solicitors for the plaintiff, the sum of $AU250,000”, and a date and time were specified. An order by way of security for costs in the sum of $50,000 was also made.
The money was not deposited into the account of Kelly & Co within the time ordered but eventually the said sum was posted. Instead of coming from the plaintiff, the money came from others through the legal firm of Clayton Utz. Whilst the contributors appear to be associated with Imbros,[13] I expressly make no finding on the source of the funding as counsel appearing for Imbros requested that this issue be excluded from my consideration.
[13] Affidavit of Brendon Charles Roberts, sworn 11 June 2001, tab 8 and the Affidavit of Andrew Damien O’Halloran, sworn 23 August 2004, tab 5.
After the money was posted, the defendants became concerned about the plaintiff not being the source of the payment and an application was taken out on 11 June 2001 to vary the order to reflect that the money had been posted for and on behalf of FSI. This application to vary was refused by Lander J.
On 22 June 2001 upon the application of the defendants, Lander J discharged the 24 May 2001 interim injunction. Lander J also heard further applications for injunctions made by FSI and dismissed them with costs in favour of the defendants. In his judgment of 23 July 2001, his Honour indicated that the matters in issue in the Australian proceedings were to be finally determined in the US proceedings, and that the parties had submitted to the jurisdiction of the US Court.[14]
[14] Funge Systems Inc v Newcom Technologies Pty Ltd (No 2) [2001] SASC 253, [17] and [18].
Continuation of the US Proceedings
On 30 January 2002 an independent trustee in bankruptcy was appointed to replace the minority shareholders who had taken control of FSI prior to filing Chapter 11 proceedings. Darrell Clark was appointed trustee of FSI under s 1104(a) of the United States Bankruptcy Code. Mr Clark as trustee (“the Trustee”) was given authority to manage and administer all aspects of FSI, pursuant to s 1106 of the Code.
A trial in the adversarial proceedings on the Fraud Complaint in case number 01-1105 commenced in the Bankruptcy Court and proceeded for four days. The Court found that “FMC/Imbros had not presented any credible evidence” and that “certain of the testimony offered by FMC/Imbros’s key witness…was not believable.” [15] On the material before me I am unable to give the date or the specific outcome of these proceedings.
[15] Exhibit DJT25 to the Affidavit of David John Tucker, sworn 19 November 2004, [25], tab 18.
A trial in the adversarial proceedings case number 01-1096 took place in the Bankruptcy Court in December 2002 and January 2003. A judgment was delivered on 31 January 2003 in respect of the Specific Performance complaint.[16] As a result of that decision, in which FSI was unsuccessful, the Trustee considered a liquidation of FSI. On 12 March 2003 the Trustee’s Liquidating Plan of Reorganization for FSI was approved by the Bankruptcy Court. The Trustee’s Liquidating Plan of Reorganization rejected the Joint Plan of Reorganization proposed by FSI in 2001 and instead proposed to sell FSI’s assets to the highest bidder. The Trustee subsequently agreed to sell all of the assets of FSI to the shareholders of Imbros Corporation.[17] This approval enabled Imbros to continue to prosecute the adversarial claim in its own name.
[16] Ibid.
[17] Exhibit DJT21 to the Affidavit of David John Tucker, sworn 25 August 2004, tab 14.
Imbros appealed to the District Court of Virginia. That court, after considering the appeal, made a remand order on 30 July 2003 to the Bankruptcy Court for clarification of factual findings.[18]
[18]Affidavit of David John Tucker, sworn 19 November 2004 exhibit DJT25 being the Affidavit of James Wrathall sworn 18 November 2004, tab 18 at 9.
There was subsequently further argument in December 2003 and January 2004 in these adversarial proceedings.
A decision was given on 9 February 2004.[19]
[19] Affidavit of David John Tucker, sworn 25 August 2004, tab 14.
Finally, the Bankruptcy Court made an order on 20 February 2004 dismissing all of the claims for relief sought by FSI and the amended preliminary injunction was vacated.[20] These orders were supported by a “Summary of Findings of Fact and Conclusions of Law” of the Bankruptcy Court[21] in which the Court also expressed criticism of the credibility of the witnesses called by FSI, who included the shareholders of Imbros.
[20] Exhibit DJT22, Affidavit of David John Tucker sworn 25 August 2004, tab 14.
[21] Ibid.
Imbros further appealed to the District Court of Virginia against the orders made on 20 February 2004 dismissing the adversarial claims.
Subsequent to the approval of the Trustee’s Liquidating Plan of Reorganization in the Bankruptcy Court on 12 March 2003, Newcom Holdings and Benson asserted to the Trustee that they had suffered damages in relation to the interlocutory injunction granted in Australia by Lander J. The damages were asserted to be in excess of $12.05 million and Newcom Holdings and Benson argued that the damages should be treated as an administrative expense against the estate of FSI and should be payable as a priority under s 507(a)(1) of the Bankruptcy Code. This assertion was the subject of an objection filed by the Trustee in the Bankruptcy Court and that objection was later joined by Hunton & Williams, the solicitors for Imbros, in a Joinder filed on 21 March 2003.[22] The Joinder expressly indicated that Hunton & Williams was an administrative claimant in the estate of FSI, “as the fees and expenses incurred by Hunton & Williams as counsel to Imbros and FMC have been approved by Orders of this Court. Therefore, Hunton & Williams has standing [in its own right] to submit this Joinder.”[23] Hunton & Williams asserted that the claim by Newcom Holdings and Benson should be denied as it was based on speculation and was not concrete.[24]
[22] Exhibit SRP5 to the Affidavit of Stephen Robert Porges, sworn 10 January 2005, tab 28
[23] Ibid [2].
[24] Ibid [4] – [5].
As a consequence of the assertion and the objections there were negotiations between Hunton & Williams (through Mr Partee and Mr Westermann), the Trustee in Bankruptcy and Newcom Holdings and Benson through their solicitor, Mr Wrathall from the firm of Wilmer Cutler and Pickering, to see if an agreement could be reached as to Newcom Holdings and Benson’s asserted entitlement. A compromise was reached. A document called a “Stipulation and Orders” emerged from this negotiation.
The Stipulation and Orders came before Judge Mayer on 27 March 2003 (case no-01-12219-RGM). At the hearing Mr Westermann appeared and withdrew the Joinder filed by Hunton & Williams.
The Stipulation and Orders as dated 27 March 2003[25] are set out in two sections. First, a stipulation by the named parties of asserted facts which they sought the Court to find.
[25] Exhibit DJT21 to the Affidavit of David John Tucker, sworn 25 August 2004, tab 14.
It asserts:
This STIPULATION AND ORDER by and among Darrell Clark Esq., Chapter 11 Trustee (“Trustee”), as legal representative of debtor Funge Systems, Inc. (“Debtor” or “FSI”), and creditors Newcom Holdings, Pty. Ltd. (“Newcom”) and Keith Benson (“Benson”) is entered this 25th day of March 2003.
The assertions include many of the matters set out earlier in these reasons, including the background to the dispute. Thereafter there is a portion of the document which sets out the Agreement and Order.
After the stipulation the document states:
WHEREFORE IN ACKNOWLEDGMENT OF THE FACTS STIPULATED ABOVE AND TO COMPROMISE THIS DISPUTE AND THE MATTERS RAISED HEREIN, THE PARTIES HEREBY AGREE, AND THE COURT ORDERS AS FOLLOWS:
AGREEMENT AND ORDER
A. In partial acknowledgement of Newcom’s damages claim, the Trustee hereby consents to immediate release of the $250,000 (Australian) security posted in the Australian Court in FSI’s name in connection with the May 24 Injunction, payable to Newcom Holdings Pty. Ltd. and Benson or to such recipient as Newcom and Benson shall direct. The Trustee hereby waives, releases and disclaims any interest in said security on behalf of the Trustee and FSI’s Estate and creditors. To the extent that the Trustee and the Debtor have any authority with regard to the security posted in connection with the May 24 Injunction, the Trustee shall submit written instruction to the Debtor’s Australian counsel, Clayton Utz and Kelly & Co., to release the funds to Newcom immediately, provided, however, that neither the Trustee nor the Estate shall be liable for any additional fees incurred by Australian counsel.
B. The Trustee hereby transfers to Newcom and Benson all rights of the Debtor’s Estate in a deposit held by Smart Card Integrators, Inc., which deposit is subject to a potential claim in the name of FSI.
C. The Debtor’s Damages Undertaken provided to the Australian Court was made outside the ordinary course of business in violation of Sections 363(b) and 364(b) of the Bankruptcy Code. Therefore, the damages incurred by Newcom and Benson in excess of those compensated under paragraph A shall not be allowed as administrative expenses payable by the Estate under Section 503(b) of the Code, with priority under Section 507(a)(1) of the Code.
D. Nothing in this Stipulation and Order shall be construed to preclude or limit any claim that Newcom or Benson may assert for payment of their damages other than as against the Trustee or the FSI Estate.
E. Upon such time as this Stipulation and Order becomes a final, binding and non-appealable Order of this Court, the prohibition on distributions under the previously confirmed Chapter 11 Plan shall be lifted to enable the Trustee to distribute funds to creditors in accordance with the Chapter 11 Plan; provided that this limitation shall not apply to approved payments to professionals, including attorneys, accountants and the Trustee.
F. Nothing in this Stipulation and Order shall be deemed to preclude any person or entity which is not a party to this Stipulation and Order from presenting additional evidence or arguing other inferences or conclusions in any other proceeding held in any forum.
Subsequent to these orders being made by the Court on 27 March 2003, Imbros, on 3 June 2004, withdrew its appeal in the District Court of Virginia from the decision of the Bankruptcy Court on 20 February 2004, in which the adversarial claims had been dismissed.
It is the terms of this Agreement and Order of 27 March 2003 (“the US Orders”) which is sought to be enforced as a judgment in this Court together with a declaration that the second defendant be paid the said money and interest accumulated. This enforcement is sought in an endeavour to short circuit the need for a later hearing on the determination of the liability of FSI to the defendants for such damages as may have been suffered as a consequence of the interlocutory injunctions granted by Lander J on 24 May 2001.[26]
[26] Transcript, 27 January 2005, Bleby J, tab 40.
The arguments of the parties
In support of its argument Newcom Holdings proffered three main arguments. First, that the US Orders should be enforced as a foreign judgment in accordance with common law principles. Second, that either estoppel by record, issue estoppel or estoppel by omission applied, so as to prevent Imbros from challenging the US Orders. Third, that it would be an abuse of process for Imbros to seek orders inconsistent with the US Orders.
Rule 25
At the hearing, counsel for the second defendant, Mr Slattery QC indicated that Rule 25 of the Supreme Court Rules 1987, particularly r 25.04 was being relied upon for an application by the defendant that there be a summary judgment.[27] Counsel for Imbros, Mr Duggan indicated that this submission from the bar table was the first indication that the second defendant was relying on summary disposal for determination of this matter and that such a reliance meant that I was being asked to make a final determination of this matter rather than hearing the matter solely as an interlocutory application. Counsel for Imbros objected to this process.
[27] Transcript, 25 August 2005, 8.
I proceeded to hear the parties as to the substantive arguments and indicated I would determine whether r 25.04 should apply to this application, when giving my reasons for decision.
The issue in this application is confined and does not require me to consider broader issues of entitlement and rights beyond the enforcement of the US Orders. As previously indicated, counsel for Imbros asked me to assume that a determination of the source of the fund was not necessary in this application. I therefore consider it appropriate to ignore, for the purposes of considering this application, the source of the fund and what right or interest Imbros may have in relation to the said sum.
Newcom Holdings seeks an order that the $250,000 plus interest held in the trust account of Kelly & Co be paid to it in accordance with the US Orders. It argues that the terms of the US Orders were agreed to by Imbros as agent and attorney-in-fact of FSI, and that Imbros is estopped from asserting that the fund should not be released to Newcom Holdings in accordance with the US Orders.
Enforcement of the US Orders
In the absence of a reciprocal arrangement whereby the United States of America is listed in the Regulations of the Foreign Judgments Act 1991 (Cth), the Foreign Judgments Regulations 1992 (Cth) as a country to which the Governor-General has made a declaration of reciprocity, the enforcement of the US Orders is by way of common law principles.
The relevant principles for enforcement of a foreign judgment are that:
· the onus is on the party who asserts that the foreign judgment is entitled to recognition, to show that the foreign court had jurisdiction to grant the judgment;[28]
· the foreign court must have had jurisdiction over the relevant parties at the time when the jurisdiction was exercised;[29]
· the judgment must be for a certain sum;[30]
· the judgment must be final and conclusive in relation to the dispute between the parties;[31]
· the judgment must be res judicata between the parties on the issue, that is the proceedings must bind the same parties, the proceedings must be identical and in the same interest;[32]
· the judgment must be a judgment in relation to the merits of the case and not simply a procedural determination.
[28] R v McLeod (1890) 11 LR (NSW) 218 at 221; Grant v Spaanderman (Unreported, Supreme Court of Western Australia, 13 March and 21 June 1991, Judgment No 1679 of 1990).
[29] Benefit Strategies Group Inc & Anor v Prider (2004) 237 LSJS 1 [23, 24] per Gray J (“Prider”) and upheld by the Full Court on appeal Benefit Strategies Group Inc v Prider (2005) 91 SASR 544.
[30] Prider (2004) 237 LSJS 1.
[31] Prider (2004) 237 LSJS 1.
[32] Prider (2004) 237 LSJS 1.
Therefore, before a judgment of a foreign country is enforced it is necessary to look at who the parties are, what the issues were, and whether there was a final and conclusive determination of the merits of those issues before a court, for a certain sum.
I also note that in equity, as set out in White v Verkouille,[33] a foreign judgment can be enforced without requiring, as a pre-requisite, that it be made a judgment of the local court.
[33] [1990] 2 Qd R 191.
I will now consider these requirements.
In relation to the requirement that the foreign court must have had jurisdiction over the relevant parties at the time when the jurisdiction was exercised, this is not an issue. All potentially relevant parties had sufficient connection with the jurisdiction of the Bankruptcy Court. FSI was a United States corporation, the second defendant and Benson both submitted to the jurisdiction of the Bankruptcy Court and Imbros was also a corporation in the United States. The judgment in this instance refers to a sum of $250,000 and is a certain sum.
There are, however, a number of other fundamental issues to be determined. The major issues concern: the parties to the proceedings; the nature of the proceedings; what orders were being sought; the terms of the Stipulation and Order; and how that can bind the parties to this action, particularly the parties to this application, namely Newcom Holdings and Imbros.
The argument of Newcom Holdings taken at its highest, is that Imbros was directly involved in the negotiation of the Stipulation and Orders and consented to the making of the US Orders of 27 March 2003 (which is strongly denied by Imbros for reasons set out hereafter), and that Imbros was “the agent and attorney-in-fact” of FSI. However, even accepting this argument at its highest, there are a number of impediments to the enforcement of the US Orders in this action, namely;
· The matter before Judge Mayer on 27 March 2003 was not one in which Imbros was a party. The objection in the Bankruptcy Court was filed by the Trustee in bankruptcy and joined by Hunton & Williams acting in its own right and not on behalf of Imbros. The parties as expressed in the Stipulation and Orders are the Trustee in bankruptcy “as the legal representative” of FSI, and Newcom Holdings and Benson. It did not include Imbros. The Stipulation, which set out historical matters, referred to Imbros but the orders do not refer explicitly to Imbros. Mr Westermann, the solicitor for Hunton & Williams, appeared in court on the day and withdrew the Joinder it had made to the objection.[34] (I will refer to this appearance in more detail later in these reasons).
· The parties to this action in South Australia are FSI and the three defendants with Imbros as an Intervener. Only one defendant is seeking the enforcement of these orders and payment to it of the whole of the said sum. Therefore, effectively I have two parties before me, only one of which was a party to the US Orders. I also note that paragraph A of the orders refers to the security being payable to “Newcom Holdings Pty Ltd and Benson or to such recipient as Newcom and Benson shall direct.” It is not limited to Newcom Holdings.
· There are no pleadings which specifically set out the matters which would otherwise have been sought to be determined by the Bankruptcy Court if the matter had not resolved. All I have before me are the Stipulations and Orders, together with a copy of the Joinder of Hunton & Williams and some limited affidavit material, which may assist in identifying the matters in issue to be determined. What I can identify is, that the issue raised in the objection and Joinder is whether damages suffered by Newcom Holdings and Benson as a consequence of the interlocutory proceedings in South Australia, fell for description as administrative expenses against FSI’s estate.
· The Bankruptcy Court did not purport to resolve the merits of whether either Newcom Holdings or Benson had in fact suffered damages, and if so to determine the quantum of such damages in respect of each defendant as a consequence of the interlocutory injunction taken out against it by FSI in Australia. As an aside I also note that there were two sets of injunctions operating at almost the same time in both South Australia and the United States.
· Judge Mayer, when making the orders, appears to have been acting in an administrative capacity in relation to the dispute between the Trustee and the creditors of FSI being Newcom Holdings, Benson and Hunton & Williams. Judge Mayer was not acting in a judicial capacity deciding an adversarial action on any issue. It is highly unlikely that this would be regarded as a “judgment” of the court as distinct from orders to resolve a dispute made in an administrative capacity between the trustee and creditors.
· The Bankruptcy Court could not have jurisdiction, in the dispute before it, to determine that the said sum held by Kelly & Co for the specific purpose of supporting the undertaking as to damages as ordered by this Court, be paid to Newcom Holdings and Benson or their nominees. The undertaking is given to the Court,[35] it is not a right in personam enforceable by a party. It is only this Court which has jurisdiction to release the funds. This in effect was acknowledged in paragraph A of the US Orders which stated that, “to the extent that the Trustee and the Debtor have any authority with regard to the security posted in connection with the May 24 injunction.”
· Whilst a judgment on the merits may include orders based on an admission in an action,[36] or giving effect to a compromise through a consent judgment,[37] such consent orders cannot overcome the problems referred to above.
· I also have reservations as to whether the US Orders are final and conclusive as to the entitlement of Newcom Holdings to a quantum of damages as a consequence of the South Australian interlocutory injunction. The Stipulation records “Newcom and Benson assert that the minimum damages that were directly caused by the May 24 Injunction, for which the Debtor is liable under the Damages Undertaking are not less than $12,050,000.” This is not a finding, but simply confirmation of an assertion. Further the US Orders themselves do not seek to prevent any other party, such as Imbros, from seeking to claim that the security be paid to it, as permitted in the reservation expressed in paragraph F.
· Finally, Imbros was not a party to the US Orders, at best, Imbros, had an economic or financial interest in the assets of FSI. FSI was legally represented by the Trustee. Imbros is therefore not estopped by reason of the order of Judge Mayer alone, (as distinct from other legal issues of estoppel to which I will later refer), from pursuing its own economic and financial interest.[38]
[34] Transcript of 27 March 2003 hearing, exhibit JW3 to the Affidavit of James Wrathall sworn 18 November 2004 as exhibited to the Affidavit of David John Tucker, DJT25 sworn 19 November 2004, tab 18.
[35] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249, 318.
[36] Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537; Wells v D’Amico [1961] VR 672.
[37] Chamberlain v Deputy Commissioner of Taxation (Cth) (1988) 164 CLR 502; Marks v National & General Insurance Co Ltd (1993) 114 FLR 416.
[38] Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (Receivers and Managers Appointed) (in Liq) (1993) 43 FCR 510.
For these reasons I do not consider that the prerequisites for the enforcement in this Court of the US Orders of 27 March 2003 have been fulfilled.
The Role of Imbros in the making of the orders
The arguments of Newcom Holdings which I have rejected above as to the enforcement of the US Orders, which I have rejected, are largely based on the assumption that Imbros was directly involved in the negotiation of the Stipulation and Orders and consented to the making of the US Orders of 27 March 2003 and was “the agent and attorney-in-fact” of FSI. However, I consider that even this submission by Newcom Holdings is doubtful.
I am not satisfied on the material before me that Imbros was directly involved in the final expression of the US Orders or consented to the US Orders being made before Judge Mayer.
Newcom Holdings sought to rely on transcript of proceedings in the US, and an appearance by Mr Westermann, the solicitor from Hunton & Williams, who were also Imbros’ solicitors, as well as a series of email exchanges, to demonstrate the involvement of Imbros in the drafting of the US Order. The email correspondence was summarised as follows:
17.8.There were then a series of e-mails exchanges in respect of the draft Stipulation and Orders [Tab 18, at “JW2”]:
(a) On 25 March 2003 at 3.11pm Mr Wrathall sent an e-mail to Mssrs Partee and Westermann of Hunton & Williams attaching the Stipulation and Order.
(b) At 3.25pm Mr Wrathall sent an e-mail to Mssrs Partee and Westermann and asked them to ensure that there was nothing in the Stipulation which was incorrect [Mr Wrathall did not ask Mssrs Partee and Westermann to look at or comment on the Orders, which were stated to have been agreed with the trustee];
(c) At 3.58pm Mr Partee replied by saying that “it is nowhere near accurate”. Mr Partee also said “WE DON’T UNDERSTAND WHAT ROLE YOU ARE SUGGESTING THAT IMBROS CORP. IS TAKING WITH THIS STIPULATION”;
(d) At 7.06pm Mr Wrathall sent an e-mail to Mr Partee (and others) stating that he thought that many of the issues could be addressed with Peter;
(e) On 26 March 2003, at 8.21pm a final draft of the Stipulation was sent [there is no mention of the Orders being sent].
In that correspondence, Mr Wrathall was solicitor for Newcom Holdings and Benson, and Mr Partee and Mr Westermann were solicitors for Hunton & Williams.
Mr Duggan submitted that Imbros was not involved in the drafting of the Stipulation and Order.[39] He pointed to the sentence in capitals in paragraph 17.8 (c) above, which suggested Imbros was not involved. Mr Duggan also submitted that the drafting had already been done between Newcom Holdings and Benson and the Trustee, and that the solicitors, Hunton & Williams were only involved at the final stages. Furthermore, it was contended by Mr Duggan that any amendments or additions sought through the email correspondence between Mr Partee and Mr Wrathall, were not included in the final version of the Stipulation and Orders and that there was no evidence to conclude that the proposed orders were sent to the solicitors as distinct from the Stipulation.
[39] Transcript, 25 August 2005, 64.
I see force in these arguments on the evidence presented before me. I am not satisfied that Hunton & Williams were involved in the drafting of the Orders as distinct from the Stipulation which preceded the US Orders.
Turning now to the appearance of Mr Westermann before Judge Mayer on 27 March 2003. Mr Westermann announced that he appeared for FMC. Mr Albert, who appeared for the Trustee, then stated:
Judge, we do have a proposed stip. and order to hand up to the Court. It has been somewhat modified -- not in connection with any of the terms as to disallowance of what is going to be paid, but as to some of the recitals that Mr Westermann’s clients have excepted to, and those changes have been agreed to by both the Trustee and Mr. Wrathall. If I could hand it up to the Court, plus the red line version.
This transcript is referring to matters in the recital and also to matters pertinent to FMC/Imbros as clients of Hunton & Williams.
Later in the transcript Mr Westermann says:
I had a discussion with Mr. Wrathall prior to hearing on this point in Section B of the agreement and order, where the Trustee is transferring all rights he has in any deposit by Smart Card Integrators.
Funge Merger Corp. purchased any claims against SCI, and I just wanted to make it clear for the record that the Trustee is entitled to 50 percent of any proceeds as a result of a successful action. So I just wanted to make it clear that the Trustee is not transferring any claims. He is simply just transferring his interest -- the 50 percent interest in any proceeds, if we are able to prevail.
And we, at this time, would like to withdraw our joinder. We had joined in the Trustee’s objection to the administrative claim, and I would like to withdraw that at this time. Thank you.
This portion of transcript is clarifying a matter referred to in the US Orders in paragraph B which related by way of background to FMC. The subsequent reference to the withdrawal of the Joinder, in referring to “we” and “our”, can only refer to the Joinder of Hunton & Williams.
The Judge then confirms that the document is between the Trustee and Newcom Holdings and Benson.
In summary, in relation to the US Orders, the solicitors were acting in their own right but in addition they also purported to be protecting the interests of their client, FMC/Imbros, in relation to the expressions contained in the Stipulation and their impact on the orders which appeared thereafter in the document.
I cannot be satisfied on this material that Imbros formally consented to the US Orders, at its highest the material before me demonstrated that Imbros was likely to be aware of the US Orders and did not seek to intervene to object to them being made. That, however, does not mean that on their face, the US Orders are binding on Imbros.
Estoppel by Record and Issue Estoppel
The above impediments also arise in relation to whether estoppel by record or issue estoppel applies. Both of these forms of estoppel depend entirely upon the content of the US Orders and the character of the proceedings before the Bankruptcy Court. The argument of Newcom Holdings is that Imbros is estopped from denying the US Orders and therefore the monies held by Kelly & Co should be paid to it.
For reasons which I have already set out, the parties are not the same as those before Judge Mayer, and in particular Imbros was not a party to the US Orders. The defendants in each case are also different. There was no judicial determination on the merits of the order for payment to Newcom Holdings only. There was also no privity of interest between FSI and Imbros such that the US Orders in binding FSI, would bind Imbros as a matter of res judicata.[40] The interest of Imbros was an economic or financial interest in the assets of FSI, it was interested in the outcome and stood to benefit in the event that they were successful.[41] I therefore reject the argument that estoppel by record or issue estoppel apply.
[40] Ramsay v Pigrim (1968) 118 CLR 271.
[41] Affidavit of David James Wrathall sworn 18 November 2004, as exhibited to the Affidavit of David John Tucker, sworn 19 November 2004, tab 18.
Estoppel by Omission
Newcom Holdings also argues that the principle enunciated in the case of Port of Melbourne Authority v Anshun Pty Ltd[42] applies in this case. It was argued that Imbros had an opportunity to challenge the orders of Judge Mayer, but chose not to. This principle does not appear to me to be applicable on these facts. The situation is completely different from the circumstances in the Anshun case, where the party sought to be estopped was a party which was already before the court at the hearing and did not put an argument which it could have addressed at the time. By contrast in this case, Imbros was not the party before the Court. The Anshun principle could not be extended to require that a non-party should seek to be joined in an action and that if it does not, then it is estopped from taking a later action. This conclusion is further reinforced by the existence of paragraph F of the US Orders.
[42] (1981) 147 CLR 589.
Abuse of Process
The final argument proffered by counsel for Newcom Holdings is that it was an abuse of process for either Imbros, (or the first defendant Newcom Technologies, which had sought to withdraw and reserve is rights), to seek orders which were inconsistent with the orders made by Judge Mayer.
Such an argument relied on the inherent jurisdiction of this Court to prevent abuse of its procedure when it was either manifestly unfair to a party to litigation or would otherwise bring the administration of justice into disrepute.[43]
[43] Hunter v Chief Constable of the West Midlands Police [1982] AC 529, 536 applied in Walton v Gardiner (1993) 177 CLR 378, 392-394.
This argument raised similar points to those made in respect of estoppel by omission, together with reference to the fact that the judgments of the Bankruptcy Court in the adversarial proceedings demonstrated that FSI and Imbros lacked credibility and merit. It was submitted that Newcom Holdings should not be forced to “relitigate these issues”. In my view this argument misses the point of what is now sought in this application, namely an enforcement of the orders of Judge Mayer. The action in this Court, to be ultimately determined in a trial, is in relation to damages alleged to have been suffered by the defendants and the quantum of those damages. Further to be determined is whether some or all of the defendants, or alternatively Imbros, is entitled to the security posted with Kelly & Co as a consequence of what they will undoubtedly assert to have been an unmeritorious interlocutory injunction. This is not “re-litigation”, these matters have not been decided by the US Orders.
It also appeared to me, when this application was argued before me, that the abuse of process argument was expanded to include a submission that estoppel by conduct applied to prevent Imbros from denying that damages were sustained by Newcom Holdings of a minimum of $12.05 million and therefore entitlement to the monies held by Kelly & Co. This was put on the basis that Imbros had played a role in the orders and by reason of it agreeing to the orders, Imbros cannot now say those US Orders should not be enforced.
To the extent that this argument was implied, I again note paragraph F of the US Orders expressed a reservation and it was one to which Newcom Holdings agreed. I also agree with the submission made by Mr Duggan that the examination of the role of Imbros and its conduct leading to the making of the US Orders goes beyond this application and is best left for a trial.[44] There may be a differently formulated argument on estoppel which may be able to be put at the trial.
[44] Transcript, 25 August 2005, 51 line 25.
Orders of the Court
By way of draft minutes of order, dated 25 August 2005 and handed to the Court on the day of hearing, the applicant, Newcom Holdings Pty Ltd (“Newcom Holdings”) seeks the following:
To enforce the Stipulation and Orders of Judge Mayer made by consent in the United States Bankruptcy Court Eastern District of Virginia (Alexandria Division) on 27 March 2003 and 20 February 2004 in Case No 01-12219-RGM, Chapter 11;
1. A declaration that the second defendant is entitled to payment out of the trust account of Kelly & Co of the sum of $250,000, together with any accrued interest thereon being the sum paid into the that trust account pursuant to the orders of the Honourable Justice Lander made herein on 24 May 2001 (‘the monies’); and
2. An order that Kelly and Co pay the monies to Rankines, solicitors for the second defendant;
3. That Imbros Corporation pay the second defendant’s costs of and incidental to the hearing of 25 August 2005.
For the reasons which I have set out above, I consider that the application of Newcom Holdings should be refused. I therefore do not consider that r 25.04 applies to this application to have the matter dealt with as a summary judgment.
I conclude that the orders sought, as expressed in paragraph 2 of the Notice for Specific Directions dated 23 August 2004, and in the terms sought in the draft minutes of order, be dismissed. I will hear the parties as to costs.
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