K & S Corporation Ltd & K & S Group Pty Ltd v No 1 Betting Shop Ltd & Sportingbet PLC
[2004] SASC 155
•1 June 2004
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
K & S CORPORATION LTD & K & S GROUP PTY LTD v NO 1 BETTING SHOP LTD & SPORTINGBET PLC
Judgment of The Honourable Justice Duggan
1 June 2004
PRIVATE INTERNATIONAL LAW - SERVICE OUT OF JURISDICTION
Plaintiffs obtained leave to serve summons on defendants out of Australia - whether matters relevant to the granting of leave considered by Master - order granting leave to serve out of jurisdiction set aside.
Consideration as to whether leave required to serve summons out of Australia - held circumstances did not come within R 18.02(f) or (fa) and leave to serve required.
SCR 18.02 , referred to.
Agar v Hyde (2000) 201 CLR 552, applied.
PMT Partners Ltd (In Liq) v Australian National Parks and Wildlife Services (1995) 184 CLR 301; O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356; Saltram Wine Estates Pty Ltd v Independent Stave Co (1992) 57 SASR 156; South Adelaide Football Club Inc v Fitzroy Football Club (1988) 49 SASR 380, considered.
K & S CORPORATION LTD & K & S GROUP PTY LTD v NO 1 BETTING SHOP LTD & SPORTINGBET PLC
[2004] SASC 155Civil
Duggan J. The proceedings in which the present applications are made arose in the following way.
The second plaintiff is a wholly owned subsidiary of the first plaintiff. It is convenient to refer to them collectively as “K & S”.
At all relevant times K & S, which conducts a large transport business based in Mount Gambier, employed a man named Telford as its secretary and chief financial officer.
According to the amended statement of claim, Telford misappropriated approximately $8.5m belonging to K & S. It is alleged that the misappropriation took place between August 2001 and January 2002. It is further alleged that the funds were transferred in a series of transactions to the first defendant No. 1 Betting Shop Ltd (“NOBS”) which operated a book-making business. The amounts transferred were credited to Telford’s betting account with NOBS and were dissipated as a result of losses on bets placed by Telford with NOBS.
NOBS is a company which is incorporated and registered in Vanuatu. The second defendant, Sportingbet PLC is a publicly listed company incorporated in the United Kingdom. NOBS is a wholly owned subsidiary of Sportingbet PLC.
The statement of claim alleges that, NOBS, through its servants or agents, possessed knowledge which was such as to put it on enquiry as to the circumstances of the payments being made by Telford and that it failed to make enquiries which would have disclosed the true circumstances of the payments.
The plaintiffs claim that NOBS knew, or ought to have known, that it had no entitlement to the amounts of money transferred to it by Telford and that the transferred assets were held on a constructive trust for the plaintiffs. An alternative claim that the receipt by NOBS of the stolen monies injured the plaintiffs in their business giving rise to an entitlement to damages has been abandoned.
It is alleged that some of the funds were transferred on by NOBS to an account controlled by Sportingbet PLC. The case against Sportingbet PLC is that it received the funds in circumstances such that it knew or ought to have known that neither it nor NOBS had an entitlement to the funds and that they are presently held on a constructive trust for K & S. The statement of claim also alleges that other amounts were paid by NOBS to creditors of Sportingbet PLC and that Sportingbet PLC is accountable to K & S for an amount equal to those payments.
The plaintiffs seek a series of declarations by way of relief.
The proceedings were commenced by the filing of an inter partes summons on 25 October 2002. This was followed by an application by the plaintiffs for a retrospective grant of leave to serve the summons on the defendants out of the jurisdiction. The application was made pursuant to r 67.01 and r 18.07. An order granting retrospective leave to serve out of the jurisdiction was made by a master on 29 January 2003.
The present applications by the defendants raise a series of issues. The defendants claim that they are not properly before the court because service out of the jurisdiction cannot be supported under r 18. It was argued that the circumstances pleaded do not come within any of the categories referred to in r 18.02 which enable a summons to be served out of Australia without the leave of the court. Furthermore, it was argued that an order of the master granting leave to serve out of the jurisdiction pursuant to r 18.07 in so far as leave is necessary should be set aside.
It was further argued that the proper forum for the proceedings is Vanuatu and that the proceedings should be stayed as vexatious and an abuse of the process of the court. Finally, there is an application in the alternative to strike out specific pleadings.
According to the argument presented on behalf of the plaintiffs, leave to serve out the jurisdiction was not required as the case comes within both r 18.02(f) and r 18.02(fa). It was argued in the alternative that, if leave was required, then the order of the master should remain. Counsel for the plaintiffs also submitted that the proceedings should not be stayed for any reason.
It is convenient at this point to set out the relevant provisions of r 18.
Rule 18.02 provides:
“18.02 A summons may be served out of Australia without leave of the Court whenever the subject matter of the claim is or relates to:
. . .
‘Tort committed in the State
(f)a tort committed wholly or partly within the jurisdiction; or
(fa)where the proceedings, wholly or partly, are founded on, or are for the recovery of damages in respect of damage suffered in the State caused by a tortious act or omission wherever occurring.’ ”
Rule 18.07 provides:
“18.07 (1) An originating process which does not come within Rule 18.02, or other process of the Court, may be served out of the State with the leave of the Court.”
Before dealing with the arguments which have been advanced, it is necessary to say something further about the background to the litigation. I have said that the present proceedings were commenced with the filing of an inter partes summons dated 25 October 2002. Prior to the filing of the summons, other actions had been commenced in relation to the alleged misappropriation by Telford of monies belonging to K & S.
The first of these actions was brought by K & S Corporation Ltd against Telford and his wife. This action was settled and a consent judgment was entered against Telford for the sum of $20,053,523.06.
Another action, commenced on 3 May 2002, was brought to determine the entitlement to a sum of $2,680,000.00 which was part of an amount of $3m alleged to be the last of a series of misappropriations made by Telford to finance his betting activities. The funds were transferred from the K & S bank account to NOBS’ bank account in Canberra. The court ordered that these funds be held in an account under the joint control of the solicitors for the parties pending the court’s decision as to the entitlement to the funds. The action was brought by K & S against Sportingbet Australia Pty Ltd (Sportingbet Australia) which is a subsidiary of Sportingbet PLC, Telford and the State Director of Public Prosecutions. The Director was joined as a defendant in his capacity as the Administrator under the Criminal Assets Confiscation Act. The action against the Director was dismissed by consent during the trial and the plaintiffs decided not to seek any orders against Telford. The trial took place before Besanko J who delivered judgment on 28 March 2003. His Honour found in favour of K & S and made various declarations sought by the plaintiffs against Sportingbet Australia.
When the present action was commenced, K & S filed an application seeking orders in relation to the protection of certain assets. This application was supported by an affidavit sworn by Mr Daminato, a member of the firm of solicitors acting for K & S. The application also sought an order that certain paragraphs of Mr Daminato’s affidavit be sealed by reason of the confidential material which they contained. A similar application was made in respect of some of the exhibits referred to in the affidavit.
The proceedings in the present matter named seven defendants. NOBS and Sportingbet PLC were the first and seventh defendants respectively. The second, third, fifth and sixth defendants were directors of NOBS and the fourth defendant was a person who participated in the management of NOBS. The proceedings against all but the first and seventh defendants have now been discontinued.
On 11 November 2002 the first, fifth and sixth defendants filed an application seeking to strike out the inter partes summons. This application was supported by an affidavit sworn by Mr Kenny, the solicitor for these defendants, which stated that the first defendant objected to the jurisdiction of the court on the grounds that it was a company incorporated in Vanuatu and that it was beyond the jurisdiction of the court.
The applications by the plaintiffs for the protection of the assets and the application by the defendants for the striking out of the summons came on for hearing before Bleby J on 12 November 2002. Orders were made for the protection of the assets referred to in the application and there was a further order directing that paragraphs 20 to 32 (inclusive) of Mr Daminato’s affidavit sworn on 23 October 2002 and certain documentary exhibits referred to in the affidavit were to remain sealed until further order. The defendants’ application based on the objection to the jurisdiction of the court was adjourned to a date to be fixed.
On 16 January 2003 the plaintiffs applied for an order that they “be granted leave, so far as it is necessary, to serve the summons” on the defendants, including the first and seventh defendants. The application was made pursuant to r 18.07.
In the meantime, Mr Kenny received instructions to act for the seventh defendant, Sportingbet PLC. On 23 January 2003 the solicitors for the plaintiffs wrote to Mr Kenny confirming that he acted for NOBS and Sportingbet PLC. The letter also gave notice of the application for service out of the jurisdiction dated 16 January 2003 and advised that the hearing date for the application had been scheduled for 29 January 2003.
The plaintiffs’ application came before a master on 29 January 2003. The master granted leave to serve out of the jurisdiction and made it retrospective to 25 October 2002, the date on which the inter partes summons had been issued. The plaintiffs were represented at the hearing before the master, but there was no representation for the defendants. Mr Kenny has stated in an affidavit dated 27 June 2003 that the advice from the plaintiffs’ solicitors in relation to the application and the date of the hearing was not brought to his attention because of an oversight in his office.
The plaintiffs filed a statement of claim on 30 January 2003.
Various reasons were put forward by the defendants as to why the order granting leave for service out of the jurisdiction should be set aside. However, the major complaint was based on the inadequacy of the material before the master and the failure by him to direct his attention to the factors relevant to the exercise of the discretion pursuant to r 18.07.
The affidavit in support of the application did not refer to any of the facts upon which the application was based. Instead, the deponent stated in paragraph 3 of the affidavit:
“In support of this application I seek leave to refer to the affidavit of Victor John Daminato sworn on 22 October 2002 and filed in the within action on 25 October 2002.”
The affidavit of Mr Daminato there referred to is the affidavit which was filed in support of the application for an injunction to restrain the use of assets belonging to the defendants.
I have said that, due to an oversight, Mr Kenny did not attend the hearing of the plaintiffs’ application for leave to serve out of the jurisdiction. There was no transcript of the proceedings before the master and no reasons were given by him as to why he granted the application.
At the hearing before me, the plaintiffs tendered another affidavit sworn by Mr Daminato who attended the hearing before the master. Dr Baxter appeared as counsel for the plaintiffs at the hearing. Mr Daminato described what occurred at the hearing. In so far as it is relevant the affidavit states:
“2The secretary to Judge Kelly said there was no appearance by the defendant.
3Dr Baxter started to address on the effect of my affidavit sworn on 22 October 2002 and that an order nunc pro tunc was sought. After a short period the Master cut across and said words that I recollect as or to the effect of ‘Look, Dr Baxter. Do not worry about the affidavit material. I have considered the papers and I propose to make an order’.
4Dr Baxter raised the issue of the date for the order nunc pro tunc to relate back to and propose the relevant date as the date of commencement of the proceedings in the Mareva application of 25 October 2002. Master Kelly agreed to this date and said that he would make the order.
5(Irrelevant)
6Dr Baxter had no opportunity and did not inquire of the Master as to whether or not he had opened the sealed envelope forming part of my filed affidavit. I am unaware whether or not the Master had done so prior to his statement that he had considered the papers, and that he was prepared to make the order.”
The paragraphs of the affidavit which were sealed and the exhibits which are in separate sealed packets remain on the file. The packages appear not to have been opened subsequent to the sealing.
The information in that section of the affidavit which is not sealed falls a long way short of supplying the necessary factual basis required to determine the appropriateness of granting leave to serve out of the jurisdiction.
The deponent states that the affidavit was prepared for the purpose of restraining the defendants from disposing or otherwise dealing with certain assets. It states that NOBS is a company incorporated and registered in Vanuatu and that it is a wholly owned subsidiary of Sportingbet PLC. The affidavit states that NOBS carried on business as a telephone bookmaker and that it maintained an account with the Westpac bank. The location of the particular branch of the Westpac bank is not identified in the unsealed section of the affidavit.
The affidavit states that Telford was employed by K & S and that NOBS permitted him to place wagers on credit. It then states that, on the occasions identified in the affidavit, Telford arranged for the electronic transfer of funds from an ANZ bank account operated by K & S in Mount Gambier to NOBS’ Westpac account. It is alleged in the affidavit that the transfers were made without the consent of K & S.
There is no reference in the unsealed section of the affidavit to the nature of the cause or causes of action which might be brought against the defendants. The affidavit simply states that the plaintiffs propose to institute proceedings “seeking recovery of the sums which Telford caused to be paid by them to NOBS”.
The statement of claim was not available to the master as it had not then been filed.
The materials to which the master referred were confined to the inter partes summons, the application, the short affidavit in which it was stated that reliance was placed on the affidavit of Mr Daminato and the unsealed sections of Mr Daminato’s affidavit. The information contained in these documents was quite inadequate for the purpose of deciding whether a grant of leave pursuant to r 18.07 was appropriate in relation to each defendant.
The order granting leave to serve outside the jurisdiction will be set aside.
However, Dr Griffith QC, for the plaintiffs, argued that leave to serve out of the jurisdiction was unnecessary in that the case pleaded comes within r 18.02(f) and (fa).
According to the argument, r 18.02 (f) is applicable because the subject matter of the claim “relates to … a tort committed wholly or partly within the jurisdiction”. It was submitted that the plaintiffs’ case would establish that Telford committed the tort of deceit or the tort of conversion by unlawfully and fraudulently arranging for the transfer of funds from the bank account of his employer, K & S, to NOBS’ bank account in Canberra. The funds were then transferred to an account operated by Sportingbet PLC in the United Kingdom. It was argued that the subject matter of the present claim, namely, the creation of a constructive trust “relates to” the tort committed by Telford within the jurisdiction. This connection, so it was said, brings the proceedings within r 18.02(f).
It is doubtful whether the allegations would support a claim of deceit against Telford. However, it is arguable that the facts pleaded in relation to Telford’s conduct amount to the tort of conversion, the essence of which is “a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel”: Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 per Dixon J at 229. This tort has not been pleaded against Telford in any of the actions arising out of his conduct, but it is asserted that his actions amount to the commission of the tort.
I acknowledge that, in approaching the construction issue which is raised by this argument, it is necessary to bear in mind the instruction given by the High Court in Agar v Hyde (2000) 201 CLR 552. In the joint judgment of Gaudron, McHugh, Gummow and Hayne JJ their Honours said at [42 – 43]:
“Considerations of comity, and consequent restraint, have informed many of the reported decisions about service out of the jurisdiction (See, eg, Contender 1 Ltd v LEP International Pty Ltd (1988) 63 ALJR 26 at 28-29; 82 ALR 394 at 398-399, per Brennan J; Vitkovice Horni a Hutni Tezirstvo v Korner [1951] AC 869 at 877, per Lord Simonds; Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460 at 481, per Lord Goff of Chieveley). It is, however, important to notice that rules of court, or local statutes, providing for service outside the jurisdiction are now commonplace – at least in jurisdictions whose legal systems have been formed or influenced by common law traditions. Further, as the Court of Appeal rightly noted in its reasons in these matters, contemporary developments in communications and transport make the degree of ‘inconvenience and annoyance’ (Société Générale de Paris v Dreyfus Brothers (1885) 29 Ch D 239 at 243; per Pearson J) to which a foreign defendant would be put, if brought into the courts of this jurisdiction, ‘of a qualitatively different order to that which existed in 1885’ (Hyde v Agar (1998) 45 NSWLR 487 at 507.
The considerations of comity and restraint, to which reference has so often been made in cases concerning service out of the jurisdiction, will often be of greatest relevance in considering questions of forum non conveniens (Pt 10, r 6A(2)(b). The starting point for the present inquiry, however, must be the terms of the Rules, not any general considerations of the kind just mentioned.”
It could not be said that the subject matter of the claim in the present case “is” the tortious conduct of Telford. However, reliance is placed on the expression “or relates to” in the opening words of r 18.02. According to the argument, the cause of action pleaded against the defendants “relates to” the tortious conduct of Telford. This conduct took place within the jurisdiction and so the subject mater of the claim comes within r 18.02(f), thus entitling the plaintiffs to serve the defendants outside the jurisdiction without requiring the leave of the court.
The purpose of r 18.02 is to identify, for jurisdictional purposes, various situations in which the subject matter of the claim has some nexus with the State. If the subject matter “is” or “relates to” one of these situations, the summons can be served out of the jurisdiction without leave. It is clear that phrases such as “relates to” and “in relation to” (the latter being included in Sir Ernest Gowers’ list of “blunderbusses of vague phrases”: Gowers, “The Complete Plain Words” (1963) 43) permit a generous interpretation in many instances. However, it is necessary to interpret these expressions in context and by reference to their purpose.
In the joint judgment of Toohey and Gummow JJ in PMT Partners Ltd (In Liq) v Australian National Parks and Wildlife Services (1995) 184 CLR 301 at 330 their Honours said:
“It is apparent that the words ‘in or in relation to’ are particularly wide. We have already referred to the idea that, as a facultative provision, there is no apparent call to read down the words used, or to give them any constricted operation. Cases concerning the interpretation of this phrase in other statutory contexts are of limited assistance. However, the cases do show that the words are prima facie broad and designed to catch things which have sufficient nexus to the subject. The question of sufficiency of nexus is, of course, dependent on the statutory context.”
Their Honours referred to O’Grady v Northern Queensland Co Ltd (1990) 169 CLR 356 at 367 where Dawson J said:
“The words ‘in relation to’, read out of context, are wide enough to cover every conceivable connection. But those words should not be read out of context, which in this case is provided by the Mining Act 1968 (Q). What is required is a relevant relationship, having regard to the scope of the Act. Where jurisdiction is dependent upon a relation with some matter or thing, something more than a coincidental or mere connexion – something in the nature of a relevant relationship – is necessary.”
I have observed that the purpose of r 18.02 is to identify and describe the particular circumstances in which leave to serve out of the jurisdiction is not required. These circumstances are defined with some precision in the paragraphs of the rule. The nature of the subject matter is described in each category along with the nexus which is required in order to attract the jurisdiction of the court as of right. The focus is on the nature of the action described in the paragraphs and it is evident from the descriptions why it was considered appropriate to allow service without leave in each case.
It is unlikely, then, that the purpose of including the words “or relates to” was to broaden the scope of the categories so as to require no more than an undefined connection with the subject matter of each category. The far reaching consequences of such a construction is well demonstrated by the result which is argued for in the present case.
The consequence of the construction sought by the plaintiffs would be that the tort referred to in r 18.07(f) need not be the subject matter of the action. Instead, the subject matter is a claim in equity which has some relationship to the tort. The tortious act of Telford, if such it was, constituted a step in the history of the events which the plaintiffs claim led to the creation of a constructive trust. In a sense it can be said that the tort and the constructive trust are related. But it is my view that the words “or relates to” are intended to do no more than provide an identifying link between the subject matter of the claim and one or other of the causes of action referred to in r 18.02.
This appears to have been the view of Matheson J in Saltram Wine Estates Pty Ltd v Independent Stave Co (1992) 57 SASR 156 at 162. Although his Honour referred to the now outmoded consideration of exercising a discretion in favour of the foreigner in service out of the jurisdiction cases, his reasoning on the construction of r 18.02 can be considered independently of this consideration.
Reference was made in the course of argument to the history of the Supreme Court Rules. The relevant provision in the 1947 Supreme Court Rules provided as follows:
“O.11r1 Service out of the jurisdiction of a writ of summons or notice of a writ of summons may be allowed by the Court or a Judge whenever –
(f) the action is founded on a tort committed within the jurisdiction.”
Dr Griffith argued that the replacement of the words “is founded on” with the expression “is or relates to” was an explicit extension of the traditional categories relevant to service out of the jurisdiction without leave. However, it is relevant to note that, although the subject matter of each category remained substantially the same when the 1987 Supreme Court Rules were promulgated, the layout of the relevant rule was changed. In the 1947 rules each category was described fully within the individual paragraphs. As can be seen from the wording of O11r1(f) above the words “the action is founded on” appear in the paragraph which defines the category and not in the general words of description at the commencement of the rule. Other paragraphs contained expressions such as “the action is for …” and “the action is one brought …”
It is apparent from the wording of the present rules that an attempt was made to simplify the wording by the use of the expression “whenever the subject matter of the claim is or relates to” in the opening words of the rule so that this general expression could be applied to each of the paragraphs instead of attempting to define each category in its entirety within those paragraphs.
However, a difficulty arose in choosing words of general description which were appropriate to the wording of each paragraph. In my view, the reason for the change in wording in the new rules was not to significantly extend every category described in r 18.02, but rather to provide an appropriately worded connecting link between the words of general description and the individual paragraphs. The word “is” is appropriate for some of the paragraphs which follow and the expression “or relates to” is appropriate for others.
The 1913 Rules of Court employed a combination of both methods of expression. In the rule which is set out below the first five categories rely on the general words used at the commencement of Order X r1(I) which include the connecting word “is”. However, it was found convenient to define the categories in paragraphs II, III and IV entirely within those paragraphs. The use of the word “is” which was appropriate for the other categories was an inappropriate linking word for the descriptions contained in the subsequent categories.
Order X, to the extent that it is relevant, provided as follows:
“Service Out of the Jurisdiction
1Service out of the jurisdiction of any originating proceeding, or notice of any originating proceeding, or of any notice of any judgment or order to be served pursuant to Order XV may be allowed by the Court or a Judge –
IWhenever the subject matter of the cause or matter, so far as it concerns the party to be served is –
(a) Land or other property situated or being within the jurisdiction (with or without rents or profits thereof); or
(b) Any shares or stock of a corporation or joint stock company having its principal place of business within the jurisdiction; or
(c) Any deed, will, document, or thing affecting any such land, shares, stock, or property: or
(d) The estate of any deceased person who at the time of his death was domiciled within the jurisdiction.
(e) Trust property within the jurisdiction subject to a trust which ought to be executed according to the law of South Australia.
IIWhen any contract in respect of which relief is sought in the cause or matter against such party by way of enforcing, rescinding, dissolving, annulling, or otherwise affecting, such contract or by way of recovering damages or other remedy against such party for breach thereof, was made or entered into within the jurisdiction; or
IIIWhen the relief sought against the party is in respect of a breach within the jurisdiction of a contract wherever made; or,
IVWhen any act or thing sought to be restrained or recovered or for which damages are sought to be recovered, was done or is to be done or is situate within the jurisdiction, or
VWhenever at the time when the liability sought to be enforced against such party arose he was within the jurisdiction.
VIWhere such party is a necessary or proper party to a cause or matter properly instituted against some other person duly served within the jurisdiction.” (emphasis added)
I reject the argument that the purpose of the amendments in the 1987 Rules was to extend the scope of the categories which did not require leave to serve. In my view, the present case does not come within r 18.02.
I am also of the view that r 18.02(fa) does not apply. This sub-rule is awkwardly expressed. It was inserted in the rules as an amendment and there was no attempt to harmonise it grammatically with the general words at the commencement of the rule. The words “is or relates to” do not fit in with the wording of this sub-paragraph. However, the sub-paragraph contemplates a situation where “the proceedings, wholly or partly, are founded on, or are for the recovery of damages in respect of damages suffered in the State caused by a tortious act or omission wherever occurring”.
The plaintiffs’ argument on this point is summarised in their outline of submissions:
“35 So here, the claims are directed to recover the stolen moneys that Mr Telford tortiously transferred to NOBS. These moneys have been transferred by NOBS to PLC. This loss is the principal damage to the Plaintiffs which was caused by Telford’s tortious act. The proceedings are directly related to that damage and its recovery, and fall within Rule 18.02(fa).”
It cannot be said that the present proceedings are founded on, or are for, the recovery of damage caused by a tortious act. The statement of claim seeks declarations that NOBS is liable to pay to the plaintiffs certain specified sums of money and that NOBS and Sportingbet PLC hold certain sums of money on trust for the plaintiffs.
In my view the rule is restricted to a claim for damages which is based on damage arising from a tortious act.
There remains in the statement of claim a claim for damages against NOBS, but that was in respect of a claim in the alternative which has now been abandoned, that the receipt by NOBS of the stolen moneys injured the plaintiffs in their business. There is a suggestion in the plaintiffs’ supplementary written submissions forwarded to the court after argument had been presented, that the claim for damages in the statement of claim might be viewed as a claim for equitable damages in relation to the plaintiffs’ claim in equity. This does not appear to have been the original basis of the claim for damages and the suggestion that it could relate to equitable damages was raised for the first time in the written submissions to which I have referred.
In any event, I reject the notion that r 18.02(fa) encompasses the equitable claim based on a constructive trust which is made in the present case. I do not find the reasoning in South Adelaide Football Club Inc v Fitzroy Football Club (1988) 49 SASR 380, a case dealing with different jurisdictional provisions, of any assistance in the present case.
In my view, it cannot be said that the proceedings are for the recovery of damages; they seek declarations in respect of specified payments and the payment of specified amounts. Furthermore, the proceedings are founded on obligations said to arise from a constructive trust, not on a tortious act. The “proceedings” referred to in r 18.02(fa) can only refer to the cause of action in the matter which requires service out of the jurisdiction.
I have said that the order of the master granting leave to serve out of the jurisdiction must be set aside. It follows from what I have said about the inapplicability of r 18.02, that leave is required. Without expressing any view about the appropriateness or otherwise of a grant of leave, there would seem to be no reason why a fresh application pursuant to r 18.07 cannot be made. In the meantime, however, it would be inappropriate for me to consider at this stage the issue of forum non conveniens which was debated before me.
However, in the light of the arguments on the application to stay the proceedings, it is appropriate to express my views on that application in the event that I am mistaken in relation to the arguments arising out of r 18.
The defendants asserted that the present proceedings should be stayed as an abuse of the process of the court. According to the argument, the plaintiffs should not be allowed to re-litigate issues which were before Besanko J in the trial of the action between K & S and Sportingbet Australia (the Sportingbet Australia litigation).
I have said that the earlier proceedings were brought to determine the entitlement to a sum of $2,680,000.00 which was part of an amount of $3m which Telford had arranged to be transferred from the bank account of K & S to the bank account controlled by Sportingbet Australia.
According to the case for the plaintiffs, the amount in issue in the Sportingbet Australia litigation was the last in a series of misappropriations by Telford. It is alleged that this misappropriation occurred in early April 2002.
The misappropriations which are relevant to the present case are as follows:
Date Amount
24/8/01 $1,400,000.00
25/9/01 $2,100,000.00
9/10/01 $ 800,000.00
18/12/01 $1,500,000.00
17/1/02 $2,700,000.00These funds were transferred from the account operated by K & S to a Westpac account in the name of NOBS in Canberra.
Besanko J summarised the issues in the Sportingbet Australia litigation in his reasons for decision at [4]:
“The principal basis of the plaintiffs’ claim is an assertion that there is a constructive trust over the disputed monies in their favour. The plaintiffs assert that [Sportingbet Australia] had the required level of knowledge or notice as to the source of the monies and the circumstances under which they were paid to make [Sportingbet Australia] a constructive trustee of the monies. [Sportingbet Australia] denies that it had the required level of knowledge or notice. In addition, it raises various defences including change of position, the provision of good consideration for the payment, estoppel and election.”
After considering the history of the transfers of funds arranged by Telford and the evidence in relation to them his Honour concluded [154]:
“I am satisfied that shortly after the payment on 24 August 2001 NOBS had the required level of knowledge, namely, it wilfully and recklessly failed to make the inquiries an honest and reasonable man would have made and that subsequent events up to early April 2002 reinforce that conclusion. If I am wrong and NOBS did not have the required level of knowledge in August 2001, I am nevertheless satisfied that events between August 2001 and early April 2002 were such that immediately prior to the payment on 15 April 2002 [Sportingbet Australia] had the required level of knowledge in that it had wilfully and recklessly failed to make the inquiries an honest and reasonable man would have made. I reject Sportingbet’s submission that inquiries are unlikely to have revealed the true position. If a member of the management team had only looked at the bank statements the position would have become fairly clear that Telford was not making payments with his own monies and a general inquiry about K & S Group would have revealed that he was not entitled to use that company’s monies.”
These findings were made against the background of a discussion by the trial judge of the various states of knowledge sufficient to constitute a person a constructive trustee in relation to trust monies received by that person as a consequence of a breach of trust by another.
Besanko J then gave reasons for rejecting Sportingbet Australia’s assertions of a change in the position of the defendant made on the faith of receipt of monies, the provision of good consideration for the payment, estoppel by reason of the plaintiffs’ imprudence and the contention that the plaintiffs were precluded from obtaining relief in the action by reason of a successful action it had taken against Telford for damages in excess of $19m. Part of the funds misappropriated consisted of the sum of $3m paid to Sportingbet in April 2002.
At the hearing before me, it was acknowledged by Mr North SC, for the defendants, that the defendants were not the same in the two cases. However, he relied on the following passage from the judgment of Mason CJ, Deane and Dawson JJ in Walton v Gardiner (1993) 177 CLR 378 at 392:
“The inherent jurisdiction of a superior court to stay its proceedings on grounds of abuse of process extends to all those categories of cases in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted to instruments of injustice or unfairness. Thus, it has long been established that, regardless of the propriety of the purpose of the person responsible for their institution and maintenance, proceedings will constitute an abuse of process if they can be clearly seen to be foredoomed to fail (See, eg. Metropolitan Bank v Pooley (1885) 10 App Cas 210 at pp 220-221; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at pp 128-130). Again, proceedings within the jurisdiction of a court will be unjustifiably oppressive and vexatious of an objecting defendant, and will constitute an abuse of process, if that court is, in all the circumstances of the particular case, a clearly inappropriate forum to entertain them (See, generally, Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538). Yet again, proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings (See, eg. Reichel v Magrath (1889) 14 App Cas 665, at p 668; Connelly v Director of Public Prosecutions [1964] AC 1254 at pp 1361-1362). The jurisdiction of a superior court in such a case was correctly described by Lord Diplock in Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at p536 as ‘the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people”.
Mr North argued that, although the parties are different in the present application, there is a precise identity of issues between the two cases with the exceptions that the final payment of $3m is not an issue in the present case and the liability of Sportingbet PLC was not an issue in the previous case. He said that, although NOBS was not a party to the previous matter, the issue of NOBS’ knowledge was decided by Besanko J. According to the argument, the facts give rise to circumstances analogous to Anshun estoppel. He argued that it was an abuse of the court’s process to involve the court in hearing the present matter which could give rise to conflicting decisions.
Dr Griffith emphasised the fact that the parties were different and no estoppel could arise. He said that there was good reason to proceed first with the claim for the recovery of the sum of $3m. The greater part of this amount was being held in a stakeholder account and a Mareva injunction had been granted in relation to it. He said it was important at the time for that matter to be tried expeditiously and the court facilitated an expedited hearing. He said it was open to a differently constituted court to reach a different view on any facts common to both cases.
Dr Griffith relied upon the decision of the Full Court in SA Housing Trust v State Government Insurance Commission (1989) 51 SASR 1. In that case an action was brought for indemnity under a policy of insurance. The insured, a public housing authority, sought indemnity in relation to damages awarded to the child of one of its tenants who was injured by a faulty stove. The insurer alleged that the insured had breached certain conditions of its policy. The insurer had not been joined as a party in the action brought on behalf of the child against the insured.
The judge who presided over the action for indemnity held that the insured should not be permitted to argue a departure from certain findings of the trial judge before whom the action for damages was heard. An appeal to the Full Court against this decision was allowed.
Whilst acknowledging the power of the court to prevent an abuse of its processes and that such a power could be exercised in cases where an attempt was made to re-litigate issues, the Full Court held that the issues in the two cases were different. King CJ said at 20:
“There is the further consideration that what is in question is not the ultimate issue in the previous proceedings, namely the issue of negligence, but certain findings of fact made in the course of the judge’s reasoning by which he reached the ultimate finding of negligence. The finding of negligence would have been open even if the child’s mother did not complain to the appellant in terms which made clear the extremely dangerous character of the defect in the cooker. There is no case in which a court has held it to be an abuse of process to seek to re-open intermediate findings or fact which do not of themselves determine the ultimate issue.”
Later in his judgment, the Chief Justice said at 21:
“I do not think that the fact that the appellant did not join the respondent as a third party in the other proceedings is a material consideration in the circumstances. The joinder of third parties is often a convenient and desirable mechanism for determining all issues in the same proceedings and avoiding multiplicity of proceedings. There are circumstances, however, where the joinder of a third party would merely produce unwarranted complexity and increased costs. The joinder of a third party has never been regarded as obligatory. There is machinery for a third party to seek to be joined if he considers that to be the appropriate course.”
In my view, the court should be slow in a matter such as the present to prevent the plaintiffs from pursuing their claim. The issue in the Sportingbet Australia litigation was relatively confined. Declarations were sought in respect of a sum of money which was held in an account under the control of the solicitors for the parties. The plaintiffs’ claim in the present case is in relation to a series of payments to different defendants, albeit that the defendant companies are related.
There was almost no dispute in relation to the facts led by either side in the earlier litigation. The main issue between the parties was in relation to the inferences to be drawn from those facts.
The main factual issue necessary for determination in the earlier litigation was the knowledge of Sportingbet Australia at the time of the receipt of the transfers of funds from Telford. The trial judge did consider the knowledge of NOBS over the period of the payments because he considered that this, in turn, was relevant to the knowledge of Sportingbet Australia at the time of the last payment. He made a finding that, after the first payment on 24 August 2001, NOBS had the required level of knowledge relevant to the creation of a constructive trust. However, it is not without significance to the present application that he made an alternative finding which he expressed in the following passage at [154]:
“I am satisfied that shortly after the payment on 24 August 2001 NOBS had the required level of knowledge, namely, it wilfully and recklessly failed to make the inquiries an honest and reasonable man would have made and that subsequent events up to early April 2002 reinforce that conclusion. If I am wrong and NOBS did not have the required level of knowledge in August 2001, I am nevertheless satisfied that events between August 2001 and early April 2002 were such that immediately prior to the payment on 15 April 2002 Sportingbet had the required level of knowledge in that it had wilfully and recklessly failed to make the inquiries an honest and reasonable man would have made. I reject Sportingbet’s submission that inquiries are unlikely to have revealed the true position. If a member of the management team had only looked at the bank statements the position would have become fairly clear that Telford was not making payments with his own monies and a general inquiry about K & S Group would have revealed that he was not entitled to use that company’s monies.”
It is possible that another judge could reach a different view on the knowledge of NOBS in any future proceedings. Apart from anything else, the evidence may differ in important respects. However, on the assumption that the court has jurisdiction to hear the matter, I do not think that the possibility of conflicting decisions on this issue is sufficient reason to prevent the plaintiffs from pursuing their claim: nor do I think the other aspects relied upon by the defendants in support of their claim of abuse of process justify that course.
For the reasons which I have given, the order granting leave to serve out of the jurisdiction will be set aside.
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