Kadkhudayan v British American Tobacco (Australia) Services Ltd
[2009] SASC 389
•21 December 2009
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
KADKHUDAYAN & ANOR v BRITISH AMERICAN TOBACCO (AUSTRALIA) SERVICES LTD
[2009] SASC 389
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Duggan and The Honourable Justice Nyland)
21 December 2009
ESTOPPEL - FORMER ADJUDICATION AND MATTERS OF RECORD OR QUASI OF RECORD - FORMER ADJUDICATION - JUDGMENT INTER PARTES
Appellants commenced proceedings against the respondent in Federal Court seeking damages for breaches of the Trade Practices Act 1974 (Cth) – claim dismissed at first instance - dismissal upheld on appeal to the Full Court – appellants commenced proceedings in the District Court of South Australia seeking damages for breach of contract – damages sought were the same in both proceedings - claim in contract not pleaded in proceedings in Federal Court – District Court Judge struck out appellants’ claim on the basis of an issue estoppel arising out of the Federal Court proceedings, and on the basis of an Anshun estoppel precluding a subsequent contractual claim - appeal against order of Judge.
HELD: Although the Federal Court proceedings gave rise to no issue estoppel relevant to the District Court proceedings, having regard to the risk of conflicting judgments, the commonality of the underlying substratum of facts and the losses claimed in both proceedings, it was unreasonable for the appellants not to have pursued their claim in contract in the Federal Court proceedings and an Anshun estoppel arose – appeal dismissed.
Trade Practices Act 1974 (Cth) 45, 48, 96(3)(b), referred to.
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; Zavodnyik v Alex Constructions Pty Ltd (2005) 67 NSWLR 457, applied.
Blair v Curran (1939) 62 CLR 464 ; British American Tobacco (Australia) Services Ltd v Kadkhudayan [2009] SADC 25; Kadkhudayan v W D & H O Wills (Aust) Ltd [2002] FCAFC 110; Wong v Minister of Immigration & Multicultural Affairs (2004) 146 FCR 10, discussed.
KADKHUDAYAN & ANOR v BRITISH AMERICAN TOBACCO (AUSTRALIA) SERVICES LTD
[2009] SASC 389Full Court: Doyle CJ, Duggan and Nyland JJ
DOYLE CJ: I would dismiss the appeal. I agree with the reasons given by Nyland J.
DUGGAN J: In my view the appeal should be dismissed for the reasons given by Nyland J. I agree with the orders proposed by Nyland J.
NYLAND J: The appellants, who are husband and wife, previously conducted a business which included the wholesale and retail supply of cigarettes and tobacco products. The respondent (previously conducting business under the name of W.D. & H.O. Wills Australia Limited) carried on the business of a manufacturer and wholesale supplier of cigarettes and tobacco products.
In the early stages of their business, the appellants purchased tobacco supplies from various of the respondent’s wholesalers. In about 1991 they were able to purchase direct from the respondent and sell to other retailers or directly to the public. As wholesalers in particular, the appellants received from the respondent various incentive payments in the form of volume discounts, contributions to advertising and displays and direct payments for particular stock promotions.
The retail market in tobacco products is highly competitive. During 1996 the appellants believed that the respondent was conniving with some of their competitors to undercut their retail prices. They concluded that they could not successfully compete unless they sold certain of their product lines for less than the purchase price, that is, at a loss. The respondent strongly disapproved of this and informed the appellants they would not receive any incentive payments if they continued to sell at below cost. The appellants ignored this advice and continued to sell at below cost. As a result, in about May 1996, the respondent ceased to provide all incentive payments to the appellants. There were some negotiations thereafter and for a short period some incentive payments were made. In about July 1998 however all such payments stopped. By this stage, the appellants’ business was in serious difficulties. The business eventually closed down in May 1999. In about September 1996 in the course of their dispute with the respondent, the appellants complained to the Australian Competition & Consumer Commission (ACCC) about the respondent’s conduct. The ACCC conducted an investigation following which, in February 1998, the respondent was convicted of attempting to contravene s 45 Trade Practices Act (TPA) and was fined the sum of $250,000. In about April 1997 the respondent adopted a new wholesale distribution system whereby it would only appoint as wholesalers those purchasers of its products who were themselves able to achieve a particular proportion of wholesale sales. The appellants applied to be so appointed but as their wholesale figures had not reached the designated proportion, they lost their status as wholesalers and became obliged to purchase supplies not directly but from other wholesalers. The appellants also complained to the ACCC about this matter, alleging that the respondent had engaged in unconscionable conduct. The ACCC investigated this complaint, but it appears that no action was ever taken with respect to it.
Federal Court proceedings
By July 1998 the appellants’ business was in dire straits. In October 1998 they instituted proceedings in the Federal Court against the respondent, alleging that the respondent had engaged in retail price maintenance and had misused its market power. They sought consequential damages claiming the loss of all the incentive payments they should have received between 1995 and 1998, as well as damages for the asserted loss of their tobacco wholesaling business. Those proceedings were eventually heard and determined by a single judge of the Federal Court.
On 31 May 2001 the judge dismissed the claim, but nevertheless proceeded to assess the damages that would have been awarded had the appellants been successful. The appellants then lodged an appeal in the Full Federal Court. The Full Federal Court disagreed with a number of findings made by the single judge. In particular, they found that the contravention of s 48 and s 96(3)(b) TPA had been established. They considered however that the appellants had failed to prove that they sustained any loss in consequence of the respondent’s unsuccessful attempt to induce the appellants not to sell cigarettes at less than the respondent’s price. They said[1]:
Mr Kadkhudayan’s evidence at the trial was that he lowered his retail prices to a level below the wholesale price at which he purchased cigarettes in order to better his competitors’ prices. This was an election made independently of the respondent’s conduct, and which necessarily caused the appellant’s loss.
[1] Kadhudayan v WD & HO Wills (Aust) Ltd [2002] FCAFC 110.
As a result, on 7 May 2002 the Full Federal Court dismissed the appeal.
District Court proceedings
On 1 October 2004 the appellants instituted the present proceedings in the District Court.
In their amended statement of claim filed in the District Court on 27 February 2007 the appellants pleaded that in 1994 they had entered into a contract with the respondent whereby for a period of six years the respondent would supply them with cigarettes and tobacco products and would provide them with incentive payments. They said that the contract was partly oral and partly written and they asserted certain terms were implied in it. They say that the contract was partly performed, but the respondent breached its terms in and after August 1995 by failing to provide the promised level of incentive payments and later, in 1998, by ceasing to supply them with any wholesale tobacco products.
On 14 December 2007 the respondent applied to strike out the appellants’ claim as an abuse of process or, in the alternative, for an order that the action be permanently stayed in reliance on the proceedings which had earlier taken place and resolved in the Federal Court. The appellants opposed that application on the basis that the contract alleged in the District Court proceedings raised issues of a different character to those considered by the Federal Court. The present proceedings relied upon a contract made in April 1994 by which the respondent was bound to supply cigarettes and other tobacco products to the appellants for a period of six years, and that contract had not been the subject of the Federal Court proceedings.
The application was initially heard by a District Court Master, who concluded that it was inappropriate to stay the proceedings at an interlocutory level and therefore refused the application.
The respondent then appealed against that decision to a District Court Judge. The Judge in his reasons commented that the relevant legal principles were largely undisputed. The Judge said:
… the real focus of attention in argument was whether the subject matter of the claims in the Federal Court proceedings and in these proceedings were the same or substantially the same so that it would be unreasonable to allow these proceedings to run.[2]
[2] British American Tobacco (Australia) Services Ltd v Kadkhudayan & Anor [2009] SADC 25 at [29].
The Judge finally concluded that the appeal should be allowed and ordered the proceedings be struck out. The Judge held that the doctrine of issue estoppel prevented the appellants from maintaining the District Court action. In addition, he was satisfied that it was unreasonable for the appellants not to have raised the contract claim in their Federal Court proceedings. He said that the asserted contract was so intimately connected with the history of dealings between the parties and the appellants’ assertions as to causation and loss, that it was unreasonable for the appellants not to have included the present claim in contract in the original action. He considered that if the appellants were successful in the current proceedings, that judgment would conflict with the Federal Court findings.
Submissions of the appellant
On appeal to this court, the appellants argued that the Judge had erred in his consideration of the effect of the Federal Court proceedings and as to the claim brought in the District Court. The appellants submitted that, contrary to the findings made by the District Court Judge, the Full Federal Court had not considered the claim brought by the appellants in contract and the Federal Court had not made any specific findings as to the existence or otherwise of the contract which the appellants now pleaded. They further argued that the Federal Court had not decided the appellant’s claim in contract when it observed, in the context of damages for the TPA claims, that there was in 1997 no contractual entitlement to receive promotional payments. They submitted that observation was based on the exclusion of the appellants by the respondent from the new distribution system, whereas the District Court pleading was as to a contract formed in 1994 and the issue now was whether the respondent was in breach of that contract by its refusal to continue supply.
Issue Estoppel
In Blair v Curran[3] Dixon J referred to the principle relating to issue estoppel in the following way:
A judicial determination directly involving an issue of fact or of law disposes once and for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act to be commanded or be restrained or that rights be declared. The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Anshun Estoppel
[3] (1939) 62 CLR 464 at pp 531-2.
In Port of Melbourne Authority v Anshun Pty Limited[4], the High Court considered an action in which a defence raised a second action which could have been raised in an earlier action between the same parties. The Court said:
In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim, and its subject matter, it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings, e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few …
It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment …
The likelihood that the omission to plead a defence will contribute to the existence of conflicting judgments is obviously an important factor to be taken into account in deciding whether the omission to plead can be found an estoppel against the assertion of the same matter as a foundation for a cause of action in a second proceeding. By “conflicting” judgments we include judgments which are contradictory, though they may not be pronounced on the same cause of action. It is enough that they appear to declare rights which are inconsistent in respect of the same transaction. …
The matter now sought to be raised by the Authority was a defence to Anshun’s claim in the first action. It was so closely connected with the subject matter of that action that it was to be expected that it would be relied upon as a defence to that claim and as a basis for recovery by the Authority from Anshun. The third party procedures were introduced to enable this to be done. If successful, the indemnity case would have obviated an inquiry into contribution. If reserved for assertion in a later action, it would increase costs and give rise to a conflicting judgment.[5]
[4] (1981) 147 CLR 589.
[5] Ibid at pp 602-4.
This principle now known as Anshun estoppel was discussed by the Full Federal Court in Wong v Minister of Immigration & Multicultural Affairs[6] as follows:[7]
A plea in bar may be raised in respect of an issue, not only if the Court in the earlier proceeding was actually required by the parties to form an opinion and pronounce a judgment, but also in relation to every issue that properly belonged to the subject of the earlier litigation and which the parties, exercising reasonable diligence, might have brought forward at the time of the earlier litigation: Port of Melbourne Authority v Anshun Pty Ltd. Anshun estoppel arises where the issue now raised for the first time, properly belonged to the subject of the earlier proceeding but, by negligence, omission or accident, was not raised in earlier proceeding. In essence, where the issue was so relevant to the subject matter of the earlier action that it would be unreasonable not to have raised it at that time, it is an abuse of process to endeavour to raise that issue for the first time in a subsequent proceeding between the parties: Anshun supra at p 602 (1981) 147 CLR 589 at 598 and 602.
[6] (2004) 146 FCR 10.
[7] Ibid at [37].
In Zavodnyik v Alex Constructions Pty Ltd[8]the New South Wales Court of Appeal considered a claim arising out of building contract. Handley JA (with whom Mason P and Latham J agreed) referred to the test of reasonableness in Anshun and went on to discuss later cases in which the test of reasonableness had been considered. He said[9]:
Those of particular relevance are Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 and Ling v The Commonwealth (1996) 68 FCR 180. Bryant was sued by the Bank in the Supreme Court of New South Wales for recovery of possession of mortgaged property and for debt. He raised various defences and cross-claims but later amended his pleadings to withdraw some of the cross-claims. He then brought separate proceedings in the Federal Court based on the cross-claims he had withdrawn. The Full Court held that they were barred by an Anshun estoppel. The Court (Beaumont, Wilcox and Moore JJ) considered the special problems that arise in the application of the Anshun principle to cross-claims and said:
… in contrast to defences, many cross-claims may have little or no connection with the principal claim in the action; there may be no more than an identity of parties. Where that is so, there may be no policy justification for forcing defendants to litigate their claims as cross-claims rather than as principal claims in separate actions in the forum of their choice. But, where, as here, a defendant’s claim is intimately connected with that of the plaintiff, in the sense that each arises, substantially, out of the same matters of fact, there is every reason to require that both be litigated at the one time; thereby minimising costs and avoiding the possibility of inconsistent judgments … This is such a case. The matters sought to be raised by the appellant in this Court were all matters connected with the claims made by the bank. The appellant, and his former legal advisers, recognised this. They pleaded his claims as defences to the bank’s two Supreme Court actions and as cross-claims to those proceedings.
In Ling v The Commonwealth[10] on the other hand the plaintiff’s failure to plead his claim as a cross-claim in the earlier proceedings was held to have been reasonable and there was no Anshun estoppel. Wilcox J said:
In considering reasonableness … consideration must be given to all aspects of the case. They include the extent of the overlap between the facts underlying each claim; the greater the overlap, the easier it is to argue that it was unreasonable not to raise the matter in the first case. They also include any difficulties that existed, or might reasonably have been perceived, in raising the matter earlier … In assessing the reasonableness of Mr Ling’s failure to raise his claim against the Commonwealth when he was sued by it in the earlier action, it is necessary to look at the whole of the circumstances that he then confronted. His claim involved facts that overlapped the Commonwealth’s case to some extent but were substantially extraneous to that case.
[8] (2005) 67 NSWLR 457.
[9] Ibid at [38] and [39].
[10] (1996) 68 FCR 180.
Handley JA concluded in Zavodnyik that there was a substantial if not total overlap in the facts underlying both claims. He considered the amount now sued for was comprised in the earlier claim. There was therefore every reason to require that both be litigated at one time, minimising costs and delay to both parties and demands of court time.
The pleadings
In order to consider whether the appellants are estopped in making their present claim by the principle of issue estoppel or Anshun estoppel, it is necessary to compare the District Court pleadings with those filed in the earlier Federal Court proceedings. The claim in each case is between the same parties and both actions arise out of contractual arrangements which existed between them within a similar period of time. This includes the arrangements as to the provisions of promotions and subsidies and the changes in the new distribution system. In both sets of proceedings, the appellants claim the loss of promotional benefits between 1995 and 1998 and claim the respondent acted unlawfully in not continuing the supply after August 1998. The Federal Court proceedings do not however contain any reference to the asserted 1994 contract to supply the appellants with tobacco products for the period of six years and to provide them with incentive payments during the same period. Apart from that aspect of the matter, however, there appears to be a complete “overlap”, as described in Zavodnyik between the two sets of proceedings. The matters giving rise to the contract claim arose before the TPA claim and appear to be closely connected with it and it is therefore difficult to understand why it was not included at the same time. The Full Court in Wong recognised that there were exceptions to the operation of the Anshun rule but said that[11]:
the circumstances in which that would be permitted must … be exceptional, constituting “special circumstances”.
[11] Ibid at [38].
The appellants have not however in these proceedings filed any affidavits or adduced any explanation as to why they should be excused from the operation of the rule. There is therefore no evidence to enable this court to find that the omission to plead the contract claim was not unreasonable.
Of particular significance is the risk of conflicting judgments, should the District Court claim proceed. The appellants simply argue that no such risk arises as the Full Federal Court did not consider the 1994 contractual obligation to supply for the six year period nor the consequent loss to the appellants by its refusal to supply in breach of that contract. The appellants’ claim in the Federal Court was that they were entitled to incentive payments on the basis of sales volume. They did not at that time claim that they had a contractual right to receive them.
The Full Federal Court determined that the respondent was not liable in damages to the appellants in relation to loss of promotions from 1995 nor for the loss of their business nor for stress and inconvenience. The court made a specific finding that the appellants’ losses were occasioned by their decision to sell their products below cost and that by so doing they had deprived themselves of incentive payments.
In Blair v Curran Dixon J, in discussing the problem of conflicting judgments, pointed out that estoppel is not confined to the final legal conclusion expressed in the judgment decree or order. He said[12]
In the phraseology of Coleridge J in R v Inhabitants of the Township of Hartington Middle Quarter, the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous.
[12] Ibid at p 532.
Conclusion
The District Court judge found that the doctrine of issue estoppel prevented the appellants from asserting in these proceedings that they had a contractual right to receive incentive payments and that their asserted losses were as a result of an alleged breach of contract in view of the Federal Court ‘finding’ as to a lack of contractual entitlement[13].
[13] British American Tobacco (Australia) Services Ltd v Kadkhudayan & Anor [2009] SADC 25 at [57].
I however agree with the submission made by the appellant that the statement made by the Full Federal Court as to the appellant’s lack of contractual entitlement to receive payments does not amount to a specific finding by that court that a contract did not exist, which would thereby give rise to issue estoppel. That was simply an observation made by the court when discussing the factual background to the dispute between the parties. In my opinion however, the principles enunciated in Anshun apply to the circumstances of this case. The ‘groundwork’ or underlying substratum of facts in each set of proceedings is essentially the same and there is a substantial overlap between the two sets of proceedings. To permit the appellants to pursue the claims now contained in the District Court proceedings creates a risk of conflicting judgments. In my opinion, the District Court Judge correctly found that it was unreasonable for the appellants not to have included the claim arising out of the 1994 contract in their initial proceedings. I would therefore dismiss the appeal. I would however vary the order of the District Court Judge that the proceedings be struck out and in lieu thereof make an order that District Court Action Number DCCIV-04-1555 be dismissed and that there be judgment for the respondent in the action.