Leveraged Equities Limited v Gregory John Huxley; Leveraged Equities Limited v Jason Wilkinson; Leveraged Equities Limited v Prudence Anne Wilkinson
[2010] NSWSC 1149
•14 OCTOBER 2010
CITATION: Leveraged Equities Limited v Gregory John Huxley; Leveraged Equities Limited v Jason Wilkinson; Leveraged Equities Limited v Prudence Anne Wilkinson [2010] NSWSC 1149 HEARING DATE(S): 5 October 2010 JURISDICTION: Common Law JUDGMENT OF: Harrison AsJ DECISION: (1) In each matter the cross claims are dismissed.
(2) The defendants/cross claimants are to pay the plaintiff/cross defendant's costs of the motions filed 14 September 2010.
(3) In each matter the defence is struck out.CATCHWORDS: PROCEDURE - judgments and orders - in general - miscellaneous procedural matters - cross-claims - where a cross claimant sought to relitigate a proceedings after an arbitration decision had been entered as a judgment of the court - ESTOPPEL - former adjudication and matters of record or quasi of record - by award of arbitrator LEGISLATION CITED: Commercial Arbitration Act 1984
Uniform Civil Procedure Rules 2005CATEGORY: Procedural and other rulings CASES CITED: Blair & Perpetual Trustee v Curran (1939) 62 CLR 464
Dadd & Ors v Leveraged Equity Pty; Leveraged Equity Pty Ltd v Huxley & Anor (Supreme Court of NSW South Wales, 21 September 2009, unreported)
Finance & Equity v Leveraged Equities [2007] NSWSC 886
Henderson v Henderson (1843) 3 Hare 100; 67 ER 313
Humphries v Humphries (1910) 2 KB 531
Jackson v Goldsmith (1950) 81 CLR 446
Leveraged Equities Pty Ltd v Huxley [2010] NSWCA 179
Nicholls v Michael Wilson & Partners Limited [2010] NSWCA 222
Onerati v Phillips Construction Pty Ltd (1989) 16 NSWLR 730
Port Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589
Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198
State Bank of New South Wales Limited v Stenhouse Ltd (1997) Aust Torts Reports 81-423PARTIES: 2009/296992 - Leveraged Equities Limited v Gregory John Huxley
2009/296993 - Leveraged Equities Limited v Jason Wilkinson
2009/296994 - Leveraged Equities Limited v Prudence Anne WilkinsonFILE NUMBER(S): SC 2009/296992; 2009/296993; 2009/296994 COUNSEL: B Tronson (Plaintiff/Cross Defendant)
R Licardy (Defendants/Cross Claimants)SOLICITORS: Allens Arthur Robinson (Plaintiff/Cross Defendant)
Licardy Harris & Co (Defendants/Cross Claimants)
IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISIONASSOCIATE JUSTICE HARRISON
2009/296992 LEVERAGED EQUITIES LIMITED vTHURSDAY, 14 OCTOBER 2010
GREGORY JOHN HUXLEY
JUDGMENT (Strike out cross claims)2009/296993 LEVERAGED EQUITIES LIMITED v
JASON WILKINSON
2009/296994 LEVERAGE EQUITIES LIMITED v
PRUDENCE ANNE WILKINSON
1 HER HONOUR: There are three notices of motion, all filed 14 September 2010, before the Court. All motions seek the same orders, that the defendant’s cross claim filed on 6 September 2010 be struck out pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005; or in the alternative, that the defendant’s cross claim be permanently stayed.
2 The plaintiff/cross defendant in all three proceedings is Leveraged Equities Limited (“Leveraged Equities”). In proceedings 2009/296992 the defendant/cross claimant in Gregory John Huxley. In proceedings 2009/296993 the defendant/cross claimant is Jason Wilkinson. In proceedings 2009/296994 the defendant/cross claimant is Prudence Wilkinson. For convenience I shall refer to the cross defendants as Huxley and the Wilkinsons. Leveraged Equities relied on the affidavit of Christopher Michael Prestwich sworn 14 September 2010.
3 On 14 September 2010, Leveraged Equities filed a notice of discontinuance in all three proceedings on the basis that there has been an arbitration in these matters. It is a final decision and has been entered as a judgment of this Court. Leveraged Equities submitted that Huxley and the Wilkinsons cannot maintain these proceedings, as they are an abuse of process.
The pleadings
4 By statements of claim filed 10 November 2009, Leveraged Equities claims that on or about 9 November 2006 it entered into margin lending agreements (the written agreements) with Prudence Anne Wilkinson and Jason Wilkinson. On around 7 November 2006 it also entered into an agreement with Aussie Products Pty Ltd (in liq). Gregory Huxley guaranteed the debts of Aussie Products. Mr Huxley is the sole director of Aussie Products. Leveraged Equities pleads that the debts were due and owing on 5 March 2004. It is common ground that the debts have not been repaid.
5 The cross-claims plead that there was a variation of the agreement and refer the defence, which pleads:
- “… the Defendant admits that the Margin Lending Facility Agreement stated that the Plaintiff could give five (5) days notice, but the defendant states that the agreement was varied to allow the defendant to hold the portfolio for an extended period namely twelve (12) months, without being required to repay any amounts payable.
- Agreement reached between Shane Butler, Manager for the Plaintiff and Gregory Huxley on behalf of the Defendant.”
6 No evidence has been put on in these proceedings (or any other proceedings) that provide any further details of the alleged agreement such as the date upon which this alleged oral variation of the agreement (“the variation of the agreement”) was made. So far as this variation of the agreement is concerned, there are two points worth noting. First, even if the oral agreement existed, it expired on about 29 March 2008. That date has long since passed so even on Huxley and the Wilkinsons own version of events the money has become due and payable. Secondly the agreement referred to is with Gregory Huxley, not the Wilkinsons.
Background
7 In August 2007, Leveraged Equities commenced arbitration proceedings in accordance with clause 78 of the written Agreement in relation to the repayment of these loans.
8 The arbitrations concerning Mr Huxley and the Wilkinsons were consolidated and heard at the same time. On 4 August 2008, Mr Alan Limbury heard the arbitration. I shall refer to these proceedings in more detail later in this judgment. A determination was made in favour of Leveraged Equities. Huxley and the Wilkinsons have failed to pay in accordance with the awards.
9 In proceedings 4032/2008 and 5497/2008 Leveraged Equities commenced proceedings in the Supreme Court to enforce the awards pursuant to s 33 of the Commercial Arbitration Act 1984. At first instance, Nicholas J in Dadd & Ors v Leveraged Equity Pty; Leveraged Equity Pty Ltd v Huxley & Anor (Supreme Court of New South Wales, 21 September 2009, unreported) declined to make the orders sought by Leveraged Equities. His Honour decided that the arbitrations that had been conducted were not final and binding.
10 Following that decision, Leveraged Equities commenced these proceedings, which concern exactly the same subject matter (the written agreement) as the dispute that was the subject of the arbitration.
11 In 281448/2008, Leveraged Equities also appealed the orders made by Nicholas J. On 19 July 2010, the Court of Appeal (per Allsop ACJ, Macfarlan JA and Handley AJA) allowed the appeal and made orders pursuant to s 33 of the Commercial Arbitration Act 1984 (Leveraged Equities Pty Ltd v Huxley [2010] NSWCA 179). The Court of Appeal held that the decision of the arbitrator was final and binding. The Court of Appeal also granted leave to Leveraged Equities to enforce the awards and entered the following judgments:
- Judgment in favour of the appellant against Gregory John Huxley in the amount of $1,026,144.78 plus interest from 19 July 2010.
- Judgment in favour of the appellant against Prudence Anne Wilkinson in the amount of $1,052,096.16 plus interest from 19 July 2010.
- Judgment in favour of the appellant against Jason Wilkinson in the amount of $1,053,211.03 plus interest from 19 July 2010.
12 On 7 April 2010, Huxley and the Wilkinsons filed their defences in these proceedings. On 6 September 2010 (after the decision of the Court of Appeal was handed down), Huxley and the Wilkinsons filed their the cross claims in these proceedings. As Leveraged Equities had already obtained the relief sought in the statements of claim from the Court of Appeal, it discontinued its statements of claim.
13 Huxley and the Wilkinsons’ solicitor opposed the striking out of the cross claims. He submitted that, in essence, as Huxley and the Wilkinsons had not appeared at the arbitration hearing, nor had they raised the variation to the agreement issue before the arbitrator, they have never had the opportunity to argue this issue on its merits. This is their only opportunity to do so.
The arbitration proceedings
14 To determine whether or not Huxley and the Wilkinsons have had an opportunity to raise the alleged oral variation to the agreement, it is necessary to refer to the history of the proceedings before the arbitrator. At times Huxley and the Wilkinsons were legally represented but chose not to comply with directions made by the arbitrator. They were represented when they sought to delay the arbitration hearing. They filed equity proceedings three days prior to the date upon which the arbitration hearing was to begin.
15 On 30 January 2008, a preliminary conference was held before the arbitrator. Huxley and the Wilkinsons were represented by a solicitor Mr Foley. Leveraged Equities was directed to serve its evidence, documents and outline of submissions by 3 March 2008. On 11 March 2008, Leveraged Equities complied with those directions.
16 On 11 March 2008, another directions hearing was held. Huxley and the Wilkinsons were again represented by Mr Foley. The arbitrator directed that the evidence of witnesses be by way of signed witness statements, to be verified on oath or affirmation in the event that cross examination be required. The arbitrator also made directions for Huxley and the Wilkinsons serve any cross claims, evidence, documents and submissions by 6 May 2008. Leverage Equities was to respond to those documents on or before 10 June 2008. The date for hearing of the arbitration was allocated, namely 4 August 2008. A copy of these directions was also forwarded to Mr Foley.
17 At the last directions hearing held on 19 June 2008, there was no appearance of Huxley and the Wilkinsons or their solicitor Mr Foley. On 30 June 2008, by email, Mr Foley advised the arbitrator that neither he nor his firm continued to act “and for some time past now have not acted”.
18 On 14 July 2008, Mr Warners, a solicitor who did not hold a current practising certificate, sought leave to appear and made an application to have the hearing date of the arbitration adjourned. While leave was granted for Mr Warners to appear the arbitrator declined to vacate the hearing date, on the basis that there was no evidence in support of the application. The arbitrator gave Huxley and the Wilkinsons a further opportunity to file affidavits and cross claims. They chose not to avail themselves of that further opportunity.
19 On 4 August 2008, the arbitration hearing took place. There was no appearance for Huxley and the Wilkinsons. However, Mr Foley did appear representing Huxley and the Wilkinsons for one purpose only. That purpose was to seek a stay on the arbitration hearing pending determination by the equity division of this court of an application (filed on 1 August 2008). The arbitrator rejected that application and the arbitration hearing took place.
20 Nevertheless, by letter dated 7 August 2008, (after the hearing had concluded) Mr Foley requested the arbitrator’s consent to that application being determined by the court. Not surprisingly, by letter dated 8 August 2008, the arbitrator declined to give his consent.
The law
21 The cross-claim would be an answer to Leveraged Equities’ claim in the arbitration. As previously stated, it had not been raised as a cross claim by Huxley and the Wilkinsons in any earlier proceedings including the arbitration. It was on 25 August 2010 some months after the arbitration had been finalised that variation of the agreement issue was first ventilated in these cross claims in these proceedings.
22 Counsel for Leveraged Equities submitted that the matters raised in these proceedings falls squarely within the estoppel described in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45, (1981) 147 CLR 589 (see especially Gibbs CJ, Mason and Aickin JJ at 602 and 604) where it was stated:
- “The judgment which the Authority seeks to obtain in the present action is one which would contradict the judgment which has been entered in the Soterales action. … It is this inconsistency between the judgment obtained in the first action and the judgment sought to be obtained now that is of importance.
- The distinction between res judicata (in England called “cause of action estoppel”) and issue estoppel was expressed by Dixon J in Blair v Curran (1939) 62 CLR 464 at 532, in these terms:
- “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.”
…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 thereby enable the relevant issues to be determined in the one proceeding.The rule as to res judicata comes into operation whenever a party attempts in a second proceeding to litigate a cause of action which has merged into judgment in a prior proceeding. …
- …”
23 Their Honours continued:
- “The Authority did not adduce evidence at the trial to show why it failed to raise the indemnity issue in the first action. Apart from considerations such as the ability to overcome any prejudice to Anshun by orders for costs and the fact that O’Bryan J refused to strike out the action summarily – matters mainly associated with the conduct of this action – the Authority’s case is that the principle in Henderson v Henderson (1843) 3 Hare 100 [67 ER 313] does not apply.
- There is, however, one other factor which should be mentioned. It is that the defence of an indemnity required to be specially pleaded at common law. It was not covered by a general or particular traverse. Consequently the failure to plead it would not have founded an estoppel under the old law in its strictest formulation. But the evolutionary development of that rule evidence by the decision in Humphries v Humphries (1910) 2 KB 531 may well have resulted in releases and indemnities being equated to traversable allegations for the purposes of estoppel. In any event the fact that the defence required to be specially pleaded at common law is not now a material consideration. It does not derogate from the conclusion that it was unreasonable for the Authority to refrain from raising its case of indemnity for disposition in the first action.”
24 There has been no evidence adduced at this hearing to explain why Huxley and the Wilkinsons did not raise the variation of the agreement issue at the arbitration.
25 At [58] of the arbitral award the arbitrator found that Leveraged Equities was entitled, under the terms of the written agreement, to demand payment from the claimants. As previously stated, the arbitral award was final and binding and the awards have been entered as judgments of this Court.
26 Counsel for Leveraged Equities submitted that the finding in [58] of the arbitral award was ‘legally indispensable to the conclusion’ reached by the arbitrator. In Blair & Perpetual Trustee v Curran (1939) 62 CLR 464 at 532 Dixon J stated,
- “Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established.”
27 In Port Melbourne Authority v Anshun the High Court explained:
- “The distinction between res judicata (in England called ‘cause of action estoppel’) and issue estoppel was expressed by Dixon J in Blair v Curran [(1939) 62 CLR 464, at 532] in these terms:
- ‘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.’
28 According to counsel for Leveraged Equities, following Blair v Curran, if the cross-claimants’ cross claims were successful, that would be ‘necessarily to assert that the [arbitrator’s] decision was erroneous’.
29 Huxley and the Wilkinsons’ allege in their cross claims that there was a variation to the written agreement. The agreement, provided that Leveraged Equities would not demand repayment of the loan, which it had provided for a term of 12 months. The cross claims are based on a cause of action said to arise out of an alleged breach of that term. The purported oral variation to the agreement was, in my view, so closely connected with that claim that it was unreasonable not to raise it in the earlier proceedings. In my view the Wilkinsons are estopped from raising this issue in these current proceedings.
30 It does not matter that the claims that underpin this litigation were determined by way of arbitration. This is consistent with the policy that there should be finality in litigation. Arbitral awards can give rise to estoppels: see Onerati v Phillips Construction Pty Ltd (1989) 16 NSWLR 730, 739 per Giles J; and more recently Nicholls v Michael Wilson & Partners Limited [2010] NSWCA 222 at [103] and [399].
31 Counsel for Leveraged also submitted that the considerations outlined by Handley JA (with whom Mason P and Heydon JA agreed) in Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198, 204 at [32] may be of some assistance in determining whether to strike out the cross claims. These considerations are set out in State Bank of New South Wales Limited v Stenhouse Ltd (1997) Aust Torts Reports 81-423 (64,077) at 64,089 where Giles CJ Comm D (as he then was) said:
- “…The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice, and amongst the matters to which regard may be had are -
- (a) the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or ultimate issue;
- (b) the opportunity available and taken to fully litigate the issue;
- (c) the terms and finality of the finding as to the issue;
- (d) the identity between the relevant issues in the two proceedings;
- (e) any plea of fresh evidence and the reason why it was not part of the earlier proceedings; …
- (f) the extent of the oppression and unfairness to the other party if the issue is relitigated and the impact of the relitigation upon confidence in the administration of justice; and
- (g) an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process.”
32 These considerations as approved by the Court of Appeal in Rippon v Chilcotin at [33], “turn on a precise identification of the issues”.
33 Most of those considerations have already been dealt with above. Further considerations relate to evidence. The cross-claimants have not provided any evidence relating to the issue in their cross-claims (despite many chances to do so, both during the arbitration process and in this Court), nor have they provided any evidence as to why that issue (or evidence relating to it) was not raised at the arbitration (again, despite numerous chances to do so). So far as unfairness is concerned, Leveraged Equities has already been put to the cost of the arbitration proceedings, two Supreme Court proceedings and one appeal. It would be unfair to allow Huxley and the Wilkinsons to relitigate the same subject matter again.
34 Counsel for Leveraged Equities also referred to Finance & Equity v Leveraged Equities [2007] NSWSC 886 at [26] where Hammerschlag J. In that case Hammerschlag J referred to an oral conversation between Mr Huxley and Mr Mackellar. His Honour then considered the argument which Huxley and the Wilkinsons sought to raise to be ‘illusory’.
35 At [22] to [25] Hammerschlag J stated:
23 The conversations with Mr MacKellar were to the following effect:“22 The affidavit material establishes that before the Loan was entered into, Mr Huxley had conversations with a Mr MacKellar, a stock broker with Bell Potter Securities Ltd whose knowledge I shall assume for the purposes of this judgment is to be attributed to the defendant. He also had a conversation with Mr Shane Butler, the Business Development Manager employed by the defendant.
- ‘Mr Huxley: I understand that you have an interesting leveraged facility available to enable trading in stocks and options.
Mr MacKellar: Yes I do.
Mr Huxley: I understand the concept of leveraging very well from my experience in the property industry. I understand that this product effectively funds 100% of the purchase price for stocks and interest is charged at bank rates.
Mr MacKellar: Yes, it does.
Mr MacKellar: The funder is Leveraged Equities. They fund a purchase of stock or bought put options which is secured against the value of that stock or bought put options. There are certain stocks that are approved by Leveraged Equities. Here is a brochure for Leveraged Equities. You should call Shane Butler who is the business development manager for Leveraged Equities.’Mr Huxley: How does this product work?
Mr Butler: Yes I have them. Someone will call you when it is approved and you can start then.‘Mr Huxley: I have been referred to you by Brendan MacKellar from Bell Potter Securities. I understand that Leveraged Equities has a facility that will finance purchase of stocks and bought and sold put options and I’ve given the application forms to Mr MacKellar to forward to you.
25 In my view, taken at its highest, nothing in the promotional material, strategy paper or conversations is capable of giving rise to an arguable case that the defendant communicated anything to suggest that it would not rely upon the terms of the Loan according to its tenor.”
Mr Huxley: Okay.’
36 According to Leveraged Equities, while the decision of Hammerschlag J is not binding in these proceedings, and even if evidence had been put on as to the oral variation to the agreement, it would be unlikely to succeed. To my mind, the conversation referred to above between Mr Huxley and Mr Mackellar seems to have taken place prior to the parties entering into a written agreement. Therefore, I do not consider it to be of any assistance here.
37 As previously stated, the issue of whether there was a variation to the agreement was so relevant to the subject matter in the arbitration proceedings that it was unreasonable for Huxley and the Wilkinsons not to rely upon it in those proceedings. They had ample opportunity to raise this issue at the arbitration proceedings. They had legal representation. They were given directions to put on evidence but chose not to do so. Rather than rely on this variation to the agreement they chose not to participate in the arbitration, other than to have it delayed. The decision of the arbitrator is binding and final. Judgments have been entered against them in relation to those written agreements. In my view, the matters raised in the cross claims constitute an abuse of process. Further, even on their own pleaded version of events, the time for repayment passed some years ago and the moneys under the written agreements had become due and owing. For these reasons the cross claims should be dismissed.
38 Costs are discretionary. Costs usually follow the event. The defendants/cross claimants are to pay the plaintiff/cross defendant’s costs of the motions as agreed or assessed.
The Court orders:
(1) In each matter the cross claims are dismissed.
(3) In each matter the defence is struck out.(2) The defendants/cross claimants are to pay the plaintiff/cross defendant’s costs of the motions filed 14 September 2010.
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