Magarditch v Australia and New Zealand Banking Group Ltd

[1999] FCA 806

FEDERAL COURT OF AUSTRALIA

Magarditch v Australia & New Zealand Banking Group Ltd [1999] FCA 806

CORPORATIONS – winding up – action in company name by contributory – leave to proceed – appropriate criteria – serious question to be tried or arguable case – duties of liquidator – inquiry into liquidator’s conduct – when ordered.

COURTS – res judicata – issue estoppel – prior judgments – judgment obtained by fraud or non-disclosure – party challenging judgment represented in prior proceedings with full knowledge of facts
APPEALS  - appeal court – nature of function and remedy – ancillary orders additional to dismissal of appeal – stay of proceedings.

Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth)

Corporations Law s 471(2), s 536
Real Property Act 1900 (NSW) s 42(1)

Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550
Eros Cinema Pty Ltd v Michel Assad Nassar (1996) 14 ACLC 1374
Boswell v Cokes (No 2) (1894) 6 R 167
Cabassi v Vila (1940) 64 CLR 130
McDonald v McDonald (1965) 113 CLR 529
Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250
Russell v Westpac Banking Corporation (1994) 12 ACLC 278
Monroe Schneider v No 1 Raberem (1992) 37 FCR 234
Owens Bank Ltd v Bracco [1992] 2 AC 443
Wentworth v Rogers (1986) 6 NSWLR 534
CDJ v VAJ (1998) 157 ALR 686
Victorian Stevedoring and General Contracting Co Pty Ltd v Dignan (1931) 46 CLR 73
Mickelberg v The Queen (1989) 167 CLR 259
Duralla Pty Ltd v Plant (1984) 2 FCR 342
Petreski v Cargill (1987) 18 FCR 68
Chamberlain v The Queen (1984) 153 CLR 521
Teoh v Minister for Immigration and Ethnic Affairs (1994) 49 FCR 409
Walton v Gardiner (1993) 177 CLR 378

GERIER AGOP MAGARDITCH, JAKE SOURIAN  and MAGIC AUSTRALIA PTY LTD (IN LIQUIDATION) v AUSTRALIA & NEW ZEALAND BANKING GROUP LTD (ACN 005 357 522) and IAN LAWRENCE STRUTHERS “THE APPOINTED LIQUIDATOR FOR MAGIC AUSTRALIA PTY LTD”

G 1065 of 1997

SPENDER, FRENCH AND KENNY JJ
16 JUNE 1999
PERTH (Heard in Sydney)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	G1065 OF 1997

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT

BETWEEN:

GERIER AGOP MAGARDITCH
First Appellant

JAKE SOURIAN
Second Appellant

MAGIC AUSTRALIA PTY LTD (In Liquidation)
Third Appellant

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LTD (ACN 005 357 522)
First Respondent

IAN LAWRENCE STRUTHERS "THE APPOINTED LIQUIDATOR FOR MAGIC AUSTRALIA PTY LTD"
Second Respondent

JUDGES:

SPENDER, FRENCH AND KENNY JJ

DATE OF ORDER:

16 JUNE 1999

WHERE MADE:

PERTH (Heard in Sydney)

THE COURT ORDERS THAT:

1.The appellants are granted leave to appeal against the decision of Einfeld J.

2.The appeal is dismissed.

3.The appellants are to pay the respondents’ costs of the appeal.

4.The application is permanently stayed.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	G1065 OF 1997

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT

BETWEEN:

GERIER AGOP MAGARDITCH
First Appellant

JAKE SOURIAN
Second Appellant

MAGIC AUSTRALIA PTY LTD (In Liquidation)
Third Appellant

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LTD (ACN 005 357 522)
First Respondent

IAN LAWRENCE STRUTHERS "THE APPOINTED LIQUIDATOR FOR MAGIC AUSTRALIA PTY LTD"
Second Respondent

JUDGES:	SPENDER, FRENCH AND KENNY JJ
DATE:	16 JUNE 1999
PLACE:	PERTH (Heard in Sydney)

REASONS FOR JUDGMENT

THE COURT
Introduction

1. This appeal represents the culmination of nearly ten years of  litigation in the Courts of New South Wales and now in this Court.  That litigation has seen the principals of a company, Magic Australia Pty Ltd now in liquidation, pursue their principal creditor, the Australia and New Zealand Banking Group Ltd, and the liquidator and others with claims of conspiracy, fraud and associated misconduct and breach of duty.  To these allegations have been added imputations against their own lawyers and the integrity of the Supreme Court of New South Wales. 

2. The most recent action against the liquidator and the Bank was commenced in 1996 in the Supreme Court of New South Wales and transferred to this Court.  Motions to amend the pleadings and for leave for Mr Jake Sourian, a former director of Magic Australia to act on its behalf in the prosecution of this action were dismissed by Einfeld J in January 1999.  This appeal against that dismissal turns largely upon factual issues.  Nevertheless the general principles governing the reopening of issues concluded by earlier judicial decisions required consideration.  The case has also required application of principles governing the grant of leave to a contributory to pursue a claim in the name of a company in liquidation.  Finally the proper function of the appeal court has required some consideration.

   The Present Proceedings

3. The present proceedings were commenced in the Equity Division of the Supreme  Court of New South Wales on 6 September 1996. By the statement of claim then filed Gerier Agop Magarditch, designated the first plantiff, and Jake Sourian, the second plaintiff, asserted that they were the sole directors and shareholders of the third plaintiff, Magic Australia Pty Ltd ("Magic Australia”) which had been wound up by an order of the Supreme Court of New South Wales on 20 June 1991.  Ian Lawrence Struthers, the second defendant, had been appointed the liquidator of the company.  The Australia and New Zealand Banking Group Limited was named as the first defendant and was said to have owed the plaintiffs a duty of care “…in giving information and advice to the Plaintiffs concerning debts owed by the said company”.  The statement of claim alleged, inter alia, that the Bank had breached its duty of care to the plaintiffs in connection with steps taken by the Bank to recover debts owing by Magic Australia and guaranteed by the plaintiffs.  The relief claimed included damages and declaratory orders, the latter relating to the lodgment by the Bank of a caveat over Mr Magarditch’s house property, orders for the taking of accounts and an inquiry into all dealings and transactions between the plaintiffs and the defendants and other ancillary orders.

4. On 1 December 1997 the plaintiffs filed in the Supreme Court proceedings a motion for a stay of orders made by Santow J in other associated proceedings, the expedition of the pending claim against the liquidator and “…an inquiry into the conduct of the liquidator in the administration of the liquidation of Magic Australia Pty Ltd”.  The motion was returnable on 5 December 1997.   On the return date of that motion and following allegations evidently made by Mr Sourian against Judges of the Supreme Court of New South Wales by virtue of an alleged connection between one of the Judges and the liquidator, the proceedings were transferred to this Court by Young J of the Supreme Court of New South Wales under the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth).  At the time of transfer an amended statement of claim had been filed.  After certain interlocutory steps had been taken some further amendments were allowed to the amended statement of claim by Einfeld J without prejudice to the right of the respondents to challenge their appropriateness.  The order allowing this amendment was made on 9 March 1998.

5. His Honour was then faced with two motions.  The first motion, filed in Court on 10 March sought leave for the second appellant, Jake Sourian, to act on behalf of the third appellant, Magic Australia Pty Ltd, in the prosecution of the claim.  The second motion, filed on 11 March 1998, sought an order that the Court inquire into the conduct of the second respondent, Ian Struthers, the liquidator of Magic Australia.  This replicated an order sought by the motion filed in the same proceedings in the Supreme Court of New South Wales on 1 December 1997 which had been returnable on 5 December 1997.  His Honour treated the second motion as an application to further amend the statement of claim to include the claim for an inquiry into the liquidator’s conduct. 

6. The material before his Honour comprised  various affidavits filed by the parties and judgments in related proceedings in the Supreme Court of New South Wales.

7. On 29 January 1999 His Honour made orders in the following terms:

   1.The motion that leave be granted for the second applicant to act on behalf of the third applicant in prosecuting the claim against the first and second respondents made in the further amended statement of claim be dismissed.

   2.The motions that the Court inquire into the conduct of the second respondent as liquidator of the third applicant and give leave to amend the further amended statement of claim to include the request for an inquiry be dismissed.

8. Messrs Magarditch and Sourian and Magic Australia filed an application for leave to appeal against his Honour’s decision.  The leave application was expedited and upon the return of the motion before this Court it was common ground that leave should be granted and the matter proceed as the hearing of the appeal.  A draft notice of appeal had been filed with the motion and argument proceeded upon the basis that the notice set out the grounds of appeal. 

9. A motion was also filed by the first respondent seeking an order that if the appeal were dismissed then the whole action should be dismissed.  A similar motion was filed after close of argument by the second respondent.  The Court heard argument on those motions and gave leave for Mr Sourian to file further written submissions in response to them.

10. Before turning to his Honour’s judgment and the grounds of appeal it is necessary to set out, at least in summary, a history of the related litigation in the Supreme Court of New South Wales.

    Factual Background and Litigious History

11. The company, Magic Australia Pty Ltd, began its life in 1984 when it was incorporated under the name Igawa Holdings Pty Ltd.  On 2 March 1984 it changed its name to Sourian and Sons Pty Ltd and again changed its name on 4 February 1987 to Magic Australia Pty Ltd.  The directors of the company, at least from 1989, were the first appellant, Gerier Agop Magarditch and his son Jake Sourian who was at one time known as Hagob Magarditch.

12. In October 1986 Magarditchs and Magic transferred all their banking business from Westpac to the Australia & New Zealand Banking Group Ltd at Balgowah.  The manager of the branch was Mr Paul Kelly.

13. The company operated a Caltex Service Station at Chatswood.  Mr Sourian managed the muffler shop at the service station. Magic borrowed $60,000 from the Bank for the purpose of purchasing land at 252 Pennant Hills Road, Thornleigh.  It also had an overdraft facility with the Bank to a limit of $20,000.  The Bank required security for the overdraft facility by way of a mortgage over Mr Sourian’s home unit at Jersey Road, Artarmon and a guarantee from the directors of Magic, which was signed by Mr and Mrs Magarditch on 28 January 1987.  A mortgage was also given over Mr Sourian’s property at Artarmon at that time.  Magic gave the Bank a mortgage over Thornleigh, securing the loan of $60,000 to assist in its purchase.  Subsequently, however, that loan was repaid and Thornleigh was left unencumbered. 

14. The property and business of the Caltex Service Station were insured against loss and damage due to fire and other causes under a policy issued by VACC Insurance following a proposal submitted by Mr Sourian in July 1987. 

15. In September 1987 the Bank advanced $430,000 designated as Fully Drawn Advance No. 1 (FDA 1) to Magic for the purchase of land at 136-138 Victoria Road, Gladesville.  Additional security was given to the Bank in connection with this purchase by way of a mortgage over Mr and Mrs Magarditch’s home at Willoughby and the land at 138 Victoria Road, Gladesville. 

16. Additional advances of $205,000, designated Fully Drawn Advanced No. 2 (FDA 2) were provided to Mr Sourian for the purchase of 140 Victoria Road, Gladesville, being land adjacent to that previously purchased at 138 Victoria Road.  These advances were evidently approved by Mr Kelly, the then manager of the Balgowah branch of the Bank.

17. On the night of 3 February 1988 Magic’s Caltex Service Station at Chatswood was damaged by fire.  Mr  Sourian submitted a claim to VACC Insurance Co. Ltd in respect of loss and damage flowing from the fire.  In May 1988 he was charged with offences relating to the fire, namely, that he had himself maliciously damaged the Chatswood property by fire, that he had submitted false statements to VACC, both at the time of the policy proposal and in a letter and declaration of loss following the fire.  All but one of the five charges, which were laid on 12 May 1988, was dismissed in committal proceedings.  A remaining charge that Mr Sourian had attempted to obtain money by submitting a false declaration of loss to VACC also resulted in acquittal following trial by Judge Nader, sitting without a jury, in the District Court of New South Wales in 1993.

18. In July 1998 solicitors for VACC wrote to Magic advising of VACC’s avoidance of the policy on the basis of fraudulent non-disclosure in the proposal.  The non-disclosure relied upon was the existence of prior convictions against Mr Sourian relating to the importation of prohibited goods in the form of machine guns, bullet proof vests and the like and convictions for assault and malicious injury.

19. In June 1988 Caltex gave notice of termination of Magic’s lease of the Chatswood premises.  Magic, however, filed an application in the Federal Court for a declaration that the notice of termination had no effect.  Caltex cross-claimed for a declaration of termination and possession.  Ultimately in May 1989 consent orders were signed by counsel for Magic and Caltex under which Caltex took possession of the Chatswood premises.

20. In the meantime, in April 1989, the property at 140 Victoria Road was sold for $400,00 to a company called Wilpine Pty Ltd.  The ANZ Bank received $325,000 from that purchase price on settlement of which $237,113.52 was used to discharge the loan used to purchase 140 Victoria Road, $59,725.78 was used to reduce Magic’s debt on FDA 1 to $430,000 and the balance of $28,160.70 was applied in reduction of Magic’s overdraft account. 

21. On 22 December 1989 the Bank commenced proceedings, 14913 of 1989 in the Common Law Division of the Supreme Court of New South Wales, seeking judgment for possession of 136-138 Victoria Road on the basis of Magic’s default under the terms of the mortgage to the Bank, notices of default having been served upon Magic pursuant to the terms of the mortgage. 

22. On 19 March 1990 the Deputy Commissioner of Taxation commenced proceedings in the Supreme Court of New South Wales, Equity Division for an order that Magic be wound up. The taxation debt which grounded those proceedings was paid by Magic. Thereafter on 20 August 1990 the ANZ Bank was substituted for the Deputy Commissioner of Taxation as the petitioning creditor in the winding up of Magic. The amount of the admitted debt due at 30 June 1990 was $306,812.64. On 20 June 1991 following a contested hearing, Master Windeyer of the Supreme Court of New South Wales (now Windeyer J) made orders that Magic be wound up pursuant to the Corporations Law and that Ian Lawrence Struthers be appointed liquidator of the company. The winding up proceedings in the Equity Division of the Supreme Court of New South Wales in which that order was made were number 1821/90.

23. In the meantime, in May 1991, Mr Sourian sold his unit in Jersey Road, Artarman.  $81,401.50 from the proceeds of that sale was applied to discharge the registered mortgage over the unit and the remaining balance after payment of fees, namely $131,699.72, was placed by the Bank in a suspense account.  It evidently remained there until credited to the Magic Fully Drawn Advance account known as FDA 2 on 10 September 1992. 

24. In July 1991 an appeal was instituted against the decision of Master Windeyer winding up Magic and appointing a liquidator.  The Master had made a stay of his order appointing the liquidator until 22 July 1991.  That stay was extended on two occasions by Justices Bryson and Rolfe of the Supreme Court of New South Wales up until 25 July when it was revoked by order of Justice Rolfe. 

25. In November 1991, the liquidator of Magic sought directions in the Supreme Court of New South Wales in relation to the common law proceedings for possession of the property at 136-138 Victoria Road instituted by the ANZ Bank. The liquidator had been advised by counsel that the company had no defence to the claim for possession by the Bank and that there was no substantial prospect of success in a cross-claim which had been instituted in the proceedings. McLelland J found that there was nothing before the Court to suggest that the advice was other than well-founded. Directions were given by McLelland J that the liquidator would be justified and entitled to consent to leave being granted to the ANZ Bank to continue with the proceedings pursuant to s 471(2) of the Corporations Law, discontinuing the cross-claim and not relying on the amended defence.

26. On 10 December 1991 judgment for possession of 136-138 Victoria Road, Gladesville was given in favour of the ANZ Bank against Magic. 

27. On 14 February 1992 Mr Sourian and Mr Magarditch were joined as appellants in the appeal from judgment of Master Windeyer and on 17 February 1992 Cohen J restrained the liquidator from disposing of the assets of the company pending the determination of that appeal.  The appeal from Master Windeyer was dismissed by Hodgson J on 3 April 1992.  An appeal was lodged with the Court of Appeal against the decision of Hodgson J on 30 April 1992 but was not pursued and was discontinued in December 1992.

28. On 22 May 1992, on the application of the liquidator for directions, Powell J declared that the liquidator would be justified in proceeding to submit the property at 252 Pennant Hills Road, Thornleigh for sale at auction on 26 May 1992.  On 12 August 1992, Messrs. Sourian and Magarditch instituted proceedings in the Supreme Court of New South Wales, Equity Division, action number 4027 of 1992, in which they sought orders that the company be removed from liquidation, that the Court declare the amount owing to the ANZ to be $234,495.94 and that the Bank restore the company and its directors to the possession of the property and business situated at 136 Victoria Road, Gladesville.  An order was also sought that the Bank restore the company and its directors to the possession of the Thornleigh property.  This summons was dismissed by Waddell CJ in Eq on 12 August 1992.

29. By further proceedings in action number 2181/91 in the Supreme Court of New South Wales Mr and Mrs Magarditch applied for removal of a caveat in favour of the Bank on the Willoughby property.  On 28 April 1994 Windeyer J dismissed that application and among other orders reinstated the mortgage dated 2 September 1987 from Mr and Mrs Magarditch to the Bank.  His Honour further directed the proceedings be referred to the Master to inquire as to the amount owing by Mr and Mrs Magarditch under the guarantee and the mortgage.

30. In October 1994 Messrs. Sourian and Magarditch applied to the Supreme Court of New South Wales in number 1821 of 1990 for an order removing Mr Struthers as liquidator of the company and, inter alia, reversing or modifying his decision not to prosecute an insurance claim against VACC arising out of fire damage to the company’s premises at Chatswood.  That application was adjourned on 1 May 1995 pending the completion of the inquiry before a Master pursuant to the orders made by Windeyer J on 28 April 1994. 

31. On 20 March 1996 Master McLaughlin gave judgment in relation to the inquiry which had been ordered by Windeyer J on 28 April 1994.  Master McLaughlin found, adversely to the Bank, that no amount was owing by Mr and Mrs Magarditch to the Bank under the guarantee or the mortgage of 2 September 1987.  This conclusion was reached on  the basis apparently that the advance of $205,000 to purchase 140 Victoria Road was and always remained a liability of Mr Sourian, rather than being a liability of Magic.  In reaching that conclusion Master McLaughlin had rejected the evidence of the Bank officer, Mr Kelly, and preferred the evidence of Mr Sourian.  Further, it was held that the arrangements made concerning the proceeds of sale of 140 Victoria Road did not themselves have the effect of imposing upon Magic any liability for the sum of $205,000 for FDA 2.  Since Magic was not indebted to the Bank in respect of the $205,000 it was held the Bank was not entitled to appropriate the sum of $325,000 from the proceeds of the sale of 140 Victoria Road towards reduction of Mr Sourian’s indebtedness.  Rather, that sum should in the first instance have been applied wholly towards the reduction of the indebtedness of Magic to the Bank.  If that had been done, Magic’s overdraft account would have been in credit.  Moreover the Bank was not justified in deducting its legal costs from that notional credit in favour of Magic.  Santow J concluded, on appeal, contrary to the Master, that the Bank was within its entitlement to insist on the settlement arrangement implemented not just in respect of $325,000 but for the whole $400,000.  It followed that the Bank must succeed in its appeal from Master McLaughlin on the basis that even accepting Mr Sourian (not Magic) was to be taken to have been the borrower of $205,000 for 140 Victoria Road, the Bank was entitled under its security documents to apply the proceeds as it did and it had in any event agreed settlement arrangements with Magic to that effect in return for a $75,000 discount. 

1. Leave to appeal against the decision of Santow J was refused in the Court of Appeal on 28 November 1997.

2. The proceedings in the Federal Court which are the subject of this appeal began their life as action number 3283 of 1996 in the Equity Division of the Supreme Court of New South Wales.  They were instituted in that Court in September 1996.  However, they were transferred to this Court under the Jurisdiction of Courts (Cross Vesting) Act by order of Young J of the Supreme Court of New South Wales on 5 December 1997.  That order was made because of serious allegations Mr Sourian had made that the Supreme Court of New South Wales was corrupt because a relative of the liquidator is a judge of that court.  The action as cross vested into the Federal Court was renumbered as action number 1065 of 1997.

3. On 2 March 1998 Emmett J gave leave to the applicants to file a notice of motion seeking leave to amend their amended statement of claim.  The proposed further amended statement of claim added new claims against the Bank.  The motion was made returnable before Einfeld J on 9 March 1998.

4. At that time his Honour had before him motions seeking leave for Mr Sourian to act on behalf of Magic in prosecuting the claims against the ANZ Bank and Mr Struthers and motions that the court inquire into the conduct of Mr Struthers as liquidator of Magic and that there be leave to amend the further amended statement of claim to include the request for an inquiry.

   The Amended Statement of Claim

5. Under the proposed amended statement of claim, as summarised by Einfeld J, Mr Magarditch and Mr Sourian and Magic made the following claims:

   1.Breach of a range of duties owed by the Bank to the applicants by reason of its:

   (a)lodging a caveat on the title of Willoughby;

   (b)refusing to accept an offer of $250,000 to remove the caveat and satisfy Magic’s debt to the Bank;

   (c)incorrectly, negligently and/or fraudulently asserting the amount of debt which it was owed by Magic; and

   (d)pursuing the winding up of Magic with careless and/or reckless indifference.

   2.The liquidator also was said to have failed to faithfully pursue his duties and to have been negligent in:

   (a)failing to take into account the proceeds of the sale of Artarmon held by the bank in a suspense account when administering Magic’s assets;

   (b)selling Thornleigh for a price much less than that which could and should have been obtained in the circumstances;

   (c)selling the stock, plant and equipment of the muffler and brake business conducted at 138 Victoria Rd for an amount well below market value;

   (d)failing to sell the business conducted by Magic at 138 Victoria Rd as a going concern;

   (e)failing to notify the creditors and shareholders of Magic that he had accepted the claim of the bank’s proof of debt;

   (f)failing to pursue the insurance claim against VACC;

   (g)failing to pursue a damages claim against Caltex for breach of lease;

   (h)failing to collect taxation credits from the Australian Taxation Office;

   (i)failing to correctly assess the debts of Magic; and

   (j)failing to preserve the assets of Magic.

   3.The liquidator is also said to have breached his duties and to have been negligent in failing to pursue the cross claim in the proceedings of the Bank to gain possession of 138 Victoria Road.  Alternatively, it was asserted that the Bank and the liquidator conspired to deprive Mr Sourian and Mr Magarditch of realisable assets in relation to the property at 138 Victoria Road.

   4.Together the Bank and the liquidator were negligent in failing to realise the assets of Magic for the highest possible price by failing to sell the business and property at 138 Victoria Road as a viable service station.

6. Flowing from the negligence and/or breach of duty by the Bank and the liquidator it was further alleged that Mr Sourian, Mr Magarditch and Magic had suffered loss and damage in various categories.

   The Motions Before His Honour

7. The matter was listed before Einfeld J on 9 March 1998.  In the course of proceedings two motions were filed seeking orders in the following terms:

   1.Jake Sourian act on behalf of Magic Australia Pty Ltd in the prosecution of claim (sic) against the Australia and New Zealand Banking Group Limited and Ian Lawrence Struthers.

   2.That the Court inquire into the conduct of Ian Lawrence Struthers in the administration of the affairs in the liquidation of Magic Australia Pty Limited pursuant to section 536(1), (2), (3) of the Corporations Law.

8. His Honour treated the later motion as an application to further amend the statement of claim to include the request for an inquiry into the liquidator’s conduct.  His Honour identified two threshold issues arising for determination before the matter could proceed to hearing.  The first was whether either or both Mr Sourian and Mr Magarditch should be granted leave to act on behalf of Magic in the prosecution of the claims against the Bank and the liquidator.  The second was whether the application to amend the further amended statement of claim to include an inquiry into the conduct of the liquidator should be allowed. To determine these issues he heard from Mr Sourian in person as though he and Mr Magarditch had been granted leave to bring the proposed claims in the name of Magic.   Argument proceeded before his Honour on 9, 10, 11, 13 and 20 March 1998.  On 29 January 1999 his Honour gave judgment dismissing the two motions.

9. By a motion filed on 17 February 1999 the appellants seek leave to appeal from the decision of Einfeld J.

   Grounds of Appeal

10. The grounds of appeal were set out in a draft notice of appeal filed with the motion for leave.  They are as follows:

    “1.The learned trial judge was in error in describing the standard which the applicants must establish to be granted leave by the Court to bring an action in the name of a company in liquidation.

    2.the learned judge was in error in holding that the principle of res judicata or cause of action or issue estoppel raised a barrier against the application to authorise the applicant’s (sic) to institute proceedings in the name of the company.

    3.Th learned judge was in error in concluding that in the absence of fraud impugning the judgments of earlier courts which touched upon or otherwise referred to the issues sought to be raised by the applicants in the present proceedings in the event that they were authorised to commence and prosecute proceedings in the name of the company that fraud must be proven with respect to the obtaining of prior judgments.

    4.The learned judge was in error in distinguishing between fraud alleged to have arisen with respect to the causes of action of which the applicants tended to complain and fraud in respect of the obtaining of the judgments said by Einfeld J to be an impediment to the application before the Court.

    5.The learned judge was in error in finding or apparently finding that the causes of action which the applicants sought to have determined and brought in the Federal Court in the name of the company had previously been determined on the merits or at all.

    6.The learned judge was in error in holding or apparently holding that there was no necessity to conduct an enquiry into the conduct of the liquidator pursuant to the Corporations Code, s420, in that there is no basis for concluding that the liquidator had not faithfully performed or was not otherwise not faithfully performing his duties.

    7.The learned judge was in error in concluding, notwithstanding the seriousness of the allegations made against the liquidator, that there was no or no proper basis for an inquiry to be conducted into the liquidation as contended for by the applicants.

    8.The learned judge was in error in finding or apparently finding that there was nothing that the liquidator had done or not done to suggest he had not faithfully performed his duties in part or in whole.

    9.The learned judge was in error in holding or apparently holding that the question as to whether an enquiry into the liquidator’s conduct should be instituted depended upon whether or not an objection was made by the applicants or some other appropriate person at the time of the liquidator’s conduct, or alternatively, at the time of anterior proceedings before the Supreme Court of New South Wales and in particular those before Justice Powell in May 1992.

    10.The learned judge was in error in holding that although the argument sought to be agitated before the Federal Court had not previously been put or raised or run there may have been an opportunity to do so was the reason for the refusal of the application.

    11.The learned judge was in error in that, having indicated during argument that Powell J had “made his decision on a completely false basis” his Honour held that there is no or no adequate basis for commencing an inquiry in this Honourable Court.

    12.The learned judge was in error in holding or apparently holding that notwithstanding the value to the company of the insurance claim and the failure of the liquidator to prosecute that claim there was no or no proper basis for an inquiry into the liquidator’s conduct.

    13.The learned judge was in error in holding that notwithstanding the value of the claim against Caltex and the failure of the liquidator to commence proceedings in respect of that claim there was no or no proper basis for the commencement of an inquiry in this honourable Court.

    14.The learned judge was in error in resolving each of the motions before him without consideration of further evidence which during argument had been indicated may exist and which may be a fruitful or substantive are of inquiry into the liquidator’s conduct.

    15.The learned judge was in error in dismissing the motion for leave for the second applicant to act on behalf of the third applicant in prosecuting the claims against the first and second respondents.

    16.The learned judge was in error in dismissing the motion that the Court inquire into the conduct of the second respondent as liquidator of the third applicant and to give leave to amend the further amended statement of claim to include the request for such an inquiry.”

    The Judgment at First Instance

11. The importance of the motion for leave for Mr Sourian to represent Magic was highlighted by his Honour’s observation that the damages claimed in the further amended statement of claim (with the possible exception of costs and expenses incurred by Messrs. Sourian and Magarditch) was suffered, if at all, by Magic, including the allegedly unnecessary winding up of Magic, the destruction of the goodwill of the “Magic muffler and brakes” business at 138 Victoria Road, the loss of future and potential profits, the selling of stock, plant and equipment and real estate owned by Magic at an undervalue; the loss of Magic’s reputation, the loss caused by failure to pursue the insurance claim and the loss of Magic’s registered name and logo.

12. As his Honour pointed out in general the proper person to authorise the institution of proceedings by a company in liquidation is the liquidator.  The course of authorising a creditor or contributory to sue in the name of the company has, however, been approved by authority over a number of years.  In determining whether to exercise this jurisdiction the Court must have regard to the quality and strength of the proposed case.  As in the case of an applicant seeking leave to proceed against a company, the requirement is to demonstrate “the existence of a serious claim under real dispute” – Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556-7; Eros Cinema Pty Ltd v Michel Assad Nassar (1996) 14 ACLC 1374 SC (NSW). This criterion took his Honour into a consideration of the merits of the case proposed in the amended statement of claim. He noted that many of the claims made by the applicants, particularly in relation to events prior to the winding up of Magic, had already been the subject of extensive litigation in which normal routes of appeal had been exhausted.

13. His Honour divided Mr Sourian’s claims into three categories:

    1.        Allegations against the Bank prior to the winding up of Magic.

    2.        Allegations of conspiracy between the Bank, the liquidator and various other parties.

    3.        Allegations of negligent conduct of the liquidator during the liquidation process.

14. As the further amended statement of claim had not adequately expressed these allegations as aired during the hearing, his Honour gave Mr Sourian what he described as “considerable assistance in reframing his claims so they at least consisted of valid causes of action”.  It was, for example, an essential part of the case advanced by Mr Sourian against the Bank that a number of the judgments adverse to him could be set aside on grounds of fraud notwithstanding that there were no such claims in the statement of claim.  His Honour decided to deal with each category separately and to treat the pleading as adequate to make the claims set out.

15. In connection with the allegations against the Bank, his Honour observed that many of the applicants’ claims had already been the subject of extensive litigation in which normal routes of appeal had been exhausted.  They therefore faced the barriers of res judicata and issue estoppel in their attempts to disturb the judgment otherwise than on the ground of fraud.  As to that his Honour, after reviewing the authorities, observed that an action to set aside a judgment on the ground that it has been procured by fraud must be based upon something newly discovered after the first trial.  It must not amount to a challenge to a matter canvassed in that trial – Boswell v Cokes (No. 2) (1894) 6 R 167; Cabassi v Vila (1940) 64 CLR 130 at 147; McDonald v McDonald (1965) 113 CLR 529 at 533. His Honour took the approach that in relation to each of the allegations against the Bank it was necessary to determine whether the matter had been canvassed in a previous trial, the judgment of which was protected by an estoppel and whether the applicants had presented an arguable claim that the judgment be set aside for fraud.

    The Judgment at First Instance – The Caveat

16. Turning first to allegations concerning the lodgment by the Bank of a caveat over the Willoughby property, his Honour referred to Mr Sourian’s submissions that Master Windeyer, in the winding up proceedings, had erred in failing to find that Magic was willing and able to pay the undisputed debt of $360,000 but had been thwarted by Gary Calmar, the manager at the Bank which lodged the caveat over the Willoughby house.  The fraud which allegedly procured the judgment of Master Windeyer was stated thus:

    “Culmer (sic) embarked to mislead the Court by falsely alleging that the bank had a caveatable interest in my parents (sic) home to thwart us from obtaining approved finance to pay the undisputed debt so that Magic could not be placed into liquidation.”

    His Honour referred to Master Windeyer’s finding that Magic had been seeking loan funds, that there was no evidence of any loan being approved and, in any event, the amount proposed would not have discharged the debt owing to the Bank.  The amended notice of appeal from Master Windeyer’s decision to Justice Hodgson indicated that the Master had rejected evidence of an offer by the applicants during the hearing to pay the Bank the sum of $250,000 to settle the admitted debt.  As to the rejection of this evidence, Justice Hodgson had said:

    “…it seems to me that at best this material may have gone to the question of discretion.”

    Einfeld J concluded that evidence and argument regarding the caveat were presented during both the hearing before Master Windeyer and the appeal hearing before Justice Hodgson but that it was not considered material to the issues to be decided.

    The Judgment at First Instance – The Bank’s Collateral Purpose

17. There was written argument from Mr Sourian of the Bank’s collateral purpose to “destroy Magic and his family” which, it was submitted, had been withheld from the Court.  This referred to a diary entry signed by Paul Calvert, a loss recovery officer with Esanda, a financial subsidiary of ANZ which was also owed money by Magic.  This was the only other new evidence that Mr Sourian had been able to point to which was said to suggest that the Bank deliberately lodged the caveat to prevent the raising of funds to enable the liquidation of Magic to be avoided.  His Honour concluded that there was ample evidence that the facts surrounding the caveat on Willoughby were available and known at the time of both hearings.  They had been the subject of contention in the proceedings in the Equity Division commenced by Mr and Mrs Magarditch on 6 May 1991 when they sought orders against the Bank for the removal of the caveat and for damages.  The Bank had cross claimed and Windeyer J concluded that it had established the liability of the Magarditchs for the balance of Magic’s debt and for whatever other amounts were payable under the guarantee.  In those proceedings, in his Honour’s view, the Magarditchs were given the opportunity to establish the fraud allegedly perpetrated by the Bank.  There was no appeal from that judgment and the proper claimants, Mr and Mrs Magarditch, were consequently estopped from challenging it. 

    The Judgment at First Instance – False Representations by the Bank to the Court

18. His Honour also dealt with allegations in the amended statement of claim that the Bank had, on a number of occasions, falsely or with reckless indifference represented to the Court and to the liquidator that Magic’s debts to the Bank were $866,928.95 when in truth it owed the sum of $234,495.94.  This allegation is said to have been central to the claim that Magic should not have been put into liquidation and that the Bank should not have been allowed to enforce the secured guarantee over Willoughby.  His Honour pointed out that the composition of Magic’s indebtedness to the Bank had been a contested and critical issue through a series of Supreme Court proceedings finally resolved by the New South Wales Court of Appeal in its judgment of 23 September 1998.  The Court of Appeal had had to decide whether there was some error in the decision of Justice Santow overturning the decision of Master McLaughlin which would justify the granting of leave to appeal from Justice Santow’s decision.  The decision by the Court of Appeal, in his Honour’s view, created an issue estoppel between the Bank and Mr and Mrs Magarditch as to the disbursement of the proceeds of sale from 140 Victoria Road and as to the amount of Magic’s indebtedness to the Bank to the extent that the Bank was within its rights not to use the proceeds from the sale of 140 Victoria Road to reduce that indebtedness any further than it actually did.

19. As to the repeated allegation that the Bank had made false representations in its formal proof of debt by failing to acknowledge the receipt of certain funds, the fact is the proof of debt had been rejected by the liquidator.  A new proof of debt reflecting the application of the proceeds of the sale of 138 Victoria Road and the sale of Artarmon was eventually accepted by the liquidator in February 1993.  Master Windeyer had addressed the possible alternative situation that the admitted debt was all that was owed to the Bank and concluded that even if this were so Magic was insolvent.  Einfeld J concluded that therefore no possible relief was now available to Magic or the applicant based on this allegation.

    The Judgment at First Instance – Proceeds of the Artarmon Sale

20. His Honour then considered argument about the conduct of the Bank in dealing with proceeds from the sale of Artarmon.  In particular, it was asserted by Messrs. Magarditch and Sourian that the Bank had failed to state to the liquidator that a sum of $136,933.82, being proceeds of the sale of the unit at Artarmon had already been paid towards Magic’s debts in April 1991.  Mr Sourian’s complaint was that Master Windeyer had failed to account for that sum received by the Bank when determining the insolvency of Magic.  There was no mention of that amount in the Master’s judgment.  However his Honour observed that it was clear that that sum had been brought to the Master’s attention.  This was a matter commented on by Justice Hodgson on appeal from Master Windeyer.  Justice Hodgson observed that if the amount not mentioned by Master Windeyer had been brought to account, the admitted debt including interest, was probably of the order of $250,000.  However he observed that it was not suggested that anything turned on that discrepancy.  Einfeld J observed by reference to correspondence between the Bank’s solicitors and the applicants’ legal representatives in March 1991 that the applicants were aware of the Bank’s intention to place the money in a suspense account rather than apply it to Magic’s debt.  His Honour said it was acknowledged by Justice Hodgson that the amount went towards reducing Magic’s debt.  The discrepancy was known by both parties prior to the hearing before Master Windeyer.  It was disclosed at the hearing of the appeal and it was held not to have been material to the winding up order.  The discrepancy was therefore, as his Honour concluded, no ground for impeaching the judgment of either Master Windeyer or Justice Hodgson.  There was nothing in the materials relied upon by Mr Sourian to support a case of fraud or conspiracy.

    The Judgment at First Instance – Conspiracy Between the Bank and the Liquidator

1. Turning to the claims of conspiracy between the Bank and the liquidator, his Honour noted that the proposed further amended statement of claim added new claims dealing with the possession proceedings in respect of 138 Victoria Road.  It was said that the liquidator had breached his duties and was negligent for failing to pursue a cross claim against the Bank and that in the alternative he and the Bank had conspired to deprive Mr Magarditch and Mr Sourian of realisable assets.  The liquidator and Mr Ronald Cardwell, the chairman of the liquidator’s firm, Deloitte Ross Tohmatsu,  had filed an affidavit containing a statement which they knew to be false and misleading.  The statement relied upon was that Magic was not earning sufficient income by trading to maintain its operation at 136-138 Victoria Road, Gladesville.  They also stated that the cost in pursuing the defence and cross claim in the proceedings were in the vicinity of $50,000 when they knew it would be no greater than $20,000.  They were said to have falsely implied or stated to the Court that Magic did not have easily realisable assets to prosecute the defence and cross claim. 

2. It was alleged that the Bank and liquidator had conspired to mislead the Court to obtain approval for the liquidator to withdraw from the common law possession proceedings and to consent to the Bank obtaining possession of the property at 138 Victoria Road, Gladesville.

3. His Honour referred to the possession proceedings and the judgment of McLelland J.  He noted that McLelland J had made it clear that he was aware of the hope of Mr Sourian and Mr Magarditch that they could use 138 Victoria Road as security to borrow money to pay Magic’s debts to the Bank.  But McLelland J had not been provided with any material to suggest that such a scenario had “any very substantial prospect of being able to be realised”.  There were therefore no legitimate arguments preventing the liquidator from withdrawing from the possession proceedings.  The issue of the quantum of the debt was left open to be ventilated in subsequent proceedings within the winding up.

4. Einfeld J said that if the Bank had conspired with the liquidator to use its right of possession in a way impacting adversely on Magic to prevent the business being conducted on the property as a profitable and going concern, there might well be reason to go behind the judgment and an action against the Bank and the liquidator could sound in damages.  However the applicants were unable to point to any evidence in support of the allegations of conspiracy.  The only factor of which Einfeld J was aware which bore on the subject was that the liquidator had made every effort up to December 1991 to maintain and continue the muffler business.  In his opinion the allegations of conspiracy between the Bank and the liquidator were without any evidential basis.  They were founded, in his view, on Mr Sourian’s attempts to explain why the liquidator took a different view of Magic’s insolvency and its ability to obtain refinancing.

   The Judgment at First Instance – Negligence by the Liquidator

5. His Honour then went to the issue of the allegations of negligence against the liquidator and the claim for an inquiry.  At the time that the application for an inquiry was lodged during the hearing his Honour stood over the issue whether leave would be granted to include that claim and gave Mr Sourian an opportunity to identify the evidence that could reasonably be said to support the allegations he wanted to make.  His Honour referred to the various allegations of breach of duty on the part of the liquidator made in pars 12, 22 and 23 of the further amended statement of claim.

6. In respect of the sale of 138 Victoria Road he held that the Bank was within its rights to sell the property and that there was no evidence of a conspiracy between it and the liquidator.  The business was running at a loss.  Following the order of possession the liquidator did attempt to explore ways in which the business could continue to trade.  However a non-negotiable condition for the business being permitted to continue trading was that the applicants make good by cash or bank cheque any losses incurred by Magic while it continued to trade and provide a bank guarantee in the sum of $8,000 to secure this obligation.  The applicants would not provide the bank guarantee and so the liquidator took possession of the business to prevent the company’s creditors being exposed to the potential of further losses.  His Honour held that in such circumstances the liquidator could not be at fault for not continuing to trade. 

7. In connection with the submission and treatment of the Bank’s proof of debt, his Honour found that after initially rejecting the proof of debt against Magic, the liquidator determined to admit it in the sum of $854,421.47 subject to reductions for the sale of securities held by the Bank.  A further proof of debt in the sum of $292,445.85 was admitted after the sale of 138 Victoria Road and the accounting for proceeds of the sale of Artarmon.  His Honour pointed out that there was an appropriate procedure under s 538 of the Code for an aggrieved person to complain about acceptance of a proof of debt by the liquidator.  He concluded that that was the avenue which the applicants should have pursued.  In the Bank’s revised proof of debt submitted on 7 December 1992, the application of the sum of $136,932.82 to reduce Magic’s debt was brought to account.  His Honour concluded that there was nothing in the material to suggest grounds for inquiry into the conduct of the liquidator with respect to the debt owed to the Bank.

8. On Mr Sourian’s complaint about the sale of stock from the muffler/brake business at 138 Victoria Road, the stock was auctioned for $17,000.  Mr Sourian had contended that it was worth more than $100,000 but did not identify any evidence to substantiate his allegation.  No arguable case for an undersale of Magic’s assets could be found.

9. The sale of Thornleigh proceeded by public auction following directions obtained by the liquidator from Powell J in the Supreme Court.  The contention that it was sold at an undervalue was rejected by his Honour.  After reviewing the extensive evidence on this topic he said:

   “I have given this matter anxious consideration. Obviously even a very belated inquiry should be granted if there is a reasonable chance that the liquidator has failed to carry out his duties in a significant way.  However, this case and its extraordinary history must be looked at in the context that the applicants have spent the whole or most of the last decade or more enmeshed in litigation over this amongst other related matters in which every conceivable point and issue have been taken, many of them more than once both at first instance and on appeal.  Yet except for a brief reference to the matter before Justice Waddell in July 1992, the question of any default by the liquidator in relation to the Thornleigh sale has only just been raised.  Moreover, there being no funds left in the liquidation, any finding adverse to the liquidator could only lead to an application for damages against him personally.  Even if such a claim could now be within time, its chances of success must at best be slim.”

   The Judgment at First Instance – The VACC Claim and the Claim Against Caltex

10. Further claims were made regarding the liquidator’s conduct with respect to the Caltex lease and the insurance claim against VACC.  They were connected as both related to the fire that occurred at the service station on 3 February 1988.

11. On the VACC matter, his Honour observed that VACC had not denied indemnity on the basis that Mr Sourian set fire to the premises but rather that he had failed to disclose material matters in the original insurance proposal form.  This referred to a question on the form:

    “Is there any other information you know about which may affect our decision to issue insurance to you or the insured?”

    The insurance company relied upon Mr Sourian’s failure to disclose his criminal record.  His Honour said that depending on the facts it was at least arguable that this basis for refusing indemnity would not be sustained. He proceeded on that assumption without deciding the matter one way or the other.  Reference was made to Judge Nader’s remarks at the time that the charge in the District Court was dismissed in July 1993.  Judge Nader had said that if it had been simply a matter of deciding the case on a balance of probabilities the result might have been different.  Mr Sourian might have had some explaining to do.  Moreover he had referred to the “grossly disorganised and incompetent” manner in which the stocktake after the fire was taken, such that it was clear that there was no reliable basis for assessing the stock lost in the fire.  His Honour observed that while Mr Sourian was acquitted by Judge Nader, the liquidator would have to consider very carefully whether in light of his Honour’s remarks he would be justified in commencing any proceedings with Mr Sourian as a critical witness in the case.  In a response to a complaint about his failure to make any attempt to realise the insurance claim made by Lees and Givney in September 1992, the liquidator said that the matter had been discussed with Mr Sourian, with Jennifer Darin & Co., his then solicitors, and the company’s accountant.  He said at the time:

    “We are of the opinion that the likelihood of recovery, given the information that is available, would appear to be scant.  We have requested on a number of occasions that Mr Sourian provide us with specific information of (sic) full co-operation in relation to the matter.”

    The liquidator concluded the letter with a request for assistance in relation to the insurance claim.  Einfeld J said that assuming Mr Sourian did supply the liquidator with the documentation on the insurance claim and wanted the claim pursued it is surprising that neither he nor his lawyers made any effort to respond to the request for information.

12. The liquidator’s reasons for not pursuing the VACC claim were:

    1.He did not learn of the real reason for VACC’s denial of indemnity until early 1997.

    2.At the time of the expiry of the period of limitation Mr Sourian was still the subject of criminal charges.

    3.His requests for further information on the insurance claim went unanswered and he had run out of funds.

    His Honour’s conclusion was expressed by reference to claims both against VACC and Caltex:

    “These claims were contingent assets.  They were hardly assets which a liquidator could proceed to acquire by legal action without more.  The advice on the insurance matter was that the claim was speculative at best, not because of the absence of documentation but because of Mr Sourian’s likely difficulty in persuading a court of his creditworthiness.  It would not be right for me to comment on this view, except to say, as someone who has listened to Mr Sourian at great length and read how other Judges have assessed his evidence and advocacy, that I understand it.  If the liquidator had so advised the creditors, it is hardly likely to have attracted creditor funding.  I am of the view that a claim against the liquidator on this basis, or an inquiry into these circumstances, would be futile.”

13. The other matter which it was said should have been pursued was Magic’s application in relation to the Caltex termination of lease.  But his Honour found that the resolution by consent of those proceedings predated the appointment of the liquidator who could not be held liable for failing to sue Caltex.

    The Judgment at First Instance – Tax Credits

14. Mr Sourian claimed he had alerted the liquidator to an entitlement to a refund of tax of about $116,000 because of the loss suffered in the 1988 fire.  The liquidator had told him he would “look into” seeking an amendment to Magic’s 1987/88 tax return.  But the liquidator said that the first time he became aware of the alleged refund entitlement was July 1997 when it was raised in the original statement of claim in these proceedings.  His Honour having no reasonable evidence that a refund was likely or arguable said it could not be negligent not to pursue the Australian Tax Office without funds.  An inquiry would be futile.

    The Judgment at First Instance – Conclusions

15. At the end of his judgment his Honour summed up saying that after exhaustive consideration of the material he had eventually come to the inevitable conclusion that there was no basis upon which the claims made could succeed.  The allegations against the Bank had all previously been litigated except those of conspiracy, fraud and the improper exercise of the power of the sale of 138 Victoria Road.  For the reasons he had given no case of fraud or conspiracy could possibly succeed and the sale of 138 Victoria Road carried the imprimatur of a Judge’s direction.

16. The claim for negligence against the liquidator and the projected application for an inquiry into his conduct were intertwined.  However his Honour found nothing in the circumstances of the case to call into question the impugned activities of the liquidator.  There was therefore no point in granting leave to Messrs. Magarditch and Sourian to represent Magic in the proceedings as he did not believe that any case according with legal principle had been made out for that leave to be granted.

17. The formal orders that his Honour made dismissed the motion for leave to be granted for Mr Sourian to act on behalf of Magic and also dismissed the motion for an order that the Court inquire into the conduct of the liquidator and give leave to amend the further amended statement of claim to include the request for an inquiry.

    The Contentions and Conclusions on the Appeal – Ground 1 – Standard for Leave to Proceed in Name of Company

18. The first ground of appeal asserted that the learned trial judge was in error in describing the standard which the applicants must establish to be granted leave by the Court to bring an action in the name of a company in liquidation.  There was no elaboration of the ground and no argument was advanced in that respect on the hearing of the appeal.  But in regard to the various authorities which his Honour cited we can detect no error in the principle which he adopted to the question whether leave should be granted to a contributory to take action in the name of a company in liquidation.  The principle required him to determine whether there was a serious claim under real dispute and in so determining to have regard to the quality and strength of the proposed case. 

19. In Lloyd-Owen v Bull [1936] 4 DLR 273 the Privy Council said at 276:

    “A Judge in winding-up is the custodian of the interests of every class affected by the liquidation.  It is his duty …to see to it that all assets of the company are brought into the winding-up.  In authorizing proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their probable success; where…they involve no possible charge on assets, he will nevertheless be careful to see that any action taken in the company’s name under his authority is not vexatious or merely oppressive.”

    In adopting this approach McLelland J in Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 at 252 went on to equate these requirements with the requirement that the proposed action to be taken in the company’s name “has some arguable foundation”.

20. Even in a case where there would be no drain on the assets of the company there is nevertheless a responsibility on the Court to see that any action taken in the company’s name under the court’s authority is not vexatious or merely oppressive – Russell v Westpac Banking Corporation (1994) 12 ACLC 278 at 281 (King CJ, Bollen and Mullighan JJ agreeing). In Eros Cinema Pty Ltd v Nassar (1996) 14 ACLC 1374, Simos J referred to the test laid down by the Full Federal Court in Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556-557 where it said that an applicant for leave to proceed against a company in liquidation was required to satisfy the court that the claim had a solid foundation and would give rise to a serious dispute. This did not require establishment of a prima facie case in the accepted sense. Simos J thought the requirements laid down in Vagrand were equally appropriate as requirements to be satisfied by an applicant for authority to commence proceedings in the name of the company.  He referred to the decision of McLelland J in Aliprandi but in the event applied the Vagrand test.  In practice it may be that there is very little to distinguish the two approaches. 

21. The learned trial judge in the present case applied the Vagrand test and in our opinion it has not been shown that he erred in doing so.

    Contentions and Conclusions on Appeal – Ground 2 – Res Judicata and Issue Estoppel

22. No argument was addressed to the principles of res judicata and issue estoppel mentioned in ground 2 which would suggest any error in the approach adopted by his Honour.

    Contentions and Conclusions on Appeal – Ground 3 – Fraud as a Ground for Impugning Earlier Judgments

23. By this ground of appeal it was contended that the learned trial judge was in error in concluding that in the absence of fraud impugning the judgments of earlier courts which touched upon or otherwise referred to the issues sought to be raised by the applicants in the present proceedings that fraud must be proven with respect to the obtaining of prior judgments.  No argument was addressed to this ground.  It appears clear, however, that the general doctrines of issue estoppel and res judicata or cause of action estoppel which were adverted to by his Honour were subject to the principles by which an earlier judgment may be impeached on the ground of fraud.  As his Honour pointed out this was discussed by a Full Court in Monroe Schneider v No. 1 Raberem (1992) 37 FCR 234 applying observations of Lord Bridges in Owens Bank Ltd v Bracco [1992] 2 AC 443 at 483:

    “…the common rule [is] that the unsuccessful party who has been sued to judgment is not permitted to challenge that judgment on the ground that it was obtained by fraud unless he is able to prove that fraud by fresh evidence which was not available to him and could not have been discovered with reasonable diligence before the judgment was delivered… This is the rule to be applied in an action brought to set aside an English judgment on the ground that it was obtained by fraud.”

    These principles were, in the opinion of the Full Court of the Federal Court in Monroe Schneider,  applicable in Australia.  His Honour also referred to the statement of applicable principles in the judgment of Kirby P in Wentworth v Rogers (1986) 6 NSWLR 534. There is nothing in his Honour’s general approach that discloses any error in the formulation of the relevant principles.

    Contentions and Conclusions on Appeal – Ground 4 – the Varieties of Fraud

24. Here it was said that the learned trial judge was in error in distinguishing between fraud alleged to have arisen with respect to the causes of action of which the appellants wanted to complain and fraud in respect of the obtaining of the judgments said to be an impediment to the application before the Court.  It is not clear to what this refers but again no argument was addressed under this ground on behalf of the appellants.  His Honour did say, after referring to the authorities:

    “The applicants do allege fraud in the securing of many previous judgments.  Of particular relevance to their case is thus the requirement, identified in paragraph 2, [of the principles elicited from the judgment of Kirby P in Wentworth v Rogers] that the action to set aside a judgment on the ground that it had been procured by fraud must be based upon something newly discovered, that is, after the first trial.  It must not amount to a challenge to a matter canvassed at that trial.”

    His Honour’s statement in this respect is unexceptional.

    Contentions and Conclusions on the Appeal – Grounds 5 to 16

1. These grounds were all interrelated and are best addressed, as they were by Mr Sourian, by reference to the particular issues he raised in connection with the conduct of the Bank and the liquidator. 

2. The issues were set out by Mr Sourian in his oral submissions to the Court and in part in an affidavit sworn 20 April 1999 which exhibited a number of documents to which he made reference in those oral submissions.  The issues can be classified as dealing variously with the conduct of the Bank and the liquidator separately and in concert.  Mr Sourian’s arguments were largely directed to showing that judgments adverse to the appellants and in particular the judgment of McLelland J in 1991 were obtained by fraud and that there was therefore an arguable claim in these proceedings justifying the grant of leave to him to carry them on in Magic’s name and justifying amendment of the statement of claim to support a claim for an inquiry into the conduct of the liquidator.  It is appropriate first to deal with the issues raised in relation to the Bank although some of those overlap with issues raised in respect of the liquidator.  As his Honour observed, in relation to each allegation made against the Bank, it is necessary to determine whether the matter was canvassed in a previous trial, the judgment of which is protected by an estoppel and then whether the appellants have presented an arguable claim that the judgment be set aside for fraud.  In addition there were arguments about alleged breaches of duty by the liquidator which require consideration.  In this case the Court has gone beyond the limits of the argument presented by Mr Sourian at the appeal and considered other matters which might be said to have been covered by the grounds of appeal and which were, in any event, addressed by the respondents.  Matters specifically relating to the winding up proceedings fall into that category.

   The Winding up Proceedings

3. The grounds of appeal make no specific reference to the winding up proceedings before Master Windeyer.  They were not mentioned in Mr Sourian’s affidavit of 20 April.  Nor were they canvassed to any significant degree in the oral submissions which tended to focus at least in part upon the liquidator’s application to McLelland J for directions about his response to the common law proceedings which the Bank had instituted for possession of the property at 138 Victoria Road. 

4. It can be said of the winding up proceedings, as counsel for the Bank submitted, that in order to maintain a claim that the Bank is liable in damages for pursuing the winding up of Magic with careless or reckless indifference and fraudulently asserting the amount of the debt it was owed, the appellants would have to establish that the winding up order was procured by fraud.  Mr Sourian and Mr Magarditch were appellants on the appeal from the judgment of Master Windeyer on 20 June 1991.  They were parties to the appeal upon which Hodgson J gave judgment on 16 April 1992.  They lodged a further appeal to the Court of Appeal which they sought leave to discontinue, which leave was granted on 7 December 1992.  As counsel for the Bank pointed out, Master Windeyer found that the debt due to the Bank was very much greater than that which Magic admitted.  The Bank was entitled to have the fully drawn loan made to Mr Sourian discharged from the proceeds of sale of 140 Victoria Road.  And on that basis it was not really disputed and was the case that the company was insolvent.  The Master held that it was insolvent in any event.  He said:

   “On the basis of the financial position of the company as I think it really is the company is clearly insolvent.  That was really not disputed if the set off against the bank debt was not allowed.  But if I were wrong in that and the starting point were the accounts for the period from 1 July 1990 to 30 April 1991 and the balance sheet at that date which are annexed to the affidavit of the company’s accountant Mr Ohannessian sworn on 6 June 1991 I would have come to the same conclusion.  There are clear indications of insolvency.  The defendant has not paid a small debt of about $3700 due to Esanda Limited; it has not paid the sum of about $45600 owing to its former solicitors; it owes about $3000 to its accountant; and it has not repaid the debt admittedly due to the bank.  Apart from stock it has current assets of only about $5000 and current liabilities shown on the balance sheet (including the bank debt) of $314592.”

   And further:

   “The company has been seeking loan funds but there is no evidence that these will be available a loan having been approved on conditions which may not be met and even then the amount approved would not discharge the debt owing to the bank.  This is just not a temporary liquidity crisis for the company which is likely to be overcome in a short time with an increase in business.  It follows that prima facie the company should be wound up on the ground it is unable to pay its debts.”

5. On the appeal to Hodgson J in which Messrs. Sourian and Magarditch were parties, express reference was made to the contention that there was a payment of around $135,000 which had been made in May 1991 with the result that as at June 1991 the admitted debt, including interest, was probably of the order of around $250,000 or a little less, rather than the figure of $300,000 referred to by Master Windeyer.  Hodgson J said:

   “It is not suggested that anything turns on this discrepancy.”

   Further he said:

   “In relation to the Master’s finding of insolvency, even if he were wrong about the bank’s debt, in my view, there was evidence on which a finding of insolvency was properly made.”

   His Honour pointed to the fact that the payment of the taxation debt of $50,000 had to be made from money borrowed from the employee as evidence of insolvency. 

6. The learned trial judge said in his judgment that:

   “…the judgment for the winding up of Magic created a cause of action estoppel that Magic was liable to be wound up and an issue estoppel that Magic was insolvent at the time the winding up application was made.”

   And further:

   “These issues can only be relitigated if a relevant judgment, probably the initial judgment, was obtained by fraud.”

   In this his Honour was correct.

7. In the proceedings at first instance, Mr Sourian asserted that Calmar, an officer of the Bank, had sought to mislead the court in the winding up proceedings by falsely alleging that the Bank had a caveatable interest in Mr and Mrs Magarditchs’ home at Willoughby which would prevent them from using it as security to raise finance to pay the undisputed debt which Magic owed to the Bank. As his Honour observed, Master Windeyer had concluded that even if Willoughby had been available to provide security to raise finance for that purpose, the amount proposed would not have discharged the larger unquantified debt to the Bank. Moreover it was concluded against the Magarditchs by a judgment of Windeyer J on 28 April 1994 that in the circumstances which had led to the discharge of the mortgage in favour of the Bank over the Willoughby property, the defendant Bank had an interest in the subject land sufficient to sustain the caveat entered against the title to it. It is not necessary for present purposes to recount the rather unusual circumstances in which the mortgage was discharged. Those matters are set out in the judgment of Windeyer J. In addition his Honour found that in procuring the registration of the discharge of the mortgage, Mr and Mrs Magarditch acted fraudulently within the meaning of s 42(1) of the Real Property Act 1900 (NSW).

8. Having regard to this history, no reliance can be placed on the caveat to challenge the winding up order.

9. Reliance was also placed albeit principally in relation to the judgment of  McLelland J, on a diary note signed by Paul Calvert, a Loss Recovery Officer at Esanda on 31 October 1990, which was said to demonstrate the desire of the Bank to destroy Magic and the Magarditch family.  Mr Sourian had submitted to his Honour, the learned trial judge, that the Bank had withheld this diary note from the court.  The diary note was in the following terms:

   “DIARY NOTE

   Magic Australia Pty Ltd

   31/10/90

   Contract Nos 249627191 & 212122587

   Gary Calmar ANZ West Ryde (Retail Manager) phoned, advised Magic Australia P/L owes the bank in excess of $800,000 and they are planning to bankrupt the company.

   Gary said the taxation dept were about to bankrupt the company but they came up with the funds the taxation dept required to clear the debt.

   Now the [bank] want to bankrupt the company but there is a dispute over the debt.  Solicitors Norton Smith & Co are handling all legal proceedings and this bankruptcy is set for court next week.

   The debt of $800,000 with the bank is fully secured with a home unit and a service station as security.

   With the [bank’s] debt in dispute, if they are unable to bankrupt the company then they want Esanda to proceed with bankruptcy and the [bank] will fund all costs.

   West Ryde
   Gary Calmar
   Ph 411 0417

   Awaiting Managerial advises (sic)

   Paul Calvert
   Loss Recovery Officer

   Manager agreed providing we received letter from ANZ West Ryde advising all costs will be funded.

   Paul Calvert
   Loss Recovery Officer”

   Mr Sourian argued that the diary note disclosed what he called “an internal conspiracy” in the Bank.  The Bank, on his view, was seeking to find a way to liquidate the company to silence it because of its concerns that the conduct of its officer Paul Kelly would be exposed in the possession proceedings in relation to Gladesville which it had commenced in 1989 and in respect of which the company had filed a cross claim raising issues about the conduct of the Bank manager.  It was however put to Mr Sourian in the course of argument that the crucial question was whether the company was properly wound up.  It was put that the Bank’s motives were irrelevant.  It was at this point that Mr Sourian’s submissions focussed upon the proceedings before McLelland J.  There was no argument advanced in relation to the winding up order which demonstrated that it had been obtained by fraud in a way that would overcome the res judicata and estoppels attaching to it.  As counsel for the Bank submitted, the diary note, while evidence that the Bank was determined to have Magic wound up, is not evidence that the winding up order was procured by fraud.

10. It had also been asserted before his Honour that the Bank had concealed from the Court on the winding up application the fact that $136,933.82, being the proceeds of the sale of Mr Sourian’s unit at Artarmon, which the Bank received in April 1991, had not been applied in reduction of Magic’s debt.  The submission of the Bank in relation to this point was that the Artarmon mortgage secured Mr Sourian’s liability and that of Magic to the Bank.  Mr Sourian was surety for Magic.  Under cl 3(c) of the mortgage the Bank had the right to carry all moneys which it received on account of the mortgagor in pursuance of the mortgage to a suspense account.  It provided that the Bank should not be bound to give credit in reduction of the moneys secured until the Bank had been paid 100 cents in the dollar in respect of all principal, interest and other moneys secured by the mortgage.  Mr Sourian’s solicitors were advised when the property was sold that the net proceeds would be carried to a suspense account in accordance with cl 3(c) of the mortgage.  This appears from a letter dated 10 April 1991 from Norton Smith & Co to Jennifer E. Darin, the solicitor then acting for Mr Sourian and the Magarditchs.  The matter was, as the Bank’s submissions pointed out, well known to the appellants at the hearing before Windeyer J.  It was obviously open to them to raise the matter before his Honour.  And on the appeal before Hodgson J there was express reference to this amount.  Hodgson J expressly adverted to the fact that Master Windeyer’s statement of the admitted debt left out of account this payment which he characterised as “around $135,000” but in respect of which his Honour added:

    “It is not suggested that anything turns on this discrepancy.”

11. There is nothing put by Mr Sourian in the grounds of appeal or in his oral argument or in the matters put before his Honour at first instance discloses any basis upon which a challenge to the winding up order could now succeed.

    False Statement of the Amount of the Debt

12. As counsel for the Bank submitted, underlying many of Mr Sourian’s complaints was the allegation that the Bank falsely claimed the amount of debt owed to it by Magic.  The issue was raised in the winding up proceedings.  It was pointed out that the issue of the amount of the debt had been litigated and resolved by the judgment of Santow J in the Supreme Court of New South Wales on 17 April 1997.  These were the proceedings on appeal from Master McLaughlin who had given judgment on 20 March 1996 in relation to an inquiry into the amount of money owing by Mr and Mrs Magarditch under their guarantee and mortgage and had found that nothing was owed to the Bank.  The substance of that decision and that of Santow J has already been set out in the part of these reasons dealing with the factual background and litigious history.  An appeal from Justice Santow’s decision to the Court of Appeal was dismissed.  In that judgment the Court of Appeal, in a passage cited by his Honour, the learned trial judge, said:

    “Mr and Mrs Magarditch and Mr Sourian have had every opportunity to challenge in the appropriate way anything done by the bank or liquidator.  With the exception of the decision of Master McLaughlin, which Santow J overruled, in our opinion correctly, these challenges have failed.  There is nothing to suggest that they deserved any other fate.  We have looked carefully to see whether on acceptable evidence any injustice has been done by the bank or the liquidator to Mr and Mrs Magarditch or to Mr Sourian or to Magic and have found none.”

    And this decision in the view of the learned trial judge, created an issue estoppel between the Bank and Mr and Mrs Magarditch as to the disbursement of the proceeds of sale from 140 Victoria Road and as to the amount of Magic’s indebtedness to the Bank to the extent that the Bank was within its rights not to use the proceeds from the sale of 140 Victoria Road to reduce it any further than it actually did.

    The Proceedings before McLelland J

13. Mr Sourian submitted in his affidavit and in argument before the Full Court that McLelland J was misled into giving the directions he did on the application of the liquidator and that this was the result of a conspiracy between the liquidator and the Bank.  It appears also from his submissions that the conspiracy involved his own legal advisors as well as those of the liquidator and the Bank.

14. The following matters were relied upon in Mr Sourian’s affidavit filed in these proceedings and in oral argument:

    1.The submission to McLelland J of an affidavit sworn by Ronald Cardwell of the liquidator’s firm Deliotte Ross Tohmatsu exhibiting an advice from Mr M. Pembroke of counsel.  The advice was directed to the liquidator.  It was to the effect that the liquidator would not be justified in pursuing allegations set out in the defence and cross claim filed by Magic in the common law possession proceedings brought by the Bank.  It was based in part upon information provided at a conference between Mr Pembroke and Messrs. Sourian and Magarditch and the impression Mr Pembroke formed of the two men at that conference.

    According to Mr Sourian the conference which he and his father attended with Mr Pembroke was expressed by Pembroke to be on a “without prejudice basis”.  He also set out in his affidavit various respects in which he contended that Mr Pembroke’s advice was deficient.  He asserted that the liquidator and Mr Pembroke had breached the “without prejudice” agreement and had acted unethically in the way in which the advice had been used.  He stated his belief that Mr Pembroke’s advice was made with bias in favour of the Bank and made with the intention that the liquidator and the Bank would mislead the court on the material facts and obtain a decision on a false basis. 

    It is sufficient to say in answer to this contention that the appellants were represented at the hearing before McLelland J and that if they considered that the advice was submitted in breach of an agreement between themselves and counsel, then objection could have been taken at the hearing.  The absence of such objection is no basis for constructing some conspiracy between lawyers.  This point gives no ground for challenging the decision of McLelland J.

    2.The submission to McLelland J by Mr Cardwell of a valuation report dated 21 August 1991 in respect of property at 252 Pennant Hills Road, Thornleigh showing a value of $150,000.  This was linked with the failure by the liquidator and Mr Cardwell to inform the court that they had received a written offer from Colin Dennis & Associates dated 19 August 1991 to purchase the Thornleigh property for a net amount of $275,000. 

    The letter in question was from a real estate agent, Colin Dennis & Associates and was addressed to Mr Magarditch.  It said, inter alia:

    “With reference to our recent telephone conversation please be advised that we have an increased offer to purchase from.

    CREST CONSTRUCTION P/L
     OF SYDNEY TO

    TWO HUNDRED AND SEVENTY FIVE THOUSAND DOLLARS $275,000”

    The agent advised that a price at this level at auction would seem most unlikely.  The documents exhibited to Mr Sourian’s affidavit of 20 April include a letter of 15 October 1991 from Deloitte Ross Tohmatsu to Jennifer Darin, the appellants’ solicitor at the time.  In that letter Mr Cardwell noted that an offer had been made for the property on 19 August 1991 but observed that his firm had only just been favoured with a copy of the offer which was attached to Ms Darin’s letter of 4 October 1991.

    In any event, Magarditch and Sourian, the directors of Magic, had by leave appeared in the application before McLelland J and had been joined as respondents to it as appears from his judgment delivered on 18 December 1991.

    In so far as the valuation of the Thornleigh property was relevant, it was evidently not put to McLelland J by the legal representatives for Messrs. Magarditch and Sourian.  In his oral submissions Mr Sourian explained that omission by saying it was a case of conspiracy in which their lawyers were involved.  He said:

    “…that’s the depth of it because incompetence would not fit into that category…”.

    There is no basis for that allegation other than Mr Sourian’s hypothesis.  It certainly affords no basis for this Court authorising the pursuit of litigation in which the judgment of McLelland J would, in effect, be reopened.

    3.Failure by the liquidator, Cardwell and the Bank to inform McLelland J that the Bank had received $136,993 towards Magic’s debts from the proceeds of the sale of Mr Sourian’s home unit at Artarmon in April 1991. 

    There is nothing in this point which has already been dealt with.  It was a matter agitated before Hodgson J on the appeal from Master Windeyer in respect of the winding up order.  Again, if the matter were relevant it was able to be presented to McLelland J by the legal representatives for Messrs. Magarditch and Sourian.

    4.The liquidator and Cardwell wrongly informing McLelland J that the business at 138 Victoria Road, Gladesville was not trading profitably and that the liquidator was finding it difficult to keep the business trading and submitted a trading report to the court.  The Court, it was said, was not informed that Mr Magarditch and Mr Sourian had an agreement with the liquidator to keep cash transactions to cover Mr Magarditch’s and Mr Sourian’s wages and they were also to pay for parts for work performed from the cash proceeds.

    This allegation seems to invite a debate about the characterisation of the trading performance at 138 Victoria Road, Gladesville.  It is a matter upon which the applicants themselves could have put evidence before McLelland J if it were relevant.  It does not disclose any basis for reopening any of the issues agitated before his Honour in that respect.

    5.Non-disclosure by the liquidator and Cardwell to McLelland J that the New South Wales Police Service had given to Esanda Finance a 1988 Holden Berlina motor vehicle in the knowledge that Magic had a mechanics lien in the amount of $11,484 over the said vehicle. 

    The relevance of this point is obscure. At best it is a matter of non-disclosure, no doubt based on a judgment of relevance and, of course, a matter upon which the appellants and their representatives could have put evidence before McLelland J if it were relevant to those proceedings.  Mr Sourian’s belief, also stated in his affidavit, that the Bank, Esanda Finance and the police had conspired to have him arrested on trumped up charges in order to defraud Magic of its assets in the equity in certain vehicles is, on the face of it, highly improbable.

    6.The failure by the liquidator and Cardwell to inform McLelland J of the existence of a substantial insurance claim against VACC with a sum insured of $1 million which claim if valid would have met all debts due and owing to the Bank and to other creditors.

    This point was also taken in relation to the claim of negligence on the part of the liquidator, will be considered separately below.  Again being a matter of non-disclosure there was no basis for an allegation of fraud particularly since the possible existence of a claim against the insurance company was known to the appellants and their advisors who could have put the information before McLelland J. 

    7.Sale of the Gladesville Property

    Mr Sourian submitted in oral argument that the Bank had valued the property at $410,000 for the purposes of sale but not as a going concern.  As a going concern it would have fetched an amount of at least $950,000 because it was a service station.  Mr Sourian submitted that it had not been advertised or promoted as such. 

    Insofar as this issue is relied upon to impugn the judgment of McLelland J, it does not disclose a case of fraud and it is a matter that was known to the appellants and their advisors.  And again Mr Sourian asserted that his lawyers were part of a conspiracy to conceal the truth from the court, that he could back that up and prove it.  However there was no evidence to support that extreme contention.

1. None of the points relied upon by Mr Sourian show a basis for impugning the judgment of McLelland J. 

   Exercise of the Power of Sale in Respect of 138 Victoria Road, Gladesville

2. The sale of 138 Victoria Road, Gladesville by the Bank was raised by Mr Sourian on the appeal as a matter of non-disclosure to McLelland J on the liquidator’s application  to his Honour for directions on the defence and cross claim to the possession action.  The propriety of the sale was also the subject of separate submissions by the Bank to which it is appropriate to make reference here.  As counsel for the Bank pointed out, it sold the property pursuant to the exercise of its power of sale as mortgagee.  It had demanded possession on 27 November 1989 in order to exercise that power.  It did not obtain possession until 18 December 1991.  The liquidator had made a proposal to the appellants about the basis upon which he would keep the business open and had written to the solicitors for the Bank advising them of the proposal in order that the former directors be given an opportunity to proceed with the purchase of the property.  However, by a letter dated 20 December 1991 from Ms Darin and a personal communication from Mr Sourian, the solicitors for the liquidator, Hunt & Hunt, were advised that the directors would not provide the bank guarantee in the sum of $8,000 in favour of the liquidator which was an essential pre-condition to him being prepared to allow the business to continue.  As counsel for the Bank submitted, the substantial allegation which Mr Sourian made before Einfeld J was that the Bank acted wrongly in not allowing the property to be sold with the business being carried on as a going concern.  The proposition is insupportable.  There was no basis upon which the property could have been so sold, let alone one upon which the Bank was required to ensure that it was so sold.  It is not accepted that there is any evidence of improper or negligent conduct on the part of the Bank in respect of the sale of 138 Victoria Road, Gladesville.

   Claims Against the Liquidator

3. Various claims have been made against the liquidator by Mr Sourian including conspiracy with the Bank which has already been referred to.  The only claim of alleged misconduct or negligence on the part of the liquidator which merits examination is the allegation that the liquidator failed to pursue an insurance claim against VACC Insurance in respect of the fire which occurred on 3 February 1988. 

4. The insurance proposal form in that case named as the insured “Magic Australia”.  It was completed by Mr Sourian.  Question 5 on the form was in the following terms:

   “5.  Other Information
   Is there any other information you know about which may affect our decision to issue insurance to you or the Insured?”

   The answer section for that question was left blank.

5. The general conditions applicable to the policy included as clause 1 under the heading “Misrepresentation and Non-Disclosure” the following:

   “1.  If the Insured:

   (i)failed to disclose any matter which the Insured was under a duty to disclose to the Company; or

   (ii)made a misrepresentation to the Company before the Policy of insurance was entered into and if the Company would not have entered into the Policy for the same premium and on the same terms and conditions expressed in this Policy but for the failure to disclose or the misrepresentation,

   then –

   (a)the liability of the Company in respect of any claims will be reduced to an amount to place the Company in the same position in which the Company would have been placed if the failure to disclose had not occurred or the misrepresentation had not been made, or

   (b)if the non-disclosure or misrepresentation was fraudulent, the Company may avoid this Policy.”

6. By a letter dated 26 July 1988 the solicitors for VACC wrote to the secretary of Magic Australia in the following terms:

   “We act on the instructions VACC Insurance Co Ltd in relation to the fire which occurred at 670 Pacific Highway, Chatswood, on or about 3 February 1988, and the subject of your claim for indemnity under policy number PACO5215.

   Our client has undertaken inquiries into the cause and effect of the fire and, as a result of those inquiries, it has come to our client insurer’s attention that one of your company’s directors, Jake Magarditch, also known as Jake Sourian, has been convicted of a number of offences, including the import of prohibited goods in the form of machine guns, bullet proof vests and the like, assault, and malicious injury, among others.

   We are instructed that had these convictions been disclosed to the insurer in the proposal submitted by your company, the risk would have been rejected and, in the circumstances, our client treats the non-disclosures as having been made fraudulently and, on that basis, hereby avoids policy number PACO5215 from inception.

   We are instructed by our client that all premiums paid will be returned to you under separate cover.”

   Mr Sourian contended that he had never imported machine guns and never been convicted in that regard.  In any event he said he was not a director of the company at the date the proposal was signed.  He did not become a director until December 1989.

7. The learned trial judge noted that the liquidator initially misapprehended the reason for VACC’s rejection of the claim when, in an affidavit of 5 March 1998, he said:

   “…the insurer was VACC and that the insurer had denied indemnity to the company in respect of the fire and that Mr Sourian had been charged with a number of offenses (sic) relating to the fire, the essential allegation being that he had deliberately lit the fire.”

   His Honour was prepared to accept that it was at least arguable that the basis upon which the company refused indemnity would not be sustained.  However, to accept so much was not to accept that the liquidator was negligent in failing to pursue proceedings against VACC.  In evidence before his Honour the liquidator’s reasons for not commencing proceedings were stated thus:

   1.He did not learn of the real reason for VACC’s denial of indemnity until early 1997 when Mr  Sourian filed affidavits before Justice Giles containing the letter of 26 July 1988 from the solicitors for VACC to Magic outlining why the insurance policy was avoided.

   2.At the time of the expiry of the period of limitation, Mr Sourian was still the subject of criminal charges.

   3.The liquidator’s requests for further information on the insurance claim directed to Jennifer Darin on 28 August 1991 remained unanswered and he had run out of funds.

   As his Honour pointed out a liquidator does not have a duty to incur expenses in relation to the winding up of a company unless there is sufficient property available to meet those expenses.

8. Notwithstanding the caveats surrounding Judge Nader’s comments when he dismissed the criminal charges against Mr Sourian in 1993, they did not present a particularly encouraging view of Mr Sourian’s credibility if the case fell to be decided on the balance of probabilities.  To that extent the pursuit of the insurance matter would have been, to some degree, speculative.  The learned trial judge, recognised that when he referred to Mr Sourian’s likely difficulty in persuading a court of his creditworthiness.  If the liquidator had so advised the creditors, and it seems he would have been obliged to draw their attention to the remarks of Nader J, the pursuit of the VACC claim is hardly likely to have attracted creditor funding.  Of course, it might well have been open to Mr Sourian to take an assignment of any cause of action against VACC.  That was not an option that was pursued.  Very little information was forthcoming to the liquidator about the claim notwithstanding his request to Ms Darin, the solicitor for Mr Sourian in August 1991.  Given the background facts, including the laying of criminal charges, the somewhat equivocal comments of Justice Nader in respect of Mr Sourian’s creditworthiness and the absence of funds to pursue the claim it cannot be said that the liquidator was negligent in adopting the position that he did or that any ground for an inquiry has been disclosed. 

   Conclusion on Grounds of Appeal Generally

9. The Court has given consideration to all the submissions made by Mr Sourian on behalf of the appellants.  It has not adverted to every one of them although it has referred to points raised in the court below which were not directly and expressly addressed on appeal.  For the reasons set out above, the Court is satisfied that none of the grounds of appeal is made out and that the appeal should be dismissed.  

10. The remaining question then is the disposition of the respondents’ motions, contingent on the dismissal of the appeal, for dismissal of the application as a whole.

    The Respondents’ Motions for Dismissal of the Application

11. The subject of this appeal was an interlocutory judgment disposing of two motions.  The motions were the applicants’ motions (1) for leave to bring the claims set out in the statement of claim as amended from time to time on behalf of Magic and (2) for an inquiry by the Court into the conduct of the liquidator in the administration of the liquidation of Magic.  (The latter motion was treated by the primary judge as an application to further amend the statement of claim to include the request for an inquiry into the liquidator’s conduct).  The orders made by his Honour on 29 January of this year were confined to those motions, both of which were dismissed.  On the hearing before the Full Court, the respondents moved, however, for orders that the entire proceedings (alternatively, the claims made by Magic) be dismissed in the event that the judgment below was upheld.

12. Counsel for the Bank explained that the application for dismissal was made by notice of motion (not by notice of cross-appeal) because the provisions of O 52 r 22(1) of the Federal Court Rules were inapposite in the case where, as here, there was no appeal on foot unless and until leave to appeal had been granted.  The provisions of O 52 r 22(3), regarding notice of contention are, it seems, similarly inapposite.

13. The liquidator did not submit that he had made any application for stay or dismissal under O 20 r 2 or otherwise before the primary judge and, indeed, it seems that no such application was made by him.  The Bank, however, did submit that it had made an oral application to that effect. In support of that submission, the Court was referred to a passage in the transcript of the hearing before his Honour on 10 March 1998.  That passage relevantly read:

    “Counsel:Before Mr Sourian replies perhaps I should say one thing about the question of procedure which your Honour adverted to.  Your Honour posed the two threshold questions, and I should have said that if your Honour finds against the applicants on both those questions, or indeed even on the second question alone, the consequence ought to be that the present statement of claim ought to be summarily dismissed.

    His Honour:    …But any how, I will treat – what you want me to do is to treat the amended statement of claim as if it were an application and a statement of claim effectively.

    Counsel:Yes.

    His Honour:    Yes.

    Counsel:And the power, in any event, is to make orders in relation to proceedings, and to order that the proceeding be stayed or dismissed under Order 20 rule 2.

    His Honour:    Yes, yes, yes.

    Counsel: If your Honour pleases.”

14. In this exchange, counsel for the Bank did not state, plainly and unambiguously, that the Bank moved for summary dismissal, even though the Bank had not filed and served notice, as ordinarily required by O 19 r 2(1) of the Rules of the Court.  Nor did counsel request his Honour to dispense with the need for such a notice.  The Court is unable to accept that the Bank made a summary dismissal application as it contends.  His Honour does not appear to have understood counsel’s remarks in that way.  Doubtless, that is why his Honour made no order on any such application.  Counsel’s remarks may, however, be reasonably understood as a submission that, in the event the applicants were unsuccessful, then the Court ought, as a concomitant of dismissing the applicants’ motions, to stay the proceedings.

15. An appeal is a remedy given by statute and, in consequence, the powers of courts of appeal vary, depending upon the statute pursuant to which those powers are given: cf CDJ v VAJ (1998) 157 ALR 686 at 706 par 95 per McHugh, Gummow and Callinan JJ and at 735 par 186 per Kirby J. A distinction is sometimes drawn between an appeal in the strict sense and an appeal by way of re-hearing. The distinction is discussed in a number of cases in the High Court, as, for example, in Victorian Stevedoring and General Contracting Co Pty Ltd v Dignan (1931) 46 CLR 73 and in Mickelberg v The Queen (1989) 167 CLR 259. It is also discussed in this Court, as, for example, in Duralla Pty Ltd v Plant (1984) 2 FCR 342 and in Petreski v Cargill (1987) 18 FCR 68. An appeal to this Court is not an appeal by way of rehearing: see Duralla Pty Ltd v Plant (supra) at 352 per Smithers J (with whom Beaumont J agreed) and 364-5 per Northrop J. It has been said that the task of an appellate court in determining an appeal in the strict sense is to decide “the correctness or otherwise of the decision under appeal in the light of the evidence and issues as they were before the court whose decision is in question”: see Mickelberg (supra) at 298 per Toohey and Gaudron JJ. That is indeed the primary task of a Full Court of this Court exercising appellate jurisdiction. Parliament has made it clear, however, that the appellate powers of the Federal Court are not limited to the hearing and determination of an appeal in the strict sense: Chamberlain v The Queen (1984) 153 CLR 521 at 526 per Gibbs CJ and Mason J and Duralla (supra) at 352 per Smiths J and 364 per Northrop J. Sections 27 and 28 augment the powers of the Court in the appellate jurisdiction that derives from s 24 of the Federal Court of Australia Act.  Thus, the Court in its appellate jurisdiction has power to draw inferences of fact and to receive further evidence (s 27), to set aside a jury verdict and order a new trial (s 28(1)(e) and (f)) and to give such judgment as in all the circumstances the Court thinks fit (s 28(1)(b)).  It has been said, in relation to criminal appeals, that the Federal Court of Australia Act confers a “wide discretion to ensure that justice is done”: Chamberlain (supra) at 529 per Gibbs CJ and Mason J. We do not think the position is different in relation to civil appeals.

16. Counsel for the Bank submitted that the decision of the High Court in Mickelberg throws doubt upon the decision of the Full Court of this Court in Duralla.  The Court in Mickelberg was concerned with the appellate jurisdiction conferred on the High Court by s 73(ii) of the Constitution which, so it held, did not extend to receiving further evidence. The High Court was not concerned with the appellate jurisdiction conferred on the Federal Court by the Federal Court of Australia Act, pursuant to ss 77(i) of the Constitution. No submission has been made in this case that the characteristics of the appellate jurisdiction of the Federal Court cannot validly differ from those of the appellate jurisdiction of the High Court: cf CDJ v VAJ (supra) at 708 par 101 per McHugh, Gummow and Callinan JJ. Nothing in counsel’s submissions in this case persuades us to the view that the general description of this Court’s appellate jurisdiction in Duralla is wrong.

17. By virtue of s 28(1)(b) the power of the Court, in the exercise of its appellate jurisdiction, extends not only to confirming, reversing or varying the judgment appealed from, but also to giving “such judgment, or mak[ing] such order, as, in all the circumstances, it thinks fit…”.  Subsection 28(3) provides that:

    “The powers specified in subsection (1)…may be exercised in favour of all or any of the respondents or parties, including respondents or parties who have not appealed from or complained of the decision.”

    The breadth of the power conferred by s 28(1)(b) and s 28(3) is clear in terms.  Section 28(1)(b) has, for example, been held to permit, on appeal, an amendment of an original pleading in order to raise an issue of fact or law that might fairly be determined upon the existing evidence: see Teoh v Minister for Immigration and Ethnic Affairs (1994) 49 FCR 409. Whether or not such permission is granted depends, amongst other things, upon whether it is expedient and in the interests of justice that the issue be decided: see 49 FCR at 416 per Lee J.

18. By virtue of the conclusion to which the Court has come on appeal, it may be accepted that the appellants (the applicants below) have failed to establish that they have an arguable case against the Bank or the liquidator.  The Court, having considered carefully the claims and supporting material upon which the appellants rely, is unable to avoid the conclusion that the claims are, to adopt the language of the High Court (in Walton v Gardiner (1993) 177 CLR 378 at 393) “foredoomed to failure” and, regardless of the purpose of Mr Sourian and his father in instituting the proceedings, the maintenance of them will constitute an abuse of process (as that expression is explained in Walton v Gardiner (supra)).  It is to be borne in mind that many of the claims made by the appellants have been the subject of previous litigation extending back over some  ten years.  After a painstaking examination of the claims that the appellants have sought to make, the primary judge concluded, and this Court has affirmed, that there is no basis upon which a claim of fraud in procuring relevant judgments could be maintained.  Bearing in mind the Court’s conclusions and that those conclusions rest upon a detailed examination of all the material that the appellants seek to bring forward in support of their claims, it is open to the Court in its appellate jurisdiction to grant the relief of the kind that the respondents seek.  It is in the interests of justice that the Court do so, in so far as it brings the proceedings to a close.  Accordingly, the Court will grant a stay of these proceedings.

I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Spender, French and Kenny.

Associate:

Dated:             16 June 1999

Counsel for the Appellant:

Mr J. Sourian appeared in person for the Appellants

Counsel for the First Respondent:

Mr R.W. White SC and Ms M. Painter

Solicitors for the First Respondent:

Norton Smith & Co

Counsel for the Second

Respondent

Solicitors for the Second

Respondent

Mr I.G. Harrison

Hunt & Hunt

Dates of Hearing:

6 and 7 May 1999

Date of Judgment:

16 June 1999