Mandeville v Better Lending P/L (No 5) - [2018] SADC 99

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MANDEVILLE v BETTER LENDING P/L & ANOR (No 5)
[2018] SADC 99
Judgment of His Honour Judge McEwen
13 September 2018
ESTOPPEL - ESTOPPEL BY JUDGMENT - RES JUDICATA OR CAUSE OF ACTION ESTOPPEL
ESTOPPEL - ESTOPPEL BY JUDGMENT - ISSUE ESTOPPEL
The Defendant issued proceedings in the Magistrates Court of South Australia claiming $75,000 from the Defendant pursuant to a loan agreement. Default judgment was entered.
The Plaintiff argues the Defendant is prevented, due either to the doctrine of res judicata or issue estoppel, from claiming payment for money owed under a second loan agreement.
Discussion of legal principles of Res Judicata and Issue Estoppel.
Held: The Plaintiff’s pleas of res judicata and issue estoppel are rejected.
Jackson v Goldsmith (1950) 81 CLR 466; Re Waring, Westminster Bank Ltd v Awdry [1942] Ch 309; Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572; Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd (1992) 36 FCR 406; Blair v Curran (1939) 62 CLR 464; Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993; Deep Investments Pty Ltd v Casey (2018) 125 ACSR 564, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"res judicata", "issue estoppel"

MANDEVILLE v BETTER LENDING P/L & ANOR (No 5)
[2018] SADC 99
The Issues

On 24 July 2014 Better Lending Pty Ltd issued proceedings in the Magistrates Court against Andrew and Deborah Mandeville, claiming $75,000 plus interest and costs. On 21 August 2014, default judgment was entered for the Plaintiff. The entering of that default judgment set in train a series of litigious procedures and several Rulings[1], leading to this hearing. The Court is asked to rule upon a ‘preliminary issue’, namely, whether by virtue of that default judgment, and the principles of res judicata or issue estoppel, Better Lending is precluded from pursuing further claims.
[1] Rulings of Judge Slattery dated 30 June 2017 (in chambers), 10 November 2017 and 6 December 2016 and Ruling of Judge McEwen dated 17 August 2018.
Better Lending sued Ms Mandeville in the Magistrates Court for $75,000, based upon an alleged loan dated 20 August 2010. Better Lending now wish to pursue proceedings against her for the sum of $290,400 based upon an alleged loan agreement dated 3 September 2010. Ms Mandeville (Plaintiff in this application) argues that by proceeding to judgment on the first loan agreement, Better Lending are precluded from pursuing the claim based upon the second loan agreement.
I note that both the parties recognised, very early in this litigation, the benefits of resolving the preliminary issue. Consent orders were made on 30 May 2016 to facilitate its prompt determination. It is regrettable that it has taken more than two years to reach this hearing.
The parties have formulated the following questions: [2]
[2] Trial Book (Exhibit P1), page 1.
Statement of Issues
Does the default judgment (appearing at page 4) preclude the first defendant Better Lending Pty Ltd from making the claims pleaded :
1.paragraphs 1O – 1S
2.paragraph 2
3.paragraphs 1,2,3 and 4 of Part 3
of the Second Statement of Counterclaim (appearing at page 45), by reason of:
4.Res judicata?
5.Issue estoppel?
I shall not set out in full the specified paragraphs of the Better Lending pleadings. The counterclaim alleges a breach by the Defendant of the alleged loan agreement dated 2 September 2010. This is referred to in submissions as the second loan agreement.
In order to determine those issues, it is necessary to have regard to the proceedings in the Magistrates Court in which the default judgment was obtained: ‘the first proceedings’. It is also necessary to consider the proposed claims by Better Lending, which Deborah Mandeville argues are precluded by the operation of those legal principles: ‘the second proceedings’. It has been sensibly agreed between the parties that the Court will determine these preliminary issues, upon the materials set out in a Trial Book, Exhibit P1.
The First Proceedings
The claim filed in the Magistrates Court on 24 July 2014 alleged the following particulars:[3]
[3]    Trial Book (Exhibit P1), page 3.
1.   At all material times the Plaintiff was a company duly incorporated in South Australia.
2.   At all material times the Defendants were natural persons.
3.   By agreement in writing dated 20 August 2010, between the Plaintiff on the one hand and the Defendants on the other, the Plaintiff agreed to advance loan moneys to the Defendants (“the Loan Agreement”).
4.   On 20 August 2010, the Plaintiff advanced the Defendant $75,000.00 under the Loan Agreement (“The First Principal Advance”).
5.   Pursuant to Clause 5.1 of the Loan Agreement, the First Principal Advance was to be repaid by 20 November 2010.
6.   The Defendants failed to repay the First Principal Advance by the 20 November 2010 in breach of the Loan Agreement.
The remedies sought are:
A.     Judgment in favour of the Plaintiff in the amount of $75,000.00.
B.     Interest.
C.     Costs.
The certificate of judgement dated 21 August 2014 includes the following:[4]
[4]    Trial Book (Exhibit P1), page 4.
TYPE OF JUDGMENT:                Sign Judgment in Default
JUDGMENT AMOUNT:               $77577.75

Amount Claimed                  $75000

Costs  $2577.75
TOTAL:  $77577.75
Legal Principles
I shall not attempt a comprehensive treatise on the topics of res judicata, and issue estoppel. However, I shall succinctly summarise the relevant principles that I need to have regard to, in deciding this case.
Res Judicata
In Jackson v Goldsmith Fullagar J succinctly described res judicata as: [5]
Where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action
[5] Jackson v Goldsmith [1950] HCA 22; (1950) 81 CLR 466.
This is because the cause of action claimed or advanced in the first proceedings has merged into the judgment obtained, and no longer has an independent existence. The merger of that cause of action in the first judgment precludes pursuit of the same cause of action in subsequent proceedings. The authorities clearly establish that the principle of res judicata extends to consent judgments and default judgments.
As noted by Handley[6], the principles behind the requirement for finality were lucidly explained by Lord Wilberforce in The Ampthill Peerage Case.
English Law,… requires that limits be placed on the right of citizens…to reopen disputes. … Any determination of disputable fact may, the law recognizes, be imperfect: the law aims at providing the best and safest solution compatible with human fallibility and having reached that solution it closes the book.
[6] KR Handley, Res Judicata, (Butterworths Common Law Series, Spencer Bower and Handley 4^th ed, 2009).
Handley further notes that:[7]
The principles governing res judicata reflect the attempts of courts to achieve finality in litigation on principled and predictable grounds.
[7] Ibid, 1.11.
And: [8]
Res judicata is founded upon the public interest in the finality of litigation rather than the achievement of justice between the individual litigants.
[8] Ibid, 1.14.
It can be seen that res judicata is a principle recognising the importance of finality. Hence in Westminster Bank the Court said: [9]
The decision need not be correct in law or fact. Res judicata… gives effect to the policy of the law that the parties to a judicial decision should not afterwards be allowed to re-litigate the same question, even though the decision may be wrong.
[9] Re Waring, Westminster Bank Ltdv Awdry [1942] Ch 309.
In Rogers v Legal Services Commission of South Australia Justice Lander expressed the principle as premised upon both public and private interests: [10]
The principle is based upon two premises. The first is that it is in the public interest that there be an end to litigation and the finality and conclusiveness of a judicial decision is recognised. [Interest reipublicae ut sit finish litium.] The second is the private right of an individual to be protected from vexatious and oppressive suits arising out of the same circumstances. [Nemo debet bis vexari pro una et eadem causa.]
[10] (1995) 64 SASR 572.
In Tomlinson v Ramsey Food Processing Pty Ltd the court described res judicata as: [11]
The rendering of a final judgment in that way "quells" the controversy between those persons. The rights and obligations in controversy, as between those persons, cease to have an independent existence: they "merge" in that final judgment. That merger has long been treated in Australia as equating to "res judicata" in the strict sense
[11] (2015) 256 CLR 507 at [20].
Same Cause of Action
Application of the res judicata principle necessarily entails consideration of whether the subsequent proceedings advance the same cause of action. Indeed, the principle is often referred to as ‘cause of action estoppel’. The fundamental issue for determination is whether the cause of action in the first proceedings that has merged into the judgment, is the same cause of action sought be advanced in the subsequent proceedings.
For the purposes of this principle, what does ‘cause of action’; mean? It is not merely a reference to the underlying factual matrix set out in the pleadings. That is a relevant consideration, but separate and distinct causes of action can be based upon the same underlying facts. Nor does it merely refer to the nature of the right asserted, although that is also a relevant consideration. Not surprisingly, the cases demonstrate that for cause of action estoppel it is necessary to look at both of these considerations, to determine whether the substance of the causes of action is the same.
Thus in Trawl Industries v Effem Foods; Gummow J said:[12]
…for the law of Australia it is most suitable to focus on the substance of the two proceedings as distinct from their form…
…this is case where it can be said that the same evidence would be led to prove the case Trawl propounded in its pleadings in both actions. The one factual matrix has generated the controversy which is given legal form in the two pleadings. As a matter of substance, in this court, Trawl seeks to attack Effem again upon a corresponding cause of action.
[12] Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd (1992) 36 FCR 406 at 418,420.
Issue Estoppel
Issue estoppel is an extension of the public policy considerations underlying the principle of res judicata. It is a similar principle, but rather than applying to the cause of action determined by, and merged into, the first judgment; it refers to an issue that has been necessarily determined in the first judgment.
In Blair v Curran, Dixon J, in a passage often quoted in subsequent cases, described the principle of issue estoppel: [13]
A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation for justification of its conclusion.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue estoppel is confined to those ultimate facts which form the ingredients in the cause of action.
[13] (1939) 62 CLR 464 at 531.
In describing issue estoppel, cases include references to issues necessarily decided; a fact fundamental to the decision arrived at; components of a cause of action; and cardinal matters. Whatever terminology is used the principle is strictly confined to matters or issues definitely and unambiguously decided in the prior proceedings.
This strict interpretation of the principle is borne out by the High Court in Jackson v Goldsmith where Williams J said:[14]
A party is precluded from contending the contrary of any precise point which, having been once distinctly put in issue, has been solemnly found against him. Though the objects of the first and second actions are different, the finding of a matter which came directly (not collaterally or incidentally) in issue in the first action is conclusive in the second action between the same parties and their privies.
[14] Ibid at [460].
In Kok Hoong v Leong Cheong Kweng Mines Ltd, the Privy Council referred to the limitations when applying issue estoppel to a default judgment:[15]
The question is not whether there can be such an estoppel, but rather what the judgment prayed in aid should be treated as concluding and for what conclusion it is to stand. For, while from one point of view a default judgment can be looked upon as only another form of judgment by consent (see In re South American & Mexican Co.) and, as such, capable of giving rise to all the consequences of a judgment obtained in a contested action or with the consent or acquiescence of the parties, from another a judgment by default speaks for nothing but the fact that a defendant for unascertained reasons, negligence, ignorance or indifference, has suffered judgment to go against him in the particular suit in question. There is obvious and, indeed, grave danger in permitting such a judgment to preclude the parties from ever reopening before the court on another occasion, perhaps of very different significance, whatever issues can be discerned as having been involved in the judgment so obtained by default.
[15] [1964] AC 993 at 1010.
Material to be Considered
In Jackson v Goldsmith, in a passage cited in Rogers v Legal Services Commission of South Australia, Fullagar J noted limitations upon the material available for consideration by the court in determining pleas of res judicata or issue estoppel:[16]
It follows from the very nature of the difference between the plea of res judicata and the plea of issue estoppel that different materials are relevant in each case. Where the plea is of res judicata, only the actual record is relevant. Where the plea is of issue estoppel, any material may be looked at which will show what issues were raised and decided. Reasons given for the judgment pronounced are likely to be particularly important for this purpose.
[16] Ibid at 467.
In Deep Investments Pty Ltd v Casey Gleeson J, referring to Pollnow v Armstrong, expressed and applied the view: [17]
That for the purposes of res judicata the court is restricted to the examination of the Plaintiff’s pleadings and the court’s orders.
[17] (2018) 125 ACSR 564.
Of course, I am dealing with a default judgment. So the traditional distinction that for res judicata a court is limited to the formal record of judgment and pleadings; but for issue estoppel they may consider the court’s written judgment; will be of no practical difference here.
Mr Abbott SC, counsel for the Plaintiff, in his submissions, urged me to take a fairly broad interpretation of the case law regarding materials that a court can consider, especially on the claim of issue estoppel. However, it is one thing to consider a matter that has been fully litigated, resulting in a detailed judgment, and to interpret that judgment with reference to evidence and reports, dealt with in the contested litigation and the judgment. That may be necessary to remove any ambiguity, or to render meaningful, what the judgment stands for. It is quite another thing to take a broad approach in relation to a default judgment; Especially as broad as Mr Abbott SC urges, where his argument entails consideration of the content of two loan agreements, one of which is merely referred to in the particulars of claim leading to the default judgment; and neither of which are actually in evidence or pleaded in any detail, in the first proceedings.
I note the following exchange with Mr Roberts SC, counsel for the Defendant, in relation to whether I should look at the content of the two loan agreements which are in the Trial Book:[18]
[18] T55-57.
HIS HONOUR:      Focus on for the moment how it is, if I've understood your present analysis of each of those, how it is I get to considering the actual contracts. It seems to me you say on one I consider the pleadings compared to the future pleadings; on the other I consider the judgment, if there is one; firstly, the order I suppose then the judgment if there is one, if there's still some uncertainty go to the transcript of the issues.
MR ROBERTS:      Yes.
HIS HONOUR:      If I've understood all of that I don't see how in the present case I'll ever get to looking at these two loan agreements.
MR ROBERTS:      In my submission your Honour doesn't. What your Honour doesn't do certainly is to try and delve into the merits to try and work out the underlying factual substratum. Your Honour doesn't assess whether this is the same cause of action in substance by looking at underlying merits and making findings of fact about what the merits are.
Instead your Honour just looks at the record and says, any nuances aside, 'is this the same claim that was being advanced previously?' That's res judicata.
HIS HONOUR:      What about on the other one, could I get to the contracts on issue estoppel?
MR ROBERTS:      Again, only to the extent that they need to amplify the claims that are being advanced and the fact they are two different instruments. Your Honour doesn't go behind them and work out 'that right goes before, therefore you could have sued on it'. That's Anshun territory, not res judicata or issue estoppel.
HIS HONOUR:      Even though they are in the trial book, you would be content and probably even urge me to decide both these matters without having regard to the content of the two loan agreements.
MR ROBERTS:      Yes. Your Honour will recall earlier we submitted there will be a common book because it's the outer limit, but what you should do is different as between us, and your Honour is now being told really what the difference is.
I accept those submissions by Mr Roberts SC.
The Plaintiff’s Arguments
The Plaintiff’s written outline on the topic of res judicata includes the following:[19]
[19] Deborah Mandeville’s Submissions Hearing 22 August 2015, para [17].
Res Judicata
The only legal justification for the Judgment was the Second Loan Agreement. Therefore, regardless of the erroneous allegations in the statement of claim, BL must be taken to have obtained judgment on its only contractual right to be repaid the “Loan”, i.e. under the Second Loan Agreement.
Because BL elected only to claim and enter judgment for $75,000, that concludes the issue of the Mandevilles’ liability under the Second Loan Agreement
Similarly, Mr Abbott SC’s submissions included:[20]
MR ABBOTT: - the default judgment. You have to compare that with the claim in the second one. It is clear from the claim in the second one and the terms of the second loan agreement that the judgment could only be justified on the basis of the second loan agreement.
[20] T45.
There are immediate difficulties with this submission. Firstly, it requires the Court to have regard to the first and second loan agreements that are included in the trial book. Secondly, it requires the Court to consider the content of the two loan agreements, and reach a conclusion, from that evidence, as to the legal justification for the judgment.
In my view, it is neither necessary nor appropriate for me to have regard to the loan agreements in the Trial Book, in the manner submitted by the Plaintiff. The principles cited above are quite clear, and quite strict. The res judicata issue is to be determined by having regard to the claim pleaded, and the default judgment obtained, in the first proceedings. That is to be compared with the claim pleaded in the proposed further proceedings. That material makes mention of what is referred to as a first loan agreement and a second loan agreement. So I have regard to the fact that the respective pleadings allege the existence of two loan agreements. To do otherwise, would render a comparison of the respective proceedings meaningless. To compare them, I am entitled to have regard to the fact that they allege a first and second loan agreement. However, I do not consider I should go to any further than that. I do not consider I should drill down to a consideration of the content of those two loan agreements.

Even if the content of the respective alleged loan agreements was a relevant consideration for the determination of this issue, I do not consider that I could, or should, conclude that the only legal justification for the default judgment was the second loan agreement. That is a trial issue. If the Plaintiff (Defendant in that action) wished to advance that defence to Better Lending’s proceedings, she could have filed that defence; or made a timely application to set aside the default judgment and pursue that defence.
What the Plaintiff is asking the Court to do in this regard is totally at odds with the fundamental principle of res judicata. The principle is aimed at finalising, that is, closing the books, on the claim that has merged into the judgment. The Plaintiff is asking this Court to re-open the matter, consider evidence, namely the content of two loan agreements; and make a determination about party’s rights under those loan agreements. In this sense, the application of principles designed to avoid going behind a judgment would entail going behind that judgment. In other words, in order to decide whether a cause of action has been litigated and finalised, and therefore cannot be re-litigated; I am being asked to litigate that cause of action, or a substantial component of it. Plainly, the rationale for the limitation upon what materials a court should consider, and to what extent, on a plea of res judicata, is to avoid that absurdity.
Is the Plaintiff’s submission in this regard any more meritorious if it is applied to the issue estoppel argument? I consider the answer is no.
I have already cited the authorities which make a distinction between res judicata and issue estoppel as regards the material a court may have regard to. Upon issue estoppel, the court may consider a wider range of materials. However, even on issue estoppel, the scope is very limited, and must be related back to the fundamental principle, namely ascertaining the issue necessarily decided in the earlier decision. As I have pointed out, where the earlier decision went to a final written judgment, that judgment can be considered; and arguably materials necessary to make a meaningful interpretation of that written decision may be considered. But I make two points about that.
That argument does not get off the ground here, where we are dealing with a default judgment. There is no written judgment to be understood or interpreted. The passage I have cited from Kok Hoong, emphasises the inherent limitations in attempting to apply issue estoppel principles to a default judgment.
Secondly, even if there were cases where a court could have regard to broader material in applying issue estoppel to a default judgment, this is plainly not one of them. One could contemplate a claim with detailed pleadings possibly annexing or referring to reports or schedules; where the issue estoppel principles may be stretched to a consideration of that material, upon a default judgment. That is plainly not the case here where the default judgment arose from typically minimal pleadings in a Magistrates Court claim.
I consider there is a further fundamental flaw in the Plaintiff’s argument regarding issue estoppel. In submissions, Mr Abbott SC summarised the Plaintiff’s issue estoppel arguments as follows:[21]
MR ABBOTT: Yes, because if we fail on res judicata there were two issues which were decided at least by the default judgment; one, that the sum of $75,000 was owed by the Defendants to the Plaintiff, it was a debt or can be characterised as damages for breach of contract. The other was that debt was owing pursuant to a particular contract. The question I say in substance is 'What contract?' Was it the wrong one or was it the one we all know to be the right one? That is where I say you have to look at the substance. Even if my learned friend is correct to say that you look at the form of the pleading, as I pointed out, the New South Wales Court of Appeal said that is incorrect, you don't look at the form of the pleading. Even if that is true then that issue has been decided that that money, that loan, was owing under the first and not the second. Those issues were decided that bind Better Lending.
[21] T48.
I have difficulty following how that submission advances the Plaintiff’s argument. This, of course, is not a reflection upon Mr Abbott SC’s unquestioned ability and acuity as an advocate. Rather, it accentuates the challenge faced by the Plaintiff in advancing tenable arguments in support of issue estoppel in this case.
If the default judgment can be interpreted as having decided any necessary or cardinal issues, they are firstly, that Ms Mandeville owed Better Lending $75,000; and secondly that this debt was pursuant to the pleaded, first loan agreement. Upon that topic I accept the submission of Mr Roberts SC.[22] I do not see how those decided issues stand in the way of Better Lending now taking proceedings for another amount of money under another loan agreement. I do not see how those further proceedings in any way challenge or contradict the two cardinal matters, identified, as having been decided in the first proceedings.
[22] T113.25 – T115.8.
Conclusion
I consider the Plaintiff’s pleas of res judicata or issue estoppel both fail for the following, possibly overlapping reasons:
Firstly, the two proceedings are not the same causes of action. The substance of the causes of action is quite different in that they claim different rights under different alleged loan agreements. Irrespective of whether the focus is upon a literal reading of the record; the underlying factual matrix; or the substance of the two proceedings; I consider they are quite separate and distinct causes of action.
Secondly, there is no issue estoppel here because even if a court could interpret the default judgment as having decided any specific issues, the proposed second proceedings as pleaded, do not contradict or challenge those issues.
Thirdly, the Plaintiff’s arguments on both res judicata and issue estoppel amount to requesting the court to go well beyond what is appropriate upon an application of either of those principles; and to effectively conduct a trial of issues to determine those pleas. That would be plainly inconsistent with an application of the principles of res judicata or issue estoppel.
For those reasons, I answer the questions raised in the Statement of Issues:
4. Res Judicata? No.
5. Issue Estoppel? No.
I shall hear the parties as to costs, and further directions as to the ongoing proceedings.