Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd
[2017] VSCA 256
•21 September 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0074
MILFOIL PTY LTD Applicant V COMMONWEALTH BANK OF AUSTRALIA LTD Respondent ---
JUDGES: TATE, WHELAN and SANTAMARIA JJA WHERE HELD: MELBOURNE DATE OF HEARING: 29 March 2017 (last reply submission received on
26 July 2017)DATE OF JUDGMENT: 21 September 2017 MEDIUM NEUTRAL CITATION: [2017] VSCA 256 JUDGMENT APPEALED FROM: [2016] VSC 223 (Hargrave J) ---
ESTOPPEL – Issue estoppel – Whether pleading an abuse of process due to issue estoppel arising from findings in past Federal Court decision – Whether findings legally indispensable to decision – Where findings relate to subject matter of oral agreement and scope of parties’ entitlements under agreement – Whether issue estoppel precluded applicant from asserting beneficial ownership over certain stock – Blair v Curran (1939) 62 CLR 464 discussed and applied.
ESTOPPEL – Issue estoppel – Material that court may consider in determining issues in previous proceedings – Where no pleadings in previous proceedings – Where court considered reasons, evidence, written submissions and transcript of oral argument to determine issues – Murphy v Abi-Saab (1995) 37 NSWLR 280 applied.
---
APPEARANCES: Counsel Solicitors For the Applicant Mr C R Northrop Goldsmiths Lawyers For the Respondent Dr A P Trichardt Clayton Utz TATE JA:
1 I have had the benefit of reading, in draft form, the reasons of Santamaria JA. I agree, for the reasons his Honour gives, that leave to appeal should be granted and the appeal allowed.
WHELAN JA:
2 I agree with Santamaria JA.
SANTAMARIA JA:
Summary
3 In 2009, Mercury Brands Group Ltd (‘MBG’), a clothing wholesaler, was unable to secure stock from its Chinese suppliers unless it made payments up front. Its banker, the Commonwealth Bank of Australia (‘the CBA’), was appropriating receipts in reduction of existing facilities and had refused to extend further credit. MBG entered into an oral agreement with Milfoil Pty Ltd (‘Milfoil’) whereby Milfoil made a payment of $509,471.16 (‘the principal sum’) to the Chinese suppliers in order to secure the release of stock.
4 Various disputes have arisen as to the nature and terms of the agreement. Milfoil said that the agreement was a trust arrangement whereby, once stock was released as a result of the payment of the principal sum, it would be owned beneficially by Milfoil and that MBG could sell the stock to retailers as agent for Milfoil and that, in the event that MBG received more than the principal sum, it could retain the surplus.
5 At some point, the directors of Milfoil became concerned that the agreement was not being performed by MBG. They had evidence that MBG was itself invoicing retailers for the stock and that retailers were paying MBG (not Milfoil) for it. Milfoil threatened to involve the police. An employee of MBG prepared, and provided to
Milfoil, a spreadsheet entitled ‘reconciliation working paper’ (‘RWP’). The RWP is central to the present dispute. There is evidence that it was intended to do no more than provide reassurance to Milfoil as to the source of funds from which Milfoil could be repaid the principal sum. But, there is a live question as to whether the Federal Court may have ruled that the RWP has broader significance.
6
Administrators were appointed to MBG. The CBA appointed receivers. On
1 October 2009, the receivers sold the business of MBG to Australian Horizons Trading Pty Ltd (’AHT’). During the receivership, retailers made payments for stock that had been delivered to them. The payments comprised three funds: (a) payments made to AHT, (b) payments made to the receiver, and (c) payments made to the administrator.
7 The administrator applied to the Federal Court for directions as to the proper disposition of the three funds. In Federal Court proceedings in 2010, that Court held that the oral agreement was to the effect that Milfoil would purchase stock from the Chinese suppliers and sell the stock to MBG’s customers (presumably using MBG as its agent to do so). The Federal Court also held that: (a) stock released by the Chinese suppliers was to remain the property of Milfoil when shipped, (b) stock was to be kept separate and identifiable from other stock held by MBG and (c) title to the stock would remain with Milfoil until the sum advanced by it to secure its release was repaid. However, as mentioned, there is a dispute as to the scope of what the Federal Court decided and, in particular, what it decided as to the scope of the entitlements of the parties under the agreement.
8 It appears that, after Milfoil made its payment to them, the Chinese suppliers released stock to MBG. That stock was sold by MBG to retailers between 3 July 2009 and December 2009 for amounts in excess of $3 million. In the event, various funds from the sale of that stock came into the hands of the CBA.
9 The central issue is this: did the oral agreement confer on Milfoil ownership of all the stock that was released after 3 July 2009, or were the rights of Milfoil confined to the stock that appeared in the RWP?
10 In the present proceeding, Milfoil has sought orders that the CBA pay to Milfoil all amounts received by MBG from the sale of stock released by the Chinese suppliers after the principal sum was paid by Milfoil to them and thereafter sold between 3 July 2009 and December 2009. In its amended statement of claim, it has alleged that there were terms to the oral agreement in addition to those that had been considered in the Federal Court proceedings. In particular, it has alleged that it was entitled to the proceeds of the sale of stock in addition to that described in the RWP. For its part, the CBA is contending (and Milfoil denies) that, in the Federal Court proceedings, it was decided that the rights of Milfoil under the oral agreement were confined to the stock that was listed in the RWP.
11 The CBA has sought orders that the claim be stayed as an abuse of process in so far as Milfoil was attempting to re-litigate issues that had been judicially determined in the Federal Court proceedings and that it was, therefore, precluded by the operation of issue estoppel.
12 In the event, the primary judge in the Supreme Court held that there was no issue estoppel preventing Milfoil from alleging that there were terms of the oral agreement in addition to those found by the Federal Court judge, provided that those terms were not inconsistent with the terms found by that judge.[1] However, he found that the Federal Court judge had determined that the subject matter of the oral agreement was confined to the stock as described in the RWP (excluding goods released to MBG before the payment: ‘the pre-agreement goods’). The primary judge held that this finding by the Federal Court judge was legally indispensable to that judge’s decision. The effect of that finding is to prevent Milfoil, in the present proceeding, from making any claim to funds realised by MBG (and appropriated from it by the CBA) from the sale of stock released after the payment of the principal sum that was not the subject of the RWP.
[1]Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd [2016] VSC 223 (Hargrave J) (‘Reasons’).
13 The primary judge struck out the amended statement of claim and gave Milfoil leave to re-plead. Milfoil has applied for leave to appeal the finding that the Federal Court proceedings gave rise to an issue estoppel. The CBA has filed a notice of contention in which it says that the primary judge erred in not holding that the whole claim was barred as an abuse of process.
14 In my opinion, for the reasons that follow, the application for leave to appeal should be granted and the appeal allowed.
The chronology
15 MBG was at all relevant times a wholly owned subsidiary of Mercury Brands Ltd. MBG was engaged in the business of design, import and wholesale distribution of clothing products imported from China and sold to major retailers in Australia.
16 On about 17 March 2004, the CBA registered a fixed and floating charge over the assets and undertaking of MBG.
17 In 2009, MBG experienced financial difficulties. Under an agreement described below, Milfoil assisted MBG by purchasing clothing stock from MBG’s Chinese suppliers, for on-sale by MBG to its wholesale customers, on MBG’s behalf.
The Agreement
18 On or about 2 or 3 July 2009, MBG and Milfoil entered into an agreement during one or more conversations between Mr Terrence Reynolds, on behalf of Milfoil, and Messrs Brendan Santamaria[2] and Anthony Blumberg, on behalf of MBG (‘the Agreement’).
[2]Mr Brendan Santamaria is not someone known to me.
19 Following the conversations, on 3 July 2009, Mr Santamaria sent a letter, on behalf of MBG, to Milfoil purporting to set out the terms of the Agreement (‘the MBG Letter’). The letter was on MBG’s letterhead and was in the following terms:
Assignment of invoicing related to direct stock payments
Firstly, thank you for supplying the short term AUD$500,000 working capital facility to Mercury Brands Limited and I am pleased to confirm the following:
•Milfoil Pty Ltd will make payments to Mercury Brands Chinese suppliers directly up to the value of AUD$500,000 – such payment to be mutually agreed and made by Milfoil Pty Ltd.
•Mercury Brands Limited will assign invoicing for $500,000 from the order(s) to Milfoil Pty Ltd.
•Mercury Brands Limited acknowledges that the invoices are the property of, and for the benefit of Milfoil Pty Limited and has no equitable interest in these invoices. Milfoil Pty Ltd’s bank details are to be clearly displayed on the invoices as the payee and as the beneficial owner. In the event that the payment is paid to Mercury Brand [sic] Limited in error, Mercury Brands Limited agrees that the payment is held in trust for Milfoil Pty Ltd and will pay the funds across immediately to Milfoil Pty Ltd.
•Mercury Brands Limited will pay 9.95% per annum on the outstanding balance to be calculated on a month by month basis and invoiced by Milfoil Pty Ltd such invoice to be paid within 7 days of issue.
•In consideration of the facility; 6,250,000 share [sic] in Mercury Brands Limited [ASX:MCB] will be issued to Milfoil Pty Ltd with immediate affect [sic].
20 On 3 July 2009, Mr Reynolds responded by letter on behalf of Milfoil disputing the MBG Letter and setting out terms of the Agreement as understood by him (‘the Milfoil Letter’).
21 The Milfoil Letter stated:
As requested Milfoil Pty Ltd, has transferred the sum of $509,471.16 including bank charges to the appended Chinese manufacturers bank accounts.
As agreed good [sic] will remain the property of Milfoil Pty Ltd when shipped CIF and will be received and prepared for delivery to the respective purchaser distribution centers [sic] in terms of your Company’s firm written orders. All GST issues and other costs are for your account.
We will be charged for interest for July on 31 July 2009 and ask that you remit the sum of $3,888.73 on or before that day directly into Milfoil Pty Ltd., Westpac, 360 Collins Street, Melbourne account: 003–055 62 0945 under advice to us on the above fax number.
We will calculate the next months [sic] interest on the basis of the outstanding sum and advise before 31 August 2009.
We are advised goods will be shipped during July 2009 for receipt before end of July 2009 and be ready for dispatch and invoicing to the retailers in the first week of August 2009.
The goods are to be kept separate and identifiable from other Company stock, which we understand is subject to a Debenture charge from the Commonwealth Bank and its successors.
Title to be retained by Milfoil Pty Ltd., over the goods and the debtor payments post invoicing until our aforementioned sum plus interest is paid in full.
Milfoil Pty Ltd., are to be repaid the principal sum on each payment made today from the proceeds of those invoices. You will retain the rest.
22 In the event that MBG were to become insolvent, two issues of great significance would arise: (1) whether Milfoil was a creditor of MBG or whether MBG held property belonging to Milfoil on trust — and the extent of any trust property — and (2) whether Milfoil’s interest in the property was an unregistered charge.
23 Following payment of the $509,471.16 by Milfoil directly to them, the Chinese suppliers released the clothing stock to MBG.
24 On 30 July 2009, MBG paid Milfoil interest of $3,888.73.[3]
[3]See Traianedes in his capacity as Deed Administrator of Mercury Brands Group Pty Ltd (subject to deed of company arrangement) v Mercury Brands Group Pty Ltd (No 2) [2010] FCA 583 [11] (‘First Federal Court Reasons’).
25 On 10 August 2009, Mr Reynolds telephoned Mr Sam Barbagallo, an executive in the recovery department of the CBA. The nature and content of the telephone conversation between Mr Reynolds and Mr Barbagallo are in dispute, but were neither the subject of evidence in the proceeding below nor any judicial determination, and are not an issue in the present application for leave to appeal.
26 On 10 August 2009, Mr Reynolds met with Ms Dunlop, who was the CFO of MBG.[4] Ms Dunlop told Mr Reynolds that stock had been released by the Chinese suppliers and delivered to MBG’s customers, and that the customers had been making payments direct to MBG, as the invoices did not name Milfoil as payee.[5] Mr Reynolds became concerned that the Agreement had been breached.[6] He requested evidence that the stock had been imported from the Chinese suppliers or else he would go to the police.[7]
[4]Ibid [13].
[5]Ibid.
[6]Ibid [14].
[7]Ibid.
The reconciliation working paper
27 On 1 September 2009, Ms Dunlop sent multiple documents to Mr Reynolds, including the RWP.[8]
[8]Ibid [15].
28 The RWP is a large spreadsheet. It has 12 columns headed as follows: (1) ‘Supplier Name’, (2) ‘Invoice No’, (3) ‘Style No’, (4) ’Invoice Amount (incl GST)’, (5) ‘Invoice date sent’, (6) ‘Trading Name’, (7) ‘Trading Terms’, (8) ’Milfoil paymt status’, (9) ‘Discount allowed’, (10) ‘Amount Paid’, (11) ‘Anticipated Date of Payment’ and (12) ‘Milfoil Loan Outstanding’.
29 The column headed ‘Trading Terms’ seemingly indicates the amount of time that MBG had agreed with respective retailers for payment of their invoices. Times range from ’14 days’ to ’60 days’. The column headed ‘Milfoil paymt status’ seemingly indicates whether a particular retailer had yet paid for the amount invoiced to it under the column ‘Invoice No’. The column headed ‘Discount allowed’ seemingly indicates whether MBG had allowed a retailer a discount on an invoice. The balance of that column is ‘2,285.11’. The column headed ‘Amount Paid’ seemingly indicates the amounts, if any, paid by particular retailers in respect of invoices directed to them. The balance of that column is ‘173,225.83’. The column headed ‘Anticipated Date of Payment’ speaks for itself. The column headed ‘Milfoil Loan Outstanding’ seemingly indicates what the author of the document anticipated were funds yet to be received from retailers that, when received by MBG, were to be appropriated by it to Milfoil.[9]
[9]Apart from the names of the suppliers (listed in the column entitled ‘Supplier Name’), it is not possible to reconcile the RWP with the particulars given by Milfoil of the invoices in respect of which it made payments. See [95] below. The invoices paid by Milfoil were, presumably, invoices raised by the suppliers and addressed to MBG. The invoices referred to in the RWP were, presumably, invoices raised by MBG and addressed to its retailers.
30 For present purposes, it is necessary only to note the contents of four columns. They are (or appear to be):[10]
[10]The document is obscure.
Supplier Name Invoice No Invoice Amount (incl GST) Invoice date sent Trading Name Wuxi 122,161.54 629604 28,371.60 5/09/2009 Kmart 629559 1,419.68 29/08/2009 Kmart 629598a 22,732.90 5/09/2009 Kmart 629598b 9,788.90 5/09/2009 Kmart 629599 2,928.00 5/09/2009 Kmart n/a 22,773.04 Not Invoiced Kmart n/a 34,147.52 Not Invoiced Kmart Mona 75,520.66 628320 32,238.74 14/07/2009 ED Harry 628527 21,840.96 24/07/2009 ED Harry 628256 11,640.96 24/07/2009 ED Harry Baiyi 6,167.70 678141 6,167.70 3/07/2009 Myer n/a Not Invoiced n/a Not Invoiced n/a Not Invoiced n/a Not Invoiced Hecheng 129,472.80 628499 64,736.32 17/07/2009 ED Harry 628500 64,736.32 ED Harry JinYi 12,448.29 n/a 2,091.37 Not Invoiced David Jones n/a 3,437.50 Not Invoiced David Jones n/a 3,355.00 Not Invoiced David Jones n/a 3,584.42 Not Invoiced David Jones Jinlifa 4,950.00 628037 4,950.00 30/06/2009 Myer Hi Apparel 31,371.06 6283.34 6,039.36 18/07/2009 Myer n/a 4,444.40 Not Invoiced n/a 7,345.80 Not Invoiced n/a 5,174.93 Not Invoiced n/a 3,141.60 Not Invoiced n/a 5,174.93 Not Invoiced Hubei-Tianhe International Trading Co 78,282.60 n/a 26,994.00 Not Invoiced n/a 51,288.60 Not Invoiced Sintong & Wingming 39,974.00 628630 39,974.00 24/07/2009 Myer HWB 39,201.11 629015 9,426.75 5/08/2009 Myer 629175 4,477.20 12/08/2009 Myer 629549 4,985.76 28/08/2009 Myer 629544 8,357.20 28/08/2009 Myer 628629 4,985.76 24/07/2009 Myer n/a 5,392.20 Not Invoiced n/a 2,772.00 Not Invoiced n/a 2,457.84 Not Invoiced n/a 1,346.40 Not Invoiced Ningbo Cheffon 40,680.00 628764 40,680.00 31/07/2009 Kmart Saite 26,717.00 628501 13,396.80 17/07/2009 Shanton Retail 628498 18,320.20 16/07/2009 Shanton Retail TOTAL TO BE INVOICED 606,896.66
31 On 4 September 2009, MBG paid Milfoil $92,186.82.[11]
[11]First Federal Court Reasons [16].
Insolvency administration of MBG
32 Milfoil’s assistance was, however, insufficient to resolve MBG’s financial difficulties.
33 On 17 September 2009, the directors of MBG appointed Mr Stan Traianedes as voluntary administrator. The following day, the CBA appointed receivers and managers to the assets and undertaking of MBG.
34 A copy of the RWP was provided to Mr Traianedes.[12] Ms Dunlop told Mr Traianedes that she had prepared the RWP and that the value of the stock actually released may well have been two or three times the amounts paid by Milfoil to the Chinese suppliers.
[12]The RWP is exhibit ‘PJ-15’ to the affidavit of Paul John James sworn on 27 November 2015.
35 On 1 October 2009, MBG entered into a ‘Business Sale Agreement’ (‘the Sale Agreement’) for the sale of its clothing business to AHT. It also executed a ‘Deed of Acknowledgment’ and a ’Deed of Direction’. The Sale Agreement provided that MBG was to assign to AHT ‘its right, title and interest in the Trade Debtors’.[13] The Deed of Acknowledgment replaced the definition of ‘Trade Debtors’.[14]
[13]In the Sale Agreement, ‘Trade Debtors’ was defined to mean ‘all trade debts owed to [MBG] … other than amounts owed by third parties to Milfoil which are collected by [MBG] on behalf of Milfoil’.
[14]It added to the definition described in the previous footnote: ‘For the purposes of this definition, “trade debts owed” is deemed to include amounts which have been paid but not yet received in clear funds or cleared in [MBG’s], Administrator’s or Receiver’s bank accounts.’
36 Following the sale of the business of MBG, an issue arose concerning entitlement to three sums of money, totalling $294,775.67.[15]
[15]Reasons [7].
Application in the Federal Court
37 Due to the uncertainty about the terms of the Agreement between Milfoil and MBG, on 14 January 2010, the administrator made an application to the Federal Court under s 447D of the Corporations Act 2001 (Cth) seeking a direction as to ‘whether [the administrator of MBG] is justified in treating the claim of Milfoil Pty Ltd against [MBG] as an unsecured claim’.[16]
[16]Originating process filed on 14 January 2010. Cf Reasons [8].
38 In the event, on 20 January 2010, Milfoil was added as a party to the application for a direction, and the matters proceeded inter partes.
39 Finkelstein J decided[17] that Milfoil was entitled to the three sums comprising: (a) $237,029.33,[18] (b) $35,499.43,[19] and (c) $22.246.91.[20] In doing so, he found that the terms of the Agreement were better expressed in the Milfoil Letter than in the MBG Letter. He rejected a contention that as much as Milfoil had acquired under the Agreement was a charge over the goods.[21] Finally, he decided that the sums were derived from the sale of stock described in the RWP.[22]
[17]See First Federal Court Reasons.
[18]This amount had been collected by AHT.
[19]This amount had been collected by the receivers.
[20]This amount had been collected by the administrator.
[21]First Federal Court Reasons [27].
[22]Ibid [34].
40 In large part, the resolution of the present proceeding depends upon what was decided by Finkelstein J in the Federal Court proceedings. In particular, the issue is whether he decided that the totality of the goods to which Milfoil was entitled under the Agreement was the goods described in the RWP or whether as much as he decided was that the three funds to which he found that Milfoil was entitled could be traced to the goods identified in the RWP. The distinction is a subtle one: if the former is the case, the present case is largely barred by an issue estoppel. If the latter is the case, Milfoil’s present claim to the balance of the proceeds of the sale of goods released as a result of its payments to the Chinese suppliers (which includes goods not referred to in the RWP) is not barred.
41 In determining what was decided by Finkelstein J, it will be necessary to identify the material that was before him and how the case was advanced.
42 Milfoil did not make any further application in the Federal Court proceedings.
The proceeding below
43 On 1 October 2013, Milfoil commenced the proceeding below. A statement of claim was endorsed on the writ.[23]
[23]The present application has been affected by the confusing manner in which amendments have been made to the statement of claim. (The original statement of claim had used some defined terms.) As will appear, further particulars to the original statement of claim suggested a claim much larger than that which had been pleaded. An amended statement of claim later sought to accommodate that larger claim. (The amended statement of claim preserved the defined terms in the original statement of claim and added further defined terms which were confusingly similar to the original defined terms. To add to the confusion, the defendant used the same words in its defence to the amended statement of claim, but attributed different meanings to them.)
44 In its original statement of claim, Milfoil refers to ‘stock’ supplied to MBG as a result of the payments made by Milfoil. It proceeds to allege that, on 1 September 2009, MBG identified stock that it had received as a result of those payments. The identification took place by way of the RWP. The stock identified in the RWP is then defined as ‘the goods’. Thereafter, the claim proceeds in terms of ‘the goods’. Various allegations are made in terms of the failure to account to Milfoil for the sale of ‘the goods’. The relief sought was cast in terms of ‘the goods’. Milfoil sought a declaration that all proceeds ‘received by [the CBA] from the sale of the goods held by [MBG] on trust for [Milfoil] were received and held by [the CBA] on trust for [Milfoil]’. It also sought orders for payment for all amounts received by the CBA ‘from the sale of the goods’.[24]
[24]It will be observed that the claim in respect of the stock has been narrowed to the ‘goods’; that is, the stock that appeared in the RWP.
45 On 1 November 2013, the CBA requested further particulars, which were provided on 14 April 2014. Again, on 16 September 2014, the CBA requested more particulars.
46 On 6 November 2014, Milfoil provided the particulars requested. The particulars did not appear to confine the claim to the stock that appeared in the RWP. Rather, they: (a) identified the proceeds that Milfoil claimed had been received from the retail sale of the stock that had been released as a result of Milfoil’s payment and (b) included details of (i) the ‘payments made by retailers … representing proceeds of the sale of the goods held on trust for [Milfoil]’ and (ii) various further details of what are described as ‘Milfoil Inventory Purchase & Inventory Release Resulting’.
47 First, the particulars identified the payments received from retailers as follows:
Date
Retailer
Amount
15-Jul-09
Coles
$57,334
15-Jul-09
Roger David
$97,429
15-Jul-09
No name
$40,717
20-Jul-09
Trade Secrets
$116,652
20-Jul-09
Coles
$427,612
27-Jul-09
Coles
$60,910
27.7.09
Coles
$213,246
14-Jul-09
No name
$40,717
2-Aug-09
Harris Scarfe
$7,486
2-Aug-09
No name
$27,879
3-Aug-09
Coles
$82,491
5-Aug-09
Harris Scarfe
$1,279
10-Aug-09
Coles
$3,121
10-Aug-09
Coles
$22,745
13.8.09
Roger David
$7,237
20-Aug-09
Trade Secrets
$79,672
24.8.09
Coles
$474,834
1-Sep-09
Myer
$306,111
10-Sep-09
Roger David
$81,296
30-Sep-09
Harris Scarfe
$112,360
30-Sep-09
Trade Secrets
$240,803
30-Sep-09
Ed Harry
$245,749
30-Oct-09
Trade Secrets
$178,059
12-Oct-09
Roger David
$19,650
2-Nov-09
Harris Scarfe
$112,646
8-Dec-09
Roger David
$32,503
Total
$3,090,538
48 It will be recalled that:
(a) Milfoil had paid $509,471.16; and
(b) the RWP contained a total balance of $606,896.66.
49 As is clear, the particulars suggest that the trust entitlement of Milfoil is to, at least, $3,090,538.
50 The particulars also include a table that purports to explain how the payments made by Milfoil are related to the goods released by each of the 13 suppliers. The table is as follows:[25]
[25]The names of the companies correspond with those in paragraph 11 of the amended statement of claim, but they are not always identical. The table also appears to show that the amount payable under each invoice was greatly in excess of the payment made by Milfoil in respect of that invoice. For example, the first listed supplier is Guandong Textiles Imp and Exp Knitwears Company Ltd. Its invoice for goods supplied was for AUD114,365.26. The amount paid by Milfoil to that supplier was AUD25,546.71. Presumably, the supplier supplied all the goods for which it had invoiced MBG on the payment by Milfoil of a part of the invoiced sum. The issue in the present proceeding (though not in the present application for leave to appeal) is whether Milfoil acquired ownership of all the goods the subject of the invoice. The total amount payable on all invoices was AUD2,043,250.38; as much as Milfoil paid was AUD509,470.85. As indicated in [47] above, the proceeds provided by retailers on receipt of the stock was at least AUD3,090,538.
Number
Company
Amount USD
Amount AUD
Milfoil payment USD
Milfoil payment AUD
1 Guandong Textiles Imp and Exp Knitwears Company Ltd $89,204.90 $114,365.26 $20,000.00 $25,546.71 2 Qingdao Associated Textiles Group $137,195.18 $175,891.26 $20,001.00 $25,547.99 3 Guangzhou Yinhao Import and Export $58,507.45 $75,009.55 $10,000.00 $12,845.58 4 Shanghai Maoji Imp/Exp Corp (also known as High Apparel) Ltd $66,883.25 $85,747.76 $8,866.05 $11,392.05 5 Shandong Baiyi Textiles Co $194,488.94 $249,344.79 $50,000.00 $63,821.78 6 Shanghai Garment Group Imp & Expo (also known as HWB) $213,545.15 $273,775.83 $70,001.00 $89,465.29 7 Hubei Tianhe International Trading $3,693.00 $5,888.52 $4,569.84 $5,886.52 8 Wuxi Everbright International $243,189.38 $311,781.26 $70,000.00 $89,190.62 9 Chong Yip Trading Co (also known as Jinyl) $99,322.14 $127,336.08 $15,000.00 $19,253.38 10 CNACC (Jiangsu) Imp & Exp Co (also known as Hecheng) $46,274.75 $59,326.60 $37,404.10 $47,721.06 11 Mona Fashion $352,817.88 $452,330.59 $49,000.00 $62,625.81 12 Ningbo China-Base Textiles $87,714.81 $112,454.88 $42,000.00 $53,580.94 13
Qingdao Jinlifa Garment Co
$2,000.00
$2,593.12
Total
$1,592,836.81
$2,043,250.38
$398,841.99
$509,470.85
51 The particulars then provide details of the payments made to each of the suppliers. For example, with respect to Guandong Textiles Imp and Exp Knitwears Company Ltd, the following particulars are provided:
Invoice Date Amount USD Amount AUD 11/03/2009 $6,287.40 $8,060.77 24/03/2009 $4,395.60 $5,635.38 20/03/2009 $23,156.20 $29,687.44 26/03/2009 $15,916.50 $20,405.77 06/06/2009 $1,267.20 $1,624.62 22/06/2009 $13,530.00 $17,346.15 24/06/2009 $9,290.00 $11,910.26 15/07/2009 $6,870.00 $8,807.69 10/09/2009 $5,040.00 $6,461.54 16/09/2009 $3,452.00 $4,425.64 $89,204.90 $114,365.26
52 These particulars appear to show that:
(c) Milfoil made payments to 13 suppliers; and
(d) its payments were not appropriated simply to 13 invoices.
The amended statement of claim
53 On 26 February 2015, Milfoil filed an amended statement of claim. The significant feature of the amendment is its expansion of the claim. As indicated above,[26] in the statement of claim, the allegations spoke in terms of ‘stock’ released as a result of the payments to the suppliers but confined the claim to that stock identified in the RWP which it defined as ‘the goods’. In the amendment, it is alleged that the stock released greatly exceeded that which was referred to in the RWP. So, the amendment proceeds on an alternative basis (with the new claim propounded as the principal claim). It claims that all the stock released as a result of the payments by Milfoil (for which it introduces the defined term: ‘the stock’) were to be held in trust for Milfoil. In the alternative, it repeats the original claim that the stock identified in the RWP (the ’goods’) was held in trust for Milfoil. It seems clear that, in the amended pleading, ‘the goods’ is a subset of ‘the stock’.
[26]See [44] above.
54 In its amended pleading, Milfoil alleged that:
(e) the Agreement was a ‘trust agreement’ under which the applicant ‘agreed to purchase clothing stock from overseas suppliers to be sold by MBG as trustee for [Milfoil] … to enable [MBG] to continue its business’;[27] and
[27]Amended statement of claim [8].
(f) the trust agreement contained express terms as follows:
(a)[Milfoil] would pay approximately $500,000 to overseas suppliers for the purchase of clothing stock;
(b)MBG would sell the stock to retailers in Australia as trustee for [Milfoil];
(c)MBG would render invoices to retailers on behalf of [Milfoil] and direct each retailer to make payment to [Milfoil];
(d)if MBG received any proceeds of the sale of the stock from retailers, it would hold the proceeds on trust for [Milfoil];
(e) MBG would pay to [Milfoil] (the required payments):
(i)the amount paid by [Milfoil] to suppliers;
(ii)an additional amount of $70,000;
(iii)expenses incurred by [Milfoil] to borrow the amounts paid to suppliers;
(f)MBG could purchase all of the stock from [Milfoil] by making the required payments:
(i)on 31 July 2009 as soon as it had secured re-financing;
(ii)after MBG had received a capital injection;
(iii)upon the sale of the business;
(g)once MBG had made the required payments to [Milfoil]:
(i)the balance of stock held in trust would become MBG’s absolutely; and
(ii)MBG could retain for itself all proceeds from the sale of the stock;
(h)if MBG did not:
(i)make the required payments; or
(ii)pay for the stock —
then the stock would remain the property of [Milfoil].
PARTICULARS
The terms were agreed to during the conversations referred to above and were evidenced by the letter dated 3 July 2009.[28]
[28]Ibid [9].
55 Paragraph 11 of the amended statement of claim is in the following terms:
On 3 July 2009, in accordance with the trust agreement the plaintiff made payments totalling $509,471.16 to suppliers of stock in China.
PARTICULARS
The payments were made by telegraphic transfer on 3 July 2009:[29]
[29]It will be observed that these particulars correspond to those provided on 6 November 2014. See [50] above.
No Payee Amount (USD) Fee (AUD) Total (AUD) 1 Guandong Textiles Import and Export Knitwear Company Ltd $20,000.00 $30.00 $25,546.71 2 Qingdao Associated Textiles Group Import and Export Co Ltd $20,001.00 $30.00 $25,547.99 3 Guangzhou Yinhao Import and Export Trade Co Ltd $10,000.00 $30.00 $12,845.58 4 Shanghai Maoji Imp and Exp Corp Ltd $8,866.05 $30.00 $11,392.36 5 Shandon Baiyi Textiles Co Ltd $50,000.00 $30.00 $63,821.78 6 Shanghai Garment Group Imp and Expo Corp $70,001.00 $30.00 $89,465.29 7 Hubei Tianhe International Trading Co Ltd $4,569.84 $30.00 $5,886.52 8 Wuxi Ever Bright International Co $70,000.00 $30.00 $89,190.62 9 Chong Yip Trading Co $15,000.00 $30.00 $19,253.38 10 CNACC (Jiangsu) Imp and Exp Co Ltd $37,404.10 $30.00 $47,721.06 11 Mona Fashion Pty Ltd $49,000.00 $30.00 $62,625.81 12 Ningbo China Base Landhau Foreign Trade Co Ltd $42,000.00 $30.00 $53,580.94 13
Qingdao Jinlifa Garment Co Ltd Wangtai Town Jiaonan Qingdao City
$2,000.00
$30.00
$2,593.12
Total
$509,471.16
56 Paragraph 12 of the amended statement of claim is in the following terms:
From 3 July 2009 MBG commenced selling stock supplied to it as a result of the payments made by [Milfoil] (the stock).
PARTICULARS
As at 3 July 2009 MBG had little or no stock available to supply to its customers, which is the reason [Milfoil] was asked to make payments to the suppliers. Stock received by MBG after [Milfoil] made the payments was stock received because [Milfoil] made the payments.
The schedule attached to [Milfoil’s] further and better particulars dated 6 November 2104 gives details of the stock so received.[30]
[30]The schedule to the particulars dated 6 November 2014 commences with a table entitled ‘Table of payments made by retailers’, which is at [47] above. The schedule then contains the heading ‘Milfoil Inventory Purchase & Inventory Release Resulting’. This part of the schedule is in three parts. First, it identifies the overseas suppliers to whom Milfoil made payments. Second, it identifies the payments that Milfoil made to them. Third, it identifies (in the case of each separate supplier) the invoices in respect of which the payments were made: see [50]–[51] above. As indicated in footnote 25 above, it seems plain that the amount payable on each of the individual invoices was greatly in excess of the payment made by Milfoil in respect of that invoice. It is also plain that Milfoil is claiming that all the goods released by the suppliers were subject to the trust arrangement and all the proceeds of them paid by retailers.
57 Paragraph 13 of the amended statement of claim is in the following terms:
In the premises, MBG received all proceeds from the sale of the stock on trust for [Milfoil] pursuant to the trust agreement.
58 The amended statement of claim also alleges that the CBA knew of the trust agreement from early July 2009.[31]
[31]Amended statement of claim [10].
59 Paragraph 17 of the amended statement of claim contains an alternative plea. It introduces the RWP. It is in the following terms:
Further and alternatively, on about 1 September 2009 MBG identified goods (the goods) which constituted stock received and held by it on trust pursuant to the trust agreement.
PARTICULARS
The goods are identified in a document entitled Reconciliation Working Paper together with invoices and delivery dockets which were supplied by the Chief Financial Controller of MBG, Sue Dunlop, to [Milfoil] on about 1 September 2009.[32]
[32]The amended statement of claim appears to use the word ‘stock’ to describe the totality of goods supplied to MBG after Milfoil made its payment on 3 July 2009. It uses the word ‘goods’ to describe the subject matter of the RWP. As the pleading proceeds, it claims an interest in the ‘stock’ and, alternatively, the ‘goods’.
60 Thereafter, Milfoil alleges that:
(g) following their appointment in September 2009, Milfoil informed the administrator and the receivers of the trust agreement;[33]
[33]Amended statement of claim [29]–[30].
(h) MBG breached the trust agreement by procuring retailers to pay the proceeds of sale of Milfoil stock directly to it, rather than to Milfoil;[34]
[34]Ibid [19]–[22].
(i) the CBA appropriated the proceeds of sale of Milfoil stock when paid to MBG, knowing that the proceeds were held in trust for Milfoil;[35]
[35]Ibid [24].
(j) upon appointment of the administrator and the receivers, the trust agreement came to an end and, from that time, the CBA held and holds proceeds received by it from the sale of the Milfoil stock and any unsold Milfoil stock on a constructive trust for Milfoil;[36]
[36]Ibid [27].
(k) subsequent sales of Milfoil stock by the administrator or the receivers were in breach of trust, the proceeds of sale were paid to CBA with knowledge of the breach of trust, and, thus, the CBA holds the proceeds of sale after appointment of the receivers on a constructive trust for Milfoil;[37] and
(l) alternatively, the CBA has been unjustly enriched by the receipt of proceeds of the sale of Milfoil stock, both before and after the receivership.[38]
[37]Ibid [34]–[37].
[38]Ibid [46].
61 Milfoil also amended its prayer for relief. As indicated in [44] above, it had originally sought orders in respect of ‘the goods’. In its amended statement of claim, it sought, in addition, identical orders in respect of ‘the stock’.[39]
[39]Milfoil also advanced its prayer in respect of the ‘stock’ as its principal prayer for relief.
62 As the primary judge pointed out, the pleading contains several ambiguities. In his reasons, the primary judge draws a distinction between ‘the Milfoil stock’[40] and the ‘further stock’.[41] Having summarised the amended statement of claim, the primary judge said:
The fact that Milfoil’s principal claim is that the alleged trust agreement extended to all ‘the stock’ — ie both the Milfoil stock and the further stock — is also apparent from the alternative claim made in paragraph 17, which alleges that the trust agreement related to the Milfoil stock only; which is defined as ‘the goods’. Thereafter, the amended statement of claim confusingly proceeds on the assumption that the trust agreement relates to ‘the stock and the goods’.[42]
[40]See Reasons [3], [15].
[41]See Reasons [16].
[42]Reasons [18] (emphasis in original). It would appear (though this is nowhere stated) that the primary judge is using the term ‘the Milfoil stock’ to refer to the stock that appeared in the RWP and ‘the further stock’ to refer to the balance of the stock released by the suppliers as a result of Milfoil’s payments. In its amended statement of claim, Milfoil uses the term ‘the stock’ to refer to all the stock that was released as a result of its payments and the term ‘the goods’ to refer to that part of the stock that came to be recorded or referred to in the RWP. The primary judge is certainly correct in his conclusion that Milfoil is now claiming that all the stock released as a result of its payments (together with all the proceeds received from retailers in respect thereof) is the subject of its trust entitlement.
CBA defence
63 In its defence, the CBA said:[43]
[43]This summary is taken from Reasons at [19] where the term ‘Milfoil stock’ is a reference to the stock that appears in the RWP.
(m) The whole of the terms agreed between Milfoil and MBG in relation to Milfoil’s payment of the principal sum were contained in the Milfoil Letter.
(n) The Agreement extends only to clothing stock ‘purchased as a result of the payment’ of the principal sum. (The primary judge said, ‘Although clumsy in light of Milfoil’s unsatisfactory pleading, in the context of the CBA’s pleading as a whole, it should be understood as referring only to the Milfoil stock’.)[44]
[44]Reasons [19(2)]. The defence adds to the confusion in the proceedings. It admits the agreement made on or about 3 July 2009 and pleads ‘that the nature and effect of the Agreement were.’ It does not complete the sentence. However, it gives particulars of ‘nature and effect’ by referring to the proceedings in the Federal Court. It would seem that the pleading is setting the stage for the plea of issue estoppel. That plea does not appear in the defence. (The defence introduces its own lexicon by the device of bolding.) In paragraph 13 of the defence, the CBA says: ‘title to the clothing which was purchased as a result of the payment by [Milfoil] pursuant to the Agreement (Goods) was retained by [Milfoil] until the sum paid to [Milfoil] plus interest and a fee of $70,000 ([Milfoil’s] Entitled Sum) was repaid in full’. The pleading introduces the concept ‘purchased’; it also stipulates a meaning for Goods that departs from the meaning stipulated for the very same word in the amended statement of claim. As the primary judge said, it seems to be the case that the CBA is making admissions only in respect of the goods that appeared in the RWP.
(o) Only the Milfoil stock and the proceeds of sale of it were held in trust for Milfoil until payment of the amounts due under the Agreement.
(p) The Milfoil stock is recorded in the RWP, except in so far as that document contains reference to stock acquired by MBG before the Agreement.
CBA application for summary judgment
64 By summons filed 14 December 2015, the CBA sought various orders, which the primary judge summarised as follows:
(q) an order pursuant to r 23.01(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015, alternatively s 18 of the Civil Procedure Act 2010, that Milfoil’s claim be stayed or dismissed on the ground that it is an abuse of process;
(r) alternatively, summary judgment under s 62 of the Civil Procedure Act;
(s) alternatively, that a range of paragraphs in the amended statement of claim be struck out ‘on the ground that they are an abuse of process, alternatively because they are embarrassing’;
(t) an order restraining Milfoil from prosecuting this proceeding without leave of the Court; and
(u) alternatively, an order that the CBA have leave to amend its defence.[45]
[45]Reasons [20].
65 Before the primary judge, the CBA contended that the Milfoil claim set out in the amended statement of claim was an abuse of process in so far as it proposes to plead and rely on terms of the Agreement which are contrary to: (a) the terms set out, first of all, in the Milfoil Letter and (b) the entirety of the terms of the Agreement that were determined by Finkelstein J. The CBA said that there were three substantive issues that had to be decided by Finkelstein J:
(v) what constituted the agreement between the parties, and the terms of that agreement;
(w) what was the nature of the agreement between Milfoil and MBG; and
(x) whether Milfoil can identify the goods to which it asserts title.[46]
[46]See Transcript of Proceedings, Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd (Supreme Court of Victoria, S CI 2013 05109, Hargrave J, 7 March 2016) 5, 39.
66 In relation to the first issue, the CBA said that Finkelstein J had accepted that there was an oral agreement made on 3 July 2009 and that the terms of this agreement were set out expressly in the letter of the same date. The CBA submitted that, in so far as the terms pleaded in paragraph 9 of the amended statement of claim either go beyond that or are in conflict with that, the pleaded case now being pursued by Milfoil is contrary to what was decided in the Federal Court proceedings.
67 In relation to the second issue, the CBA said that Finkelstein J decided that, under the Agreement, MBG would never take title to the goods.
68 In relation to the third issue, the CBA said that Finkelstein J had decided that the RWP set out the goods purchased by the Milfoil money and that the RWP also indicated which of those goods were actually sold and the amounts that were received.
The reasons of the primary judge
69 In effect, the primary judge held that the Federal Court had not determined what were all the terms of the Agreement but had determined that its subject matter was confined to the invoices in the RWP (which he referred to as the ‘Milfoil stock’). He said:
In his first judgment, Finkelstein J was required to decide whether Milfoil was entitled to the three funds. In the course of doing so, it was first necessary for Finkelstein J to determine the relevant terms of the oral agreement reached between Mr Reynolds and Mr Santamaria on 2 and 3 July 2009.[47]
…
In my opinion, Finkelstein J was not required to and did not determine the whole of the terms of the oral agreement. It was only necessary for him to determine the terms relevant to the dispute before him between Milfoil and the administrator, as to who had the better claim to the three funds.[48]
[47]Reasons [27] (emphasis in original).
[48]Ibid [30].
70 The primary judge gave four reasons for this conclusion:
(y) Finkelstein J had accepted the evidence given by Mr Reynolds as to the arrangement made with Mr Santamaria;[49]
[49]Ibid [31].
(z) Finkelstein J gave only a summary of Mr Reynolds’s evidence as to the Agreement. That summary contained no reference to a number of matters deposed to in an affidavit sworn by Mr Reynolds concerning the details of his conversations with Mr Santamaria;[50]
[50]Ibid [33]. For example, the primary judge said: ’Finkelstein J found that Mr Santamaria orally agreed to pay Milfoil’s “purchase price and costs, plus a fee.” He made no finding as to what that fee was and Milfoil’s letter made no reference to the fee. The only reference to the fee is in [MBG]’s letter, by reference to the issue of shares in Mercury Brands Ltd. The fee was obviously an important part of the terms of the agreement, as otherwise Milfoil would be recovering nothing other than its borrowing costs on the principal sum. I note that the parties now agree that the fee was to be $70,000’. The reference to the agreement in respect of the fee is to: (a) amended statement of claim [9(e)(ii)]; and (b) defence to amended statement of claim [13(a)].
(aa) in deciding that Milfoil had purchased the stock as owner, ‘Finkelstein J referred to the terms of Milfoil’s letter, but also referred to the content of the discussions between Mr Reynolds and Mr Santamaria which constituted the oral agreement’;[51] and
[51]Reasons [34].
(bb) the primary judge said:
Fourth, reading the first judgment as a whole, it is apparent that the principal issue which concerned Finkelstein J was the distinction between an arrangement involving Milfoil purchasing the Milfoil stock directly from the Chinese suppliers, and thus becoming the owner of that stock, and a situation under which Milfoil was a financier to Mercury for the purchase of the Milfoil stock by Mercury, and, as security, took a charge in the form of an agreement to ‘assign invoicing for $500,000’. In that context, it was unnecessary for Finkelstein J to determine all the terms of the oral agreement. As a result, there is no issue estoppel preventing Milfoil from alleging further terms of the oral agreement to those found by Finkelstein J, provided that such terms are not inconsistent with the terms found by his Honour. This means that Milfoil is not estopped from alleging that the agreement included terms that any proceeds of the sale of the Milfoil stock would be held by Mercury on trust for Milfoil. Nor is it estopped from alleging the $70,000 fee and other matters pleaded in paragraphs 8 and 9 of the amended statement of claim, none of which is inconsistent with its 3 July 2009 letter.[52]
[52]Ibid [35].
71 However, the primary judge held that it was necessary for Finkelstein J to determine whether Milfoil was able to identify that stock with precision. Finkelstein J had to do this as he was faced with an argument from the administrator that ‘a buyer cannot acquire title until it knows to what goods the title relates.’[53] Having considered (a) the evidence before Finkelstein J and (b) the attempt by the administrator to adduce further evidence before Finkelstein J after he had given his first reasons, the primary judge said:
In my opinion, Finkelstein J’s specific finding that the subject matter of the agreement was the Milfoil stock described in the reconciliation working paper, excluding the pre-agreement goods, was legally indispensable to his decision. This issue estoppel is relevant to Milfoil’s unsatisfactory pleading, referred to above, that the trust agreement for which it contends applied not only to the Milfoil stock but, in addition, to any other goods delivered by the 13 Chinese manufacturers to Mercury ‘as a result of’ payment of the principal sum to those suppliers — ie to the further stock.[54]
[53]Ibid [36].
[54]Ibid [41].
72 The primary judge summarised what he took to be the findings that were ‘legally indispensable’ to the reasons of Finkelstein J as follows:
(1)the oral agreement included the terms set out in Milfoil’s 3 July 2009 letter;
(2)the subject matter of the oral agreement was the Milfoil stock as described in the reconciliation working paper (excluding the pre-agreement goods);
(3)Milfoil was the owner of the Milfoil stock, and entitled to the proceeds of any sale of that stock by Mercury, until Mercury complied with all of its financial obligations under the oral agreement; and
(4)the three funds represented the proceeds of sale of some of the Milfoil stock.[55]
[55]Ibid [42] (emphasis in original).
73 As a result of those findings, the primary judge held:
(cc) Milfoil’s pleading of the ‘trust agreement’ in paragraph 9 of its amended statement of claim is not subject to issue estoppel, as Finkelstein J did not decide the content of all the terms of the Agreement — findings (1) and (2).
(dd) Milfoil’s pleading in paragraph 12, and subsequent paragraphs which depend on it, to the effect that it acquired title to the ‘further stock’, is barred by issue estoppel, as Finkelstein J specifically decided that the subject matter of the Agreement was the Milfoil stock as described in the RWP (excluding the pre-agreement goods) — finding (3). Moreover, Milfoil’s pleadings in this regard are also inconsistent with the trust agreement pleaded by it in paragraph 9 of the amended statement of claim.
(ee) Milfoil is not estopped from raising claims relating to its interests in the Milfoil stock which had not been sold at the date of the reconciliation working paper, or the proceeds of sale of that stock, as Finkelstein J decided that such stock was owned by Milfoil and was subject to the terms of the Agreement — finding (4).
(ff) Milfoil is not estopped from pursuing constructive trust claims against the CBA in respect of the proceeds of sale of any of the Milfoil stock which were paid to the CBA.[56]
[56]Ibid [43].
74
Finally, the primary judge addressed the CBA’s contention that, even if the CBA were unsuccessful in its issue estoppel allegations, the continuation of this proceeding, in whole or in part, is an abuse of process because it involves
re-litigation of issues which have been decided by Finkelstein J. The primary judge rejected that contention on the bases that: (a) ‘it was unnecessary for Finkelstein J to determine all of the terms of the oral agreement, and he did not do so’ and (b) the evidence demonstrated that the Agreement did include an obligation upon MBG to hold proceeds of sales in trust for Milfoil.[57]
[57]Ibid [44].
75 The primary judge held that the abuse of process challenge to the trust agreement must fail as it involved ‘[no] oppression or unfairness to’ the CBA.[58] However, for the reasons that he had already given, he held that Milfoil’s claim to the proceeds of sale of the further stock was an abuse of process. In the event, he decided:
Paragraph 1 of CBA’s summons does not seek to strike out portions of the amended statement of claim, because it proceeds on the basis that the whole of the proceeding is an abuse of process. For the above reasons, I have found that part of the proceeding is an abuse of process on the basis of an issue estoppel. Those portions of the amended statement of claim which offend the issue estoppel, namely, paragraphs 12, 13, 16, 19-24, 27-37 and 39-47, and paragraphs AA, AB, AC and D of the prayer for relief are liable to be struck out on that ground. All references to ‘the stock’ as defined in paragraph 12 are inconsistent with the issue estoppel I have found. In all the circumstances, however, Milfoil should have the opportunity to re-plead its claim. I will accordingly strike out Milfoil’s amended statement of claim and give it leave to re-plead a further amended statement of claim in accordance with these reasons for judgment.[59]
[58]Ibid [45].
[59]Ibid [46].
The proposed grounds of appeal
76 The applicant proposes the following grounds of appeal:
1.The Court should not have been satisfied that in Federal Court proceeding VID 12 of 2010 Justice Finkelstein made a finding that the RWP identified all goods acquired by the applicant pursuant to its agreement with MBG.
2.Alternatively, if such a finding was made by Justice Finkelstein, the Court should not have found that such a finding was legally indispensable to the conclusion reached in the Federal Court proceeding.
3.The Court should not have found that the principles of issue estoppel precluded the applicant from contending it was the beneficial owner of goods in addition to those identified in the reconciliation working paper.
The notice of contention
77 By a notice of contention, the CBA says that the decision below should be affirmed on a ground of law which was erroneously decided or, alternatively, not decided:
The Court erred by not striking out paragraphs 12, 13, 16, 19 to 24, 27 to 37, and 39 to 47, and paragraphs AA, AB, AC, and D of the prayer for relief of the amended statement of claim on the basis of abuse of process by reason of the following:
(a)the Court fell into error by conflating the doctrines of abuse of process and issue estoppel;
(b)the Court determined not to strike out paragraphs 12, 13, 16, 19 to 24, 27 to 37, and 39 to 47, and paragraphs AA, AB, AC, and D of the prayer for relief of the amended statement of claim on the basis of abuse of process by reason of the error referred to in paragraph (a).
The applicant’s contentions
78 In its written submissions, Milfoil said that Finkelstein J had not decided that the RWP had listed all the goods belonging to Milfoil. The Agreement was made in July 2009 and the RWP was prepared in September 2009. Several comments made by Finkelstein J were inconsistent with his having made any finding that the RWP itemised all the goods to which Milfoil was entitled. Rather, his decision was confined to answering the question whether Milfoil was the owner of the goods listed in the RWP.
79 Milfoil then contended that, if such a finding was made by the Federal Court, the primary judge should not have found that that finding was legally indispensable to the Federal Court’s decision. The issue before Finkelstein J was whether Milfoil owned the goods listed in the RWP. It formed no part of the Federal Court proceedings to determine whether the RWP identified all the goods owned by Milfoil. Any such finding was unnecessary.
80 Finally, Milfoil contended that the primary judge should not have found that it was estopped from making a claim to the proceeds of the sale of goods not listed in the RWP. It said that the question whether the RWP listed all the goods owned by Milfoil was not an issue that the Federal Court had to decide.
The respondent’s contentions
81 The CBA contended that, by its amended statement of claim, Milfoil has attempted to re-litigate issues which had already been judicially determined in the Federal Court. It said that Finkelstein J had already decided that the Agreement included the terms set out in the Milfoil Letter and that the subject matter of the Agreement was the stock set out in the invoices and in respect of which Milfoil paid the principal sum ‘as identified in the RWP (excluding the pre-agreement goods)’. In particular, the CBA contended that one of the issues before Finkelstein J was whether Milfoil could identify the goods to which it asserted title (‘the Third Issue’). It said that the Third Issue was directly raised in the Federal Court proceedings and that Finkelstein J’s finding that the RWP, which identified the stock set out in the invoices and in respect of which Milfoil paid the principal sum, was the only evidence regarding Milfoil’s entitlement to stock (which the CBA defined as ‘the Milfoil Stock’) pursuant to the Agreement and was a necessary factual issue to resolve as a step in reaching his determination in respect of the Third Issue.
Issue estoppel
82 Under our constitutional arrangements, the institutions for the administration of justice exist to quell controversy justly. Finality is of critical importance. Once a dispute has been resolved by the exercise of judicial power, it may not be re-litigated. The principle of law extends not only to the final determination of the dispute but also to any issue of fact and law that was indispensable to its determination.
83 In Tomlinson v Ramsey Food Processing Pty Ltd,[60] French CJ, Bell, Gageler and Keane JJ described the three forms of estoppel that have been ‘recognised by the common law of Australia as having the potential to result from the rendering of a final judgment in an adversarial proceeding’.[61] They referred to the ‘second form of estoppel’: issue estoppel. They said:
Estoppel in that form operates to preclude the raising in a subsequent proceeding of an ultimate issue of fact or law which was necessarily resolved as a step in reaching the determination made in the judgment. The classic expression of the primary consequence of its operation is that 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’.[62]
[60](2015) 256 CLR 507.
[61]Ibid 517 [22].
[62]Ibid 517 [22] (citations omitted).
84 In Blair v Curran,[63] Dixon J said:
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 or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived.[64]
[63](1939) 62 CLR 464.
[64]Ibid 531–2.
85 Dixon J then considered the distinction between factual findings that are ‘fundamental to the decision arrived at’, which may give rise to an issue estoppel, and factual findings that are ‘subsidiary or collateral’ or concern only ‘evidentiary facts and not ultimate facts forming the very title to rights’, which do not give rise to an issue estoppel.[65]
[65]Ibid 532. As to matters of law, Dixon J said: ‘Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation’: at 532–3.
86 The difficulty, of course, lies in applying these principles. As Dixon J observed in Blair v Curran, that depends on distinguishing two types of matters:
the matters fundamental or cardinal to the prior decision or judgment, decree or order or necessarily involved in it as its legal justification or foundation from matters which even though actually raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the judgment, decree or order.[66]
[66]Ibid 533.
87 Dixon J said that there were two questions to be asked. The first is whether the ultimate decision necessarily involves the issue that was determined. In other words, is ‘the determination … so fundamental to the decision that the latter cannot stand without it’?[67] The second question is whether the determination of the issue is the ‘immediate foundation’ of the decision, ‘as opposed to a proposition collateral or subsidiary only, that is, no more than part of the reasoning supporting the conclusion’.[68]
[67]K R Handley, Spencer Bower, Turner & Handley, The Doctrine of Res Judicata (LexisNexis Butterworths, 4th ed, 2009) 117 [8.24], citing Re Allsop and Joy’s Contract (1889) 61 LT 213. The learned author continues: ‘This may explain Rowling v TakuroProperties Ltd [1988] AC 473, 504 where the Board held that, although a decision in judicial review proceedings that a particular fact was an irrelevant consideration “may” have been res judicata, the construction of the legislation was not’: at 117 [8.24] footnote 3 (citation omitted).
[68]Blair v Curran (1939) 62 CLR 464, 533.
88 In Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2),[69] Lord Wilberforce confronted the question of how one decides what issues of fact and law are ‘involved’ in a determination and the material to which one may have regard. He said:
One way of answering this is to say that any determination is involved in a decision if it is a ‘necessary step’ to the decision or a ‘matter which it was necessary to decide, and which was actually decided, as the groundwork of the decision’. And from this it follows that it is permissible to look not merely at the record of the judgment relied on, but at the reasons for it, the pleadings, the evidence and if necessary other material to show what was the issue decided.[70]
[69][1967] 1 AC 853.
[70]Ibid 965 (citations omitted).
89 In Murphy v Abi-Saab,[71] Gleeson CJ (with whom Kirby P and Rolfe AJA agreed) said that an issue estoppel can only arise vis-à-vis a decision about a matter which it was necessary to decide in the previous proceedings.[72] It is essential to approach the reasons for judgment in the previous proceedings with an accurate understanding of what the author of the reasons was required to decide.[73] In other words, one must examine what was at issue in the previous proceedings and what was fundamental to the reasoning in determining that issue.[74] To that end, a court may look at ‘any material that shows what issues were raised and decided’.[75]
[71](1995) 37 NSWLR 280.
[72]Ibid 288.
[73]Ibid. See also Somodaj v Australian Iron and Steel Ltd (1963) 109 CLR 285, 299.
[74]Murphy v Abi-Saab (1995) 37 NSWLR 280, 288.
[75]Rogers v The Queen (1994) 181 CLR 251, 263.
90 In deciding a whether a finding of fact or a holding of law is the subject of an issue estoppel, no question arises as to whether the previous court has correctly decided that issue.[76]
[76]In Blair v Curran (1939) 62 CLR 464, Dixon J considered the Court bound by the decretal order made by Street J in the Supreme Court of New South Wales in 1907, although he did not agree with the determination of the issues that had underpinned that order: at 529, 531–2.
The Federal Court proceedings
91 The originating process in the Federal Court proceedings is dated 14 January 2010. It was supported by an affidavit of Mr Traianedes sworn on 14 January 2010.
92 In the Federal Court proceedings, there were three claimants to ‘the Fund’: Milfoil, the CBA and AHT. Milfoil contended that it either owned the stock or had been assigned the invoices issued in respect of the stock.[77] Both CBA and AHT acknowledged that Milfoil’s claim, if established, had priority over their claims and thus adjudication of their claims should follow resolution of Milfoil’s.[78] The CBA and AHT did not otherwise participate in the Federal Court proceedings.
[77]First Federal Court Reasons [1].
[78]Reasons [10]; First Federal Court Reasons [1].
93 In his affidavit, Mr Traianedes explained his understanding of the circumstances in which Milfoil had paid $509,471.16 to the Chinese suppliers. Mr Traianedes:
(gg) referred to the administration and the sale of the business of MBG to AHT;
(hh) explained that the deed of sale had provided that the sale was not to include the ‘Excluded Assets’, which were defined to include any trade debts owed to Milfoil;
(ii) explained how the RWP had been used during the negotiation process to identify ‘the invoices the subject of the arrangement with Milfoil’;
(jj) explained how, during the sale negotiations, it was agreed by him and the purchaser that the ‘amounts owed by the customers pursuant to the invoices identified in the [RWP] would not be included in the total debtors that AHT was purchasing and should be deducted from the total debtors in order to calculate the consideration under the Sale Agreement’; and
(kk) explained that three funds had been created by reference to the sale of goods identified in the RWP, those funds being as follows:
(i) AHT held $237,029.33 resulting from sales of the goods on the RWP;
(ii) the receivers appointed by the CBA held $35,499.43 referable to sales of goods in which Milfoil claimed an interest; and
(iii) Mr Traianedes held $22,246.91 referable to sales in which Milfoil claimed an interest.
94 Mr Traianedes explained his efforts to understand the Agreement. He exhibited the correspondence extracted above and deposed to conversations that he had had with officers and employees of MBG.
95 Mr Traianedes further explained the efforts that he had made to reconcile the amounts paid by Milfoil to suppliers against outstanding invoices from those suppliers. In this regard, he deposed as follows:
I am informed by Ms Dunlop [the former Senior Financial Controller of MBG] that the value and quantity of the stock released by the Chinese suppliers did not necessarily bear a direct relationship to the amount actually paid by Milfoil. The amount actually paid represented the minimum amount the merchandiser had negotiated with the supplier for the release of stock needed to fulfil outstanding customer orders. Ms Dunlop informed me and I verily believe that the value of the stock actually released may well, for example, have been 2 or 3 times the payment amount negotiated by the merchandiser and paid by Milfoil.[79]
[79]Affidavit of Stan Traianedes sworn on 14 January 2010 [57] (‘Traianedes affidavit’).
96 At a directions hearing held on 20 January 2010, Finkelstein J made an order adding Milfoil as a defendant to the Federal Court proceedings and it became a suit inter partes between Mr Traianedes, as deed administrator of MBG, and Milfoil concerning whether Milfoil was entitled to ‘the Fund’ representing the proceeds of invoices identified in the RWP.[80]
[80]See Traianedes in his capacity as Deed Administrator of Mercury Brands Group Pty Ltd (subject to deed of company arrangement) v Mercury Brands Group Pty Ltd (No 2) [2010] FCA 1140 [8] (‘Second Federal Court Reasons’). The transcript of the directions hearing held on 20 January 2010 indicates that the administrator was seeking an order that Milfoil be bound and that Milfoil agreed to be bound.
97 The transcript of that directions hearing also shows that attention was given to the circumstance, deposed to by Mr Traianedes on information given to him by Ms Dunlop, that the goods released by the Chinese suppliers were of a value well in excess of the amount that Milfoil had paid.[81]
[81]Transcript of Proceedings, Traianedes v Mercury Brands Group Pty Ltd (Federal Court of Australia, Finkelstein J, 20 January 2010) 24–5.
98 On 4 February 2010, Mr Terrence Reynolds, the director of Milfoil, swore an affidavit in the Federal Court proceedings. In his affidavit, Mr Reynolds deposed to:
(ll) his discussions with officers of MBG before any agreement was made;
(mm) his understanding of the Agreement;
(nn) the circumstance that he was told that ‘a payment of $500,000 would ensure the release of stock to Milfoil worth well in excess of what Milfoil would be spending’;
(oo) the letters exchanged between him and MBG in early July 2009;
(pp) his discussions with Mr Barbagallo of the CBA; and
(qq) the steps that he took to ensure that Milfoil would be paid in view of the pending insolvency of MBG and its going into administration.
99 Following directions made on 20 January 2010, the parties filed written submissions. This Court has been provided with copies of those submissions.
Submissions before the Federal Court
100 In his written submissions, the administrator identified ‘two principal issues’: (1) the nature of the arrangement under which Milfoil made its payments and (2) whether the goods or invoices which may be the subject of the arrangement can be identified. On the first issue, it was submitted that the evidence of the arrangement went ‘both ways’. It was consistent with Milfoil’s having taken a charge and with there being a trust arrangement. It was also said that there was a doubt as to who were the parties to the arrangement: it was either MBG or its parent. On the second issue, the administrator said that the onus was on Milfoil to identify the stock that was the subject of the arrangement. The administrator had been unable to identify the stock. It had not been segregated when it arrived in Australia. The invoices were ambiguous. Finally, while the RWP was said to identify the invoices relating to the arrangement with Milfoil, there could be no confidence in its accuracy. The fact that it might have been used in the sale process conducted by the receiver was irrelevant.
101 In its written submissions, Milfoil said that the arrangement between Milfoil and MBG was to the effect that title to the stock released by the 13 Chinese suppliers as a result of Milfoil’s payment would be retained by Milfoil until the sum of $509,471.16 plus interest and the agreed fee of $70,000 was repaid in full. The 13 invoices that had been paid by Milfoil were identical to those listed in the RWP. It contended that the parties intended to create a trust in favour of Milfoil over the proceeds of the invoices. It continued:
Milfoil can readily identify $294,775.67 as proceeds. The amount that AHT paid to the [administrator] in order to release the goods the subject of Milfoil’s claim can also, obviously, be identified by the [administrator]. Milfoil presently does not have all the material necessary to identify any further proceeds. The [administrator] has not discovered any records beyond those exhibited to his affidavit. He is best placed to produce such records. AHT is also likely to have relevant documents in this regard. It is clear that AHT was provided with [the RWP] as part of the sale of business negotiations. This is one of the many problems that arise in seeking to resolve this matter finally on a directions application.[82]
[82]However, no application appears to have been made to vacate the directions made by Finkelstein J on 20 January 2010 adding Milfoil as a party to the administrator’s application dated 14 January 2010.
102 In the event, Milfoil contended that the sum of $294,775.67 should be released to it.
103 On 1 April 2010, the Federal Court proceedings were heard. As is plain, there were no pleadings in the Federal Court proceedings and, moreover, the focus of those proceedings shifted from being an application for advice to a determination inter partes. In order to determine what was at issue in the previous proceedings and what was fundamental to the reasoning in determining that issue,[83] this Court asked to be provided with the transcript of the oral argument.[84] The primary judge had not been provided with a copy of the transcript of the oral argument that took place before Finkelstein J.
[83]See [89] above.
[84]This Court was provided with the transcript after it had heard oral submissions. In the event, the Registrar of the Court of Appeal wrote to the parties on 1 June 2017 and invited them to make submissions on the following three questions: ‘(1) Do the submissions or transcript in the Federal Court assist in determining what issues of fact or law Finkelstein J decided in either the First Federal Court judgment or in the Second Federal Court judgment? (2) Do the submissions or transcript in the Federal Court assist in determining whether Finkelstein J decided that the totality of the subject matter of the oral agreement made on or about 2 or 3 July 2009 between Milfoil and MBG (‘the Agreement’) was the goods or stock identified in the RWP? (3) Do the submissions or transcript in the Federal Court assist in determining whether it was legally indispensable to the judgment of Finkelstein J that the totality of the subject matter of the Agreement was the goods or stock identified in the RWP?’ Milfoil and the CBA provided written supplementary submissions in response to the 1 June 2017 letter on 12 July 2017 and 21 June 2017, respectively. In its supplementary submissions, Milfoil said that this Court could have access to the submissions and transcript in deciding what issues of fact or law were decided in the Federal Court proceedings and whether Finkelstein J decided that the totality of the subject matter of the Agreement was the goods or stock identified in the RWP. Milfoil said that this Court should not consider either the submissions or the transcript for determining whether it was legally indispensable to the Federal Court judgment that the totality of the subject matter of the Agreement was the goods or stock identified in the RWP. In its supplementary submissions, the CBA said that the submissions and transcript assist in answering all three questions.
104 There are several references in the transcript to the evidence that the goods to be released were worth well in excess of the amount that Milfoil was paying.[85] Finkelstein J suggested,[86] in argument, that, if the value of stock released by the Chinese suppliers was in excess of the amount paid by Milfoil, it was arguable that the interest secured by Milfoil was in the nature of a charge.[87]
[85]In its supplementary written submissions, Milfoil said that there was ‘nothing in the material to suggest that the Federal Court was asked to decide whether the goods referred to in the RWP were the only goods the subject of the agreement made in July 2009. On the contrary, the Court considered the possibility of a windfall which could only arise if other goods were also held in trust.’ In its supplementary submission, the CBA said: ‘It was not enough to identify some of the goods; rather, Milfoil had to identify all of the goods it purchased. Since Finkelstein J concluded that Milfoil acquired title to the goods by purchasing them, it was essential that his Honour determined all of the goods that Milfoil purchased. The RWP was the only document that identified the goods purchased by Milfoil’ (citations omitted). On 26 July 2017, Milfoil filed a reply to the supplementary submissions of the CBA.
[86]By reference to the Traianedes affidavit [57]: see [95] above.
[87]Transcript of Proceedings, Traianedes v Mercury Brands Group Pty Ltd (Federal Court of Australia, Finkelstein J, 1 April 2010) 6–7.
105 The transcript contains the following exchange between Finkelstein J and counsel for Milfoil:
The Court:What was the value of the stock that the Chinese released?
Counsel:Stock equal to the amount that we paid which was the 500 and something thousand dollars.
The Court:I thought there is a suggestion in the evidence that the stock was worth many times more than the 500,000.
Counsel: It might have been.
The Court:And then the question arises whether the real transaction is a charge.
Counsel:Yes, that’s an issue. We say — that’s a matter, as the High Court said in Alloys, it’s really a matter of: first you have got to work out what the intention of the parties was, what was the agreement. And we say the agreement here is clear; clear that what was meant to happen was that these were our goods, point one. They would be invoiced by Mercury Group, whichever company, on our behalf showing our name on the invoices, and that the money would be paid to us. So it was never a situation like in the Clough Mill and other cases where you can say — or as I think in the Court of Appeal in Associated Alloys one of the judges there said, in truth, what the transaction was a charge over the book debts of the company.
The Court:I was thinking of something different. What happens if these goods that were released by the Chinese were worth one to one and half million dollars; that is, two to three times more than the amount that you advanced? What was going to happen to the million dollars’ surplus?
Counsel: I don’t think though they are the facts.
The Court:I think there is a suggestion somewhere that it might be.
Counsel:Well, I will have to wait and see what [counsel for the administrator] says the value of these goods is. I can’t tell your Honour at the moment.[88]
[88]Ibid 6–7.
106 Finkelstein J said that, given that, if it was a trust, Milfoil ‘might have got a million dollar windfall’.[89] He referred to the words in Mr Reynolds’s letter – ‘[t]itle to be retained by Milfoil Pty Ltd, over the goods and the debtor repayments post invoicing until our aforementioned sum plus interest is paid in full’[90] – and asked whether those words suggested not an ‘outright purchase but a charge’.[91]
[89]Ibid 8.
[90]See [21] above.
[91]Transcript of Proceedings, Traianedes v Mercury Brands Group Pty Ltd (Federal Court of Australia, Finkelstein J, 1 April 2010) 19.
107 Counsel for Milfoil contended that the nature of the transaction depended upon the intention of the parties. He said that they had intended that there be a trust and not a charge.[92] He referred to Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq).[93]
[92]Ibid 8–9.
[93](2000) 202 CLR 588.
108 The greater part of the argument concerned the reliability of the RWP: whether it identified stock belonging to Milfoil. Counsel for Milfoil contended that the funds that were the subject of the application under s 447D of the Corporations Act were referable to invoices described in the RWP.[94] The argument proceeded on the basis that there were other goods to which Milfoil was entitled.[95] Counsel for Milfoil said:
But our friends put in issue all of these amounts and we say … we’re entitled to these amounts. Whatever has happened to the balance we should be given all of this money because everyone accepts that this money is referrable to the invoices in [the RWP].[96]
[94]Transcript of Proceedings, Traianedes v Mercury Brands Group Pty Ltd (Federal Court of Australia, Finkelstein J, 1 April 2010) 30–1.
[95]Ibid 31.
[96]Ibid 32 (emphasis added).
109 Counsel for the administrator contended that the RWP did not reliably indicate that the invoices to which it referred related to goods owned by Milfoil. He said:
We say [the RWP] is a document that we have no confidence in, and the reason we have no confidence in it is if you look at that first invoice, according to [the RWP] that is a Milfoil invoice or reflecting Milfoil’s stock. But Milfoil paid the money to that Chinese supplier on 3 July. So unless it was paid and came here on the [Concorde], that invoice can’t be in respect of goods released consequent upon a Milfoil payment.[97]
Counsel referred to other invoices in the RWP that appeared to refer to goods that had been despatched before Milfoil made its payment.[98] Finally, the administrator contended that the RWP was unreliable as it referred only to 12 Chinese suppliers whereas Milfoil had made payments to 13 such suppliers.[99]
[97]Ibid 62.
[98]Ibid 63–4.
[99]Ibid 67.
110 The administrator addressed the question whether the Agreement gave rise to a trust or a charge. In particular, he referred to the contention that Milfoil and MBG had agreed that Milfoil would retain title to all goods shipped by the Chinese suppliers after 3 July 2009. He contended that the Agreement could not possibly have that meaning; he referred to the discussion of ‘windfall’ cases in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq).[100] He contended that the better view of the 3 July arrangement was that it conferred a security interest rather than created a trust.[101]
[100](2000) 202 CLR 588, 606 [38]–[39].
[101]Transcript of Proceedings, Traianedes v Mercury Brands Group Pty Ltd (Federal Court of Australia, Finkelstein J, 1 April 2010) 73.
In reply, Milfoil contended that some of the goods that were being withheld by the Chinese suppliers may have been imported into Australia but held in bond until payment was made.[102]
[102]Ibid 76–7.
112 It was not contended before Finkelstein J that the RWP described the totality of the entitlements of Milfoil.
The first Federal Court decision
113 On 17 June 2010, Finkelstein J handed down his first decision.[103]
[103]See First Federal Court Reasons.
114 Finkelstein J found that the Agreement between Milfoil and MBG was better reflected in the terms set out in the Milfoil Letter.[104] In effect, he held that, under the Agreement, ‘title to the goods is to go to Milfoil’.[105]
[104]First Federal Court Reasons [21], [24].
[105]Ibid [19].
115 Next, Finkelstein J said that whether a transaction was a charge or a trust depended upon the intention of the parties:[106]
[106]Ibid [25].
There is little in the second letter from which one could draw an inference that a charge was intended. Certainly there was nothing said in the discussions between Mr Reynolds and Mr Santamaria which suggests they had in mind a charge. Indeed, what was said and written is consistent with an outright transfer.[107]
[107]Ibid [26].
However, Finkelstein J addressed the evidence that the stock released exceeded in value the payment made by Milfoil. He said:
Still, there are two features that point the other way. One is that the clothing released by the Chinese manufacturers was worth well over $600,000; more than Milfoil was to recover out of the transaction. But, to make sure Milfoil did not get a windfall profit out of the transaction, the agreement provided that some of the sale proceeds was to go to the company. This appears in the last sentence of the second letter which recorded that once Milfoil had recovered the principal sum plus interest and its fee, MBL would ‘retain the rest’. The second feature is the payment of interest to Milfoil. An obligation to pay interest is consistent with a loan on the security of goods rather than a purchase of the goods. I do not take either feature to establish a charge. Let us investigate what precisely has happened. Milfoil agreed to purchase the goods in question from the Chinese manufacturers. It was then to sell the goods to the local retailers, only on the basis that Mercury Brands would receive the purchase price and account to Milfoil for the amount due to it. In this type of arrangement Mercury Brands could never assign title to the goods and so could not charge them to Milfoil.
The problem considered by Robert Goff LJ in Clough Mill Ltd v Martin in relation to a retention of title claim, where the seller claimed title to all the goods although he had received payment for some, does not arise.
The consequence of what had been agreed is that if Milfoil received from the company’s customers more than was due to it, the surplus was to be paid to or held in trust for the company. It is not a case from which one would imply that Milfoil’s interest in the goods was defeasible: c/f Re Bond Worth Ltd. As to interest, that is simply part of the cost to the transaction company of entering into the arrangement.[108]
[108]Ibid [27]–[29] (citations omitted).
116 Thus, Finkelstein J held that, if Milfoil received from MBG’s customers more than was due to it, the surplus was to be paid to or held in trust for MBG.
117 Finally, Finkelstein J held that the only evidence that connected the stock that Milfoil purchased to those sold to particular customers of MBG was the RWP prepared by Ms Dunlop.[109] He said:
[109]Ibid [31].
This brings me to the last issue which is whether Milfoil can identify the goods to which it asserts title. As Mr Möller says, by references to cases such as Goldcorp Exchange Ltd, Re; Kensington v Liggett a buyer cannot acquire title until it knows to what goods the title relates. Here, the argument is that when the clothing was received from China it was mixed with other clothing in the company’s possession, making it impossible to distinguish which belonged to Milfoil.
The only evidence that connects the goods Milfoil purchased to those sold to particular customers is the Reconciliation Working Paper prepared by Ms Dunlop. She provided that document to Mr Reynolds to indicate which goods belonged to Milfoil and to whom those goods had been sold. There is no reason to think that the document is not an accurate record.
It is true that recently Ms Dunlop informed Mr Traianedes that when she prepared the reconciliation the invoices identified were only some of the invoices issued by the company to its customers and did not necessarily relate to the styles released by the Chinese suppliers. Ms Dunlop told Mr Traianedes she was simply seeking to identify invoices which, upon payment, would generate sufficient funds to cover the amount due to Milfoil.
I do not accept as true what Ms Dunlop now says. Regrettably Ms Dunlop could not be called as a witness as she is in the United States. That, however, does not prevent me from rejecting her evidence. Even a cursory examination of the reconciliation shows that it was intended to identify to whom the clothing supplied by the Chinese manufacturers had been sent. To now say that the reconciliation does not do what it purports to do is to contend that Ms Dunlop set out to defraud Mr Reynolds. I can see no motive for her wishing to do that.
I treat the reconciliation as evidence by which Milfoil is able to identify the clothing which it purchased and the customers to whom that clothing was sold. I have reached that conclusion despite the fact that, in some respects, but not in my view material respects, the reconciliation is inaccurate. The particular respect in which it is inaccurate is in its reference to clothing that was received or despatched prior to the agreement with Milfoil. I accept that Milfoil is not entitled to the proceeds of the sale of pre-agreement goods. It probably has received some of those proceeds (perhaps $11,170.70). But that amount is not the subject of any claim. The error in the reconciliation does not, however, undermine the substance of what the reconciliation purports to achieve: a tracing of particular goods. Ms Dunlop has, as it turns out, traced more goods than was required.[110]
[110]Ibid [30]–[34] (citation omitted).
The second Federal Court decision
118 In his reasons for judgment published on 17 June 2010, Finkelstein J ordered that the administrator provide the Court with draft minutes of orders based on the reasons.[111] This resulted in a further dispute, with the administrator providing evidence indicating that stock listed in the RWP prior to the Agreement (being stock in respect of which Milfoil had no claim) was worth $190,266.91 and that the Milfoil stock was worth $104,508.76.[112]
[111]Ibid [37].
[112]Second Federal Court Reasons [3].
119 In a second judgment, on 21 October 2010, Finkelstein J held that the administrator was estopped from relying on such evidence.[113] He did so on the basis of the representation by MBG that the RWP identified the stock which belonged to Milfoil, causing Milfoil to act to its detriment in not taking further action to protect its interest in the stock.[114]
[113]Ibid [19].
[114]Ibid [13]–[18].
120 On 21 October 2010, Finkelstein J declared, among other things, that Milfoil was entitled to the proceeds of the sale of the stock identified in the RWP, being the three sums constituting ‘the Fund’, plus any interest that had accrued on the three sums.
121 Finkelstein J also ordered that the parties, including Milfoil, have liberty to apply in the Federal Court proceedings for further relief concerning the stock identified in the RWP.[115] Milfoil did not make any further applications in the Federal Court proceedings.
[115]Ibid [19].
What did the Federal Court decide?
122 There is force in the contention that Finkelstein J decided that the totality of the goods to which Milfoil was entitled under the Agreement was confined to the goods the subject of the invoices identified in the RWP. In dealing with this aspect of the application made by the administrator, Finkelstein J said: ‘This brings me to the last issue which is whether Milfoil can identify the goods to which it asserts title’.[116] And, later, he said: ‘Even a cursory examination of the reconciliation shows that it was intended to identify to whom the clothing supplied by the Chinese manufacturers had been sent.’[117]
[116]First Federal Court Reasons [30].
[117]Ibid [33].
123 Detached from the context in which they were made (which has been described above), these sentences can be understood as involving the issue of the entitlements of Milfoil under the Agreement and, thus, as having decided the issue that Milfoil now wishes to bring forward in the present proceedings.
124 However, in my opinion, the better view is that Finkelstein J was deciding only that Milfoil was entitled to the three funds comprising: (a) $237,029.33 (b) $35,499.43 and (c) $22,246.91. Those funds had found their way into different hands. But, if it were to be entitled to them, Milfoil had to show that each of those funds represented the proceeds of the sale of goods that it could identify as having been held in trust for it.
125 It is to be recalled that the administrator was contending that, even if Milfoil was entitled to the ownership of the goods that had been released by the Chinese suppliers, it was unable to identify what those goods were as they had been irretrievably mixed with goods to which Milfoil was not entitled and that the RWP was not reliable as evidence that Milfoil was entitled to the goods the subject of the invoices that it described. Finkelstein J had to decide whether there was evidence ‘that connects the goods Milfoil purchased to those sold to particular customers’.[118] He accepted that the RWP was the only evidence before him that connected Milfoil with the goods that had been sold and which had given rise to the three funds. In the event, he decided that the RWP was ‘evidence by which Milfoil is able to identify the clothing which it purchased and the customers to whom that clothing was sold’.[119]
[118]Ibid [31].
[119]Ibid [34].
126 The administrator had contended that the RWP was unreliable. However, Finkelstein J held that it was sufficiently reliable to identify the sales of the goods that gave rise to the three funds. The fact that Finkelstein J held that Milfoil was entitled to the goods identified in the invoices described in the RWP does not entail that he decided that the goods so identified comprised the totality of the entitlements of Milfoil to goods or stock under the Agreement.
127 In fact, such a finding would be inconsistent with other observations that Finkelstein J made in reaching his decision. One of the critical findings that Finkelstein J had to make was whether, under the Agreement, Milfoil had acquired ownership of the goods released by the Chinese or had acquired only a security interest in them. He gave express consideration to the fact that, on the evidence before him, the Chinese suppliers had released goods to a value well in excess of the total amount that Milfoil had paid to the 13 Chinese suppliers on 3 July 2009. He considered the argument that the evidence better supported there being a charge rather than ownership. But, as his reasons make clear, he held that a trust relationship had been created and that, to the extent that the proceeds of the sale of the released goods exceeded the amount that Milfoil had paid, it would hold those proceeds in trust for MBG.
128 In coming to this conclusion, I respectfully differ from the primary judge who saw it differently. He framed the issue and its resolution as follows:
Having found that Milfoil purchased the Milfoil stock under the oral agreement, it was necessary for Finkelstein J to determine whether Milfoil was able to identify that stock with precision. This was because his Honour accepted the submission on behalf of the administrator that ‘a buyer cannot acquire title until it knows to what goods the title relates.’ The administrator argued that the Milfoil stock had been ‘mixed with other clothing in [Mercury’s] possession, making it impossible to distinguish which belonged to Milfoil’.[120]
[120]Reasons [36].
…
In my opinion, Finkelstein J’s specific finding that the subject matter of the agreement was the Milfoil stock described in the reconciliation working paper, excluding the pre-agreement goods, was legally indispensable to his decision. This issue estoppel is relevant to Milfoil’s unsatisfactory pleading, referred to above, that the trust agreement for which it contends applied not only to the Milfoil stock but, in addition, to any other goods delivered by the 13 Chinese manufacturers …[121]
[121]Ibid [41]. See [71] above.
129 In my opinion, Finkelstein J did not decide that the Agreement was confined to what the primary judge defined as ‘the Milfoil stock’. Rather, he decided that, in respect of the goods that were the subject of the Agreement (unspecified), Milfoil would acquire title to them.[122] Thereafter, Finkelstein J was not determining the question whether the Agreement was confined to the stock that was recorded in the RWP (which the primary judge described as ‘the Milfoil stock’); rather, Finkelstein J was deciding whether the three funds could be traced to goods that were the subject of the Agreement. The goods identified in the RWP were the subject of the Agreement. Finkelstein J did not decide that those goods comprised the totality of the goods that were the subject of the Agreement; nor was any such decision legally indispensable to what he had to decide.
[122]First Federal Court Reasons [20].
130
I would grant the application for leave to appeal and allow the appeal.
I would dismiss the notice of contention.
Key Legal Topics
Areas of Law
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Contract Law
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Civil Litigation & Procedure
Legal Concepts
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Issue Estoppel
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Contract Formation
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Admissibility of Evidence
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Specific Performance
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