Scolaro v Sebregts - [2000] WADC 151

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: SCOLARO -v- SEBREGTS & ORS [2000] WADC 151

CORAM: MULLER DCJ

HEARD: 14 JUNE 2000

DELIVERED : 22 JUNE 2000

FILE NO/S: CIV 2291 of 1998

BETWEEN: RITA ROSA SCOLARO
Plaintiff/Respondent
AND
ALEXANDER SEBREGTS
First Defendant/Respondent
ELIZABETH SEBREGTS
Second Defendant/Respondent
SANDRA SMITH
Third Defendant/Respondent
DEAN SMITH
Fourth Defendant/Respondent
ELIANNE SMITH
Fifth Defendant/Respondent
KENNETH SMITH
Sixth Defendant/Respondent
INTERCOMM PTY LTD (ACN 077 553 612)
Seventh Defendant/Respondent
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
Third Party

Catchwords:

Appeal from decision of Registrar refusing application to strike out third party statement of claim - Proceedings against third party commenced in both Supreme and District Courts - Whether duplication of proceedings involving same parties in two courts constitutes abuse of process - Third party statement of claim alleging tortious liability causing economic loss - Whether third party statement of claim discloses reasonable cause of action.

Legislation:

Rules of the Supreme Court, O 20, r 19

Trade Practices Act

Result:

Appeal dismissed

Representation:

Counsel:

Plaintiff/Respondent                 :    Mr S Forbes
First Defendant/Respondent      :    Mr N Friedman
Second Defendant/Respondent :    Mr N Friedman
Third Defendant/Respondent     :    Mr N Friedman
Fourth Defendant/Respondent    :    Mr N Friedman
Fifth Defendant/Respondent     :    Mr N Friedman
Sixth Defendant/Respondent     :    Mr N Friedman
Seventh Defendant/Respondent :    Mr N Friedman
Third Party  :    Mr P Blaxill

Solicitors:

Plaintiff/Respondent                 :    Paiker & Overmeire
First Defendant/Respondent      :    Friedman Lurie Singh
Second Defendant/Respondent :    Friedman Lurie Singh
Third Defendant/Respondent     :    Friedman Lurie Singh
Fourth Defendant/Respondent    :    Friedman Lurie Singh
Fifth Defendant/Respondent     :    Friedman Lurie Singh
Sixth Defendant/Respondent     :    Friedman Lurie Singh
Seventh Defendant/Respondent :    Friedman Lurie Singh
Third Party  :    Freehill Hollingdale & Page

Case(s) referred to in judgment(s):

Kimberley Downs Pty Ltd v Western Australia (1986), unreported; Library No 6414; 28 August 1986
Moore v Inglis (1976) 9 ALR 509
Perre v Apand 164 ALR 606
Peruvian Guano Co v Bockwoldt (1883) 23 Ch D 225

Case(s) also cited:

Batten v CTMS Ltd, unreported; Fed C of A; QG 177 of 1998; 12 November 1999
Ilinka Ilievska-Dieva v SGIO Insurance Ltd; Velenski v SGIO Insurance Ltd, unreported; FCt SCt of WA; [2000] WASCA 161

MULLER DCJ: This is an appeal by the third party against the decision of the Registrar made on 21 February 2000 ordering that par 21 of the third party statement of claim be struck out and declining to order that the balance of the third party statement of claim be struck out. The third party now seeks the third party statement of claim to be struck out in its entirety pursuant to O 20, r 19 of the Rules of the Supreme Court on the grounds that it discloses no reasonable cause of action and/or is frivolous or vexatious and/or is an abuse of the process of the Court.

Background to the appeal

In October 1997 the third party entered into an agreement with a company named Vision Telecommunications Pty Ltd (Vision) in terms of which the third party undertook to loan Vision $110,000 over a 15 year period subject to the loan being secured by, inter alia, personal guarantees from the first‑sixth defendants who were directors of Vision. In December 1997 Vision leased business premises in Scarborough Beach Road from the plaintiff and the first‑sixth defendants guaranteed payment of the rent and outgoings to the plaintiff. It was claimed by the first‑sixth defendants that on 6 March 1998 the third party wrongfully repudiated the agreement with Vision and refused to permit Vision to make any further draws on the loan account. This conduct by the third party, it was claimed, resulted in Vision being unable to pay the rent to the plaintiff who then claimed damages for unpaid rent from the first‑sixth defendants and the seventh defendant. For reasons I shall explain later the defendants claim they are entitled to an indemnity from the third party in respect of the plaintiff's claim.
Vision and the first and second defendants in the District Court proceedings are the plaintiffs in a Supreme Court action No CIV 2041 of 1998 (Supreme Court action) against the third party. The re‑amended statement of claim in the Supreme Court action asserts that on 7 October 1997 Vision and the third party entered into a written agreement for the third party to lend Vision an amount of $110,000. The statement of claim alleges that the loan was secured, inter alia, by personal guarantees from the directors of Vision who are named as the first‑sixth defendants in the District Court action. It is further alleged that the third party opened an account in Vision's name and permitted Vision to begin drawing amounts from this loan account. The statement of claim asserts that in December 1997 Vision leased the premises in Scarborough Beach Road and entered into several service and dealership contracts with various telecommunication providers. The statement of claim in the Supreme Court goes on to allege that on 6 March 1998 the third party withdrew Vision's loan facility without cause and that this breach of the agreement by the third party caused Vision loss and damage which it claims from the third party. In its further answers to the third party's request for further and better particulars of the amended statement of claim Vision alleges that as a result of the breach by the third party of the loan agreement it no longer had the financial resources to continue its business activities and incurred a liability to the landlord under the lease or, alternatively, to the first‑sixth defendants as guarantors of its obligations under that lease. By way of reply to the request for further and better particulars Vision alleged that the landlord re‑took possession of the leased business premises on 5 May 1998 and that by action No 2291 of 1998 in the District Court of Western Australia the landlord (plaintiff) sought to recover from the guarantors under the lease damages allegedly suffered by the landlord (plaintiff) as a result of Vision's breach of the lease. The further and better particulars went on to assert that the first‑sixth defendants under the lease have sought an indemnity from Vision against any liability they may incur to the landlord pursuant to a judgment in the District Court action which, it is acknowledged, the guarantors under the lease are entitled to. The answers to the defendant's request for further and better particulars conclude with the assertion that Vision is entitled to be indemnified by the third party against its liability to the landlord or alternatively the guarantors under the lease.
The third party filed a defence and counterclaim in the Supreme Court action for the recovery of the loan made to Vision which, it was asserted, the two directors of Vision who were parties to the Supreme Court action were liable to pay under the guarantee they gave to the third party.
Turning to the third party's statement of claim filed in the District Court action it is alleged that the plaintiff's (landlord's) claim against the first‑sixth defendants is for damages suffered by the plaintiff as lessor upon breach by Vision as lessee of a lease dated 22 December 1997 in respect of which the first‑sixth defendants are alleged to have guaranteed the performance of the lessee's obligations to the plaintiff under the lease. The third party's statement of claim asserts that the first‑sixth defendants were guarantors of Vision's obligations to the third party under the agreement with the third party made on 7 October 1997 pursuant to which the third party loaned Vision $110,000 over a 15 year term subject to that loan being secured by, inter alia, personal guarantees from the first‑sixth defendants. The third party's statement of claim asserts that the third party unjustifiably repudiated the agreement and, by reason of this breach, Vision was unable to continue business activities and was forced to terminate the lease and incurred loss and damage. The third party statement of claim alleges that the third party owed a duty of care to the defendants not to breach the agreement with Vision in that it knew or ought reasonably to have known that there was a foreseeable risk of economic loss to the defendants in their capacity as guarantors of Vision's obligations under the lease. Alternatively, it was alleged that the third party, by granting the loan to Vision and permitting withdrawals to be made by Vision, engaged in misleading or deceptive conduct resulting in loss/damage to Vision. It was further submitted that the third party knew or ought reasonably to have known that Vision intended to enter into a lease of business premises and that personal guarantees by the first‑sixth defendants, as directors of Vision, would be required by the lessor to secure the performance of the obligations of Vision under the lease. It was asserted that the third party had breached the duty of care it owed to the defendants and that the defendants are entitled to an indemnity against the plaintiff's (lessor's) claim. Alternatively it is alleged in the third party statement of claim that the third party breached an implied collateral term of the agreement that the third party would not act in a manner which would occasion the defendants' loss and damage in their capacity as guarantors of Vision's obligations under the lease. This pleading, incidentally, was subsequently struck out by the Registrar.
At this stage I should point out that the first‑sixth defendants are seeking leave in these proceedings to amend the amended statement of claim by substituting for the allegation that there was a breach of an implied collateral term of the agreement between the third party and Vision an alleged breach of a collateral implied contract between the defendants and the third party entered into in consideration for the defendants causing Vision to enter into the loan agreement with the third party.

Application to strike out third party statement of claim on grounds that it is frivolous or vexatious or an abuse of process

The third party seeks an order striking out the third party's statement of claim on the basis that it:
1.discloses no reasonable cause of action; and/or
2.is frivolous or vexatious; and/or
3.is an abuse of process.
The first ground upon which this application is based is that two actions have been brought against the same party in two different courts in the same jurisdiction involving the same facts and issues. It was submitted by the third party that the material facts in issue in the District Court proceedings will have to be determined in the Supreme Court action. It was further submitted that both the District Court and the Supreme Court are being asked to determine identical questions of law and fact, namely, whether the third party is in breach of contract and the quantum of loss arising from such breach.
In support of its submission that the third party proceedings are vexatious because two actions had been brought against the same party where one will lie the third party has relied on the decision in Moore v Inglis (1976) 9 ALR 509 at 514. In that case the plaintiff had commenced proceedings in the Supreme Court of the ACT and the High Court of Australia in respect of what was essentially the same subject matter. The Supreme Court action involved one allegation of conspiracy against five defendants while the High Court action involved five separate conspiracies carrying the same objective in both actions. The only other significant points of difference were that the plaintiff sought damages in the Supreme Court action but relief by way of an injunction in the High Court proceedings and, in addition, the parties in the two actions varied to some extent. In his judgment Mason J said at p513:
"The principal issue is whether, in the light of all the circumstances which I have outlined, the commencement by the plaintiff of the proceedings in this court should be held to be vexatious and oppressive or to be an abuse of the process of the court within the meaning of O 63, r 2. In McHenry v Lewis (1882) Ch D 397 at 408, Bowen LJ referred to 'the general principle that the court (can) will interfere whenever there is vexation and oppression to prevent the administration of justice being perverted for an unjust end'.
After quoting this passage, Sir Gorell Barnes P in Logan v Bank of Scotland (No 2) [1906] 1 KB 141 at 150; [1904‑7] All ER Rep 438 at 442, went on to say: 'For instance, in this country, where two actions are brought by the same person against the same person in different courts governed by the same procedure, and where the judgments are followed by the same remedies, it is prima facie vexatious to bring two actions where one will lie; …'
In Slough Estates Ltd v Slough Borough Council [1968] Ch 299 at 314‑5; [1967] 2 All ER 270 at 275, Ungoed‑Thomas J said that 'it is prima facie vexatious and oppressive to sue concurrently in two British courts' and went on to quote Lord Esher MR's dissenting judgment in The Christiansborg (1885) 10 PD 141 at 148, where his Lordship said: 'Where both actions are in England in the same tribunals ‑ because if they are in tribunals where the proceedings are not identical or the remedies are not equally effective the law would apply which is applicable to foreign countries ‑ prima facie it is vexatious, and therefore it would lie on the party who brings the second action to shew that it was not so.'
In the light of these statements of principle it is clear enough that if the action in this court involved no more than a claim for damages for conspiracy against the same defendants arising out of the transactions in the Parliamentary Library occurring after November 1971 it should be stayed on the ground that it is vexatious, oppressive and an abuse of the process of the court. The question, then, is whether the differences in the two actions require a different conclusion. In my opinion they do not."
See also Peruvian Guano Co v Bockwoldt (1883) 23 Ch D 225; Seaman's Civil Procedure in Western Australia 20. 19. 9.
The question I have to consider is whether two actions are being brought by the same persons against the same persons in different courts governed by the same procedure and where the same remedies are sought. I have already outlined the nature of each action brought in the Supreme and District Courts. There are certainly striking points of similarity between the two actions. A schedule provided by the third party to these proceedings demonstrates the points of concurrence in the pleadings filed in both courts. The most significant points are as follows: the ANZ Bank is a party in both proceedings and the directors of Vision are named as first‑sixth defendants in the District Court action although only two are named as plaintiffs in the Supreme Court proceedings; the terms of the loan from the bank to Vision is pleaded in identical terms in both actions; Vision's obligations under the loan secured by the personal guarantees of the directors are pleaded in identical terms in both actions; the pleadings in both actions refer to the loan account opened in Vision's name and the borrowings the company was permitted to make on this account as required; both sets of pleadings allege that the bank wrongfully repudiated the loan agreement and that as a consequence of this breach Vision was unable to continue its business activities and suffered loss and damage; both sets of pleadings allege that further and in the alternative the bank engaged in misleading or deceptive conduct contrary to the provisions of the Trade Practices Act resulting in loss and damage to Vision.
Apart from the difference in the claimant and the other differences I shall refer to shortly, the only other significant point of difference between the two actions is the tortious nature of the claim against the bank mounted by the first‑sixth defendants in the District Court action. Putting this aside it is submitted by the third party that the two claims correspond in most substantial respects including the material facts in issue, the alleged breach of contract by the bank and the quantum of the loss arising from the breach. Even the bank's defence/counterclaim in the Supreme Court is, apart from the pleading of the guarantees given by the six directors of Vision, said to be substantially the same as its defence in these proceedings. Given the close identification of the two actions in terms of the affected parties, the cause of action and the remedies sought, the third party submits the only reasonable conclusion is that two courts within the same jurisdiction are being asked to determine identical, or substantially identical, issues of law and fact.
There are, as I said earlier, other differences between the two actions. In the first place there is no commonality of parties in the two proceedings. Only two of the six defendants named in the District Court action are parties to the Supreme Court action where they are named as the second plaintiffs. Their claim against the bank in the Supreme Court action is based upon the non‑repayment of a term deposit made by them to the bank as temporary security for the bank's loan to Vision. This issue is entirely unrelated to any of the issues pleaded in the District Court action and will presumably be the subject of evidence that will not be led in the District Court. Judgment in favour of the two directors named as plaintiffs in the Supreme Court action would give them a remedy neither they nor their co‑directors are seeking as defendants in the District Court proceedings. The remaining four defendants named in the District Court proceedings are not even parties in the Supreme Court and, in their case, I am unable to see how a claim against the third party in the District Court proceedings could possibly be described as vexatious or an abuse of process on the ground of duplication.
The second major difference between the two actions lies in the cause of action pleaded. The six defendants in the District Court action claim an indemnity against Vision or the bank arising out of the bank's breach of its alleged duty of care towards them or, alternatively, the breach by the bank of a collateral implied contract. These issues are unique to the District Court action and play no part at all in the Supreme Court proceedings.
While it is considered vexatious for a plaintiff to sue a defendant in two courts at the same time in the same jurisdiction, an exception exists if such a procedure would be to gain the plaintiff a real substantial advantage. Peruvian Guano Co v Bockwoldt (supra). I cannot agree with the third party submission that no substantial advantage to the defendants is readily apparent in bringing this action both in the District Court and Supreme Court. It could be to the real substantial advantage of the four defendants who are not parties to the Supreme Court action and also to the two defendants who are parties to that action but are relying upon a tortious cause of action not pleaded in the Supreme Court and seeking altogether different relief than that sought in the Supreme Court.
On balance I believe there are significant points of distinction between the two actions to justify the third party proceedings having been taken in the District Court. I am unable to find that the proceedings in both the Supreme and District Courts, though obviously related, are so inextricably linked as to permit a finding that the third party proceedings in this Court are frivolous, vexatious or simply a sham and an abuse of the process of the Court.

Third party claim discloses no reasonable cause of action

In addition to its claim that the Supreme Court action involving the third party has been duplicated in the District Court the third party also asserts that the defendants' claim against the third party discloses no reasonable cause of action. The third party submits that the defendants' allegation of a breach by the third party of a duty of care resulting in economic loss to the defendants is so tenuous or insupportable that it should not be allowed to stand.
It is true that the lost claimed by the defendants in the third party proceedings is pure economic loss. The defendants submit that the third party either knew or reasonably ought to have known that Vision intended to enter into a lease of business premises and that the personal guarantees of its directors would be required by the lessor. Whether this is so or not is essentially a matter which will turn upon the evidence adduced at trial. If, however, the third party is proved either to have had, or could reasonably be supposed to have had, such knowledge it is arguable that it could reasonably have foreseen that the six defendants, as guarantors of the lessor's obligations, were vulnerable to loss from the conduct of the third party and that such conduct could cause harm to them.
The starting point for an examination of this proposition is the authority referred to by the third party of Perre v Apand 164 ALR 606. In that case the High Court had to consider whether a supplier of diseased seed to South Australian potato growers owed a duty to prevent economic loss to other growers whose farms were a few kilometres away and who sold most of their crop in Western Australia when the supplier knew that Western Australia was an attractive market for South Australian growers but prohibited the import of potatoes grown within 20 kms of the outbreak of the disease. In finding that such a duty existed McHugh J said at p631:
"In determining whether the defendant owed a duty of care to the plaintiff, the ultimate issue is always whether the defendant in pursuing a course of conduct that caused injury to the plaintiff…should have had the interest or interests of the plaintiff in contemplation before he or she pursued…that course of conduct. That issue applies whether the damage suffered is injury to person or tangible property or pure economic loss. If the defendant should have had those interests in mind, the law will impose a duty of care. If not, the law will not impose a duty."
It is clear from the judgments in that decision that a duty to avoid causing economic loss to another is qualified by the need to avoid imposing indeterminate liability on that person or an unreasonable burden on the freedom of that person to act in his own business interests without having to concern himself with the interests of others. (Per McHugh J at pp633‑636). Once, however, the potential for economic loss to others arising out of the defendant's conduct can be confined to a reasonably ascertainable class of persons, and it is shown that the imposition of the duty will not be unfair or unreasonable to the defendant, such a duty might be found to exist if the class of persons was vulnerable to loss from the defendant's conduct and the defendant knew or ought to have known that its conduct would cause harm to that person or class of persons.
The third party has submitted that the defendants were not part of an ascertainable class of persons but rather constituted an indeterminate number of persons or classes of persons who were potentially exposed to suffer economic loss as a consequence of the third party's alleged breach of contract. This indeterminate class, according to the third party, would include the landlord, suppliers and customers of Vision, employees of Vision and shareholders of the company. Falling, as they do, into this indeterminate class, the third party has submitted that no duty to the defendants could possibly arise in these circumstances.
I believe the third party's categorisation is too sweeping. Unlike the other categories of persons referred to by the third party, the six defendants were contractually linked to the third party as guarantors of Vision's loan but, even more significantly, were to the alleged knowledge of the third party potentially liable to the lessor as guarantors of the lease agreement. Looked at in this context I am satisfied they were reasonably ascertainable as a class of persons who were potentially exposed to economic loss as a result of any breach by the third party of its contractual obligations to Vision. A duty of care by the third party to the defendants could, in my view, be found to exist.
Accepting that the defendants fall into an identifiable class of persons the next question is whether the necessary relationship of "proximity" or "neighbourhood" between the third party and the defendants exists (see Kirby J at p676). It is clear from the judgments in Perre's case that foreseeability on the part of the alleged wrongdoer that its conduct would be likely to cause economic loss to another is not enough. A relationship sufficiently proximate or close as to give rise to a duty of care is also required. As Gleeson CJ said at p611:
"In relation to the giving of advice or information, questions of reliance and actual foresight of the possibility of harm (or, what is the same thing, the foresight that a reasonable person would have) are closely related. Moreover, knowledge (actual, or that which a reasonable person would have,) of an individual, or an ascertainable class of persons who is or are reliant, and therefore vulnerable, is a significant factor in establishing a duty of care."
The test of vulnerability was carried further by McHugh J at p636 of the judgment where he said:
"Cases where a plaintiff will fail to establish a duty of care in cases of pure economic loss are not limited to cases where imposing a duty of care would expose the defendant to indeterminate liability or interfere with its legitimate acts of trade. In many cases there will be no sound reason for imposing a duty on the defendant to protect the plaintiff from economic loss where it was reasonably open to the plaintiff to take steps to protect itself. The vulnerability of the plaintiff to harm from the defendant's conduct is therefore ordinarily a prerequisite to imposing a duty."
The third party has submitted that the defendants had power to negotiate with the plaintiff, sublet the premises and/or assign the lease. They were not, it was claimed, vulnerable in the sense expressed in Perre's case and consequently no duty of care could arise. I am unable to accept that submission. The defendants were vulnerable to the conduct of the third party because any breach by the third party of the loan agreement with Vision would, to the alleged knowledge of the third party, automatically have brought into play the guarantors' liability under the lease and, short of challenging the validity of the contractual arrangements, there was nothing else of a practical nature the defendants could have done to protect themselves from harm. As was emphasised by McHugh J in Perre (supra) at p640, the degree and nature of vulnerability sufficient to give rise to a duty of care will vary from case to case and ultimately is always a question of fact.
In challenging the defendants' contention that a duty of care existed the third party has submitted it would be unfair and unreasonable to impose such a duty on a lender. In his judgment in Perre's case (supra) Kirby J qualified the tests of foreseeability and proximity by importing the notion of fairness and reasonableness in relation to a duty of care. (See Kirby J at p676). Even if the loss or damage to the defendants ought reasonably to have been foreseen by the third party and a relationship of proximity existed between the parties:
"…a legal duty of care would be excluded if it would interfere unreasonably with a third party's economic freedom, its autonomy and the competitive operations of the market place." (See McHugh J p636‑636).
To suggest, as the third party has, that the consequence of holding that a lender owes a duty of care not to cause economic loss to a party other than a borrower would open the floodgates to claims from a multitude of other affected parties such as employees, shareholders and the like overlooks the qualification that these other classes of affected persons must fall within a reasonably identifiable category before the duty can be found to exist. It may be unjust, unreasonable and unfair to impose a duty on the lender towards all persons who could possibly be adversely affected by the conduct of the lender in breaching the loan agreement. But that is not the situation here. The duty is not sought to be extended to all and sundry who might suffer financial loss however remote or tenuous their connection with Vision might be. The duty is said to be confined to guarantors of the loan agreement who, as directors of Vision, could reasonably be expected by the third party also to have guaranteed the performance of Vision's obligations under any business lease it entered into. I am unable to agree that it would be contrary to public policy to find that a duty existed in these circumstances.
Applying the principles in Kimberley Downs Pty Ltd v Western Australia (1986), unreported; Library No 6414, delivered 28 August 1986 I must, in deciding this application, assume the facts alleged in the third party statement of claim are correct and exercise great care to ensure that the defendants are not improperly deprived of the opportunity for their case to be decided at the trial of the action. I am not satisfied that the third party has established the necessary grounds for striking out the third party statement of claim and the appeal by the third party must be dismissed.
The application by the plaintiff for the third party proceedings to be stayed and the defendants' application for leave to amend the third party statement of claim remain to be determined.