Sheraz Pty Ltd v Vegas Enterprises Pty Ltd - [2013] WASC 45

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: SHERAZ PTY LTD -v- VEGAS ENTERPRISES PTY LTD [2013] WASC 45

CORAM: MASTER SANDERSON

HEARD: 30 JANUARY 2013

DELIVERED : 19 FEBRUARY 2013

FILE NO/S: CIV 2648 of 2012

BETWEEN: SHERAZ PTY LTD as Trustee for the TERRANORA FAMILY TRUST
Plaintiff
AND
VEGAS ENTERPRISES PTY LTD
Defendant

Catchwords:

Practice and procedure - Attempt to litigate matter determined in Federal Court - Privity of interest between plaintiff in this action and plaintiff in Federal Court action - Turns on own facts

Legislation:

Nil

Result:

Judgment for defendant

Category: B

Representation:

Counsel:

Plaintiff: Mr P G Clifford
Defendant: Ms P E Cahill SC

Solicitors:

Plaintiff: Alan Rumsley
Defendant: Clifford Chance

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

Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 5] [2009] WASC 141
Clifford v Vegas Enterprises Pty Ltd (No 5) [2010] FCA 916
Clifford v Vegas Enterprises Pty Ltd [2011] FCAFC 135
Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510
Ramsay v Pigram (1968) 118 CLR 271
Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd (1992) 36 FCR 406

MASTER SANDERSON: This action is an attempt to re‑litigate a matter which has already been determined. On that basis the defendant has applied for summary judgment. For reasons which follow the defendant's application should succeed and there should be judgment for the defendant.
The starting point in this matter is the decision of Barker J in the Federal Court in Clifford v Vegas Enterprises Pty Ltd (No 5) [2010] FCA 916. At the commencement of his reasons his Honour provided an overview of the case. It reads as follows:
At material times:
•The first respondent (Vegas) was in the business of design and marketing of surfing apparel and surfing related products and the wholesale distribution of surfing apparel and surfing related products;
• The second respondent (Mr Hart) was a director and company secretary of Vegas and the sole director of a company that owned shares in Vegas;
• The third respondent (Mr Backshall) was a director, chief executive officer of Vegas and the owner of shares in Vegas in his capacity as trustee of a family trust;
•Between them, Mr Hart and Mr Backshall controlled Vegas; and
•The applicant (Mr Clifford) was a barrister who provided legal services directly to Vegas.
On 19 December 2006, Sheraz Pty Ltd (Sheraz) - a company associated with Mr Clifford - acquired 600,160 newly issued shares in Vegas for $2,370,986.57 and a further 41,229 shares from an existing shareholder (C Breeze Pty Ltd) for $170,000.
Mr Clifford claims that the acquisition of those shares was affected by the misleading or deceptive conduct of the respondents who, he alleges, made representations to him about Vegas' bank debts, sales and product and failed to disclose material facts to him, as a result of which he has suffered loss and damage. He says the shares are now unsaleable. Mr Clifford seeks in substance an order that he be refunded the price paid for the shares and compensated for other related costs he has incurred (with interest) upon return of the shares to Vegas.
In the result, I do not consider that the applicant has made out the case of misleading or deceptive conduct he has brought against the respondents.
So far as alleged bank debt and product representations pleaded by the applicant are concerned, I am not satisfied they were made.
So far as the sales representations pleaded by the applicant are concerned, I do not consider the applicant has established that he relied on information he received from Mr Backshall in about mid November 2006 about the projected income from sales. I consider, in any event, the respondents have established they had reasonable grounds for the projections made.
So far as the alleged non‑disclosure of material facts or misrepresentation by silence is concerned, I consider that, in the unusual circumstances of this case, the respondents were entitled to expect that the applicant would request from them any particular information he considered material to his due diligence in relation the acquisition of the Vegas shares. In particular, I do not consider that the non-disclosure by the respondents of information about Vegas' sales performance, movements in its overdraft account and shareholders' loans prior to the acquisition of the shares, constitutes misleading or deceptive conduct. I consider this information was not or would not have been material to the applicant's investment decision in any event. I also find that an allegation that the respondents used the applicant's share acquisition funds to pay down the overdraft facility and shareholders' loan accounts is not proved.
If the applicant had established that the respondents were liable to him for misleading or deceptive conduct as alleged, I would have considered it appropriate to make a refund order. I would have considered that damages alone would have been an inadequate remedy in the circumstances of the case as there seemed not to be a ready market for the shares and, in practical commercial terms, the applicant had established the shares he continued to hold beneficially were unsaleable. I would also have awarded damages for costs associated with acquiring and holding the shares.
However, because the applicant has failed to make out the misleading or deceptive conduct case he has brought, his case must fail [1] ‑ [9].
As Barker J notes in his reasons, Sheraz Pty Ltd (Sheraz) is a company associated with Mr Clifford [2]. In fact as the title to this action notes the company is trustee of the Terranora Family Trust. It is not in dispute at all material times Sheraz was controlled by Mr Clifford. It was in every sense his alter ego. But although the shares in Vegas Enterprises Pty Ltd (Vegas) were acquired by Sheraz the company was not a party to the Federal Court action. Nonetheless, Barker J was satisfied a refund order could be made. This is covered in [8] of his Honour's reasons.
Mr Clifford appealed to the Full Federal Court from Barker J's decision. The defendants cross‑appealed challenging the finding by his Honour that a repurchase order could have been made it the absence of Sheraz as a party to the proceedings. Mr Clifford's appeal failed; the defendants cross‑appeal succeeded: see Clifford v Vegas Enterprises Pty Ltd [2011] FCAFC 135. The reasons for decision of the Full Court were delivered by Besanko J. His Honour goes into some detail as to why Sheraz was a necessary party to the proceedings if a repurchase order was to be made. Jessup J, who concurred in the Full Court's decision, made some brief comments about this issue. They are worth quoting in full:
Where the relief sought by the appellant necessarily carried with it the need either for Sheraz Pty Ltd to re‑transfer its shares to the first respondent, or for those shares to be cancelled, I cannot, with respect to the primary Judge, understand how such an outcome might be contemplated in the absence of Sheraz Pty Ltd as a party to the proceeding. The problem is not overcome by a finding that it was the appellant who beneficially owned the relevant shares. That such a finding should be made in the absence of the presumptive trustee - the entity whose interests would be affected by the finding - strikes me, with respect, as all the more unconventional [274].
The defendant puts arguments on two grounds. First, it says Sheraz is a privy of Mr Clifford and is bound by the result of the Federal Court proceedings. Alternatively, it says an estoppel has arisen which would preclude Sheraz from making this claim. In answer the plaintiff says it was not a party to the original proceedings. It now seeks to put a case which is not the case put by Mr Clifford in the Federal Court proceedings. As it was not a party to the original action no estoppel could arise against it. It also alleges there is not sufficient connection between Mr Clifford and the company to qualify it as a privy.
Here we are dealing with a privity in interest. In Ramsay v Pigram (1968) 118 CLR 271, Barwick CJ defined 'privy in interest' in this way:
The basic requirement of a privy in interest is that the privy must claim under or through the person of whom he is said to be a privy (279).
The facts in Ramsay v Pigram illustrate the principle. Taken from the headnote the facts were as follows:
In an action for negligence brought by the respondent against the appellant, appointed as a nominal defendant to represent the government of New South Wales, to recover damages for personal injuries caused to him when a motor vehicle owned by the government and alleged to have been driven negligently by a New South Wales' police officer came into collision with his motor vehicle, the appellant pleaded that the respondent was estopped from asserting negligence on the part of the police officer in the course of his duty. He relied on issue estoppel because in an action for damages for personal injuries that the police officer has brought against the respondent arising out of the same collision, where the issues were negligence on the part of the respondent and contributory negligence on the party of the police officer, the jury had found a general verdict for the police officer. The respondent demurred to the plea and the Supreme Court gave judgment in the demurrer for him.
Essentially the court held there was no privity of interest between the appellant and the police officer to entitle the former to rely upon the findings in the latter's action. Barwick CJ put the position this way:
Here it is quite clear that the Government had no interest in the action between the respondent and the police officer: nor can it be said that the action brought by the police officer was brought by him in any sense on behalf of the Government or that in relation to the defence of contributory negligence the respondent could have been treating the Government as the real 'defendant' to that claim. In every respect the action between the respondent and the police officer was personal to each of them, neither being in any sense in relation to the action or any of the issues involved in it, representative of another (279).
In Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510, Sir Robert Megarry VC said when discussing privity of interest:
[I]t seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject‑matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest' (515).
In Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd (1992) 36 FCR 406, Gummow J (sitting as a judge of the Federal Court) put the position this way:
It is important ... to appreciate ... when finding the necessary privity in a successive or mutual relationship, the courts have looked to legal rather than economic indicia as the criterion of operation of the privity doctrine (414).
In my view this is a clear case where the privity doctrine applies. The position may be tested in this way. What is the legal difference between the position adopted by Mr Clifford in the Federal Court action and the position adopted by Sheraz in this case. The answer is none. Mr Clifford is the alter ego of Sheraz. In every sense he controls its actions. There is nothing Sheraz can add to the evidence except perhaps the certificate of its incorporation. Otherwise the witnesses at trial would be the same, the evidence would be the same, the discovered documents would be the same and the arguments put by both sides would be the same. In fact, if the matter were to go to trial perhaps an enormous amount of time could be saved simply by tendering the transcript of the Federal Court proceedings.
In answer to that the plaintiff says it is running a case which is pleaded in an entirely different way from the case that was pleaded in the Federal Court. That is so. Mr Clifford went through each paragraph of the statement of claim in this action and if these paragraphs are compared with the pleadings in the Federal Court proceedings it can be seen there is a material difference. But everything that is pleaded in this action could have been pleaded in the Federal Court action. During the course of submissions I put that to Mr Clifford (ts 36 ‑ 37). Mr Clifford response was to criticise the conduct of the defendants in the Federal Court proceedings. But no issue was taken in relation to that conduct in the Federal Court trial or on appeal. There was no allegation by Mr Clifford in the Federal Court proceedings that he was unfairly treated because of the way the defendants ran their case. It is and remains the fact all of the matters presently pleaded could have been raised in the Federal Court action. They were not and the parties have to live with the consequences.
That is sufficient to deal with the matter but I should make some comments about the estoppel argument. Really an estoppel arises when there is privity in interest between the parties. It was the plaintiff's position an estoppel in the nature of an Anshun estoppel could not arise because Sheraz was not a party to the Federal Court proceedings. With respect I think that is correct. But an estoppel of a different nature arises. In Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 5] [2009] WASC 141, EM Heenan J discussed the question of privity and an estoppel which may arise therefrom. His Honour said:
One starts with the proposition that a judgment cannot bind a person who was not a party to the proceedings in which it was granted unless he is directed to be bound by it or is a privy: Gracechurch Holdings Pty Ltd v Breeze (1992) 7 WAR 518, which was case involving a guarantee and indemnity where a judgment had been entered in favour of the creditor against the principal debtor and also against one of two guarantors and the question was whether either of those two judgments was binding or admissible in separate proceedings against the second guarantor. The decision was that neither was. The conventional position was described by Pidgeon J at 519 - 520 citing earlier binding authority:
'In Begley v Attorney-General (NSW) (1910) 11 CLR 432 Griffith CJ said (at 439):
The law on the subject was explicitly laid down by the Court of Appeal in the case of Ex Parte Young; Re Kitchin (1881) 17 Ch D 668. The headnote to that case, which correctly states the effect of the judgments, is as follows:
In the absence of special agreement a judgment or an award against a principal debtor is not binding on the surety, and is not evidence against him in an action against him by the creditor, but the surety is entitled to have the liability proved as against him in the same way as against the principal debtor.'
The same rule was recognised by Ipp J (522) who then progressed to deal with the exceptions to that rule. In that respect, his Honour said (523):
'The mere bringing in of a third party does not qualify the general rule precluding the use of judgments against non-parties or non‑privies and does not make the judgment in the action binding upon the third party: see The Millwall [1905] P 155 at 165. In cases involving indemnities, however, circumstances can arise entitling a person being indemnified to prove a judgment, obtained against him by a creditor, in proceedings against the indemnifier. This can only occur on a strictly limited basis. Ordinarily a judgment against the person being indemnified, in respect of a matter covered by the indemnity, cannot be tendered in evidence in an action between that person and the indemnifier.'
His Honour recognised an exception arising when the indemnifier is estopped from denying the validity of the judgment. After reviewing and questioning a number of the authorities his Honour said (at 524):
'It appears that this means that it may be implicit, in a contract of indemnity, that where the indemnifier conducts himself in such way that he represents that he will be content with whatever judgment is granted against the person being indemnified, he will be estopped from denying the correctness of the judgment and it may be used against him.
I have some doubt, with respect, as to whether this approach, on analysis, is strictly correct. I would have thought that in an appropriate case an estoppel to similar effect would arise, irrespective of whether there is to be a clause implied in a contract of indemnity.'
Similar issues arose in Ann Street Mezzanine Pty Ltd (In Liq) v Beck [2009] FCA 333 where Finkelstein J had occasion to consider an application to strike out a cross-claim because of alleged issue estoppel affecting a party with alleged privity of interest. In that case, the question was whether or not a finding of insolvency at a particular date could be challenged by a party who was a shareholder in the company held to have been insolvent at a later date in separate proceedings. In that case, his Honour said at [25]:
'The principle that parties and their privies cannot call into question an issue of fact or law that has been resolved between them in litigation is referred to as estoppel by record or issue estoppel. In Blair & Perpetual Trustee Co Ltd v Curran Adams' Will (1939) 62 CLR 464 at 532 Dixon J explained that issue estoppel as to facts is confined to "those ultimate facts which form the ingredients of the cause of action" and "the actual ground upon which the existence of the right was negatived". He went on to say that subsidiary or collateral findings are not covered by the estoppel. The question here is not whether the findings of insolvency are ultimate findings, for they plainly are. Rather, the question is who is bound by them.'
And then later at [27] his Honour said:
'The issue of privity is more complex. Ramsay v Pigram (1968) 118 CLR 271 involved a collision between a vehicle driven by a police officer and a second vehicle driven by a member of the public. The police officer sued the driver for negligence and succeeded. Later the driver sued the nominal defendant appointed to represent New South Wales. The nominal defendant pleaded issue estoppel as an answer to the action. The High Court held that there was no privity of interest between the police officer and the nominal defendant. Barwick CJ said (at 279) that there were three classes of privies - of blood, of title and of interest. He went on:
"The basic requirement of a privy in interest is that the privy must claim under or through the person of whom he is said to be a privy."
Taylor J cited (at 287) the following passage from Taylor's Treatise On the Law Of Evidence (12th ed, 1931) with approval:
In all the instances of privity [in interest] … the privy has claimed, or been liable, under or through the original party …'
His Honour then went on to discuss the rules and principles developed in the United States of America relating to privies in interest which recognise privity where there are close economic or financial connections but concluded that such an approach cannot be applied in Australia on the authority of Trawl Industries of Australia Pty Ltd (In Liq) v Effem Foods Pty Ltd (supra) the decision of Gummow J, and because of the decision of the Full Court in Effem Foods Pty Ltd v Trawl Industries of Australia (supra). In the first of those cases the question of privity in interest was examined by Gummow J at 413 - 418 and, after examining a series of authorities, his Honour identified that, in terms of traditional doctrine, privity arose because of a mutual or successive relationship to the same right of property or even if the interest was mutual but not successive, before saying, at 414:
'It is important for the instant case to appreciate that in these authorities, when finding the necessary privity in a successive or mutual relationship, the courts have looked to legal rather than economic indicia as the criterion of operation of the privity doctrine. This has been true also in Australia.'
His Honour then went on to discuss and distinguish the applicable United States doctrine and authorities which recognise privity as arising because of economic associations before observing that this was not the law of Australia - an approach expressly adopted and approved in the Full Court (1993) 43 FCR 510 at 521: Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (In Liq).
For an example of where conflicting views were taken about whether the necessary successive or mutuality of interest existed so as to create a privity in interest there are the observations of Basten JA on the one hand and Campbell JA on the other, in Canon Australia Pty Ltd v Patton [2007] NSWCA 246; (2007) 244 ALR 759 where, at [8] Basten JA said:
'Inconsistent judgments may result if separate proceedings were brought against the principal debtor and the guarantors. However, where the guarantors controlled the principal debtor company or where they had notice of the demand against the principal debtor, they may yet be estopped from denying the liability of the principal debtor, established by judgment in the other proceedings: see G Spencer Bower, AK Turner and KR Handley, The Doctrine Of Res Judicata, 3rd ed, Butterworths, London 1996, at 224 and see Pettman v Keble (1850) 137 ER 1067; Ben Chipping Co v An Bord Bainne [1986] 2 All ER 177 at 187 per Bingham J; Gracechurch Holdings Pty Ltd v Breeze (1992) 7 WAR 518 at 524 per Ipp J; State Bank of NSW v Alexander Stenhouse Ltd (1997) Aust Torts Rep 81-423 per Giles CJ, Com Div and Interchase Corp Ltd (In Liq) v FAI General Insurance Co Ltd [2000] 2 QD 301; [1998] QCA 180 per Davies, McPherson JJA and Byrne J.'
But with regard to which Campell JA said at [68]:
'Since writing the above, I have had the opportunity to read the draft judgment of Basten JA. I would prefer not to make a decision about the correctness of the alternative ground upon which his Honour favours upholding the appeal. It is not a ground that arose in the course of argument of the case. As well, there is a line of authority that has held that, at least sometimes, a guarantor who has guaranteed the payment of what is actually owing by the principal will not be bound by a judgment or arbitration award obtained by the creditor against the principal: Re Kitchin; Ex Parte Young (1991) 17 Ch D 668; Attorney-General (NSW) v Begley (1910) 11 CRL 432; 17 ALR 380; [1910] HCA 69; Bruns v Coloctromic ("Vasso") [1979] 2 Lloyd's Rep 412. (It may be otherwise if the guarantee is of the amount of any judgment or award against the principal, Compania Sudamericana De Fletes SA v African Continental Bank Ltd ("Rosarino") [1973] 1 Lloyd's Rep 210: Sabemo Pty Ltd v de Groot (1991) 8 VCL 132 at 145 ff.) Further, consideration would need to be given to the significance, for the type of estoppel being invoked here, of the fact that the judgment in question against the company was in effect a default judgment. I would prefer not to embark upon these questions when another path to decide the case is open.'
In the present case, in line with the authority referred to in Gracechurch Holdings Pty Ltd v Breeze (supra) the conventional rule is that the guarantor, if not a party to the original proceedings in which the creditor obtained a judgment against the principal debtor, will not be bound by that judgment unless he or she is a privy of the debtor. On this basis, the judgment in favour of Clambake against Tipperary for an indemnity in the fire claim will not be binding against Mr Anderson unless he is a privy of Tipperary in relation to that matter. There can be no doubt that Mr Anderson was very closely involved with Tipperary, was the controlling and directing mind of Tipperary, gave instructions on behalf of Tipperary (and Owston) in relation to the fire claim and himself gave evidence in both the rent action and on the fire claim. If the United States authorities were to be applicable he would, on those economic tests, be treated a as a privy of Tipperary. Yet he is not sued on the guarantee under or through the person of whom he is said to be a privy. His liability as guarantor may be ancillary but it is not identical, as the authorities to which Campbell JA referred in Canon Australia Pty Ltd (supra) demonstrate [62] ‑ [71].

In the end the result is the same. There is such identity between Sheraz and Mr Clifford it would be inappropriate to allow this matter to continue. There will be judgment for the defendant. The plaintiff ought pay the costs of the application including the reserved costs.