Zphere Pty Ltd v Pakis

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2021 03745

ZPHERE PTY LTD (ACN 114 716 773) & ORS
(ACCORDING TO THE ATTACHED SCHEDULE)

Plaintiffs

GEORGE PAKIS (IN HIS PERSONAL CAPACITY AND AS

TRUSTEE OF THE GFP5 PRACTICE TRUST)

Defendant

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JUDGE:	M Osborne J
WHERE HELD:	Melbourne
DATE OF HEARING:	23, 24 March 2022
DATE OF JUDGMENT:	26 August 2022
CASE MAY BE CITED AS:	Zphere Pty Ltd v Pakis
MEDIUM NEUTRAL CITATION:	[2022] VSC 496

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PARTNERSHIP – Res Judicata – Whether partner in accountancy firm a privy in interest of partners who had previously brought a proceeding against a defaulting partner which had been finally determined by consent orders – Ramsay v Pigram (1968) 118 CLR 271 – Tomlinson v Ramsay Food Processing (2015) 256 CLR 507 – House of Spring Gardens v Waite & Ors [1991] 1 QB 241 – Page v McKensey & Ors [2003] NSWSC 759 – Smith v Rynne [2005] NSWCA 77.

CONTRACT – Whether manager of partnership entered into deed of settlement on behalf of partners with an entitlement – Whether authorised to enter into deed – Whether intention to enter into deed as agent for principal.

ABUSE OF PROCESS – Whether proceeding should be stayed on abuse of process grounds – Whether second action unduly or oppressively burdensome to defendant – Whether defendant faces double jeopardy – Johnson v Gore Wood [2002] AC 1 – Walton v Gardiner (1993) 177 CLR 378 – Chickabo Pty Ltd v Zphere Pty Ltd [2019] VSC 73 – Chickabo Pty Ltd v Zphere Pty Ltd (No 3) [2020] VSC 464.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Garner	K & L Gates
For the Defendant	Mr B Gibson with Mr D Porteous	Mills Oakley

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

The Moore Stephens partnership, its deed, and the alleged wrongful gain.......................... 2

The Chickabo Proceeding................................................................................................................ 3

The Pakis Proceeding and the Zphere Proceeding...................................................................... 7

A comparison of the claims made in the Chickabo Proceeding and the Pakis proceeding 9

Submissions of the parties and summary of conclusions........................................................ 27

The Res Judicata issue..................................................................................................................... 28

Are the Chickabo Proceeding Final Orders a final order or judgment on the merits?...... 29

Is Mr Pakis a privy of the Chickabo Plaintiffs?......................................................................... 30

Can Mr Pakis be a privy in interest of the Chickabo Plaintiffs if he did not have notice of the Chickabo Proceeding?............................................................................................................... 39

Some analogous authorities?......................................................................................................... 42

The Gain-based claim: the account of profits and constructive trust in the Gain and its traceable proceeds....................................................................................................................................... 45

The loss-based claims: section 32 of the Partnership Act, equitable compensation, and damages for breach of the deed...................................................................................................................... 57

The Chickabo Settlement Deed Issue.......................................................................................... 67

Abuse of process.............................................................................................................................. 77

Conclusion......................................................................................................................................... 84

HIS HONOUR:

Introduction

This proceeding is complex. It is convenient to offer a short summary at the outset. Given that the proceeding involves intricate issues of legal personality and the law of partnership, such a summary is likely to be as imprecise as it is clear.

Four years ago, a partnership brought a proceeding in this Court against one of its partners. The defendant partner was alleged to have made a wrongful gain in the course of partnership business. The partnership sought equitable relief, among other things.

The proceeding was tried in three successive stages. First, primary liability was made out. Secondly, following a successful appeal, accessorial liability was not immediately made out and was set down for determination in a later trial. Thirdly, an entitlement to an account of profits and a corresponding constructive trust was made out, at least as against the primarily liable defendants.

Before final orders were entered, the partnership entered into a deed of settlement with the defendants, including those entities subject to claims of accessorial liability. In the result, the defendant partner agreed to pay a substantial sum to the plaintiff partners and to relinquish his partnership equity in settlement of the claims. The proceeding was dismissed by consent. Several contemporaneous side deeds were also entered into with retired partners who had elsewhere alleged an entitlement.

Now, another retired partner has come forward and claims against the defendant partner. Though a partner at the time of the wrongdoing, he had resigned from the partnership prior to the original proceedings and executed a deed of release. He has commenced a new proceeding where he alleges that he is not bound by the deed of settlement that concluded the original proceeding; certainly, he was not in terms a party to it. He seeks an account of profits and a corresponding constructive trust in proportion to his partnership equity at the time of the wrongdoing. He also advances alternative claims in statute and contract.

By a separate proceeding the defendant partner seeks to restrain the latecomer from taking action. The defendant partner pleads variously that the latecomer is bound by the deed of settlement in the original proceeding; that the latecomer is estopped from bringing the claim as it is res judicata; and that the new proceeding is an abuse of process. He also alleges that the latecomer’s deed of release prevents him from bringing the claim.

The former issues were carved out for determination in a separate trial, which I heard in March 2022. The latter issue has been deferred.

With the exception of one of his breach of contract claims, I have concluded that the latecomer is estopped from bringing the claim under the doctrine of res judicata. I have rejected the claim that he is barred by the deed of settlement and have rejected the abuse of process claim.

The Moore Stephens partnership, its deed, and the alleged wrongful gain

From about 1 January 2004, Moore Stephens (Vic) operated as a chartered accountancy practice (‘the Partnership’). Each stakeholder controlled a private corporate entity (‘the partnership entities’) which became party to a partnership deed entered into in 2006 (‘the 2006 Partnership Deed’). Each stakeholder was a director of their controlled corporate entity, and was referred to as a ‘principal’ in a schedule to the Partnership Deed (‘the principals’). In some instances the partnership entities were trustees, often of trusts of which the principals were beneficiaries; though nothing turns on this. Except where context demands, I refer to the principals of the partnership entities and the partnership entities themselves generally as ‘partners’.

Glenaldon Pty Ltd (‘Glenaldon’) was a partnership entity and a party to the 2006 Partnership Deed. Later, Zphere Pty Ltd (‘Zphere’) was substituted for Glenaldon. Gary Graco (‘Mr Graco’) controlled both Glenaldon and Zphere. Both Glenaldon and Zphere nominated Mr Graco as principal while a party to the 2006 Partnership Deed. For ease of reading, in what follows I refer to both Glenaldon and Zphere as ‘Zphere’.

Pursuant to the 2006 Partnership Deed, the partners appointed Moore Stephens (Vic) Pty Ltd (‘MSV’) as manager of the Partnership. Each of the principals was also appointed as a director of MSV.

In 2012, GP5 Holdings Pty Ltd (‘GP5’) and George Pakis (‘Mr Pakis’) executed a deed of adoption in respect of the 2006 Partnership Deed and became a member of the Partnership. Mr Pakis controlled GP5 and was its nominated principal. He was consequently appointed as a director of MSV.

Swisse Wellness Group Pty Ltd (‘Swisse’) was a client of the Partnership. Whilst a partner and in the course of legitimate partnership business, Mr Graco became a director of Swisse. In his capacity as a director, he was invited to subscribe for shares in Swisse (‘the Opportunity’). Mr Graco took advantage of the Opportunity, subscribing for shares in Swisse to a value of some $283,780 (‘the Investment’) through an entity controlled by him, GFBR Pty Ltd (‘GFBR’). A little under 12 months later, GFBR sold the Investment for about $11,593,544.71 (‘the Sales Proceeds’). Some time later, Zphere received a direct payment of $4,861,000 (‘the Payment’) from Fiske Pty Ltd, a company controlled by a director of Swisse. It is not disputed that the Payment was provided to Mr Graco in connection with the Investment as a ‘top-up’. It is convenient to refer to the Sales Proceeds and the Payment collectively as ‘the Gain’.

Mr Pakis was also a partner at the time of the Opportunity, the Investment, the Payment and the Gain.

The Chickabo Proceeding

In 2018 the then-partners of the Partnership, which included Chickabo Pty Ltd (‘Chickabo’), commenced proceedings in this Court (‘the Chickabo Proceeding’) against, among others, Mr Graco, GFBR, Glenaldon and Zphere (‘the Graco Parties’). In broad terms, the fourteen plaintiffs (‘the Chickabo Plaintiffs’) alleged that Mr Graco had breached fiduciary, contractual, and statutory obligations owed to the Partnership and to the partners in taking advantage of the Opportunity by making the Investment and receiving the Payment. The Chickabo Plaintiffs sought, among other things, a declaration that Mr Graco and the Graco Parties held the Gain and its traceable proceeds on constructive trust, and an associated account of the dealings with regard to the Gain and all profits arising therefrom.

Importantly, Mr Pakis was not a plaintiff in the Chickabo Proceeding: GP5 had resigned from the Partnership on 30 September 2016, and Mr Pakis and GP5 had entered into consequent heads of agreement setting out the terms of the exit (‘the Pakis Heads of Agreement’). Mr Pakis not aware of the Chickabo Proceeding.

Nevertheless, Mr Pakis was referred to in the statement of claim in the Chickabo Proceeding. The relevant plea alleged, among other things, that at all material times the Partnership included[1] the Chickabo Plaintiffs and their principals; Mr Graco and Zphere; and GP5 and Mr Pakis. Also pleaded was the membership of Grant Rose Investments Pty Ltd (‘GRI’) and Philip Grant (‘Mr Grant’); and of DRP Consulting Pty Ltd (‘DRP’) and Daniel Polonsky (‘Mr Polonsky’). Each pair comprised a partnership entity and principal who had exited the Partnership prior to the commencement of the proceeding, but after the Opportunity and the Investment.[2]
[1]The statement of claim pleaded that both the partnership entities and the principals were partners on the 2006 Partnership Deed’s proper construction.
[2]By contrast with GP5 and Mr Pakis and DRP and Mr Polonsky, GRI and Mr Grant were not partners at the time of the Payment.

Further, the statement of claim alleged that with effect from 30 September 2016 GP5 and Mr Pakis had resigned from the Partnership and released any claims in relation to it. A relevantly identical plea was made in respect of GRI and Mr Grant with a resignation date of 1 July 2015. Those allegations were not admitted in the defence and no determination was made on those issues. DRP and Mr Polonsky, who resigned on 23 November 2017, were themselves joined as defendants. The Chickabo Plaintiffs accepted that DRP and Mr Polonsky had an entitlement to the Gain, but took issue with the proportion of the Gain claimed.

Importantly, GP5 and Mr Pakis were never joined to the proceeding.

In November 2018, the Chickabo Proceeding was tried before the Honourable Justice Sifris. On 22 February 2019, Sifris J delivered reasons for judgment on the liability issues in favour of the Chickabo Plaintiffs (‘Chickabo (No 1)’).[3] No final orders were made at that time.
[3]Chickabo Pty Ltd v Zphere Pty Ltd [2019] VSC 73 (‘Chickabo No 1’).

By orders made 5 March 2019 and on the application of the Chickabo Plaintiffs, several parties related to Mr Graco, including his wife Frana Graco (‘Mrs Graco’), other members of Mr Graco’s family, and the corporate entity FBR Fund Administration Pty Ltd (‘FBR’), were joined to the proceeding (‘the Added Defendants’) to facilitate an anticipated claim to trace the Gain and its proceeds into assets allegedly held by them.

By orders made 3 May 2019 and on the application of the Chickabo Plaintiffs, MSV was joined as the fifteenth plaintiff. The affidavit in support of the joinder application, made by Polat Siva (‘Mr Siva’), a partner of HWL Ebsworth (‘HWLE’), the firm with conduct of the proceeding on behalf of the Chickabo Plaintiffs, disclosed that the purpose of the joinder was:

… so that MSV can hold, on behalf of the partners with an entitlement, any amounts or assets ordered by the Court to be paid or transferred by the defendants.

On 31 July and 1 August 2019, Sifris J heard an application by the Added Defendants to set aside the reasons as against them and to hold a retrial on the issue of their accessorial liability. On 30 August 2018, his Honour delivered judgment dismissing the retrial application (‘Chickabo (No 2)’).[4] That judgment was successfully appealed[5] and a separate trial of the claims against the Added Defendants was ordered to take place before Almond J.
[4] Chickabo Pty Ltd v Zphere Pty Ltd (No 2) [2019] VSC 580 (‘Chickabo No 2’).
[5]FBR Fund Administration v Chickabo [2019] VSCA 314 (‘FBR Fund’).

On 24 June 2020, Sifris J heard and determined issues between the parties as to quantum and remedies. On 31 July 2020, his Honour delivered reasons for judgment on the remedies issues (‘Chickabo (No 3)’).[6]
[6]Chickabo Pty Ltd v Zphere Pty Ltd (No 3) [2020] VSC 464 (‘Chickabo No 3’).

In Chickabo (No 3), Sifris J held that:[7]

… orders will be made against Graco and Zphere jointly and severally for an account of profits in the amount of $17,756,733.64 being the full amount of the Gain[8] less the initial Investment.

[7]Ibid, [88].

[8]As defined in those reasons, the Gain represented the entire gain or profit made from the Investment and the Payment.

Prior to final orders being made, the Chickabo Proceeding was settled on terms set out in a settlement deed dated 30 October 2020 (‘the Chickabo Settlement Deed’). The terms required, among other things, that the Graco Parties, along with Mrs Graco and FBR, pay a settlement sum in the amount of $7,250,000 into the trust account of MSV.

In addition to the payment of the settlement sum, the Chickabo Settlement Deed required Zphere to assign its interest in the Partnership to the remaining Partnership entities, and for Zphere and Mr Graco to relinquish any entitlement to any proportion of the settlement sum that might arise through a right to share in the Partnership’s profits.

The Chickabo Settlement Deed expressly referred to two other contemporaneously executed side deeds: the ‘Grant Side Deed’ and the ‘DRP Side Deed’.

The Grant Side Deed is a deed executed between MSV, GRI and Mr Grant in respect of separate proceedings commenced by GRI and Mr Grant in the Supreme Court of Victoria on 23 May 2019 against the Graco Parties (‘the Grant Rose Proceeding’). GRI and Mr Grant were also parties to the Chickabo Settlement Deed, where they gave releases in favour of the Graco Parties.

Pursuant to the Grant Side Deed, MSV agreed to pay to GRI a proportion of the net proceeds, after deducting costs and expenses of the Chickabo Proceeding and Grant Rose Proceeding, of (1) the sum paid to the Chickabo Plaintiffs under the Chickabo Settlement Deed and (2) the value of Zphere’s interest in the Partnership assigned to the remaining Partnership entities under the Chickabo Settlement Deed (valued at $1,157,199).

The DRP Side Deed is a deed executed between the Chickabo Plaintiffs, DRP and Mr Polonsky.

The DRP Side Deed has two components. The first is a deed of settlement between MSV, DRP and Mr Polonsky (‘the DRP Settlement Deed’). The second is an agreement between the same parties in the form of a letter from Strongman and Crouch to HWLE dated 24 July 2019 (‘the DRP Letter Agreement’). DRP and Mr Polonsky were also parties to the Chickabo Settlement Deed, where they gave releases in favour of the Chickabo Defendants.

Pursuant to the DRP Settlement Deed and the DRP Letter Agreement, the Chickabo Plaintiffs agreed to pay DRP a proportion of the net proceeds, after deducting costs and expenses of the Chickabo Proceeding and the Grant Rose proceeding (1), the sum paid to the Chickabo Plaintiffs under the Chickabo Settlement Deed; and (2), the value of Zphere’s interest in the partnership assigned to the other partners under the Chickabo Settlement Deed (valued at $1,157,199) after deducting costs and expenses of the Chickabo Proceeding.

The DRP Letter Agreement preceded the DRP Settlement Deed; the latter in part varied the terms of the former. The DRP Letter Agreement included a mechanism for varying the respective entitlements of the Chickabo Plaintiffs as against DRP and Mr Polonsky to the net proceeds of any judgment or settlement of the Chickabo Proceeding, to take account of any further claims that might be made by third parties, including former partners of the Partnership. The DRP Side Deed appears to have overtaken this mechanism and fixed the ultimate entitlement of the Chickabo Plaintiffs as against DRP and Mr Polonsky.

On 28 January 2021, Almond J made final orders in the Chickabo Proceeding by consent that the proceeding be dismissed with no order as to costs (‘the Chickabo Proceeding Final Orders’). Though made in accordance with the Chickabo Settlement Deed, that deed was not referred to in the Chickabo Proceeding Final Orders.

The Pakis Proceeding and the Zphere Proceeding

On 31 August 2021, Mr Pakis commenced proceedings against the Graco Parties by way of writ and statement of claim (‘the Pakis Proceeding’).

The matters the subject of the Pakis Proceeding are considered in greater detail below. Broadly, it is alleged that Mr Graco breached fiduciary, contractual, and statutory obligations owed to Mr Pakis and to the Partnership by taking advantage of the Opportunity; by making the Investment; by receiving the Payment; and by failing to account to the partnership for the Gain.

There is a dispute between Mr Graco and Mr Pakis as to the extent of the similarities between the Pakis Proceeding and the Chickabo Proceeding. Nevertheless, it cannot be disputed that the controversies in each proceeding arise out of the same set of facts: in both proceedings the plaintiffs allege that Mr Graco and Zphere were partners of the Partnership, and failed to account to the Partnership for the Gain.

In response to the commencement of the Pakis Proceeding, the Graco Parties commenced this proceeding on 12 October 2021 (‘the Zphere Proceeding’). The Graco Parties seek, among other things, declarations that:

(a) The Pakis Heads of Agreement operated to release and forever discharge the Graco Parties from the claims made against them by Mr Pakis in the Pakis Proceeding;

(b) alternatively, on a proper construction of the Chickabo Settlement Deed, the Graco Parties are released and forever discharged from the claims made against them by Mr Pakis in the Pakis Proceeding (‘the Chickabo Settlement Deed Issue’);

(c) alternatively, by reason of the dismissal of the Chickabo Proceeding by the Chickabo Proceeding Final Orders, Mr Pakis is estopped from bringing the Pakis Proceeding by operation of the doctrine of res judicata (‘the Res Judicata Issue’);

(d) alternatively, the Pakis proceeding is an abuse of process (‘the Abuse of Process Issue’).

By consent, I made orders on 6 December 2021 for the determination of a separate question in the following form (‘the Separate Question’):

By reason of the matters pleaded in paragraphs 19 to 44 of the plaintiff’s statement of claim in the Zphere Proceeding, and on the assumption that the release given by [Mr] Pakis and GP5 in clause 3.1(b) of the [Pakis] Heads of Agreement dated 5 October 2016 did not release the Moore Stephens Partnership or any of its partners or principals, including Zphere Pty Ltd and Mr Graco, from any claims in respect of the subject matter of the Pakis proceeding, are the plaintiffs entitled to the relief they seek in paragraph C, D, and /or F(i) of the prayer for relief in the Zphere proceeding?

I also made orders in the Pakis Proceeding that Mr Graco was not required to file a defence to the statement of claim filed in the Pakis Proceeding pending the determination of the Separate Question.

The parties assume for the purposes of the trial of the Separate Question that the Pakis Heads of Agreement did not give rise to a release and discharge of the Graco Parties from any claims brought against them in the Pakis Proceeding (‘the Assumption’). In effect, the parties have put the Pakis Heads of Agreement to one side.

Mr Pakis and GP5 were partners at the time of any wrongful exploitation of the Opportunity. The effect of the Assumption is that without more they have an action in respect of Mr Graco’s breach and some entitlement to the Gain derived therefrom.

Accordingly, on the premise that any cause of action which arises was not defeated by any release by Mr Pakis or GP5 contained in the Pakis Heads of Agreement, those issues that remain have the general character of defences to the action: the Chickabo Settlement Deed Issue, the Res Judicata Issue and the Abuse of Process Issue.

At the core of each issue is the extent of overlap or similarity between the claims made by the Chickabo Plaintiffs in the Chickabo Proceeding and those made by Mr Pakis in the Pakis Proceeding. Accordingly, before determining the three issues it is necessary to analyse the pleadings in each proceeding in some detail.

A comparison of the claims made in the Chickabo Proceeding and the Pakis proceeding

The Chickabo Plaintiffs’ pleadings, in their final form, took the form of a Further Amended Statement of Claim dated 15 May 2019 (‘the Chickabo FASOC’). Mr Pakis’ pleadings in the Pakis Proceeding take the form of a Statement of Claim dated 31 August 2021 (‘the Pakis SOC’). Different counsel settled each of the Chickabo FASOC and the Pakis SOC.

A close comparison of the pleadings reveals a number of differences.

First, in paragraphs [11] and [14] the Chickabo FASOC pleads:

11 At all material times, the partners of the Partnership were:
…
(j) Mr George Pakis (until 30 September 2016).
…

14 With effect from 30 September 2016, GP5 Holdings Pty Ltd and Mr Pakis resigned from the Partnership and released any claims in relation to the Partnership.

The Pakis SOC is relevantly identical insofar as paragraph [9] pleads the same composition of the Partnership until 30 September 2016. However, the Pakis SOC makes no allegation as to the composition of the Partnership after that date, and does not plead with respect to the resignation of GP5 and Mr Pakis or any releases given by them.

Secondly, in paragraphs [15] to [18] of the Chickabo FASOC the Chickabo Plaintiffs plead:

Duties owed by Zphere
15As a partner, Zphere owed a fiduciary duty to the Partnership and to each other partner:
(a)       to exercise its powers and discharge its duties:
(i)        in good faith;
(ii)       for a proper purpose; and
(iii)      in the interests of the Partnership;
(b)not to place itself in a position where its interests conflicted with the interests of the Partnership and, if a conflict did arise, not to prefer its own interests to those of the Partnership;
(c)not to make a profit out of its position as partner without the informed consent of the Partnership;

(d) to render full accounts to the Partnership;
(e)to give the Partnership full information of all things affecting the Partnership;
(f)to account to the Partnership for any benefit derived by it without the consent of the other partners:
(i) from any transaction concerning the Partnership or
(ii)from any use by it of the Partnership’s property, name, or business connexion.

Particulars
The duties arise as a matter of law. In the case of the duties specified in sub-paragraphs (d) to (f), they arise as a matter of law by reason of ss 32 and 33 of the Partnership Act 1958 (Vic) (the Act).

16Pursuant to clause 9 of the Deed, Zphere owed a duty to the Partnership and to each other partner to:
(a)be just and faithful to the other partners and to the Partnership in all transactions relating to the Partnership (clause 9(a));
(b)devote the whole of its time and attention to the practice of the Partnership and not, without the consent of 75% in number of the other partners, to engage in or be concerned or interested in any way whatsoever in any other business or enter into any employment or hold any office or appointment otherwise than for the benefit of the Partnership (clause 9(b));
(c)at all times give to the other partners a full and faithful account of all transactions relating to the Partnership and upon every reasonable request furnish a full and correct explanation to the other partners and afford every assistance in its power in conducting the Partnership to their mutual advantage (clause 9(c));
(d)forthwith pay all moneys cheques and negotiable instruments received by it in connection with or on account of the Partnership (including any directors’ fees) into the Partnership account (clause 9(f));
(e)duly and punctually make full and proper entries of all business transacted by it on account of the Partnership (clause 9(g)).
Particulars
Each of the duties arose pursuant to the Deed. Further, the duties were fiduciary duties imposed on Zphere as a matter of law.

17Pursuant to clause 11.2(b) of the Deed, Zphere owed a duty to the Partnership and to each other partner not without the consent of 75% in number of the other partners to engage directly or indirectly in any business other than the practice or hold any honorary office or appointment.
Particulars
The duty arose pursuant to the Deed. Further, the duty is a fiduciary duty imposed on Zphere as a matter of law.

18Pursuant to clause 11.4 of the Deed, Zphere owed a duty to the Partnership and to each other partner to:
(a)obtain the formal approval by a special majority vote of the Partnership prior to making any investment in association with a client of the practice or with any entity in which a client of the practice has an interest or with parties to whom the partners was introduced through its involvement with the practice or in holding any office in any entity in which a client of the practice has an interest (clause 11.4(a)); and
(b)offer to all other partners every opportunity of which it has knowledge to invest with a client of the practice or with an entity in which a client of the practice has an interest. No partner shall be compelled to enter into any such investment opportunity (clause 11.4(b)).

Particulars
The duties arose pursuant to the Deed. Further, the duties were fiduciary duties imposed on Zphere as a matter of law.

Duties owed by Graco
19 As a partner within the meaning of the Deed, Graco owed:
(a) to each partner of the Partnership, and
(b) further or in the alternative, to each principal of the Partnership
the fiduciary, contractual and statutory duties of a partner of the Partnership set out in paragraphs 15 to 18 above.

In the Pakis SOC, precisely the same matters are pleaded in paragraphs [12] to [15], save that ‘Graco’ is in each instance substituted for ‘Zphere’. Likewise, paragraph [16] of the Pakis SOC is almost identical to paragraph [19] of the Chickabo FASOC, save that ‘Zphere’ is substituted for ‘Graco’ and the alternative claim in sub-paragraph (b) has been removed.

In other words, the pleadings as to the existence of the duties in the Chickabo FASOC and the Pakis SOC are relevantly identical, save that the duties of Zphere and Graco are pleaded in the opposite order and thus with minor differences.

Thirdly, in paragraphs [24] to [29] of the Chickabo FASOC under the subheading ‘The Partnership’s Relationship with Swisse’, various matters are pleaded as to the relationship between the Partnership and Swisse. The Pakis SOC makes substantially similar allegations in paragraphs [17] to [22] under an identical subheading.

Fourthly, in paragraphs [30] to [40] of the Chickabo FASOC various matters are pleaded with respect to the Investment in Swisse; the sale of the Investment by GFBR; and Graco’s incomplete disclosure to the Partnership. Paragraphs [23] to [26] of the Pakis SOC plead substantially similar though abbreviated allegations: relevantly, the Pakis SOC does not replicate allegations in the Chickabo FASOC of an incomplete disclosure by Graco to the Partnership in the period from 16 March 2016 to May 2016. Nor does it replicate a plea that the Partnership had requested Mr Graco account to the Partnership for the payment, and that Mr Graco had failed or refused to do so. The Pakis SOC refers in terms to Chickabo (No 1) and Chickabo (No 3) as material facts.

Fifthly, in paragraphs [41] to [48] of the Chickabo FASOC the Chickabo Plaintiffs plead:

Breach of duty by Graco

41       By:
(a)       failing to disclose the Opportunity to the Partnership;
(b)       causing GFBR to make the Investment;
(c)       failing to account to the Partnership for the Investment;
(ca)      receiving the benefit of the Payment; and
(d)       failing to account to the Partnership for the Payment,
Graco breached his fiduciary duties to the Partnership, alternatively to the other principals of the partners, in that he:
(e)       failed to act in the interests of the Partnership;
Particulars
Graco acted in his own interests, alternatively in the interests of GFBR and/ or Glenaldon.

(f) placed himself in a position where his interests conflicted with the interest of the Partnership;

Particulars
The conflict was between Graco’s private financial interest, and the interests of the Partnership as a whole; alternatively, between Graco’s interest as directing mind and will of GFBR and Glenaldon, and the interests of the Partnership as a whole.

(g) preferred his own interests to those of the Partnership;
(h) profited from his position as a partner (alternatively, the principal of a partner) without the informed consent of the Partnership;
Particulars

As directing mind and will of GFBR and Glenaldon, and as a member of the George St Group Super Fund, Graco profited from the receipt by GFBR of the proceeds of the Investment, and from the receipt by Glenaldon of the Payment.

(i) failed to render full accounts to the Partnership;
(j)failed to give the Partnership full information of all things affecting the Partnership;
Particulars

The Opportunity, the Investment and the Payment were each things affecting the Partnership.

(k) failed to account to the Partnership for a benefit derived by him without the consent of the other partners from:
(i) a transaction concerning the Partnership, or
(ii) the use by him of a business connexion of the Partnership.

Particulars
The Opportunity, the Investment and the Payment were each transactions concerning the Partnership because (1) Grace was the Partnership’s relationship partner for Swisse, (2) Swisse was a longstanding and valuable client of the Partnership, (3) Mr Ring was a longstanding and valuable client of the Partnership, and (4) Fiske Pty Ltd was a client of the Partnership, a major shareholder in Swisse and a company under Mr Ring’s control.
The Investment and the Payment each arose from use by Graco of a business connexion of the Partnership, namely (1) Swisse’s status as a longstanding and valuable client of the Partnership, (2) Mr Ring’s status as a longstanding and valuable client of the Partnership, (3) Graco’s status as the Partnership’s relationship partner for Swisse, (4) Graco’s status as a director of Swisse, and (5) the status of Fiske Pty Ltd as a client of the Partnership, a major shareholder in Swisse and as a company under Mr Ring’s control.

42       Further or in the alternative, by:
(a)       failing to disclose the Opportunity to the Partnership;
(b)       causing GFBR to make the Investment;
(c)       failing to account to the Partnership for the Investment;
(d)      receiving the benefit of the Payment; and
(e)       failing to account to the Partnership for the Payment,
Graco breached his contractual and statutory duties to the Partnership, alternatively to the other principals of the Partnership, under the Deed and the Act in that he:
(f) failed to be just and faithful to the other partners and to the Partnership in a transaction relating to the Partnership, contrary to clause 9(a);
Particulars
The Opportunity, the Investment and the Payment were each transactions relating to the Partnership because (1) Graco was the Partnership’s relationship partner for Swisse, (2) Swisse was a longstanding and valuable client of the Partnership, (3) Graco was a director of Swisse, (4) Mr Ring was a longstanding and valuable client of the Partnership, and (5) Fiske Pty Ltd was a client of the Partnership, a major shareholder in Swisse and a company under Mr Ring’s control.

(g) failed to give the other partners a just and faithful account of a transaction relating to the Partnership, and failed to furnish a full and correct explanation to the other partners, contrary to clause 9(c) and s 32 of the Act;
(h) failed forthwith to pay money received by him in connection with or on account of the Partnership, contrary to clause 9(f) and s 33 of the Act;

Particulars
The proceeds of the Investment and the Payment were money received by him in connection with or on account of the Partnership because (1) Graco was the Partnership’s relationship partner for Swisse, (2) Swisse was a longstanding and valuable client of the Partnership, (3) Graco was a director of Swisse, (4) Mr Ring was a longstanding and valuable client of the Partnership, and (5) Fiske Pty Ltd was a client of the Partnership, a major shareholder in Swisse and a company under Mr Ring’s control.

(i) failed duly and punctually to make full and proper entries of business transacted by him on account of the Partnership, contrary to clause 9(g);
(j)failed to obtain formal approval by special majority vote of the Partnership before making the Investment, contrary to clause 11.4(a); and
(k) failed to offer the Opportunity to all the other partners, contrary to clause 11.4(b).

Breach of duty by Zphere
43       By:
(a)       failing to disclose the Opportunity to the Partnership;
(b)       failing to account to the Partnership for the Investment; and
(c)       failing to account to the Partnership for the Payment,
Zphere breached its fiduciary duties to the Partnership in that it:
(d)      failed to act in the interests of the Partnership;
Particulars
Zphere acted in its own interests, alternatively in the interests of Graco, GFBR or Glenaldon.

(e)placed itself in a position where its interests conflicted with the interest of the Partnership;

Particulars
The conflict was between the private financial interest of Zphere’s directing mind and will (Graco), and the interests of the Partnership as a whole; alternatively, between the interest of Zphere’s directing mind and will (Graco) in his capacity as directing mind and will of GFBR and Glenaldon on the one hand, and the interests of the Partnership as a whole on the other.

(f) preferred its own interests to those of the Partnership;
(g)permitted, without the informed consent of the Partnership, GFBR and Glenaldon to profit from Zphere’s position as partner;

Particulars
The unauthorised profit derived by GFBR was the proceeds of sale of the Investment.
The unauthorised profit derived by Glenaldon was the Payment.
The Investment and the Payment were derived from Zphere’s position as partner because (1) Zphere’s directing mind and will (Grace) was the Partnership’s relationship partner for Swisse, (2) Swisse was a longstanding and valuable client of the Partnership, (3) Grace was a director of Swisse, (4) Mr Ring was a longstanding and valuable client of the Partnership, and (5) Fiske Pty Ltd was a client of the Partnership, a major shareholder in Swisse and a company under Mr Ring’s control.

(h) failed to render full accounts to the Partnership;
(i)failed to give the Partnership full information of all things affecting the Partnership; and

Particulars
The Opportunity, the Investment and the Payment were each things affecting the Partnership.

(j)failed to account to the Partnership for a benefit derived by it without the consent of the other partners from:
(i)a transaction concerning the Partnership, or alternatively

(ii) use by it of a business connexion of the Partnership.

Particulars
The Opportunity, the Investment and the Payment were each transactions concerning the Partnership because (1) Zphere’s directing mind and will (Grace) was the Partnership’s relationship partner for Swisse, (2) Swisse was a longstanding and valuable client of the Partnership, (3) Graco was a director of Swisse, (4) Mr Ring was a longstanding and valuable client of the Partnership, and (5) Fiske Pty Ltd was a client of the Partnership, a major shareholder in Swisse and a company under Mr Ring’s control.
The Investment and the Payment each arose from use by Zphere of a business connexion of the Partnership, namely (1) Swisse’s status as a longstanding and valuable client of the Partnership, (2) Mr Ring’s status as a longstanding and valuable client of the Partnership, (3) the status of Zphere’s directing mind and will (Grace) as the Partnership’s relationship partner for Swisse, (4) the status of Zphere’s directing mind and will (Grace) as a director of Swisse, and (5) the status of Fiske Pty Ltd as a client of the Partnership, a major shareholder in Swisse and as a company under Mr Ring’s control.

44       Further or in the alternative, by:
(a)       failing to disclose the Opportunity to the Partnership;
(b)       failing to account to the Partnership for the Investment; and
(c)       failing to account to the Partnership for the Payment,
Zphere breached its contractual and statutory duties to the Partnership under the Deed and the Act in that it:
(d)failed to be just and faithful to the other partners and to the Partnership in a transaction relating to the Partnership, contrary to clause 9(a);
Particulars
The Opportunity, the Investment and the Payment were each transactions relating to the Partnership because (1) Zphere’s directing mind and will (Graco) was the Partnership’s relationship partner for Swisse, (2) Swisse was a longstanding and valuable client of the Partnership, (3) Zphere’s directing mind and will (Graco) was a director of Swisse, (4) Mr Ring was a longstanding and valuable client of the Partnership, and (5) Fiske Pty Ltd was a client of the Partnership, a major shareholder in Swisse and a company under Mr Ring’s control.

(e)failed to give the other partners a just and faithful account of a transaction relating to the Partnership, and failed to furnish a full and correct explanation to the other partners, contrary to clause 9(c) and s 32 of the Act;
(f)failed duly and punctually to make full and proper entries of business transacted by it on account of the Partnership, contrary to clause 9(g);
(g)failed to obtain formal approval by special majority vote of the Partnership before making the Investment, contrary to clause 11.4(a); and
(h)failed to offer the Opportunity to all the other partners, contrary to clause 11.4(b).

Accessorial liability of Graco
45 Graco knew:
(a)the content of his duties to the Partnership, alternatively to the other principals of the Partnership, set out in paragraphs 19 to 23 above;
(b)the content of Zphere’s duties to the Partnership set out in paragraphs 15 to 18 above;
(c)of the existence of the Opportunity;
(d)of the making of the Investment by GFBR; and
(e) of his and Mrs Graco’s receipt of the benefit of the Payment, alternatively the receipt of the Payment by Glenaldon.
Particulars
Graco’s knowledge is to be inferred from his being (1) a signatory to the Deed; (2) a principal of a partner; (3) the directing mind and will of Zphere, GFBR and Glenaldon; (4) a director of Swisse; (5) the signatory to the Swisse application for shares by GFBR; and (6) the contact person named in Mr Ring’s instruction to make the Payment, which instructions were given by email from Mr Ring to Mr Don Wijeratne of Goldman Sachs dated 4 November 2015. A copy of the email is in the possession of the solicitors for the plaintiffs and may be inspected at their offices by appointment.
Graco’s knowledge is also to be inferred from the content of the letter dated 27 February 2018 from Sophie Payton of Freehills (solicitors for Graco) to Stephen Kerr of HWL Ebsworth ( solicitors for the plaintiffs). A copy of the letter is in the possession of the solicitors for the plaintiffs and may be inspected at their offices by appointment.

46 Graco:
(a)failed, as a principal of the Partnership, alternatively as directing mind and will of Zphere, to disclose the Opportunity to the Partnership;

(b) caused GFBR to make the Investment;
(c)failed, as a principal of the Partnership, alternatively as directing mind and will of Zphere or of GFBR, to account to the Partnership for the Investment;
(d)failed, as a principal of the Partnership, alternatively as directing mind and will of Zphere or of Glenaldon, to account to the Partnership for the Payment; and
(e)preferred, as a principal of the Partnership, alternatively as directing mind and will of Zphere, his own private financial interests to the interests of the Partnership as a whole.

47       By reason of the matters set out in paragraphs 45 to 46 above, Graco:
(a)       knew that;
(b)       shut his eyes to the obvious fact that;
(c)wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make, which would establish that; or
(d) had knowledge of circumstances which would indicate to an honest and reasonable person that,

Zphere was in breach of fiduciary duty.
Particulars
The particulars to paragraph 45 are repeated.

48 In the premises, Graco:
(a)knowingly induced or procured Zphere’s breaches of fiduciary duty set out in paragraphs 43 to 44 above;
(b)is accountable to the Partnership for his knowing inducement or procurement of breaches of fiduciary duty; ~~and~~
(c)is accountable to the Partnership as a constructive trustee; and
(d)is accountable to the Partnership for his knowing receipt of property in breach of fiduciary duty.

Particulars
On 13 November 2015 Graco received the Payment. Fiske Pty Ltd transferred $4,861,000 to the account of Glenaldon for and on behalf of Graco and Mrs Graco.
Separately from receipt of the Payment. Graco received a total of about $254,868 from GFBR being the traceable proceeds of the Investment or the Payment purportedly by way of pension drawings.

By comparison, paragraphs [29] to [36] of the Pakis SOC read:

Breach of duty by Graco
29       By:
(a)       failing to disclose the Opportunity to the Partnership;
(b)       causing GBFR to make the Investment;
(c)       failing to account to Pakis for the proceeds of the Investment;
(d)      receiving the benefit of the Payment; and
(e)       failing to account to the Partnership for the Payment,
Graco breached his fiduciary duties to Pakis and GP5, in that he:
(f)       failed to act in the interests of the Partnership;
(g)placed himself in a position where his interests conflicted with the interest of the Partnership;

(h) preferred his own interests to those of the Partnership;
(i)profited from his position as a partner (alternatively, the principal of a partner) without the informed consent of the Partnership;

(j) failed to render full accounts to the Partnership;
(k)failed to give the Partnership full information of all things affecting the Partnership;
(l)failed to account to the Partnership for a benefit derived by him without the consent of the other partners from:
(i) a transaction concerning the Partnership; and
(ii)the use by him of a business connexion of the Partnership.

30       Further and alternatively, by:
(a)       failing to disclose the Opportunity to the Partnership;
(b)       causing GBFR to make the Investment;
(c)       failing to account to Pakis for the proceeds of the Investment;
(d)      receiving the benefit of the Payment; and
(e)       failing to account to the Partnership for the Payment,
Graco breached his contractual and statutory duties to Pakis and GP5, under the Deed and the Partnership Act, in that he:
(f)failed to be just and faithful to Pakis and GP5 and to the Partnership in a transaction relating to the Partnership, contrary to clause 9(a) of the Deed;
(g)failed to give the other partners a just and faithful account of a transaction relating to the Partnership, and failed to furnish a full and correct explanation to the other partners, contrary to clause 9(c) and s.32 of the Partnership Act;
(h)failed forthwith to pay money received by him in connection with or on account of the Partnership, contrary to clause 9(f) and s.33 of the Partnership Act;
(i)failed duly and punctually to make full and proper entries of business transacted by him of account of the Partnership, contrary to clause 9(g);
(j)failed to obtain formal approval by special majority vote of the Partnership before making the Investment, contrary to clause 11.4(a); and
(k)failed to offer the Opportunity to all the other partners, contrary to clause 11.4(b).

Breach of duty by Zphere
31By failing to render true accounts and full information (including failing to disclose the existence of the Opportunity and the facts of the Investment, the sale of the Investment and the Payment), Zphere breached its fiduciary duties to Pakis and GP5 in that it:
(a)placed itself in a position where its interests conflicted with the interest of the Partnership;
(b)permitted, without the informed consent of the Partnership, GFBR and Glenaldon to profit from Zphere’s position as partner;

(c)       failed to render full accounts to the Partnership;
(d)failed to give the Partnership full information of all things affecting the Partnership; and
(e)failed to account to the Partnership for a benefit derived by it without the consent of the other partners from:
(iii)      a transaction concerning the Partnership; alternatively
(iv)     use by it of a business connexion of the Partnership.

32Further and alternatively, by failing to render true accounts and full information (including failing to disclose the existence of the Opportunity and the facts of the Investment, the sale of the Investment and the Payment), Zphere breached its contractual and statutory duties to GP5 and Pakis under the Deed and the Partnership Act in that it:
(a)failed to be just and faithful to the other partners and to the Partnership in a transaction relating to the Partnership, contrary to clause 9(a);
(b)failed to give the other partners a just and faithful account of a transaction relating to the Partnership, and failed to furnish a full and correct explanation to the other partners, contrary to clause 9(c) and s.32 of the Act; and
(c)failed duly and punctually to make full and proper entries of business transacted by it on account of the Partnership, contrary to clause 9(g).

Accessorial liability of Graco
33 Graco knew:
(a)the content of his duties to the Partnership, alternatively to the other principals of the Partnership, set out in paragraphs 12-15 above;
(b)the content of Zphere’s duties to the Partnership set out in paragraph 16 above;

(c) of the existence of the Opportunity;
(d) of the making of the Investment by GFBR; and
(e)of his receipt of the benefit of the Payment, alternatively the receipt of the Payment by Glenaldon.

34 Graco:
(a)failed, as a principal of the Partnership, alternatively as directing mind and will of Zphere, to disclose the Opportunity to the Partnership;
(b)caused GFBR to make the Investment;
(c)failed, as a principal of the Partnership, alternatively as directing mind and will of Zphere or of GFBR, to account to the Partnership for the Investment;
(d)failed, as a principal of the Partnership, alternatively as directing mind and will of Zphere or of Glenaldon, to account to the Partnership for the Payment; and
(e)preferred, as a principal of the Partnership, alternatively as directing mind and will of Zphere, his own private financial interests to the interests of the Partnership as a whole.

35       By reason of the matters set out in paragraphs 33 and 34 above, Graco:
(a)       knew;
(b)       shut his eyes to the obvious fact;
(c)wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make, which would establish; or
(d)had knowledge of circumstances which would indicate to an honest and reasonable person,

that Zphere was in breach of fiduciary duty.

36 In the premises, Graco:
(a)knowingly induced or procured Zphere’s breaches of fiduciary duty set out in paragraphs 31 and 32 above;
(b)is accountable to GP5 and Pakis for his knowing inducement or procurement of breaches of fiduciary duty; and

(c) is accountable to GP5 and Pakis as a constructive trustee.

Thus, the breaches of duty pleaded in the Pakis SOC are nearly identical to those pleaded in the Chickabo FASOC. They differ only in that the Pakis SOC pleads that the breaches of duty by Zphere and Graco are as against Pakis and GP5 whilst the Chickabo FASOC pleads that the breaches of duty by Zphere and Graco were variously against the Partnership or as against the principals of the other partners.

Sixthly, in paragraphs [49] to [56] of the Chickabo FASOC, under the subheadings ‘Knowing participation and knowing receipt by GFBR’ and ‘Knowing participation and knowing receipt by Glenaldon’, various allegations are pleaded as to the participatory liability of GFBR and Glenaldon. Paragraphs [37] to [44] of the Pakis SOC are identical.

Seventhly, in paragraphs [57] to [78] of the Chickabo FASOC various allegations of material fact are pleaded with respect to claims of knowing receipt against the Added Defendants, which are not reproduced in the Pakis SOC and can be put to one side.

Eighthly, the Chickabo FASOC concluded with a prayer for relief against the Graco Parties (among others) that reads:

AA declaration that they hold the Investment, the Payment and any part of the traceable proceeds thereof on constructive trust for the Partnership.

B        An account of their respective dealings and transactions with regard to:
1        The Investment; and
2        The Payment;
and of all profits made from the receipt of any part of the Investment and the Payment.

C        Equitable compensation.
D        Damages.
E        Costs.
F        Interest.
G        Such further or other alternative orders as the court sees fit.
(underlining added)

By contrast, the Pakis SOC concludes with a series of pleadings as to the material facts with reference to Chickabo (No 1) and Chickabo (No 3) and the Chickabo Proceeding Final Orders[9] as well as a plea that:

At all times Graco, Zphere, GFBR and Glenaldon have failed or refused to account to Pakis and GP5 for the profits and benefits received by them in breach of their duties by reason of the sale of the Investment and the receipt of the Payment (the Profits and Benefits).

[9][45]–[47].

The prayer for relief in the Pakis SOC then reads:

And the plaintiffs claim against the defendants:
AA declaration that they hold 9.8% of the Profits and Benefits, and any part of the traceable proceeds thereof, on constructive trust for Pakis (in his personal capacity and as trustee for the GP5 practice trust.
BAn account of their respective dealings and transactions with regard to the investment and the payment and the profits and benefits.

C        Equitable compensation.
D        Damages.
E        Interest.
F        Costs.
G        Such further or other order as the court considers appropriate.
(underlining added)

The reference to the 9.8% of ‘Profits and Benefits’ corresponds to the percentage entitlement in the Partnership assets that Mr Pakis held prior to his retirement.

Overall, the claims in the Chickabo Proceeding and the Pakis Proceeding are largely the same, save for arguably important differences as to how the duties and their breaches are pleaded.

In sum, in the Chickabo FASOC:

(a) the duties of Zphere:

(i) in pleading the duty, are pleaded as owed by Zphere to the Partnership and each other partner; and

(ii) in pleading the breach, are pleaded as owed by Zphere to the Partnership;

(b) while the duties of Mr Graco:

(iii) in pleading the duty, are pleaded as owed by Mr Graco to each partner of the Partnership and to each principal of the Partnership; and

(iv) in pleading the breach, are pleaded as owed to the Partnership and to the other principals of the partners.

By contrast, in the Pakis SOC:

(a) the duties of Zphere:

(v) in pleading the duties, are pleaded as owed by Zphere to each partner of the Partnership; and

(vi) in pleading the breach, are pleaded as owed by Zphere to Pakis and GP5;

(b) while the duties of Mr Graco:

(vii) in pleading the duty, are pleaded as owed by Mr Graco to the Partnership and each other Partner; and

(viii) in pleading the breach, are pleaded as owed by Mr Graco to Pakis and GP5;

Nevertheless, though the duties and their breach are pleaded in different ways, the critical facts that generated the controversy with Mr Graco pleaded in the Pakis Proceeding are nearly identical to those pleaded in the Chickabo Proceeding. In each, the plaintiff (or plaintiffs as the case may be) pleads that it (or they) was a partner in the Partnership; that Mr Graco breached his fiduciary, contractual, and statutory duties to the Partnership or each partner in making the Investment in the Opportunity; and that Mr Graco has failed to account for his consequent Gain.

Submissions of the parties and summary of conclusions

As mentioned above, the effect of the Assumption is that Mr Pakis and GP5 were partners at the time of the exploitation of the Opportunity and as such have a prima facie entitlement to bring an action for the Gain.

However, as mentioned above, Mr Graco pleads a series of matters which on his submission restrain Mr Pakis and GP5[10] from bringing an action in respect of the Gain:
[10]For the purposes of this proceeding, nothing turns on the distinction between Mr Pakis and GP5. For ease of reading, on some occasions these reasons refer only to Mr Pakis.

(a) The Chickabo Settlement Deed Issue - Mr Graco submits that Mr Pakis bound by the Chickabo Settlement Deed and as such his claim is foreclosed. Mr Pakis contests this, maintaining that he is not a party to the Chickabo Settlement Deed and that no party executed the deed as agent on his behalf.

(b) The Res Judicata Issue - Mr Graco also submits that the Chickabo Proceeding Final Orders determined the rights and liabilities of the parties to the Chickabo Proceeding and their privies, which relevantly include Mr Pakis. Mr Pakis denies that he is a privy of the Chickabo Plaintiffs, including because he was unaware of the Chickabo Proceeding and as a consequence had no opportunity to be heard.

(c) The Abuse of Process Issue - Mr Graco further contends that if either of those arguments are not accepted, the Pakis Proceeding should be stayed as an abuse of process.

In my opinion, Mr Pakis is estopped from bringing the claim in the Pakis Proceeding (save for one of his breach of contract claims) by reason of the doctrine of res judicata. Mr Pakis, as a privy in interest with the Chickabo Plaintiffs, is precluded by the Chickabo Proceeding Final Orders from asserting or prosecuting the claims made in the Pakis Proceeding with that singular exception.

I do not consider that Mr Pakis is bound by the Chickabo Settlement Deed. Mr Pakis has not released his claims against the Graco Defendants and the deed does not operate to preclude Mr Pakis from prosecuting the claims in the Pakis Proceeding.

If I had found that Mr Pakis was not a privy of the Chickabo Plaintiffs, and accordingly that he was not barred from prosecuting the claim by reason of res judicata, I would not have held that the prosecution of the Pakis Proceeding was an abuse of process.

It is convenient to deal first with the ground on which Mr Graco succeeded, turning then to those grounds which have not been made out.

The Res Judicata issue

The doctrine of res judicata precludes the assertion in a subsequent proceeding of a claim to a right or obligation which has been asserted in an earlier proceeding and determined by judgment.[11]
[11]Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507, 517 [22] (French CJ, Bell, Gageler and Keane JJ).

If a cause of action was held to exist so that judgment was given upon it, the cause of action merges in the judgment and no longer maintains an independent existence.[12] Conversely, if the cause of action was held not to exist, the unsuccessful plaintiff can no longer assert that it does; he or she is estopped from doing so per rem judicata.[13] A classic statement of res judicata is found in Carl Zeiss Stiftung v Rayner & Keeler Ltd [No 2],[14] where Lord Guest stated (in the context of the subsidiary doctrine of issue estoppel):[15]

The requirements of issue estoppel still remain (1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel is final; and (3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel was raised or their privies.

[12]Blair and Perpetual Trustee Co Ltd v Curran (Adams’s Will) (1939) 62 CLR 464, 532 (Dixon J) (‘Blair v Curran’); Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, 597 (Gibbs CJ, Mason and Aickin JJ); Chamberlain v DCT (1988) 164 CLR 502, 507-8 (Deane, Toohey and Gaudron JJ), 512 (Dawson J).

[13]Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd (1992) 108 ALR 335, 338 (Gummow J); Macquarie Bank Ltd v National Mutual Life Assn of Australasia Ltd (1996) 40 NSWLR 543, 556-7 (Clarke JA); Thoday v Thoday [1964] P 181, 197-198 (Diplock LJ); Zeene v Zeene (No 2) [2015] NSWSC 1151, [40] (White J).

[14][1967] 1 AC 853.

[15]Ibid, 935.

This formulation was endorsed by the High Court of Australia in Kuligowski v Metrobus.[16]
[16](2004) 220 CLR 363, 373 [21] (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ).

In the present case, the Chickabo Proceeding Final Orders dismissed the Chickabo Plaintiffs’ claims for breaches of fiduciary duties owed to the Partnership and to each partner (and like breaches of statutory duties under the Partnership Act 1958 (Vic) (‘Partnership Act’) and duties owed pursuant to the 2006 Partnership Deed) by failing to disclose the Opportunity to the Partnership and failing to account to the partners for the Investment or the Gain. Mr Graco argues that the doctrine of res judicata precludes any other partner, including Mr Pakis, from bringing the same claims.

The submission raises two key questions for consideration.

Are the Chickabo Proceeding Final Orders a final order or judgment on the merits?

The first is whether the Chickabo Proceeding Final Orders, being orders for dismissal made by consent, constitute a final order or judgment on the merits. This issue was not seriously disputed and is easily disposed of.

The characterisation of the Court’s formal determination as an ‘order’ (as opposed to a judgment) is immaterial to the operation of res judicata.[17]
[17]Hill End Gold Ltd v First Tiffany Resource Corp [2010] NSWSC 375, [33] (Brereton J); Maganja v Arthur [1984] 3 NSWLR 561, 566 (Yeldham J).

A consent disposition may still be a judgment made on the merits. In Re South American and Mexican Co,[18] Herschell LC stated:[19]

The truth is, a judgment by consent is intended to put a stop to litigation between the parties just as much as is a judgment which results from the decision of the Court after the matter has been fought out to the end. And I think it would be very mischievous if one were not give a fair and reasonable interpretation to such judgments, and were to allow questions that were really involved in the action to be fought over again in subsequent action.

[18](1895) 1 Ch 37.

[19]Ibid, 50.

Moreover, in Daniel v Minister for Immigration and Multicultural and Indigenous Affairs (‘Daniel’),[20] Goldberg J held that:[21]

The fact that the application for review was dismissed by consent is not a bar to the Minister being able to raise a claim of res judicata. An order made or a judgment given by consent binds the parties to the judgment or order as effectively as if the judgment had been given or the order made after a fully contested hearing. … the only difficulty that can arise in determining whether a consent order raises an issue of res judicata, is in specifying the ‘res’, or the matter, or the cause of action which has already been determined by the Court.

[20][2004] FCA 21.

[21]Ibid, [18].

In the present case, there is no difficulty in determining the ‘res’ or cause of action that was determined by the Court in the Chickabo Proceedings Final Orders. In examining the record to determine what causes of action are res judicata,[22] the Chickabo FASOC and the Chickabo Proceeding Final Orders make it clear that the matter determined (ie, that was dismissed by consent) was the claim by the Chickabo Plaintiffs for the relief set out in the Chickabo FASOC.
[22]Rogers v The Queen (1994) 181 CLR 251, 263 (Brennan J).

Is Mr Pakis a privy of the Chickabo Plaintiffs?

The second question raises thornier issues. It is not in issue that the doctrine of res judicata applies not only to parties but to their privies. Here Mr Graco asserts that Mr Pakis is a privy in interest of the Chickabo Plaintiffs. He contends that as a partner in the Partnership, Mr Pakis had the same interest in the outcome of the Chickabo Proceeding as his fellow partners (some of whom were plaintiffs or, in the case of DRP and Mr Polonsky, defendants).

The question of who is a privy has been described as a ‘potentially complex enquiry’ and has been the subject of much judicial consideration.[23]
[23]FBR Fund (n 5), [55] (Whelan, Beach and Niall JJA).

The complex enquiry as to whether one person is the privy of another has been expressed in various ways.

Mr Graco emphasises that the claims brought by the Chickabo Plaintiffs were claims brought on behalf of the Partnership. He submits, therefore, that Mr Pakis is privy in interest with the Chickabo Plaintiffs because as one of the partners, he had a legal interest in the claims brough by the Partnership in the Chickabo Proceeding which was represented by the Chickabo Plaintiffs. He argues that the justice of binding Mr Pakis to the estoppel arises because Mr Pakis stood to benefit from the claim made by the Chickabo Plaintiffs.[24] Mr Graco emphasises that the representation of Mr Pakis’ interest by the Chickabo Plaintiffs was subject to fiduciary duties imposed on them which guard against collateral risks which arise from binding Mr Pakis to an outcome in a proceeding to which he was not party.
[24]On the basis of the Assumption.

Mr Pakis, in contrast, emphasises his lack of awareness of the Chickabo Proceeding and relatedly the absence of control on his part with the prosecution of the claim. He emphasises the core principle that a party claiming or denying the existence of legal rights or obligations should have an opportunity to present evidence and argument to advance the evidence, the facts and the law on which the claim or denial is based. Relatedly, he submits that it is no part of the doctrine of res judicata that a party to a later proceeding will be denied the opportunity to prosecute a claim on the basis of a prior determination of a proceeding to which they were not party absent an awareness or opportunity to participate in that proceeding.

Evaluation of the competing submissions starts with Ramsay v Pigram.[25] In that case, A brought proceedings to recover damages for negligence arising out of a motor vehicle accident with a car driven by a police officer in the course of his employment in the service of a government department. As a consequence of the capacity in which the police officer was acting, the claim by A was brought against the nominal defendant pursuant to the Claims against the Government and Crown Suits Act 1912. Before that action was commenced, the police officer had brought a separate action in his personal capacity against A arising as a result of the same accident. The police officer obtained a verdict against A on the basis that A’s negligence had caused the accident. A’s claim that the police officer was contributorily negligent was dismissed.
[25](1968) 118 CLR 271.

In the later action, the nominal defendant argued that the verdict in the prior action estopped A from asserting that it was the police officer’s negligence which caused the accident. The High Court held that no estoppel arose, including on the ground that there was no privity of interest between the nominal defendant and the police officer such as would enable the nominal defendant to rely upon the findings in the latter’s action. Barwick CJ said the following:[26]

… But it is said that the Government was a privy of the police officer who in its service drove its vehicle on the occasion out of which the claims of the parties arose. The question in this case therefore at this point is simply whether there was relevant privity between the Government and the police officer.
Of the three classes of privies of blood, of title and of interest, the only one which is submitted and indeed could be submitted to be relevant is that of a privy in interest. But I am unable to conclude that the Government or the Police Department was in this sense a privy of the police officer. 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. 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. Nor can it be said that the Government in any sense claims under or in virtue of the police officer or of any right of his, or that it derives any relevant interest through him.

[26]Ibid, 279.

The High Court returned to the notion of a claim being ‘under or through’ in Tomlinson v Ramsey Food Processing (‘Tomlinson’):[27] That case arose after workers in an abattoir had been told that their employment with the defendant company (‘RFP’) had been discontinued and instead they would thereafter be employed by a labour hire company, which would provide their services to RFP. Two years later, the workers were told that the labour hire company was no longer providing labour to RFP and could not offer them ongoing employment. The Fair Work Ombudsman (‘the FWO’) brought proceedings against RFP in the Federal Court of Australia to enforce provisions in the Fair Work Act 2009 (Cth) (‘the FWA’) and awards made under the Workplace Relations Act 1996 (‘the WRA’). The WRA conferred power on the Federal Court to order that a person found to be an employer pay an amount to a person found to be an employee. The FWO successfully obtained orders that RFP was the employer and obtained an additional order that certain entitlements be paid to the workers, which included Mr Tomlinson.
[27]Tomlinson (n 11).

Mr Tomlinson later brought proceedings against RFP claiming damages in negligence for personal injuries sustained by him. He alleged that the labour hire company (not RFP) was his employer, but that RFP as the controller of the workplace owed him a duty of care. If RFP had been the employer, legislation in New South Wales concerning workplace injury claims would have prevented the claim.

RFP pleaded that the worker was estopped by the orders made in the Federal Court from disputing that RFP had been his employer at the time. The Court of Appeal in New South Wales upheld its plea.

The High Court did not, and allowed the appeal.

The critical issue in the case was whether Mr Tomlinson was privy in interest with the FWO. Although the case involved issue estoppel, not res judicata, that was of no consequence as the same principle applies as it governs the identification of privies for all forms of estoppel which result from the rendering of a final judgment in an adversarial proceeding.[28]
[28]Ibid, [21].

The majority (French CJ, Bell, Gageler and Keane JJ) held that no estoppel arose. So too did Nettle J, who provided separate reasons.

The majority explained the privity principle as being informed by the high level principle that one who takes the benefit ought also to bear the burden.

The majority referenced Barwick CJ’s ‘pithy’ statement in Ramsay v Pigram[29] by emphasising the importance of recognising that Barwick CJ’s application of the principle had two limbs:[30]

... A party to a later proceeding (A) can be privy in interest with a party to an earlier proceeding (B) on either of two bases. One basis is that A might have had some legal interest in the outcome of the earlier proceeding which was represented by B, or that B has some legal interest in the outcome of the later proceeding which is represented by A. The extent to which the representation by A or B will be sufficient to bind the other is the critical issue which will be explored later in these reasons. The other basis is that, after that earlier proceeding was concluded by judgment, A might have acquired from B some legal interest in respect of which B would be affected by an estoppel which A then relies on in the later proceeding.

[29]Ramsay v Pigram (n 25), 279.

[30]Tomlinson (n 11), [33].

As is the case here, the critical question in Tomlinson was whether A had a legal interest in the outcome of the earlier proceeding which was represented by B.

The majority further emphasised that the interest of the privy must in each case be a legal interest and that an economic or other interest on the part of A in the outcome of the earlier proceeding is insufficient.

The majority stated that the mere lawful assertion of a claim which, if accepted, would have resulted in a determination enhancing or enforcing a legal interest, would not have the effect of binding a person to an estoppel.[31]
[31]Ibid, [37].

The Court explained why that was so:[32]

... It is a principle at the core of our legal system that a party claiming or denying the existence of a legal right or obligation should have an opportunity to present evidence and arguments to establish the facts and law on which the claim or denial is founded. There are countervailing considerations, some of which operate to create exceptions to that principle. Finality and fairness, including maintaining the certainty of past adjudicated outcomes and ensuring the predictability of future adjudicated outcomes, are amongst those countervailing considerations, and the estoppels informed by those considerations are amongst the exceptions to the principle. The operation of an estoppel, it must be remembered, is to preclude the assertion in a subsequent proceeding of what is claimed to be the truth.
The justice of binding to an estoppel a person who was a party to an earlier proceeding is readily apparent: the person has already had an opportunity to present evidence and arguments. The justice of binding to an estoppel a person whose legal interests stood to benefit from the making or defending of a claim by someone else in an earlier proceeding will often also be apparent. With the benefit of the claim or defence also comes the detriment of the estoppel. That, at least, is the underlying theory. But it is a theory which has limitations. It would be quite unjust for such a person to be precluded from asserting what the person claims to be the truth if the person did not have an opportunity to exercise control over the presentation of evidence and the making of arguments in the earlier proceeding and if the potential detriment to the person from creating such an estoppel was not fairly taken into account in the decision to make or defend the claim in the earlier proceeding or in the conduct of the earlier proceeding.
Traditional forms of representation which bind those represented to estoppels include representation by an agent, representation by a trustee, representation by a tutor or a guardian, and representation by another person under rules of court which permit representation of numerous persons who have the same interest in a proceeding. To those traditional forms of representation can be added representation by a representative party in a modern class action. Each of those forms of representation is typically the subject of fiduciary duties imposed on the representing party or of procedures overseen by the court (of which opt-in or opt-out procedures and approval of settlements in representative or class actions are examples), or of both, which guard against collateral risks of representation, including the risk to a represented person of the detriment of an estoppel operating in a subsequent proceeding outweighing the benefit to that person of participating in the current proceeding.

[32]Ibid, [38]–[40].

In applying that reasoning, the majority drew a distinction between a claim brought by a person who owed another fiduciary duties and a claim brought by a statutory office holder.

After making those observations, the majority considered that the FWO did not enforce Mr Tomlinson’s interest ‘under or through’, or ‘on behalf of’ (Mr Tomlinson). Rather, the FWO acted pursuant to its own statutory powers.

Relatedly, the majority held that the pursuit of the statutory function to enforce awards could not be interpreted as requiring the FWO to consider the legal interests of employees beyond the legal interests specifically protected by the enforcement action.

As such, the majority concluded that the FWO did not represent the legal interests of Mr Tomlinson in the sense that gives rise to an estoppel.[33]
[33]Ibid, [46].

Nettle J reached the same conclusion, but provided separate reasons. Like the majority, his Honour’s analysis built upon the notion of privies essayed by Barwick CJ in Ramsay v Pigram, commencing with the concept of a claim ‘under or through’ a privy.[34]
[34]Ramsay v Pigram (n 25), 279.

His Honour noted that the concept of ‘under or through’ was redolent of the party’s claim either ‘deriving from’ or otherwise depending on the party’s title before observing that the concept now extended to instances where the putative privy of a party to a subsequent proceeding has sued or defended ‘on account of or for the benefit of’ the party to the subsequent proceeding. His Honour then observed that the ‘precise content of that concept is not yet settled’.[35]
[35]Ibid, [94].

Next, his Honour noted established authority that privity of interests existed ‘where party and privy share the same interest in the sense that they are equally entitled to assert a discrete legal right’, or ‘where they share an interest by reason of an established legal or equitable relationship such as agency or trusteeship’.[36]
[36]Ibid, [95].

Next, Nettle J referred to an extension of the concept to cases where the privy claims ‘under or through’ or ‘on account of or for the benefit of’ a party in a manner which is sufficiently analogous to one or other of the same interest or established legal or equitable relationship cases to warrant its inclusion. His Honour noted that the difficulty lay in deciding what is sufficiently analogous.

His Honour then stated the following:

Plainly, “on account of or for the benefit of” includes cases where a trustee has sued or defended on behalf of a beneficiary and where a party to a proceeding relies on the putative privy’s title. But it also extends to cases where a party has employed a servant or agent in an attempt to re-litigate an issue already determined against the principal in a previous proceeding and where an action has been brought by a party at the direction and with the authority of the putative privy; and, in England, it has been held to extend to a case where a party to litigation is “the corporate embodiment” of a natural person in the sense that the natural person made decisions and gave instructions on behalf of the corporation.
In England, it has also been said that it is enough that there 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”. But in contrast, in this country, that formulation has been judicially criticised for its evident circularity...
The approach in this country, therefore, remains one of identifying characteristics of a relationship between party and privy which, although not amounting to a shared same interest or established legal or equitable relationship like agency or trusteeship, are sufficiently analogous to the established categories of sufficient connection to warrant inclusion in the concept. And, for present purposes, the important characteristics of the established forms of representation which emerge from the decided cases appear to be that a principal is generally able to control the conduct of an agent, and that the imposition of fiduciary duties on certain kinds of representatives has the effect of guiding the representative’s conduct and providing remedies to the principal on default.

Properly characterised, the Gain is a profit of the Partnership as it was constituted at the time of Mr Graco’s wrongful retention of it. The Partnership as it was constituted at that time is a separate Partnership; it was necessarily dissolved as soon as there was a change in its composition. With that in mind, the transaction under which the Gain was earned should be seen as having begun, but not having concluded, at the time of dissolution of that Partnership. It is an asset of the Partnership in dissolution which is yet to be got in and distributed to the relevant partners.

The Gain is therefore distributed through the profit-sharing mechanisms, express or implied, in the 2006 Partnership Deed. The fact that Mr Pakis is no longer a partner is no barrier to this: he was a partner at the time of the default, and it is the 2006 Partnership Deed, which was in place at that time, under which the action for the account is brought. So much is consistent with the wording of r 17.01 of the Supreme Court (General Civil Procedure) Rules (‘the Rules’), which provide that where two or more persons carry on business as partners within Victoria, a proceeding may be commenced by or against them in the name of the firm (if any) of which they were partners when the cause of action accrued. Of course, the present case is not one where the proceeding was brought in the firm name; but it indicates that, where an action is to be brought in the firm name, it should encompass only those who were partners at the time the cause of action arose.

In Atwell v Roberts,[97] Pullin JA summarised the applicable principles to a partner leaving a partnership:[98]
[97][2013] 43 WAR 507.
[98]Ibid, 515.

The legal propositions and authorities supporting the trial judge's conclusion and the dismissal of ground 1 are as follows:
(a)it is an axiom of partnership law that any change in the membership of a partnership occurring, whether by reason of the retirement, expulsion, death or otherwise of a partner has the consequence of dissolving the partnership …
(b)after dissolution, the next step is to wind up the affairs of the partnership by realising the assets and paying the debts and liabilities of the firm before distributing the surplus, if any, among the partners according to their rights and interests …
(c)winding up in that way may be avoided if the parties agree on a sale to one or more of the remaining partners of the share of the outgoing partner or if there is a provision in the partnership agreement to that effect. This is sometimes described as a technical or notional dissolution which is something of a misnomer because it is not the dissolution, but rather the winding up, that is notional. In those circumstances, the partnership or firm itself is dissolved as soon as there is a change in membership, but the assets and, as between the partners, responsibility for the liabilities of the partnership are taken over by the remaining partners …
(d)a share in a partnership, even if designated by reference to ‘units’, does not enjoy a corporate or quasi‑corporate existence apart from the members who comprise it …
(e)it is not possible to avoid the legal propositions set out above by terms of a partnership agreement …
(citations omitted).

The relevant profits the subject of the action (or the loss suffered by the partnership) were those of the Partnership at the time of the default. The Partnership at that time was governed by the terms of the 2006 Partnership Deed, and it is with respect to that deed that the question of MSV’s authority is to be assessed.

In that respect, the conferral of authority on MSV in the 2006 Settlement Deed could hardly be cast in wider terms: it authorises MSV to manage the Partnership on behalf of the partners. ‘Partnership’ is in turn defined as ‘the relationship of partnership constituted between the partners as set out in this Deed’. Clause 2.1 recognises that the partners (of the Partnership) carry on the practice of chartered accountants under the relevant firm name. In this context, the defined meaning of partnership makes it clearer that MSV’s express authority extends to managing the relationship or partnership between the partners, as well as by necessary implication the management of the practice as a component of the Partnership business. In that context, the making of claims (as opposed to their prosecution in court proceedings as the named plaintiff), as well as more pertinently the entry into of an agreement in compromise of a claim, falls within the ambit of MSB’s authority to manage the Partnership on behalf of the Partners.

Assuming in favour of Mr Graco that a deed stands in the same position as a contract, in addition to the question of authority to enter into the agreement (or deed) on behalf of a principal (or principals), Mr Graco must additionally establish that MSV intended to contract on behalf of the partners collectively as an agent,[99] and equally pertinently that the partners on whose behalf it intended to bind, included Mr Pakis.
[99]G E Dal Pont, Law of Agency (LexisNexis, 4^th ed, 2020), [19.28].

Here, there is no direct evidence of any such intention on behalf of MSV. Moreover, Mr Pakis argues that the Deed itself infers otherwise: the Chickabo Settlement Deed does not say that MSV entered into it as agent for the partners at the time of the relevant wrongdoing. Nor is the release stated in terms that would indicate it was intended to extend beyond the disclosed parties to the Deed. Moreover, Mr Pakis notes that a release was also given by each of the Chickabo Plaintiffs, the DRP Parties and the Grant Parties, and so expressly extended to each of those persons described as the partners of the Partnership at the relevant time, aside from GP5 and Mr Pakis.

In those circumstances, Mr Pakis argues that an intention by MSV to give a release on behalf of those partners who held an entitlement at the relevant time, and that this included Mr Pakis and GP5 as undisclosed principals, runs counter to the evident care taken to ensure that every other partner gave an express release in their own name, and the objective indicia at the time that all actors considered that Mr Pakis and GP5 had no such entitlement and was not therefore a member of the class. Mr Pakis points to the non-joinder of himself and GP5 as parties, and the plea in the Chickabo FASOC that Mr Pakis and GP5 had exited the partnership and released any claims in relation to it.

Moreover, Mr Pakis submits that in circumstances where all members of the Partnership had given their own releases, MSV had no need to give, as agent, a release to any partner and accordingly should not be considered as intending to release the partners generally (let alone Mr Pakis specifically) in its entry into the Deed.

No person sought to join GP5 or Mr Pakis to the proceeding as necessary parties, though they expressly joined DRP Consulting and Mr Polonsky. It seems clear enough that this is because no relevant actor considered that Mr Pakis had an entitlement to the relief sought, no doubt because, on the Chickabo Plaintiffs’ case, he had ceased to be a member of the Partnership from 30 September 2016. On the Chickabo Plaintiffs’ case Mr Pakis had exited the Partnership pursuant to the Pakis Heads of Agreement and he released Mr Graco from any extant claims. Mr Pakis submits that when the Chickabo Plaintiffs’ belief that Mr Pakis had no entitlement is borne in mind, it is clear they neither they, nor MSV (which they controlled), intended to or otherwise take itself to settle the proceeding on Mr Pakis’ behalf. An agent could not intend to settle a claim which, on its belief, does not exist or is otherwise precluded.

In response, Mr Graco submitted that the release given by MSV should be construed so as to give it operative effect: if MSV was not acting as an agent, then there would be no reason why it would be a party to the Chickabo Settlement Deed, having been joined to the Chickabo Proceeding only nominally to act as a depository for an anticipated disgorgement of the Gain for the benefit of all partners with an entitlement.[100] Mr Graco submits that it is obvious that MSV itself had no claim personally against Mr Graco, and thus that the purpose MSV being made a Party to the Deed was to provide, as an agent, for a release by all those members of the Partnership who might otherwise have had an entitlement.
[100]Mr Graco submitted that this included Mr Pakis (by reason of the Assumption).

Further, Mr Graco gave evidence that he believed the release by MSV was specifically included in the Chickabo Settlement Deed to provide him with a release by those who partners who might otherwise have had an entitlement. He also deposed to his personal belief that Mr Pakis and GP5 had released the Partnership in respect of the subject matter of the claims made in the Chickabo Proceeding in the Pakis Heads of Agreement.

Mr Graco’s understanding is not said to have been communicated to anybody. No evidence is given as to any particular representation made in the course of negotiating the Chickabo Settlement Deed, by or to him, that might ground that belief; and, in any event, such a representation would be inadmissible for the purposes of determining whether the intention of MSV was to give the release on behalf of the Partnership.

Putting the irrelevance of any evidence as to Mr Graco’s intention to one side, in my view there is insufficient evidence in general to establish that MSV, assuming it had the authority to act as an agent for those partners not named in the Deed, intended to give the release on behalf of members of the Partnership generally. First, the release given by MSV does not purport to be given on behalf of the Partnership as a whole, and no admissible extratextual evidence has been led to suggest it did; secondly, whilst it is true that MSV did not in fact have any claims against Mr Graco in the sense that it (as opposed to the partners of the Partnership) was not a beneficiary of any of the fiduciary duties, statutory obligations or contractual obligations reposed upon Mr Graco, MSV had in fact advanced such claims in the Chickabo FASOC, ostensibly on its own behalf. Certainly, the Chickabo FASOC makes no reference to any claim being made by MSV in its capacity as manager of the Partnership.[101] Rather, it is more probable that MSV was made a party to the Chickabo Settlement Deed simply because it was one of the Chickabo Plaintiffs who made the claims in the Chickabo FASOC. I very much doubt that its inclusion as a releasing party was prompted by anything other than this; certainly, I do not accept that there was a requisite intention to give a release on behalf of latecomers such as Mr Pakis and GP5 who might subsequently make a claim. Had that been the fear, there were simpler and clearer means of achieving this.
[101]In my view, it does not follow from the description of MSV as the manager of the Partnership in the formal introductory paragraphs of the Chickabo FASOC that the claims were thereby made in its managerial capacity. This, coupled with the fact that each of those members of the partnership who it is likely were considered by those partners who were parties to the Chickabo proceeding Settlement Deed (all those apart from Mr Pakis and GP5) considered that all those persons were parties as principal to the Chickabo proceeding Settlement Deed is such that I cannot conclude that there is sufficient evidence that MSV entered into the Deed on behalf of the partnership, including Mr Pakis.

Accordingly, I do not consider that on the proper construction of the Chickabo Settlement Deed, each of the Graco Defendants was released and forever discharged from the claims made against them by Mr Pakis in the Pakis Proceeding by reason of the release provided by MSV.

Mr Graco did not advance any argument to the effect that the releases given by the remaining Chickabo Plaintiffs (that is to say, the partners at the time of the relevant wrongdoing by Mr Graco) constituted a release by one co-promisee such as to amount to a release of the claim by all other co-promisees (Mr Pakis and GP5). If the obligations owed by Mr Graco to the partners (including Mr Pakis and GP5) is properly characterised as joint, the question of whether a release given by a joint promisee releases the claims of another joint promisee raises interesting questions.[102]
[102]Glanville Williams’ Joint Obligations (n 85) cites a US case, Larose v Ocean Accident and Guarantee Corporation [1918] 1 WWR 616 as authority for the proposition that a release by one joint creditor does not discharge the debt of the suit of the other co-creditor. Cf the obiter dictum of Starke J in dissent in Australian Workers Union v Bowen (n 63) and Lemiere J in Wright v David John Neale Lemon [2020] WASC 33.

Abuse of process

In the alternative, Mr Graco also seeks an order that the Pakis Proceeding be permanently stayed on the ground that it is an abuse of process.

Mr Graco relies upon the observations of French CJ, Bell, Gageler and Keane JJ in Tomlinson[103] to the following effect:

Abuse of process, which may be invoked in areas in which estoppels also apply, is inherently broader and more flexible than estoppel. Although insusceptible of a formulation which comprises closed categories, abuse of process is capable of application in any circumstances in which the use of a court’s procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute. It can for that reason be available to relieve against injustice to a party or impairment to the system of administration of justice which might otherwise be occasioned in circumstances where a party to a subsequent proceeding is not bound by an estoppel.
Accordingly, it has been recognised that making a claim or raising an issue which was made or raised or determined in an earlier proceeding, or which ought reasonably to have been made or raised for determination in that earlier proceeding, can constitute an abuse of process, even where the earlier proceeding might not have given rise to an estoppel. Similarly, it has been recognised that making such a claim or raising such an issue could constitute an abuse of process where the parties seeking to make the claim or to raise the issue in the later proceedings was neither a party to that earlier proceeding nor the privy of a party to that earlier proceeding, and therefore could not be precluded by an estoppel.
(citations omitted).

[103]Tomlinson, (n 11), [25]–[26].

Once again, Mr Graco submits that the decision in Page v McKensey & Ors is instructive. Although Gzell J decided the case on the basis of res judicata, his Honour also held that if he was wrong that res judicata estoppel applied, the proceeding should also be stayed on abuse of process grounds. Mr Graco relies upon the following passage in his Honour’s reasoning:[104]

In the second appeal, the nature of the payments under retirement agreement and the lack of fiduciary obligation with respect to disclosure of it were defined with respect to the partnership of which the appellant was a member. In those circumstances, it is not open to the appellant to seek redefinition of the rights and obligations into say the response with respect to those issues.

[104]Page v Mckensey & Ors (n 53), [44].

Thus, Mr Graco submits that the issue as to whether Mr Graco breached fiduciary, contractual or statutory duties was defined with respect to the Partnership in the course of the disposition of the Chickabo Proceeding.

He submits therefore that it is not open to Mr Pakis to seek a redetermination of the rights and obligations with Mr Graco with respect to those issues. Mr Graco also points to two further factors.

First, he submits that the relief sought against Mr Graco in the Chickabo Proceeding was in respect of the full amount of the Gain, such that any further claim against the Gain would be a claim for a liability which has already been determined. He submits that as Mr Graco settled those claims pursuant to the terms of the Chickabo Settlement Deed, Mr Pakis now seeks to recover (effectively for a second time) his ‘share of the proceeds of the claims that have already been made on behalf of the Partnership in the Chickabo Proceeding and settled by the terms of the Chickabo Proceeding Settlement Deed’. He submits that this exposes him to the prospect of double recovery, which is unfair and unjustifiably oppressive to him, and with no corresponding unfairness to Mr Pakis.

Secondly, Mr Graco submits that it would be unjustifiably oppressive to him and inconsistent with the overarching purpose under s 7 of the Civil Procedure Act 2010 (Vic) to be subjected to a further contested hearing on the issues raised in the Pakis proceeding where those issues have already been litigated and determined in the Chickabo Proceeding, which was conducted over a period of almost three years between 10 April 2018 and 28 January 2021 and involved two witness trials.

Mr Pakis submits that the Pakis Proceeding does not constitute an abuse of process and emphasises that he does not seek to depart from the findings made in Chickabo (No 1) and Chickabo (No 3). He argues that, to the contrary, his claims are consistent with Chickabo (No 1) and Chickabo (No 3), and that all he seeks to do is rely on those findings to establish his own personal entitlement to relief, a question which he submits has not been judicially determined. Rather, Mr Pakis argues that the principle sought to be relied upon by Mr Graco applies not to any claim by Mr Pakis, but rather to any attempt by Mr Graco to depart from the findings Sifris J made in Chickabo (No 1) and Chickabo (No 3).[105]
[105]No such attempt has been made yet including because Mr Graco has not yet filed a defence in the Pakis Proceeding.

Secondly, Mr Pakis argues that Mr Graco is not exposed to the risk of double recovery because it is acknowledged that the amount that Mr Graco ultimately had to pay under the Chickabo Settlement Deed was significantly less than the amount for which Sifris J stated in Chickabo (No 3) that he would order Mr Graco to account. Thirdly, Mr Pakis submits that there is no authority to the effect that it is unjustifiably oppressive for a party to be required to defend a second proceeding in circumstances where a prior proceeding involving common issues had already been defended (unsuccessfully, so submitted by Mr Pakis).

The question of whether the Pakis Proceeding constitutes an abuse of process arises only where Mr Graco’s alternative bases upon which he seeks a permanent stay of the Pakis Proceeding are rejected. Its premise is that Mr Pakis and the Chickabo Plaintiffs are not privies in interest and that the Chickabo Settlement Deed does not amount to a release of the claims now sought to be advanced by Mr Pakis.

Whilst I accept that the doctrine of abuse of process is informed by considerations of finality and fairness, that it may be invoked in areas where estoppels do not apply and has a more flexible sphere of operation, the jurisdiction to stay a proceeding on abuse of process grounds should be exercised with caution, and that ‘the onus of establishing that a proceeding is an abuse of process lies upon the party alleging it’ and that ‘the onus is a heavy one’.[106] To similar effect, in Walton v Gardiner,[107] the majority (Mason CJ, Deane J and Dawson J) endorsed the observations by the Court of Appeal in that case that it would only be satisfied that the continuation of proceedings would be ‘so unfairly and unjustifiably oppressive’ so as to constitute an abuse of process in an exceptional or extreme case.[108]
[106]Williams v Spautz (1992) 174 CLR 509, 529 (Mason CJ, Dawson, Toohey and McHugh JJ).
[107](1993) 177 CLR 378.
[108]Ibid, 392.

The passage in Tomlinson relied upon by Mr Graco cites cases in support of his submission which are nothing like the present. Walton v Gardiner is far removed from the present case, as is O’Shane v Harbour Radio Pty Ltd (‘O’Shane’).[109] In O’Shane, the Court of Appeal in New South Wales noted that Walton v Gardiner cited inter alia, Reichel v Magrath.[110] In Reichel v Magrath, Lord Halsbury said:[111]

… it would be a scandal to the administration of justice, if the same question having been disposed of by one case, the litigant to be permitted by changing the form of the proceeding to set up the same case again ... There must be an inherent jurisdiction in every court of justice to prevent such an abuse of its procedure.

[109][2013] 85 NSWLR 698.

[110](1889) 14 App Cas 665.

[111]Ibid, 668.

Reichel v Magrath was an unusual case; the appellant brought an action against a bishop and the patrons of the benefice, claiming a declaration that he was a vicar of the benefice and that an instrument of resignation which he had executed was void and seeking an injunction to restrain the bishop from instituting, and the patrons from presenting, any other person to the benefice. The appellant lost the action. Afterwards, the bishop appointed a successor to the benefice. The successor brought an action against the appellant seeking, inter alia, an injunction restraining the appellant from depriving the respondent of the use and occupation of the house and lands occupied by the vicar of the benefice. In his defence, the appellant set up the same case on which he had been defeated in the action in which he was plaintiff.

There was no argument advanced to the effect that the successor vicar was a privy in interest with the bishop and the patrons of the benefice. Moreover, given that the replacement vicar was not appointed until after the determination of the first action, there was no opportunity for that person to be joined as a party to the first action. Such a case is far removed from the present.

Further, the relevant extract in Tomlinson also referred to Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (‘Virgin Atlantic’).[112] This case, too, is far removed from the present. The relevant passage in Virgin Atlantic simply recognises that the juridical basis for res judicata and abuse of process are quite different, but nevertheless overlap, recognising that ‘estoppel per rem judicatam, whether cause of action estoppel or issue estoppel, is essentially concerned with preventing abuse of process’.[113]
[112](2014) AC 160.
[113]Ibid, [25] (Lord Sumption JSC).

In R v O’Halloran,[114] the Court of Appeal in New South Wales rejected an appeal from a conviction of a company officer of an offence against the corporations law on various grounds. Amongst the grounds of appeal rejected was an allegation that the subsequent criminal proceeding was an abuse of process by reason of the earlier disposition of a civil action. In the course of that part of the appeal, Heydon JA, noting that the parties to the criminal proceeding were not the same as those in the earlier civil claim, observed that, ‘Though the position in relation to parties is not by itself the reason why I reject the appellant’s argument, it does create certain difficulties for the appellant’.[115] In the result, the Court of Appeal rejected the ground of appeal on the basis that the question for determination in the criminal appeal was not the same as that the subject of the earlier civil hearing and, in that context, the determination in the civil proceeding created no res judicata or issue estoppel.
[114][2000] NSWCCA 528.
[115]Ibid, [98].

By deciding the matter on that ground, I do not take the Court of Appeal’s reasoning to establish as an irrefutable proposition (and nor was it submitted as such) that the converse proposition is true; that is, to say that it would constitute an abuse of process if the same issue as that which was decided in the earlier proceeding was called upon for decision in a subsequent proceeding involving (some) different parties.

Further, whilst I have taken the same approach as Gzell J in Page v McKensey & Ors to the question of whether the partner in this case has privity of interest with the partners in the earlier proceeding, I would not reach the same conclusion that his Honour did in relation to the question of the alternative abuse of process estoppel.

It is plain from his Honour’s reasoning that the passage from Page v McKensey & Ors relied upon by Mr Graco and set out above ‘that it was not open to the appellant to seek redefinition of the rights and obligations inter se the respondents’[116] arose because of his Honour’s earlier conclusion that ‘there are circumstances in which a person, not a party to proceedings, is affected by the litigation, not as the result of estoppel, but as a consequence of being compelled to accept facts’.[117] The reference to a party being compelled to accept facts then referred to Executor Trustee.[118]
[116]Page v McKensey & Ors (n 53), [44].
[117]Ibid, [41].
[118]Ibid, [42].

The Court of Appeal of this Court, however, confirmed in FBR Fund Administration Pty Ltd v Chickabo Pty Ltd[119] that the principle in Executor Trustee is confined to the taxation context in which it arose. In support of that conclusion, the Court of Appeal noted that if Executor Trustee were applied expansively, it could produce outcomes which were inconsistent with a fundamental principle of the common law; being the right to a hearing, as well as with the principles of res judicata and issue estoppel.
[119]FBR Fund (n 5), [58] (Whelan, Beach and Niall JJA).

In the end, Mr Graco’s argument that it is an abuse of process for Mr Pakis to prosecute the Pakis Proceeding rests essentially on two bases; first, that there is a prospect of inconsistent outcomes between the earlier determination in the Chickabo Proceeding; and secondly, that Mr Graco would be unfairly prejudiced if compelled to re-litigate a claim which he had no doubt honestly (and, for that matter, reasonably) believed had been concluded.

The fact that the outcome in the second proceeding may be different to that in the first proceeding does not itself render the later proceeding an abuse of process. The possibility of inconsistent outcomes is the very reason for provision in the Rules for joinder of parties. The vice of inconsistent outcomes could have been avoided if Mr Pakis and GP5 were joined as parties to the Chickabo Proceeding. Absent them being privies in interest with the Chickabo Plaintiffs, inconsistency alone, in my view, does not establish an abuse of process.

In Johnson v Gore Wood & Co (a firm),[120] the House of Lords allowed an appeal against the decision of the Court of Appeal staying a proceeding on abuse of process grounds. W Limited had earlier commenced a proceeding against its former solicitors. After six weeks of trial, the proceeding settled on terms involving a substantial payment to W Limited. Subsequently W Limited’s managing director, effectively ‘the corporate embodiment of W Limited’,[121] commenced proceedings against the solicitors for damages and negligence arising out of the same conduct. There are a number of factors present in the case which distinguish it from this one, but nevertheless Lord Bingham of Cornhill accepted that it would be a rare case of abuse of process absent ‘unjust harassment’ of a party often (but not necessarily found) in circumstances giving rise to ‘a collateral attack on a previous decision or some dishonesty’.[122]
[120][2002] 2 AC 1.
[121]Ibid, 32.
[122]Ibid, 31.

No such elements are present here where Mr Pakis had no knowledge of the Chickabo Proceeding. Further, any payments made by Mr Graco pursuant to the Chickabo settlement deed and in respect of which Mr Pakis may have some entitlement as against the partners who received that money, can be relied upon by Mr Graco in reduction or extinction of any claim that Mr Pakis might otherwise have.

Whilst I accept that it would be burdensome on Mr Graco for him to be subjected to a further trial involving substantially the same issues as those which were the subject of the Chickabo Proceeding and believed by Mr Graco to have been resolved by the entering into the Chickabo Settlement Deed, in my view, it cannot be an abuse of process for Mr Pakis to pursue such claims, assuming, as I do for the purposes of this aspect of the argument, that Mr Pakis is not precluded from doing so by reason of the operation of the doctrine of res judicata or otherwise prevented from doing so by the terms of the Chickabo Settlement Deed. It would have been easy enough for Mr Graco to have obtained protection against the vice which now arises by the joinder of Mr Pakis as a party to the Chickabo Proceeding or by an indemnity being given as a term of settlement by the Chickabo Plaintiffs in his favour with respect to any claim subsequently brought by persons who were members of the Partnership at the relevant time.

In my view therefore, and on the dual premise that Mr Pakis is not a privy of the Chickabo Plaintiffs (which I do not accept) and that the release given by MSV under the Chickabo Settlement Deed does not operate so as to give Mr Graco a release of Mr Pakis’ claim (which I do accept), the Pakis Proceeding is not such an exceptional or extreme case such as to warrant it being stayed on abuse of process grounds. Mr Graco has not discharged the heavy onus that he bears in establishing this.

Conclusion

By way of conclusion, I return to a basal proposition advanced by Mr Pakis in opposition to the argument that the Pakis Proceeding should be stayed as an abuse of process. Mr Pakis submitted that there was no abuse of process as he did not seek to depart from the findings made in Chickabo (No 1) or Chickabo (No 3) Further, he argued that it would only be if Mr Graco sought to relitigate or otherwise depart from the issues determined against him in the Chickabo Proceeding that questions of abuse of process would arise.

There is some irony in the submission that the Pakis Proceeding is not subject to res judicata, but that at the same time Mr Pakis relies on Chickabo (No 1) and Chickabo (No 3). Estoppels binding as between parties and their privies ‘must be available to and operative in respect of each party; or, as it is said, estoppels must be mutual’.[123]
[123]Ramsay v Pigram (n 25), 276.

The submission by Mr Pakis that he is entitled to rely upon Chickabo (No 1) and Chickabo (No 3) is consistent with the conclusion that the claims sought to be advanced in the Pakis Proceeding are claims in respect of which Mr Pakis is a privy in interest of the Chickabo Plaintiffs and which he is estopped per rem judicatam from prosecuting.

Secondly, the submission that Mr Pakis is entitled to rely on the findings in Chickabo (No 1) and Chickabo (No 3) assumes that they constitute findings of fact or law which give rise to an issue estoppel. Mr Graco disputed this, submitting that only those facts which involve a determination of a fact or matter which ‘necessarily established as the legal foundation or justification of its conclusion’,[124] give rise to such an estoppel. Mr Graco submits that the ultimate judicial determination was the Chickabo Proceeding Final Orders and the findings made in Chickabo (No 1) and Chickabo (No 3) are irrelevant to that determination. Whether Mr Pakis can rely on those findings or whether Mr Graco can depart from them does not arise in this proceeding and may be a matter for another day.
[124]Blair v Curran (n 12), 531 (Dixon J).

The emphasis on the breach of clause 11 of the Partnership Deed raising different questions arose late in oral argument. Mr Pakis submitted that if his argument as to the breach of clause 11 is accepted, then the Separate Question must be answered adversely to Mr Graco.

I do not agree. Whilst the answer to the Separate Question will not determine the Pakis Proceeding in full, it is open to answer the Separate Question in a manner which deals with the clause 11 breach separately.

In the Zphere Proceeding, the answer to the Separate Question is ‘yes’ in respect of the relief sought by Mr Graco in paragraph D of the prayer for relief save for the claim for breach of clause 11 of the 2006 Partnership Deed, but ‘no’ in respect of the relief sought in paragraphs C and F(i).

I shall hear the parties as to the form of order and as to costs and as to appropriate further directions in the Pakis Proceeding including for amendment to the statement of claim so as to confine the proceeding to a claim for damages for breach of clause 11 of the 2006 Partnership Deed.

SCHEDULE OF PARTIES

BETWEEN:

ZPHERE PTY LTD (ACN 114 716 773)

First Plaintiff

– and –

GARY GRACO

Second Plaintiff

– and –

GFBR NOMINEES PTY LTD (ACN 005 599 799)

Third Plaintiff

– and –

GLENALDON PTY LTD (ACN 007 338 598)

Fourth Plaintiff

– and –

GEORGE PAKIS (IN HIS PERSONAL CAPACITY AND AS
TRSUTEE OF THE GFP5 PRACTICE TRUST)

Defendant

[2022] VSC 496

26 August 2022