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Supreme Court 2 September 2003

Page v McKensey & Ors

[2003] NSWSC 759

Fraud & dishonesty
PROCEDURE SUPREME COURT PROCEDURE PARTNERS TO WHICH APPELLANT NOT PARTY WHETHER AN ABUSE OF PROCESS WHETHER THE EVIDENCE WAS NEWLY FOUND PARTNERS

Citation: Page v McKensey & Ors [2003] NSWSC 759
Court: Supreme Court of New South Wales, Equity Division
Date: 2 September 2003
Judge(s): Gzell J

Background

The appellant and five respondents had been partners in a Newcastle accounting firm, Forsythes, which dissolved on 30 June 1992. Earlier proceedings in 1992 and 1993 (the "First Action") determined the appellant's entitlement to partnership assets, including goodwill, upon dissolution. Windeyer J found that the appellant owed money to the respondents, and both an appeal and an application to re-open that appeal were dismissed.

Separately, in 1995, proceedings were commenced between the five respondents (without the appellant as a party) concerning alleged misrepresentations made when the post-dissolution partnership was formed. Those proceedings involved a retirement agreement between the first and second respondents and their former firm, Deloitte, Haskins and Sells, under which Forsythes took over the Deloittes Newcastle client base in exchange for annual payments. Einstein J initially found the first and second respondents had breached fiduciary duties, but the Court of Appeal overturned that decision in 1999.

The appellant commenced the current proceedings (the "Third Action") in 1996, seeking to set aside the judgment in the First Action on the ground that it had been obtained by fraud. He claimed the retirement agreement with Deloittes had not been disclosed to him before he purchased his share of the practice, and that the first and second respondents had made fraudulent misrepresentations about the value and nature of the Deloittes goodwill. A Master refused the appellant leave to file a further amended statement of claim, struck out the existing amended statement of claim, and dismissed the proceedings. The appellant appealed those decisions to the Supreme Court.

  • Whether the appellant's claims constituted an abuse of process, given the matters had been substantially litigated in the earlier proceedings
  • Whether the appellant was bound by findings made in the Second Action (proceedings to which he was not a party) as a privy, under the doctrine of res judicata estoppel
  • Whether the appellant was bound by findings as to the nature of the partnership arrangements in the earlier proceedings
  • Whether the claim to set aside the judgment in the First Action on the basis of fraud was sustainable, specifically whether the supporting evidence was newly discovered, and whether it was likely to produce a different result
  • Whether it was procedurally appropriate to bring fraud allegations limited to two respondents in proceedings against all five respondents

Decision

Gzell J dismissed the appeal from Master McLaughlin in its entirety. His Honour examined the history of the litigation closely and considered each basis on which the amended statement of claim had been challenged.

On the question of res judicata and privity, the Court considered whether the appellant, as a former co-partner with the five respondents, could be bound by findings made in the Second Action despite not being a party to those proceedings. The Court examined the law of privity in the context of partnership disputes at length, including whether former co-partners could be treated as privies for estoppel purposes. Gzell J found the issues surrounding the retirement agreement had been thoroughly ventilated in the earlier litigation, and permitting relitigation would amount to an abuse of process under the principles in Hunter v Chief Constable of West Midlands Police.

On the fraud claim, Gzell J applied the established requirements for setting aside a judgment on the basis of fraud: the evidence must be newly discovered and not reasonably discoverable with due diligence at the time of the original proceedings, and it must be likely to produce a different result. The Court found considerable doubt that these requirements were met. Documents available to the appellant as early as February 1993 already indicated there was no friendly firm agreement with Deloittes. The Court was not satisfied the appellant was ignorant of that fact at the time, even if its full significance only became apparent to him in 2001.

Gzell J further found that the alleged misrepresentations did not clearly bear upon what was actually decided in the First Action, which concerned the appellant's entitlement to partnership assets upon dissolution. The misrepresentations may have influenced the price the appellant paid to enter the partnership, but his liability for that purchase price was not in issue in the First Action. The Court also noted it was inappropriate to bring fraud claims directed only at two of the five respondents in proceedings that named all five, and that the public interest in the finality of litigation weighed heavily against granting leave to re-plead, given the extensive history of the dispute.

Orders Made

  • The appeal from Master McLaughlin was dismissed with costs.

Key Takeaways

  • Gzell J confirmed that permitting a party to relitigate issues substantially resolved in earlier proceedings, even where the party was not a party to all of those earlier proceedings, may constitute an abuse of process.
  • The requirements for setting aside a judgment on the basis of fraud are stringent: the evidence relied upon must be genuinely newly discovered, not reasonably discoverable with due diligence at the time of the original hearing, and must be likely to have produced a different judgment.
  • Where documents available during earlier proceedings already disclosed the facts later relied upon as "newly discovered," a court will be reluctant to accept that the discovery requirement is satisfied merely because the full significance of those facts was not appreciated until later.
  • The public interest in finality of litigation is a weighty consideration, particularly where parties have engaged in extensive, multi-round litigation over a long period.
  • It will generally be procedurally inappropriate to bring fraud allegations confined to only some defendants in proceedings that name a larger group of defendants against whom no such allegations are made.

Legislation and Cases Referenced

Legislation
- Fair Trading Act 1987 (NSW)
- Supreme Court Rules 1970 (NSW)
- Supreme Court Act 1970 (NSW)
- Partnership Act 1892 (NSW)
- Securities Exchange Act of 1934 (US)

Cases
- Hunter v Chief Constable of West Midlands Police [1982] AC 529
- Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853
- Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
- Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510
- Jonesco v Beard [1930] AC 298
- Reichel v Magrath (1889) 14 App Cas 665
- McDonald v McDonald (1965) 113 CLR 529
- Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384
- Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404
- Banque Commerciale SA en liquidation v Akhil Holdings Ltd (1990) 169 CLR 279
- Toubia v Schwenke (2002) 54 NSWLR 46
- House v The King (1936) 55 CLR 499
- Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
- Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691
- Sea Culture International Pty Ltd v Scoles (1991) 32 FCR 275
- Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1992) 37 FCR 234
- Duchess of Kingston's Case (1776) 1 Leach 146
- Partridge v McIntosh & Sons Ltd (1933) 49 CLR 453
- Do Carmo v Ford Excavations Pty Ltd [1981] 1 NSWLR 409
- Wentworth v Rogers (No 5) (1986) 6 NSWLR 534
- Shiels v Blakeley [1986] 2 NZLR 262
- Morrison v Judd (unreported, 10 October 1995, NSWCA)