Glover and Anor v Blumer and Anor [2006] ACTSC 19 (29 March 2006)

Last Updated: 6 April 2006

PETER RICHARD GLOVER and PETER LENNOX SHEILS v NOORAINI BLUMER and MARK BLUMER [2006] ACTSC 19 (29 March 2006)

PRACTICE AND PROCEDURE - strike out.

ESTOPELL - former adjudication - Plaintiff may not approbate and reprobate - declaratory order on nature of deed - pleadings relitigate question of nature of deed - abuse of process.

ACT Supreme Court Rules 1937, O 23 r 8, O 29 r 4, O 57 r 1

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

Carlisle v Flaria Pty Ltd and Others [2002] ACTSC 33

Walton v Gardiner [1992] HCA 12; (1993) 177 CLR 378

State Bank of New South Wales Ltd v Stenhouse Ltd v Ors (1997) Aust Torts Reports 81-423

VACC Insurance Ltd v BP Australia Ltd [1999] NSWCA 477, (1999) 47 NSWLR 716

Glover & Sheils v Roche & Roche [2003] ACTSC 19

No SC 175 of 2004

Judge: Connolly J

Supreme Court of the ACT

Date: 29 March 2006

IN THE SUPREME COURT OF THE )

) No SC 175 of 2004

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: PETER RICHARD GLOVER

First Plaintiff

PETER LENNOX SHEILS

Second Plaintiff

AND: NOORAINI BLUMER

First Defendant

MARK BLUMER

Second Defendant

ORDER

Judge: Connolly J

Date: 29 March 2006

Place: Canberra

THE COURT ORDERS THAT:

1. The second further amended statement of claim be struck out.

2. The plaintiffs pay the defendants costs of this application.

1. This is an application to strike out the plaintiffs statement of claim. The application is brought pursuant to O 23 r 28 and O 29 r 4 of the ACT Supreme Court Rules 1937. O 23 r 28 confers a power on the Court to dismiss a pleading that is scandalous or tends to embarrass or delay the fair trial of a matter, and O 29 r 4 confers a power to strike out a pleading on the ground that it discloses no reasonable cause of action. The notice of motion also relies on the inherent power of this Court to strike out proceedings as an abuse of power.

The Substantive Action

2. The substantive action was commenced in March 2004, and has been amended subsequently. On the morning of this application, counsel for the plaintiff sought leave, by consent, to file in court a second further amended statement of claim, which was said to represent the present version of the claim. This had been provided to the defendants, who had formulated their application on the basis of this version of the claim.

3. The action relates to the sale by the plaintiffs of a Canberra legal practice. It pleads that the plaintiffs are legal practitioners who, prior to August 1998, carried on practise in the Australian Capital Territory as solicitors in the name of Scott, Sheils and Glover. It asserts that on 6 July 1998 the plaintiffs entered into a Deed of Agreement with Christopher Roche and Barry Roche whereby the plaintiffs agreed to sell to the Roches the legal practice. It sets out the terms of the sale, which broadly were that there was to be a nominal payment for goodwill, a sum for office equipment and supplies, and an obligation on the Roches to pay to the vendors sums paid to the practice relating to work done before the sale. These obligations related to identified client files, described as `schedule 7 files', and the terms of the sale were that such payments were to be made within 60 days of receipt by the practice of funds relating to the files, or by 3 August 2002. It is asserted that on 3 August 2002 these funds became payable, but were not paid. The pleadings assert that the plaintiffs commenced an action to recover these sums, and that on 4 April 2003 Justice Crispin entered judgment in their favour in the sum of $448,897.21, being a judgment debt of $423,487.94 plus interest to judgment of $25,409.27.

4. It is asserted that pursuant to the agreement the plaintiffs handed possession of the practice to the Roches on 3 August 1998 and the practice was conducted from that date under the name of Watling Roche.

5. The pleadings assert that, at [8]:

On 31 October 2000 the defendants entered into an agreement with Barry Roche (hereinafter `the 31 October 2000 Agreement)' pursuant to which on 1 November 2000-

8.1 the defendants took over control of the practice which had been conducted in the Territory by the Roches and/or Barry Roche in the name Watling Roche;

8.2 took possession of the premises where the practice of Watling Roche had been conducted;

8.3 took possession of the client files of the Watling Roche practice including schedule 7 files; and

8.4 became entitled to the fees chargeable for work done on the client files on and from 1 November 2000.

6. The pleadings assert that the Roches, at all material times, held any monies paid to them in relation to a schedule 7 file "on trust for the plaintiffs" or alternatively, under a fiduciary obligation to the plaintiffs, to pay to the plaintiffs from that money the amount payable to them pursuant to the 6 July 1998 Agreement in relation to that matter, at [20].

7. The pleadings assert that the first defendant had been manager of the practice of Watling Roche before she and her husband purchased the practice, and was aware of the trust or fiduciary obligation pleaded in paragraph 20 of the pleadings. It is further asserted that the defendants, at [22]:

...participated in the Roches breaches of trust or breaches of fiduciary duties in the knowledge, or alternatively with reckless indifference to the likelihood, that those breaches were designed to defraud the plaintiffs of payments due to them pursuant to the 6 July 1998 Agreement.

The Test on a Strike Out Application

8. To strike a matter out before trial is clearly a significant matter, and the law is clear that a defendant must satisfy the Court against a stringent standard that the matter should be struck out. The test to be applied is conventionally that set down by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 (at 129) where his Honour said that the authorities:

... uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action ...is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense".

At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or "so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument'; "so to speak apparent at a glance".

9. As Crispin J noted in Carlisle v Filaria Pty Ltd and Others [2002] ACTSC 33, this is something of a `semantic smorgasbord', and I would agree with his Honour's observation in that case that the various formulations essentially deal with the same concept, that a plaintiff should not be struck out unless the claim is so obviously untenable that it cannot possibly succeed.

Do these proceedings seek to relitigate an issue previously determined by this Court?

10. The defendants primary argument in this strike out application is that the pleadings are based on the assertion that from the time of the sale of the practice to the Roches in August 1998, the Roches held any monies received by them in relation to the work in progress files (the schedule 7 files) on trust for the plaintiffs or alternatively subject to fiduciary duties to pay these monies across to the plaintiffs.

11. The defendants argue that, in previous proceedings in this court, the present plaintiffs had sought and obtained declarations that established that the 6 July 1998 sale agreement did not constitute the Roches as fiduciary agents of the plaintiffs in relation to the collection of fees for work in progress. The defendants' argument is that it is impermissible for a plaintiff to assert in one set of legal proceedings a proposition contrary to a previous order or judgment of the same court. The principle that it is an abuse of process for a party to relitigate an issue that has been previously determined has been authoritatively determined. In Walton v Gardiner [1992] HCA 12; (1993) 177 CLR 378 Mason CJ, Dean and Dawson JJ said, at 393:

proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which had already been disposed of in earlier proceedings.

12. In State Bank of New South Wales Ltd v Stenhouse Ltd & Ors (1997) Aust Torts Reports 81-423, Giles CJ Commercial Division said at (64,086), (citations omitted):

This Court's jurisdiction to stay its proceedings for abuse of process extends to all those categories of cases in which the processes of the Court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness. It is important that freedom of access to the Courts should be preserved, and that defendants should not be encouraged to seek a stay on flimsy grounds for tactical reasons, but the fundamental policy considerations informing the jurisdiction are that the Court must ensure that its processes are used fairly as between the parties to the litigation and that the Court must avoid the erosion of public confidence through concern that its processes may lend themselves to oppression and injustice. So there have been identified as aspects of abuse of process first, oppression and unfairness to the other party to the litigation and, secondly, that the matter complained of will bring the administration of justice into disrepute.

One category of case where abuse of process may exist is where a party seeks to relitigate an issue already decided. Principles of res judicata and issue estoppel will preclude relitigation of an issue between the same parties. These principles can be seen as founded on the same considerations as those informing the jurisdiction to stay proceedings for abuse of process. But there may be abuse of process warranting a stay where a party seeks to relitigate an issue decided between himself and a third party.

13. The principle was applied in VACC Insurance Ltd v BP Australia Ltd [1999] NSWCA 477, (1999) 47 NSWLR 716 where the Court of Appeal held that it would not be conscionable to permit a party to bring proceedings which contradict an earlier determination of the court. As Fitzgerald JA said, at 724, `a plaintiff is not permitted to approbate and reprobate'.

His Honour observed that, at 725:

It is unnecessary for present purposes to decide whether this is part of the doctrine of estoppel in pais or an independent doctrine. While the classic statement concerning estoppel in pais by Dixon J in Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547 relates to an inconsistent departure from an assumption which formed the basis of a past exercise of rights not an attempt to act on two inconsistent bases simultaneously, I cannot identify a difference in principle.

14. The defendants' argument is that, as the present plaintiffs sought and obtained a declaration that there was no trust or fiduciary obligation concerning the receipt by the Roches of fees relating to the work in progress, it is not open to them to now plead this as the basis for the present cause of action. Moreover, it is noted that, in the debt action referred to in the pleadings (Glover & Sheils v Roche & Roche [2003] ACTSC 19), Crispin J rejected an attempt by the then defendants to set up a defence to the debt claim based on an assertion that the July 1998 sale agreement imposed certain duties on the defendants to recover fees on behalf of the plaintiffs for the work in progress files that were excessive, and so the agreement for sale was void for illegality or unenforceable on the ground that it required a contravention of public policy. His Honour rejected this defence, saying, at [31]:

...the argument is dependant upon a construction of the Deed that is inconsistent with declarations made on 9 November 2001 in proceedings in which Mr Sheils was the first plaintiff, Mr Glover was the second plaintiff, Mr Christopher Roche was the first defendant and Mr Barry Roche was the second defendant.

15. His Honour set out the terms of the declarations, but for present purposes it is useful to set out additionally the questions put to the court. The declarations were obtained in accordance with O 57 r 1, which permits any person claiming an interest under a deed to obtain a determination of the court concerning a question of construction of the deed or a declaration of the rights of the parties. The orders were obtained by consent in proceedings SC 453 of 2001 which sought the following relief:

DECLARATORY ORDERS determining the following questions in the construction of a written agreement of 6 July 1998, to which each of the parties to this proceeding is a party, and to which there are no other parties:

(a) Does the aforesaid agreement constitute the First and Second Defendants the fiduciary agents of the First and Second Plaintiffs to earn inchoate fees under the aforesaid agreement on behalf of the First and Second Defendants?

(b) Does the aforesaid agreement treat the inchoate fees as a matter of rights sold and delivered, without fiduciary obligation?

(c) Does the aforesaid agreement mean that the First and Second Defendants are to be indebted to the First and Second Plaintiffs in a sum subject to certain allowances or does it impose an obligation on the First and Second Defendants to act as a fiduciary agent to collect inchoate fees as and when they become debts owing to the First and Second Plaintiffs by third persons?

(d) Does the aforesaid agreement impose any obligation on the First and Second Plaintiffs to make any charges on third persons on behalf of the First and Second Plaintiffs at all?

16. On 9 November 2001, Justice Gray made the following orders:

THE COURT DECLARES BY CONSENT THAT: Upon the true construction of the written agreement of 6^th July 1998, to which each of the parties to this proceeding is a party and to which there are no other parties:

1. In answer to question (a) of the said Application , the aforesaid agreement does not constitute the First and Second Defendants the agents of the First and Second Plaintiffs to earn fees, being calculated with reference to transferred work in progress, becoming due from former clients of the Plaintiffs in the event of the successful conclusion.

2. In answer to question (b) of the said Application, the aforesaid agreement treats the aforesaid work in progress as a matter of rights sold and delivered by the Plaintiffs to the First and Second Defendants, or a price payable in certain events, without any obligation owing to the Plaintiffs on the part of the First and Second Defendants to seek fees from any retainer or charge fees respecting the work in progress or collect fees respecting the work in progress.

3. In answer to question (c) the aforesaid agreement means that the First and Second Defendants became indebted for the said price, referred to in paragraph 2 above, subject to certain allowances.

4. In answer to question (d), the aforesaid agreement imposes no obligation on the First and Second Plaintiffs to render an account to third persons, whether clients, former clients or otherwise, on behalf of the First and Second Plaintiffs.

17. In the debt claim, after setting out the above declarations, Crispin J said at [32]:

In the face of these declarations, the defendants are estopped from asserting that the contract embodied in the Deed required them to attempt to recover fees from clients, whether in breach of rule 59 of the Workers Compensation Rules or not. The Declarations establish that the defendants rather incurred a debt based upon what was described as the price payable for the rights in respect of the work-in-progress that had been sold to them.

18. It seems to me that the present pleadings are premised on the assertion that the sale agreement of July 1998 established a trust or fiduciary obligation on the Roches in relation to fees flowing to the practice for work in progress, that the Roches, by failing to pay monies to the plaintiffs, were in breach of those obligations, and that the present defendants, due to their role in the former firm of Watling Roche, and as purchasers of that practice, were involved in participating in those breaches.

19. The underlying assertion, that the sale involved a trust of fiduciary obligation is, it seems to me clearly contrary to the declarations obtained by consent by the present plaintiffs in the proceedings before Gray J in 2001. Those declarations, it seems to me, are to the effect that the nature of the transaction was simply a sale of rights for a fee to be determined, and answers 1-4 are, in my view, entirely inconsistent with the assertion that the sale agreement established an ongoing trust or fiduciary obligation. Moreover, following the obtaining of declarations that the nature of the deed of sale was "a matter of rights sold and delivered by the Plaintiffs to the First and Second Defendants for a price payable in certain events", the present plaintiffs brought a simple debt claim against the Roches, and sought summary judgment on that claim. They were successful in those proceedings, and successfully resisted an attempt by the Roches to set up a defence based on an ongoing fiduciary or trust relationship. Crispin J specifically rejected such a defence based on the plaintiffs argument that the defendants (the Roches) were estopped by reason of the declaratory relief previously obtained.

20. It seems to me that to now permit the plaintiffs to seek to assert that the sale deed did establish an ongoing fiduciary obligation or trust would, by being entirely contrary to a declaratory order of this court, and a judgement debt obtained in reliance on those orders, be an abuse of process of the court, and should not be permitted. I would accordingly order that the proceedings be struck out.

A Defect in the Form of the Pleading

21. If I am wrong in this, it seems to me that the defendants have a strong argument that the presently drafted pleadings are defective in that they assert, in paragraph 8 that the defendants entered into an agreement (the 31 October 2000 agreement) with Barry Roche in which they took over the practice in the name of Watling Roche.

22. In an answer to a request for particulars of 16 September 2005, solicitors for the plaintiffs provided a copy of this document, which was before me. The document, on its face, is said to be between "Barry Joseph Roche as trustee for the WR Practice Trust" and the defendants. In a further request for particulars of 3 March 2006 the defendants solicitors said:

The agreement you have particularised is an agreement with Barry Roche acting as trustee of the WR Practice Trust. Please confirm that the reference to Barry Roche in paragraph 8 is a reference to Barry Roche acting in that capacity. If that is the case we submit that the plaintiff should amend its pleadings to properly reflect the capacity in which it alleges Mr Roche was acting.

23. In a reply dated 16 March 2006, solicitors for the plaintiffs said:

The capacity in which Mr Roche was acting is not relevant to the cause of action pleaded against your clients. We see no need to amend the paragraph.

24. It seems to me that this is clearly incorrect. The basis of the claim is, in short form, that the plaintiffs sold their practice to the Roches, who never paid them the agreed price, that the defendants purchased the practice from the Roches, and that, in themselves making certain payments to the Roches, they were involved in or facilitated a breach of trust or fiduciary obligation between the plaintiffs and the Roches. Leaving aside the abuse of process aspects of seeking to relitigate the nature of the obligations, it seems to me that this argument must be premised on the defendants acquiring the practice from the same parties who acquired it from the plaintiffs, subject to the fiduciary obligations asserted and making payments to those parties.

25. The documents on which the plaintiffs base their case, however, show that the practice was acquired by the defendants, not from the Roches individually, but from an entity described as WR Practice Trust. It is this entity that permitted the defendants to take over the Watling Roche practice in Canberra, and it was to this entity that the defendants assumed certain financial obligations. The present pleadings, it seems to me, by simply ignoring this, are on their face so defective as to warrant an order for a strike out, given that the plaintiffs were invited to replead to clarify the nature of the relationship, but declined.

26. It seems to me that the defendants are entitled to the relief they seek, and that costs should follow the event.

27. Order:

1. The second further amended statement of claim be struck out

2. The plaintiffs pay the defendants costs of this application.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Connolly.

Associate:

Date: 29 March 2006

Counsel for the plaintiffs: Mr RL Crowe SC

Solicitor for the plaintiff: Capital Lawyers

Counsel for the defendants: Mr FJ Purnell SC and Mr DJC Mossop

Solicitor for the defendant: Hill & Rummery

Dates of hearing: 21 March 2006

Date of judgment: 29 March 2006