Clone Pty Ltd v Players Pty Ltd (in liq, recs and mgrs apptd)

The High Court unanimously allowed an appeal from a decision of the Full Court of the South Australian Supreme Court regarding the power of a court to set aside one of its own perfected judgments on the basis of misconduct falling short of fraud. It was held that for the equitable power to set aside a judgment required actual fraud by the party who succeeded at trial, and such fraud had not been adequately proven or pleaded in this case. However, it was not necessary for the party seeking to set aside the judgment to exercise reasonable diligence to discover the fraud.

The proceedings concerned a 10-year lease agreement between Clone Pty Ltd (the lessor) and Players Pty Ltd (the lessee) over a property in Pirie Street, Adelaide. It was proposed that the premises would become the Planet Hotel, a licensed hotel and gaming premises. Clause 11(i) of the draft lease provided by Clone’s lawyers stated:

The Lessee will upon expiration or earlier determination of the Lease transfer to the Lessor any Liquor Licences or gaming machine Licences held in respect of the premises for NIL consideration.

Various changes were made to the lease. Players’ representatives alleged that they had crossed out ‘NIL’ on the lease using a blue pen. By the time proceedings were brought in 2004, the original lease had been lost. On the two available photocopies of the lease, there was a faint line through the letters ‘for NI’. Clone gave evidence at trial that it could not locate other copies of the lease. In 2005, Vanstone J of the SASC rejected a claim by the lessee for rectification on the basis that the marks over the word ‘NIL’ on two photocopies discovered by the parties were artefacts, a ruling the full court upheld the next year.

However, it later transpired that Clone’s instructing solicitor had found a third copy of the lease in the files of the Liquor and Gambling Commissioner, on a different file to the Planet Hotel file. Clone’s junior counsel inspected the copy, and saw a line through the word ‘NIL’. He did not photocopy it to ensure that it would not be discoverable. Moreover, he asked the Commissioner’s employee to inform him if Players’ solicitors sought inspection of the document, which the employee did. Players’ solicitors subsequently asked to inspect the Planet Hotel file, and were given that file only. Later, Clone’s principal solicitor served the Commissioner with a notice to produce all ‘Planet files’. Although this request was only intended to include the Planet Hotel file, another file was also produced to the Court, which included a fourth copy of the agreement to lease.

Afterwards, Players discovered that Clone had known about the third copy of the lease and that a fourth copy had been in the documents called for by Clone, but had not been produced to the Court. The presence of a line on one of the copies rendered the ‘artefact’ argument less compelling. In 2010, Players sought to set aside the judgment against it and institute fresh proceedings on the basis of Clone’s malpractice. Its allegations of malpractice were based on three matters:

  1. That Clone had breached an obligation to discover the third copy of the agreement to lease.
  2. That Clone had misled the Court and had misled Players by failing to inform them of the existence of the third copy of the agreement to lease and by prosecuting a case on the false premise that the provenance of copies of the agreement to lease was unknown.
  3. That Clone had breached an obligation to disclose to Players the Commissioner’s production of the files to the Court under the April 2005 notice to produce.

The trial judge and a majority of the Full Court of SASC held that Vanstone J’s original ruling in 2005 should be reopened on the basis that the third copy of the agreement to lease was within Clone’s power and Clone’s failure to disclose it constituted serious malpractice. The trial judge did not find that Clone had misled the Court, but a majority of the Full Court found that Clone had misled the trial judge, and Stanley J also held that Clone had misled the original Full Court as well. The trial judge found that Clone had breached an obligation to disclose the files produced to the Court, but this was rejected by the Full Court.

Clone appealed on two bases to the High Court:

  1. That the Supreme Court’s equitable power to set aside perfected orders is limited to fraud and does not extend to malpractice falling short of fraud.
  2. That even if the Supreme Court had a power to set aside its perfected judgment on the ground of malpractice not amounting to fraud, this was conditional upon proof that, but for the malpractice, the irregularly obtained judgment would probably have been different, and that the party applying to set aside the judgment had exercised reasonable diligence.

The High Court unanimously allowed the appeal. In doing so, it said that it was necessary to consider the history of setting aside judgments in the Court of Chancery, as this was relevant to the present power of the Supreme Court.

In the Court of Chancery, there had been two kinds of bills for setting aside judgments: the bill of review (now dealt with by the appeals process) and the original bill (which rescinded or annulled a decree in much narrower circumstances) ([43] – [44]).

A bill of review gave the Court of Chancery the power to reverse or alter a decree. It was available in two circumstances: where there was a substantial error of law or where new matter had been discovered since the decree. The rehearing which took place in relation to a bill of review was in the nature of an appellate hearing ([45] – [47]). However, the Judicature Act reforms removed the bill of review, and it was replaced by a defined appellate structure. Nonetheless, just as for bills of review, appeals could be allowed where there was an error of law or where fresh evidence was discovered ([48] – [49]). Relevant errors of law included misdirection, misreception of evidence, and wrongful rejection of evidence, as well as instances of “surprise, malpractice or fraud”. With relation to the discovery of fresh evidence, it was noted by Dixon CJ in Wollongong Corporation v Cowan that generally, it was necessary to show that the party seeking to reopen the matter had exercised reasonable diligence to procure the evidence and that the fresh evidence would reasonably clearly have changed the result (as had also been required for an equitable bill of review). The High Court in Commonwealth Bank of Australia v Quade had considered whether it was necessary to show reasonable diligence and a different result where there had been an error of law arising from an allegation of malpractice. It was concluded that there was not such a necessity, and the power to order a new trial for mistake of law was exercised on the basis of the interests of justice ([49] – [50]).

By contrast to a bill of review, an original bill could rescind or annul a decree on the basis of fraud and imposition. It was not necessary to seek leave, nor was it necessary to show reasonable diligence or that a different result would have occurred and the conditions for leave that attached to the bill of review based on fresh evidence did not apply ([52] – [53]). However, actual fraud was required to set aside a judgment on the ground of fraud ([54]).

This power has not be subsumed into the post-Judicature powers of the appellate court, and remains part of the equitable powers of the Supreme Court of South Australia. In light of this, Players sought to have the Supreme Court of South Australia rescind its own perfected judgment, but it should have applied for a fresh action to rescind the perfected orders ([55] – [61]).

The scope of this power is narrow. Given that Players applied for the Supreme Court of South Australia to exercise its equitable power to set aside a decree on the basis of fraud, it was necessary for Players to properly plead fraud, with proof of actual fraud. However, Players did not do this. Consequently, the appeal was allowed ([62]).

In line with English authority, Clone also argued that an applicant who seeks to set aside a judgment for fraud must establish that reasonable diligence was taken prior to the judgment to discover the fraud. However, this would not be consistent with other areas of law which deal with fraud (for example, deceit) and would mean that a judgment might be set aside for a less serious, but well concealed, fraud, but it could not be set aside for a serious but brazen fraud that could have been detected. The English authority on this point appears to represent an incorrect assimilation of the principles governing bills of review and the principles governing original bills. It should not be accepted in Australia, and does not represent the Australian position ([63] – [68]).

[Summary amended where shown]

 

High Court Judgment  [2017] HCA 18 21 March 2018
Result  Appeal Allowed
High Court Documents Clone
Full Court Hearing  [2017] HCATrans 260
Special Leave Hearing [2017] HCATrans 130 16 June 2017
Appeal from SASCFC [2016] SASCFC 134 8 December 2016
Trial Judgment, SASC
[2015] SASC 133 28 August 2015
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About Katy Barnett

Katy Barnett is an Associate Professor at Melbourne Law School. She was awarded her PhD in 2010, and it was published in 2012 by Hart Publishing as a monograph entitled Accounting for Profit for Breach of Contract: Theory and Practice. In 2013 she was a visiting scholar with Brasenose College, Oxford as part of the Melbourne-Oxford Faculty Exchange.

7 thoughts on “Clone Pty Ltd v Players Pty Ltd (in liq, recs and mgrs apptd)

  1. Egads, another “finality” decision.

    “In the Full Court, Players submitted that a strict approach to the requirements for a court to set aside its own perfected judgment, which confined the general power to fraud, would have an absurd consequence. It would mean that misconduct that is discovered before an appeal might be sufficient for the appellate court to order a new trial but if discovered after the appeal then it would not be sufficient. There is nothing absurd about this consequence.”

    With the greatest respect to the Court, I think a lot of people would disagree, because as a policy this encourages misconduct and covering up the misconduct. It is one thing to look at the Clone v Players case, say the trial was 13 years ago, and decide that is such a long time that finality should prevail. It is another to set down a principle that if you can commit serious misconduct but cover it up until the day after an appeal is settled, you’ve got away with it because finality must prevail.

    I’ll be interested to see if this decision sparks a greater debate about how important “finality” really is, which seems to have taken on an outsize importance in recent High Court decisions.

    • Arky, I think what you’ve highlighted here is that an over-emphasis on certainty can be at the expense of justice in an individual case. And does the law bring itself into disrepute if it lets an unjust decision stand?

  2. I have changed this post slightly as a result of an email discussion with Matan Goldblatt, one of the regular readers of the blog, and I have marked up my changes. I had read the statement at [53] that “the conditions for leave that attached to the bill of review based upon fresh evidence did not apply [to an original bill]” to mean that it was unnecessary for the purposes of an original bill to show either reasonable diligence or that a different result would have occurred. However, it may be that the High Court was not intending to say that the consideration of a different result was irrelevant to the equitable power to set aside a judgment for fraud. Indeed it would seem relevant to the exercise of any discretion that a different result would have occurred absent the fraud, and as Matan has pointed out, there is other authority which suggests that this may be relevant. Consequently, I have reworded the summary to reflect the High Court’s exact wording in [53] of their judgment. Thanks to Matan for picking this up!

    • Katy,
      Many thanks for the update and our helpful off-blog discussion of this point.
      For those interested in the subject, here are two cases mentioned at the HCA judgment. In Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, 538-539 (CA), Kirby P discussed the conditions for setting aside a judgment procured by fraud. He elaborated on “discovery of something material, in the sense that fresh facts have been found which, by themselves or in combination with previously known facts, would provide a reason for setting aside the judgment.” In the later case Toubia v Schwenke (2002) 54 NSWLR 46, the NSW CA explained at length why reasonable diligence is not required – as the HCA did at Clone. However, the NSW CA still required materiality at [41]: “Where the action seeks the judicial rescission of a judgment, the plaintiff must prove that he and the Court were deceived and he can only do this by showing that he has discovered the truth since the trial. Where this is done, and the fresh facts are material, fraud is established.” This is also the position in other cointries, e.g. New Zealand (Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94; [2013] 1 NZLR 804, at [33]). I am sure the readers of this blog are better acquainted than me with other decisions in this area of the law.
      As you wrote, perhaps there was an unintentional ambiguity in the drafting of Clone. Hopefully, the HCA will clarify that if the need arises in a future case.

    • If one squints a bit, the Court kind of hints that materiality is not only relevant to the power to set aside a judgment for fraud, but also necessary as a precondition to its exercise (as opposed to a matter that merely falls within the general rubric of discretion).

      At [66], the Court (1) cites the reasoning in Toubia v Schwenke, in which (as Matan Goldblatt observes) materiality was said to be a precondition for the exercise of the power, and (2) refers to that part of Boswell v Coaks in which the Earl of Selborne identified a requirement of materiality. There is no clear adoption of the requirement of materiality, of course, but it is notable that the Court was endorsing how Toubia v Schwenke dealt with the English authorities.

      In oral argument, Gordon and Edelman JJ (and perhaps Gageler J) appeared sceptical about materiality being a mere discretionary factor. The tenor of their questions was that once it was accepted that the fraud had to “procure” the judgment, materiality was not a mere discretionary matter but a causative question that went to jurisdiction. The judgment itself picks up on Patch v Ward, which uses the language of “obtaining” a judgment by fraud. If that is how the equitable power is to be viewed, then it is hard to see how materiality could be anything other than a precondition.

      It is perhaps unclear why the Court did not deal with materiality expressly. According to [42] of the judgment, it was part of the second ground of appeal, and it appears that the parties joined issue about it in their submissions. Now, the appeal was allowed on the first ground, so the second ground was strictly not reached. But the Court dealt with the reasonable diligence part anyway. So why not deal with materiality as well?

      • I wish they had dealt with materiality directly, for the reasons both Matan and you have indicated. Because at the moment as you have noted, we have to squint, and that’s not ideal…

  3. On Twitter, Associate Professor Eoin O’Dell made the following comment:

    Clone is incomplete. An original bill can rescind a decree on the basis not only of fraud but also of common mistake. If Clone is taken to be a comprehensive statement of rescinding court decrees, failing to acknowledge this mistake jurisdiction could cause problems. On this, see Huddersfield Banking v Lister [1895] 2 Ch 273 (CA); Brennan v Bolt Burdon [2004] EWCA Civ 1017 (29 Jul 04) and Cue Club v Navaro (IrSCt 23 Oct 96); Owners Strata Plan No 57164 v Yau [2017] NSWCA 341 (21 Dec 17).

    I noted in response that the HCA had recognised that there were other bases for the award of an original bill at [54], but decided not to discuss them in any detail, and that mistake was not explicitly mentioned.

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