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:
- That Clone had breached an obligation to discover the third copy of the agreement to lease.
- 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.
- 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:
- 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.
- 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) ( – ).
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 ( – ). 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 ( – ). 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 ( – ).
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 ( – ). However, actual fraud was required to set aside a judgment on the ground of fraud ().
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 ( – ).
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 ().
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 ( – ).
[Summary amended where shown]
|High Court Judgment|| HCA 18||21 March 2018|
|High Court Documents||Clone|
|Full Court Hearing|| HCATrans 260|
|Special Leave Hearing|| HCATrans 130||16 June 2017|
|Appeal from SASCFC|| SASCFC 134||8 December 2016|
|Trial Judgment, SASC
|| SASC 133||28 August 2015|