Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd

HIS HONOUR: By notice of motion dated 9 May 2016 the plaintiff, Champion Homes Sales Pty Ltd ("Champion"), seeks a direction under Uniform Civil Procedure Rules Pt 55 r 55.11 for a sum of $365,319.82 (the “Sum”), which was paid into Court by the National Australia Bank (“NAB”), to be paid to Champion. The other parties who are interested in the Sum are the first defendant, JKAM Investments Pty Ltd ("JKAM"), and Hotray Pty Ltd ("Hotray"). The Court is satisfied that Champion is entitled to a direction that the Sum be paid out to Champion.

Over the course of 4 to 6 June 2014, Darke J heard these proceedings together with proceedings between Hotray and JKAM. Another party to those proceedings was Mr Karl Damien, who was the registered proprietor of certain land at Camden (the "Property"). The proceedings before his Honour were constituted by a summons in connection with a caveat that had been lodged over the Property. There were no pleadings and the proceedings went on affidavit. To understand the present application, it is necessary to say something about the course of the hearing before Darke J.

At the commencement of the hearing, Darke J said to the parties:

His Honour's reference to "Anshun points" was prescient in light of the application which I have heard today. Both before Darke J and before me, Mr C Stomo of Counsel appeared for Champion. Before Darke J, JKAM was represented by Mr D G McDonald of Counsel. However, before me today JKAM was represented by Mr M Mando of Counsel.

Having raised the question in the way in which he did, the following exchange then took place between Darke J and Mr McDonald for JKAM (emphasis added):

I was informed from the bar table that ultimately no agreement or separate questions were formulated of the kind which his Honour foreshadowed.

Shortly after the exchange referred to in paragraph [5] above, Mr McDonald, for JKAM, also said during the reading of the evidence:

The matter proceeded to its conclusion after three days and on 18 July 2014, Darke J delivered his reasons: Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd; Hotray Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 (the “Judgment").

Darke J identified JKAM's primary attack upon Champion's asserted status as an equitable chargee over the Property in a section of the Judgment entitled "Summary of Principal Submissions":

In these reasons I shall refer to that Letter of Acknowledgement as the “Letter”.

Because of its importance to the present application, it is then necessary to set out the entirety of the Judgment in relation to the determination of Champion's claim:

For present purposes, the critical findings (the “Findings”) were made by his Honour in paragraphs [70] and [71] of the Judgment (citations omitted):

His Honour went on to deal with the claims of interests in the Property by the other parties to the proceedings. The Judgment was ultimately given effect by orders made on 30 July 2014:

It was acknowledged during the course of the proceedings before Darke J that NAB had appointed a receiver and manager in respect of the Property. The Property was subsequently sold. On 12 May 2016, Sackar J made orders by consent, including:

Subsequently, the Sum was paid into Court in accordance with Sackar J's orders.

The question is whether the Sum should be paid out to Champion. It is trite law that to justify a direction for payment out in circumstances such as those before the Court in this application, the claimant must demonstrate four things (see Ritchie’s Uniform Civil Procedure NSW (2005) at [55.11.5]):

Champion asserts that it is primarily entitled to the Sum and that the basis of its entitlement is the Findings. There was no dispute that, insofar as his Honour found that there was a valid charge giving rise to Champion's interest in the sum of $506,334, no payments have been made in reduction of that amount. JKAM's objection was based upon its contention that it was entitled now to challenge the amount owing under the Letter. JKAM submitted that it wished to demonstrate by evidence that, as at the date of the Letter, there was in fact no money owing by Mr Damien to Champion. I shall return to that submission shortly.

Because Champion claimed that it was primarily entitled to the Sum, the second matter referred to in paragraph [16] above is irrelevant.

The third point required to be shown — due notification to other potential claimants — was satisfied by the presence of JKAM and an affidavit read by Champion from a director of Hotray. The Hotray director deposed that he was aware of this application but that Hotray was not taking an active part because payment out of the Sum to Champion would mean that there were insufficient funds left to pay out any moneys owing to Hotray.

The fourth matter required to be proven — Champion's priority over the other potentially entitled persons — is established by reference to the declarations made by Darke J on 30 July 2014 set out in paragraph [13] above.

The real question for determination today is whether or not the Findings create an issue estoppel such that JKAM cannot seek to go behind them to demonstrate that, in fact, no money was owing to JKAM by Mr Damien at the date of the Letter.

Mr Stomo submitted, by reference to the extracts from the transcript and Judgment set out above, that it was clear that his Honour had advisedly and necessarily dealt with the question of how much was owing under the Letter. Mr Stomo referred the Court to the well-known passage in the judgment of Dixon J (as his Honour then was) in Blair v Curran (1939) 62 CLR 464; [1939] HCA 23 (“Blair”) at 532:

Mr Mando's submission was that it was clear from the extracts of the transcript and the Judgment that Darke J never had to determine what had been referred to before him as the "minutiae". Those "minutiae" were the precise amounts referable to the parties’ various interests in the Property. Mr Mando drew attention to the fact that there was no pleading before Darke J and that it had not been necessary for him to determine the quantum of any amounts owing. Any discussion of quantum before Darke J had been "secondary". In particular, it was submitted that Darke J had not had to consider any invoices issued by Champion to Mr Damien, which would have enabled quantification of any debt that was the subject of the Letter. It was an analysis of those invoices that JKAM wished to rely upon before me to go behind the Findings.

In considering JKAM's submissions, I have set out in paragraphs [5] to [13] above the entirety of the material upon which JKAM relied for its submissions. I draw attention to that because JKAM did not put before me the transcript of the entire hearing and, therefore, was not in a position to make any submission to me about the course of the hearing. My decision is made solely by reference to the evidence which I have set out in paragraphs [5] to [13] above.

In determining whether or not an issue estoppel has arisen, it is necessary to determine precisely what issues the Court in the earlier proceedings was required to determine. In the absence of pleadings, the Court must rely upon the summons, the evidence, the submissions and, ultimately, the judgment and any orders giving effect to that judgment. On the material before me, it is clear that while Darke J was not called upon to determine the precise amounts that may have been owing under the various interests that were asserted by the parties in the Property, JKAM did put into issue the question of whether or not anything was owed by Mr Damien to Champion that would have supported the Letter. So much is apprehended from Mr McDonald's submission to his Honour, see paragraph [5] above, that (emphasis added):

While I do not have evidence before me of the transcript of the hearing or the submissions, I infer from those parts of the Judgment that I have extracted above that the question of consideration supporting the Letter was squarely before Darke J and was the subject of argument. His Honour recorded that the lack of consideration was the primary attack made by JKAM upon Champion's status as an equitable chargee over the Property. Significantly for present purposes, his Honour accepted at paragraph [67] "that the evidence did not demonstrate that Champion provided valuable consideration" for the promise referred to in the Letter. However in paragraph [70], his Honour made clear findings that Champion's interest was created by the Letter itself. The way in which his Honour approached the question meant that it was entirely unnecessary, and would have been irrelevant, for him to have had to consider invoices from Champion to Mr Damien. The Findings are to the effect that Champion's entitlement arose pursuant to the Letter.

The Findings were an essential step in Darke J ultimately making the declaration that Champion had acquired an interest as an equitable chargee in the Property. The Findings, and the declaration, were made in the face of JKAM’s primary case that there was in fact no consideration supporting the Letter. The Court is satisfied that his Honour's determination as to the existence of the interest created by the Letter and the conclusion at paragraph [70] that there was "no reason to doubt that the acknowledged debt was (and remains) truly owing and may be sued for", are so central to his Honour's ultimate declaration of priorities that it would now be contrary to principle for JKAM to be permitted to challenge the Findings by seeking to erect a case that no money was in fact owing by Mr Damien to Champion at the date of the Letter. To adopt the language of Dixon J in Blair (at 532), the Findings were “legally indispensable to the conclusion” that Champion had an interest that was first in priority. Had Darke J found that there was no proper basis for the interest claimed under the Letter because it was unsupported by consideration, then he would not have made the declaration which he did.

It follows that the Court is not satisfied that JKAM is entitled now to challenge his Honour's conclusions. There is an issue estoppel as to the existence and value of Champion’s interest. Therefore, by reason of the declarations made by Darke J (see paragraph [13] above), the Court is satisfied that Champion is primarily entitled to the Sum.

The orders of the Court are: