Peter R Schnabel, Premier Rides Inc., Steven Marble and Catalyst Entertainment Inc. v Kevin Yung Lui, Froyer Holdings Development and Trading Company, Froyer Holdings (Asia) Limited, Froyer Holdings Usa Inc and Fsn Top Secret Productions Inc. [2002] NSWSC 15 (1 February 2002)

Last Updated: 26 February 2002

NEW SOUTH WALES SUPREME COURT

CITATION: PETER R SCHNABEL, PREMIER RIDES INC., STEVEN MARBLE & CATALYST ENTERTAINMENT INC. v KEVIN YUNG LUI, FROYER HOLDINGS DEVELOPMENT & TRADING COMPANY, FROYER HOLDINGS (ASIA) LIMITED, FROYER HOLDINGS USA INC & FSN TOP SECRET PRODUCTIONS INC. [2002] NSWSC 15



CURRENT JURISDICTION: Equity Division
Commercial List

FILE NUMBER(S): 50017/2001

HEARING DATE{S): 25 July 2001, 20, 21 & 22 November 2001

JUDGMENT DATE: 01/02/2002

PARTIES:
Peter R Schnabel, Premier Rides Inc., Steven Marble, Catalyst Entertainment Inc. (Plaintiffs)
Kevin Yung Lui (First Defendant)
Froyer Holdings development & Trading Company (Second Defendant)
Froyer Holdings (Asia) Limited (Third Defendant)
Froyer Holdings USA Inc. (Fourth Defendant)
FSN Top Secret Productions Inc. (Fifth Defendant)

JUDGMENT OF: Bergin J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
F Kunc (Plaintiffs)
S Epstein SC (First Defendant)

SOLICITORS:
Deacons Lawyers (Plaintiffs)
Frank Low Yeung & Co (First Defendant)


CATCHWORDS:
[Foreign Judgments] Judgment obtained in the United Stated District Court, Central District of California - Sanctions imposed by US Court "striking" defence and dismissing counterclaim "with prejudice" - Trial on damages - Damages awarded including multiple (quadruple) penal or exemplary damages - Whether the judgment is final and conclusive - Whether the award of multiple damages was a penalty - Whether penalty severable.

ACTS CITED:
Foreign Judgments Act 1973

DECISION:
See paragraph 181.


JUDGMENT:

- 61 -
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

1 FEBRUARY 2002

50017/2001- PETER R SCHNABEL, PREMIER RIDES INC., STEVEN MARBLE & CATALYST ENTERTAINMENT INC. v KEVIN YUNG LUI, FROYER HOLDINGS DEVELOPMENT & TRADING COMPANY, FROYER HOLDINGS (ASIA) LIMITED, FROYER HOLDINGS USA INC & FSN TOP SECRET PRODUCTION INC.

Judgment

1 The plaintiffs in these proceedings Peter R Schnabel (Schnabel), Premier Rides Inc. (Premier), Steven Marble (Marble) and Catalyst Entertainment Inc (Catalyst) (the plaintiffs) seek to enforce a judgment in the amount of $US65,532.83 for Premier, $US229,914.22 for Catalyst, $US7,635,788.70 for Schnabel and $US7,635,788.70 for Marble obtained against the first defendant, Kevin Yung Lui, in the United States District Court, Central District of California (the US Court).

2 The first defendant resists the entry of judgment on the basis that the US Court entered a default judgment that (a) was not final and conclusive, (b) did not give rise to any res judicata, (c) was given in respect of causes of action which are unknown to the law of Australia and (d) was penal and was contrary to natural justice, in that damages were quantified against the first defendant without judicial assessment of the quantum of those damages. There is no application made in respect of any of the other defendants and they did not appear and were not represented at the hearing.

3 These proceedings were commenced on 15 February 2001 and the hearing commenced on 25 July 2001 when preliminary evidence was taken by video link from Los Angeles, California from Mr M Morin, attorney at law. At the conclusion of that evidence an adjournment was granted on the first defendant’s application over the plaintiff’s objection to enable him to obtain expert evidence. The trial then proceeded to conclusion on 20, 21 and 22 November 2001. Mr F Kunc, of counsel, appeared for the plaintiffs and Mr S Epstein SC appeared for the first defendant.

Background
4 The litigation in the US Court between the plaintiffs and the first defendant and the other defendants, Froyer Holdings Development and Trading Company (Froyer Trading), Froyer Holdings (Asia) Limited (Froyer Asia), Froyer Holdings USA Inc. (Froyer USA) and FSN Top Secret Production Inc. (FSN), arose out of a dispute in relation to the construction of two amusement park attractions in the Peoples Republic of China (the PRC). I shall refer to the other defendants collectively as the Lui entities.

5 One of the plaintiffs, Schnabel, had been engaged in the business of designing, selling and constructing amusement park rides for over 25 years and had developed and constructed amusement park rides at major theme parks around the world. In approximately 1991 Schnabel formed the company Premier. In about 1995 Premier entered into negotiations with Suzhou Amusement Land (SAL), an amusement park in the PRC, for the sale of two amusement park attractions designed by Premier and Catalyst. One ride, known as the “Time Machine” attraction is what has been described as a “back to the future” type ride with a dome screen theatre encompassing twelve six seat vehicles. The other ride, “Top Secret”, is a 360-degree theatre with nine fixed screens and a motion base in the centre.

6 During 1995 Premier, with Catalyst’s assistance, had entered into two agreements with SAL to sell to it the Time Machine and Top Secret attractions. After its initial financial arrangements for payment for those attractions were found to be unacceptable to Premier’s US based financial institutions, Marble introduced Premier and Schnabel to the first defendant in late January 1996. The first defendant was fluent in Mandarin Chinese and had prior experience building amusement park attractions in the PRC. The plaintiffs alleged that the first defendant claimed that he had great financial resources available for the project and indicated he was confident of his ability to solve any impediments which existed in the previous financial arrangements that SAL had made.

7 On 6 February 1996 Marble, Schnabel and the first defendant executed an initial Partnership Agreement in Los Angeles that set out the roles and responsibilities of each of the partners in relation to the construction of the two attractions. In late February 1996 the first defendant travelled to China to meet with SAL representatives. The first defendant renegotiated Premier’s two contracts and executed two new contracts with SAL in Froyer Asia’s name in place of Premier. These contracts were renegotiated with the approval of Marble and Schnabel. The SAL-Froyer Asia contract for the “Time Machine” was in the amount of $3.72 million and the contract for the “Top Secret” attraction was in the amount of $2.034 million. Additionally a third contract for the Top Secret Film to be shown in the Top Secret Attraction was negotiated at a later date between SAL, Froyer Asia and Catalyst International Inc. (Catalyst II) with Catalyst II producing the film (the Film contract).

8 After signing these contracts in February 1996 the first defendant travelled to Los Angeles and met with Marble. A second Partnership Agreement was executed by Marble, Schnabel and the first defendant. Pursuant to the terms of the second Partnership Agreement, the first defendant and Froyer Trading were responsible for the financing of the projects, Premier and Schnabel were the Project Managers and were obliged to review all costs and budgets and Catalyst and Marble were to produce the projects and be responsible for fabrication, insulation and training. The partners agreed to work together “as partners in the development, financing and installation of the two simulation attractions”.

9 The second Partnership Agreement required the first defendant to provide the partners with an accounting of all costs and to make all partnership books and records available for inspection. The first defendant failed to provide any accounting and refused to allow the plaintiffs access to the partnership books and records.

10 The plaintiffs alleged that the rides and the attractions were not constructed as designed and budgeted. It was alleged that costs were cut by using inferior products for lesser effects resulting in further cost reductions and increased profits. It was also alleged that the plaintiffs had not been paid any of the profits on the Time Machine and Top Secret attractions that were completed and fully operational.

US proceedings
11 On 26 March 1998 the plaintiffs filed a Complaint for Damages (the Complaint) in the US Court against the first defendant and Froyer Trading claiming damages for breach of written contract, breach of oral contract, breach of fiduciary duty, breach of implied covenant of good faith and fair dealing, conversion, fraud and constructive fraud. The Complaint also sought partnership dissolution and an accounting (the US Court Action). The breach of written contract allegations included claims that the first defendant had failed to construct the attractions in a manner consistent with the Partnership Agreement, had failed to share the profits, had failed to provide an accounting and had failed to reimburse Premier and/or Catalyst for their out-of-pocket expenses associated with the partnership. The plaintiffs claimed damages in the amount of “not less than $US1 million”.

12 The allegations of breach of oral contract were in relation to oral contracts between the first defendant and Catalyst whereby Catalyst agreed, for payment by Froyer Trading, to furnish goods and services in conjunction with the SAL Attractions. It was alleged that Catalyst had provided the goods and services and Froyer Trading had refused to pay for those goods and services. Catalyst claimed $US36,530.97.

13 The plaintiffs’ claims for breach of fiduciary duty against the first defendant alleged that he failed to provide an accounting, failed to provide pertinent factual and financial information of the partnership and failed and refused to disclose facts relevant to the operation of the partnership. The plaintiffs also claimed that the first defendant had failed to compensate them in accordance with the partnership agreement. The Complaint stated that the plaintiffs were unaware of the specific damages but claimed they believed the damages were in excess of $US1 million.

14 The Complaint alleged that the first defendant had breached the implied covenant of good faith and fair dealing by failing to provide an accounting, failing to divide the profits or reimburse the out of pocket expenses and failing to inform the plaintiffs of the progress, methods and means for completion of the project. The plaintiffs claimed damages in excess of $US1 million.

15 The Complaint also alleged that in the “Fall” of 1997 the first defendant confirmed the projected profit of $US1.5million and that he converted those profits for his own use and benefit. The plaintiffs claimed in excess of $US1 million. The Complaint also made a claim in respect of the plaintiffs’ costs in retaining attorneys to pursue the converted partnership assets. It alleged the first defendant acted with oppression, fraud and malice by reason of which the plaintiffs claimed they were entitled to punitive damages of not less than $US10 million.

16 The plaintiffs alleged the first defendant promised to share the profits equally and at the time he made the promise he had no intention of performing it. The plaintiffs alleged they contributed their expertise, contacts and ideas to the project in reliance upon the promise. The plaintiffs claimed damages in the amount of $US1 million and punitive damages in the amount of $US10 million.

17 The Complaint alleged a breach of the confidential relationship and claimed that in January 1998 the plaintiffs discovered that the first defendant would not provide an accounting and would not divide the profits equally. The plaintiffs claimed an amount of $US1 million and punitive damages in the amount of $US10 million.

18 The punitive damages claimed in respect of the alleged conversion, fraud and constructive fraud are referred to in the final prayer for relief in the Complaint as “punitive and exemplary damages”. The Complaint claims that the first defendant undertook a course of conduct that deliberately cut Marble and Schnabel out of the project and minimised their roles in the business venture. It alleged that the first defendant contracted directly with third parties without the advice or input of Marbel and Schnabel, met Marble’s contacts and proceeded to deal with them directly, cutting Marble out of the workflow and proceeded to develop the attractions with little or no input from Marble and Schnabel. It also alleged that the first defendant consulted with his partners only when contact with them could not be avoided, did not provide them with pertinent factual and financial information, concealed from them all the project costs and budget information and acted in a manner which was inconsistent with the Partnership Agreements. It alleged that the first defendant misrepresented facts to third parties, misappropriated designs, failed to pay vendors and engaged in a pattern of conduct that harmed the plaintiffs and damaged their business reputations.

19 On 6 July 1998 the first defendant and Froyer Trading filed a Motion to Dismiss for Failure to State a Claim upon which Relief could be granted. On 6 August 1998 the US Court denied that motion. On 26 August 1998 the first defendant and Froyer Trading filed an Answer and Counterclaim in the US Court action. The Answer and Counterclaim admitted that the first defendant was a resident in Sydney, Australia and that he conducted business in the County of Los Angeles, California. It also admitted that the US Court had jurisdiction over the parties and that the venue was proper.

20 The first defendant and Froyer Trading denied the allegations of wrongdoing and denied the plaintiffs’ entitlement to any damages. The Answer then pleaded thirty four affirmative defences. Those affirmative defences were (1) a claim that the plaintiffs had failed to state facts sufficient to constitute a cause of action against the defendants; (2) a claim that the complaint was barred because the plaintiffs had commenced and continued the suit without any facts or other reasonable basis supporting the purported claims and solely for the purpose of harassing and/or inducing improper payment and/or settlement from the defendants; (3) a claim that the defendants had done every act and made every statement referred to in the Complaint reasonably and in good faith; (4) a claim that the plaintiffs had knowingly and voluntarily relinquished and waived any and all of their rights arising from the allegations in the complaint; (5) a claim that the plaintiffs conduct estopped them from asserting the purported claims alleged in the Complaint; (6) a claim that the plaintiffs were guilty of unclean hands; (7) a claim that any loss and damage suffered by the plaintiffs was a direct and proximate result of the acts and omissions of the plaintiffs or persons for whom the defendants were not responsible; (8) a claim that the events and happenings in connection with the matters alleged in the Complaint were proximately caused and contributed to by the plaintiffs or independent intervening negligent and/or intentional and/or unlawful conduct of independent third parties and/or their agents; (9) a claim that the plaintiffs recovery was barred or decreased due to the right of set-off of the amount the plaintiffs allegedly owed the defendants and/or unlawfully or wrongly charged the defendants; (10) a claim that there was a failure to mitigate; (11) a claim that the defendants had insufficient knowledge or information to form a view as to whether they had additional defences and a reservation of their position to amend; (12) a claim that the plaintiffs’ Complaint was barred by the applicable Statute of Limitations and various sections of the Code of Civil Procedure; (13) a claim that the Complaint was uncertain; (14) a claim that the Complaint was barred to the extent that the plaintiffs failed to allege the existence of any terms and conditions of any contract between the plaintiffs and the defendant; (15) a claim that the plaintiffs had failed to satisfy all the terms and conditions of the agreements; (16) a claim in laches; (17) a claim that the plaintiffs had breached the implied covenant of good faith and fair dealing; (18) a claim that the plaintiffs' causes of action were barred on the basis that performance was commercially impracticable; (19) a claim that the plaintiffs had induced the defendants to enter into the contracts through fraud; (20) a claim that the Complaint was barred by reason of a failure of consideration; (21) a claim that the plaintiffs released the defendants from any obligation under the contracts; (22) a claim that the plaintiffs had received payment under the contracts; (23) a claim that the plaintiffs’ causes of action were barred to the extent that collateral estoppel applied; (24) a claim that any conditions that had not been performed by the defendants had not been so performed because the plaintiffs had prevented the defendants from performing them; (25) a claim that the plaintiffs’ causes of action were barred as the contracts were executed without any consideration; (26) a claim that the plaintiffs’ causes of action were barred by reason of the application of the Statute of Frauds; (27) a claim that the contracts referred to in the Complaint were unenforceable as they were contrary to the provisions of express law or good morals; (28) a claim that the oral contracts were modified; (29) a claim that the written contracts were modified; (30) a claim that the plaintiffs’ causes of action were barred because the object of the contract was impossible to perform; (31) a claim that the plaintiffs actions were barred because of mistake by the parties on the basic assumption underlying the contract; (32) a claim that the plaintiffs’ cause of action was barred on the basis of the condition subsequent to the contract which never occurred thereby discharging the defendants; (33) a claim that the plaintiffs’ causes of action were barred on the basis that there was no privity of contract and (34) a claim that the plaintiffs failed to name an indispensable party to the action.

21 There were no particulars provided in the Answer in relation to any of these affirmative defences. The Counterclaim positively claimed that the Court had jurisdiction and that the venue was proper. The Counterclaim alleged that installation of the attractions had never been completed and that the plaintiffs had materially breached both partnership agreements by performing their respective obligations in a sub-standard and incompetent manner. The defendants claimed damages in excess of $US6 million.

22 On 7 July 1998 the first defendant and Froyer USA, Froyer Asia and FSN commenced proceedings by filing a Complaint against Marble, Catalyst and Catalyst II, in the Superior Court for the State Court of California for the County of Los Angeles (the State Court Action). The claim in the State Court action related to the Film contract. The Complaint alleged that the contract was entered into in October 1996 and modified in 1997. It was alleged that the parties agreed to invest in the film production and that each would own a 25% interest in the production. This was allegedly later modified to Froyer USA holding a 35.5% interest, SAL holding a 25% interest and Catalyst II holding a 37.5% interest. It was alleged that Marble guaranteed the production of the film with quality assurance within a budget of $US950,000.

23 The first defendant claimed that the film was considered to be of low quality and numerous complaints regarding the quality and the content of the film were received from SAL. There was also a claim that the plaintiffs, the defendants in that action, solicited business opportunities from other parties with the film and that they had retained computer systems and camera and production equipment which they were renting out to third parties. There were claims of breach of contract, breach of implied covenant of good faith and fair dealing, conversion, and a claim for an injunction and an accounting to the first defendant for the profits made by the plaintiffs in the renting of the equipment. The claims included monetary damages, punitive and exemplary damages, attorneys’ fees and all the costs of the suit.

24 On 6 August 1998 Marble, Catalyst and Catalyst II filed a Notice of Removal of Action of the State Court Action and the State Court Action was automatically removed to the US Court. At the time of the removal of the State Court Action to the US Court none of the defendants objected to the US Court exercising jurisdiction over them in the removed State Court Action. They did not move to remand or contest the Notice of Removal for lack of diversity jurisdiction or on any other grounds. On 14 April 1999 the US Court, on its own motion, consolidated the State Court Action with the US Court Action. No party objected to the Consolidation Order.

25 On 18 September 1998 a Joint Report of Early Meeting of Counsel was filed reporting that counsel for the parties had met on 28 August 1998. The Counsel were Michael D. Morin, of Margolis and Morin, who appeared for Premier, Schnabel, Catalyst and Marble and Scott Warmuth who appeared for the first defendant and Froyer USA. The joint report noted that the parties had attempted to discuss settlement but that they lacked sufficient information to be able to “meaningfully engage” in such discussions. It was noted that the parties anticipated that approximately 10 days would be required for the trial of the matter.

26 On 22 March 1999 the plaintiffs filed a Notice of Motion to compel production of documents, to compel deposition of the first defendant and a request for sanctions. That Notice of Motion included a Memorandum of Points and Authorities and a declaration of Mr Morin in support of the Motion. It is apparent from those documents that the plaintiffs had sought the discovery of documents in August 1998 and October 1998. In August the defendants produced 452 pages of documents and a further 642 pages in October 1998. The plaintiffs reviewed the documents and ascertained that the defendants had failed to produce any documents of an accounting nature. The plaintiffs were unable to find documents showing any payments to the defendants for the construction of the rides, payments by the defendants to the contractors, contracts for the work performed and any other documents relating to the costs and income of the projects.

27 The Memorandum also referred to the plaintiffs’ attempts to take a deposition from the first defendant. They had been informed that the first defendant lived in Australia but that he travelled to Los Angeles approximately monthly. The time for taking the deposition was fixed for 25 November 1998. On 24 November 1998 the plaintiffs were advised that the first defendant would not be appearing for deposition. On that day counsel for the plaintiffs and defendants met and conferred in relation to the defendants failure to produce the accounting documentation. A request was made for the defendants to produce all such documentation by 10 December 1998. A further date for the deposition of the first defendant was jointly agreed for 13 January 1999. The defendants failed to produce additional documentation by 10 December 1998.

28 It was not until 10 September 1999 that the first defendant attended for his deposition. After a few hours of testimony the first defendant stated that he felt very sick and the deposition process was terminated with the plaintiffs’ counsel indicating that the deposition could continue after the weekend. The first defendant’s counsel telephoned the plaintiffs’ counsel on the weekend and informed him that the first defendant would not be attending for the further deposition. Although the plaintiffs’ counsel requested a date upon which the deposition could resume no date was provided to him.

29 On 20 December 1999 the first defendant filed a second Notice of Motion and Motion to Dismiss for Lack of Subject Matter Jurisdiction. In response to the defects in the plaintiffs’ complaint, referred to in the first defendant’s Motion and Moving papers, the plaintiffs filed a Third Amended Complaint.

30 On 24 December 1999 the plaintiffs received a letter from the defendants’ counsel indicating that the first defendant had just been released from a two and a half week period of hospitalisation due to a “manic episode” and that he had to restrict his overseas travel for the next two months.

31 On 10 January 2000 the US Court issued a tentative ruling granting the first defendant’s Motion to Dismiss and accepted the plaintiffs’ Third Amended Complaint for filing. That Third Amended Complaint was against the first defendant, Froyer Asia, Froyer USA, Froyer Trading and FSN.

32 On 1 February 2000 the first defendant and Froyer USA filed a Third Notice of Motion and Motion to Dismiss for Lack of Subject Matter Jurisdiction in relation to the Third Amended Complaint. On 6 March 2000 a hearing was held before trial judge, Judge Pregerson. Counsel for both plaintiffs and defendants appeared at the hearing and argued the Motion. On 10 March 2000 Judge Pregerson issued an order denying the defendant’s Motion to Dismiss.

33 On 15 May 2000 the Magistrate Judge, the Honourable Ann I. Jones (Jones MJ) conducted a telephonic status conference to set the time for hearing regarding the first defendant’s mental condition, his ability to travel and his ability to comply with the court’s discovery orders. The hearing was fixed for 31 May 2000. The first defendant did not appear on 31 May 2000. The plaintiffs claimed that the first defendant’s failure to comply with the court’s orders was wilful, in bad faith and unrelated to his medical condition. In support of that claim the plaintiffs relied upon two witnesses, Patricia Rolling a customer service representative from Cathay Pacific Airways and Tom Parker, a former special Agent-in-Charge at the Los Angeles field office of the Federal Bureau of Investigation. Ms Rolling gave evidence that established that the first defendant travelled regularly on Cathay Pacific Airways between Sydney, Australia, Hong Kong and Los Angeles, California during the years 1998 and 1999. Mr Parker’s evidence established that the first defendant travelled out of Australia on eight occasions in 1998 and six occasions during 1999.

34 On 8 June 2000 Jones MJ filed a Report and Recommendation for submission to Judge Pregerson pursuant to the United States Code Annotated (USC) Title 28 636 and General Order 194 of the US Court. The Report referred to the procedural history including the first defendant’s failure to provide discovery and the first defendant’s failure to complete his deposition. Jones MJ found that the plaintiffs had suffered irreparable prejudice from the first defendant’s failure to comply with the court’s orders and to provide discovery. It was apparent from one of the persons who had provided a deposition for the plaintiff, Vincent Chung, who was Froyer USA’s Director and Corporate Officer, that the first defendant was the only person who had knowledge regarding the various Lui entities and their involvement in the transactions in issue in the litigation.

35 The Report also referred to the fact that with only three days remaining for discovery the first defendant had provided the plaintiffs with no documents or other evidence showing what payments were made for the work performed, what monies were paid to the first defendant for services, what services the defendants had performed or any profits earned on the project. Jones MJ then said:

Defendants’ failure to provide evidence regarding these basic facts effectively precluded plaintiffs’ ability to develop the material evidence underlying this dispute, or to resolve this dispute on the merits.

36 Jones MJ noted that although “expressly admonished” in two court orders that his failure to appear at the hearing may result in a recommendation of case-terminating sanctions, the first defendant did not appear at the hearing on 31 May 2000. There was however a copy of a facsimile declaration submitted to the Court in which the first defendant stated “during the period October 1998 through to November 1999, I travelled abroad from Australia”, which Jones MJ found flatly contradicted the first defendant’s prior statements about his ability to leave Australia. Jones MJ compared the representations that had been made to the Court by the first defendant’s counsel as to the first defendant’s inability to leave Australia with the first defendant’s travel records which established that at relevant times he had already left Australia for other parts of the world. The recommendation stated:

Despite continued representations over the past two years that defendant Lui was too ill to travel, and too ill to assist counsel in the production of documents, or preparation of discovery responses, defendant Lui spent almost one half of 1998 travelling outside of Australia and over one third of 1999.

37 Jones MJ concluded that the first defendant’s Bipolar Disorder did not render him disabled for the entire duration of the discovery in the case and that there were ample periods of time during which he was capable of assisting in discovery and travelling to the United States in order to comply with the Court’s orders. Jones MJ also concluded that the first defendant had intentionally interfered with the Court’s order that he produce his passport. The Court concluded that although the first defendant had been diagnosed as suffering from an affective disorder the condition had been effectively controlled with medication and there was no medical basis for the first defendant’s failure to produce documents as ordered by the Court or for the first defendant’s failure to appear as ordered by the Court. The Court also concluded that the first defendant’s mental condition did not cause the repeated failure to comply with discovery obligations. The Report continued:

Defendants have been given repeated opportunities to comply with this court’s orders. Defendants have been twice warned of the possible consequences of their failure to comply with this court’s orders. Defendants, however, have continued to exhibit complete disregard and indifference to these warnings, the orders of the court, and their discovery obligations. The effect of defendants’ conduct has been to thwart plaintiffs’ legitimate attempts to obtain basic, legitimate discovery. Without this discovery, plaintiffs cannot proceed to litigate this case on the merits. The defendants’ conduct cannot be attributable to any mental disability on the part of the defendant Lui. Record clearly demonstrated defendants’ flagrant bad faith and wilful disregard of this court’s orders and defendants’ discovery responsibilities.

38 Jones MJ recommended granting the plaintiffs’ Motion for Sanctions pursuant to Rule 37 of the Federal Rules of Civil Procedure, striking the defendant’s answer to the plaintiffs’ third Amended Complaint and dismissing the first defendant’s complaint “with prejudice”.

39 On 28 June 2000, Judge Pregerson concurred with and adopted Jones MJ’s findings and conclusions and ordered, inter alia, that the defendants’ Answer to the plaintiffs’ Third Amended Complaint be “stricken” and the first defendants’ Complaint be dismissed “with prejudice”. That order was filed on 7 July 2000.

40 On 14 September 2000 the US Court (Judge Pregerson), on its own Motion, issued an order in the following terms:

On June 28, 2000, the Court entered an Order striking the defendant’s answer to the complaint (see June 28, 2000 Order, adopting Magistrate Judge’s June 8, 2000 Report and Recommendation). The Court hereby sets the hearing to determine the amount of damages for September 22, 2000 at 9.00am. The Court had previously informed the parties that the defendant would not be allowed to participate in this hearing. The Court now finds that the defendant must be given the opportunity at the hearing to contest the amount, extent or type of relief sought or, if the pleadings are insufficient, to argue that the plaintiffs’ claims should be dismissed because the pleadings fail to assert a claim upon which relief may be granted.

41 On 22 September 2000 that hearing proceeded. Mr Morin was trial counsel for the plaintiffs. The first defendant, Froyer Asia, Froyer Trading, Froyer USA and FSN were represented by two attorneys from the Law Offices of Scott Warmuth, counsel of record for all defendants in the action. Counsel for the defendants cross-examined all the plaintiffs’ witnesses at that trial. Counsel for the defendants presented no evidence at the trial. At the close of trial the defendants’ counsel made final submissions on behalf of the defendants opposing any relief being granted to the plaintiffs.

Final Judgment
42 On 20 November 2000 Judge Pregerson delivered his judgment entitled “Final Judgment” which was entered on 28 November 2000. During the pre-trial process the plaintiffs had served Requests for Admission (RFA) on the first defendant and the other defendants. All defendants failed to respond and in those circumstances the plaintiffs’ Requests were deemed admitted. There were a number of Admissions which Judge Pregerson recorded in his judgment as follows:

17. By virtue of his failure to respond to Plaintiffs’ Requests for Admission, and the Order finding such requests to be deemed admitted, defendant Lui has admitted: that he entered into a Partnership Agreement with plaintiffs (RFA, no.1), that he received payment for the work performed for SAL on the Time Machine and Top Secret projects (RFA, no.3), that he has not provided his partners with an accounting for the money he received (RFA, no.5), that he has not provided his partners with an accounting for the money he expended in performing work on the Time Machine and Top Secret projects (RFA, no.6), and that the Time Machine and Top Secret projects had been completed and are in operation (RFA, nos 7, 8, 9, 11). Defendant Lui has further admitted that he is an officer of Froyer Asia, Froyer USA, Froyer Holdings Pty Ltd and FSN Top Secret (RFA, nos 13, 14, 15, 16), that he has an ownership interest in each of the Lui entities (RFA, nos 17, 18, 19, 20), and that he represented to Steven Marble that he was the owner of Froyer Asia, Froyer Trading, Froyer USA, Froyer Holdings Pty Ltd and FSN Top Secret (RFA, nos 21, 22, 23, 24, 25). Defendant Lui has admitted that he was paid in full by SAL for the Time machine and Top Secret projects (RFA, nos 31, 32) and that the costs of performance under the Time Machine and Top Secret contracts were less than the contract price paid to him by SAL (RFA, nos 29, 30, 37, 38).

18. Each of the Lui entities has admitted they were partners to the Partnership Agreement with Plaintiffs (RFA, no.1), and that each of the Lui entities has ownership interest in each of the other Lui entities (RFA, nos. 17, 18, 19, 20).

19. Lui and the Lui entities have all admitted that they promised to reimburse Premier Rides for the costs and expenses it incurred in securing the Time Machine and Top Secret contracts, and they have all admitted that they had not reimbursed Premier for same.

43 Judge Pregerson found that the first defendant had made false representations to the plaintiffs in relation to a number of matters. They were representations that he would consult with them prior to making any financial decisions, that he would provide them with copies of communications relating to the partnership, that he would divide all job profits equally with them, that he would provide them with an accounting of all partnership business and that he would consult with them regarding all important partnership decisions. Judge Pregerson also found that the first defendant concealed from the plaintiffs and failed to disclose to them that he did not intend to allow them to be actively involved in all aspects of construction of the rides and that the first defendant and the other defendants did not build the rides as designed and budgeted. Judge Pregerson concluded that the first defendant had refused to pay the plaintiffs any of the job profits for the partnership totalling $US2,790,655. His Honour also found that the plaintiffs had lost the opportunity to make not less than two sales of the Top Secret Ride, the gross revenues from which would have been $US4,474,800. His Honour applied a 26% profit rate to reach a total of $US1,163,448.

44 Judge Pregerson also found that the plaintiffs had lost the opportunity to make three sales of the Time Machine that would have resulted in revenue of $US12,276,000. His Honour applied the 26% rate of profit on the resale and was satisfied that the plaintiffs were entitled to an award for loss of profits in the amount of $US3,191,760.

45 Judge Pregerson concluded that the first defendant and the Lui entities intentionally engaged in wrongful conduct designed to interfere with and disrupt the plaintiff’s economic relationship with SAL. His Honour said:

86. The purpose of punitive damages is ..‘to penalise wrongdoer in a way that will deter them and others from repeating the wrongful conduct in the future’”. Luz Chavez v Keat (1995) 34 Cal. App. 4th 1406, 1410 (citation omitted)

87. In assessing punitive damages, courts look at a three-prong test: (1) the nature and responsibility of Defendants’ wrongdoing; (2) the amount of compensatory damages; and (3) the wealth of the Defendants. Neal v Farmers Ins. Exch. (1978) 21 Cal. 3d 910, 928

88. In this case, the nature and reprehensibility of Defendants’ wrongdoing, resulting in fraud, is substantial. Defendants made intentional misrepresentations to plaintiffs and deliberately concealed material facts from plaintiffs, all to plaintiffs’ detriment.

89. The amount of compensatory damages for fraud is also substantial, and totals to more than $2,000,000.

90. Although courts traditionally look to the defendants’ net worth to determine the wealth of the Defendants, where, as here, the Defendants have deliberately interfered with Plaintiffs’ ability to obtain discovery, such an examination is not required. Davidov Co v Issod (2000) 78 Cal. App 4th 597. When a Defendant fails to obey a court order and deprives the Plaintiff the opportunity to meet his burden of proof, multiplying the compensatory damages by four to calculate punitive damages is appropriate. Id.

91. Plaintiffs have established that Defendants engaged in fraud by clear and convincing evidence.

92. Plaintiffs Schnabel and Marble are hereby awarded punitive damages in the total amount of $8,710,416; $4,355,208 is awarded to Schnabel and $4,355,208 to Marble.

46 Pursuant to his findings Judge Pregerson made the following orders:

1. Judgment be entered against Defendants Kevin Y. Lui, Froyer Holdings Development and Trading Company, Froyer Holdings (Asia) Limited, Froyer Holdings USA, Inc. and FSN Top Secret Productions, Inc., and each of them, jointly and severally, and in favour of Plaintiffs as follows:

a. For plaintiff Premier, damages in the amount of $55,263.00, plus prejudgment interest at the rate of seven percent (7%) per annum from March 26, 1998 until the date judgment is entered, plus interest as provided by law from the date judgment is entered until paid;

b. For Plaintiff Catalyst, damages in the amount of $193,883.72, plus prejudgment interest at the rate of seven percent (7%) per annum from March 26, 1998 until the date judgment is entered, plus interest as provided by law from the date judgment is entered until paid;

c. For Plaintiff Schnabel: (1) breach of contract damages in the amount of $930,125.30, plus prejudgment interest at the rate of seven percent (7%) per annum from March 26, 1998 until the date judgment is entered; (2) fraud damages in the amount of $2,177,604.00; (3) nominal damages of $1.00 for interference with prospective economic advantage; (4) punitive damages in the amount of $4,355,208; and (5) interest as provided by law from the date judgment is entered until paid;

d. For Plaintiff Marble: (1) breach of contract damages in the amount of $930,125.30, plus prejudgment interest at the rate of seven percent (7%) per annum from March 26, 1998 until the date judgment is entered; (2) fraud damages in the amount of $2,177,604.00; (3) nominal damages of $1.00 for interference with prospective economic advantage; (4) punitive damages in the amount of $4,355,208; and (5) interest as provided by law from the judgment is entered until paid.

2. The partnership is hereby dissolved.

47 On 22 December 2000 the first defendant, Froyer Trading, Froyer USA and FSN filed a Notice of Appeal from the Final Judgment in the Court of Appeals for the Ninth Circuit. That Appeal is pending.

United States Rules
48 The relevant rules of the Federal Rules of Civil Procedure in relation to the judgment obtained in the US Court are contained in the United States Code Annotated (USC) and include Rules 37, 55, 59, 60 and 1963. Those rules are set out in full in the Schedule to this judgment.

49 A party may apply by motion for orders compelling an opposing party to provide disclosure or discovery. This includes an order designating the time for the taking of a deposition. The US Court has power to impose sanctions for non-compliance with the orders and includes a power to “strike” an Answer and/or dismiss a Counterclaim with prejudice (Rule 37). These are the harshest sanctions available under Rule 37 and are used in “rare situations”: Securities and Exchange Commission v Hasho 134 F.R.D. 74 (S.D.N.Y. 1991).

50 The Rules provide for the entry of what is known as a “default” if a party against whom a judgment or affirmative relief is sought fails to plead or otherwise defend the case pleaded against it (Rule 55 (a)). If the defendant has been “defaulted” the plaintiff is able to obtain the entry of “default judgment” by the Clerk of the Court if the claim is for a “sum certain” or for an amount that by computation can be made certain (Rule 55 (b)(1)). In all other cases a party entitled to a default judgment can apply to the Court for the entry of default judgment (Rule 55 (b)(2)). A party against whom a default judgment has been entered and who demonstrates “good cause” may have the judgment set aside (Rule 55 (c)).

51 Within 10 days of the entry of judgment a party may file a Motion for a new trial and/or for orders altering or amending a judgment (Rule 59). The Court can also on its own Motion order a new trial for any reason that would justify granting one on a party’s Motion (Rule 59 (d)). On its own Motion or on the Motion of a party the US Court is able to correct “clerical mistakes” in a judgment (Rule 60(a)).

52 The US Court may, on Motion and on such terms as are just, relieve a party from a final judgment (1) for mistake, inadvertence surprise or excusable neglect, (2) for newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b), (3) for fraud, misrepresentation, or other misconduct of an adverse party, (4) if the judgment is void, (5) if the judgment has been satisfied, released or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application and (6) for any other reason justifying relief from the operation of the judgment (Rule 60 (b)).

53 Any Motion seeking relief from a final judgment for reasons (1), (2) or (3) of Rule 60 (b) must be made not more than one year after entry of the judgment and in respect of the other reasons within a “reasonable time”. A Motion for relief from a final judgment does not affect the finality of the judgment or suspend its operation (Rule 60 (b)).

54 A judgment entered in the US Court may be registered by filing a certified copy of the judgment in any other district when the “judgment has become final by appeal or expiration of the time for appeal or when ordered by the court that entered the judgment for good cause shown”. A judgment so registered has the same effect as a judgment of the court of that district and may be enforced in a like manner. This procedure is in addition to other procedures provided by law for the enforcement of judgments (Rule 1963).

Expert Witnesses
55 There was no issue between the parties that an expert in foreign law may give evidence as to what the foreign law is: Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1077; (2000) 50 NSWLR 640 at [5]. Neither party suggested that the expert witnesses were not experts.

56 In these proceedings the plaintiff relied upon the evidence of Mr Morin and retired Judge H Lee Sarokin (Judge Sarokin). The first defendant relied upon the evidence of Frank Frisenda. Mr Morin and Mr Frisenda are both Attorneys at Law admitted to practice before all Courts in the State of California and the United States District Court for the Central District of California. Judge Sarokin was a United States District Court Judge, between 1979 and 1994 and a United States Circuit Judge (Third Circuit) from 1994 until his retirement in 1996.

57 Both Mr Morin and Mr Frisenda appeared for the parties at various stages of the proceedings in the US Court. Mr Kunc submitted that in these circumstances preference should be given to the evidence of Judge Sarokin who had no involvement with the parties or the litigation prior to being approached to give expert evidence.

58 Mr Morin gave evidence that the US judgment is a final judgment of the US Court and has not been stayed or satisfied and is enforceable according to its terms in all of the United States of America. The filing of an appeal does not operate as a stay of enforcement of the judgment. In order to stay enforcement of a judgment an appellant must file a bond in an amount sufficient to satisfy the judgment or make an application for a stay of enforcement of the primary judgment. In this case there has been no application for a stay nor has a bond been lodged. Mr Morin’s opinion was that the judgment was not a default judgement. The order made on 7 July 2000 was an order striking the first defendant’s answer. No default was entered under Rule 55. In those circumstances Mr Morin’s opinion was that the provisions of Rule 55(c) that provide for relief from a default, if a judgment by default has been entered, would not be applicable.

59 Mr Morin expressed the opinion that a motion brought pursuant to Rule 60(b) for relief from a judgment would have to be directed to the trial court which cannot hear a Motion as it no longer has jurisdiction. Mr Morin’s opinion was that once the notice of appeal is filed the trial judge is unable to entertain any motions. He was of the view that filing of an appeal is a jurisdictional event which divests the trial court of control over those aspects of the case involved in the appeal: US v Powell (9th Cir 1994) (24 F. 3d at 31). In cross-examination Mr Morin conceded that it is within the power of the Court of Appeals to remand the case to the trial Court for the purpose of filing a motion under Rules 55 or 60.

60 Mr Frisenda expressed the opinion that the US Court judgment was not enforceable in any foreign court because the plaintiffs had failed to comply with Rule 1963 of Title 28 of the US Code. He was of the view that registration was an essential procedure for litigants seeking to execute upon their judgments and in view of the plaintiffs’ failure to register the judgment for enforcement in a foreign District or a foreign court the judgment was not enforceable.

61 In his affidavit Mr Frisenda referred to what he regarded as certain fundamental defects in the judgment that rendered it “not conclusive” and therefore not enforceable. He was of the view that the judgment was not rendered under a procedure giving due process of law. He also expressed the opinion that the US Court lacked subject matter jurisdiction and personal jurisdiction over unserved defendants. He expressed the view that FSN was not served with the pleadings.

62 Mr Frisenda was also of the view that the doctrine of res judicata was a bar only where the earlier judgment was rendered by a court having proper jurisdiction and involved the same claim as the present suit and had reached final judgment on the merits and involved the same parties or their privies. Because the first defendant against whom the judgment was rendered did not have a “full and fair opportunity to litigate his claims before the court” Mr Frisenda expressed the view that due process was not followed and there was no res judicata.

63 Diversity jurisdiction requires that all parties to the action be “citizens of different states” or “citizens or subjects of a foreign state”. Mr Frisenda gave evidence that at trial level and on appeal the defendants asserted that the US Court lacked diversity jurisdiction to remove the State Court Action to the US Court. Additionally the defendants asserted that the US Court lacked diversity jurisdiction over the Third Amended Complaint. He expressed the opinion that the trial court had failed to join the partnership FSN Top Secret as a necessary and indispensable party. He expressed the view that the first defendant was entitled to bring a motion pursuant to Rule 60(b) to have the judgment set aside. In those circumstances it was submitted by the first defendant that the judgment is not final.

64 In support of his opinions Mr Frisenda relied upon the 1981 decision of the Supreme Court of the United States in Federated Department Stores, Inc. v Moitie [1981] USSC 136; 452 US 394 in particular upon the following portion of Rehnquist J’s judgment at 398:
There is little to be added to the doctrine of res judicata as developed in the case law of this Court. A final judgment on the merits of an action precludes the parties or their privies from re-litigating issues that were or could have been raised in that action....Nor are the res judicata consequences of a final, un-appealed judgment on the merits altered by the fact that the judgment may have been wrong or rested on a legal principle subsequently overruled in another case.

65 One of the cases cited in support of this last proposition in Rehnquist J’s judgment was Angel v Bullington [1947] USSC 25; 330 U.S 183,187 referred to in footnote [3] in support of the statement that the dismissal of an action for failure to state a claim under Federal Rule of Civil procedure 12 (b)(6) is a “judgment on the merits”. In that case Frankfurter J, in the lead opinion, said [at par 5] “It is a misconception of res judicata to assume that the doctrine does not come into operation if a court has not passed on the “merits”, in the sense of the ultimate substantive issues of a litigation. An adjudication declining to reach such ultimate substantive issues may bar a second attempt to reach them in another court of the State”.
66 In cross-examination Mr Frisenda suggested that the order striking the first defendant's Answer and the order dismissing the Counterclaim "with prejudice" was part of the Appeal. When asked to indicate where in the Appeal Brief such ground appeared Mr Frisenda could not do so other than to refer to a general ground of appeal in relation to the findings of fact and law. Mr Frisenda also gave evidence that the other defendants were not served with the process and had not appeared. In those circumstances Mr Frisenda expressed the view that the first defendant was unable to bring cross claims against those parties. Mr Frisenda said he had "never seen a judgment against a party where the party had not even been served with the summons", which he suggested had occurred in this case. He agreed that subject to what he referred to as "safeguards" the judgment was enforceable in California. The safeguards to which he referred apparently included ensuring that objection could be taken to certain assets being the subject of execution.

67 During cross-examination Mr Frisenda made a number of concessions. He agreed that the judgment was not a default judgment, with the consequence that Rule 55 did not apply (tr.35). Mr Frisenda gave evidence that the term "final judgment" has several different meanings in the United States of America. He said that the judgment was final with respect to the US Court and on review to the Court of Appeals of the Ninth Circuit. He agreed that the judgment was a judgment "on the merits" and that it was res judicata the issues between the parties (tr.36). He also agreed that as a matter of United States law, where there is a final judgment on the merits and where there is a res judicata, the enforceability is not affected if the judgment which gave rise to the res judicata is subject to appeal (tr. 36).

68 Judge Sarokin expressed the opinion that the judgment entered by Judge Pregeson on 28 November 2000 did not constitute a default judgment. The judgment entered was not obtained as a result of a defendant’s failure to plead or otherwise defend. To the contrary, the defendants had an opportunity to be heard and to actively participate in the litigation. Rule 55(c) relief would therefore be unavailable as that Rule applies to protect against the entry of judgments where a party has not had an opportunity to be heard. Having regard to the concession made by Mr Frisenda in cross-examination that the judgment is not a default judgment, it is not necessary to consider Rule 55 any further.

69 Judge Sarokin was of the view that even if Rule 55 did apply, Rule 55 (c) requires a showing of “good cause” to set aside a default. He was of the opinion that the defendants could not demonstrate the required “good cause” because their contention, namely that the court erred by striking their answer and dismissing their complaint, does not fall within the grounds for relief specified in Rule 60(b). Rule 60 (b) requires the defendants to make an application within a “reasonable time” and, in the named circumstances in the Rule, before the expiration of the year after entry of the judgment. Judge Sarokin made the point that the defendants had been aware of the court’s orders striking their answer and dismissing their complaint since 7 July 2000 and had failed to take any action. It was submitted that if the defendants’ submissions were adopted no judgment could be enforced for a period of one year, merely because of a potential to file a motion to vacate.

70 Even if the defendants made an application under Rule 60 (b), and it was deemed timely, the application would not stay the plaintiffs’ right to enforce the judgment. Judge Sarokin said that theoretically the defendants could make an application to the Court of Appeals to remand the case to the US Court for the purpose of filing a motion under Rule 55(c) or 60(b). Such an application can only be made after the US Court indicates that it is inclined to grant such a motion, which Judge Sarokin thought was very unlikely in the circumstances of this case. In his 17 years of judicial experience he was not aware of any such motion being granted after an appeal had been filed.

71 Judge Sarokin was of the view that the judgment would constitute res judicata as to all issues that were raised in the pleadings. However he expressed the view that this was not relevant to the issue of the enforceability of the judgment under American Law because, absent the filing of a bond, the judgment remained enforceable. As to registration Judge Sarokin expressed the view that the term “may” within Rule 1963 was permissive not mandatory and that there is no provision that requires registration of a judgment before it can be enforced.

72 As to the failure to provide due process Judge Sarokin expressed the view that such an issue would have to be challenged on appeal. He had reviewed the appeal filed by the defendants and concluded that there is no challenge to the US judgment based on a lack of due process. He concluded therefore that any such arguments are deemed “waived”.

73 From the evidence of the experts and the Rules the following matters relevant to the issues before me are established in relation to the US law: (1) the US judgment is not a default judgment, (2) the US Judgment is res judicata the issues between the parties to the litigation, (3) it is open to the first defendant to make an application pursuant to Rule 60 (b) for relief from the US Judgment and (4) the trial court does not have jurisdiction to hear such an application under Rule 60 (b). Any application would have to be directed to the Court of Appeals which may or may not remand it to the Trial Court for hearing.

Issues
74 The United States of America does not form part of the international system providing for the reciprocal enforcement of judgments under the Foreign Judgments Act 1973. In these circumstances the plaintiffs’ claims to enforce the US judgment must be determined in accordance with the common law principles for the recognition and enforcement of foreign judgments. The intrinsic merits of the foreign judgment may not be called into question however there are certain pre-requisites that must be met before the foreign judgment will be recognised and enforced.

75 For the plaintiffs to obtain the orders they seek enforcing the US judgment they must establish (a) that the US Court possessed the necessary jurisdiction, (b) that the judgment was for a sum certain and (c) that the judgment was final and conclusive. The first two matters are not in issue. The real issue between the parties is whether the judgment was final and conclusive. If there is a finding on that issue in favour of the plaintiffs then the first defendant also claims that this Court would not enforce the judgment because it is in the nature of a penalty and was contrary to natural justice in that damages were quantified against the first defendant without a judicial assessment of the damages.

Final and Conclusive
76 It will generally be presumed that the foreign law is the same as the local law: Damberg v Damberg [2001] NSWCA 87 except to the extent that a material difference is proved: US Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 799. The plaintiffs bear the onus of establishing that the judgment is final and conclusive: Carl Zeiss Stiftung v Rayner & Keeler Ltd [1967] 1 AC 853 at 927 and 970.

77 In this case, on this issue, the Court is primarily concerned to determine the status of the US judgment under the US law and that will depend upon the construction and the effect of the applicable US Rules. The test of finality is the treatment of the judgment by the foreign tribunal as res judicata. A default judgment may be enforceable as a final and conclusive judgment even though it is liable to be set aside in the very court that rendered it. The approach that has been adopted is that until the steps are taken to set the judgment aside the judgment is enforceable as a final and conclusive judgment.

78 In Vanquelin v Bouard [1863] EngR 977; (1863) 15 CB (NS) 341, 143 ER 817 the defendant and the plaintiff’s late husband had suffered judgment by default for failure to appear in the Court of the Tribunal of Commerce in the Department of the Seine. After her husband’s death, the plaintiff paid the judgment debt and then commenced proceedings against the defendant in the Tribunal Civil of the First Instance of the Department of the Seine. That Court granted an injunction requiring payment by the defendant to the plaintiff and it was that liability that the plaintiff sought to enforce in the Court of Common Pleas.

79 The defendant resisted the claim and in his Twelfth Plea claimed that the judgment of the Court of the Tribunal of Commerce was a judgment by default for non-appearance that under French law would become void and of no effect as soon as the defendant entered an opposition to the judgment.

80 Erle CJ, with whom Williams J agreed, said at ER 828:

The Twelfth Plea, to the first count, alleges that the judgment in the first count mentioned was a judgment by default for want of an appearance by the defendant in the court of Tribunal of Commerce, and by the law of France would become void as of course on an appearance being entered. I apprehend that every judgment of a foreign court of competent jurisdiction is valid, and may be the foundation of an action in our courts, though subject to the contingency, that, by adopting a certain course, the party against whom the judgment is obtained might cause it to be vacated or set aside. But, until that course has been pursued, the judgment remains in full force and capable of being sued upon.

81 In Nouvion v Freeman (1890) 15 AC 1 the House of Lords considered a judgment of the Spanish Court known as a “remate”. Such a judgment could be recovered in what was known as executive proceedings. If a plaintiff or defendant were unsuccessful in the executive proceedings they were entitled in the same court and in respect of the same subject matter to take ordinary or “plenary” proceedings in which all defences and the whole merits of the matter were once again litigated. In the plenary proceedings the remate judgment was unable to be set up as res judicata or otherwise. A remate judgment could be enforced by the plaintiff if security was given and irrespective of whether an appeal or plenary proceedings were pending. A plenary judgment rendered a remate judgment inoperative and required restoration of any monies paid under it. The House of Lords held that since a remate judgment does not finally and conclusively establish an existence of a debt, no action could be brought upon it in England.

82 Lord Herschell said at page 8:

Now, My Lords, there can be no doubt that in the courts of this country effect will be given to a foreign judgment. It is unnecessary to inquire upon what principle the Courts proceed in giving effect to such a judgment, and in treating it as sufficient to establish the debt... But it was conceded, and necessarily conceded, by the learned counsel for the appellant, that a judgment, to come within the terms of the law as properly laid down, must be a judgment which results from an adjudication of a Court of competent jurisdiction, such judgment being final and conclusive.
My Lords I think in order to establish that such a judgment has been pronounced it must be shewn that in the Court by which it was pronounced it conclusively, finally, and for ever established the existence of the debt of which it is sought to be made conclusive evidence in this country, so as to make it res judicata between the parties.
83 In Boyle v Victoria Yukon Trading Company (1902) 9 BCR 213 the Full Court of the Supreme Court of British Columbia considered an action on a judgment obtained in the Yukon Territory Court. One of the objections raised by the defendant was that as the judgment was a default judgment it was not final and conclusive within the meaning of that expression as applied to foreign judgments in Nouvion v Freeman. The defendants in that case contended that no judgment obtained by default is enforceable as a foreign judgment. Hunter CJ said at 222:

This contention is, on the face of it, unreasonable, as of course all that a defendant, having no assets in the foreign jurisdiction, would have to do would be to ignore the process. I do not think that this is the effect of Nouvion v Freeman. In that case the action was brought on a “remate” judgment, which, by the law of Spain, concludes nothing between the parties as the same, and in fact all questions may be agitated in another action, called a plenary action, in which it may happen that the remate judgment is for all purposes annulled, and had for nothing.

84 After citing the earlier mentioned portion of what Lord Herschell said in Nouvion v Freeman, Hunter CJ continued at 223:

It is true that under the system that prevails in the Yukon, as well as in our Courts, as also in England, a default judgment may be set aside either absolutely or on terms, but so long as it stands it is a final and conclusive adjudication that a debt is due by the defendant if the claim is for debt. It is also true that other expressions occur in the judgments which at first sight would seem to imply that a default judgment has not the finality necessary to make it an enforceable foreign judgment, but I think such expressions must be taken secundum subjectam materiam, as remarked by Lord Bramwell in Sewell v Burdick (1884) 10 App. Cas. 74 at p 104. For example, Lord Watson, p. 13, says: “It must be final and unalterable in the Court which pronounced it.” Now, of course, this judgment is not unalterable in the wide sense, because it can be set aside by a Judge of the Yukon Court, but it is unalterable in the sense that it is conclusive while it stands, being for a fixed ascertained amount, and as Lord Bramwell says, at p. 14, “ The judgment is of such a nature as would found an action of debt.” Again, Lord Herschell says, p. 10, that “The judgment must be such as cannot thereafter be disputed, and can only be questioned in an appeal to a higher tribunal.” This also must be taken to mean so long as the judgment stands, as both the Lord Chancellor, at p. 14, and Lindley, L.J., in the case below, 37 Ch. D. 25-6, evidently considered that default judgments may possess the necessary degree of finality and conclusiveness, and if a default judgment taken as here by reason of the defendant not appearing at the trial (being equivalent to a judgment on the merits, according to Armour v Bate (1891), 2 QB 233) has not this quality, then it is difficult to see what kind of default judgment would have the quality required. In fact, if we were to say merely because a default judgment may be set aside by the Court in which it is taken that therefore it is of not final legal validity for the purpose of international suit, we would, in effect, be saying that the clearer the plaintiff’s case the more useless his judgment would be. Take, for instance, the case of a defendant having no defence to a promissory note. Is it to be said that a plaintiff on getting a default judgment takes nothing by his judgment in the foreign jurisdiction? It seems to me that the law is, as stated by Erle, CJ, in Vanquelin v Bouard ... subject to the limitations as above explained laid down in Nouvion v Freeman about the quality of the judgment, and subject to the qualification that it is not void for manifest error or for want of jurisdiction or fraud, or as being contrary to natural justice, or the like. He says, at p 367-8, “I apprehend that every judgment of a foreign Court of competent jurisdiction is valid, and may be the foundation of an action in our Courts, though subject to the contingency, that, by adopting a certain course, the party against whom the judgment is obtained might cause it to be vacated or set aside. But, until that course has been pursued, the judgment remains in full force and capable of being sued upon”.

85 Armour v Bate, to which reference was made by Hunter CJ as authority for the proposition that a judgment obtained by a plaintiff against a defendant who did not appear at trial was a judgment “on the merits”, was a case in which a plaintiff had claimed an entitlement to recover a sum of 300l deposited by the plaintiff with the defendant, his employer. The defendant pleaded that the deposit was made in lieu of a fidelity bond and as an indemnity to the defendant. There were also claims in the defence of dishonesty and negligence in the plaintiff entitling the defendant to indemnify himself. The defendant had also brought a counterclaim. The plaintiff did not appear at trial and counsel for the defendant abandoned the counterclaim and sought the entry of judgment for the defendant. Judgment was entered and the plaintiff appealed.

86 On appeal the plaintiff claimed that the primary judge should have merely dismissed the action for want of the plaintiff’s appearance rather than entering a judgment for the defendant in circumstances where there were claims of dishonesty and negligence against the plaintiff. Lord Esher MR, with whom Lopes and Kay L.JJ. concurred, was not aware of any form given in the rules for a judgment dismissing an action in the common law. In Chancery, prior to the Judicature Act, the form that was in use recited that no one appeared for the plaintiff and ordered that the action should stand dismissed out of Court. As there was no form then applicable Lord Esher said at 235:

.. it would seem the best course for us to indicate what the form should be. We think that the judgment should be drawn up stating that the action was dismissed for want of appearance of the plaintiff at the trial. The form would be much the same as that formerly in use in the Chancery Division, and its effect will be the same as if the action had been dismissed on the merits; that is, it will give the defendant the costs of the action, and of all the issues that were to be determined between him and the plaintiff. It appears therefore, that the plaintiff has practically failed in this application, the difference between the judgment drawn up and that which we shall direct being a matter of form as far as he is concerned. The appeal must therefore be dismissed with costs, but the judgment will be amended by being drawn up in a form corresponding with the words of the rule.
(emphasis added)

87 Mr Epstein submitted that because Rule 60(b) of the Rules allows an application to be made for relief from a judgment the US judgment is not final and conclusive. It was submitted that the mere theoretical possibility that an application may be made under Rule 60(b) is enough to render it inconclusive and not final. The acceptance of this submission would mean that any judgment obtained in the US Court, whether by default or after a full hearing on the merits, would not be final and conclusive.

88 All the experts agreed that a Rule 60(b) application was theoretically open to the first defendant. No such application has been made and there is no evidence that such an application is even contemplated. The Rule itself states that any “motion under this subdivision (b) does not affect the finality of a judgement or suspend its operation”. The evidence of the experts is that any Motion under Rule 60(b) as it affected the issues the subject of the judgment could not be brought directly in the trial Court. An application would have to be made to the Court of Appeals to remand the Motion to the trial Court and usually only after providing to the Court of Appeals an “indication” from the trial Court that it would be willing to entertain the Motion. This is different from the Australian law.

89 Both Mr Epstein and Mr Kunc submitted that the principles laid down in Nouvion v Freeman subsequently adopted in this country in Ainslie v Ainslie [1927] HCA 23; (1927) 39 CLR 381 govern the decision to be made in this case. I agree. To apply those principles it is important to closely analyse the High Court’s judgment in Ainslie v Ainslie.

90 During their marriage Mr and Mrs Ainslie, to whom I shall refer as “the husband” and “the wife”, were domiciled and resident in Western Australia. In 1919 the wife made a complaint to the Perth Court of Petty Sessions under the relevant sections of the Summary Jurisdiction (Married Women) Act 1896, as amended, that the husband had deserted her. In November 1919 the husband consented to an order being made, which was made, that the wife be no longer compelled to live with the husband, that maintenance be paid to the wife at the agreed rate and that costs at the agreed rate be paid to the wife.

91 In 1925 the husband was domiciled and resident in New South Wales and the wife was temporarily resident in New South Wales. The husband instituted proceedings against the wife in the Supreme Court of New South Wales for restitution of conjugal rights on the ground that in about July 1919 the wife had without just cause or excuse withdrawn from cohabitation with the husband and continued away from the husband and from cohabitation without just cause.

92 The trial judge, Owen J, found in favour of the husband and made a decree for restitution of conjugal rights. The wife appealed and on appeal the Full Court (Street CJ. and Gordon J, Ferguson J dissenting) ((1926) [1926] NSWStRp 83; 26 SR (NSW) 567) allowed the appeal on the basis that the November 1919 order (the WA order) was an answer to the husband’s suit and dismissed the husband’s petition. The husband appealed to the High Court.

93 The husband’s counsel, Dr Evatt, argued that the WA order was not final and conclusive because under the Summary Jurisdiction (Married Women) Act 1896, as amended, on the application of “the married woman or her husband” and “upon cause being shown upon fresh evidence to the satisfaction of the Court” the Court could “at any stage alter, vary or discharge” the WA order.

94 The High Court (Knox CJ, Isaacs, Rich and Starke JJ (Higgins and Powers JJ dissenting)) dismissed the appeal. Knox CJ said at 388:

No doubt, the general rule is that effect will not be given to a foreign judgment unless it be final and conclusive (Nouvion v Freeman). But it seems to me that this rule has no application to the facts of the present case. The effect of the order upon which the respondent seeks to rely is that so long as that order stands the respondent, wherever the order is operative, is relieved of the obligation to live with her husband. The order does finally and conclusively determine that, until it is discharged, the wife is not bound to cohabit with her husband, and its discharge cannot affect retroactively the right to live apart which it confers on her. It is not like an order for payment of alimony, which remains subject to the control of the Divorce Court, which has a discretion to vary it, even as to arrears (Robins v Robins (1907) 2 KB 13). Nor is there any analogy between the provision of this order on which the respondent relies and the provisions of the orders under consideration in Harrop v Harrop (1920) 3 KB 386 and In re Macartney; Macfarlane v Macartney (1921) 1 Ch 522. The real question to be answered is that stated by Gordon J., namely, whether a decree of judicial separation or an order having the same effect pronounced by a Court of competent jurisdiction in the country of the domicile of the parties will be recognised as binding on the parties by the Courts of another country in which they may happen to be. On the whole, I am of the opinion that this question should be answered in the affirmative, and I have nothing to add to the reasons given by the learned Judge in support of that conclusion. (emphasis added)

95 Gordon J’s judgment (at 574), with which Street CJ concurred, included a finding that in principle an order of the type of the WA order, ought to be held binding on the parties wherever they may be. His Honour was of the view that the dictum of Gorell Barnes J in Armytage v Armytage [1898] P.178 at 196 and the opinion expressed in Foote on Private International Jurisprudence (4th Ed.) at p124 supported such a conclusion. Gorell Barnes J expressed the view that “even if the principle should be established that the Courts of the country of the domicil of the parties are the only Courts which can pronounce a decree of judicial separation which ought to be recognised in other countries, in my opinion, no valid reason can be urged against the Courts of a country, in which a husband and wife are actually living, pronouncing a decree which will protect the one against the other so long as they remain within the jurisdiction”. The statement from Foote was: “It would appear clear that decrees for judicial separation, pronounced by Courts other than those of the domicil, can have no extra-territorial operation, and will only remain effective so long as the spouses (or at any rate one of them) remain within the jurisdiction”.

96 The point argued on appeal in the High Court that the judgment was not final and conclusive by reason of the capacity of the Court to vary the WA order under the Summary Jurisdiction (Married Women) Act 1896, as amended, (the Act) was not argued before the Full Court of the Supreme Court of New South Wales.

97 Isaacs J dealt with the finality argument at p 389-390 as follows:

If a judgment is put forward as a bar because by it a matter in contest in another proceeding is res judicata, it must, in my opinion be final in its nature. I also accede to the contention that an order such as the one under consideration, so far as it directs payment of a weekly sum, is, in view of sec. 5 quoted, not final, and therefore not capable of being made the foundation of an action to recover the money. The statutory method of recovery (sec. 7) must be followed. But it is stating the relevant proposition much too widely to say that, because the Court that makes an order may revise it or discharge it, that conclusively shows the order is not final in the required sense. Still more is that so when the order is a composite order, as here, ordering (a) separation, (b) maintenance and (c) costs. One part may be final and another not. For instance, the order was unquestionably final as to costs. As to maintenance, it as clearly not final, because there is nothing to qualify the provisions of sec. 5 above quoted, and therefore there is never at any moment a finally fixed sum in the nature of a “debt”, which can be sued for and considered by another Court as a certain liability. To this Nouvion v Freeman applies, and it finds illustrations in cases such as Harrop v Harrop and In Re Macartney; Macfarlane v Macartney,for the principle does not depend on the judgment being foreign. But as to the “separation” part of the order, it may, and in my opinion does, stand in a different position. In Macartney’s Case Astbury J. says: “The declaration as to paternity determines the status of the child and is clearly in rem”. That part was final.

The true rule is to see whether or not the Legislature has by its enactment left the order entirely floating, so to speak, as a determination enforceable only as expressly provided and in the course of that enforcement subject to revision, or whether the order has been given the effect of finality unless subsequently altered.
(emphasis added)


98 Isaacs J then analysed the provisions of the Act (at p 391) noting that sec 3 enabled an order to be made containing a provision that the “applicant be no longer bound to cohabit with her husband (which provision, while in force, shall have the effect in all respects of a decree of judicial separation on the ground of cruelty)”. He continued at 391:

What, then, is the “effect” of such a judicial separation? It is undoubtedly “final” in the same sense as the County Court judgment referred to, “while in force”. “In force” means until discharged or varied under sec. 5. If a decree for judicial separation is “final” so is the Magistrate’s order as to sec. 3 (a).


99 Rich J noted (at p 407) that no steps had been taken by the husband to set aside or repudiate the agreement to the making of the WA order and that the agreement and the order “are still subsisting”. After citing (at p 408) Lord Birkenhead in Walter v Walter (1921) P 302 at 304, his Honour decided the case on the same principle that whilst there was a subsisting agreement and order that the husband had not sought to set aside or vary, to allow his petition would be “contrary to the justice of the case”.

100 Starke J said at 410:

The contention that the order of the Court of summary jurisdiction in Western Australia is not entitled to recognition in New South Wales because it does not finally and for ever establish the personal rights of the spouses, is based upon a provision in the Acts already mentioned to the effect that the Court of summary jurisdiction may, on the application of the married woman or her husband, upon fresh evidence to the satisfaction of the Court at any time alter, vary or discharge the order. The order is an adjudication and determination in relation to the rights of the parties – it is not in any sense interlocutory. The fact that it can be altered, varied or discharged upon fresh evidence does not destroy its effectiveness as an adjudication whilst it subsists. A judgment is not the less final because it may be reversed on appeal or set aside because of mutual mistake of the parties; and so, in my opinion, a judgment is not the less final because an application may be made on fresh evidence to alter, vary or discharge it. The order remains and is an adjudication of a final and conclusive character until discharged. (emphasis added)

101 In concluding his judgment Starke J stated (at 410) that he had considered the effect of the order itself “without regard to any consent given by the husband to the order or to any admissions thereby involved”.

102 The dissentients took differing approaches. Higgins J was of the view that Nouvion v Freeman was not applicable to the case because the judgment was not for a debt or definite sum of money (at 401). Powers J adopted the analysis of Lord Watson in Nouvion v Freeman (at 13) that the judgment must be “final and unalterable in the Court which pronounced it” and held that the WA order was not a “final judgment” because “ it was one which might at any time be recalled, varied or modified by the Court which made it on just cause shown” (at 405).

103 There was no argument before the High Court that the WA order was not final and conclusive because it was not a judgment or order “on the merits”. However Higgins J seems to have touched upon the concept in his dissenting judgment without referring to the term “on the merits”. His Honour said at 401-402:

There is, however, a point which has not been mentioned in the argument, but which appears to me to become stronger in favour of the appellant the more I consider it. The order of Western Australia is based on agreement between the parties, not on proof of the true facts.... Undefended proceedings require to be vary narrowly scrutinised, because of the possibility of connivance.. and orders by consent also... I recognise, of course, that a finding of a foreign Court, whether of fact or law, cannot usually be impeached when an attempt is made to enforce it elsewhere; but it will not be enforced if it can be shown that it was obtained by fraud, or that the foreign law, or at least some part of the proceedings in the foreign Court, is repugnant to natural justice (Henderson v Henderson [1844] EngR 18; (1844) 6 QB 288); and, according to Robinson v Fenner (1913) 3 KB 835, it is repugnant to natural justice if a decision has been “arrived at in a mode which is according to our notions unjust” or unless it “offend against English views of substantial justice”.... No principle is more deeply imbedded in the practice of British Divorce Courts than the principle that the facts must be proved, and the Court satisfied of the truth apart from agreement or consent.

Higgins J concluded this analysis by stating “I do not venture to decide this appeal on this ground in the absence of discussion” (at 403).

104 The US judgment as to liability was obtained in circumstances where the first defendant was precluded from defending the action. The first defendant was represented at the damages assessment hearing and was able to put forward any evidence and arguments that he wished to make on the quantification of the damages. Mr Epstein submitted that because the first defendant was precluded from defending the action the US judgment was not a judgment “on the merits” but was obtained by reason of procedural default and is therefore not final and conclusive. The procedural default was the first defendant’s failure to comply with procedural obligations for the discovery of documents and attendance for oral depositions.

105 The order of the US Court was not an entry of judgment on liability by reason of the procedural non-compliance “alone”. In June 2000 Judge Pregerson adopted Jones MJ’s recommendations and entered an order striking the first defendant’s answer to the complaint. In September 2000 his Honour made the order that at the hearing to determine the amount of damages the first defendant was to have the opportunity to “contest the amount, extent, or type of relief sought or, if the pleadings are insufficient, to argue that the plaintiffs’ claims should be dismissed because the pleadings fail to assert a claim upon which relief may be granted”. To the limited extent noted in the order the first defendant was heard on liability.

106 In cross-examination Mr Frisenda agreed that the judgment was “final” with respect to the US Court and the Court of Appeals Ninth Circuit (tr. 36). He gave the following evidence:

Q. And insofar as there was any issue before the Court that gave rise to the final judgment, I would suggest to you that the final judgment was on the merits, having regard to those issues?
A. The District Court issued its findings of fact and conclusions of law which is on appeal to the Ninth Circuit Court of Appeals.

Q. And that was a judgment on the merits having regard to the issues the subject matter of the judgment was it not?
A. Yes it was on the merits.
(tr.36)
and:

Q. I put it to you that this judgment of the Central District of California is capable as a matter of United States law of sustaining a plea of res judicata?
A. Yes Mr Kunc it is capable.
(tr. 37)

107 Judge Sarokin gave the following evidence:

Q. Is there an avenue open to a defendant who has suffered the striking out of his defence for procedural default in circumstances where that default is cured, to apply to the trial court?
A. Yes, I think it would be motion for reconsideration of the Court’s prior ruling, suggesting to the court that there has been compliance, and the needs for the sanction no longer exists.


Q. Under what power does the Court entertain that?
A. A motion for reconsideration.. I think if- I can only go by what I would do
under the circumstances had I been sitting. If I had imposed the sanction and
an application was made to me that the defendants now had cured it, there
was no prejudice to the plaintiff, then I might reconsider and vacate the
sanctions and give the defendant the opportunity to go to trial on the merits.
Of course I wouldn’t entertain it after final judgment.
(tr. 60)

In answer as to why he would not entertain the application after final judgment Judge Sarokin said:

Because it is too late. I mean then the plaintiff would be clearly prejudiced, and have to start all over and try a case on the merits. The time to do that would be before the hearing on damages. I probably, in doing so, if there had been a judgment, probably would have required the posting of a bond before I permitted the defendants to go forward on the merits.
(tr. 60-61)


108 In describing the process for the hearing of the damages claim Judge Sarokin was of the opinion that the defendants had “the right to challenge whether the pleadings were sufficient” but that the order did not go “so far as to require the plaintiffs to actually prove the merits” (tr. 55).

109 A Motion for reconsideration has to be distinguished from the Rule 60(b) process. The Motion for reconsideration is an application for the Court to review or reconsider the ruling in which the defence was struck and the counterclaim was dismissed with prejudice. This would be an application to let the defendant in to defend prior to the hearing of the matter. In this case no such application was made. The first defendant did not make any approach to the plaintiffs to fix a further date for his deposition or supply any of the outstanding documents. He maintained that he could not travel out of Australia to attend to his deposition at the very time that he was travelling out of Australia to other parts of the world apparently on business trips. It was open to him to make an application but he did not do so. In that situation the first defendant has knowingly and wilfully allowed judgment to be entered against him without the entitlement to defend the action or propound a counterclaim: Haigh v Haigh (1885) 31 Ch D 478 at 484.

110 The respective counsel relied upon a number of authorities in respect of the term “on the merits”. In Desert Sun Loan Corp v Hill [1996] 2 All ER 847, Evans LJ said at 855 and 856:
The natural meaning of 'final and on merits' is that there has been a final, as opposed to provisional, determination of the parties' substantive rights.

Returning to the requirement that the foreign court's judgment must have been 'final' and 'on the merits', the distinctions usually drawn by the English court are between 'final and interlocutory ('interlocutory' in this context including both definitive (e.g. leave to defend) and provisional (e.g. interlocutory injunctions) rulings); between substantive and procedural; or between substantive issues and, for example, a limitation defence (which was held not to involve a decision 'on the merits' in Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1975] UKHL 2; [1975] 1 All ER 810, [1975] AC 591. So it would seem that the rule defined in terms of 'a final judgment on the merits' cannot apply when there was no more than an interlocutory decision on a procedural and non-substantive issue.

111 In DSV Silo-und Verwaltungsgesellschaft mbH v Sennar (owners), The Sennar [1985] 2 All ER 104, [1985] 1 WLR 490 (the Sennar No.2) Lord Diplock said at 106,493-494:
It is often said that a final judgment of the foreign court must be "on the merits". The moral overtones which this expression tends to conjure up may make it misleading. What it means in the context of judgments delivered by courts of justice is that the court has held that it has jurisdiction to adjudicate on an issue raised in the cause of action to which the particular set of facts give rise; and that its judgment on that cause of action is one that cannot be varied, reopened or set aside by the court that delivered it or in the other court of co-ordinate jurisdiction although it may be subject to appeal to a court of higher jurisdiction.

112 Lord Brandon of Oakbrook said at 499:
Looking at the matter negatively a decision on procedure alone is not a decision on the merits. Looking at the matter positively a decision on the merits is a decision which establishes certain facts as proved or not in dispute; states what are the relevant principles of law applicable to such facts; and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned.

113 In Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508 Kirby P said at 518:
It may be understood that if a judgment, on its face, is contingent or provisional, it will not have that element of finality which it is the purpose of the law of res judicata to defend. But where the judgment is on its face final, the mere fact that a party has a privilege to apply to have that judgment set aside cannot convert it to a contingent or provisional judgment forever flawed and incapable of giving rise to res judicata.

114 In Four Embarcadero Center Venture et al v Kalen et al 65 OR 551 Henry J said at 579:
There is no authority for the proposition that a foreign judgment of a court of competent jurisdiction in the international sense may be impeached and reopened on the ground that the court had not considered the merits. Such a judgment is to be regarded as disposing of the claim before it just as finally and conclusively as if the merits had been actually tried. To hold otherwise would lead to the result that no default judgment could ever be enforced.

115 Spencer Bower, Turner & Handley explain at paragraphs 64, 75 and 90 of The Doctrine of Res judicata (3rd ed):

With certain exceptions (namely ‘penal judgments’), a foreign judicial decision whether relied upon as the foundation of an action, or by way of estoppel, is conclusive and is impeachable only on the same grounds as the decision of an English Tribunal... onus as to jurisdiction lies upon the parties setting it up as a res judicata, and answers such as fraud or public policy may be raised in the action in which the judgment is set up... The conclusiveness of a judgment, English or foreign, when sued upon is a manifestation of res judicata estoppel... The original cause of action having merged in the judgment, transit in rem judicatam; no question of merit is left for inquiry... The considerations which are relevant to the application of the doctrine of res judicata to foreign judgments are applicable to a plaintiff who sues upon a foreign judgment. To succeed he must prove the judgment and must show that (a) the judgment is that of a foreign court having jurisdiction in the particular sense, (b) it is final on the merits, and (c) it was given between the same parties.

116 In Everest & Strode’s Law of Estoppel (3rd edition) the learned authors wrote at 124: “The English Courts will not recognise as conclusive a judgment of foreign Court which was: (a) Not final and conclusive when pronounced, or (b) not a decision on the merits”.

117 The first defendant submitted that the US judgment was not final and conclusive when pronounced or a decision on the merits. It was submitted that in the ordinary course the US judgment would be set aside in this Court, if the defendant was able to show an arguable defence on the merits to the plaintiffs’ claim. In support of this proposition Mr Epstein cited the following: Supreme Court Rules (SCR) Part 17 Rule 9 (1), Part 23 Rule 4 (c), Part 40 Rule 9 (2)(a); Cohen v McWilliam (1995) 38 NSWLR 476; Evans v Bartlam (1937) AC 473; Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146. The relevant question in this case is how the foreign tribunal treats the judgment, not how the local court treats it. However I shall deal with the submission in considering whether the judgment was arrived at in a mode which is according to our notions unjust or offensive to substantive justice: Ainslie v Ainslie per Higgins J at 402.

118 Cohen v McWilliam was a case in which Bryson J had refused to allow the appellant to amend her defence on the first day of the trial raising a new defence which, after five years from the date of the filing of the plaintiffs’ pleading, would cause “considerable procedural injustice” to the plaintiffs and was a matter that his Honour concluded could not be cured by an adjournment and an award of costs.

119 The Court of Appeal (Priestley and Sheller JJA, Cole JA dissenting) held that such refusal amounted to a miscarriage of justice and made orders allowing the appellant to file an amended defence and remitting the matter to the Equity Division for hearing. After citing Sir Samuel Griffith’s statement in Rowe v Australian United Steam Navigation Co Ltd [1909] HCA 25; (1909) 9 CLR 1 at 6 that “the right of every man to a fair hearing before he is condemned lies at the root of the tree of justice”, Priestley JA said it “was plain” that “the appellant was not personally responsible” for the late application to amend the defence (at 477). Sheller JA reached the same conclusion going so far as to say, although without hearing from the solicitors, that the apparent failure by them to take instructions in relation to the defence was “inexplicable and negligent”(at 491). Cole JA took a different view, concluding that as the appellant had left the conduct of her defence in the hands of her estranged husband and her solicitor during the five years, the fact that they failed her, gave her no ground to complain of an injustice (at 501).

120 Each of the Judges of Appeal referred directly or indirectly to the concept of ‘court efficiency’ and the place it should have in the exercise of the discretion of a trial judge. Emphasis was placed upon what Lord Wright said in Evans v Bartlam [1937] AC 473. That was a case dealing with a default judgment and an application to set it aside. Lord Wright said at 489: “The primary consideration is whether he has merits to which the Court should pay heed: if merits are shown the Court will not prima facie desire to let a judgment pass on which there has been no proper adjudication”.

121 Assuming the validity of this statement even though Cole JA said it reflected a philosophy that was outdated and rejected (at 500), it, and the case on appeal generally, do not provide any support for the first defendant. His was not a case of neglect or delay or a default judgment in US law. The US Court struck the first defendant’s defence and dismissed his counterclaim with prejudice on the basis that the first defendant had committed a fraud on the Court. The first defendant had claimed he could not travel out of Australia to comply with the procedures of the US Court when the evidence established that he was travelling out of Australia to various parts of the globe to conduct his personal and/or business affairs. He had not applied for a reconsideration of the strike out or dismissal and had, through his attorneys, attended and participated in the hearing on damages. I am not satisfied that Cohen v McWilliam or Evans v Bartlam, in so far as they support the proposition generally that a litigant with a meritorious defence will be let in to defend in certain circumstances, are applicable to the circumstances of the present case.

122 Reliance was also placed upon the decision of the High Court in Queensland v JL Holdings Pty Ltd which was another case in relation to a refusal to allow an amendment to a pleading. In that case Kiefel J had refused to allow the amendment on the basis that the amendment would jeopardise the hearing dates, a factor her Honour regarded as the “most relevant consideration” in exercising her discretion. The Full Court of the Federal Court (Whitlam and Sunberg JJ, Carr J dissenting) granted leave but dismissed the appeal. The High Court granted special leave to appeal, allowed the appeal and granted the appellant leave to amend the pleading.

123 I am not satisfied that the principles enunciated in Queensland v JL Holdings Ltd support the first defendant in the present case. In leading to the conclusion that “perhaps extreme circumstances” would warrant shutting a party out from litigating an issue that was fairly arguable, Dawson, Gaudron and McHugh JJ referred to Cropper v Smith (1884) 26 Ch D 700 and Clough & Rogers v Frog (1974) 48 ALJR 481. In Cropper v Smith Bowen LJ said at 710: “I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct. (emphasis added). In Clough & Rogers v Frog the High Court referred to Cropper v Smith and said at 482:

As, the defence, if established, would be a complete answer in either action, the amendments sought should have been allowed unless it appeared that injustice would thereby have been occasioned to the respondent, there being nothing to suggest fraud or improper concealment of the defence on the part of the appellants. (emphasis added)

124 In the present case the first defendant’s submissions included a document setting out propositions of US law for which he contended. That document included a number of propositions with which the plaintiffs did not take issue. Relevant uncontested propositions, although somewhat repetitive, included the following:

9. The Federal deposition-discovery Rules supersede the practice of framing issues by the pleadings. Those Rules have abrogated the function of the complaint, to state fully and in detail the claims on which the plaintiff will rely and the litigants have the responsibility of limiting such claims by employing the discovery methods which are available. The office which pleadings continue to serve is that of giving notice and the deposition-discovery processes necessarily are invested with the essential function of formulating the issues and the burden of advising the adverse parties of the facts involved.

10. The Federal Rules of Civil Procedure dealing with discovery practice contemplate that the pleadings in the District Court are to be supplemented by discovery of facts. The philosophy of the Rules is to reduce to the minimum the factual allegations which need to be recited in a pleading, leaving to the various forms of pre-trial procedure and discovery the function of ascertaining additional details. The development of facts in pre-trial proceedings, insofar as possible, should be accomplished under the provisions of the Federal Rules providing for discovery, depositions, interrogatories and the like, instead of by exercise of discretion to require additional pleadings. Bills of particulars are no longer necessary to limit and define issues.

11. The Federal Rules restrict the pleadings to the task of general notice giving and invest the deposition-discovery process with a vital role in the preparation for trial. (emphasis added)

12. Pre-trial examination of a party is intended to take the place of the old precise pleadings and bills of particulars. Under the prior federal practice, the pre-trial functions of notice-giving, issue-formulation and fact-revelation were performed primarily and inadequately by the pleadings. Inquiry into the issues and the facts before the trial was narrowly confined and was often cumbersome in method. The new Rules however, restrict the pleadings to the task of general notice-giving and invest the deposition-discovery process with the vital role in the preparation for trial. (emphasis added).

16. The permissible sanctions under Rule 37 include orders striking out
pleadings or rendering a judgment by default.

125 The first defendant accepted that the deposition and discovery process was “vital” to the preparation for trial and that a sanction available to the Court was the striking of a pleading. The basis of the exercise of the sanction was not a delay or some explicable conduct by the first defendants or his attorneys. It was the fraud on the Court and the refusal to provide documents relevant to the issues between the parties. This seems to me to fit within the category referred to by the High Court where there is justification for shutting a party out from litigating a fairly arguable issue. I am not of the view that the judgment was arrived at in a mode which is unjust or offensive to substantive justice.

126 Mr Epstein submitted that a judgment that is given by use of procedures that disentitle the first defendant from propounding all available defences is not entitled to recognition or enforcement. He submitted that the judgment of the US Court is really like the remate judgment in Nouvion v Freeman and the Rule 60(b) procedure is really akin to the plenary proceedings in Nouvion v Freeman whereby a party can re-litigate the issues.

127 In the US Court the first defendant had all available opportunities within the Rules to litigate the issues between the parties. He made a decision not to comply with the Rules and to put forward to the Court what were found to be fraudulent excuses as to why he could not take part in the “vital” processes. His capacity to propound his defence was only removed after he made this decision. The proceedings in which a remate judgment in Nouvion v Freeman was given were known as “summary” or “executive” proceedings. The object of these proceedings was to enable creditors and others to enforce their claims by short and expeditious means, when certain determined conditions existed. In those proceedings the defendant was not permitted to raise every defence. He could plead payment and want of jurisdiction but could not set up any defences that challenged the contract itself, the validity of which the law assumed in summary proceedings. At the conclusion of the hearing the judge had only three available courses: (1) the proceedings could be annulled for irregularity, (2) judgment could be given for the defendant or (3) if the plaintiff was “in the right” the Court pronounced a “remate” or “closing” judgment: In re Henderson. Nouvion v Freeman (1887) 35 Ch D 704 at 710 and 711.

128 If the defendant had an answer to the plaintiff’s claim that was not available by way of defence in the summary/executive proceedings it was open to the defendant, “either before the beginning of, or pending, or after the close” of the summary/executive proceedings to commence “ordinary” or “plenary” proceedings. In ordinary/plenary proceedings “every legal answer to his opponent’s claim is available” to the defendant, including “any points already set up even unsuccessfully,” in the summary/executive action: In Re Henderson at 712.

129 In the US Court a party is not precluded from raising defences of a particular kind. It is only if there is, as there was found to be in this case, conduct by a party which warrants sanctions that defences or answers may be precluded. This is an outcome brought about by the party’s conduct. This is quite different from the summary/executive proceedings which preclude defences irrespective of the parties’ conduct. It is also clear that the process under Rule 60(b) to seek relief from a judgment is commenced after judgment is given. The ordinary/plenary proceedings may be commenced at any time. I am not satisfied that the analogy is apt.

130 Mr Epstein did not contend that the US Judgment is a default judgment but submitted that the judgment has relevantly all the same characteristics as a default judgment in that it arises in consequence of non-compliance with the procedural requirements of the foreign jurisdiction. He submitted that it is irrelevant that res judicata arises in California and that under Australian law this “default type” of judgment has not given rise to res judicata or an ability to enforce the judgment by action in this Court. He submitted that the US Judgment is not final and conclusive on the merits and that such position is demonstrated by the availability of the Rule 60(b) procedure. He submitted that it is irrelevant that the first defendant has not taken the step of making an application under the Rule.

131 The position that would flow from an acceptance of these submissions is that no judgment of the US Court - whether final, default or of a “default type”- would be able to be enforced in this country by reason of the availability of the Rule 60(b) process. Mr Epstein referred to this as an “anomaly” that was yet to be decided in any case or referred to in any academic writing. The further feature to Rule 60(b) that impacts upon the position is the time frame within which a party must bring an application under the Rule. There is a 12 month time limit in respect of the first three categories within the Rule and within a “reasonable time” for the other categories. I apprehend that what a reasonable time would be would depend upon the facts of each case.

132 Although Mr Epstein referred to this as an anomaly that had not been dealt with, I am not satisfied that the decided cases do not deal with the situation.

133 Nouvion v Freeman and Vanquelin v Bouard are authorities for the proposition that the test of finality is how the foreign jurisdiction treats the judgment. The evidence in this case is overwhelming that the foreign jurisdiction treats the judgment as a final judgment and that it is res judicata the issues between the parties to the litigation. The effect that an application under Rule 60 (b) may have on the finality of the US Judgment is expressly dealt with in the Rule. It sates: “A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation”.

134 From the cases earlier cited it is clear that there are differing approaches to the meaning of “on the merits” in the international law sense. The first defendant has used that term in the sense that the judgment was given in proceedings that were in reality undefended even though the first defendant was allowed to appear at the damages hearing and put the arguments to which I have already referred on liability and call evidence on damages. The US Judgment was not a simple procedural entry of judgment in favour of the plaintiffs on liability. The judgment dealt with a number of deemed admissions that the first defendant had made by reason of the failure to respond to the plaintiffs RFAs. The Judgment set out the findings of fact and the application of the principles of law to those facts and the entry of judgment in the plaintiffs’ favour: The Sennar No.2 per Lord Brandon of Oakbrook at 499. Notwithstanding that distinguishing feature I will approach the first defendant’s submission as to “on the merits” on the basis that the case was undefended.

135 Ainslie v Ainslie is authority for the proposition that a foreign judgment will be enforced even if it is not a judgment “on the merits” in the sense that it was undefended or by consent. The husband in that case did not defend the complaint and the WA order was made by consent. None of the judges in the majority in that case required the wife to establish that the order was final “on the merits” in that sense. In fact Starke J’s statement that he had not considered the husband’s agreement or the possible admissions that may have flown from the agreement militates against such a requirement. A default judgment or consent judgment is still capable of being final and conclusive on the merits.

136 There are also the Canadian cases: Boyle v Victoria Yukon Trading Company (1902) 9 BCR 213; Bank of Bermuda Ltd v Stutz (1965) 2 O.R. 121; Four Embarcadero Center Venture et al v Mr Greenjeans Corp et al. (1988) 64 O.R. (2d) 746; Four Embarcadero Center Venture et al. v Kalen et al (1988) 65 O.R. (2d) 551 and Minkler and Kirschbaum v Sheppard (1991) 60 B.C.L.R. (2d) 360. Mr Epstein submitted that unless these cases can be seen to be convincing and persuasive in their underlying reasoning I should not follow them in their “benevolent approach in respect of their large southern neighbour”. I shall now deal with those cases.

137 I have already referred to Boyle v Victorian Yukon Trading Company specifically to the judgment of Hunter CJ. The defendant operated a transportation company between British Colombia and the Yukon Territory and undertook to carry for the plaintiff certain goods from British Columbia to the Yukon Territory. The defendant failed to deliver and the plaintiff commenced an action for damages in the Yukon Territorial Court. A statement of defence was filed and at trial no one appeared for the defendant. Judgment was entered by default. The plaintiff then commenced an action in the Supreme Court of British Columbia on the Yukon judgment. The defendant appeared and after a hearing Drake J entered judgment for the plaintiff. The defendant appealed to the Full Court.

138 The defendant argued that the judgment had been obtained on an ex facie void contract. This ground failed. The defendant also argued that the foreign judgment of the Yukon Territory must be not only final and conclusive, but it must also have passed beyond the control of the Court pronouncing it. It was argued that the judgment could be set aside by a judge in Chambers on “just cause being shewn on an application within 15 days from the judgment, and the time may be extended” and was thus not final and conclusive.

139 Hunter CJ recorded the admission by counsel for the defendant that he was driven to contend that no judgment obtained by default is enforceable as a foreign judgment. Of this position Hunter CJ said at 222: “This contention is, on the face of it, unreasonable, as of course all the defendant, having no assets in the foreign jurisdiction, would have to do would be to ignore the process”. His Honour then went on to the analysis earlier extracted in this judgment as to why such a contention was not supported by Nouvion v Freeman. I will not repeat that analysis here.

140 Martin J, at 230, referred to the fact that many cases had been cited on the point but in his opinion Erle CJ’s judgment in Vanquelin v Bouard, extracted earlier in this judgment, exactly determined the point. It was to the effect that until the course was taken by a party to set aside the default judgment it “remained in full force and capable of being sued upon”. Vanquelin v Bouard was not referred to in Nouvion v Freeman.

141 In Bank of Bermuda Ltd v Stutz the defendant in proceedings in the Supreme Court of Bermuda was ordered to deliver a list of documents and to allow inspection within a specified time frame. The defendant failed to provide the list and his defence was struck out. The Court ordered that the plaintiff was at liberty to sign judgment against the defendant. Judgment was subsequently entered in the plaintiff’s favour. The defendant made application to dismiss the action in the Ontario court on the foreign judgment on the basis that it disclosed no reasonable cause of action. Justice Jessup dismissed the defendant’s application adopting reasons for judgment given by Mr Justice Hughes in an earlier motion as follows:

Application dismissed with costs for the reasons given by Hunter C. J. B. C. in Boyle V. Victoria Yukon Trading Co (1902) 9 BCR 213, and see Nouvion v Freeman (1889) 15 A.C. 1 at pp 9-10:
“The principal upon which I think our enforcement of foreign judgments must proceed is this: that in a Court of competent jurisdiction, where according to its established procedures the whole merits of the case were open, at all events, to the parties, however much they may have failed to take advantage of them, or may have waived any of their rights, a final adjudication has been given that the debt or obligation exists which cannot thereafter the dispute, and can only be questioned in an appeal to a higher Tribunal”.

a The italics are mine: and in my view the whole merits of this case were open to this applicant in the Bermuda Court. The existence of the debt is res judicata between the parties until appeal or set aside upon proper grounds, this being no “remate” (remate) judgment as in the Nouvion case: cf Boyle v Victoria, supra. Moreover, there is no question of the applicant not having been able to defend upon the merits in Bermuda as to impair the quality of res judicata in “The Challenge” and Duc d’Amale [1904] p.41


142 The defendant sought leave to appeal. Refusing leave, Wilson J, at 123, expressed the view that the facts of Nouvion v Freeman “are so different from those at Bar that it can hardly be applied here”. After reference to a number of Ontario cases his Honour expressed the opinion that there was no conflict with Boyle v Victoria Yukon Trading Co. His Honour referred to Pearson J’s judgment in Haigh v Haigh in support of the proposition that the defendant had “with full knowledge and wilfully, allowed the judgment to go by default” and said: “Here the defendant attorned unto the jurisdiction of the Court in Bermuda which appears to have dealt very fairly with him and he is not entitled to the relief asked on this application”.

143 The next are the two Four Embarcadero cases. There were in fact a number of Embarcadero cases in Ontario that arose out of series of judgments obtained in the Supreme Court of the State of California for the City and County of San Francisco, the State Court, by Embarcadero against Mr Greenjeans Corp., Mr Greenjeans Galleria Corp, Kalen and Bromberg. The original judgments that were obtained were in the amount of approximately $7.6 million and arose out of a dispute in relation to a lease and the construction of a hamburger restaurant in California. Embarcadero sought to enforce the judgments in Ontario.

144 In the Mr Greenjeans Corp case (1988) 64 O.R. (2d) 746 Henry J dealt with an application by Greenjeans to dismiss Embarcadero’s case on the grounds that included a claim that the Californian judgment was not final, not res judicata between the parties and not on the merits because it was issued as a result of the striking out of the defendant’s pleadings and was contrary to natural justice and unenforceable. Henry J stated the Anglo-Canadian principle that the foreign judgment must be final and conclusive as to the existence of a debt in the Court in which it was pronounced and cited Nouvion v Freeman as the decision from which the principle was derived (at 752).

145 Henry J also noted that the right Greenjeans once had to have the trial Court rehear the issues in the actions or have the trial Court amend the judgment which was then under appeal had not been invoked by Greenjeans during the limited time that was available. These provisions for the State Court to which Henry J referred (at 755) seem not dissimilar to Rule 60 (b). After a detailed examination of the authorities Henry J said at 764:

At this point I conclude that the law of Ontario defining the conditions upon which a foreign judgment for the payment of money to the plaintiffs may found an action to recover the judgment debt, has adopted the rule in Nouvion v Freeman, and has applied it to both judgments adjudicated upon the merits and to judgments by default. Under the law of Ontario the question to be asked is: “What are the characteristics of the foreign judgment that enable the judgement debt to be recovered by action in Ontario?” The answer is: “A judgment that, under the laws of the jurisdiction where it was made, is final between the parties, in the sense that under the foreign law the court that made it has no jurisdiction or residual power to abrogate or vary it or to retry the issue that it has decided. The fact that an appeal is pending which may result in its being rescinded or varied does not deprive the judgment of its finality in the sense mentioned”.

And at 766:

In my opinion, that is the concept in Anglo-Canadian law of the doctrine of res judicata as contemplated by the decision in Nuovion, i.e., that the issues decided by the trial court may not, in accordance with the law of the foreign court, be reviewed or reopened, and the judgment abrogated or varied by that court, unless by order of the Court of Appeal.


146 In the Kalen case 65 O.R. (2d) 551 Henry J considered Kalen’s application in which it was claimed that because the judgment was entered as a result of the striking out of Kalen’s pleadings with an undefended assessment of damages it was unenforceable in Ontario. Henry J said at 563: “a default judgment so long as it remains unreversed is to be treated as final”. I have earlier extracted that part of Henry J’s judgment (at 579) in which his Honour referred to there being no authority for the proposition that the foreign judgement could be impeached or reopened on the ground that the court had not considered the merits. His Honour said: “Such a judgment is to be regarded as disposing of the claim before it just as finally and conclusively as if the merits had been actually tried”. Henry J also considered two cases in which the foreign judgments dismissed actions because the limitation period had expired: Black-Clawson Int’l Ltd v Papierwerke Waldhof – Aschaffenburg AG [1975] UKHL 2; [1975] 1 All ER 810 (H.L.); Harris and Adams v Quine (1869) L.R. 4 Q.B. 653 (Q.B.). Of these cases Henry J said at 579:

The English court in each case held that the effect of the foreign judgment was simply to declare that the action could not be litigated in that court as being out of time. It related only to the availability of the foreign court and did not preclude the plaintiff proceeding anew in the English court where it was not barred by statute. These cases do not alter the general principle as I have stated it of the recognition and enforceability of a foreign judgment of a court of competent jurisdiction which has pronounced judgment in the cause by default or after trial against the defendant.

147 In Skaggs Companies Inc v Mega Technical Holdings Ltd, Court of Queen’s Bench of Alberta, Judicial District of Edmonton, unreported, Master Funduk, in Chambers 11/07/2000, the plaintiff, an American corporation resident and carrying on business in Utah, had sued the defendant, which had a presence in Alberta, in the Third District Court of the State of Utah. In August 1999 “judgment by default” was entered in the Utah Court. The plaintiff commenced proceedings in Alberta suing on the initial debt and on the judgment. Before Master Funduk the plaintiff claimed summary judgment on the Utah judgment.

148 Master Funduk reviewed the Canadian authorities already mentioned and a number of other authorities and in addition referred to Rule 60(b)(6) of the Utah Civil Court Rules which provided for application for relief from a default judgment in terms which are very similar to Rule 60 (b). The Master concluded:

[35] ...the Utah judgment fits within the test of being final and conclusive. Whether the test is just a one branch test (“final” and “conclusive” meaning the same thing) or a two branch test (“final” and “conclusive” meaning different things) the result here is the same. The Utah judgment meets the test. It is final as to amount and it is conclusive as to the existence of the debt.

[36] If a default judgement is not a final judgment local defendants who have contractually attorned to the foreign court’s jurisdiction can evade that agreement merely by not entering an appearance in the foreign lawsuit. The plaintiff would then be forced to sue in the local court on the original cause of action. Local defendants cannot subvert what they contractually agreed to by the simple ploy of not entering an appearance in the foreign lawsuit.

149 The Master found for the plaintiff and indicated that summary judgment would be entered, whereupon the defendant sought an adjournment to make application under Rule 60 (b)(6) of the Utah Civil Court Rules to be relieved from the default judgment. The Master refused the adjournment but allowed three months before the judgment was to come into force, noting that if the defendant was successful in persuading the Utah Court to set the judgment aside it could make application to stay or set aside the Alberta judgment.

150 The evidence in the present case is overwhelming that the only way in which the US Court could consider a matter arising under Rule 60 (b) is by order of the Court of Appeals remanding it to the US Court. The US Court no longer has jurisdiction to deal with the matter in relation to those aspects of the case involved in the appeal and can only be invested with jurisdiction by the Court of Appeals’ remand. The fact that the parties might approach the trial Court to obtain an “indication” from it as to its willingness to entertain the Motion under Rule 60 (b) if it is so remanded, does not in my view detract from what I find to be the irresistible conclusion that the trial Court no longer has jurisdiction. As I have said earlier the evidence is also overwhelming that the US judgment is res judicata in California.

151 It was submitted that the debate about the judgment being “on the merits” is a matter that has been fuelled by some of the text writers on the subject of estoppel and res judicata introducing those words into the discourse. If by that term is meant that the foreign Court that pronounced the judgement does not have the jurisdiction to set the judgment aside or vary it, then the US judgment satisfies this requirement.

152 If the term means that the US Judgment cannot be enforceable if the case was undefended, the weight of the authorities is against such a proposition. The Canadian authorities are consistent with the decision of the High Court in Ainslie v Ainslie. A default judgment, or to use Mr Epstein’s expression a “default type” judgment, will be enforceable so long as it stands.

153 In applying what Isaacs J said in Ainslie v Ainslie at p 390, the question is whether the US judgment is “entirely floating as a determination enforceable only as expressly provided and in the course of that enforcement subject to revision” or whether it “has been given the effect of finality unless subsequently altered”. I am satisfied that it is the latter rather than the former.

154 There is nothing within the process of the US Court that is inconsistent with the law or morality of the enforcement of such a judgment in this jurisdiction. The first defendant was not denied natural justice. He made no application for a reconsideration of the orders striking out his Answer or dismissing his Counterclaim with prejudice. He made no application under Rule 60 (b). Even accepting the submission that this is a “default type” judgment I am satisfied that the authorities establish that it is final and conclusive (on the merits) while it stands. To accept the first defendant’s submissions that the theoretical possibility of an application under Rule 60(b) means that no judgment of the US Court can be enforced in this country as a final and conclusive judgment would not in my view be consistent with the application of private international legal principles to the business “world community” in these modern times: Morguard Investments Ltd v de Savoye (1990) 52 BCLR (2d) 160 per La Forest J at 176-177.

155 I am satisfied that the US Judgment, so long as it stands, is a final and conclusive judgment and is able to be enforced subject to the further arguments in relation to (1) the cause of action of breach of implied covenant of good faith and fair dealing and (2) penalty, with which I will now deal.

Good Faith and Fair Dealing
156 The first defendant submitted that the cause of action for damages for “breach of implied covenant of good faith and fair dealing” should not be recognised and enforced, since it lies outside the “jus gentium”, “the accepted common law of nations” (Spencer Bower at para 72). The plaintiffs submitted that such a proposition is not a separate ground for declining to enforce a foreign judgment and in any event in New South Wales a duty of good faith will be implied as a matter of contract.

157 The first defendant’s proposition, without more, is not supported by Professor H E Read in Recognition and Enforcement of Foreign Judgment (1938) Harvard University Press. The learned author said at page 295:
Probably a safe prediction is that a valid foreign judgment will not be enforced when the cause of action is unknown to the law of the forum, and, in addition, to enforce it, especially perhaps against a domiciliary, would violate an established policy of the forum. Mere unfamiliarity should not be fatal, unless the court is unduly insular.

158 In Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Priestley JA referred to the familiarity to judges and lawyers of the courts applying standards of fairness to contract “which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance” and expressed the view that “this is in these days the expected standard, and anything less is contrary to prevailing community expectations” (at 268F-G).

159 In Alcaltel Australia Ltd v Scarcella [1998] NSWSC 483; (1998) 44 NSWLR 349 the Court of Appeal held that the decisions in Renard and also in Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church (Archdiocese of Sydney) (1993) 31 NSWLR 91 “mean that in New South Wales a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as a part of a contract” (at 369A-B) .

160 For the first defendant’s submission to be successful I would have to be persuaded that the enforcement of the foreign judgment is against public policy. Having regard to the abovementioned cases I am not so satisfied and I agree with the plaintiffs submissions.

Penalty
161 The first defendant submitted that the order for punitive/exemplary damages awarded to Schnabel and Marble are in the nature of a penalty and should not be enforced by this Court. The plaintiffs submitted that such awards are not in the nature of a penalty but are damages awarded by the application of a principle having regard to the determination of the private law rights of the parties. It was submitted that this was not a sanction because the sanction had already been imposed when the first defendant’s Answer was struck and his Counterclaim was dismissed as a result of his non-compliance with the pre-trial procedures.

162 Judge Pregerson dealt with these damages in the following portion of his judgment:

86. The purpose of punitive damages is ..‘to penalise wrongdoer in a way that will deter them and others from repeating the wrongful conduct in the future’”. Luz Chavez v Keat (1995) 34 Cal. App. 4th 1406, 1410 (citation omitted)

87. In assessing punitive damages, courts look at a three-prong test: (1) the nature and responsibility of Defendants’ wrongdoing; (2) the amount of compensatory damages; and (3) the wealth of the Defendants. Neal v Farmers Ins. Exch. (1978) 21 Cal. 3d 910, 928

88. In this case, the nature and reprehensibility of Defendants’ wrongdoing, resulting in fraud, is substantial. Defendants made intentional misrepresentations to plaintiffs and deliberately concealed material facts from plaintiffs, all to plaintiffs’ detriment.

89. The amount of compensatory damages for fraud is also substantial, and totals to more than $2,000,000.

90. Although courts traditionally look to the defendants’ net worth to determine the wealth of the Defendants, where, as here, the Defendants have deliberately interfered with Plaintiffs’ ability to obtain discovery, such an examination is not required. Davidov Co v Issod (2000) 78 Cal. App 4th 597. When a Defendant fails to obey a court order and deprives the Plaintiff the opportunity to meet his burden of proof, multiplying the compensatory damages by four to calculate punitive damages is appropriate. Id.

91. Plaintiffs have established that Defendants engaged in fraud by clear and convincing evidence.

92. Plaintiffs Schnabel and Marble are hereby awarded punitive damages in the total amount of $8,710,416; $4,355,208 is awarded to Schnabel and $4,355,208 to Marble.

163 Pursuant to his findings Judge Pregerson made the following orders:

1. Judgment be entered against Defendants Kevin Y. Lui, Froyer Holdings Development and Trading Company, Froyer Holdings (Asia) Limited, Froyer Holdings USA, Inc. and FSN Top Secret Productions, Inc., and each of them, jointly and severally, and in favour of Plaintiffs as follows:

a. For plaintiff Premier, damages in the amount of $55,263.00, plus prejudgment interest at the rate of seven percent (7%) per annum from March 26, 1998 until the date judgment is entered, plus interest as provided by law from the date judgment is entered until paid;

b. For Plaintiff Catalyst, damages in the amount of $193,883.72, plus prejudgment interest at the rate of seven percent (7%) per annum from March 26, 1998 until the date judgment is entered, plus interest as provided by law from the date judgment is entered until paid;

c. For Plaintiff Schnabel: (1) breach of contract damages in the amount of $930,125.30, plus prejudgment interest at the rate of seven percent (7%) per annum from March 26, 1998 until the date judgment is entered; (2) fraud damages in the amount of $2,177,604.00; (3) nominal damages of $1.00 for interference with prospective economic advantage; (4) punitive damages in the amount of $4,355,208; and (5) interest as provided by law from the date judgment is entered until paid;

d. For Plaintiff Marble: (1) breach of contract damages in the amount of $930,125.30, plus prejudgment interest at the rate of seven percent (7%) per annum from March 26, 1998 until the date judgment is entered; (2) fraud damages in the amount of $2,177,604.00; (3) nominal damages of $1.00 for interference with prospective economic advantage; (4) punitive damages in the amount of $4,355,208; and (5) interest as provided by law from the judgment is entered until paid.

2. The partnership is hereby dissolved.

164 The relevant rule of international law is that the Courts of one country are prohibited from executing the penal laws of another or enforcing penalties recoverable in favour of the State. In Huntington v Attrill [1893] A.C.150 Lord Watson said at 156:

The rule has its foundation in the well recognised principle that crimes, including in that term all breaches of public law punishable by pecuniary mulct or otherwise, at the instance of the State Government, or of some one representing the public, are local in this sense, that they are only, cognizable and punishable in the country where they were committed. Accordingly no proceeding, even in the shape of a civil suit, which has for its object the enforcement by the State, whether directly or indirectly, of punishment imposed for such breaches by the lex fori, ought to be admitted in the Courts of any other country.

165 Lord Watson continued at 156:

In its ordinary acceptation, the word "penal" may embrace penalties for infractions of general law which do not constitute offences against the State; it may for many legal purposes be applied with perfect propriety to penalties created by contract; and it therefore, when taken by itself, fails to mark that distinction between civil rights and criminal wrongs which is the very essence of the international rule....But the expressions "penal" and "penalty", when employed without any qualification, express or implied, are calculated to mislead, because they are capable of being construed so as to extend the rule to all proceedings for the recovery of penalties, whether exigible by the State in the interest of the community, or by private persons in their own interest.

166 Lord Watson referred (at 157) to the decision of the Supreme Court of the United States in Wisconsin v The Pelican Insurance Company 127 U.S. (20 Davis) 265 in which Mr Justice Gray said: "The rule that the Courts of no country execute the law of another applies not only to prosecutions and sentences for crimes and misdemeanours, but to all suits in favour of the State for the recovery of pecuniary penalties for any violation of statutes for the protection of its revenue or other municipal laws, and to all judgments for such penalties." Lord Watson then said at 157-158:

“Their Lordships do not hesitate to accept that exposition of the law, which, in their opinion, discloses the proper test for ascertaining whether an action is penal within the meaning of the rule. A proceeding, in order to come within the scope of the rule, must be in the nature of a suit in favour of the State whose law has been infringed. All the provisions of Municipal Statutes for the regulation of trade and trading companies are presumably enacted in the interest and for the benefit of the community at large; and persons who violate these provisions are, in a certain sense, offenders against the State law, as well as against individuals who may be injured by the misconduct. But foreign tribunals do not regard these violations of statute law as offences against the State, unless their vindication rests with the State itself, for the community which it represents. Penalties may be attached to them, but that circumstance will not bring them within the rule, except in cases where these penalties are recoverable in the instance of the State, or of an official duly authorised to prosecute on its behalf, or other member of public in the character of common informer. ”

167 Almost one hundred years later the English Court of Appeal dealt with the rule in United States of America v Inkley (1989) 1 QB 255. Purchas L.J. said at 265:

From these authorities the following propositions seem to emerge which are relevant to the present appeal: (1) the consideration of whether the claim sought to be enforced in the English Courts is one which involves the assertion of foreign sovereignty, whether it be penal, revenue or other public law, is to be determined according to the criteria of English law; (2) that regard will be had to the attitude adopted by the Courts in the foreign jurisdiction which will always receive serious attention and may on occasions be decisive; (3) that the category of the right of action, i.e. whether public or private will depend on the party in whose favour it is created, on the purpose of the law or enactment in the foreign state on which it is based and on the general context of the case as a whole; (4) that the fact that the right, statutory or otherwise, is penal in nature will not deprive a person, who asserts a personal claim depending thereon, from having recourse to the courts of this country; on the other hand, by whatever description it may be known if the purpose of the action is the enforcement of a sanction, power or right at the instance of the state in its sovereign capacity, it will not be entertained; (5) that the fact that in the foreign jurisdiction recourse may be had in a civil forum to enforce the right will not necessarily affect the true nature of the right being enforced in this country.

168 In Jones v Jones (1889) 22 QBD 425 the Court decided an appeal by the defendant against a Master’s order for an affidavit of documents. The plaintiff brought an action against the defendant for pound breach and rescue of certain hay and straw that had been distrained by the plaintiff for non-payment of tithe rent-charge. The statute under which the plaintiff sued, 2 Will & Mar (1689), permitted the “persons grieved” in a special action on the case “to recover his or her treble damages” and costs of the suit “against the offender or offenders”. Lord Coleridge CJ, with whom Hawkins J concurred, said at 427:

“Treble damages” cannot possibly be compensation to the person grieved, and are plainly inflicted on the offender as a punishment. In other words they are a penalty. The plaintiff is as much suing for a penalty as if he sued for a penalty eo nomine, and this application for an affidavit of documents is therefore made by the plaintiff in a penal action.

169 Almost eighty years later the English Court of Appeal (Lord Denning M.R., Davies L.J., Russell L.J. dissenting) decided an appeal under the same Statute and the Distress for Rent Act 1737 in Abingdon Rural District Council v O’Gorman [1968] 3 All. E.R. 79. Lord Denning M.R., in referring to pound breach at 83 said:

As soon as the distress is impounded, whether on or off the premises, it is in the custody of the law: and anyone who breaks the pound (as by forcing the lock) or takes the goods out of the pound, is guilty of pound breach. He is indictable for a misdemeanour for which he can be sent to prison, and he is also liable to an action which carries penal consequences, namely, for treble damages.

170 Davies LJ referred to what Lord Coleridge, C.J., said in Jones v Jones and said that it was “of cardinal importance” to bear in mind that “the action is a penal one” (at 84).

171 Mr Epstein referred to a number of definitions. In the Australian Law Reform Commission Background Paper 7 “Review of Civil and Administrative Penalties in Federal Jurisdiction”, the definition of “penalty” is discussed as follows at p.12:

An important preliminary question for the Commission is ‘what is a penalty?’ One definition simply notes that a penalty or sanction is, ‘what they do to you to make you do what they want you to do’. The term ‘penalty’ is generally defined as a punishment, most often in the form of a payment of a sum of money, although case law has it that the word ‘is large enough to mean, is intended to mean, and does mean by any punishment, whether by imprisonment, pecuniary penalty or otherwise’ (R v Smith) [1862] EngR 164; (1862) Le & Ca 131, 138 CCR Blackburn J). Civil sanctions include fines, damages divestiture orders, restitution and compensation orders, confiscation orders, injunctions, warnings, cease and desist orders, licence revocation, suspension or cancellation, and many more: A Freiberg Reconceptualizing Sanctions (1987) 25 (2) Criminology 223, 225.

172 H Black, Blacks Law Dictionary 5th ed 1979 defines “penalty” as: An elastic term with many different shades of meaning: it involves ideas of punishment, corporeal or pecuniary or civil or criminal, although its meaning is generally confined to pecuniary punishment.

173 It was submitted that a species of punitive damages ought not to be equated to punitive damages in the sense in which that concept is known to the Australian Law. For punitive damages to be available under Australian Law, the defendant must act in contumelious disregard of the plaintiff’s rights, rather than with disregard to the court’s procedures. It is an aspect of punitive damages, as they are known in Australian Law, that they serve to assuage any urge for revenge felt by victims and to discourage the temptation to engage in self-help likely to endanger the peace: Lamb v Cotogno [1987] HCA 47; (1987) 164 CLR 1; Gray v Motor Accident Commission (1998) 196 CLR 1.

174 Dicey & Morris in The Conflict of Laws at pp 89 discuss Rule 3 which is in the followings terms: “English Courts have no jurisdiction to entertain an action: (1) for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign State; or (2) founded upon an act of State”. The first defendant characterises the multiple damages awarded by Judge Pregerson as falling within the category of a penal law or other public law.

175 It was submitted that the substance of the matter is that the US judgment constituted a sanction for the defendants’ non-compliance with the US court’s discovery procedures and not the recognition and enforcement of the plaintiff’s private law rights. As such, the present proceedings are proceedings for the enforcement of a “public law” of a foreign state, which this court has no jurisdiction to entertain: Dicey and Morris at 89-106: Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd [1988] HCA 25; (1987) 10 NSWLR 86, (1988) 165 CLR 30; Attorney-General (UK) v Wellington Newspapers Ltd [1987] NZHC 377; (1988) 1 NZLR 129 at 1503 cf at 173-5; United States of America v Inkley (1989) 1 QB 255, Attorney General of New Zealand v Ortiz (1982) 1 QB 349, (1984) AC.

176 Judge Pregerson stated that the purpose of the punitive damages was to “penalise” the first defendant and to deter others from failing to comply with the court’s orders (at [86]). Although the plaintiffs were placed in a situation of detriment by the failure of the first defendant to comply with the Court’s orders, the damages were not compensation for the detriment. The damages were to punish or penalise the first defendant and even though the damages were payable to the opposing party, as in Jones v Jones and Abingdon Rural District Council v O’Gorman, as opposed to the State, I am of the view that the purpose of the award of the damages was to punish the first defendant and was a sanction. Multiple damages were the “penal consequence” for the first defendant’s failure to comply with the Court’s orders.

177 Punishment for the failure to comply with the US Court’s order in my view does fall within the categories of either a penal law or other public law of the foreign jurisdiction and is unenforceable by this Court. The first defendant submitted that the whole of the judgment is unenforceable in those circumstances. The plaintiffs submitted that the punitive/exemplary damages were only awarded to Schnabel and Marble and were severable from the balance of the judgment. It was submitted that this was made possible by the way in which Judge Pregerson awarded separate amounts that he identified as punitive/exemplary damages in favour of Schnabel and Marble.

178 In Raulin v Fischer [1911] 2 KB 93 the plaintiff was suing for the recovery of the English equivalent of 15,917 francs that had been awarded to him by the Civil Court of First Instance of the Department of the Seine. The plaintiff had intervened in a criminal prosecution (action publique) of the defendant on a charge of criminal negligence in recklessly galloping her horse in the Avenue du Bois de Bologne in Paris running into and injuring the plaintiff. The plaintiff claimed damages for his injuries and his action (action civile) was tried with the action publique and one judgment was produced on both actions. The defendant was convicted and sentenced to imprisonment for one month and fined 100 francs. The defendant was ordered to pay damages and costs to the plaintiff in the amount of 15,917 francs.

179 In the English Court the defendant argued that the plaintiff could not succeed by reason of the rule of private international law that a penal judgment of a Court in one country cannot be enforced by action in another country. Hamilton J said at 97 & 99:
Although the French Courts might refuse to distinguish between the parts of a judgment which may be called principal and the parts which may be called accessory, the parts which are by way of punishment and the parts which are by way of civil remedy, it does not follow that the English Courts in dealing with a French judgment should take the same course.[97]
The ... question is whether it is practicable to distinguish the portion of the adjudication which was not part of the criminal suit from that portion of it which was. .... [99]

180 I am satisfied that it is practicable to sever the award of punitive/exemplary damages from the balance of the US judgment and that the US judgment is enforceable excluding the punitive damages.

181 I will make an order entering judgment for the plaintiffs as against the first defendant in the amounts in the US Judgment excluding the amounts of exemplary/punitive damages awarded to plaintiffs Schnabel and Marble. The parties are to bring in Short Minutes of Order including an agreed costs order. If the parties are unable to agree on a costs order I will hear argument on a date to be fixed. The question of a stay of the judgment pending the outcome of the Appeal in the Appeals Court was referred to by counsel but not fully argued. I will also hear argument on this matter if it is not the subject of agreement.

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SCHEDULE

Rule 37. Failure to Make Disclosure or Cooperate in Discovery: Sanctions

(a) Motion For Order Compelling Disclosure or Discovery. A party, upon reasonable notice to other parties and all persons affected thereby, may apply for an order compelling disclosure or discovery as follows:
(1) Appropriate Court. An application for an order to a party shall be made to the court in which the action is pending. An application for an order to a person who is not a party shall be made to the court in the district where the discovery is being, or is to be, taken.
(2) Motion
(A) If a party fails to make a disclosure required by Rule 26(a), any other party may move to compel disclosure and for appropriate sanctions. The motion must include a certification that the movant has in good faith conferred or attempted to confer with the party not making the disclosure in an effort to secure the disclosure without court action.
(B) If a deponent fails to answer a question propounded or submitted under Rules 30 or 31, or a corporation or other entity fails to make a designation under Rule 30(b)(6) or 31(a), or a party fails to answer an interrogation submitted under rule 33, or if a party, in response to a request for inspection submitted under Rule 34, fails to respond that inspection will be permitted as requested or fails to permit inspection as requested, the discovering party may move for an order compelling an answer, or a designation, or an order compelling inspection in accordance with the request. The motion must include a certification that the movant has in good faith conferred or attempted to confer with the person or party failing to make the discovery in an effort to secure the information or material without court action. When taking a deposition on oral examination, the proponent of the question may complete or adjourn the examination before applying for an order.
(3) Evasive or Incomplete Disclosure, Answer, or Response. For purposes of this subdivision an evasive or incomplete disclosure, answer, or response is to be treated as a failure to disclose, answer, or respond.
(4) Expenses and Sanctions.
(A) If the motion is granted or if the disclosure or requested discovery is provided after the motion was filed, the court shall, after affording an opportunity to be heard, require the party or deponent whose conduct necessitated the motion or the party or attorney advising such conduct or both of them to pay to the moving party the reasonable expenses incurred in making the motion, including attorney’s fees, unless the court finds that the motion was filed without the movant’s first making a good faith effort to obtain the disclosure or discovery without court action, or that the opposing party’s nondisclosure, response, or objection was substantially justified, or that other circumstances make an award of expenses unjust.
(B) If the motion is denied, the court may enter any protective order authorized under Rule 26(c) and shall, after affording an opportunity to be heard, require the moving party or the attorney filing the motion or both of them to pay to the party or deponent who opposed the motion the reasonable expenses incurred in opposing the motion, including attorney’s fees, unless the court finds that the making of the motion was substantially justified or that other circumstances make an award of expenses unjust.
(C) If the motion is denied, the court may enter any protective order authorized under Rule 26(c) and may, after affording an opportunity to be heard, apportion the reasonable expenses incurred in relation to the motion among the parties and persons in a just manner.
(c) Failure to Disclose; False or Misleading Disclosure; Refusal to Admit.
(1) A party that without substantial justification fails to disclose information required by Rule 26(a) or 26(e)(1) shall not, unless such failure is harmless, be permitted to use as evidence at a trial, at a hearing, or on a motion any witness or information not so disclosed. In addition to or in lieu of this sanction, the court, on motion and after affording an opportunity to be heard, may impose other appropriate sanctions. In addition to requiring payment of reasonable expenses, including attorney’s fees, caused by the failure, these sanctions may include any of the actions authorized under subparagraphs (A), (B), and (C) of subdivision (b)(c) of this rule and may include informing the jury of the failure to make the disclosure.
(2) If a party fails to admit the genuineness of any document or the truth of any matter as requested under Rule 36, and if the party requesting the admissions thereafter proves the genuineness of the document or the truth of the matter, the requesting party may apply to the court for an order requiring the other party to pay the reasonable expenses incurred in making that proof, including reasonable attorney’s fees. The court shall make the order unless it finds that (A) the request was held objectionable pursuant to Rule 36(a), or (B) the admission sought was of no substantial importance, or (C) the party failing to admit had reasonable ground to believe that the party might prevail on the matter, or (D) there was other good reason for the failure to admit.
(d) Failure of Party to Attend at own Deposition or Serve Answers to Interrogatories or Respond to Request for Inspection. If a party or an officer, director, or managing agent of a party or a person designated under Rule 30(b)(6) or 31(a) to testify on behalf of a party fails (1) to appear before the officer who is to take the deposition, after being served with a proper notice, or (2) to serve answers or objections to interrogatories submitted under Rule 33, after proper service of the interrogatories, or (3) to serve a written response to a request for inspection submitted under Rule 34, after proper service of the request, the court in which the action is pending on motion may make such orders in regard to the failure as are just, and among others it may take any action authorized under subparagraphs (A), (B), and (C) of subdivision (b)(2) of this rule. Any motion specifying a failure under clause (2) or (3) of this subdivision shall include a certification that the movant has in good faith conferred or attempted to confer with the party failing to answer or respond in an effort to obtain such answer or response without court action. In lieu of any order or in addition thereto, the court shall require the party failing to act or the attorney advising that party or both to pay the reasonable expenses, including attorney’s fees, caused by the failure unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust.

The failure to act described in this subdivision may not be excused on the ground that the discovery sought is objectionable unless the party failing to act has a pending motion for a protective order as provided by Rule 26(c).

[See main volume for text of (e) and (f)]

(g) Failure to Participate in the Framing of a Discovery Plan. If a party or a party’s attorney fails to participate in good faith in the development and submission of a proposed discovery plan as required by Rule 26(f), the court may, after opportunity for hearing, require such party or attorney to pay to any other party the reasonable expenses including attorney’s fees, caused by the failure.


Rule 55. Default
(a) Entry. When a party against whom a judgment for affirma-tive relief is sought has failed to plead or otherwise defend as provided by these rules and that fact is made to appear by affidavit or otherwise, the clerk shall enter the party's default.

(b) Judgment. Judgment by default may be entered as follows:
(1) By the Clerk. When the plaintiff's claim against a defen-dant is for a sum certain or for a sum which can by computation- be made certain, the clerk upon request of the plaintiff and upon affidavit of the amount due shall enter judgment for that amount and costs against the defendant, if the defendant has been defaulted for failure to appear and is not an infant or incompetent person.
(2) By the Court. In all other cases the party entitled to a judgment by default shall apply to the court therefor; but no judgment by default shall be entered against an infant or incompetent person unless represented in by a general guardian, committee, conservator, or other such representative who has appeared therein. If the party against whom judgment by default is sought has appeared in the action, the party (or, if appearing by representative, the party’s representative) shall be served with written notice of the application for judgment at least 3 days prior to the hearing on such application. If, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of an averment by evidence or to make an investigation of any other matter, the court may conduct such hearings or order such references as it deems necessary and proper and shall accord a right of trial by jury to the parties when and as required by any statute of the United States.
(c) Setting Aside Default. For good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b).
(d) Plaintiffs, Counterclaimants, Cross-Claimants. The provisions of this rule apply whether the party entitled to the judgment by default is a plaintiff a third-party plaintiff, or a party who has pleaded a cross-claim or counterclaim. In all cases a judgment by default is subject to the limitations of Rule 54(c).
(e) Judgment Against the United States. No Judgment by default shall be entered against the United States or an officer or agency thereof unless the claimant establishes a claim or right to relief by evidence satisfactory to the court.


Rule 59. New Trials; Amendment of Judgments

(a) Grounds. A new trial may be granted to all or any of the parties and on all or part of the issues (1) in an action in which there has been a trial by jury, for any of the reasons for which new trials have heretofore been granted in actions at law in the courts of the United States; and (2) in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States. On a motion for a new trial in an action tried without a jury, the court may open the judgment if one has been entered, take additional testimony, amend findings of fact and conclusions of law or make new findings and conclusions, and direct the entry of a new judgment

(b) Time for Motion. Any motion for a new trial shall be filed no later than 10 days after entry of the judgment.

(c) Time for Serving Affidavits. When a motion for new trial is based on affidavits, they shall be filed with the motion. The opposing party has 10 days after service to file opposing affidavits, but that period may be extended for up to 20 days, either by the court for good cause or by the parties' written stipulation. The court may permit reply affidavits.

(d) On Court's Initiative; Notice; Specifying Grounds. No later than 10 days after entry of judgment the court, on its own, may order a new trial for any reason that would justify granting one on a party's motion. After giving the parties notice and an opportunity to be heard the court may grant a timely motion for a new trial for a reason not stated n the motion. When granting a new trial on its own initiative or for a reason not stated in a motion, the court shall specify the grounds in its order.

(e) Motion to Alter or Amend Judgment. Any motion to alter or amend a judgment shall be filed no later than 10 days after entry of the judgment.


Rule 60. Relief From Judgment or Order

(a) Clerical Mistakes. Clerical mistakes in judgments, orders or other parts of the record and errors therein arising from oversight or omission may be corrected by the court at any time of its own initiative or on the motion of any party and after such notice, if any, as the court orders. During the pendency of an appeal, such mistakes may be so corrected before the appeal is docketed in the appellate court, and thereafter while the appeal is pending may be so corrected with leave of the appellate court.

(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discov-ered Evidence; Fraud, Etc. On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59 (b); (3) fraud (whether heretofore denominated intrinsic or ex-trinsic), misrepresentation, or other misconduct of an adverse par-ty, (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2) and 3 not more than one year after the judgment, order, or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation. This rule does not limit the power of a court to enter-tain an independent action to relieve a party from a judgment, order, or proceeding, or to grant relief to a defendant not actually personally notified as provided in Title 28, U.S.C., 1655 or to set aside a judgment for fraud upon the court. Writs of coram nobis, coram vobis, audita querela, and bills of review and bills in the nature of a bill of review, are abolished, and the procedure for obtaining any relief from a judgment shall be by motion as prescribed in these rules or by an independent action.
(As amended Dec. 27, 1946, eff. Mar. 19, 1948; Dec. 29, 1948, eff. Oct. 20, 1949; Mar. 2 1987, eff. Aug. 1, 1987).
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1963. Registration of judgments for enforcement in other districts

A judgment in an action for the recovery of money or property entered in any court of appeals, district court, bankruptcy court, or in the Court of International Trade may be registered by filing a certified copy of the judgment in any other district or, with respect to the Court of International Trade, in any judicial district, when the judgment has become final by appeal or expiration of the time for appeal or when ordered by the court that entered the judgment for good cause shown. Such a judgment entered in favor of the United States may be so registered any time after judgment is entered. A judgment so registered shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner.

A certified copy of the satisfaction of any judgment in whole or in part may be registered in like manner in any district in which the judgment is a lien.

The procedure prescribed under this section is in addition to other procedures provided by law for the enforcement of judgments.

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LAST UPDATED: 04/02/2002