Commonwealth of Australia v Davis Samuel - 20 Year Fight for $4.3 Billion

The 20-year fight for $4.3 Billion in damages enters its final round

For 20 years, the most complicated litigation case in Australian history has unfolded in true David versus Goliath style, a high-stakes hybrid game of court-room Chess and real-life Mortal Kombat that has caused great emotional, financial and physical pain.

It’s a story of a seemingly never-ending battle being funded by Australian taxpayers, with The Commonwealth of Australia having so far racked up an estimated $18 million in legal costs in hit-and-miss strategy to kill off litigants Allan Endresz and Peter Cain. But the two men recently smashed their legally shackles to come out swinging, and from next month their claim for $4.3 Billion in damages against the Commonwealth will reach fever pitch in the Australia's highest court (See: https://drive.google.com/file/d/1wu1hEHL68-_RzECpwUN6oJo83_Xi3_0p/view?usp=sharing)

It was back on April 5, 2000, back when Bill Clinton was US President and Sydney hadn’t yet staged the Olympics, when the $4.3 Billion damages claim was first filed. And to think that the reason this saga all began was because of an unrelated person, a government contractor, whose fraudulent actions in 1999 led to him being sentenced to a seven-year jail term …

See original documentary report released in 2011: https://drive.google.com/file/d/1ZKwSBJAU29Ku0DKqsDOs4EpCx_8NWwg5/view?usp=sharing

In the beginning…

On 29 January 1999, the Commonwealth of Australia (Commonwealth) commenced civil proceedings in the ACT Supreme Court (ACT Court) against Davis Samuel Pty Ltd (Davis Samuel), CTC Resources N.L (CTC), Allan Endresz (Endresz), Peter Cain (Cain), Dawn and Jozsef Endresz (Parents), William Forge (Forge) and a number of other parties (collectively the Defendants) in circumstances where the Commonwealth alleged that its own contractor, Callform Pty Ltd and its principal director, Mr David Muir (Muir), effected fund transfers (unauthorised by parliament) to CTC and Davis Samuel of $6 million and $2.725 million respectively (Unauthorised Transfers).

In early January 1999, Ernst & Young issued a scathing confidential report on the Commonwealth’s payment systems and processes. The report uncovered systematic security breaches, business incompetence and the farcical mismanagement of taxpayers funds within the Commonwealth’s financial, administrative and IT departments (Departments). Significantly, the Commonwealth withheld this crucial report from the Defendants (See: https://drive.google.com/file/d/1gJET2aHD2RQULHoXibjcuRjCEMu5PXnR/view?usp=sharing)

On 5 June 2001, Muir was found guilty by a jury of defrauding the Commonwealth with the Unauthorised Transfers and was sentenced on 25 September 2001 to 7 years in prison with a non-parole period of 3 ½ years. He served his time.

On 11 July 2001, criminal charges were laid against Endresz and Cain alleging that they breached the Secret Commissions Act 1905 (Secret Commission Charges).

On 23 March 2002, further charges were laid alleging that they were knowingly concerned in the Unauthorised Transfers contrary to the Crimes Act 1914 (Fraud Charges).

On 11 September 2003, Endresz and Cain were acquitted of the Fraud Charges. Chief Justice Higgins was satisfied that there was not a shred of evidence capable of supporting the allegations that either Endresz or Cain knew of or were complicit in any way in the Unauthorised Transfers. Accordingly, His Honour withdrew the charges from the jury at the conclusion of the Crown case, observing to the Prosecutor, Mr Richard Maidment:

“You’ve really got nothing….Absolutely nothing. You’ve got no statements from anyone that the two accused or either of the accused knew that Muir was engaged in a frolic of his own”

“The investments were not frivolous or hopeless. They were capable of returning considerable profits.”

On 12 October 2004, the Secret Commission Charges were also dismissed. Chief Justice Higgins withdrew the case from the jury even before the Crown was even permitted to open.

Although exonerated from any involvement with Muir’s frolic, the Defendants suffered irreparable losses from the repercussions of the criminal proceedings and the scandalous revelations about the Commonwealth’s incompetence, flawed governance procedures, defective fraud controls and systemic breaches of regulations within its Departments.

Commonwealth concocts a new legal strategy

In subsequent civil proceedings, the Commonwealth categorically refused to accept any responsibility for Muir’s unchecked frolic. Instead, it concocted a new legal strategy to divert attention from its own shortcomings by freezing the Defendants’ assets, taking financial advantage of unrepresented litigants and hoodwinking the media into destroying the Defendants’ reputations and viable businesses.

With deep pockets, a bevy of lawyers and no accountability to taxpayers, the Commonwealth enlisted the services of the Australian Federal Police (AFP) (to conduct phone wire taps and property raids) and the Australian Securities & Investments Commission (ASIC) to divert the media’s attention and foil CTC’s $4.3 Billion damages claim (lodged April 5, 2000) in the ACT Court. By flouting its statutory duties and obligations as a “model litigant”, the Commonwealth deprived the Defendants of a level playing field for over 20 years. Until now…

Commonwealth unleashes its lap dogs

On 26 April 2001, ASIC brought proceedings before Foster AJ in the NSW Supreme Court against Endresz, his Parents and Forge (CTC Board) alleging that transactions undertaken by the CTC Board contravened the related party (civil) provisions of the Corporations Act.

Although fully conversant with the nature of the transactions, ASIC denied the CTC Board any opportunity to seek relief from liability of the purported contraventions under section 1317S of the Corporations Act pending consideration by CTC Shareholders (non-related) at the next AGM.

On 28 August 2002, Foster AJ handed down Judgment in favor of ASIC and held that the CTC Board contravened the related party provisions. He imposed director banning orders, pecuniary penalties and made cost orders against the CTC Board.

On 26 June 2003, before a new board, CTC’s shareholders (none-related) unanimously (99.64%) approved and ratified each and every transaction found by Foster AJ to have contravened the related party provisions.

In these proceedings, ASIC openly nailed its colours to the Commonwealth’s mast. It treated all 1398 CTC shareholders with utter contempt and simply discarded shareholder rights to further the Commonwealth’s cause. Despite this early success, neither ASIC nor the Commonwealth were able to deliver a fatal blow to CTC’s $4.3 Billion damages claim.

To this day, Endresz remains the only person in Australian corporate history banned as a director for contravening related party provisions of the Corporations Act despite receiving the unequivocal and unanimous approval of all transactions from CTC shareholders.

ASIC overplays its bankruptcy card

On 3 November 2011, costs ordered totalling $464,895.91 were entered in ASIC’s favour against the CTC Board in the Local Court of New South Wales and the District Court of New South Wales. An additional costs order of $5,450.87 was also entered against Endresz.

On 23 December 2011, ASIC issued bankruptcy notices. Creditor’s petitions were heard by Pagone J in the Federal Court on 30 June 2014 and 16 July 2014.  The CTC Board were unrepresented.

On 29 July 2014, Pagone J found in favour of ASIC and bankrupted each of the estates of the CTC Board (Pagone Judgment).

CTC Board ecstatic with its win against ASIC

On 19 August 2014 the CTC Board filed notices of appeal to set aside the judgment and bankruptcy sequestration orders made by Pagone J (Pagone Appeal).

On 9 February 2015, the Full Federal Court, comprising Gordon, (now on the High Court Bench), Edmonds and Beach JJ, heard the Pagone Appeal.

The CTC Board were unrepresented. ASIC was represented by Mr Philip Crutchfield QC with Mr Sam Rosewarne.

On 19 February 2015 the Full Federal Court entered judgment in favour of the CTC Board and set aside the Pagone Judgment and bankruptcy orders (see: Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33) (February Judgment).

The February Judgment represented a significant turning point. Not only was the playing field levelled, but the CTC Board sent a cautionary message to ASIC and the Commonwealth that unrepresented litigants could actually defy the odds and defeat a well-resourced government legal team.

During the course of the Pagone Appeal, it became apparent that ASIC (and the Commonwealth) had ulterior motives. Actual recovery of the $464,895.91 debt was of little concern to ASIC. Instead, ASIC remained fixated on bankrupting the CTC Board to help the Commonwealth jettison the $4.3 Billion damages claim.

Under section 116 of the Bankruptcy Act 1966, bankrupts are denied access to the courts without the consent of an Official Trustee. Had ASIC won the Pagone Appeal, then all legal rights of the CTC Board would have vested solely with a Commonwealth appointed trustee.

During the Pagone Appeal, Endresz (as an unrepresented litigant) respected the performance of opposing counsel, Mr Philip Crutchfield QC, and made a mental note to engage his services should the opportunity arise in the future.

Defendants deprived of legal representation

On 10 June 2008, the civil hearing between the Commonwealth and the unrepresented Defendants commenced before Refshauge J in the ACT Court. 

On 1 August 2013 Refshauge J delivered judgement in favour of the Commonwealth. The CTC Board were found joint and severally liable to the Commonwealth on equitable claims. (see: Commonwealth of Australia v Davis Samuel Pty Ltd & Ors (No 7) [2013] ACTSC 146).(Refshauge Judgement). 

On 21 November 2014 final orders were made by Refshauge J.  The CTC Board were ordered to pay the Commonwealth equitable compensation and interest totalling $62,697,587.28 ($62m Equitable Debt) as follows:

(1)       Allan Endresz – $18,633,178.47;

(2)       Dawn Endresz – $12,715,615.17;

(3)       Jozsef Endresz – $18,633,178.47; and

(4)       William Forge – $12,715,615.17,

(see: Commonwealth of Australia v Davis Samuel Pty Limited (No 8) [2014] ACTSC 312).(Final Orders).

On 23 December 2014 Endresz filed an appeal against the Refshauge Judgment and Final Orders (Refshauge Appeal). 

On 26 February 2016 Endresz filed an application to set aside the Refshauge Judgment and Final Orders, ex debito justitiae, in the inherent jurisdiction of the ACT Court (Ex Debito Application).

On 30 June 2016 Burns J dismissed the Refshauge Appeal for want of prosecution. However, with the Ex Debito Application yet to be heard, Endresz intentionally allowed the Refshauge Appeal to lapse. (see: Davis Samuel Pty Ltd v Commonwealth of Australia [2016] ACTCA 22).

On 13 January 2017 Refshauge ACJ dismissed the Ex Debito Application (see: Commonwealth of Australia v Davis Samuel Pty Limited (No 11) [2017] ACTSC 2).

Commonwealth anxious to bankrupt the CTC Board

On 16 August 2016 the Commonwealth served the CTC Board with bankruptcy notices founded on the $62m Equitable Debt. The CTC Board were unsuccessful in their attempts to have these bankruptcy notices set aside.

On 12 April 2017 the Commonwealth filed creditor’s petitions in the Federal Circuit Court of Australia (FCCA) to bankrupt the estates of the CTC Board.

Despite ASIC’s abysmal failure in the Pagone Appeal, the Commonwealth rolled the dice in a last ditch effort to derail the $4.3 Billion damages claim. Recovery of the $62m Equitable Debt was never on the Commonwealth’s agenda. The Commonwealth categorically knew (from earlier evidence provided by the CTC Board) that the $62m Equitable Debt would never be paid. Instead, the Commonwealth was prepared to rack up over $18 million in legal fees in an attempt to distract and mislead the media and public about Muir’s frolic and to bury the $4.3 Billion damages claim.

On 11 April 2018 the creditor’s petitions expired due to the Commonwealth’s incompetence.

On 18 April 2018 the CTC Board filed an application before Neville J in the FCCA seeking summary dismissal of the creditor’s petitions.

On 18 May 2018, Neville J dismissed the CTC Board’s application and varied his earlier order of 6 February 2018 to extend the expiration date of the creditor’s petitions by invoking the “slip rule” under the FCCA rules.

On 21 June 2018, Neville J made orders transferring the proceedings from the FCCA to the Federal Court before Flick J for hearing.

On 8 March 2019 Flick J delivered judgment in favour of the Commonwealth and published reasons (see: Commonwealth of Australia v Endresz [2019] FCA 301) (Flick Judgment).

On 15 March 2019 Flick J made orders to bankrupt (for the second time) the estates of the CTC Board.

Spoiler alert! Commonwealth’s bankruptcy nosedives

On 5 April 2019 the CTC Board filed notices of appeal against the bankruptcy orders made by Flick J (Flick Appeal).

On 12 August 2019, the Full Federal Court, comprising Rares, Markovic and Charlesworth JJ, heard the Flick Appeal.

This time, Mr Philip Crutchfield QC with Mr Jesse Rudd SC represented the CTC Board. After being approached by Endresz, Mr Philip Crutchfield QC, a person with detailed knowledge of the particulars of this matter, ditched ASIC and the Commonwealth to join forces with Endresz to form a formidable legal team.

On 15 November 2019, the Full Federal Court entered judgment in favour of the CTC Board and set aside the Flick J judgment and the Commonwealth’s bankruptcy orders (see Endresz v Commonwealth of Australia [2019] FCACA 197 (15 November 2019) (Rares Judgment).

$4.3 Billion damages claim back with a vengeance

The Rares Judgment was a pivotal moment in the 20 year legal melee between the Commonwealth and the CTC Board. With the immediate threat of bankruptcy stalled (albeit temporarily), the largest damages claim in Australian legal history was back with a vengeance.

Ready, set, go! High Court here we come

The matters adjudicated in the Full Federal Court were matters in which the Commonwealth was a party and so involved the exercise of federal jurisdiction under s 75(iii) of the Constitution of the Commonwealth of Australia (Constitution).

The judicial controversies in both the Refshauge Judgment and Rares Judgment include Constitutional questions of whether;

a)               the Refshauge Judgment was a “nullity” according to the principles stated in Renowden v McMullin (1970) 123 CLR 584 whereby the granted equitable claims impermissibly exceeded the areas marked out by the originating application by purporting to introduce new and independent equitable causes of action and remedies not covered by the common law claims specified in the originating application. It follows that the fundamental irregularities affecting the originating application either rendered the Refshauge Judgment a nullity and or deprived the Court of authority to make orders; and

b)               the Commonwealth’s equitable causes of action were beyond the powers of s 83 of the Constitution where the transactions were made without Parliamentary authority, illegal and void according to the principles stated in Auckland Harbour Board v The King [1924] AC 318. It follows that those principles only invoked common law restitution and precluded liability in equity under the second limb of Barnes v Addy [1874] LR 9 Ch App 244 because the CTC Board were not, and could never have been, acting as the agents of trustees in transactions in where neither the Commonwealth nor Muir had any legal power and control over property in breach of s 83 of the Constitution. The proposition that s 64 of the Judiciary Act (Cth) could overrule the principles established in Auckland Harbour was rejected by Refshauge J in the Refshauge Judgment [at 1752] ‘the effect of s 64 is not seen by the courts as overriding all constitutional properties that inhere in the Commonwealth’ but was found by the Full Federal Court in the Rares Judgment [at 134] to permit liability in equity under s 83 of the Constitution. Therein lies the Constitutional conflict. 

By answering the two questions above, the High Court will finally determine the fate of the $4.3 Billion damages claim.