BETWEEN : ANTHONY LESLIE JOHN WOODINGS (AS RECEIVER AND MANAGER OF ELCOS AUSTRALIA PTY LTD (IN LIQ))

JAY A STEVENSON AND PHILIP G JEFFERSON (AS LIQUIDATORS OF ELCOS AUSTRALIA PTY LTD (IN LIQ))

Practice and procedure - Addition and removal of parties - Receiver named as plaintiff but cause of action lying with appointing creditor - Whether creditor could be substituted for receiver

Rodriguez v Spire Brothers [1919] AC 59

1 OWEN J: This is an application for leave to substitute a party as plaintiff and to make amendments to the writ and the statement of claim which are a consequence of the substitution and in some other (minor) respects.

2 Elcos Australia Pty Ltd (In Liquidation) ("Elcos") was indebted to the National Australia Bank Ltd ("NBA") for certain advances that had been made to it. NBA held a mortgage debenture over the assets on Elcos as security for the indebtedness. I will refer to the mortgage debenture as "the Charge" and to the indebtedness as "the Debt". On 15 September 1995 Elcos was placed in liquidation by order of the Supreme Court of Queensland. Jay Stevenson and Philip Jefferson were appointed liquidators. On 1 August 1996 NBA assigned the benefit of the Charge and of the Debt to Royal Sunset Pty Ltd ("Royal"). Royal says that the Debt has not been repaid by Elcos. On 22 August 1996 Royal appointed Anthony Woodings as receiver and manager of Elcos pursuant to the Charge.

3 In the course of the liquidation the liquidators have realised assets which Woodings and Royal say were subject to the Charge and that an amount of $79,035 is due by the liquidators to Royal as a result.

4 In 1996 Woodings, in his capacity as receiver and manager of Elcos, and as the plaintiff issued a writ against Stevenson, as liquidator of Elcos, claiming relief which is now confined to recovery of the sum of $79,035 or such other sum as is found to be the entitlement of the plaintiff. This action has been proceeding through the interlocutory stages. Since October 2000 the parties have been concentrating on the identification of a series of preliminary issues for determination. In April 2001 the defendant appointed new solicitors. In May 2001 the new solicitors pointed out to the plaintiff's solicitors that:

(a) Royal, and not Woodings, was the correct plaintiff; and

(b) Jefferson was also a liquidator and, accordingly, should be named as a defendant.

5 As soon as these problems were pointed out, the plaintiff's solicitors took out this application to substitute Royal for Woodings as the plaintiff, to name Jefferson as a defendant and to make consequential changes to the writ and to the statement of claim. The defendants have raised an issue whether the Rules of the Supreme Court would permit a substitution to be made or whether the appropriate course was to dismiss the action in a way that would permit Royal to commence fresh proceedings. It is common ground that this case does not raise limitation problems. In other words, Royal would not be faced with a limitation defence, either as a substituted party in the present action or in a new action.

6 In an affidavit of Edward Scott, a director of Royal, sworn 6 June 2001 the deponent says:

"Notwithstanding the present action was begun in the name of Woodings (as receiver and manager of Elcos), I am now advised by my solicitors and verily believe that the proper plaintiff is the holder of [the Charge] itself, namely [Royal]. I confirm that [Royal] consents to being substituted as plaintiff in the action."

7 This is the only explanation (at least by way of evidence) for the change. It is common ground that until May 2001 neither party had raised any issue concerning the propriety of Woodings maintaining the action.

8 It is also common ground that a receiver is not ordinarily entitled to bring an action in his own name for recovery of a debt owed to the secured creditor who appointed him: Ex parte Sacker (1888) 22 QBD 179. There are exceptions to the rule that a receiver cannot sue in his own name but none of the exceptions apply to this case.

9 Order 18 r 6 and r 8(4) are, relevantly, as follows:

"6. Misjoinder and nonjoinder of parties

(1) No cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party; and the Court may in any cause or matter determine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties to the cause or matter.

(2) At any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application 

(a) order that any person who has been improperly or unnecessarily made a party or who has for any reason ceased to be a proper or necessary party, to cease to be a party;

(b) order that any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, be added as a party,

but no person shall be added as a plaintiff without his consent signified in writing or in such other manner as may be authorised.

.................

8. Provisions consequential on making of order under Rule 6 or 7

...............

(4) Where by an order under Rule 6 or 7 a person is to be added as a party or is to be made a party in substitution for some other party, that person shall not become a party until 

(a) where the order is made under Rule 6, the writ has been amended in relation to him under this Rule and (if he is a defendant) has been served on him;

......... ."

10 There is a further power which can be used in relation to the identity of parties, namely O21 r 5. However, it was common ground that this provision is not applicable in the factual circumstances of this case and I need say no more about it. The plaintiff has conceded that Royal, and not Woodings, is the proper plaintiff and has made the application for substitution under O 18 r 6.

11 In Elliot v Williams (1996) 15 SR (WA) 336 Viol DCJ held that O 18 r 6 was limited to the joinder of further parties to an action and that it did not apply to the substitution of one party in place of a single party. While this decision is not binding on me it is persuasive and deserves careful consideration.

12 Order 18 r 6(2) takes its flavour from the preceding sub-rule. It is designed to avoid unnecessary technicality so as to enable parties to litigate the real issues between them in an expeditious, effective and cost efficient way. I think the sentiments expressed in cases such as McInnes v Wingcarribee Shire Council (1987) 10 NSWLR 660 at 668 and Bridge Shipping Pty Ltd v Grand Shipping SA [1991] HCA 45; (1991) 173 CLR 231 at 260 - 261, although in relation to different statutory provisions, are apposite. In Bridge, McHugh J said: "[The rule] is a remedial rule and should be given a beneficial interpretation. It is proper to give it the widest interpretation which its language will permit".

13 There are two English authorities that support the plaintiff's contentions. In Hughes v The Pump House Hotel Company Limited [1902] 2 KB 485, a contractor sought to recover an amount due under the contract. Prior to the commencement of the action the contractor had assigned his claim against the defendant to a Bank. He commenced the action thinking the assignment had been by way of charge only. The court held that it was an absolute assignment and that the contractor therefore had no right to bring the action. The Bank applied to be substituted as the plaintiff in the action. The court held that so long as there was a bona fide mistake in commencing the action in the wrong name and it was necessary for the determination of the real matter in dispute to make the substitution, the court had the jurisdiction to do so. The application succeeded.

14 The English rule under consideration in Hughes (O 16 r 2) was quite different to O 18 r 6. However, the case is important for a number of reasons. In opposing the application in this case counsel for the defendant submitted that the evidentiary material was insufficient to draw the conclusion that it was a "bona fide mistake" (Scott's affidavit being confined to the mere fact that he now believed the action to have been wrongly commenced) and that because Royal could commence a fresh action it was not "necessary" to make the order. However, the presence of a bona fide mistake and the necessity for the substitution were pre-conditions to the exercise of the jurisdiction expressly provided for in O 16 r 2 as it then stood. There is no reference in O 18 r 6 to a bona fide mistake. The issue of "necessity" is not quite as clear and I will return to it later. There is another point. While it is to be acknowledged that the English rule expressly mentioned addition and substitution (which O 18 r 6 does not), both Collins MR and Cozens-Hardy LJ said, at 487, that there was no difference in principle between the addition and the substitution of another person as a plaintiff. I will return to this point shortly.

15 The second relevant English authority is Hauxwell v Barton-Upon-Humber Urban District Council [1974] 1 Ch 432. There, some residents commenced an action to have it determined that the Council held land adjoining theirs on a charitable trust. The court held that only the Attorney General could commence such an action and the residents had no standing. However, the court permitted the Attorney General to be substituted for the residents as the proper plaintiff under English O 15 r 6(2), which is not materially different from O 18 r 6(2). Brightman J applied Hughes. His Honour said, at 453:

"[Counsel for the defendants submitted] that this was not a case of substituting the right party for the wrong party in the way that the right party was substituted in the Hughes case for the wrong party. It is a case [counsel submitted] of substituting, as plaintiff, a party who sustains an entirely different character from that sustained by the existing plaintiffs. It is not a case where a mistake has been made as to where an interest or cause of action has been vested, but of replacing two incompetent plaintiffs by another person who sustains not the character sought to be sustained by the plaintiffs, but an entirely different character. I appreciate that there is that distinction between this case and the Hughes case. I do not, however, think this is a fundamental distinction which ought to cause me to reach any different conclusion from that which was reached in the Hughes case."

16 In this case, even if it be said that Royal as the creditor of the Debt, sues in an entirely different character from that of Woodings as the receiver, it is of no moment.

17 A case which is of different import is International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corp of India [1996] 1 All ER 1017. There the plaintiff companies had obtained arbitration awards against the defendant. The assets of the companies became vested in a bankruptcy trustee. The companies were dissolved in 1986. In 1988, and notwithstanding the dissolution, proceedings were commenced in the names of the companies to enforce the awards. The question relevant to this case is whether, once the consequences of the dissolution of the companies had dawned on the parties, the trustee could be substituted as plaintiff. The Court of Appeal held that the trustee could not be substituted. Order 15 r 6 stood in materially the same terms as had been under consideration in Hauxwell.

18 Somewhat curiously, neither Hughes nor Hauxwell seem to have been cited to the court in International Bulk Shipping. This suggests to me that it involves a quite different point. Evans LJ, at 1023, made the point (which is undoubtedly correct) that the general rule is that an action commenced in the name of a non-existent person, or company, is a nullity. His Lordship went on, at 1024, to say:

"It is established by authority that the rule does not apply when the proceedings are a nullity, either because the person named as applicant died before the writ was issued ... or a company plaintiff has been dissolved and ceased to exist as a legal person ... . The rule clearly contemplates that there is an existing action in which the addition or substitution may be made, and if there is no existing action then it follows that the rule cannot apply."

19 The question is this: what did his Lordship mean by the phrase "there is no existing action"? Does it mean no cause of action which would survive a strike out application or an application for summary judgment because the wrong plaintiff has been named or is it confined to the situation with which the case dealt, namely, where the action was a nullity? I think it is the latter. Where there is no, or no arguable cause of action on the merits or because of the way it is pleaded, the rules of practice and procedure and the inherent jurisdiction of the court to control against abuse of process are abundantly equipped to remedy the situation. But this is a different case. I will assume for the purposes of this application that an action brought by Royal to recover the amount of the Debt would survive a strike out motion or a summary judgment application and the only problem lies in the identity of the chosen plaintiff. Subject to what I am about to say, that situation seems to me to fall within O 18 r 6.

20 It is true that the English rule that was under consideration in Hauxwell and in International Bulk Shipping (and for that matter in Hughes) contains express reference to substitution as well as to addition. However, they do so in O 15 r 6(5) and (6), and not in O 15 r 6(2). Order 15 r 6(5) and (6) deal with applications to add or substitute parties after the expiry of a relevant limitation period. This was a factor which seemed to influence Viol DCJ in Elliott: see 338. However, it seems to me to overlook the presence of O 18 r 8(4) of our Rules, which also refers to substitution. Order 18 r 8(4) expressly applies to O 18 r 6. It also applies to r 7. It might be thought that as r 6 does not mention "substitution" but r 7 does [see r 7(2)], the reference in r 8(4) to "addition" is to r 6 and "substitution" is to r 7. However, I think that would be to place a gloss or limitation on the words that the broad language of the rules does not accommodate or require. In any event, in the English rules the jurisdiction is conferred by O 15 r 6(2), not by O 15 r 6(5) or (6). The framers of the English rules obviously contemplated that the wording of O 15 r 6(2) was wide enough to accommodate substitution as well as addition of parties. I can see no reason to apply a different interpretation to what is almost identical wording in our O 18 r 6(2).

21 I note also that in Carob Industries Pty Ltd v Simto Pty Ltd [2000] WASCA 362 the Full Court proceeded on the basis that O 18 r 6 permitted the substitution of a party as an appellant. While this gives some support to the plaintiff's argument it must be recognised that Carob arose in a rather different setting and the analogy could not be taken too far.

22 Counsel for the defendant also submitted that as a matter of logic O 18 r 6 could not operate by way of substitution. This is because the plain wording and combination of r 6(2)(a) and (b) requires the addition of a party to an already joined party and then a deletion of the original party. If that were not the case and the removal came first there would be (momentarily) an action without a plaintiff. This is something the law does not recognise. I accept the attractiveness of that argument as a matter of pure logic. But the law does not always follow truly logical patterns. The task of a court in construing a statutory provision or rule is to look at it in its context and against the scope and purpose of the entire instrument. When that is done in this case, the strict wording and order of enunciation in r 6(2) must be interpreted with r 8(4) and the overriding policy considerations in mind.

23 I return then to the questions of mistake and necessity. I think the reason why the wrong person was included as a plaintiff would be a relevant factor to take into consideration in the exercise of discretion. If the matter goes further than that and it is necessary to demonstrate a bona fide mistake, it would not be difficult to draw the inference that where at least two firms of (experienced) solicitors have laboured on in the action for more than four years without doing anything about the problem it was likely to have been by mistake. Nothing has been put forward to show that the plaintiff had anything to gain by, for example, shielding Royal and presenting Woodings as the claimant.

24 In relation to necessity, I accept that Royal could commence a fresh action. However, I wonder whether that is the true sense in which "necessity" is to be understood in this area. I say this because in O 18 r 6(2)(b) the word "necessary" does not stand alone. It is part of the phrase: "necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon ...". This phrase, I think, is wide enough to encompass modern notions of case management and the desire of the justice system to minimise time and costs in litigation. It is necessary to have Royal as a party because it is the entity in which the cause of action resides and it would be in the best interests of the administration of justice (in the sense I have outlined) to accommodate the dispute within the confines of the existing action.

25 In my view, giving O 18 r 6(2) a beneficial interpretation and affording to it the widest interpretation which its language will permit, I think the preferable interpretation is that the substitution of a party in the circumstances that apply in this case is within its ambit. This is a question of power or jurisdiction. It follows that I respectfully reach a different view from that expressed in Elliott. To avoid any confusion, I should say that I accept the interpretation put forward in International Bulk Shipping. If the action is a nullity, O 18 r 6(2) would not assist a person seeking to be substituted as a plaintiff. While it is not necessary for the decision in this case, I should also say that I have grave doubts whether the rule would apply where the relevant limitation period had expired. I think the fact that, unlike its English counterpart, the rule is silent concerning the limitation question, points against its application.

26 Of course the mere fact that there is power or jurisdiction does not entitle an applicant to the order it seeks. It still falls to be decided, in the circumstances of the individual case, whether as a matter of discretion the order ought to be made. In my view, in the circumstances of this case the discretion should be exercised in favour of the substitution. The parties have been conducting the action for more than four years and it is reasonably well advanced. If the application is refused much of the material which has already been created will have to be duplicated. The rhetorical question must be posed: to what end? Nothing has been raised to indicate that the defendants will be prejudiced if the application is successful.

27 On the other hand the defendants may, quite properly, have an eye to the costs of the proceedings. The plaintiff has made a mistake. If it were not for the power of the Court to approve the substitution under O 18 r 6 the defendants would be protected for the costs of the action to date. The plaintiff would have to discontinue or suffer an order for dismissal with (in all probability) an order for costs against him. The risk for the defendants, and it is a risk about which there is no evidence, is that they may eventually be awarded costs against Royal but are unable to recover on the costs order. If that is a real risk it could be catered for in an application for security for costs.

28 I had contemplated imposing a condition on the order for substitution, namely that Woodings pay the costs of the proceedings to date but on the proviso that the order would not take effect unless and until the defendants had obtained an order for costs after trial and had been unable to recover the costs from Royal. However, on reflection that seems to me to be somewhat artificial and not in keeping with the history of the action. It is, I think, better to put an end to this aspect of the matter and allow it to proceed on a firm and certain footing.

29 I am prepared to make an order substantially in the terms asked for in the Chamber Summons dated 15 June 2001, including the costs order in par 5 of the summons. Even though the defendant was not successful in resisting the substitution application, the plaintiff was seeking the indulgence of the Court to correct an error of its own making. The defendant's opposition was not frivolous.

30 I understand that the text of the amendments to the writ and statement of claim may need some revision. It may also be necessary to impose some conditions to protect the defendants in terms of undertakings that Woodings has given to the Court in the past.

31 If the solicitors can agree on the terms of the orders they should send down a minute and the matter can be finalised without the need for a further appearance. If there is any dispute, I will hear the parties as to the formulation of orders.