Appellant v Respondents

**1 On 14 October 2016, pursuant to ss 62 and 63 of the Civil Procedure Act 2010, Ierodiaconou AsJ ordered the summary dismissal of the appellant's claim against the fifth to seventh respondents. Her Honour also ordered that the appellant pay the respondents' costs of the proceeding on a standard basis, to be taxed in default of agreement. The appellant filed a notice of appeal in respect of the orders on 27 October 2016. I have determined that the appeal should be dismissed.

2 The central issue in this appeal is whether the appellant has established that Ierodiaconou AsJ erred in concluding that the appellant had no real prospect of establishing that a contract of employment between Innovateq Pty Ltd ('Innovateq') and the fifth respondent, Mr Daniel Phillips:**

**_(i) was entered into by Innovateq in its capacity as trustee of the Innovateq Unit Trust ('IUT');

(ii) that any right of Innovateq arising under the contract to sue Mr Phillips was trust property; and

(iii) that upon the appellant's appointment in lieu of Innovateq as trustee of the IUT on 16 December 2015, any chose in action constituted by Innovateq's right to sue Mr Phillips for breaches of contractual and fiduciary duties vested in the appellant._**

3 The appellant has not established that Ierodiaconou AsJ erred in making the findings set out above. However, even if the contract of employment with Mr Phillips had been entered into by Innovateq in the administration of the IUT, any trust property constituted by Innovateq's right to sue Mr Phillips could not have vested in the appellant upon its appointment as trustee of the IUT. Absent an assignment to the appellant of Innovateq's chose in action in accordance with s 134 of the Property Law Act 1958, a vesting order under s 51 of the Trustee Act 1958 was a pre-condition to the chose in action vesting in the appellant. The absence of a vesting order under s 51 of the Trustee Act is fatal to the appellant's appeal.

**4 The appellant has been the trustee of the IUT since 16 December 2015. Immediately prior to 16 December 2015, Innovateq was the trustee of the IUT. It was appointed trustee on 1 July 2010. The appellant's statement of claim alleges that Mr Phillips commenced employment with Innovateq pursuant to a contract entered into on or about 28 June 2010, and continued to be employed by Innovateq pursuant to that contract until 11 December 2015.[1]

5 The appellant alleges that between November 2015 and 11 December 2015, Mr Phillips diverted from Innovateq to the sixth respondent ('Certeq') and the seventh respondent ('Certeq NZ'), commercial opportunities which would otherwise have been available to Innovateq.[2] It alleges that Mr Phillips thereby breached contractual and fiduciary duties which he owed to Innovateq.[3] It alleges that since 11 December 2015 Mr Phillips has provided commercial services to persons who were previously customers of Innovateq during the 12 month period prior to 11 December 2015.[4] The appellant alleges that Mr Phillips breached contractual duties which he owed to Innovateq.[5] The appellant contends that Innovateq's right to sue in respect of these breaches vested in the appellant upon its appointment as trustee of the IUT on 16 December 2015.[6] Both at first instance and in the current proceedings the appellant contended that Innovateq's right to sue the respondents vested in the appellant pursuant to s 45(1) of the Trustee Act.

6 The respondents sought summary dismissal of the appellant's claim. First, the respondents contended that Innovateq did not enter into a contract with Mr Phillips in its capacity as trustee of the IUT. They further contended that as Innovateq did not contract with Mr Phillips in the course of the administration of the trust, any rights of action as between Innovateq and Mr Phillips arising from the contract of employment were not trust property. They further contended that, if the rights of action were not trust property, such rights could not have vested in the appellant upon it being appointed trustee of the IUT on 16 December 2015.

7 Ierodiaconou AsJ upheld the contentions set out above. Her Honour concluded that there was no reference to the IUT in the contract of employment between Innovateq and Mr Phillips, and no reference to Innovateq entering the contract in its capacity as trustee of the IUT pleaded in the statement of claim.[7] Her Honour concluded that the appellant had not led any evidence which established that Innovateq was known to have acted in the past as trustee and that all of its assets were held on trust.[8] Her Honour concluded that even if the appellant had been granted leave to amend the statement of claim to allege that Innovateq had entered a contract of employment with Mr Phillips in its capacity as trustee, it had no real prospect of succeeding and establishing that it had entered into the contract in its capacity as trustee.[9]

The appellant appeals against the finding that the plaintiff has no real prospect of success in establishing that the former third defendant [Innovateq] acted in the capacity of trustee of the IUT in entering the employment contract with the fifth defendant [Mr Phillips].[10]

**The appellant has failed to establish that this finding was attended by any error. To the contrary, for the reasons set out below, the finding was plainly correct.

9 The IUT was created on 1 July 2010. Innovateq was appointed trustee of the IUT on 1 July 2010. The contract of employment between Innovateq and Mr Phillips is pleaded as having been entered into on or about 28 June 2010. The contract was in evidence before her Honour and records Mr Phillips' employment with Innovateq as having a commencement date of 28 May 2010. The statement of claim alleges that Mr Phillips was employed pursuant to this contract until the termination of his employment on 11 December 2015. As the contract was entered into prior to the creation of the IUT on 1 July 2010, Innovateq could not have entered into the contract in its capacity as trustee of the IUT.

10 The present proceeding can be contrasted with cases such as Re Interwest Hotels Pty Ltd (in liq),[11] where a question arises as to whether a corporation has entered into a contract in a personal capacity or as trustee of a trust. In the present proceeding, Innovateq could only have entered into the contract with Mr Phillips in its personal capacity because it was not trustee of the IUT on or about 28 June 2010.

11 Mr North QC, who appeared with Mr Laidlaw for the appellant, accepted that his client bore the onus of establishing that the judgment of Ierodiaconou AsJ was attended by error.[12] He submitted that her Honour fell into error by reason of her failure to have proper regard to the fifth to seventh respondents' admissions to paragraphs 3 and 4 of the statement of claim.[13]

12 Paragraphs 3 and 4 of the statement of claim allege:**

The third defendant ("Innovateq") is and was at all material times:

(1) a corporation incorporated pursuant to statute;

(2) until 16 December 2015 the trustee of the IUT.

The fifth defendant ("Phillips") between July 2015 and 11 December 2015 was:

(1) An employee of Innovateq; and

(2) The Senior Project Manager for the Sydney Office of Innovateq.[14]

13 Paragraphs 3 and 4 of the defence of the fifth to seventh respondents pleads:

As to paragraph 3, they:

(a) admit that Innovateq is and was at all material times a corporation incorporated pursuant to statute;

(b) otherwise deny the allegations therein, and refer to and repeat paragraph 1(b) above; and

(c) say further that at all material times the directors of Innovateq have been Hadjiantonakis and the first defendant (Barnes).

They admit the allegations in paragraph 4 and say further that on 27 November 2015, Phillips gave notice of his resignation to Innovateq, to take effect from 11 December 2015.[15]

The Associate Judge wrongly recited the effect of the plaintiff's pleadings. At paragraph 23 of the judgment it is said that at no stage does the plaintiff plead that the fifth defendant was employed by Innovateq Pty Ltd in its capacity trustee [sic] of the IUT. By paragraph 3 of the Statement of Claim, the plaintiff pleads that Innovateq Pty Ltd was at all material times prior to 15 December 2015, the trustee of the IUT.

Thus given that the defendants also plead that the business of Innovateq was carried on by Innovateq Pty Ltd in its own capacity and as trustee and at no stage asserts that there was any fact by which it could be said that Innovateq Pty Ltd had acted other than in both its personal capacity and as trustee, it is difficult to see how the issue of capacity was even in issue, let alone that the Court ought be satisfied by the applicant that it was appropriate to summarily determine the whole of the proceeding against the plaintiff.[16]

15 Paragraph 23 of her Honour's judgment states:

However, at no stage in the statement of claim does the plaintiff plead that these rights are in its capacity as trustee of IUT. It is not pleaded that the fifth defendant was employed by the third defendant in its trustee capacity; the allegation is that he was employed by the third defendant. It is not alleged that the duties that the fifth defendant owed were owed to the defendant in its capacity as a trustee of IUT.[17]

**16 The admissions in paragraphs 3 and 4 of the defence do not constitute an admission by the fifth to seventh respondents that Innovateq contracted with Mr Phillips in its capacity as trustee of the IUT. To the contrary, paragraph 4 of the defence is an admission that Mr Phillips contracted with Innovateq prior to the IUT coming into existence on 1 July 2010.

17 Mr North's response to the proposition that the pleaded contract had been made prior to the IUT coming into existence was to submit that the contract may in fact have been entered into in July 2010.[18] He submitted that documents might be discovered which establish that the contract was not made on 28 June 2010, but in July 2010.[19] The difficulty with this submission is that it is inconsistent with the statement of claim and the basis upon which the strike out application was conducted before Ierodiaconou AsJ. The statement of claim pleads that the contract between Innovateq and Mr Phillips was made on 28 June 2010, and that he continued to be employed by Innovateq pursuant to that contract until his employment ended on 11 December 2015. Further, the parties conducted, and Ierodiaconou AsJ determined the strike out application, on the basis that the primary issue for determination was the capacity in which Innovateq entered into the contract of employment with Mr Phillips.[20] This approach required consideration of the position as at 28 June 2010, being the date on which the contract of employment pleaded in paragraphs 7 and 8 of the statement of claim, was made.[21]

18 In the proceedings before Ierodiaconou AsJ, no party advanced any submission based upon the non-existence of IUT when the contract of employment was made. Rather, the parties directed their submissions to the four limbs of the test laid down by Eames J in Re Interwest Hotels Pty Ltd (in liq)[22] for determining the capacity in which a trustee has entered into a contract. These four limbs are set out at paragraph 16 of her Honour's judgment.[23] The first limb provides that the contract is the primary source from which the intention of the parties is to be ascertained. Her Honour concluded that there was no reference in the contract to the IUT, or Innovateq having entered into the contract in its capacity as a trustee.[24] The second limb directs attention to whether a company is known to have acted in the past as trustee, and whether all its assets are held on trust. If answered in the affirmative, 'clear words would be required to establish that the company was acting in its personal capacity (a result which would fly in the face of commercial logic)'.[25] Her Honour concluded:**

The plaintiffs do not provide any evidence to support the proposition that the third defendant [Innovateq] was known to have acted in the past as trustee and all its assets are held on trust. There is no reason this presumption should apply to construing the Contract.[26]

**Innovateq could not have had any history of acting as trustee prior to 28 June 2010 because the IUT did not exist.

19 In its written reply submissions, the appellant submits that it:**

was capable of accepting the business "Innovateq", including all its beneficial interest in property into the trust fund notwithstanding that the express trust arising by virtue of the Trust Deed did not arise until some days or weeks after the commencement of the said business, including the employment of Mr Phillips.

As now put by the Certeq Defendants, the enquiry must be whether at trial the plaintiff has a real chance of establishing that at the material time (September to December 2015) the equitable and contractual choses in action that arose were property of the IUT.

The defendants contend that there is nothing to suggest that the employment contract was accepted by the trustee as trust property.

THE EMPLOYMENT CONTRACT ACCEPTED BY THE TRUSTEE AS TRUST PROPERTY OF THE IUT

There are public records relevant to that factual enquiry. As submitted to the Associate Judge below, the Australian Business Number (ABN) of the IUT appears on every page of the second, unsigned but agreed, written employment contract. The evidence of Mr Hadjiantonakis, in his affidavit sworn 18 July 16, deposes as to the circumstances of Mr Phillips' agreement to that second employment contract. The second contract itself is exhibited at DH- 1.[27]

20 This submission is inconsistent with both the statement of claim, and the arguments advanced by the appellant before Ierodiaconou AsJ. The statement of claim contains no allegation that at some point in time post 28 June 2010, the rights conferred upon Innovateq under its contract with Mr Phillips were accepted by Innovateq as trust property. Further, the proceedings before Ierodiaconou AsJ were conducted on the basis that the primary issue for determination was whether, at the time Innovateq entered the contract with Mr Phillips on 28 June 2010, it did so in its personal capacity (as contended by the fifth to seventh respondents), or as trustee (as contended by the appellant). Insofar as the appellant's submission refers to a second employment contract exhibited at DH-1, her Honour expressly rejected the appellant's attempt to rely upon this:

For completeness it is noted that an employment contract dated 28 March 2012 forms exhibit 'DH-1' to the affidavit of Mr Daniel Hadjiantonakis, director of the plaintiff, sworn 18 July 2016. The contract is not signed and nor does it have the employee's name stated on it. Exhibit 'DH-2' to that affidavit is an email from the fifth defendant to Mr Hadjiantonakis in which he indicates that he would send it back tomorrow. It does not appear that was done. No reliance upon this unsigned contract is pleaded in the statement of claim. The plaintiff made a late submission without leave that this contract contained a reference to the ABN of the trustee of IUT. The submission is made without leave so should be disregarded, but even if it had been made with leave, it is irrelevant as the unsigned contract is not pleaded.[28]

**This finding was not challenged in the notice of appeal.

21 In order for the Court to exercise the powers conferred by r 77.06.9 of the Supreme Court (General Civil Procedure) Rules 2015, it must be established that there was error on the part of Ierodiaconou AsJ.[29] The appellant has not established any error in her Honour's conclusion that the appellant had no real prospect of establishing that when the contract of employment was made between Innovateq and Mr Phillips, it did so in its capacity as trustee.

22 The appellant sought leave to file evidence on the appeal consisting of:**

**_(i) The wages ledger extracted from the general ledger of the IUT for the following periods:

(ii) The financial statements for the IUT for the financial years ended:

(iii) The draft financial statement for the IUT for the financial year ended 30 June 2016.

(iv) The financial statements for Innovateq for the financial years ended:

**When the application was made I indicated that I would rule upon it in this judgment. I reject the application. First, the evidence if accepted, would not be likely to demonstrate that the order under appeal is erroneous.[31] I have concluded that Innovateq entered into the contract of employment with Mr Phillips in its personal capacity prior to the establishment of the IUT on 1 July 2010. As such, if the documents were admitted into evidence there would still be no basis for upholding the appeal. All of the evidence sought to be admitted post-dates 1 July 2010. It is therefore of no relevance to the question of the capacity in which Innovateq entered into the contract. Further, as set out below, I have concluded that absent a vesting order under s 51 of the Trustee Act, the appellant has no standing to sue the fifth to seventh respondents. Further, no satisfactory explanation was provided on behalf of the appellant as to why the evidence had not been tendered in the proceedings before Ierodiaconou AsJ.[32] It was not suggested that the evidence, which consists of business records, was not in existence at the time of the hearing.

23 The application to file further evidence was supported by an affidavit sworn by the appellant's solicitor, Mr Luke Faba. At paragraphs 6 and 7 of his affidavit Mr Faba deposed:**

In support of the application for leave to adduce this evidence, I note that the scope or focus of the defendant's Summons for summary judgment has shifted from the commencement. When the application was commenced, the applicants served two affidavits. The affidavit of Mr Phillips affirmed 3 June 2016 and that of Ms Rae sworn 10 June 2016 were served with the Summons. The former affidavit does not raise any of the complaints now said to form the basis for summary judgment, it was directed to the issue of the validity of the appointment of the plaintiff as trustee. The affidavit of Ms Rae was directed towards the security for costs application.

What now appears to be a significant factual issue upon which the summary judgment application is to be decided is this; whether or not the plaintiff has any reasonable prospects of establishing that, at the relevant time, the trustee Innovateq Pty Ltd had accepted as trust property of the IUT, the benefit of the employment contract between it and Mr Phillips. All of the exhibited public and business records referred to herein are relevant to establishing that proposition.[33]

24 Mr Faba's reference to 'the complaints now said to form the basis for summary judgment' is a reference to the respondents' submission based upon the non-existence of the IUT when the contract of employment was entered into on or about 28 June 2010. It is correct that the respondents did not advance any submission before Ierodiaconou AsJ based on the non-existence of the IUT at the time the contract of employment was entered into on or about 28 June 2010. However, the respondents did contend that the contract of employment made no reference to Innovateq contracting in its capacity as trustee of the IUT, and that there was no evidence of Innovateq having acted in the past as trustee. Plainly, it would have been open to the appellant in response to have contended that at some time post 1 July 2010, Innovateq accepted the trust property of the IUT, including the benefit of the contract of employment between Innovateq and Mr Phillips. The appellant now seeks to tender evidence in support of a contention which is not pleaded and which was not raised in argument before Ierodiaconou AsJ.

The appellant's standing to commence legal proceedings against the respondents

25 During the proceedings before Ierodiaconou AsJ the appellant contended, without opposition, that upon its appointment as trustee of the IUT on 16 December 2015 any trust property automatically vested in it pursuant to s 45(1) of the Trustee Act, which provides:

Where a new trustee is appointed the execution of the instrument of appointment shall, subject to this section without any conveyance vest in the persons who become and are the trustees, as joint tenants and for the purposes of the trust, the trust property for which the new trustee is appointed.

**26 The appellant contended that Innovateq's right to sue the respondents for breaches of contractual and fiduciary duties was a chose in action which vested in the appellant immediately upon its appointment as trustee of the IUT on 16 December 2015.[34] The respondents did not put in issue the application of s 45(1). Rather they contended that Innovateq's right to sue the respondents was not trust property because Innovateq had not entered into the contract of employment with Mr Phillips in its capacity as trustee of the IUT.

27 Section 45(1) is stated to be 'subject to this section'. Relevantly, this includes s 45(3), which provides:**

(3) Subsections (1) and (2) of this section shall not apply -

...

(c) to any property (including property subject to the operation of the Transfer of Land Act 1958) which is only transferable in books kept by a company or other body or in manner directed by or under an Act of Parliament.

28 Section 134 of the Property Law Act provides:

Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, shall be and shall be deemed to have been effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice -

(a) the legal right to such debt or thing in action;

(b) all legal and other remedies for the same; and

(c) the power to give a good discharge for the same without the concurrence of the assignor:

Provided that, if the debtor, trustee or other person liable in respect of such debt or thing in action has notice -

(a) that the assignment is disputed by the assignor or any person claiming under him; or

(b) of any other opposing or conflicting claims to such debt or thing in action -

he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or pay the debt or other thing in action into court under the provisions of the Trustee Act 1958.

**29 Although not the subject of argument at first instance, a question arises in the current proceedings as to whether, for the purposes of s 45(3)(c) of the Trustee Act, s 134 of the Property Law Act prescribes the manner in which a thing in action is transferable as between the trustee and a successor trustee.

30 Prior to the hearing of the appeal on 5 December 2016, I asked counsel for the appellant and respondents to address the following questions:**

**_(i) Was the chose in action constituted by the third defendant's right of action against the fifth to seventh defendants a 'legal thing in action' within the meaning of s 134 of the Property Law Act 1958?

(ii) If so, was any assignment of the third defendant's right of action against the fifth to seventh defendants subject to s 134?

(iii) If so, is s 45(1) of the Trustee Act 1958 subject to s 45(3)(c)?

(iv) If so, absent a vesting order pursuant to s 51(1) of the Trustee Act 1958, does the plaintiff have standing to pursue the third defendant's right of action against the fifth to seventh defendants?_**

31 I raised these questions with the parties as it appeared to be arguable that, contrary to the basis upon which the proceedings had been conducted before Ierodiaconou AsJ, any chose in action constituted by Innovateq's right to sue the respondents did not automatically vest in the appellant upon its appointment as trustee of the IUT on 16 December 2015.

Was the chose in action constituted by Innovateq's right of action against the respondents a 'legal thing in action' within the meaning of s 134 of the Property Law Act?

32 The appellant and the respondents accept that a 'thing in action' is a 'right enforceable by action'.[35] A legal thing in action embraces all legal rights that are lawfully assignable.[36] Any right of action which Innovateq had against the respondents immediately prior to the appellant's appointment as trustee of the IUT was a thing in action within the meaning of s 134 of the Property Law Act.

Was any assignment of Innovateq's right of action against the respondents subject to s 134?

33 The appellant contends that its right to sue the respondents is not subject to s 134 of the Property Law Act. Its written submissions included the following:

1. In Halsbury's Laws of Australia, regarding assignments under statute it is said-

In all jurisdictions provision is made for the absolute assignment of an existing debt or other legal thing in action, provided that the assignment is in writing and express notice has been given to the person liable on the debt or other legal thing in action. Consideration is unnecessary. The following are not absolute assignments for the purposes of the legislative provisions:

(1) an assignment by way of charge; Durham Bros v Robertson [1898] 1 QB 765; [1895-99] All ER Rep Ext 1683

(2) an assignment which is conditional; Robinson v Podosky [1905] St R Qd 118; Interstate Investment Co Ltd v Mobbs [1928] NSWStRp 71; (1928) 28 SR (NSW) 572 at 574 per Ferguson J

(3) an assignment in which the assignor retains a beneficial interest in the subject matter of the chose in action; Re Carpas; Ex parte White [1931] QWN 43 at 46-7; (1931) 3 ABC 264; or

(4) an assignment in relation to which the subject of the assignment can only be determined by an inquiry as to the state of accounts between the parties; Interstate Investment Co Ltd v Mobbs [1928] NSWStRp 71; (1928) 28 SR (NSW) 572 at 574 per Ferguson J

1. Viewed in this light, if the vesting of the chose in the new trustee is to be considered to be similar to an assignment, it was not an assignment given only legal title and not the beneficial interest moved from the former to the new trustee. Thus vesting is in a different category to the formal legal assignment. A vesting transfer entitlement from an earlier trustee to a successor trustee to bring claims in accordance with prior held choses in action to restore the Fund held on trust is something less than the full interest that was involved.

**34 The definition of 'property' in s 3 of the Trustee Act 'includes real and personal property, and any estate share and interest in any property, real or personal, and any debt, and any thing in action, and any other right or interest, whether in possession or not'. Thus, the reference in s 45(3)(c) 'to any property' includes a thing in action. The question which arises under s 45(3)(c) is whether a thing in action 'is only transferable in... manner directed by or under an Act of Parliament.'

35 An absolute assignment of a thing in action is only transferable in the manner prescribed by s 134 of the Property Law Act.

36 An absolute assignment is the unconditional assignment of the assignor's entire interest. In Clyne v Deputy Commissioner of Taxation,[37] Mason J held (considering the NSW equivalent of s 134):**

Nonetheless, within the context of s. 12 the assignment was "absolute". An "absolute assignment" in the section signifies one which is unconditional. Consequently it has been held to embrace an assignment notwithstanding that the document effecting the assignment provides or implies the need for a re-assignment or re-conveyance on the happening of a future event, e.g. the repayment of a loan for which the assignment is being held as a security - see W. R. Warren, Choses in Action (1899), pp. 163-167; Burlinson v. Hall; Tancred v. Delagoa Bay and East Africa Railway Co.; Durham Brothers v. Robertson. In Durham, Chitty L.J. said that an unconditional assignment of a debt by way of mortgage to secure repayment of a loan would be an absolute assignment within the statutory provision notwithstanding that it is subject to an equity of redemption.[38]

37 In Assignment of Choses in Action in Australia, JG Starke QC notes:

An absolute assignment is one whereby the entire interest of the assignor in the chose in action is for the time being transferred unconditionally to the assignee, and placed completely under his control. To be absolute, it is not however necessary that the assignment should take the form of an out and out transfer which deprives the assignor permanently of all further interest in the subject-matter; for instance, an assignment of a chose in action as security for advances, with a proviso for redemption and re-assignment upon repayment of the loan, is an absolute assignment. An assignment may not be treated as absolute if the assignor retains any beneficial interest in the subject-matter of the chose in action assigned (Re Carpas, [1931] Q.W.N. 43 at pp. 46-7), or if the extent of what is assigned can be determined only upon an inquiry as to the state of accounts between the parties concerned (Interstate Investment Co. Ltd. V. Mobbs [1928] NSWStRp 71; (1928), 28 S.R. (N.S.W.) 572, at p. 574).[39]

38 In One.Tel (in liq) v Watson,[40] Sackville AJA (with whom Campbell and Hodgson JJA agreed) stated:

It follows from these authorities that if an assignment of a chose in action is unconditional, in the sense that the assignment transfers 'unconditionally all the rights of the assignor in the chose to the assignee', the assignment is absolute for the purposes of s 12 of the Conveyancing Act. This is so notwithstanding that the assignment itself contemplates a resulting trust in favour of the assignor in certain circumstances (as in Burlinson v Hall). A fortiori, if an assignment unconditionally transfers all the rights of the assignor in the chose in action to the assignee, the fact that in certain circumstances, which may not occur, a resulting trust will be implied in favour of the assignor does not prevent the assignment being absolute.[41]

39 In Austino Wentworthville Pty Ltd v Metroland Australia Ltd,[42] Barrett JA (with whom Beazley P and Meagher JA agreed) summarised the principles arising from authorities (including Clyne and One.Tel) in respect of whether an assignment is 'absolute'. His Honour stated:

Relevant principles emerging from the cases are these:

(1) An "absolute" assignment is one that is unconditional and does not attempt to affect part only of the chose in action.

(2) The fact that an assignment otherwise absolute is accompanied by an express proviso for redemption, an implied right of redemption or the creation of a trust in respect of future proceeds does not deprive it of its absolute character.

(3) An assignment by way of charge is one the effect of which is to give a right of payment out of the subject matter assigned without outright transfer of the subject matter. Such an assignment occurs when, for example, there is a transfer of a right to be paid out of a particular fund or of so much of a debt as is sufficient to satisfy a future indebtedness.

(4) The character of the assignment must be ascertained from the terms and effect of the instrument, according to the construction of it as a whole.[43]

**40 The appellant's statement of claim alleges that since its appointment as trustee of the IUT on 16 December 2015 it is entitled in equity to the rights of Innovateq as against the respondents.[44] It claims damages against Mr Phillips and equitable compensation against each of the respondents.

41 The appellant's claim against the fifth to seventh respondents is pleaded on the basis that it acquired unconditionally the rights previously held by Innovateq to sue them for breaches of contractual and fiduciary obligations which they owed to Innovateq. There is no allegation that Innovateq retained a beneficial interest in the subject matter of the causes of action pleaded by the appellant against the respondents.[45] Rather, the claim has been pleaded on the basis that there has been an absolute assignment of Innovateq's rights vis a vis the fifth to seventh respondents to the appellant.

42 The appellant submits that there was no absolute assignment of Innovateq's right to sue the fifth to seventh defendants 'given only legal title and not the beneficial interest moved from the former to the new trustee'.[46] The appellant's submission is based on a passage from Halsbury's Laws of Australia which states that an assignment is not absolute where the assignor retains a beneficial interest in the property. The appellant cites Re Carpas; Ex parte White for this proposition.

43 The headnote in the report of Re Carpas records the facts as follows:**

A petition was presented by a creditor, Alfred John White, for a sequestration order against the debtor, Cecil Carpas, of East Brisbane. The act of bankruptcy relied on was that at a meeting of creditors held at Brisbane on 20th March, 1931, the debtor, Carpas, admitted that he was in insolvent circumstances, and was requested by a resolution of a majority of creditors present at the meeting to surrender his estate for administration in accordance with The Bankruptcy Act 1924-1930, and he refused to surrender his estate.

The evidence showed that the petitioning creditor's debt amounted to £82 10s., a debt originally due and owing by the debtor Carpas to R. W. Thurlow & Co. Ltd., which debt had been assigned by the latter company to A. J. White, the petitioning creditor, on 12th June, 1931, the consideration for the assignment being the sum of 1s., and a further payment of 92¼ per cent. of any sum recovered by A. J. White in payment of the debt, less out-of-pocket expenses.[47]

44 Henchman J raised with counsel for the petitioning creditor, White, whether there had not been an absolute assignment by Thurlow & Co of the debt owed to it by Carpas.[48] The basis for this query was that Thurlow & Co retained a beneficial interest in the debt owed by reason of the condition that White pay 92.25% of any sum recovered to Thurlow & Co. Henchman J stated:

I am not satisfied from the evidence before me that the assignment of the debtor in question was an absolute assignment, and such that the assignor retained no beneficial interest therein, but I do not deem it necessary to decide the point, as I am satisfied that the debtor has not committed the act of bankruptcy alleged by the petitioner.[49]

**45 The facts of Re Carpas are readily distinguishable from the present case. In Re Carpas, Henchman J queried whether there had been an absolute assignment based on the assignor's retention of a beneficial interest in respect of the debt assigned. As pleaded in the appellant's statement of claim, Innovateq did not retain any beneficial interest in respect of the appellant's claims that the respondent breached contractual and fiduciary duties owed to Innovateq. It is the beneficiaries of the IUT, rather than Innovateq, who retain a beneficial interest in the chose in action which the appellant contends vested in it upon its appointment as trustee of the IUT. There is nothing in Re Carpas which supports the proposition that an assignment will not be absolute in circumstances where a party other than the assignor retains a beneficial interest in the chose in action. However, there is authority for the proposition that an assignment may be absolute where a trust arises over the proceeds arising from the chose in action.

46 In Comfort v Betts,[50] the Court of Appeal considered whether a legal assignment of a chose in action was an 'absolute assignment' pursuant to s 25 of the Judicature Act 1873 where the equitable interest in the chose in action is held on trust for the assignor. Section 25 of the Judicature Act provided for assignment of choses in action in the same manner as s 134 of the Property Law Act. Lord Esher MR held (Fry LJ and Lopes LJ agreeing):**

This document is in form an absolute assignment of each of these debts. It is clear that it was intended to be an absolute assignment of the debts, subject to a trust for payment of the money recovered to the creditors. The legal property in the debts was intended to pass, leaving only a trust; therefore there was an assignment which purported to be absolute, and which the parties intended to be so. Then, is there anything in the words of the sub-section which enables us to say that such an assignment as this is not within it? I see nothing that enables us to limit the plain words of the Act. I cannot see that any absolute injustice can be done by giving its terms their ordinary meaning; and on further consideration I do not see that any very great inconvenience can arise. Under these circumstances I think that we are bound to give effect to the plain words of the Act, and to hold that this is a valid assignment of these debts within its terms; and, therefore, that it passed the legal property in them to the plaintiff. On these grounds I think that this application must be dismissed.[51]

47 This passage is cited by Peter Young, Clyde Croft and Megan Smith in On Equity in support of following proposition:

The absolute character of the assignment would not be lost if, when received, the assignee covenants either to pay part of the proceeds of the chose in action to the assignor, or to hold all or part of the proceeds in trust for the assignor.[52]

**48 Thus, contrary to the appellant's submission the fact that only the legal interest in the chose in action moved from Innovateq to the appellant does not preclude an absolute assignment of the chose in action.

49 The appellant contends that the judgment of the High Court in Loxton v Moir[53] is authority for the proposition that Innovateq's right to sue the respondents vested in the appellant by operation of law pursuant to s 45(1) of the Trustee Act. In Loxton, the High Court considered the vesting of a chose in action from a former to a new trustee pursuant to s 6(2) of the Trustee Act 1898 (NSW). That section provided:**

So often as any new trustee is so appointed as aforesaid all the property (if any) which for the time being is vested in the surviving or continuing trustee, or in the heir, executors, or administrators of any trustee, or in the Chief Justice or senior Puisne Judge for the time being by virtue of the Probate Act of 1890 or any Act amending or consolidating the same, or in the trustee so desiring to be discharged, or refusing, or becoming unfit or incapable to act as aforesaid, and is subject to the trust in respect of which the new trustee is appointed, shall, by virtue of such instrument and without other assurance in the law, become and be conveyed, assigned, and transferred so that the same shall thereupon become and be legally and effectually vested in such new trustee, either solely or jointly with the surviving or continuing trustee as the case may require.

50 The appellant relies upon the following passage from the judgment of Griffiths CJ:

It is impossible to doubt that under the Act of 1890 choses in action which were trust property and which vested in the Chief Justice upon the death of the trustee vested in him as fully and completely as in the administrator when appointed. It is equally impossible to doubt that under the Act of 1897 the vesting in the new trustee was coextensive, as to both subject matter and legal effect, with the divesting from the Chief Justice. Otherwise the Chief Justice would in such cases have remained the only person in whose name the right to get in a legal chose in action could be asserted in an action at law.[54]

**51 The judgment in Loxton does not support the appellant's contention that Innovateq's right to sue the respondents vested in it by operation of s 45(1). Unlike s 45(1), s 6 of the Trustee Act 1898 (NSW) was not expressed to be 'subject to' qualifying provisions. There was no exclusionary provision in s 6 which corresponds with s 45(3)(c).

52 The appellant also refers to the following passage from the judgment of Brooking J in Young v Murphy[55]:**

Where it is a new trustee who takes proceedings to redress a breach of trust committed before his appointment, he can sue without the aid of a vesting order: Re Bennet [1906] 1 Ch 216 at 230-231 per Stirling LJ; Scott on Trusts, s109. Indeed, recognition of the right to sue precedes the invention of the vesting order by the Trustee Act 1850 (13 and 14 Vict c 60). That recognition is founded on general equitable principles.[56]

**53 This passage refers to the right of a new trustee to sue the previous trustee for a breach of trust committed prior to the new trustee's appointment. Thus, in the context of the current proceedings, Brooking J's judgment is authority for the proposition that, absent a vesting order, the appellant would be entitled to sue Innovateq for any breach of trust committed by Innovateq prior to 16 December 2015 when the appellant was appointed trustee.

54 Of greater relevance to the current proceedings is the following passage in Brooking J's judgment:**

The appointment of new trustees and the transfer of the trust property to them are two distinct matters: Noble v. Maymott [1851] EngR 693; (1851) 14 Beav. 471; 51 E.R. 367 at Beav. 478. In Victoria a vesting order consequential on the appointment of a new trustee vests in the new trustee any chose in action and enables him to recover it by action. This is the result of s. 58, and especially s. 58(5), of the Trustee Act 1958. The corresponding provisions in New South Wales are s. 78 and s. 78(6) of the Trustee Act 1925. Accordingly, in those states, once a new trustee is appointed and a vesting order made, the person with standing to enforce a pre-existing right of action for a tort committed in respect of the trust property is, in general, the new trustee and the person with standing to enforce a contract that was held in trust by the former trustee or to enforce a pre-existing right of action arising from such a contract is the new trustee.

A contract was held in trust by the former trustee if it was made in the course of administering the trust. A contract made by a trustee because he is administering a trust is not necessarily made in the course of the administration. It may be made for his private purposes as trustee as opposed to being in the management of the trust estate. Elaboration on the distinction is unnecessary, since in the present case the contracts were beyond question made in the course of administering the trust.

I return now to the facts of the present case as pleaded. The torts alleged against Priestley & Morris are torts with respect to trust property, the claim being one for damages for economic loss. Until the appointment of the new trustees the proper plaintiff was BPTC, the legal owner of the trust property and the person to whom the duty of care was owed. The effect of the vesting order made by the Supreme Court of New South Wales is to vest in the new trustees the whole of the trust property, including the rights of action in tort set up in these proceedings in respect of loss sustained by the trust estate. As regards the rights of action in contract asserted in the statement of claim, the contracts alleged were, as I have said, plainly made in the course of administering the trust, so that the right of action for breach which resided in the former trustee was held by him as part of the trust property. It has passed to the new trustees, along with all the other trust property, by virtue of the vesting order. Whether or not the new trustees could without a vesting order have maintained an action for breaches of contract committed before their appointment (as to which see Wentworth v Gurner (1863) 2 S.C.R. (N.S.W.) Eq. 105 at 112; (1864) 3 S.C.R. (N.S.W.) Eq. 22 at 27), they may do so by virtue of the vesting order.[57]

55 The passage in Wentworth v Gurner cited by Brooking J is as follows:

This is the ground on which I act in dismissing the bill, but I also am of opinion that the right to bring this suit remains in Messrs. Elyrd and the representatives of Mr. Thompson, whose agents the solicitors were; for it can hardly be considered that the deeds appointing the new trustees passed this cause of suit, and the solicitors not being trustees, the cestiuique trusts, or persons representing them, could have no right to bring the suit, for the solicitors have not enabled their principals to apply any part of the property to their use, or otherwise, to commit a fraud on their cestiuique trusts, so as to give them a locus standi in a suit against the solicitors.[58]

**56 The appellant contends that Brooking J did not expressly endorse the reasoning in Wentworth.[59] I do not accept this submission. Brooking J referred to Wentworth immediately after discussing the legal effect of a vesting order under s 58(5) of the Trustee Act, vesting in a new trustee any chose in action of the previous trustee and enabling the new trustee to recover it by action. His Honour's reference to Wentworth as illustrating the position where no vesting order has been made, cannot be read as anything other than reflecting his Honour's conclusion that, absent a vesting order, a chose in action of a previous trustee would not have vested in the new trustee.

57 Section 45 in its current form has been in the Trustee Act since 1953. Brooking J's discussion of the effect of s 58(5) would have been otiose if a chose in action had vested automatically in the new trustee pursuant to s 45(1) of the Trustee Act. The reasoning of Brooking J, although obiter, strongly supports the conclusion that a chose in action does not vest automatically in a new trustee pursuant to s 45(1). In circumstances such as the present case, where there has been no assignment in accordance with s 134 of the Property Law Act, a chose in action will only vest in a new trustee where a vesting order has been made pursuant to s 51(1) of the Trustee Act.

58 The conclusion set out above is reinforced by the terms of s 58(1) of the Trustee Act:**

(1) In the case of a vesting order consequential on the appointment of a new trustee, or the retirement of a trustee, the vesting order shall have the same effect as if the persons who before the appointment or retirement were the trustees (if any) had duly executed all proper conveyances of the property for such estate or interest as the Court directs, or if there is no such person, or no such person of full capacity, then as if such person had existed and been of full capacity, and had duly executed all proper conveyances of the property for such estate or interest as the Court directs.

59 The effect of a vesting order is that, notwithstanding non-compliance with s 134 of the Property Law Act, a chose in action vests in the new trustee as if a written assignment had been executed.

Is s 45(1) subject to s 45(3)(c)?

**60 This question must be answered in the affirmative. The appellant submits that s 45(3)(c) should be construed on the basis that 'the objective of Parliament appears plainly to facilitate to [sic] the ease of vesting property from former to new trustees. The exceptions in (3)(c) generally all have the character that some other step is necessary to perfect legal title, such as registration of one form or another.'[60]

61 The correct approach to the interpretation of statutory provisions was considered by the Victorian Court of Appeal in Treasurer of Victoria v Tabcorp Holdings Ltd.[61] Maxwell P, Beach JA and McMillan AJA relevantly held:**

Interpreting a particular provision requires consideration of the legislative context and - where relevant - the legislative history. But if the words are clear and unambiguous, and can be intelligently applied to the subject matter, a provision must be given its ordinary and grammatical meaning, even if the result may seem inconvenient or unjust.[62]

62 The words of s 45(3)(c) are clear and unambiguous. Section 134 of the Property Law Act prescribes the manner in which a chose in action is transferable by the party entitled to exercise the right to sue an assignee of such a right. The definition of property in s 3 includes a thing in action. Section 45(1) is subject to s 45(3)(c).

Absent a vesting order pursuant to s 51(1) of the Trustee Act, does the appellant have standing to pursue Innovateq's right of action against the respondents?

**63 The affirmative answers to the first three questions considered above compels a negative answer to this final question. The appellant had no standing to sue the respondents when it commenced proceedings.

64 The appeal is dismissed. I shall provide the parties with an opportunity to make submissions on costs.**

INNOVATEQ AUSTRALIA PTY LTD (ACN 609 748 674) ATF THE INNOVATEQ UNIT TRUST

ROSS BARNES AND EMMA ROSE ATF THE R & E FAMILY TRUST

[1] Statement of Claim dated 30 March 2016, [8].

[7] Innovateq Australia Pty Ltd v Barnes [2016] VSC 618, [26].

[10] Notice of Appeal dated 27 October 2016, 3.

[11] (1993) 12 ACSR 78.

[12] Transcript of Proceedings, Innovateq Australia Pty Ltd v Barnes (Supreme Court of Victoria, S CI 2015 06404, McDonald J, 5 December 2016) T29 L9.

[14] Statement of Claim dated 30 March 2016, [3]-[4].

[15] 'Defence of the Fifth to Seventh Defendants' dated 3 June 2016, [3]-[4] (emphasis altered).

[16] 'Appellant's Outline of Submissions' dated 18 November 2016, 11.

[17] Innovateq Australia Pty Ltd v Barnes [2016] VSC 618, [23] (citations omitted).

[18] Transcript of Proceedings, Innovateq Australia Pty Ltd v Barnes (Supreme Court of Victoria, S CI 2015 06404, McDonald J, 5 December 2016) T40 LL3-4.

[20] See Innovateq Australia Pty Ltd v Barnes [2016] VSC 618, [16].

[21] Cf Barry Smith Grains Pty Ltd (in liq) v Riordan Group Pty Ltd [2010] NSWSC 1291, [44].

[22] (1993) 12 ACSR 78.

[23] Innovateq Australia Pty Ltd v Barnes [2016] VSC 618, [16].

[25] Ibid [16](ii). See also Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78, 85.

[26] Innovateq Australia Pty Ltd v Barnes [2016] VSC 618, [31].

[27] 'Appellant's Submissions in Reply' dated 30 November 2016, 2-3 (citations omitted) (emphasis altered).

[28] Innovateq Australia Pty Ltd v Barnes [2016] VSC 618, [21].

[29] See, eg, Rozenblit v Vainer [No 4] [2016] VSC 451, [37] (Cameron J); Fanniesab Pty Ltd v Futistasera Pty Ltd [2016] VSC 359, [10]-[11] (Digby J); Weber v Deakin University [2016] VSC 147, [15]-[25] (Zammit J).

[30] See Affidavit of Luke Faba sworn 1 December 2016, [3]-[4].

[31] Fanniesab Pty Ltd v Futistasera Pty Ltd [2016] VSC 359, [16].

[33] Affidavit of Luke Faba sworn 1 December 2016, [6]-[7].

[34] Statement of Claim dated 30 March 2016, [1].

[35] 'Appellant's Further Submissions' dated 8 December 2016, [1]-[2]; 'Further Submissions of the Fifth to Seventh Defendants' dated 13 December 2016, [4]-[5]. See also Loxton v Moir [1914] HCA 89; (1914) 18 CLR 360, 379 (Rich J); Krishell Pty Ltd v Millant [2006] WASCA 223, [73] (McClure JA).

[36] Purden v Purden [2007] NSWSC 141, [114].

[37] [1981] HCA 40; (1981) 150 CLR 1 ('Clyne').

[39] JG Starke, Assignment of Choses in Action in Australia (Butterworths, 1972) 13-14 (citations omitted).

[40] [2009] NSWCA 282.

[42] [2013] NSWCA 59; (2013) 93 ACSR 297.

[44] Statement of Claim dated 30 March 2016, [1].

[45] Cf Re Carpas; Ex parte White [1931] QWN 43, 46-47 ('Re Carpas').

[46] 'Appellant's Further Submissions' dated 8 December 2016, [6].

[47] Re Carpas [1931] QWN 43, 46.

[50] [1891] 1 QB 737.

[52] Peter Wolstenholme Young, Clyde Croft and Megan Louise Smith, On Equity, (Lawbook, 2009) 695.

[53] [1914] HCA 89; (1914) 18 CLR 360 ('Loxton').

[55] [1996] 1 VR 279 ('Young').

[58] Wentworth v Gurner (1863) 2 SCR (NSW) Eq 105, 112 ('Wentworth').

[59] 'Appellant's Further Submissions' dated 8 December 2016, [16].

[61] [2014] VSCA 143 ('Tabcorp Holdings').