Court of Appeal (WA)|2008-03-31|Before: Pullin JA

APT FINANCE PTY LTD -v- BAJADA [2008] WASCA 73 (31 March 2008)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : APT FINANCE PTY LTD -v- BAJADA [2008] WASCA 73

BETWEEN : APT FINANCE PTY LTD (ACN 080 974 278)

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Practice and procedure - Equitable assignment of debt by plaintiff before action commenced against debtor in plaintiff's name - Legal assignment of debt during course of action - Effect of legal assignment - Application to substitute assignee as plaintiff - Whether O 18 r 6(2) applied - Whether application should be under O 18 r 7(2) - Whether merits of claim by assignee to be considered on application for substitution

Rules of the Supreme Court 1971 (WA), O 18 r 6(2), O 18 r 7(2)

1 JUDGMENT OF THE COURT: This is an appeal against a decision of Wisbey DCJ made on 11 August 2006 dismissing the appellant's application for substitution of Seiza Investments Pty Ltd (Seiza Investments) in place of the appellant as the plaintiff in an action in the District Court. The respondents are the defendants in the action, which has not yet gone to trial. The second respondent, however, has played no active part in this application.

2 In the action, the appellant alleges that it made certain loans to the first respondent, pursuant to loan deeds dated 30 June 1999, 18 October 1999 and 31 May 2000 respectively.

3 The appellant says it assigned its interest in the loans to ZCM Matched Funding Corporation (ZCMMFC) under an unsecuritised assets deed dated 13 April 2002.

4 Shortly afterwards, by a deed of novation dated 26 July 2002 and a loan assets offer deed dated 25 July 2002, ZCMMFC assigned its interest in the loans to Zurich Capital Markets Asia Ltd (ZCMA).

5 In turn, by a deed of novation and a loan assets offer deed, both dated 16 April 2003, the interest of ZCMA in the loans was assigned to Challenger Mortgage Finance Pty Ltd (CMF).

6 Subsequently, by a deed of novation and a loan assets offer deed, both dated 26 September 2003, CMF assigned its interest in the loans to Challenger Life No 2 Ltd (Challenger Life).

7 Then, by a deed of novation and loan assets offer deed, both dated 8 November 2004, Challenger Life assigned its interest in the loans to Seiza Investments.

8 On the appeal the first respondent raised an issue as to whether the loans had been validly assigned by the various transactions relied on by the appellant. We will come back to that issue in due course.

9 The appellant says that in June and July 2001 it became entitled to demand repayment by the first respondent of the money owing under the loan deeds. Demand for repayment was made by a notice dated 9 September 2002. The demand was not met and, on 29 October 2002, the appellant commenced proceedings in the District Court against the respondents claiming payment of the amounts said to be owing under the loan deeds.

10 No notice of the various assignments to which we have referred was given to the first respondent until, on 13 May 2005, a firm of chartered accountants, Rodgers Reidy, wrote to the first respondent informing him that a Mr Moodie of that firm had been appointed by Seiza Investments as receiver and manager over certain assets of the first respondent, pursuant to powers contained in the loan deeds. The letter went on to describe each of the assignments. It is common ground that that letter constituted the first notice to the first respondent of the assignments.

11 The first respondent's solicitors wrote to the appellant's solicitors on 19 May 2005, contending that as the appellant had assigned its interest in the debts before the District Court action was commenced, it had no standing to bring the action.

12 There followed correspondence between the solicitors on that issue. It is not necessary to refer in any detail to that correspondence. Suffice it to say that Seiza Investments was of the view that as notice of the assignments had been given to the first respondent by the letter from Rodgers Reidy of 13 May 2005, Seiza Investments had become the legal owner of the debts and should be substituted as the plaintiff in the action. On 4 July 2005, the solicitors for Seiza Investments wrote to the first respondent's solicitors to say that, having received counsel's advice, an application would be made by Seiza Investments to be substituted as plaintiff in the action.

13 On 21 November 2005, the appellant applied by chamber summons for an order that it cease to be the plaintiff in the action and Seiza Investments be added as plaintiff, and for consequential orders for the amendment of the writ and statement of claim. The application was expressed to be made pursuant to O 18 r 6(2) of the Rules of the Supreme Court 1971 (WA). Subject to certain exceptions that are not presently relevant, those rules apply to any case in the District Court: District Court Rules 2005, pt 1, r 6.

14 The application came on for hearing before Deputy Registrar Hewitt on 10 April 2006. It was supported by two affidavits of one John Rodgers, a director of Seiza Investments. The first affidavit was sworn on 23 November 2005 and the second on 4 April 2006. An affidavit of the first respondent of 16 January 2006 was filed in opposition to the application.

15 The learned deputy registrar dismissed the application. Having noted that the demand upon which the appellant's cause of action relied was made after the appellant had assigned its interest in the relevant loans to ZCMMFC, the learned deputy registrar said, so far as relevant:

It seems to me that as between APT Finance and [ZCMMFC] the deed of assignment in its form absolute had the effect of transferring the right title and interest such as it was to the relevant loan debt to [ZCMMFC]. In my view that assignment precluded APT from undertaking any action such as has been commenced in these proceedings and it is not possible for [Seiza Investments] to subsequently adopt the proceedings which were commenced in disregard of the legal position which existed between those two parties.

16 By a notice of appeal filed on 20 April 2006, the appellant appealed to a judge of the District Court against that decision. Such an appeal is by way of a new hearing of the matter: District Court Rules 2005, pt 2, r 15.

17 The appeal was heard by the learned primary judge on 11 August 2006. His Honour dismissed the appeal. His Honour noted that the choses in action constituted by the debts had been assigned to Seiza Investments on 8 November 2004, and that notice of the assignment was first given to the first respondent on 13 May 2005. The learned primary judge concluded that it necessarily followed that Seiza Investments had no cause of action against the first respondent until November 2004, at best, and probably not until May 2005. His Honour concluded that it was not possible, whether under O 18 r 6(2) or otherwise, to substitute in an action as plaintiff an entity which had no cause of action against the defendant at the commencement of the proceedings.

18 It is against that decision that the appellant now appeals.

19 We should also mention that subsequently, by a chamber summons dated 17 October 2006, the appellant again sought orders substituting Seiza Investments as the plaintiff in the action, this time pursuant to O 18 r 7(2) of the Rules of the Supreme Court. That application was heard by Deputy Registrar Harman who, on 14 March 2007, dismissed it. The learned deputy registrar found that the operation of O 18 r 7(2) was limited to the circumstances set out in O 18 r 7(1), namely where a party died or became bankrupt, and therefore had no application to the present case. The learned deputy registrar also appeared to conclude that, in any event, no reason had been shown to warrant the substitution of Seiza Investments as the plaintiff in the action. The appellant did not appeal against that decision.

20 There is only one ground of appeal, namely that the learned primary judge erred in law in not exercising his discretion to make Seiza Investments a party to the proceedings and in not permitting the amendment of the writ and statement of claim accordingly.

21 In addition, although it has not appealed against the decision of Deputy Registrar Harman, the appellant gave notice that on the appeal it would seek to argue, in the alternative, that the substitution of the plaintiff should be made under O 18 r 7(2), contending that that raised a point of law only and involved no new issues of fact.

22 During the course of the hearing of the appeal, the substantive issue - namely, whether O 18 r 6(2) permitted the substitution of Seiza Investments as plaintiff - appeared effectively to evaporate. Counsel for the first respondent conceded that the learned primary judge was in error in concluding that the substitution of Seiza Investments could not be made under that rule. The first respondent's opposition to the appeal appeared then to turn on whether this court, in the exercise of the discretion under O 18 r 6(2), should allow the substitution.

23 In that connection, it was submitted on behalf of the first respondent that the substitution should be refused on the ground of delay, and also because the evidence did not establish that Seiza Investments had a prima facie case against the first respondent in respect of the debts, it being submitted there was no evidence that there had been valid assignments of any of them.

24 We will deal with those grounds shortly but, notwithstanding the concession by counsel for the first respondent, it is necessary first to say something about the ground of appeal relied upon by the appellant. Before doing so, we would simply observe that there was some discussion below as to whether the application for substitution should have been brought by Seiza Investments rather than the appellant, but we did not understand it to be suggested that anything turns on that. In our opinion, nothing does.

25 As we have said, the learned primary judge dismissed the appellant's application, in effect, on the ground that Seiza Investments had no cause of action against the first respondent when the District Court action was commenced and accordingly it could not now be joined as the plaintiff to the action under O 18 r 6(2) or otherwise. Before turning to the effect of O 18 r 6(2), it is appropriate to refer to the respective legal entitlements of the appellant and Seiza Investments in relation to the debts.

26 It is clear that until notice of the assignment is given to the debtor, any assignment of a legal chose in action such as a debt has effect simply as an equitable assignment. Where there is an equitable assignment of a legal chose in action, the assignor is generally not only a proper party, but a necessary party, to any action brought in respect of the interest assigned and the assignee is entitled to require the assignor to be joined or to sue in the name of the assignor upon providing an indemnity as to costs: Norman v Federal Commissioner of Taxation [1963] HCA 21; (1963) 109 CLR 9, Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [41].

27 In Norman v Federal Commissioner of Taxation, Windeyer J pointed out that:

... until the Judicature Act, 1873, s 25(6), and the corresponding statutory provisions in Australia and elsewhere came into operation, an assignee of a legal debt could not in his own name bring an action against the debtor to recover the debt. The original creditor must be the plaintiff on the record. He remained in law the owner of the chose in action. What the provision of the Judicature Act, 1873, did was to render unnecessary the previous circumlocutions. Debts and other legal choses in action were made directly assignable by the statutory method (27).

28 In Western Australia, the statutory method of assigning the legal right to a debt or other legal chose in action is contained in s 20 of the Property Law Act 1969 (WA). Relevantly, to be effective as an assignment under s 20, express notice in writing of the assignment must be given to the debtor.

29 If express notice in writing of an assignment of a debt is given to the debtor then, but only then, the assignee obtains the legal right and the legal remedy to the debt: McIntosh v Shashoua (1931) 46 CLR 494, 514 (Evatt J). Once there has been a perfected legal assignment any action must be in the name of the assignee and not in the name of the assignor, as the assignor no longer has any right to sue for the debt: Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190, Bacon v Yatchaw Irrigation & Water Supply Trust [1898] VicLawRp 102; (1898) 23 VLR 485, Hobbs v Rawson [1961] WAR 79, 86 (Virtue J), Carob Industries Pty Ltd (In Liq) v Simto Pty Ltd [2000] WASCA 362 [27].

30 Where, however, there has been an equitable assignment and the assignor subsequently sues the debtor, it appears to be unclear whether the assignor must join the assignee as a party to the action: see Three Rivers District Council v Bank of England [1995] 4 All ER 312, 331 (Peter Gibson LJ), but cf 322 (Staughton LJ), Jennings v Credit Corporation Australia Pty Ltd [2000] NSWSC 210 [31]. In any event, even if the assignee is required to be joined, the failure to do so cannot, in our view, render the action a nullity, any more than the failure of an equitable assignee to join the assignor renders the action of the equitable assignee a nullity: as to the latter, see Weddell v JA Pearce & Major [1988] Ch 26, Thomas v National Australia Bank Ltd [1999] QCA 525; [2000] 2 Qd R 448, and Meagher, Gummow and Lehane Equity Doctrines and Remedies (4th ed) [6-520].

31 We are satisfied that, prior to 13 May 2005, the action could be brought in the name of the appellant. However, once notice of the assignments was given to the first respondent by the letter of 13 May 2005, Seiza Investments became the legal owner of the debts and it alone was entitled to enforce any right to recover them.

32 The question then is whether O 18 r 6(2) permits the substitution of Seiza Investments as the plaintiff in the action and, if so, whether as a matter of discretion this court should so order.

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 ...

34 The starting point is that O 18 r 6(2) is a remedial provision and should be given a beneficial interpretation. 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: Woodings v Stevenson [2001] WASC 174 [12] and the cases there cited.

35 We respectfully agree with the conclusion reached by Owen J in Woodings v Stevenson, that O 18 r 6 is not limited to the joinder of further parties to an action, but that it also applies to the substitution of one party in place of a single party. We also consider that Elliott v Williams (1996) 15 SR (WA) 336, where the contrary conclusion was reached, was wrongly decided and should not be followed. We agree, too, with the view of Owen J that O 18 r 6(2) would not assist a person seeking to be substituted if the action was a nullity. His Honour did not have to decide whether an application under the rule could succeed where the limitation period had already expired, and equally it is not necessary to consider that in the present case, it not being an issue on the appeal. In fact, on the material before us, the limitation period has not expired.

36 However, where there is a legal assignment of a debt after legal proceedings to recover the debt have been commenced by or in the name of the assignor, it would seem to us that the most appropriate course is for the assignee to apply under O 18 r 7(2) to be substituted as the plaintiff in the action. As Millett LJ pointed out in Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 All ER 519, 522 in respect of the identical English rule, O 18 r 7(2) is specifically designed to cater for the situation where in the course of subsisting proceedings the interest of the original plaintiff has devolved upon another person, such as where the plaintiff has assigned the benefit of a contractual obligation after having commenced proceedings.

37 We should add that in Yorkshire Regional Health Authority the Court of Appeal held that in such a case the question of whether or not the limitation period has expired at the time the substitution is to be effected is irrelevant, as the substituted party is simply succeeding to the existing cause of action.

38 Nevertheless, the fact that the plaintiff's application might more appropriately have been brought under O 18 r 7(2) does not, in our view, mean that in this case it cannot be brought under O 18 r 6. There is no reason that the latter rule cannot apply to the present circumstances where (assuming for the moment it is the case) there have been valid legal assignments of the debts during the currency of legal proceedings commenced in the name of the assignor to recover the debts. The result of the assignments is that the assignor has ceased to be a proper or necessary party to the action and the addition of the assignee, as the legal owner of the debts, as plaintiff is necessary for the proper determination of the proceedings. It is not therefore to the point that at the time the proceedings were commenced Seiza Investments did not have a cause of action against the first respondent. It is sufficient that since the action was commenced Seiza Investments has obtained the legal right to the debts by virtue of the assignments.

39 That is consistent with the approach of the Full Court in Carob Industries Pty Ltd (In Liq) v Simto Pty Ltd. In that case, a claim in arbitration proceedings which were the subject of a pending appeal to the Full Court was assigned by the appellant (the claimant in the arbitration) to a third party. Following the assignment, the solicitors for the assignor gave notice of it to the respondent to the arbitration and appeal. The question was whether the assignee should be substituted for the assignor as the appellant in the appeal proceedings. Malcolm CJ (with whom Kennedy J and Pidgeon J agreed) concluded [50] that as the assignor no longer had any right, title or interest in the chose in action constituted by the subject matter of the arbitration, and the sole right to it was vested in the assignee, it was entirely appropriate that the assignee be joined in the proceedings as an appellant, pursuant to O 18 r 6. As the legal owner of the chose in action, it followed that the assignee's presence was necessary for the proper conduct of the proceedings and it was also just and convenient that he be joined.

40 In our view, the concession made by counsel for the first respondent, that the learned primary judge was in error in concluding that Seiza Investments was not entitled to be substituted as plaintiff under O 18 r 6(2), was correctly made.

41 It is necessary, then, to turn to the discretion that arises on an application under O 18 r 6(2), it being common ground that that discretion should be exercised by this court.

42 It was submitted on behalf of the first respondent that the appellant's delay between giving notice of the assignment in May 2005 and the bringing of the application for substitution in November 2005 was excessive, and the application should be refused on the ground of delay. We do not accept that submission. While there was some delay in bringing the application, in the circumstances we do not consider it to be so great as to justify refusing the application.

43 The first respondent also contended that there was no evidence of any valid assignments of the debts by the appellant and therefore there was no evidence that Seiza Investments was in fact the legal owner of the debts. Counsel for the first respondent argued that it appeared from the copies of the deeds annexed to the affidavit of Mr Rodgers of 23 November 2005 that a number of them had not been executed and, in any event, they contained in each case an offer to the proposed assignee to assign the debts but no evidence of any acceptance of that offer by the proposed assignee.

44 Senior counsel for the appellant referred to Kings Quality Homes Ltd v A J Paints Ltd [1997] 3 All ER 267, where Staughton LJ said in relation to an application of this nature:

I would have thought that a judge who on such an application would substitute a new party is entitled to have some regard to the merits of the case if they are readily visible to him. Of course he should not conduct a prolonged investigation into the merits, and if he is asked to do so he should not do it. If he can form a rough and ready view of the merits, I do not see why he should not pay regard to it (273e).

45 Senior counsel submitted that, by his second affidavit of 4 April 2006, Mr Rodgers gave sufficient evidence of the acceptance of the offers to assign and of the due execution of the original deeds. In that affidavit Mr Rodgers deposed to having been involved in the various transactions which constituted the assignments and said, among other things, that a valid acceptance was received in respect of each loan assets offer deed and that all conditions of the transactions were satisfied. No objection was taken to the evidence in that form.

46 We think it is plainly the case that the court should not order that a person be substituted as plaintiff if it is obvious on the material before the court that the person has no claim and the substitution is pointless. It seems to us that that is the point Staughton LJ was making in Kings Quality Homes. An application for substitution is not, however, the occasion for any detailed consideration of the merits.

47 Although the evidence in this case is not entirely satisfactory, we are satisfied on the basis of the affidavits of Mr Rodgers that sufficient has been shown on the merits for the purposes of this application.

48 In view of the conclusion we have reached it is unnecessary to consider the alternative ground that the appellant sought to raise, namely the substitution of Seiza Investments as plaintiff under O 18 r 7(2). We should, however, say in passing that, in our view, the finding of Deputy Registrar Harman that the operation of O 18 r 7(2) is limited to the circumstances set out in O 18 r 7(1), is, with respect, wrong. It is not so limited. In the circumstances, we are also, with respect, unable to agree with the conclusion of the learned deputy registrar that there is no warrant for the substitution of Seiza Investments as the plaintiff in the action. For the reasons we have given, following the perfection of the legal assignment of the debts by notice to the first respondent, Seiza Investments is the proper plaintiff in the action. However, as no appeal has been brought from the decision of the learned deputy registrar, it is unnecessary to say any more about it.

49 We are satisfied that the ground of appeal has been made out and that in the circumstances it is appropriate that Seiza Investments be substituted as the plaintiff in the action.

(b) set aside the decision of Wisbey DCJ of 11 August 2006; and

(c) order that Seiza Investments Pty Ltd be substituted as plaintiff in the action in lieu of the appellant and grant leave for the writ and statement of claim to be amended accordingly.

APT FINANCE PTY LTD -v- BAJADA [2008] WASCA 73 (31 March 2008)

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APT FINANCE PTY LTD -v- BAJADA [2008] WASCA 73 (31 March 2008)

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