Bakewell v Anchorage Capital Master Offshore Ltd

Solicitors: Baker McKenzie (Applicant) Gilbert + Tobin (Respondents) File Number(s): 2019/140853 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2019] NSWSC 384 Date of Decision: 09 April 2019 Before: Ball J File Number(s): 2018/104383

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] Various companies in the Arrium Group of companies entered into facility agreements with various financiers in materially the same terms. Under the agreements, where a borrower wished to draw down funds or to rollover the maturity date on which an existing drawing was due to be paid, it was required to issue a "Drawdown Notice" or "Rollover Notice". In issuing a Notice, the borrower was required to represent and warrant to the lender that there had been no material change in its financial position and that there was no unresolved event of default. In late 2015, it is alleged, Mr Bakewell, former CFO of Arrium Group, instructed or directed that the borrowers draw down all available amounts under each of the available facilities. By a number of assignments, certain debts owed to the lenders under the facility agreements were assigned to the respondents. The terms of the assignments purported to transfer "all of the rights and benefits of the Assignor under or in respect of the Credit Documentation" and "the Ancillary Rights and Claims" including "all claims, suits, causes of action, and any other right of the Seller … against any Obligor". In April 2016, certain members of the Arrium Group were placed into voluntary administration, at which time approximately $2.8 billion plus interest was owing under the facility agreements. Anchorage Capital brought proceedings against various officers of the Arrium Group alleging that Notices issued by the borrowers contained negligent misstatements or misrepresentations. It then sought to amend its pleadings to add other plaintiffs and to join Mr Bakewell as a defendant. One of the plaintiffs sought to be joined was Deutsche Bank which was a financier under one of the facility agreements but which had also taken assignments of various debts under other facility agreements. Mr Bakewell resisted being joined to the proceedings on the basis that the proceedings were doomed to fail on account of the principle that a bare cause of action is not assignable. The primary judge rejected this argument, joined Mr Bakewell and allowed the claims to be amended, holding that it was arguable that the assignments of various causes of action against Mr Bakewell were valid. The issues on appeal were whether the primary judge erred in finding it was arguable that: 1. the principle stated in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (Trendtex) and adopted in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 (Equuscorp) had been modified, such that where the assignee has a legitimate commercial interest in taking an assignment of both sets of rights, the assignment of the cause of action will be ancillary to the assignment of the property rights; and 2. the respondents had a legitimate commercial interest in taking an assignment of both sets of rights. The Court held (Bell P, Macfarlan and White JJA agreeing), refusing leave to appeal: 1. Given that Deutsche Bank (the fourth plaintiff) has non-assigned claims against Mr Bakewell, which are not affected by the arguments relating to the validity of the assignment of causes of action, the proceedings will continue against him in any event. Severing these claims, in circumstances where Mr Bakewell will be of central significance in the litigation, would be contrary to s 56 of the Civil Procedure Act 2005 (NSW) and s 63 of the Supreme Court Act 1970 (NSW): [53]-[54], [56]-[61] (Bell P); [78] Macfarlan JA; [79] White JA. Wickstead v Browne (1992) 30 NSWLR 1; [1992] NSWCA 272, considered. Spencer v The Commonwealth (2010) 241 CLR 118; [2010] HCA 28, and Wickstead v Browne (High Court, 30 April 1993, unrep), applied. 1. Insofar as the claims against Mr Bakewell brought by Deutsche Bank derive from assignments, because of Deutsche Bank's existing commercial interest in suing Mr Bakewell as a lender under one of the facility agreements, the assigned claims sought to be pressed by it against Mr Bakewell appear to fall squarely within one of the exceptions recognised in Trendtex and Equuscorp: [55], [59], [64] (Bell P); [78] Macfarlan JA; [79] White JA. 2. Additionally, and so far as the other plaintiffs were concerned, it was at the very least arguable that the principle in Trendtex and Equuscorp, understood as contended for by the respondents or as applied by the primary judge, would not render the assignments invalid: [49], [62]-[72] (Bell P); [78] Macfarlan JA; [79] White JA. 3. The principle that Mr Bakewell sought to invoke to resist joinder could not be regarded, from the perspective of an intermediate appellate court, let alone a court at first instance, as completely set in stone and impervious to development, modification or even elimination: [42], [44]-[45], [49] (Bell P); [78] Macfarlan JA; [79] White JA. Trendtex Trading Corporation v Credit Suisse [1982] AC 679, and Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7, considered. 1. In light of changes in judicial attitude to maintenance and champerty, the public policy underpinnings of the prohibition against the assignment of bare causes of action cannot be regarded as so secure as to justify effective summary dismissal on the basis of existing authority: [46], [50]-[51] (Bell P); [78] Macfarlan JA; [79] White JA. Campbells Cash & Carry Pty Ltd v Fostif Pty Limited (2006) 229 CLR 386; [2006] HCA 41, considered.

judgment

1. BELL P: This is an application for leave to appeal from orders made by Ball J on 9 April 2019 in which his Honour granted Anchorage Capital Master Offshore Ltd (Anchorage): 1. leave to join ACMO Finance (Ireland) Designated Activity Company (ACMO), Midtown Acquisitions LP (Midtown) and Deutsche Bank Aktiengesellschaft (DB) as plaintiffs in the proceedings; 2. leave to join Mr Robert Bakewell (Mr Bakewell) as a defendant in the proceedings; and 3. leave to file and serve an amended summons and an amended commercial list statement (ACLS).
2. As the primary judge explained, the claims brought or sought to be brought in the proceedings arose out of four facility agreements in materially the same terms between Arrium Limited (subject to deed of company arrangement) (Arrium) and certain of its subsidiaries on the one hand and a financier (or syndicate of financiers) on the other. Mr Bakewell was the Chief Financial Officer of the Arrium Group and each of the existing defendants to the proceedings (Ms Sparkes, Ms Verawati, Ms Hall and Ms Lieu) were officers within Group Treasury of the Arrium Group and Authorised Officers for the purposes of issuing Drawdown and Rollover Notices under the various facility agreements.
3. The first agreement was a Bi-Lateral Facility Agreement dated 13 June 2014 between OS Finance Pty Ltd (formerly Arrium Finance Pty Ltd) (subject to a deed of company arrangement) (Arrium Finance), AIOH Pty Ltd (formerly Arrium Iron Ore Holdings Pty Ltd) (subject to a deed of company arrangement) (Arrium Iron Ore) as borrowers, and Arrium as parent and Morgan Stanley Bank, N.A. as lender (the Morgan Stanley Facility Agreement). The second was a Syndicated Facility Agreement dated 31 May 2013 between, amongst others, Arrium Finance and Arrium Iron Ore as borrowers, Arrium as parent and National Australia Bank Limited (NAB) as agent for the lending syndicate (the 2013 SFA). The third was a Syndicated Facility Agreement dated 16 June 2014 between, amongst others, Arrium Finance, Arrium Iron Ore and AltaSteel Ltd (AltaSteel) as borrowers, Arrium as parent and NAB again as agent (the 2014 SFA). The fourth was a Syndicated Facility Agreement dated 21 May 2015 between, amongst others, Arrium Finance, Arrium Iron Ore and AltaSteel as borrowers, Arrium as parent and NAB again as agent (the 2015 SFA).
4. In April 2016, certain members of the Arrium Group were placed into voluntary administration. At the time of the voluntary administration, according to the ACLS, lenders under the facility agreements were owed approximately $2.8 billion plus interest.
5. Mr Bakewell, in his capacity as proposed fifth defendant, appeared before the primary judge and, together with the existing defendants to the proceedings, opposed leave to amend being granted on the basis that the plaintiffs had no standing to bring the claims sought to be introduced against them by reason of the fact that the plaintiffs were assignees of bare causes of action and that, as such, the assignments were invalid and ineffective, savouring of maintenance: cf Glegg v Bromley [1912] 3 KB 474 at 489. In other words, the application for leave to amend was resisted on the basis that the new claims were bound to fail.
6. As the primary judge explained, by a number of assignments, certain of the debts owed to the lenders under the four facility agreements (the Par Lenders and each individually a Par Lender) were assigned to the plaintiffs, or, in the case of the Morgan Stanley Facility Agreement, novated to the plaintiffs. In some cases, the assignments were made through one or more parties unconnected with the Par Lenders or the plaintiffs. The assignments were in substantially the same terms. These are set out more fully later in these reasons.
7. The essence of the argument before the primary judge was: 1. that what was assigned did not fall within either of what have come to be accepted as two exceptions to the general principle that a bare cause of action is not assignable. The exceptions are associated with the well-known decision of the House of Lords in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (Trendtex) as applied by the High Court of Australia in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 (Equuscorp); 2. that this was a question of law which was capable of being determined in a summary fashion [1] as had been contemplated by Sir Garfield Barwick in the well-known passage from his decision in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125; [1964] HCA 69 at [129] (General Steel); and 3. although a very high hurdle was presented on a notional application for summary dismissal (which was what the defendants' opposition to the amendment application in effect was), it was a hurdle that could be surmounted in the present case.
8. The first of the recognised exceptions identified in Trendtex was said to be where the assignment was of a property right or interest and the cause of action was ancillary to that right or interest. The second exception was where the assignee had a substantial or genuine commercial interest in taking the assignment for its own benefit beyond the cause of action itself. The primary judge accepted that it was plain from Trendtex that, where there had been a bare assignment of a cause of action, the assignment would not be valid unless the assignee had a pre-existing genuine commercial interest in the outcome of the claim being assigned. In the instant case, there was said to be no pre-existing genuine commercial interest.
9. The primary judge held, however, (at [33]) that it was at least open on the basis of Equuscorp and the decision of Gault J in First City Corporation v Downsview Nominees Ltd [1989] 3 NZLR 710 (First City Corporation) to argue that Trendtex not only modified the test to be applied where there was a bare assignment of a cause of action, but also where the assignment occurred in connection with the assignment of property rights; and that it was appropriate in those cases to ask whether the assignee had a legitimate commercial interest in taking an assignment of both sets of rights. His Honour concluded at [34] that: "Applying that test, it is at least arguable that the plaintiffs had a legitimate commercial purpose in obtaining an assignment of the rights against the defendants. The right to receive certificates [under the facilities, warranting as to the solvency of the borrower] was part of the drawdown mechanism which was designed to provide some protection to the borrower [scil. financiers] in connection with advances made under the relevant facility agreement. The right to sue the defendants in respect of certificates which were wrongly given (assuming that there is such a right) can be seen as part of that protection. It might be argued that the plaintiffs had a legitimate commercial purpose in acquiring those rights and that protection in connection with the acquisition of the debts which resulted from the provision of those drawdown notices."
10. His Honour reasoned (at [35]) that it was no answer that the assignment of a bare cause of action was invalid unless the assignee had a pre-existing genuine commercial interest in the cause of action, since what had occurred in the present case was the assignment of causes of action in connection with the assignment of debts and associated contractual rights.
11. Before turning to consider the grounds upon which Mr Bakewell seeks to challenge the decision at first instance and the merits of those grounds, it is necessary to set out in a little more detail the terms of the facility agreements, the terms of the assignments and the nature of the claims made in the ACLS, and, in particular, those made against Mr Bakewell.

The facility agreements

1. As noted above, the four facility agreements were relevantly in the same terms. As the primary judge explained, under cl 6 of the Morgan Stanley Facility Agreement, cl 8 of the 2013 SFA and cl 8.1 of the 2014 and 2015 SFAs, where a borrower wished to make a "Drawing" (including a "Rollover Drawing") to drawdown funds under the agreement, or, in the case of a "Rollover Drawing", to rollover the maturity date on which an existing drawing was due to be repaid, it was required to issue a "Drawdown Notice" (which, in the case of a rollover was sometimes referred to as a "Rollover Notice") which was: 1. irrevocable; 2. in the form set out in Sch 3 of the relevant agreement; and 3. contained certain representations and warranties made to the relevant lenders or agent on behalf of the lenders.
2. The form set out in Sch 3 required that the notice be signed by two "Authorised Officers". All of the Drawdown Notices relevant to the proceedings were signed by two of the defendants named in the original Commercial List Statement. None was signed by Mr Bakewell.
3. The representations and warranties required to be made in the Drawdown Notices were set out in cl 14.1 of the Morgan Stanley Facility Agreement and cl 18.1 of each of the SFAs. Relevantly, cl 14.1 of the Morgan Stanley Facility Agreement stated: "Each Borrower Party (except in the case of … clause 14.1(i) and 14.1(v), in which case only the Parent…) represents and warrants to the Lender in relation to itself, and the Parent represents and warrants in relation to each Guarantor (as if references in this clause 14.1 to 'it' were references to that Guarantor), that: … (i) (no material change) in the case of the Parent only, there has been no change in the Group's financial position since the end of the accounting period for its most recent Accounts delivered pursuant to clause 15.1 which constitutes a Material Adverse Effect; … (k) (Event of Default) other than as notified pursuant to an obligation to do so under the Transaction Documents no Event of Default or (except when this representation is repeated) Potential Event of Default, has occurred or continues unremedied".
4. Clauses 18.1(i) and 18.1(k) of each of the SFAs contained identical warranties except that the 2013 SFA contained the following representation in clause 18.1(i): "(no material change) in the case of the Parent only there has been no change in the Group's financial position since 31 December 2012 which constitutes a Material Adverse Effect".
5. Clause 14.3 of the Morgan Stanley Facility Agreement and cl 18.3 of the SFAs relevantly provided that each of the representations referred to above "is repeated, with reference to the facts and circumstances existing at the time on each Drawdown Date and on the date on which a Certificate of Compliance is delivered …".
6. As the primary judge explained, the effect of these provisions was that each time a borrower issued a Drawdown Notice (including a Rollover Notice) it was taken to have represented that as at the date of the notice there had been no material change in the Group's financial position (in the sense stated in the relevant representation) and that no Event of Default had occurred or continued unremedied. Those representations were specifically recorded in the Drawdown Notices in these terms: "6. We represent and warrant that: (a) the representations and warranties in the Facility Agreement which are required to be repeated under clause 14.3 [in the case of the Morgan Stanley Facility Agreement] are true as though they had been made at the date of the Drawdown Notice and the Drawdown Date specified above in respect of the facts and circumstances then subsisting; (b) no Event of Default or Potential Event of Default is subsisting or will result from the provision of the Drawing".
7. As shall be seen, the claims against the defendants were largely founded upon or arise out of the representations made at the time of drawing down on the various facilities.

The assignments

1. As noted in [6] above, certain of the debts owed to the lenders under the four facility agreements were assigned to the plaintiffs, and the assignments were in substantially the same terms.
2. The primary judge gave as an example an assignment of debts under the 2015 SFA. That assignment was made in accordance with a document headed "LMA Assignment (Distressed/Claims)". That document provides: "This Assignment is entered into pursuant to the agreed terms (the 'Agreed Terms') evidenced by the Confirmation with a trade date of 17 November 2016 between the Assignor and the Assignee. On the Assignment Effective Date, the assignment of the Assigned Assets by the Assignor to the Assignee and the assumption of the Assumed Obligations by the Assignee on the terms set out in this Assignment shall become effective subject to: (a) the Agreed Terms and the terms and conditions incorporated in the Agreed Terms; (b) the terms and conditions to this Assignment; and (c) the schedule to this Assignment, all of which are incorporated in this Assignment by reference."
3. The schedule set out various details including details of the "Credit Agreement", and details of the "Assigned Claims".
4. Clause 2.2 of the "Agreed Terms" provided: "Undertaking and Payment (a) The Assignee agrees, to the extent of the Traded Portion being assigned: (i) that, on the Assignment Effective Date it shall accept the assignment of the Assigned Assets; and (ii) that, on and from the Assignment Effective Date it shall assume, perform and comply with (vis-a-vis the Assignor, the Agent and the other providers of credit in relation to the Assigned Assets) the Assumed Obligations under the Credit Documentation as if originally named as an original party in the Credit Documentation. (b) The Assignee agrees to pay to the Assignor the Settlement Amount on the Assignment Effective Date, to the extent so specified in the Pricing Letter."
5. "Assigned Assets" was defined to mean: "… all of the rights and benefits of the Assignor under or in respect of the Credit Documentation corresponding to the Traded Portion including, without limitation: (a) the rights and interests of the Assignor in and in respect of the benefit of any guarantee or other assurance against loss given by any Guarantor and any other security and in respect of amounts owing to the Assignor under or in respect of the Traded Portion; and (b) where the Traded Portion represents the Assignor's entire claim in the Insolvency Proceedings of the Borrower, all of the Seller's right to prove in the Insolvency Proceedings of the Borrower."
6. Clause 5 of the Standard Terms, which were incorporated in the assignment provides: "SALE OF ANCILLARY RIGHTS AND CLAIMS (a) Pursuant to these Conditions the Seller sells, assigns and conveys to the Buyer, and the Buyer purchases and accepts, the Ancillary Rights and Claims with effect from the Settlement Date. (b) Paragraph (a) above shall not apply to any transaction which settles as a funded participation or as a risk participation."
7. "Ancillary Rights and Claims" was defined as: "(a) to the extent that the same are capable of being or permitted to be assigned, by the Seller in contract and under applicable law; or (b) (in the case of a transaction which settles as a funded participation or a risk participation) to the extent that the same are capable of being or permitted to be made the subject of a funded participation or as the case may be, a risk participation, by the Seller in contract and under applicable law, all claims, suits, causes of action, and any other right of the Seller (including where such claims, suits, causes of action or other rights have been acquired by the Seller from its Predecessor-in-Title), whether known or unknown, against any Obligor, or any of their respective affiliates, agents representatives, contractors, advisors, or any other person that in any way is based upon, arises out of or is related to assets referred to in paragraph (a) or paragraph (b) of the definition of Purchased Assets, including: (i) all claims (in contract or tort), suits, causes of action, and any other right of the Seller (including where such clams, suits, causes of action or other rights have been acquired by the Seller from its Predecessor-in-Title), against any auditor, legal, tax, financial or other professional advisor, or other person arising under or in connection with the Credit Documentation, but excluding: (ii) the Seller's rights, title, interest and benefit in, to and under the Predecessor Transfer Agreements (other than claims, suits, causes of action and any other rights referred to above that have been acquired by the Seller from its Predecessor-in-Title)."
8. The primary judge also noted that it was common ground that the plaintiffs received substantial dividends as assignees in respect of debts that were assigned to them.

Amended Commercial List Statement

1. The ACLS comprises some 249 paragraphs which, including a detailed schedule, runs for some 265 pages. Part A of the ACLS sets out in broad form the "Nature of Dispute". For immediate purposes, it supplies a convenient overview of the claim and Mr Bakewell's role in it. They include the following: "1 The first to third plaintiffs are corporations and a limited partnership registered in the Cayman Islands, Ireland or the United States of America, and which are in the business of, inter alia, managing funds provided to them by institutional investors. 1A The fourth plaintiff is a company incorporated pursuant to the laws of, and registered in Germany and which is in the business of, inter alia, providing loans and other facilities to corporations and individuals. 2 The first defendant, Delia Sparkes (Sparkes) was: (a) between 1 May 2012 and 29 January 2016, a director of OS Finance Pty Ltd (formerly Arrium Finance Pty Ltd) (subject to a deed of company arrangement) ACN 093 954 940 (Arrium Finance) and a director of AIOH Pty Ltd (formerly Arrium Iron Ore Holdings Pty Ltd (subject to a deed of company arrangement) ACN 152 752 844) (AIOH); and (b) at all material times, an officer of Arrium Finance, of AIOH and of ACN 004 410 833 (formerly Arrium Ltd) (subject to a deed of company arrangement) (Arrium), in her capacity as Group Treasurer of the Arrium Entities. 3 The second, third and fourth defendants, Vera Verawati (Verawati), Hazel Hall (Hall) and Jaimee Lieu (Lieu), were at all material times officers of the Arrium Entities in their capacity as Arrium Group Treasury Operations Manager, Arrium Group Financial Reporting Manager and Arrium Group Reporting Manager, respectively. 4 The fifth defendant (Bakewell) was: (a) at all material times, the Chief Financial Officer of the Arrium group of companies which included the Arrium Entities (the Arrium Group); (b) between 1 May 2010 and 5 April 2016, a director of Arrium Finance and AIOH. 5 The plaintiffs say that Sparkes, Verawati, Hall and Lieu each made negligent misstatements, or were negligent in making representations to the par lenders under certain bilateral and syndicated facility agreements that the Arrium Entities entered into with those par lenders, in reliance on which the par lenders lent monies to Arrium, Arrium Finance, AIOH and AltaSteel Limited (AltaSteel) (Arrium Finance, AIOH, Arrium and AltaSteel are together, the Arrium Entities) and rolled over/redrew monies lent under the terms of the bilateral and syndicated facility agreements. 6 Alternatively, the plaintiffs say that the Arrium Entities made negligent misstatements, were negligent and breached the bilateral and syndicated facility agreements which caused the par lenders to lend monies to Arrium, Arrium Finance, AIOH and AltaSteel and roll over/redraw monies lent under the terms of the bilateral and syndicated facility agreements. The plaintiffs say that these breaches of the law by the Arrium Entities were procured by Bakewell and Sparkes such that those defendants are liable for those breaches of the law by the Arrium Entities. 7 Further and alternatively, the plaintiffs say that Bakewell, Sparkes, Verawati, Hall and Lieu were negligent in either completing and signing the Drawdown and Rollover Notices of which they were the Authorised Signatory or directing that all available amounts under each of the Arrium Group's available facilities be drawn down. 7A Further and alternatively, DB says that Sparkes, Verawati, Hall and Lieu engaged in misleading or deceptive conduct which caused the par lenders under the syndicated facility agreements (including DB) to lend monies to Arrium, Arium Finance, AIOH and AltaSteel and roll over/redraw monies lent under the terms of those syndicated facility agreements. DB further and alternatively says that Bakewell and Sparkes were involved in the contraventions by the Arrium Entities such that those defendants are liable for the loss and damage suffered by DB by reason of those contraventions. 8 In April 2016, certain members of the Arrium Group were placed into voluntary administration. At the time of the voluntary administration the Arrium Group owed the par lenders under the bilateral and syndicated facility agreements approximately AU$2.8 billion plus interest under the terms of the bilateral and syndicated facility agreements. 9 The par lenders' obligations (other than DB Sydney) under the bilateral and syndicated facility agreements have been novated or assigned to the plaintiffs and any claims, suits, causes of action and any other rights the par lenders had or might have under the bilateral and syndicated facility agreements have been sold, assigned and conveyed to the plaintiffs. 10 By these proceedings, the plaintiffs seek to recover the loss caused by the conduct of the defendants referred to above."
2. Paragraph 73 of the ACLS pleads that: "In around December 2015, Bakewell instructed or directed Sparkes and/or Treasury to draw down all available amounts under each of the Arrium Group's available facilities". This is defined in the ACLS as the "Bakewell Direction" and this direction is in turn picked up in later paragraphs of the ACLS including [215] which is to the effect that, in giving the Bakewell Direction, Mr Bakewell breached a duty of care it is alleged he owed to the Par Lenders. The Bakewell Direction is also alleged in [218] of the ACLS to have been centrally causative of the drawdown of the various facilities which occurred over a three-month period in or about late 2015 and, as a consequence, the loss that was sustained.
3. In addition to the claim in negligence it is alleged in [234] of the ACLS that Mr Bakewell: 1. directed or procured the negligent misstatement, breach of contract and negligence of the Arrium Entities pleaded elsewhere in the ACLS; and 2. further and alternatively, knowingly pursued a course of conduct which led to or was likely to constitute the negligent misstatement, breach of contract and negligence of the Arrium Entities, or reflected an indifference to the risk of the negligent misstatement, breach of contract and negligence of the Arrium Entities.
4. Paragraphs 237E-H and 237J of the ACLS are of particular significance for present purposes. They involve a claim advanced by DB in its capacity as a Par Lender under the 2014 Facility. In short, it is alleged that the Drawdown Representations made variously by the first to fourth defendants at the direction of Mr Bakewell were misleading or deceptive and involved contraventions of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), the Corporations Act 2001 (Cth) and the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law (ACL).
5. Paragraph 237H of the ACLS pleads that Mr Bakewell was involved in the Arrium Entities' contraventions of the ASIC Act, the Corporations Act and the ACL pleaded in [237F] above, in that Bakewell: 1. was a director of Arrium Finance and AIOH, CFO of the Arrium Group, an officer of the Arrium Entities and an Authorised Officer under the 2014 SFA; 2. gave the Bakewell Direction or otherwise authorised the Arrium Entities to issue the relevant Drawdown and Rollover Notices to the Agent on behalf of DB Sydney in its capacity as a par lender; 3. knew the terms of the 2014 SFA; 4. knew that the relevant Drawdown and Rollover Notices issued to the Agent on behalf of DB Sydney in its capacity as a par lender (as identified in column HA of Annexure A) contained the Arrium Representations; 5. knew that DB Sydney in its capacity as a par lender would rely upon the Arrium Representations; 6. knew that there was a lack of processes to verify the Arrium Representations; 7. knew that the changes in the financial position of the Arrium Group pleaded in Section 9 of this Amended Commercial List Statement had occurred; and 8. knew that such changes affected the Arrium Group's ability to perform its obligations under the 2014 SFA.
6. The reference to DB Sydney in the paragraph of the ACLS is a reference to the Sydney office of DB, and does not represent a separate legal entity. Particulars of this allegation are subscribed to [237H] which make reference to numerous other paragraphs of the ACLS.
7. In addition to these allegations, which pertain only to DB's claim in respect of the drawdown of the 2014 SFA, other claims against Mr Bakewell are made both by DB and the other plaintiffs in their capacity as assignees of claims from other Par Lenders under the various facilities. Each of the assignments was pleaded in the ACLS. A defence that has been filed by Mr Bakewell subsequent to the primary judge's decision has denied the validity of the assignments.

Application for leave to appeal

1. The application for leave to appeal is brought only by Mr Bakewell.
2. In his draft Notice of Appeal, Mr Bakewell contends that the primary judge erred in finding that it was arguable that: 1. the principle stated in Trendtex and adopted in Equuscorp has been modified, such that where the assignee has a legitimate commercial interest in taking an assignment of both sets of rights, the assignment of the cause of action will be ancillary to the assignment of the property rights (at [29]-[30], [33]); 2. the primary judge erred in finding that it was arguable that the plaintiffs had a legitimate commercial interest in taking an assignment of both sets of rights, given that the commercial interest arose from the assignment itself and it may otherwise be inferred that the assignment of the debt together with the cause of action in tort was for the purpose of bringing or obtaining the action against Mr Bakewell and others (at [34]).
3. In making the application for leave to appeal, senior counsel for Mr Bakewell recognised not only that he needed to surmount the high hurdle presented by General Steel (see also Spencer v The Commonwealth (2010) 241 CLR 118; [2010] HCA 28 at [25] (Spencer); Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 at 275; [2006] HCA 27; Agar v Hyde (2000) 201 CLR 552 at 575-576; [2000] HCA 41) but also the fact that the decision from which leave to appeal was sought was interlocutory in nature involving a matter of practice and procedure (as to which, see PPK Willoughby v Baird [2019] NSWCA 48 at [3]-[6] and the cases there referred to).
4. As will be explained in more detail below, the applicant will also need to overcome the observations of Kirby P (as he then was) in Wickstead v Browne (1992) 30 NSWLR 1 at 5-7; [1992] NSWCA 272 as endorsed on appeal by Deane, Toohey and Gaudron JJ in Wickstead v Browne (High Court, 30 April 1993, unrep).
5. This decision of the High Court was unusual in that it was given (with the consent of the parties) at the conclusion of the hearing of an application for special leave to appeal. Special leave was granted and the appeal was allowed on the spot. In very brief reasons which are noted in (1993) 10 LEG. Rep. p SL2 but otherwise are only available in the transcript of the special leave application, the Court said: "Accordingly, with the consent of both sides, we proceed immediately to deal with the substance of the appeal. As we have indicated, we have come to a clear conclusion that in all the circumstances of this case, including the circumstance that the action against the respondent will be proceeding to trial on other counts in any event, the claim in negligence should not have been struck out. We note that we are in general agreement with the reasons given by Justice Kirby in the Court of Appeal for that conclusion".
6. In his dissenting judgment in the Court of Appeal, Kirby P had refused to strike out a claim in negligence based upon a duty of care that the majority (Handley and Cripps JJA) considered was not arguable. He did so in circumstances where claims made under the Companies (New South Wales) Code and in equity for breach of trust and breach of fiduciary duty were still to proceed to trial.
7. After acknowledging that, in complex litigation, there are distinct advantages in cutting away hopeless causes of action which may distract attention from viable claims, prolong expensive litigation and give rise to error in the conduct of the trial, as well as acknowledging the force of the considerations by reference to which Handley and Cripps JJA would have struck out the claim in negligence, the President identified five reasons for his decision not to strike out or summarily dismiss the claim in negligence. The first two of these grounds were as follows: "1. Conformably with the decision of this Court, the matter will now proceed to trial. It will be tried upon the two causes of action which the Court has unanimously upheld, viz, the statutory count based upon the Code and the claim for breach of fiduciary duty. If there were to be no trial, there might be particular reasons for affirming the conclusion which Handley JA and Cripps JA have reached. Then, the summary termination of this claim might save the respondent altogether from the 'vexation of the continuance of useless and futile proceedings': see Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 84; Pannizutti v Trask (1987) 10 NSWLR 531 at 543. But as the trial must now proceed, there is merit (as it seems to me) in permitting the appellant to present his case in various ways. The marginal utility to the respondent of preventing the appellant from proceeding upon the alternative cause of action in negligence is minimal. But the marginal cost of doing so would be very great if, subsequently, the trial was concluded, limited by the orders proposed, and it was then held, either by this Court or by the High Court of Australia, that the appellant's cause of action in negligence was viable; 2. Common experience teaches that it is usually more efficient and just to consider the viability of a cause of action when the facts said to support it are adduced and the suggested action can be judged with a full understanding of all relevant evidence. Testimony gives colour and content to the application and development of legal principle. That is why leave is usually required for an appeal from interlocutory orders. Appellate courts, including this Court, will usually require evidence to be adduced and a trial concluded before considering the application of the law to that evidence. Out of the detail of the evidence ultimately proved, affecting the relationship of the respondent and the appellant, may arise a finding of a duty of care which the common law of negligence would uphold."
8. The third of the President's reasons was also significant. His Honour emphasised the fluid nature of the law of negligence at the time of his judgment, particularly in relation to claims for pure economic loss, and questioned whether, in light of modern restatements of the law of negligence, a 1935 decision of the Full Court of the Supreme Court of New South Wales upon which the majority had relied still represented good law. In other words, as an intermediate appellate court, his Honour did not see the state of the law of negligence as set in stone or immune from incremental development. This was a matter tending against summary dismissal, especially bearing in mind the other matters to which the President drew attention, as set out above.
9. As shall be seen in the present case, just like the fluid nature of the law of negligence at least with regard to claims for pure economic loss at the time of the decision in Wickstead v Browne, the public policy which underpinned the historical prohibition on assignment of bare choses in action, associated with notions of maintenance and champerty, cannot be regarded as settled or static in 2019. In other words, the principle Mr Bakewell sought to invoke to terminate at the outset and summarily the prosecution of the assigned claims against him could not be regarded, from the perspective of an intermediate appellate court, let alone a court at first instance, as completely set in stone and impervious to development, modification or even ultimate elimination.
10. Kirby P's observations in Wickstead v Browne must also be read in conjunction with the following passage from the joint judgment of French CJ and Gummow J in Spencer at [25] where their Honours said: "Where the success of a proceeding depends upon propositions of law apparently precluded by existing authority, that may not always be the end of the matter. Existing authority may be overruled, qualified or further explained. Summary processes must not be used to stultify the development of the law."
11. It is not without some irony that the incremental evolution and development of the common law is well illustrated by the relaxation of the once absolute prohibition on the assignment of bare causes of action. This liberalisation of the common law's approach was noted by Lord Roskill in his leading decision in Trendtex itself (see at 702-703). There his Lordship noted, by reference to Scrutton LJ's decision in Ellis v Torrington [1920] 1 KB 399, that the assignment of a cause of action which was "incidental" to the acquisition of a property right by assignment was valid. His Lordship observed that, on his reading of the cases, it was "not necessary for the assignee always to show a property right to support his assignment". Whilst Lord Roskill was not prepared to go as far as the Master of the Rolls in the Court of Appeal and declare that "[t]he old saying that you cannot assign a 'bare right to litigate' is gone", he did say, in a passage that was quoted by the plurality in Equuscorp at [51] that: "… it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance." (Emphasis added)
12. Equuscorp's embrace of Trendtex can also be seen as representing a significant development of the common law of Australia in light of the High Court's earlier decision in Poulton v The Commonwealth (1953) 89 CLR 540 at 602; [1953] HCA 101.
13. Another highly relevant example of the evolution of the law for present purposes relates to the changing attitudes to maintenance and champerty, surveyed by Gummow, Hayne and Crennan JJ in Campbells Cash & Carry Pty Ltd v Fostif Pty Limited (2006) 229 CLR 386; [2006] HCA 41 at [66]-[82] (Campbells Cash & Carry). The relevance of this for present purposes is considered further at [50]-[51] and [70]-[71] below.

Analysis

1. In my opinion, leave to appeal ought to be refused. This is for three main reasons.
2. First, the present case is practically indistinguishable from Wickstead v Browne and the reasoning of Kirby P, as endorsed in the High Court, commends a similar outcome to that which ultimately prevailed in that case.
3. Secondly, I consider, consistently with the decision of the primary judge, that, it is at the very least arguable within the scope of existing authority that the assignments were valid and that, as such, the basis of Mr Bakewell's opposition to the amendment (and the basis reflected in the draft grounds of appeal in this Court) was not and is not made good.
4. Thirdly, in light of the abolition of the tort and offence of maintenance and champerty in recent decades, what the plurality in Equuscorp described at [50] as "[t]he attenuated role of maintenance and champerty" and decisions such as Campbells Cash & Carry at [66]-[82], the public policy underpinnings of the prohibition against the assignment of bare causes of action cannot be regarded as secure or at least not so secure as to justify summary dismissal on the basis of existing authority.
5. The proper extent of the prohibition on the assignment of bare causes of action cannot, in my opinion, be regarded as settled beyond argument. Indeed, the public policy case for the continued existence of the prohibition at all may be open to argument and critical appraisal. These are matters that are not, in my opinion, appropriately determined on a summary interlocutory application.
6. I elaborate on each of these matters in more detail below noting that, in relation to the second and third reasons, what is relevant is the arguability of the claims and not their ultimate correctness.

Wickstead v Browne

1. In [37]−[43] above, I have set out key parts of the judgment of Kirby P in Wickstead v Browne which were endorsed by the High Court in its short-form judgment to which I have also referred.
2. In my opinion, the configuration of the claims in the present case is on all fours with Wickstead v Browne in that there are claims against Mr Bakewell, namely those brought against him by DB in negligence and for knowing involvement in misleading or deceptive conduct, that are not affected by the arguments relating to the validity of the assignment of causes of action to the other three plaintiffs and, as to part of its claim, DB. In other words, unless those non-assigned claims were severed from the proceedings, Mr Bakewell will be an active defendant in the proceedings in the Commercial List just as Mr Browne had to defend claims against himself under the Companies Code and for breach of fiduciary duty in any event in the proceedings in which the contested negligence claim was sought to be raised in Wickstead v Browne.
3. Moreover, insofar as DB has claims against Mr Bakewell which derive from various assignments, because of its existing commercial interest in suing Mr Bakewell in its capacity as a Par Lender, the assigned claims sought to be pressed by DB against Mr Bakewell appear to fall squarely within Trendtex and Equuscorp. That interest would appear to constitute a pre-existing commercial interest which, in Lord Roskill's words in Trendtex at 703, could be "support[ed] and enlarge[d]" by the taking of an assignment of a cause of action. In other words, at least prima facie, the argument that Mr Bakewell seeks to make in relation to the assigned claims, namely that they do not fall within either of the recognised exceptions articulated in Trendtex and Equuscorp, does not appear to apply to DB in its capacity as an assignee.
4. Even if this were not so, there would be no case for severing the non-assigned claims made against Mr Bakewell from those made against the other defendants in the proceedings. This is so for a number of reasons.
5. First, it is plain from the pleading that the claims against Mr Bakewell and his role in the Arrium Group were such that, at least on the face of the ACLS, his role will be of central significance in the litigation. The Bakewell Direction to which I have referred in [28] above highlights this point. Put conversely, the role of Mr Bakewell was not discrete nor, on the face of the ACLS, limited.
6. Further to sever or hive off the claim against Mr Bakewell would make no sense in terms of efficient case management and the requirements of s 56 of the Civil Procedure Act 2005 (NSW). Further, it would in my opinion be inconsistent with s 63 of the Supreme Court Act 1970 (NSW) which provides as follows: "The Court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided". (Emphasis added)
7. There was little that senior counsel for Mr Bakewell was able to put in argument to answer these considerations. Counsel accepted that Mr Bakewell could not object to the non-assigned claims sought to be made against him by DB being pursued and did not suggest a basis upon which, on the existing state of authority, Mr Bakewell could contend that the claims DB had assigned to it were invalidly assigned. Once this is accepted, refusing leave to the other plaintiffs to amend the ACLS to bring assigned claims against Mr Bakewell would not only have been undesirable for all of the reasons advanced by Kirby P in Wickstead v Browne but it would have flown in the face of s 63 of the Supreme Court Act and the common sense that underpins that important provision.
8. Although the primary judge does not appear to have based his reasoning for allowing the amendments to the ACLS on this basis, it provides, in my opinion, a powerful additional justification for that result and also dictates the refusal of leave to appeal. Even if it were unarguable that the assignments other than those to DB were valid (and for the reasons advanced below, I do not consider that it is), to have acceded to the orders sought both in the Amended Notice of Motion before the primary judge and in the draft Notice of Appeal in this Court would have been to require DB to bring separate proceedings against Mr Bakewell. That would have resulted in not only added expense to DB but, more importantly, an unnecessary drain on judicial resources through the need for two sets of proceedings. It would also have introduced the added spectre of potentially inconsistent decisions on identical sets of facts, an outcome which courts are astute to avoid for reasons that are obvious: see Incitec Ltd v Alkimos Shipping Corp (2004) 138 FCR 496; [2004] FCA 698 at [53]; Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd [2019] NSWCA 61; 367 ALR 146 at [81]-[82].
9. Senior counsel's faint suggestion that these problems could be avoided if separate proceedings against Mr Bakewell were heard together with the existing proceedings against the other defendants highlighted the extreme lack of utility of the opposition to the grant of leave to amend the Commercial List Statement and the addition of Mr Bakewell as a defendant to the existing Commercial List proceedings.

Trendtex and Equuscorp

1. Much of Mr Bakewell's argument focused on the primary judge's interpretation of the plurality judgment of French CJ, Crennan and Kiefel JJ in Equuscorp and, in particular, [53] of those reasons where their Honours said that: "A restitutionary claim for money had and received under an unenforceable loan agreement is inescapably linked to the performance of that agreement. If assigned along with contractual rights, albeit their existence is contestable, it is not assigned as a bare cause of action. Neither policy nor logic stands against its assignability in such a case. The assignment of the purported contractual rights for value indicates a legitimate commercial interest on the part of the assignee in acquiring the restitutionary rights should the contract be found to be unenforceable. Equuscorp fell into the category of a party with a genuine commercial interest in the restitutionary rights."
2. Mr Bakewell's argument was that the final sentence of this passage meant that the plurality treated Equuscorp's claim as falling within the second of the exceptions, and that that exception only applied to cases of pre-existing commercial interests. This, he submitted, had been expressly so held by the Queensland Court of Appeal in Workcover Queensland v Amaca Pty Ltd [2012] 2 Qd R 276; [2012] QCA 240 (Amaca) even though neither Trendtex nor Equuscorp expressly stated that for a commercial interest to sustain the assignment of a bare cause of action, it must pre-date the impugned assignment. He also relied upon this Court's decision in Dover v Lewkovitz [2013] NSWCA 452 (Dover) for the proposition any commercial interest must pre-exist the assignment. Senior counsel for Mr Bakewell further submitted in the course of oral argument that the notion that a legitimate commercial interest is sufficient to satisfy the second exception only where it is pre-existing represents "a critical distinction". He continued: "[o]ne can obtain a legitimate commercial interest just by taking the assignment, but one thing that is absolutely clear is that is not sufficient for the second exception."
3. It was then asserted that none of the assignees had a pre-existing genuine commercial interest in the present case. Whilst that may have been true for the first three plaintiffs, as I have demonstrated above, it was not true for DB which took its assignments as a party who had a pre-existing commercial interest in bringing proceedings against the defendants in its capacity as one of the original Par Lenders.
4. Senior counsel for the respondents emphasised the second sentence of the passage from [53] of the plurality's decision in Equuscorp extracted at [62] above and contended that what was assigned in the present case was far more than a "bare cause of action" and that the transaction in which the causes of action had been assigned formed part of a larger commercial transaction and that the causes of action against the defendants which had been assigned were "associated" with that larger transaction.
5. He emphasised that there was a nexus between the debts and causes of action which had been assigned, noting that the representations upon which the various assigned claims were ultimately founded formed a critical part of the process by which moneys were drawn down under the various facilities and the debts thereby created. This was the point that the primary judge had made in [34] of his reasons, reproduced at [9] above.
6. In this context, senior counsel for the respondents emphasised that terms variously used in the case law in this area to identify a sufficient nexus with an interest, such as "associated", "ancillary", "closely connected", "linked" and "incidental", were all elastic and a matter for judgment in individual cases. He could have called in aid Professor Tolhurst's astute observation that "[g]iven that restitutionary claims for ineffective contracts are separate from any claim under the contract, [Equuscorp or at least the decision of the plurality] appears to signal some relaxation of what constitutes a sufficient interest": G Tolhurst The Assignment of Contractual Rights (2nd ed, 2018, Hart) at 204.
7. Senior counsel for the respondents also put in issue the correctness of the Queensland Court of Appeal's decision in Amaca insofar as it stated that any commercial interest needed to predate the assignment of the cause of action. He pointed out that this was nowhere expressly stated in either Trendtex or Equuscorp, was not the point in issue in Dover (which was whether a commercial interest had to be an enforceable legal right) and that, if Amaca stood in the way of his argument, he wished to contend that it was wrong.
8. He also made the point, which at least has a superficial attraction, that were a pre-existing commercial interest required, a sophisticated transaction such as that by reference to which the plaintiffs acquired their rights of action in the present case could be readily structured such that debts were assigned immediately prior to the assignment of the causes of action. This, he submitted, highlighted the artificiality of the distinction between genuine commercial interests and pre-existing commercial interests.
9. The arguments of the respondents set out above were also supported by the decision of Gault J in First City Corporation which had been relied upon by the primary judge at [32] of his reasons. What Gault J said in that case (at 757) was as follows: "In light of the modern approach to maintenance in general, and paying particular regard to the approach of the House of Lords in Trendtex, I conclude that the assignment ... of the right of action in tort falls within the category of valid transactions. The actions in tort were ancillary to the assignment of the debenture itself ... The actions in tort are subsidiary matters, assigned with the debenture so that the assignee can protect the property it has received. [The assignee] had a genuine commercial interest in the actions, for the reason that as the new debenture holder, it clearly had an interest in protecting the value of its security." This case is cited by Professor Tolhurst in support of the proposition that the ability to claim a genuine and substantial interest or a genuine commercial interest as a defence to an allegation of maintenance or champerty may extend to tort actions: G Tolhurst, The Assignment of Contractual Rights (2nd ed, 2018, Hart) at 206.
10. As I have noted in [52] above, the question for this Court is not which of the arguments canvassed above was correct but whether or not those advanced by the respondents were arguable. In my opinion, there was no doubt that they were and that the primary judge was correct to allow the amendments. To the extent that Mr Bakewell took issue with the primary judge's understanding of Equuscorp, expressed in an interlocutory decision relating to an amendment application, he will have ample opportunity to make detailed submissions as to the true legal position for which he contends at a final hearing.
11. In this context, I would add that the concept of a "genuine commercial interest" as found in authorities following Trendtex is a mixed question of fact and law, completely unsuited for determination on a summary basis. As Bergin J (as the former Chief Judge then was) observed in Whyked Pty Limited trading as Ezysend v Yahoo Australia and New Zealand Pty Limited (Whyked) [2006] NSWSC 650 at [24] and [26], "[t]he question of what a 'genuine commercial interest' is will depend upon the facts and circumstances of each case" and the question of whether there is a genuine commercial interest "is a matter that should be decided at trial when all the evidence is on. It is not a matter that should be decided on a summary application."

Public policy

1. The third of my reasons for refusing leave, closely allied to the second, is that the public policy foundations upon which the principle that Mr Bakewell relies for his argument are, at best fluid and highly contestable for the reasons referred to at [42], [50]-[51] above.
2. Senior counsel for the respondents signalled an intention, if necessary, to make a full blown attack on the continuing justification for the principle against the assignment of "bare causes of action" (although he was astute not to accept this characterisation of the transaction by which his clients had taken their assignments).
3. A similar attack was made on the traditional hostility to litigation funding in Campbell's Cash & Carry by critically examining the public policy underpinnings that had informed that traditional antipathy. In this context, Lord Phillips's observation in Regina (Factortame Ltd and others) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381 at [36] that "[w]here the law expressly restricts the circumstances in which agreements in support of litigation are lawful, this provides a powerful indication of the limits of public policy in analogous situations" must apply equally where, as in Campbells Cash & Carry, there has been a relaxation of such restrictions.
4. Not only must contemporary public policy be identified and articulated (which may require the receipt of evidence) but the vitality of the principle against assignment of a bare cause of action and its public policy justification may require the investigation of all aspects of a transaction "to determine whether there is such intermeddling or stirring up of litigation without a sufficient interest or legal justification": G Tolhurst The Assignment of Contractual Rights (2nd ed, 2018, Hart) at 212; see also Whyked noted at [72] above.

Conclusion

1. For the above reasons, I would refuse leave to appeal with costs.
2. MACFARLAN JA: I agree with Bell P.
3. WHITE JA: I agree with Bell P.

Endnote

1. Examples of legal questions being resolved on a summary basis include the decisions of the High Court in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; [1997] HCA 8 and Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 August 2019