CHARTSPIKE v CHAHOUD

CHARTSPIKE v CHAHOUD - [2000] NSWSC 625 - NSWSC 2000 case summary — Zoe

[11]

(c) An amended statement of claim which was filed by a solicitor different from the one who filed the original statement of claim, removed the three natural persons as plaintiffs. The amended statement of claim was filed and served on 30 April 1999 one day before the expiration of the period provided for service of originating process under Part 7 Rule 1(1) of the Supreme Court Rules. The statement of claim was amended pursuant to Part 20 Rule 2 of the Rules. 5 When the matter came on for hearing before me there were appearances on behalf of the individual plaintiffs to the original statement of claim. None of those persons made any application to again be joined as plaintiffs and indicated that they had no application to make in relation to the continuance of the proceedings in which the only plaintiff was Chartspike Pty Limited (In Liquidation). 6 The application for leave to amend the amended statement of claim annexes a further amended statement of claim that still contained a reference to the individual plaintiffs who had ceased being parties when the amended statement of claim was filed. It is conceded by the plaintiffs that this is an error and it is not intended that the further amended statement of claim should be brought by the individual plaintiffs. Indeed there are no allegations in the further amended statement of claim which disclose any cause of action on their part. There is not any great difference in substance between the proposed further amended statement of claim and the amended statement of claim which is already filed. In essence the further amended statement of claim adds more particulars and detail to the existing amended statement of claim. The opposition to the filing of the further amended statement of claim was based upon the grounds advanced to strike out the amended statement of claim and those grounds equally apply to the proposed further amended statement of claim. In these circumstances it would seem probably convenient to deal with the proposed further amended statement of claim in addressing the substantive reasons advanced on the strike out application. If these reasons are upheld the existing statement of claim can suffer the appropriate consequences and the extent of leave can be limited to so much, if any, of the further amended statement of claim as survives the strike out application. 7 Given that a negative answer to each of the separate questions which are to be tried on a final basis would determine the proceedings it may be useful to first deal with that point before dealing with the more contentious issue of the strike out application which concerns statute of limitations defences.

[17]

(e)By Mr Hamilton keeping the claim alive, continuing investigations in relation to it, instructing solicitors to put on a change of appearance on behalf of the plaintiff company in November 1998 and thereafter filing an amended claim verified by Mr Hamilton as Chartspike's liquidator on 30 April 1999. 10 There is authority for the proposition that where a solicitor commences proceedings without the authority of a client the proceedings are not a nullity but an abuse of the process of the court liable to be stayed but it is open for the client to ratify the actions of the solicitors whereupon any want of authority at the commencement of the proceedings may be overcome. See Danish Mercantile Co Ltd v Beaumont (1951) 1 Ch 680, Omega Estates Pty Ltd v Ganke (1962) 80 WN (NSW) 1218 and the authorities referred in Halsbury's Laws of England 4th edition volume 44 paras 114 and 115. Normally ratification allows an agent's unauthorised act to be treated as if the principal had previously given actual authority to do it. In Bank of Australia Ltd v Rudder (1911) 13 CLR 152. It constitutes the relationship of principal and agent retrospectively. See also Australian Blue Metal Ltd v Hughes (1962) 79 WN (NSW) 498. 11 I turn to the facts as they appear to have occurred in relation to the proceedings after their commencement and non-service. 12 After hearing by facsimile that proceedings had been commenced without his authority Mr Brien said the following in his affidavit:- "16. After I had read this facsimile I rang Mr Assi and we had a telephone discussion in words to the following effect: I said: "What do you think you're doing, filing a statement of claim with Chartspike as a party?" Assi: "Look, we had to file by 1 May 1997 or the claim would have been out of date because of the limitation period." I said: "If the directors want to prosecute the action, that's fine, they can have it. But I have set out the terms. I won't be involved and I'm not going to let the claim run and won't commit the company to prosecute its claim unless I'm protected. I'm not going to provide a letter to the court. If the directors want to run with the claim then you better sort it out on a basis on which I won't be involved as I don't want any liability". 17. I did not write to the court in the terms requested by Mr Assi in his facsimile of 2 May 1997 requesting that the court release the statement of claim where Chartspike had no funds to pay for filing fees. 18. I also did not write to the court to ask that the company be removed as a plaintiff or to indicate that the claim had been commenced without my knowledge and without me authorising Mr Assi of Janus to file the statement of claim on behalf of Chartspike. 19. However, once I became aware that the statement of claim had been filed on behalf of Chartspike by Mr Assi of Janus, I was prepared to allow the statement of claim to remain on the court file and to take no steps to remove it, to give the directors further time to satisfy my fundamental requirement, namely, that if Chartspike was to prosecute any claim it considered it had against Mr Chahoud, then I, the liquidator of Chartspike, was not to be involved and I was to have no prospect of personal liability. It was for this reason that I had previously suggested to Mr Assi an assignment together with the irrevocable authority as to dispersing sale proceeds. 13 Thereafter he wrote on 9 May in the following terms:- "In response to your letter of 2nd May 1997, I note the undertakings given by the three directors. For some reason it was my understanding that Chartspike Pty Limited would not participate in the litigation of the matter in any fashion and certainly not as the first plaintiff. It again was my understanding that on the assignment of the rights of Cbartspike to any claims that have against the actual plaintiffs in the matter, would be: Hadad El Bayeh and Addili. I am not prepared to have: Chartspike Pty Limited as a plaintiff in the matter as there are ramifications as to potential costs both for the company and myself as liquidator and I am certainly not prepared to provide you with any instructions in relation to the conduct of the litigation:

[22]

Consider the resignation of the current liquidator. 16 There was sent with the notice a report in which Mr Brien discussed the state of the existing proceedings and the dispute which he had about an appropriate indemnity for costs. In the report he refers to the insistence of the then solicitors that the company must participate for the action to have its best merits which I take to be prospects of success. It was this which prompted him to require some other liquidator to take over the matter. At the meeting after the discussion of the report the following two resolutions were passed:- "That legal action be commenced against Mr Michael Chahoud, former solicitor for the company with a claim for negligence. That Richard Brien resign as liquidator of the company." 17 Much was made in submissions of the fact the actual terms of the resolution indicated commencement of legal action. If one reads the minutes of the meeting and the documents which the creditors had before them it is perfectly apparent that it was the existing matter that was to be taken over by another liquidator that was for approval. There was no suggestion of fresh proceedings. In these circumstances it would seem to me that the creditors have clearly intended to ratify the commencement of the proceedings. However, the only person who probably had authority to bind the company would be its liquidator. Mr Hamilton, once he was appointed, took steps to adopt the proceedings. He instructed solicitors to file an appearance and caused an amended statement of claim to be filed. In my view this is a clear adoption of the proceedings and thus a ratification of the original solicitor's actions in commencing the proceedings. As it is the company which ratifies the solicitor's actions it could do so through actions of either of its liquidators subject to the next matter to which I turn. 18 I have already held that Mr Brien had refused to ratify and in these circumstances can a later liquidator ratify the commencement of the proceedings? It was submitted that this would be able to be done provided that ratification would not unfairly prejudice any third party. In Bowstead and Reynolds on Agency (16th ed) one of the rules was said to be that ratification is effective although the person ratifying had refused at first to recognise the act unless to allow ratification would unfairly prejudice the third party. At page 88 the following was said:- In general it seems, therefore, that the rule is correctly expressed as above: a ratification may be effective against the principal though originally he refused to ratify, and also in his favour unless the third party has relied on a previous refusal in a way that would make a subsequent ratification unfairly prejudicial. These conclusions seem better based on the rules as to limits on ratification than an estoppel, since there may be difficulties concerning representations of intention as founding estoppel. This reasoning seems best based on an analogy with the grant of preceding authority, which cannot be withdrawn as regards the transaction authorised once acted on: since the agent's action has already taken place, a ratification cannot without the consent of the other party be withdrawn. A refusal to ratify, on the other hand, is merely equivalent to a refusal to grant authority: this does not prevent a subsequent grant of authority, subject to the doctrine of estoppel." 19 The defendant made reference to the modern law of waiver and election and referred to Sargent v ASL Developments Limited (1974) 131 CLR 634 where Mason J said at p 655:- "Essential to the making of an election is communication to the party affected by such a conduct of the choice thereby made it is accepted that once an election is made it cannot be retracted." 20 The defendant then submitted that the actions of Mr Brien were a choice between inconsistent rights and that he had repudiated the commencement of the proceedings. I do not see it in this way. All he did in his letter was to decline to ratify and his affidavit evidence makes it clear he did nothing further. There was no contract between him and the solicitor which could be repudiated. His refusal to ratify simply left the solicitor at risk as to costs. 21 The only question that has to be addressed is whether the subsequent ratification is unfairly prejudicial. 22 It is important to note in this regard that at the time the creditors passed their resolution no service of the first statement of claim had been effected and thus the defendant could have taken no prejudicial steps in relation to the proceedings. As he was represented by proxy at the creditors' meeting he would then have knowledge of the existence of the proceedings. The actions of Mr Hamilton, which may constitute ratification also occurred before service of the amended statement of claim. In these circumstances it is not surprising that the only prejudice suggested by the defendant was a loss of individual plaintiffs from whom he may recover costs. Give the minor involvement of these individuals and the power of the court to order security for costs, it would seem to me that there is no relevant prejudice. 23 In the circumstances I am satisfied there has been ratification of the proceedings by the liquidator of Chartspike Pty Limited and accordingly the proceedings are validly commenced. It is thus not necessary to address separate question 1(c).

[24]

26 A final version of the joint venture agreement was received on 25 September upon which the defendant advised the plaintiff. Thereupon relying upon that advice the plaintiff paid $1,000,000 contribution to the joint venture, entered into a loan arrangement with Esanda and signed the final version of the joint venture agreement. That document was signed on 14 November 1990. 27 The pleading alleges breaches of retainer to which I will return in a moment. It then goes on to deal with other relevant matters including that on 13 March 1992 the plaintiff was placed in liquidation and that on 5 May 1992 pursuant to clause 15 of the joint venture agreement the agreement was terminated as a result of which the plaintiff company had no right to claim a refund of the capital contributions made to the joint venture or otherwise make a claim for the funds it had advanced. 28 The breaches of both contract and tort claim are alleged in paragraph 15 of the amended statement of claim and paragraph 27 of the proposed further amended statement of claim. In broad terms the particulars of the breach are divided into two areas. The first deals with failing to adequately warn or advise the plaintiff of the legal consequences prior to entry into the joint venture agreement. Secondly failing to ensure that a second ranking mortgage secured over the land was obtained for Chartspike prior to the termination of the joint venture agreement. It should be appreciated that this occurred after 1 May 1991 which is six years prior to the commencement of the proceedings. 29 In respect of the claims to strike out the relevant reasons advanced are, of course, the expiry of the limitation period. In respect of the contract claim it seems fairly clear (subject to a Corporation law point) that in so far as it is based upon a breach of duty relating to the entry into the joint venture agreement in 1990 that the claim is clearly statute barred. 30 In respect of the failure to obtain a mortgage this is, of course, more contentious. In relation to the application of the Limitation Act defences to the claim in tort there is a dispute as to whether or not the loss was sustained on entry into the agreement or was one which arose upon the happening of a contingency, namely, the inability to complete the joint venture at a later stage. 31 The plaintiff also raised a novel matter in relation to the Limitation Act defence. They say that under s 1322(4)(d) of the Corporations Law a corporation may apply for an extension of time within which to commence proceedings and that this provision would over-ride the bar in s 14 (1) of the Limitation Act. 32 I will turn first to the contract claims and the application of the New South Wales Limitation Act. It seems quite clear and, indeed, it was conceded that in respect of those claims founded upon a breach prior to the entry into the joint venture that they could not succeed. The pleading makes adequate allegations of the retainer continuing up until final termination of the joint venture in May 1992. It also makes it clear that the breach is a failure to obtain a registered second mortgage over the joint venture land and to give advice during that period. To the extent therefore that there was a continuing obligation which extended beyond 1 May 1991, it would seem to me that allegations to this effect should be allowed to stand in respect of the contract claim. 33 The plaintiff submits that the balance of the contract claim should also be allowed to stand because of the possibility that leave may be given under s 1322(4) of the Corporations Law for an extension of time to bring these proceedings. 34 Section 1322 relevantly provides as follows:- "1322(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Law, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

[42]

(e) the Taiwanese interests agreeing to Chartspike having a registered second mortgage. 42 It was suggested that the matters which the company now complains of in relation to the defendant's conduct concern his failure to do things and the advice that he gave or did not give in the circumstances where the plaintiff was unable to continue to fund the joint venture (i.e. the protection of the plaintiff company's rights on such a happening). It was submitted that at the time of execution of the joint venture agreement and at the time of making the balance of the initial contribution of $1,000,000 on 4 October that these were contingencies. It was submitted that they became actualities on 5 May 1992 when Castle Hill terminated the joint venture. Perhaps an earlier date of 13 March 1992 when the plaintiff company went into liquidation would be more appropriate. 43 There appears to be no dispute that the plaintiff did not meet its obligations to make appropriate payments and it was this which led to the termination of the joint venture agreement with a resulting loss of its investment. There is no suggestion that any default of the defendant caused it to default in its obligations to the joint venture. 44 Reference was made in submissions to Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514. That case concerned the strike out of an amendment to a claim for damages under s 82 of the Trade Practices Act. The respondent had given an indemnity as a result of misleading and deceptive conduct on the part of the appellant. It was held that the indemnifier suffered no loss until the contingency (an obligation to make a payment) was fulfilled. 45 Notable in the court's reasons were the distinguishing of cases concerning execution of mortgages and its treatment of the English authorities dealing with situations where a plaintiff was induced by negligent representations to enter into a contract or the signature of defective documents brought into existence by solicitors. It declined to follow them, Mason CJ, Dawson J, Gaudron J and McHugh J saying at 532:- "If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred. A deferred liability may stand in a different position but there is no occasion here to discuss that matter."

[43]

46 Brennan J at p 536 - 537 analysed the matter in this way:- "A plaintiff may suffer economic loss or damage in a number of ways: by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability. Whether loss or damage is actually suffered when any of those events occurs depends on the value of the benefit, if any, acquired by the plaintiff by paying the money, transferring the property, having the value of the asset diminished or incurring the liability. If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs. At that time, the plaintiff's net worth is reduced. And that is so even if the quantification of that loss or damage is not then ascertainable. But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne - that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur. The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is "worse off than if he had not entered into the transaction". 47 In the present case the plaintiff acquired a benefit when it entered into the agreement and paid its money. It had the prospect of participating in a joint venture land development which may have produced profits. It seems to be a case of both benefit and burdens to which His Honour is referring. It does not seem to me that any measurable loss occurred on the entry into the agreement and it is certainly arguable that the loss only quantified at a later stage. 48 It may be that when the facts are fully analysed that the reason for the ultimate loss may be action of the plaintiff rather than other persons or facts. This a matter of causation and not a matter determinative of when a loss is suffered. 49 At p 533 the majority had the following to say:- "Conclusion It follows from what we have said that we agree with the approach adopted by the Full Court of the Federal Court in the present case and in Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (45 paragraphs)

Parties

Cases Cited (5)