33 The preserving of the "equities", by s 12, means that the obligor can raise against an assignee all matters that he could have raised against the assignor in extinguishment or reduction of the liability. This ensures that the obligor does not become liable to pay the assignee a sum which, because of an available set-off or counter-claim, it would never have had to pay to the assignor. But that is not to say that the obligor should be better off. The obligor retains its rights against the assignor, who remains primarily liable on any counter-obligation. This leaves the obligor in no worse position than would have been the case in the absence of an assignment. As against the assignee, the obligor retains the benefit of the defences it would have had against the assignor. That extends to defences by a way of cross-claim, which can be set off in extinguishing or reduction of the obligor's liability, but it does not extend to improving the obligor's position by creating new rights to sue the assignee, in circumstances where those rights lie against the assignor. Liabilities, unlike assets, are not capable of assignment. It is consistent with this that the idea of an equity, in this context at least, is that while it impeaches the right of the assignee, it does not create a right in the obligor. Although it is not directly on point, some observations of Lush J in Provident Finance Corporation Pty Ltd v Hammond [1978] VR 312 also illuminate the position. His Honour said (at 319):
The essential concept of an equity in this context is that it is a transaction or event or circumstance which entitles the debtor to say that it is unjust that the debt should be enforced against him without bringing into account his cross-claim arising from the transaction, event or circumstance. In some cases, e.g. Athenaeum Life Assurance Society v Pooley (1858) 3 De G and J 294, the equity would have been enforced by restraining the creditor or his assignee from suing at law. The result seems to have been that the whole dispute was then dealt with in the Chancery courts, even if the chose sued upon was a legal chose.
34 This tends to show that the equities spoken of are defensive, being matters which justice requires be brought to account in permitting a claim to be enforced. It does not support the view that the equities are "offensive" ones creating new rights or improving the position of the obligor.
35 The only basis upon which the contrary has been advanced is that. with the benefit of the assignment, comes the burden. But, once again, liabilities are not capable of assignment, and the fact that a right is assigned does not mean that a corresponding liability is assigned with it, even if closely connected to it.
36 What s 12 does is to ensure that the ability to set up such a corresponding liability, in extinguishment or reduction of the assigned right, is preserved. The cases in this territory do not speak in the language of benefit and burden. Rather, the concept is analogous to assignment of property subject to equities generally. An assignee of property subject to a charge does not, by accepting the assignment, become personally bound by the covenants in the charge. The assignee takes the property subject to the encumbrance, and the third party chargee retains its rights against the property; but by taking an assignment, the assignee does not make itself liable to the chargee on the personal covenants in the charge. This, I think, is closely analogous to how s 12 works.
37 Mr Cox argued that this might all depend on the facts and on the particular construction of the assignment in question, but I do not agree. The question is one of principle. I cannot see how the precise form and wording of a deed of assignment between assignor and assignee could affect the obligor's rights and, in particular, what equities the obligor could raise.
38 The proposed cross-claim in this case is not a claim in reduction or extinguishment of the plaintiff's claim; rather, it is the converse of the plaintiff's claim. The only situation in which the proposed cross-claim could succeed would be one in which the plaintiff's claim against the second defendant failed. In those circumstances, there would be no amount to which Mr Franks would be entitled, which could be reduced or extinguished by a successful cross-claim. Accordingly, there is no situation in which the proposed amendment can avail Equititrust against Mr Franks. It is, therefore, without utility and on that basis, I would refuse leave to make the amendment substituting Mr Franks for Windy Dropdown as cross-defendant.
39 Having reached that conclusion, I shall deal with the other issues in a more abbreviated form. As I have said, the parties were over a period of some months, in dispute as to whether the cross-claim brought by Equititrust against Windy Dropdown, or Equititrust's appeal from the rejection of its proof of debt, would proceed first and provide the medium for resolving whether and to what extent Windy Dropdown was liable to Equititrust. At first, it seems that the view was taken that the cross-claim should proceed first. Then later, the view prevailed that the appeal should proceed first appears to have prevailed. Finally, it seems that the parties again agreed that the cross-claim should proceed first.
40 However, this dispute was about the procedural mechanism for litigating the issue as to whether or not and, if so, to what extent, Windy Dropdown was liable to Equititrust for profit share. I am inclined to think, but I need not decide that the outcome, agreed by the parties before White J, was misconceived in circumstances where a proof of debt had already been lodged and rejected. But this dispute, and its resolution, was quite silent as to the entitlement of Equititrust to set up in answer to a claim made against it - whether by Windy Dropdown or by an assignee of Windy Dropdown - such claims as Equititrust might have against Windy Dropdown.
41 The contrary argument involves attributing to the parties an implied agreement, or at least a common assumption, that Equititrust's "equities" under s 11 were to be released. There is no apparent reason why Equititrust would release its equities under s 11. There is nothing in the evidence to suggest that the parties discussed or contemplated that Equititrust would not retain those rights. There is some slight reference in the material which I have summarised to the possibility that such a claim might be brought, but none to the idea that it was ever abandoned. The circumstance that the parties vacillated between the procedural mechanisms that might be used to determine the extent of Equititrust's rights against Windy Dropdown does not imply that they were contemplating at the same time whether Equititrust would be entitled to set off any such rights in extinguishment or reduction of a claim that Windy Dropdown might have against it and assign to Mr Franks. I would, therefore, not have refused the amendment on the second and third grounds argued.
42 Nor would I have done so on the ground of undue prejudice. Two potential grounds of prejudice were identified. The first was that, so it was said, on the faith of the matter proceeding without him being joined as a defendant to the cross-claim, Mr Franks gave instructions for consent to Equititrust having leave to prosecute the cross-claim against Windy Dropdown. In the course of argument, I think it was accepted and, in any event, it is plainly correct, that no such consent or leave was required for the purpose of bringing a cross-claim against Mr Franks who, of course, is not himself in liquidation or otherwise the subject of insolvency administration.
43 The other ground of prejudice adverted to was the possibility that causes of action otherwise statute-barred would be resurrected. It appears at least possible that part, but a relatively small part, of Equititrust's cross-claim arose more than six years before the date on which any order granting leave to amend would be made, although within six years before the application for leave to amend was made on 10 April this year. It is probably a consequence of the (NSW) Limitation Act 1969, s 74, that if Mr Franks were joined, a cross-claim against him would be taken to have been commenced on the day when he first became a party to the proceeding as plaintiff, and that there be no limitation problem in that respect. In any event, in circumstances where he had taken the benefit of the assignment of a claim commenced many years ago, it is very difficult to see that, taking "subject to the equities", he would be permitted to invoke a limitation defence that was not available to the assignor. Had I otherwise been of the view that leave to amend ought to be granted, I would have made the order with effect from 10 April 2007, in which event there would have been no question of a limitation difficulty.
44 But because, in my view, the proposed amendment would be futile, I will refuse leave to amend. I will hear the parties on the question of costs including the reserved costs.