Hazard Systems Pty Ltd v Car-Tech Services Pty Ltd [2013] NSWCA 314 | Case summary

Background to the application 3Car-Tech, pursuant to a contract with a government entity known as the State Contracts Control Board ("the State Board"), undertook the stripping and fitting of New South Wales Police Service vehicles. That work was undertaken at Car-Tech's premises at Cosgrove Road, Enfield. On 10 July 2004 and again on 5 September 2004 there were fires at Car-Tech's premises which damaged 14 cars owned by the State Board. The cars were covered by an industrial special risks insurance policy issued by CGU to Auto Group Ltd and its subsidiaries, which included Car-Tech. A claim was made under the policy. The value of the damaged cars less salvaged parts was agreed at a figure in excess of $500,000. By a deed of release executed and delivered in July 2005 by Car-Tech, CGU and the State Board ("the 2005 deed"), CGU agreed to pay that amount to the State Board: cl 5. The document also contained an assignment of rights in the following terms: "6.2 Assignment of rights On the occurrence of the payment referred to under heading 5 of this Deed, [Car-Tech] and the State Contracts Control Board will assign their rights and interests in respect of recovery in respect of the Losses to CGU Insurance and CGU Insurance shall be entitled to pursue any party liable for the losses. CGU Insurance's entitlement to pursue the recovery of the Losses shall not be construed so as to effect or limit the entitlement of any of the parties to recover in their own right any other losses arising from the Fires, which are not otherwise covered by this agreement." 4Although the copy of the deed executed by the parties was in evidence, the only date is that typed on the coversheet, reading "July 2005". In an affidavit sworn on 13 August 2008 in Local Court proceedings (to which reference will be made below) a solicitor for CGU said that the amount to be paid under the deed was in fact paid on 13 September 2005 "pursuant to the Deed of Release": par 17. 5Despite the broad definition given to the term "Losses" in the 2005 deed, in 2008 the State commenced proceedings against Car-Tech in the Local Court. An agreement between the State, Car-Tech and CGU was reduced to a "Deed of Release", the copy before the Court being undated, but said to have been executed in June 2009 ("the 2009 deed"). The agreement was stated in the following terms: "4.1 The State of NSW, Car Tech and CGU Insurance have agreed that: (a) CGU Insurance, on behalf of Car Tech, will pay to the State of NSW the sum of $60,000 in full and final settlement of all claims by the State of NSW in the Proceedings or otherwise in respect of the Losses. (b) Consent Judgment / Order reflecting the settlement terms outlined in paragraph 4.1 to be filed at the District Court of NSW within 7 days of execution of this Deed of Release. 4.2 Payment as outlined in paragraph 4.1 to be made within 28 days from the date of orders being made in accordance with the filed Consent Judgment / Order." 6The 2009 deed also contained an assignment clause (5.1) which read in part: "Upon receipt of the payment referred to in clause 4.2 of this Deed, each of Car-Tech and the State of NSW agrees to assign, to the maximum extent permitted by law (but the State of NSW does not warrant, and it is not a condition of this Deed, that any such assignment will be effectual in law for any, or for any particular, purpose) their respective rights and interests in respect of recovery in respect of the Losses to CGU Insurance." 7On 6 July 2010 Car-Tech commenced proceedings in the District Court against Hazard, claiming damages for breach of duty, breach of contract and under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). The statement of claim identified Car-Tech's losses as the total of the payments made to the State pursuant to the 2005 deed and the 2009 deed. The claim included loss resulting from damage to Car-Tech's own property in the fires and a claim for legal costs incurred in settling the proceedings brought by the State. Car-Tech's rights and interests in recovering those amounts had not been assigned and Car-Tech therefore remained a proper plaintiff in the proceedings in respect of those causes of action: pars 63 and 64. 8In substance, the proceedings alleged that the goods supplied by Hazard were defective and had a "propensity" to catch fire. The claims in contract and for compensation under statute have since been removed. The remaining primary claims were brought in negligence for damage to property in the possession of Car-Tech as bailee and for pure economic loss. 9Prior to the commencement of the proceedings, CGU obtained an order in a corporations matter re-registering Car-Tech so that CGU could pursue the action against Hazard pursuant to its rights of subrogation, in the name of Car-Tech. The pleading commenced with a statement in the following terms: "This is a subrogated action by Car-Tech Services Pty Limited's insurer CGU Insurance Limited, in the name of its insured, Car-Tech Services Pty Limited's ('Car-Tech')." 10On 8 May 2012, Hazard filed an amended defence to the then amended statement of claim which alleged (in part) that because of the assignments pursuant to the two deeds, Car-Tech had "no standing" to bring the proceedings against Hazard, with respect to rights and interests which had been assigned to CGU Insurance. The response by CGU (then running the proceedings in the name of Car-Tech) was to accept that Car-Tech had assigned the relevant rights to CGU and, accordingly, sought to amend the pleading to substitute CGU for Car-Tech as the plaintiff in the proceedings, the assignments being expressly pleaded. 11Hazard objected to the amendments in so far as they sought to substitute CGU for Car-Tech as the plaintiff in respect of the primary claims. In response, on 15 August 2012, Car-Tech filed a notice of motion seeking the following principal order: "1. The plaintiff have leave under section 64 and/or section 65 of the Civil Procedure Act 2005 to amend its Statement of Claim in terms of the Proposed Amended Statement of Claim ... in order to: (a) correct a mistake in the name of the plaintiff, and (b) to substitute Car-Tech Services Pty Limited's insurer, CGU Insurance Limited as plaintiff to the proceedings in relation to losses listed in paragraph 7(a) and 7(b) of the proposed Amended Statement of Claim, and (c) to add Car-Tech Services Pty Limited's insurer, CGU Insurance Limited as second plaintiff to the proceedings, and in the alternative (d) to substitute Car-Tech Services Pty Limited's insurer, CGU Insurance Limited as plaintiff to the proceedings." 12The primary judge made orders in terms of sub-paragraphs (a), (b) and (c). Although Hazard sought leave to appeal against those orders, there was no stay and the document identified as the "Proposed Amended Statement of Claim" in the motion before the primary judge was subsequently filed and will be referred to as the further amended statement of claim. Issues on appeal 13The arguments presented in this Court reflected those presented in the District Court on the motion to amend. Thus the parties focused on the scope and operation of ss 64 and 65 of the Civil Procedure Act 2005 (NSW), which are (relevantly) in the following terms: 64 Amendment of documents generally (1) At any stage of proceedings, the court may order: (a) that any document in the proceedings be amended, or (b) that leave be granted to a party to amend any document in the proceedings. (2) Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings. (3) An order under this section may be made even if the amendment would have the effect of adding or substituting a cause of action that has arisen after the commencement of the proceedings but, in that case, the date of commencement of the proceedings, in relation to that cause of action, is, subject to section 65, taken to be the date on which the amendment is made. (4) If there has been a mistake in the name of a party, this section applies to the person intended to be made a party as if he or she were a party. 65 Amendment of originating process after expiry of limitation period (1) This section applies to any proceedings commenced before the expiration of any relevant limitation period for the commencement of the proceedings. (2) At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the court under section 64 (1) (b), amend the originating process so as: (a) to enable the plaintiff to maintain the proceedings in a capacity in which he or she has, since the proceedings were commenced, become entitled to bring and maintain the proceedings, or (b) to correct a mistake in the name of a party to the proceedings, whether or not the effect of the amendment is to substitute a new party, being a mistake that, in the court's opinion, is neither misleading nor such as to cause reasonable doubt as to the identity of the person intended to be made a party, or (c) to add or substitute a new cause of action, together with a claim for relief on the new cause of action, being a new cause of action that, in the court's opinion, arises from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process. (3) Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced. (4) This section does not limit the powers of the court under section 64. (5) This section has effect despite anything to the contrary in the Limitation Act 1969. 14There are real questions as to the operation of these sections in circumstances where there is no doubt as to the nature of the cause of action on which the plaintiff commenced proceedings, but there is doubt as to the identity of the party entitled to sue on those causes of action. However, those questions can only properly be addressed once the nature of the entitlement of the possible plaintiffs has been identified. That question in turn required attention to the nature of the assignments upon which Hazard relied to allege that Car-Tech had no standing and on which CGU relied in seeking to bring the proceedings in its own name. Effect of assignments 15The deeds purported to assign causes of action in tort (and under contract and statute) vested in Car-Tech, as against the supplier of allegedly defective equipment. Hazard did not challenge the fact of payments made by CGU in respect of the damage suffered by the State Board and Car-Tech and, absent the deeds of assignment, did not challenge the entitlement of CGU to rely upon its subrogated rights. It followed that the subject matter of the purported assignments, although in part a right of action in tort, was assignable to the insurer because it supported and enlarged the existing right acquired by way of subrogation: Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703 (Lord Roskill), cited with approval in Equuscorp Pty Ltd v Haxton [2012] HCA 7; 246 CLR 498 at [51] (French CJ, Crennan and Kiefel JJ), [79] (Gummow and Bell JJ) and [156] (Heydon J); Marcus Smith, The Law of Assignment (OUP, 2007) at [12.103]. 16The next question was whether the assignment under the 2005 deed was, at the relevant time, effective in law to confer title to the various rights and interests on CGU. If the legal title was not effectively transferred, although CGU might be an appropriate plaintiff as the owner of the rights in equity, Car-Tech would need to be a party to the proceedings as it would have retained legal ownership. No doubt Car-Tech did not need to be a co-plaintiff, but its joinder was appropriate if not necessary, so that the defendant would know which party to pay and so that each party would be bound by the outcome of the proceedings: see Treadwell v Hickey [2009] NSWSC 1395 at [82]-[83], Barrett J referring to Sir Frederick Jordan, Chapters on Equity in New South Wales (1921) at p 54 and National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 6 ACTR 1 (Blackburn J). That issue does not arise, Car-Tech remaining a plaintiff in the proceedings. However, it does give rise to a question as to whether CGU is either a necessary or permissible party. 17The assumption made by the parties before the hearing in this Court, namely that CGU was the legal owner of the choses in action on which Car-Tech sought to sue, was arguably erroneous. When the issue was raised, the parties dealt with the matter both orally and in further written submissions. 18Accepting that an assignment of common law causes of action to an insurer is possible, the effect of the assignment will be governed by s 12 of the Conveyancing Act 1919 (NSW), which is in the following terms: 12 Assignments of debts and choses in action Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor.... 19The language of neither deed complied with this provision. The usual language of an "absolute assignment" is that the assignor "hereby assigns" the relevant right or interest. Clause 6.2 of the 2005 deed stated that the assignors "will assign" their rights and interests and will do so, upon payment by CGU. Whether or not any further document was intended to be prepared, the language of contingency is inconsistent with an absolute assignment. 20Secondly, there was no evidence that "express notice in writing" had been given to the putative obligor, Hazard, prior to the commencement of the proceedings. The precise means by which notice should be given need not be considered further. However, in Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54; 232 CLR 598 at [51], the High Court noted, although dealing with an assignment which expressly purported to be equitable in nature: "The statutory system was not engaged for several reasons. First, par (a) of cl 2.1 was drawn in terms as an equitable assignment for value, to be effective forthwith, with no precondition for the giving of notice as required by the statute. Secondly, para (b) was drawn so as to be effective in the future, namely on the payment date, and was an agreement for value which equity would enforce; it was not drawn as an absolute assignment of presently subsisting rights and as immediately effectual at law." 21The second half of [51] deals with the point noted above in respect of an "absolute assignment"; the first deals with an assignment which was not, in its terms, a legal assignment, but the reference to the giving of notice required by the statute as involving a "precondition" is of uncertain intent. Under the statute, the assignment will only be effective from the date notice is received by the obligor: Holt v Heatherfield Trust Ltd [1942] 2 KB 1 (Atkinson J). However, there is no time limit within which notice must be given and even the deregistration of Car-Tech (an assignor) would, it may be assumed, not prevent notice being given. 22Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 involved a claim with respect to damaged cable being shipped under a bill of lading. The telephone company, which had a right to recover damages under the bill, assigned that right to an insurance company. The insurance company gave written notice of the assignment to the defendants, by letter dated 3 November 1955, and thus claimed an entitlement to sue in its own name: at 109. Before the proceedings were commenced in England, the insurer had commenced proceedings in New York. Although those proceedings were later abandoned, their effect was relevant to a limitation defence. However, notice of assignment by the telephone company to the insurer had not been given prior to the commencement of the proceedings in New York. Roskill J held that the proceedings were ineffective because "[a]ntecedent notice to the debtor before action brought is clearly required by the proper law of the debt, namely, English law": p 129B. 23In the present case, such notice as was given appears to have been during the course of the proceedings. The consequence is that even if there had been an absolute assignment, when the proceedings were commenced CGU was only an equitable assignee and was not the proper party to bring the proceedings. As, there being no absolute assignment, the giving of notice would not have rendered the assignment effective in law, there is no need to consider what might be the effect of the giving of notice after the commencement of the proceedings, although it may have been appropriate in any event to join CGU as a party. 24The consequence of this analysis is that at no stage, either prior to the commencement of the proceedings or thereafter, did CGU become the legal assignee of Car-Tech's rights as against Hazard. Accordingly, the further proposed amendments to the statement of claim, which purported to substitute CGU for Car-Tech as the plaintiff in respect of the various causes of action the subject of the deeds of assignment, was unnecessary. As the equitable assignee, the appropriate course was, as with reliance on subrogated rights, for CGU to sue in Car-Tech's name; this had been done at the outset. (A legal assignment of rights to an insurer may be of some limited value where the assignor is unwilling or unable to co-operate and cannot readily be joined as a defendant in the proceedings: however, an equitable assignment to an insurer which enjoys rights by way of subrogation will not improve the procedural position of the insurer.) 25The same analysis applies with respect to the assignments under the 2009 deed. These conclusions are sufficient to dispose of the proposed appeal. Operation of ss 64 and 65, Civil Procedure Act 26The operation of these provisions is not without difficulty, but the nature of the difficulty will depend upon the precise circumstances in which the question arises. Generally, it is desirable that all necessary parties be joined in proceedings, although non-joinder at the commencement will rarely invalidate proceedings. Where the intention is to ensure that assignor and assignee are both bound by the judgment, it will be sufficient that each is a party when judgment is delivered. The usual problem is not the absence of the assignee, who has the interest in pursuing the proceedings, but the absence of the assignor. That issue does not arise in the present case, but is not critical in any event: see Equus Financial Services Ltd v Glengallan Investments Pty Ltd (unrep, QCA, 19 May 1994) per McPherson JA, extracted in Treadwell v Hickey at [97]. 27The issue which usually arises from a late amendment adding a new party involves the operation of the Limitation Act 1969 (NSW). However, the general principle with respect to causes of action founded on contract or tort is that "[a]n action ... is not maintainable if brought after the expiration of a limitation period of 6 years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims ...": Limitation Act, s 14(1). So long as the proceedings are properly commenced by the plaintiff then entitled to pursue the claims, the proceedings will not become unmaintainable because, after their commencement and after the expiration of a limitation period, there is an assignment of the plaintiff's rights to a third party. 28In these circumstances, it is undesirable to consider further the operation of ss 64 and 65 of the Civil Procedure Act, let alone to undertake an assessment of the correctness of the approach adopted by the primary judge on an understanding of the legal issue now seen to be false. Conclusions 29The orders made by the primary judge on 17 August 2012 (and entered on 21 August 2012) were in the following terms: "1. I make orders in accordance with paragraph 1(a), (b) and (c) of the Notice of Motion. 2. I direct that the plaintiff file and serve an Amended Statement of Claim (in the form annexed to the Affidavit of Mr Bennett sworn 15/8/12) within 7 days of today's date. 3. I direct that the defendants have 28 days (from the date of service of the Amended Statement of Claim) to file and serve their Defence. 4. The costs of this Notice of Motion be costs in the cause." 30For the reasons given above, there was no "mistake" in the name of the plaintiff, nor was it appropriate to substitute CGU for Car-Tech in relation to the causes of action set out in paragraphs 7(a) and 7(b), being the claims for the amounts paid by CGU under the two deeds. It was not inappropriate to join CGU as a second plaintiff: if the proceedings succeed, they will be conducted by CGU and any judgment or order may be made in favour of CGU as the equitable assignee of Car-Tech's rights. 31So far as orders 2 and 3 go, it appears that they have already been complied with. Further directions will be necessary in order to undo the steps inappropriately taken as a result of the orders made in the District Court. 32As both Hazard's assertion of "no standing" with respect to Car-Tech and the response by CGU and Car-Tech accepting the validity of the defence, resulted from misconceptions of each as to the effect of the assignments, each party should bear its own costs of the notice of motion. It is also appropriate, for the same reason, that each party bear its own costs in this Court. 33In these circumstances, the appropriate orders are as follows: (1) Grant the applicant leave to appeal from the interlocutory judgment in the District Court delivered on 17 August 2012. (2) Allow the appeal and set aside the orders made in the District Court on 17 August 2012. (3) Grant leave to the plaintiffs in the District Court (Car-Tech and CGU) to amend the further amended statement of claim filed pursuant to order 3 made on 17 August 2012 so as to reinstate Car-Tech as the plaintiff in respect of claims in relation to the losses listed in paragraphs 7(a) and 7(b) of the further amended statement of claim. (4) Direct that each party bear its own costs of the notice of motion filed for Car-Tech in the District Court on 15 August 2012. (5) Order that each party bear its own costs of the proceedings in this Court. 34MEAGHER JA: The orders proposed by Basten JA should be made for the reasons he gives. I also agree with the additional comments made by Barrett JA. 35BARRETT JA: I agree with Basten JA that the District Court proceedings should, as to parties, be restored to the state in which they stood before the making of the primary judge's orders of 12 August 2012. 36Neither deed was effective to cause rights of action at law enjoyed by Car-Tech to be vested in CGU so as to enable CGU to maintain the relevant common law action against Hazard. 37By each deed, Car-Tech promised to assign the particular rights of action when a payment in turn promised by CGU was made: see clause 6.2 of the 2005 deed set out at [3] of Basten JA's judgment ("will assign") and clause 5.1 of the 2009 deed set out at [6] ("agrees to assign"). Unlike Lord Westbury's chests of tea in Holroyd v Marshall (1862) 10 HL Cas 191; 11 ER 999 at ER 1006, the rights of action were unique. The promises to assign were therefore specifically enforceable in equity. That caused CGU to have, pending payment, what the Privy Council, in Howard v Miller [1915] AC 318 at 326, referred to as "an interest commensurate with the relief which equity would give by way of specific performance". After payment and in the absence of any perfecting assignment at law under s 12 of the Conveyancing Act 1919, the rights of action continued to be held by Car-Tech "albeit as trustee for" CGU, to use the words of Bathurst CJ in Property Builders Pty Ltd v Adelaide Bank Ltd [2011] NSWCA 266; (2011) 15 BPR 29,411 at [33]. 38For present purposes, the significant point is that, despite the equitable interest of CGU arising from each deed, the title to sue at law remained at all material times in Car-tech. CGU, acting alone, has never been in a position to prosecute to judgment any common law action maintainable by Car-Tech against Hazard. But CGU does have, by virtue of the deeds (and separately from its subrogation rights), a claim maintainable in equity against Car-Tech in respect of such recoveries as Car-Tech's rights of action at law may produce as against Hazard. 39The District Court proceedings were regularly commenced in July 2010 when Car-Tech alone sued Hazard. There was no want of necessary parties, despite the absence of the equitable owner of the rights of action. If the proceedings had been brought at that time by CGU alone, they would also have been regularly commenced (in the sense of not being a nullity) but joinder of Car-Tech as either an additional plaintiff or a defendant would have been necessary before judgment was given: Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498 at [78]. 40Because the proceedings brought by Car-Tech asserting common law causes of action against Hazard were regularly commenced and there was no want of necessary parties, there was no occasion for the making of any order causing CGU to be a party, whether by "correcting a mistake in the name of a party" or otherwise. 41Orders should be made as Basten JA proposes.

Hazard Systems Pty Ltd v Car-Tech Services Pty Ltd

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