Innovateq Australia Pty Ltd & Anor v Barnes & Ors [2016] VSC 618

2 The fifth defendant was an employee of the third defendant. The plaintiff brings this claim on the basis that the employment obligations were owed to it as a trustee of the third defendant, or because they were assigned to it.

3 The fifth defendant is a director of the sixth and seventh defendants. This ruling concerns a summary judgment application made by summons by the fifth, sixth and seventh defendants, filed on 10 June 2016. For convenience, the fifth, sixth and seventh defendants are referred to collectively in this ruling as 'the Certeq defendants'.

4 The Certeq defendants make the summary judgment application on the basis that the plaintiff has no standing to bring the claim.

5 The claims against the Certeq defendants are the only claims remaining on foot in this proceeding. By orders made on 15 March 2016, by consent, the proceedings against the first to fourth defendants were dismissed.

6 For convenience, a reference to 'the plaintiff' in this ruling is a reference to the first plaintiff.

7 For the reasons below, the Court will make orders for summary dismissal of the claim.

8 Both parties made oral submissions at the hearing on 12 August 2016. In addition, both parties filed submissions before and after the hearing. The submissions filed after the hearing were provided to Chambers on 19 August 2016. The parties' respective submissions need not be reiterated in full here. The submissions are considered below. During the course of the hearing, a number of issues were clarified, including the issues in dispute.

9 The summons was brought pursuant to ss 62 and 63 of the Civil Procedure Act 2010 ('the CPA'). Section 63 of that Act gives the Court power to give summary judgment in a civil proceeding if it is satisfied that a claim has no real prospect of success.

10 Both parties conceded, the law is well settled in this area. The Court of Appeal outlined the following test for summary judgment in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) VSCA 158, [35] (Lysaght):

(a) The test for summary judgment under s 63 of the CPA is whether the respondent to the application for summary judgment has a 'real' as opposed to a 'fanciful' chance of success;

(b) The test is to be applied by reference to its own language and without paraphrase or comparison with the 'hopeless' or 'bound to fail test' essayed in General Steel;

(c) It should be understood, however, that the test is to some degree a more liberal test than the 'hopeless' or 'bound to fail' test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent's case is not hopeless or bound to fail, it does not have a real prospect of success;

(d) At the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.

11 The Court of Appeal principles in Hausman v Abigroup Contractors Ltd[1] remain good law since the CPA.[2]

12 Relevant passages from Hausman concerning this matter include the following:[3]

The annotation to this Rule in Williams, Civil Procedure Victoria, suggests that a defendant, who attends on the hearing of an application for summary judgment, may defeat that application by showing that the plaintiff's proceedings are irregular. Normally, however, if the defect can be corrected, for example by amending the statement of claim or by making another affidavit, the plaintiff will be given the opportunity to cure the defect. Assuming the plaintiff's application is properly made, there will be judgment for the plaintiff unless the defendant shows cause against the application to the satisfaction of the court. The Rule provides that the defendant can show such cause "by affidavit or otherwise".

The defendant must satisfy the court that, in respect of the claim to which the application for judgment relates, a question ought to be tried, or there ought for some other reason to be a trial of that claim. The court, if so satisfied, will give the defendant leave to defend and the proceeding will continue to trial in the ordinary way. The court will normally require an affidavit by, or on behalf of, the defendant before it will be satisfied that the defendant is entitled to leave to defend. The standard of diligence required of the defendant in preparing a case in opposition to the application, especially if under pressure of time, is perhaps not as high as that required in preparing for trial.

None the less, the defendant is required to use reasonable diligence to put before the court, albeit in a summary form, all the evidence relied on in the defence. In that regard, it would generally be regarded as an injustice to the plaintiff to allow the defendant to introduce for the first time, on appeal, evidence which was readily available for the hearing of the application, but was not produced. An affidavit filed by the defendant may contain a statement of fact based on information and belief.

The authorities suggest that an affidavit in opposition to an application for summary judgment must provide sufficient particulars to enable the defence case to be properly understood. A bald denial that the defendant is indebted to the plaintiff will not suffice. The affidavit should, so far as practicable, deal specifically with the plaintiff's claim and the facts set out in the supporting affidavit to establish that claim. It should state clearly and concisely what the defence is, and identify the facts relied upon in support of that defence.

13 The principles relevant to whether a chose in action based on a former employee can be assigned include the following:

(a) it 'is in general permissible for A, who has entered into a contract with B, to assign the contract to C. This does not require the consent of B, since in the ordinary way it does not matter to B whether the benefit of the contract is enjoyed by A or by a third part of A's choice, such as C';[4]

(b) contracts in which there is an obligation that is inherently personal, such as contracts of employment, cannot be unilaterally assigned;

(c) 'the question is not whether the contract as a whole is personal... it is possible to assign a part of the contract to an assignee. The rule applies to the specific obligation that is being assigned';[5] and

(d) the right to enforce a restraint of trade covenant is not inherently personal.[6]

14 Given the above, and depending on the nature of the covenant, an employer may be able to assign a restraint of trade covenant in an employment contract. This is an exception to the general rule that employers cannot unilaterally assign the obligations of employment contracts because they are inherently personal.

15 Furthermore, a chose in action is property which may be the subject of a trust.[7]

16 There is no presumption that a corporate entity which is also a trustee, carries on all its activities as a trustee. The issue to determine in this matter is in what capacity it acted. To determine the capacity in which that entity (in this case the third defendant; the employer) entered into a contract (in this case an employment contract with the fifth defendant) the following test is applicable.

(i) the document itself is the primary source from which the intention of the parties is to be ascertained and reference may be had to other sources only if the document is incapable of giving an unambiguous answer.

(ii) where a company is known to have acted in the past as trustee and all its assets are held on trust then clear words would be required to establish that the company was acting in its personal capacity (a result which would fly in the face of commercial logic).

(iii) Evidence which does not contradict anything in the contract is admissible, not to construe the contract, but to determine the factual question of the capacity in which a party entered into the contract. The evidence need not be confined temporally, or to evidence of oral statements made by the parties.

(iv) The capacity in which a party entered into a contract is to be determined objectively.[8]

17 A subsequent corporate trustee may hold the benefit of a chose in action notwithstanding that at the time of its creation, it was held by a predecessor corporate trustee. When a new trustee is appointed by operation of s 45 of the Trustee Act 1958, all property, other than real property under the Transfer of Land Act 1968 (Vic), automatically vests in the new trustee, and if more than one, as joint proprietors.

18 The Certeq defendants submitted that there was no real prospect of the plaintiff succeeding because it did not have standing to bring the causes of action it has made against them. This submission was put on two bases, which will now be addressed in turn.

The plaintiff does not have standing as a trustee

19 It is common ground between the parties that the third defendant was the trustee of the Innovateq Unit Trust ('IUT') until 16 December 2015. It is in dispute as to whether or not the IUT or the third defendant was the trustee after that time. For the purpose of this application, the Certeq defendants were prepared to concede that the plaintiff was the trustee since 16 December 2015. They say that, even assuming the plaintiff is the trustee, it does not have standing to make the claims against the Certeq defendants.

20 It is common ground that there is an employment agreement between the fifth defendant and the third defendant dated 25 June 2010 ('the Contract').[9] The plaintiff alleges that the fifth defendant was employed pursuant to that contract until 11 December 2015.[10]

21 For completeness it is noted that an employment contract dated 28 March 2012 forms exhibit 'DH-1' to the affidavit of Mr Daniel Hadjiantonakis, director of the plaintiff, sworn 18 July 2016. The contract is not signed and nor does it have the employee's name stated on it. Exhibit 'DH-2' to that affidavit is an email from the fifth defendant to Mr Hadjiantonakis in which he indicates that he would send it back tomorrow. It does not appear that was done. No reliance upon this unsigned contract is pleaded in the statement of claim. The plaintiff made a late submission without leave that this contract contained a reference to the ABN of the trustee of IUT. The submission is made without leave so should be disregarded, but even if it had been made with leave, it is irrelevant as the unsigned contract is not pleaded.

22 Paragraph 1 of the statement of claim asserts that the plaintiff has been entitled in equity to the rights of the third defendant against the Certeq defendants since 16 December 2015. Alternatively, since 4 March 2016, it has been entitled in equity to the rights of the third defendant as against the Certeq defendants.

23 However, at no stage in the statement of claim does the plaintiff plead that these rights are in its capacity as trustee of IUT. It is not pleaded that the fifth defendant was employed by the third defendant in its trustee capacity; the allegation is that he was employed by the third defendant.[11] It is not alleged that the duties that the fifth defendant owed were owed to the defendant in its capacity as a trustee of IUT.

24 The failure to plead that the duties were owed to the plaintiff in its capacity as trustee would be fatal to the claim if it cannot be cured by amendment. This is however potentially a claim that can be cured by amendment and in those circumstances, applying Lysaght, summary judgment should prima facie not be given.

25 The question then is whether or not, even if it was cured by amendment, there is any real prospect of success.

26 Applying Re Interwest, one must look at the Contract itself as the primary source for determination. The Contract states that it is executed between the third and fifth defendants. There is no reference in the Contract to IUT, or even that the third defendant is entering into the Contract as a trustee.

27 To overcome this lack of specificity in the Contract, one must consider whether the third defendant is known to have acted in the past as trustee, and whether all its assets are held in trust, because then clear words would be required to establish that it acted in its personal capacity and not in the capacity as the trust. Such an assessment was proposed in Re Interwest.

28 The plaintiff's submission is that the business of 'Innovateq' was the only business carried on by the third defendant, and therefore it cannot be said that the plaintiff has no reasonable prospect of establishing that the relevant trustee did not enter into the employment relationship with the fifth defendant in its capacity as an employee.

29 The defendants plead that the third defendant in its own capacity and as trustee for IUT carried on business in Australia and New Zealand under the name of 'Innovateq'.[12]

30 The defendants also refer to the plaintiff's documentation dated 2 May 2016 that the plaintiff says evidences a loan to it from ANZ.[13] The ANZ letter of offer states, in the summary of facilities available the name of the plaintiff 'in its own capacity and as trustee' for IUT. This evidences that the alleged current trustee (the plaintiff) acts in both a personal and trustee capacity.

31 The plaintiffs do not provide any evidence to support the proposition that the third defendant was known to have acted in the past as trustee and all its assets are held on trust. There is no reason this presumption should apply to construing the Contract.

32 Even if the plaintiff amends it statement of claim to clarify its allegation that it was acting in the capacity of trustee, it has no real prospect of it succeeding on this element of the claim given the factors above.

Plaintiff has not been assigned rights to bring cause of action

33 The plaintiff relies on a deed of settlement to assert that it was assigned the cause of action which the third defendant had against the Certeq defendants. The settlement deed forms exhibit 'DJP-6' to the fifth defendant's affidavit. It is common ground between the parties that the settlement deed does not expressly assign the rights. The plaintiff says that the assignment should be inferred in order to give business efficacy to the arrangement. However, the settlement agreement does not contain ambiguity regarding this issue. It clearly stipulates assets which were intended to be transferred in clause 4. It is not reasonable or necessary to imply further terms. The plaintiff submits that is a matter for trial. However, the Court disagrees. Given the above, the reliance on the settlement agreement for an argument that it has been assigned has no real prospect of success.

34 For completeness, a further finding is made. The statement of claim relies on breaches of various obligations by the fifth defendant. Although the restraint of trade could arguably be assigned as it is not a personal obligation, other obligations are inherently personal obligations arising from the employment relationship and cannot be assigned. Therefore, even if the plaintiff was to succeed in proving the Contract was assigned, it has no real prospect of succeeding on the alleged breaches by the fifth defendant of personal obligations other than on the restraint issue.

35 Given the plaintiff has no real prospect of success, the Court will make orders for summary dismissal.

[1] (2009) VR 213 (Hausman).

[2] Capital One Securities Pty Ltd v Soda Kids Holdings Pty Ltd [2012] VSC 163; Portbury Development Pty Ltd v Ottedin Investments Pty Ltd and Ors [2012] VSC 490.

[4] Southway Group Ltd v Wolff and Wolff [1991] 57 BLR 33 (CA), 52-3 (Bingham LJ).

[6] Mid-City Cancer & Laser Centre v Zahedi-Anarak [2006] NSWSC 884; Hamilton v Lethbridge [1912] ArgusLawRp 33; (1912) 14 CLR 236.

[7] St Vincent de Paul Society Queensland v Auscare Limited and ors [2009] QCA 335.

[8] Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78 (per Eames J) ('Re Interwest').

[9] Exhibit 'DJP-1' to the affidavit of the fifth defendant affirmed 3 June 2016.

[13] Exhibit 'DH-12' to the affidavit of Daniel Hadjiantonakis sworn 18 July 2016; paragraph 35 of that affidavit.