Kovarfi v BMT & Associates Pty Ltd

Supreme Court of NSW|2011-08-30|Before: McCallum J

JUDGMENT 1HER HONOUR: These are proceedings for professional negligence arising out of the commercial development of a property at Queenscliff. 2The proceedings were commenced by statement of claim filed on 20 October 2010. By notice of motion dated 15 June 2011, the defendants seek an order that the proceedings be dismissed pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 or, alternatively, that the statement of claim be struck out pursuant to r 14.28. Failing the granting of either of those orders, the defendants seek security for their costs of the proceedings. This judgment determines those applications. 3The plaintiff is Mrs Edith Kovarfi. Mrs Kovarfi seeks to maintain the claim purportedly as assignee of choses in action that had allegedly accrued to the registered proprietor of the development property, Kata-Lyn Pty Ltd. It will be necessary to return to the issue of the assignment. 4The defendants' application to have the proceedings dismissed or the statement of claim struck out is brought on three discrete grounds: (a)that the claim is statute-barred; (b)that the statement of claim discloses no reasonable cause of action because it does not contain any proper pleading of causation, and none can be pleaded; (c)that the choses in action purportedly assigned to Mrs Kovarfi were bare rights of action in tort and were accordingly not assignable or, if assignable, were not validly assigned.

First assignment of the choses in action 16Mrs Kovarfi claims to be entitled to prosecute Kata-Lyn's cause of action against BMT on the strength of two assignments of that cause of action. The first is an alleged assignment by Kata-Lyn to Curl Curl Creative Company Pty Ltd (tab 41 of exhibit A). The assignment was sought to be effected by written agreement headed "Selling Agreement to Assign Choses in Action". The agreement is dated 14 May 2004. The agreement states (in clause 1): The assignee [Curl Curl Creative Company] gives an allowance of $45,980 from the outstanding balance for design and property management work of the assignor [Kata-Lyn] as consideration for the assignor's right to sue Scarfone Building Pty Ltd for over payment on account and for damages, BMT & Associates Pty Ltd [BMT] and/or Commonwealth Bank of Australia and all other persons and corporations for duty of care, professional negligence, misleading, deceptive conduct and all other choses in action in relation to the development at 157 Queenscliff Road, Queenscliff. 17Documents produced by the plaintiff in these proceedings also include a notice of the assignment under s 12 of the Conveyancing Act 1919 (tab 40 of exhibit A). The notice is also dated 14 May 2004. The notice is addressed "to whom it may concern" and, curiously, describes the relevant events in the pluperfect tense: This notice had been issued to notify you that Kata-Lyn had effectively assigned all choses in action in relation to the development at 157 Queenscliff Road, Queenscliff that aroused (sic) from professional negligence, negligent misstatement, misleading deceptive conduct in contract and tort, including but not limited to vicarious liability for employees and contractors as agents acting on behalf of the principals. The assignee is Curl Curl Creative Company Pty Ltd. The assignment had been executed on 14 May 2004.

Second assignment of the choses in action 18The second assignment relied upon by Mrs Kovarfi is dated 11 July 2009. By an agreement in substantially the same terms as the first assignment, Curl Curl Creative Company purported to assign the same rights (including its alleged right to sue BMT for professional negligence) to Mrs Kovarfi (tab 54 of exhibit A). The consideration for that assignment was stated to be "$100 and 10% success fee". Documents produced by the plaintiff include a further notice under s 12 of the Conveyancing Act in respect of the second assignment. The notice is in substantially the same terms as the notice of assignment from Kata-Lyn to Curl Curl Creative Company, with appropriate changes to reflect the second assignment. 19Curl Curl Creative Company and Mrs Kovarfi later entered into a deed of assignment dated 15 September 2010 by which Curl Curl Creative Company purported to assign to Mrs Kovarfi "absolutely, all of its rights" (tab 57 of exhibit A). The recitals to that deed state that Curl Curl Creative Company is the owner of the "Selling Agreement to Assign Choses in Action" to Mrs Kovarfi and that Curl Curl Creative Company wishes to transfer "its ownership" to Mrs Kovarfi. Having regard to the terms of the selling agreement referred to, the intention of the deed of assignment appears to have been to assign to Mrs Kovarfi the "10% success fee" which formed part of the consideration for Curl Curl Creative Company's assignment of the choses in action to Mrs Kovarfi. 20Mrs Kovarfi contends that both notices under s 12 of the Conveyancing Act were first served on BMT and Mr Plenty by her under cover of a letter dated 9 September 2010 (copies provided to the Court by Mrs Kovarfi after the hearing: to be marked as exhibit 1). On 20 September 2010, both Kata-Lyn and Curl Curl Creative Company were deregistered (tabs 58 and 59 of exhibit A). As already noted, these proceedings were commenced on 20 October 2010.

Is the claim statute-barred? 21The defendants acknowledged the admonition given by the High Court in Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 533 as to the undesirability of deciding limitation questions in interlocutory proceedings in advance of the hearing, "except in the clearest of cases". The defendants submitted, however, that a clear case of a claim brought out of time which does not turn on disputed facts or a dispute as to when the cause of action first accrued can appropriately be determined at an interlocutory stage: Foyster v ANZ Banking Group [1999] NSWSC 300 at [31] per Hidden J. 22It has been held that the court may conclude that a statement of claim does not disclose a reasonable cause of action under r 13.4 if, on the pleadings and without reference to any disputed question of fact, the limitation period clearly applies and has expired: Hillebrand v Penrith Council [2000] NSWSC 1058 at [27] per Austin J. 23In my view, the present case is a clear case of a claim brought out of time. On that basis, I am satisfied that it is appropriate to determine the issue as brought forward by the defendants' application. 24The only cause of action pleaded in the statement of claim is a claim in professional negligence. The limitation period for bringing such a claim is six years in accordance with s 14 of the Limitation Act 1969, which provides: 14 General (1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six 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: (a) a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed, (b) a cause of action founded on tort, including a cause of action for damages for breach of statutory duty, (c) a cause of action to enforce a recognizance, (d) a cause of action to recover money recoverable by virtue of an enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture. 25The defendants submitted that, notwithstanding any discrete dispute as to when Kata-Lyn's cause of action against BMT first accrued, the claim must be statute-barred having regard to the undisputed dates of the purported assignments. The only right to sue BMT asserted by Mrs Kovarfi is that assigned to her by Curl Curl Creative Company on 11 July 2009. That right had in turn purportedly been assigned to Curl Curl Creative Company by Kata-Lyn on 14 May 2004. It follows that the only right or title to the damages claimed that is capable of being asserted by Mrs Kovarfi in these proceedings is that (if any) which had accrued as at 14 May 2004. The stream cannot rise higher than its source. Whatever cause of action was purportedly assigned on 14 May 2004, an action on that cause of action was not maintainable if brought after 14 May 2010. 26In my view, that submission is plainly right. Accordingly, it is not necessary to deal with the defendants' alternative submission as to when the cause of action first accrued. 27Mrs Kovarfi sought to argue that, by parity of reasoning with two decisions of the High Court, Kata-Lyn did not suffer actual damage (and thus its cause of action against BMT did not accrue) until the property was sold by the bank in October 2004: Wardley Australia Ltd v Western Australia; Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413. Mrs Kovarfi relied upon the helpful summary of the principles in those two cases set out in the judgment of Davies J in Ross v Cook [2009] NSWSC 671 at [31] to [33], where his Honour said: 31 I do not agree with these submissions. When properly analysed, the decisions in HTW Valuers on the one hand and Kenny & Good and Wardley on the other hand sit comfortably together based on the principles discussed, particularly in Wardley but also in Kenny & Good. What was emphasised in those two cases was the need to enquire what the interest was that was infringed by the negligent act. In relation to a mortgage, as Gaudron J makes clear at [16] in Kenny & Good, the interest that a mortgagee seeks to protect by obtaining a valuation is that it should be able to recoup by the sale of the property the amount owing under the mortgage, and it is the interest in recoupment that is infringed by breach of the duty. That is why the relevant enquiry is the time when recoupment is rendered impossible. That may be as early as default but it may be at a much later time because the default is merely a hiccup along the way. 32 It is not correct to concentrate on the default by the borrower because it is not that default that the valuer is protecting against in providing his or her valuation. 33 On the other hand, where a purchaser pays too much money for a property as the result of a negligent valuation, the loss occurs at the entry into the purchase. That is because the interest to be protected is the purchaser's interest in paying the market value for the property. 28The difficulty with that submission is that, if it is correct, it necessarily follows that there was no cause of action capable of being assigned by Kata-Lyn to Curl Curl Creative Company on 14 May 2004. 29Mrs Kovarfi submitted that, even if BMT's submission were correct, the Court should consider extending the limitation period due to Mrs Kovarfi's sickness in that she suffered from serious depression and anxiety during the time before the limitation period expired. Alternatively, Mrs Kovarfi submitted that the limitation period was suspended for the duration of her disability during that time. 30The period of disability which Mrs Kovarfi asked the Court to consider was from September 2004 to September 2005 and November 2006 to November 2008. Leaving aside the absence of evidence to support that contention, the assignment of the choses of action was not taken by Mrs Kovarfi until 11 July 2009. During the periods referred to (assuming the effectiveness of the assignments, to which I will return) the choses in action were vested in Curl Curl Creative Company. 31Mrs Kovarfi relied on s 50F(4)(a) of the Limitation Act and, in particular, the definition of "incapacitated person", which includes a person who is incapable of, or substantially impeded in, the management of his or her affairs in relation to the cause of action in respect of the limitation period for which the question arises, by reason of any disease or any impairment of his or her physical or mental condition. 32Section 50F(1) of the Limitation Act relevantly provides that, if a person has a cause of action for which a limitation period has commenced to run and the person is an incapacitated person within the meaning of the definition set out above, the running of the limitation period is suspended for the duration of the disability. However, Mrs Kovarfi did not have the cause of action for any of the period of her disability. Accordingly, I do not think s 50F has any application in the present case. For the same reason, I do not think any sickness suffered by Mrs Kovarfi before she took the assignment of the choses of action from Curl Curl Creative Company establishes a proper basis for extending the limitation period.

Decision of the High Court in Equuscorp Pty Ltd v Haxton 33After the conclusion of the hearing Mrs Kovarfi put on supplementary submissions in writing directed to the decision of the High Court in Equuscorp Pty Ltd v Haxton; Equuscorp Pty Ltd v Bassat; Equuscorp Pty Ltd v Cunningham's Warehouse Sales Pty Ltd [2012] HCA 7. No leave was sought or granted to make those submissions. As submitted on behalf of the defendants, the appropriate course in that circumstance is ordinarily that the further submissions should be ignored: Carr v Finance Corporation of Australia Ltd (No 1) [1981] HCA 20; (1981) 147 CLR 246 at 258; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31 at [111]; (2010) 241 CLR 357. 34However, since the submissions were directed to a decision of the High Court published after I reserved my decision, and against the risk in that circumstance of proceeding on a wrong understanding of the law, I considered it appropriate to have regard to the supplementary submissions. Anticipating that event, the defendants in turn put on supplementary submissions and I have also had regard to those, together with the plaintiff's further submissions in reply. 35Mrs Kovarfi submitted that the decision in Equuscorp establishes, in respect of Queensland legislation not relevantly different from s 12 of the Conveyancing Act, that in order to effect an assignment at law of a chose in action, it is necessary that:

the assignment be or purport to be absolute;
the assignment must not purport to be by way of charge only;
the assignment must be in writing under the hand of the assignor;
express notice in writing must be given to the debtor: Equuscorp at [58] per French CJ; Crennan and Kiefel JJ. 36Mrs Kovarfi submitted that, since the notices of assignment were not posted by her to the defendants until 9 September 2010, the assignment of the chose in action from Kata-Lyn to Curl Curl Creative Company on 14 May 2004 was not complete until that date. On that basis, Mrs Kovarfi submitted that the limitation period was "not triggered on the date of the assignment of the chose in action". She submitted accordingly that the limitation period began to run, in accordance with her earlier submissions outlined above, on the date on which the property was sold by the bank (27 October 2004). On that basis, Mrs Kovarfi submitted that the filing of the statement of claim on 20 October 2010 brought an action on the cause of action within the limitation period. 37Upon analysis, I do not think that submission can be accepted. It cannot be the case that, by deferring the step of giving notice of an assignment to the debtor, the assignee can acquire a "debt or other legal chose in action" that vested in the assignor after the date of the assignment. The proper analysis, in my view, is that the subject matter of the assignment is confined to that which was capable of being assigned on the date of assignment, even if the assignment is not effective at law until notice in writing has been given to the debtor in accordance with s 12 of the Conveyancing Act. 38Mrs Kovarfi's second submission in reliance upon the decision in Equuscorp is more difficult to understand. Mrs Kovarfi relied upon the conclusion in the joint judgment of Gummow and Bell JJ at [102] that, even if the claims in contract were statute-barred or extinguished, Equuscorp could maintain its actions for money had and received, since such actions "accrued only on the assertion by the respondents in their defences filed in 1999 that they were not bound by the loan agreements". 39Mrs Kovarfi submitted, evidently in reliance upon that conclusion, that "different causes of action have different limitation regimes and the date of the assignment for those chose of actions (sic) didn't change the difference in the applicable limitation regimes". 40I am unable to discern the support for Mrs Kovarfi's claim perceived by her in the decision in Equuscorp. In the present case, the only cause of action sought to be pursued by Mrs Kovarfi is Kata-Lyn's cause of action in negligence. If that cause of action first accrued before 14 May 2004, an action on the cause of action was not maintainable if brought after 14 May 2010 (as occurred in the present case). If the cause of action first accrued after 14 May 2004, it was not assigned on that date and Mrs Kovarfi has no entitlement to maintain the cause of action. On either analysis, I am satisfied that no reasonable cause of action is disclosed by the statement of claim and, accordingly, that the proceedings must be dismissed.

No proper pleading of causation 41In light of my conclusion that the claim is statute-barred, it is not necessary to determine the other grounds relied upon by the defendants. However, in case I am wrong as to the limitation point, I should state my conclusions on those issues. 42The defendants submitted that the pleading of the element of causation of loss is defective and cannot be rectified. In summary, the plaintiff alleges that BMT's negligent over-estimation caused the builder to receive more funds from the bank than the value of the work executed up to that point; that BMT thus caused the remaining amount of the fund for completion of the works to be less than the amount required for that purpose and that, ultimately, the value of the property together with the value of the work completed was less than the amount owed to the bank. 43The defendants submitted, first, that Kata-Lyn's loss could not be said to have been caused by BMT in the circumstance that Kata-Lyn had a right to recover the over-payments from the builder. I do not think it necessarily follows that Kata-Lyn cannot establish any loss caused by the alleged negligence of BMT. 44Secondly, BMT noted that the contract with the builder was a fixed price contract. On that basis, the builder was obliged to complete the total construction works for the contract price and the only effect of over-estimation of progress payments due was one of timing. BMT submitted that the only reason for the substantial increase in the cost of the works was Kata-Lyn's decision to terminate the contract with Scarfone and to enter into a new building contract with Mr Kovarfi to complete the works for a substantially greater sum. It was submitted that BMT's conduct had nothing to do with that decision. It does not necessarily follow, however, that BMT's conduct could not have caused any loss to Kata-Lyn. In particular, is seems likely that over-payment to the builder would have weakened Kata-Lyn's bargaining power to secure the completion of the works. That is a primary reason for paying a builder progressively rather than in advance. 45The final argument as to causation was that, indisputably, the bank took possession of the property in reliance of events of default that had nothing to do with BMT's alleged negligence. Again, I do not think it necessarily follows that Kata-Lyn cannot establish any causative impact of BMT's alleged negligence. 46It may certainly be accepted that the matters raised on behalf of BMT suggest the existence of substantial difficulties in establishing that any negligence on the part of BMT caused loss to Kata-Lyn. However, I would not regard those matters as plainly warranting the dismissal of the action on a peremptory basis. But for my conclusion as to the limitation period, I would have directed the plaintiff to provide further and better particulars as to the element of causation but would not have struck out the pleading on that basis alone.

Was Kata-Lyn's right of action in tort capable of assignment? 47The third ground relied upon by the defendants is that the two assignments (in so far as they purported to assign the cause of action in tort now pleaded against BMT) were ineffective because a bare cause of action in tort is not a chose in action and is not capable of being assigned at law. 48The defendants acknowledged that there is some divergence of opinion as to the application of that principle but submitted that the weight of authority in Australia supports their contention. The principle is often referred to (in Australia) as the rule in Poulton, having been stated in obiter dicta in the decisions of the High Court in Poulton v The Commonwealth [1953] HCA 101; (1953) 89 CLR 540 at 571.3 per Fullagar J at trial and, on appeal to the Full Court, at 602.9 per Williams, Webb and Kitto JJ, where it was described as "well-established principle" that a right of action in tort was incapable of assignment either at law or in equity. 49Poulton was concerned with the assignment of a cause of action in tort. The House of Lords subsequently held, in a case concerning the assignment of a cause of action in contract, that a bare right of action could be assigned where the assignee had a genuine commercial interest in the enforcement of the claim: Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703D per Lord Roskill; see also at 694E per Lord Wilberforce. In so holding, Lord Roskill described the rule that "you cannot assign a 'bare right to litigate'" as still a fundamental principle of law. 50Trendtex is sometimes referred to as the origin of an exception to that fundamental principle which came after (and thus potentially qualified) the statement of the rule in Poulton. However, instances of an exception where the assignee has "an interest in the suit" had been recognised at least as early as the decision of the English Court of Appeal in Ellis v Torrington [1920] 1 KB 399. In that case, also a case in contract, an assignment of the benefit of a covenant in a lease held to be sufficiently connected with enjoyment of the property so as not to be a bare right of action. 51What is unclear to me is whether the existence of a genuine commercial interest in the enforcement of the assigned claim is properly considered as the basis for an exception to the rule in Poulton (regardless of the cause of action allegedly assigned) or, conversely, whether the unassignability of a bare right of action in tort remains beyond the reach of the exception recognised in Trendtex. 52The existence of any sensible basis for drawing a distinction in that context between the position in tort and the position in contract has been doubted in this State: Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 1041 at [42]-[61]; (2004) 220 ALR 267 at 280-285 per McDougall J. That decision sets out, comprehensively and with welcome clarity, the relevant principles and competing authorities. McDougall J concluded (at [53]) that, were it necessary to reach a concluded view, it would be that he was at liberty to depart, and should depart, from the dicta of the High Court in Poulton. It was not necessary to reach a concluded view because his Honour was not satisfied as to the existence of a sufficient interest (at [62]-[71]). 53Interestingly, some support for his Honour's analysis may be found in the joint judgment of Gummow and Bell JJ in Equuscorp at [79] and the dissenting judgment of Heydon J at [157]. Gummow and Bell JJ at [79] cited the decisions in Ellis v Torrington, Trendtex and Rickard Constructions as instances of "an exception" to the rule in Poulton. Heydon J at [157] similarly noted that Trendtex may elsewhere have been understood as an exception to the principle stated in the dicta in Poulton. However, Equuscorp was not specifically concerned with the question that arises in the present case and does not resolve it. The joint judgment of French CJ, Crennan and Kiefel JJ did not analyse the relevant principles in terms that shed any light on the present question: see [48]-[51]. 54Mr Williams, who appeared for the defendants, submitted that the weight of Australian authority supports the proposition that the rule in Poulton remains valid with respect to bare causes of action in tort. One of the decisions cited in support of that submission was Rickard Constructions at [53] but I think that overlooks the conclusion reached by McDougall J on that issue. 55Separately, however, Mr Williams relied upon the following decisions: Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 2) [1994] FCA 1463 (unreported, 7 November 1994) at [7]-[8] per Beaumont J; National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (No 1) [1995] FCA 1628 at [131] per Lindgren J and Salfinger v Niugini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 at [119] per Heerey J. Those decisions reinforce the obligation of single judges not to depart from the considered dicta of the High Court. McDougall J felt at liberty to do so in Rickard Constructions, but his Honour's enjoyment of such freedom was unclouded by the later remarks of the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [130] and following, especially at [134]. 56Had the issue arisen for decision by me, I would have felt constrained to conclude that Kata-Lyn's cause of action in tort against BMT was not capable of being assigned and, accordingly, that Mrs Kovarfi cannot maintain the cause of action. 57In case that conclusion is wrong, I should indicate that I do not think, on the material before me, that Mrs Kovarfi has established a sufficient interest in the enforcement of the claim. The defendants submitted, correctly in my view, that it would be necessary to establish the existence of a genuine commercial interest at both stages of assignment, that is, a genuine commercial interest of Curl Curl Creative Company in enforcing Kata-Lyn's claim and a genuine commercial interest of Mrs Kovarfi in enforcing Curl Curl Creative Company's claim. 58Mrs Kovarfi stated in submissions that Curl Curl Creative Company was owed substantial debts by Kata-Lyn relating to the development. It is not appropriate to determine such an issue in an interlocutory application of the kind before the Court. Further, I note that Mrs Kovarfi was a guarantor of Kata-Lyn's liability to the bank under the original loan facility. The significance of that fact in the context of the assignment was not explored at the hearing. Accordingly, had I concluded that Kata-Lyn's cause of action in tort against BMT was capable of being assigned subject to the establishment of a genuine commercial interest in the enforcement of the claim, I would not have dismissed the proceedings at this stage for want of the establishment of such an interest. I would have considered that to be an issue for further consideration at or prior to the trial.

Conclusion 59In any event, my conclusion that the claim is statute-barred is determinative. In light of that conclusion, it is not necessary to consider the defendants' application for security for costs. 60The order of the Court is that the proceedings be dismissed. I will hear the parties as to costs.

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: 18 September 2012

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