Supreme Court of WA|2011-04-21|Before: Miere J

NINELEN PTY LTD -v- INTERIM ADVANCE CORPORATION PTY LTD [2011] WASC 107 (21 April 2011)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : NINELEN PTY LTD -v- INTERIM ADVANCE CORPORATION PTY LTD [2011] WASC 107

NINELEN PTY LTD As Trustee for THE HELEN CARR & SONS FAMILY TRUST

CORVARR PTY LTD As Trustee for THE DAIRY FARM TRUST

Practice and procedure - Application to discontinue action - Relevant principles - Turns on own facts

Practice and procedure - Application to dismiss counterclaim for want of prosecution - Relevant principles - Turns on own facts

Rules of the Supreme Court 1971 (WA), O 23 r 2(3)

Cummings v Claremont Petroleum NL (1996) 185 CLR 124

Hancock Family Memorial Foundation Ltd v Fieldhouse (2005) 30 WAR 398; [2005] WASCA 93

IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) [2009] FCAFC 9; (2009) 253 ALR 240

NT Power Generation Pty Ltd v Power & Water Authority [2004] HCA 48; (2004) 219 CLR 90

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622

Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2004] NSWSC 1041; (2004) 220 ALR 267

Skinner v Jeogla Pty Ltd [2001] NSWCA 15; (2001) 37 ACSR 106

Trendtex Trading Corporation v Credit Suisse [1982] AC 679

TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) [2007] FCA 151; (2007) 158 FCR 444

1 LE MIERE J: The plaintiffs in these consolidated actions apply to discontinue the action against the defendants with no order as to costs. The plaintiffs further seek an order that the counterclaim in the consolidated action be dismissed for want of prosecution with no order as to costs. The plaintiffs seek certain consequential orders.

2 Interim Advance Corporation Pty Ltd (Interim) carried on a business named Aussie Cash. Its business included making short term cash advances. Its business also included operations as a franchisor. Interim granted the first and second plaintiffs, Ninelen Pty Ltd (Ninelen) and Corvarr Pty Ltd (Corvarr), franchises to operate franchise businesses at Geraldton and Midland under the name Aussie Cash. The third plaintiff, Ms Carr, was the sole director of Ninelen. The fourth plaintiff, Mr Corvaia, was the sole director of Corvarr. The second defendant, Mr Douglas, was the sole director of Interim. Ms Carr and Mr Corvaia are guarantors of Ninelen and Corvarr in respect of the Geraldton and Midland franchise agreements.

3 Ninelen and Corvarr say that Interim made certain false or misleading representations to them in contravention of Trade Practices Act 1974 (Cth) (TPA) s 52 and that Mr Douglas was an accessory to the misleading representations by reason of TPA s 75B(1). Ninelen and Corvarr further say that Interim breached the terms of the Geraldton franchise agreement and committed an anticipatory breach of the Midland franchise agreement. Ninelen and Corvarr say that the misleading conduct of, and breaches or anticipatory breaches of contract by, Interim constituted a repudiation of the franchise agreements which Ninelen and Corvarr accepted. Ninelen and Corvarr claim damages, relief under TPA s 87(2) declaring the franchise agreements void and orders that Interim repay amounts paid by Ninelen and Corvarr to Interim under the franchise agreements.

4 Interim makes a number of claims by counterclaim. Broadly speaking, Interim claims that Ninelen and Corvarr breached the franchise agreements and failed to pay royalties due under the agreements to Interim. Interim says that it terminated the franchise agreements by reason of the fraudulent conduct of Ninelen or Corvarr or alternatively the purported terminations by Ninelen and Corvarr were repudiations of the franchise agreements which Interim accepted. Interim says it lost the benefits it would have received under the franchise agreements if they had not been terminated. Interim also claims that Ninelen and Corvarr engaged in misleading or deceptive conduct and Ms Carr and Mr Corvaia were knowingly concerned in such conduct. There are also allegations regarding breach of leases but it is not necessary to say anything further about them.

5 Ninelen and Corvarr commenced CIV 2506 of 2004 against Interim and Mr Douglas in 2004. Interim commenced CIV 1676 of 2005 against Ninelen, Corvarr, Ms Carr and Mr Corvaia in 2005. The two actions were consolidated on 9 December 2008. Interim's action (CIV 1676 of 2005) then constituted a counterclaim pursued in the consolidated action. On 24 June 2009 I made orders requiring Interim to provide further discovery. Interim has not complied with that order and has taken no step in the action since then.

6 On 21 July 2009 Interim entered into voluntary administration. Subsequently a deed of company arrangement (DOCA) was executed. The DOCA had effect from 8 September 2009. The DOCA subsequently terminated and Interim entered a creditors' voluntary winding up on 2 May 2010. On 26 August 2010 Mr Douglas presented a debtors petition which was accepted, with the effect that Mr Douglas became an undischarged bankrupt.

7 Ninelen and Corvarr no longer wish to continue their action against Mr Douglas.

8 The plaintiffs submit, and I accept, that s 60(3) of the Bankruptcy Act 1966 (Cth) does not apply to the application by Ninelen and Corvarr to discontinue the action against Mr Douglas. Section 60(3) concerns a trustee in bankruptcy electing pursuant to s 60(2) of the Bankruptcy Act to either prosecute or discontinue an action commenced by a bankrupt. The restrictions imposed by s 60(2) and s 60(3) are directed at the bankrupt and the trustee: Cummings v Claremont Petroleum NL (1996) 185 CLR 124, 132 (Brennan CJ, McHugh & Gaudron JJ).

9 The plaintiffs no longer wish to pursue the action against Mr Douglas because he has become bankrupt and any judgment in favour of the plaintiffs would be worthless, or at least not worth the cost and trouble of obtaining it. Subject to questions of injustice, the court will give leave to discontinue an action because it is not desirable that a plaintiff should be compelled to litigate against his will. There is no injustice in allowing the plaintiffs to discontinue the action against Mr Douglas. I will order that the action be discontinued against Mr Douglas.

10 There remains the question of the appropriate costs order as between the plaintiffs and Mr Douglas. Order 23 r 2(3) of the Rules of the Supreme Court 1971 (WA) provides that the court may order the action to be discontinued upon such terms as to costs as may be just.

11 McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, considered the relevant principles for determining costs orders where there has been no hearing on the merits of the case. His Honour stated:

The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigation action which by settlement or extra-curial action they had avoided. ...

If it appears that both parties had acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings (624 - 625).

12 In this case the further prosecution of the plaintiffs' claims against Mr Douglas have become practically futile. That is not because of anything done by the plaintiffs but rather because Mr Douglas has become bankrupt. In the circumstances of this case the proper exercise of the costs discretion is to make no order as to the cost of the proceedings between the plaintiffs and Mr Douglas.

The plaintiffs' application that the counterclaim be dismissed for want of prosecution

13 Section 500(2) of the Corporations Act 2001 (Cth) does not prevent the plaintiffs from brining their application that the counterclaim be dismissed for want of prosecution. The plaintiffs' application is not a civil proceeding against Interim. Alternatively, the plaintiffs submit, and I accept, that their application is a defensive measure which does not require leave: Skinner v Jeogla Pty Ltd [2001] NSWCA 15; (2001) 37 ACSR 106 [13] - [20] (Spigelman CJ with Powell JA & Ipp AJA agreeing).

14 The court has the inherent jurisdiction to dismiss an action for want of prosecution. The principles applicable to an application to dismiss an action for want of prosecution were set out in Hancock Family Memorial Foundation Ltd v Fieldhouse (2005) 30 WAR 398; [2005] WASCA 93 [99] - [100] as follows:

The general principles identified in those cases include consideration of these points:

(a) whether any default has been intentional and contumelious, for example, disobedience to a peremptory order of the court or conduct amounting to an abuse of the process of the court; or

(b) whether there has been inordinate and inexcusable delay on the part of the plaintiff or his or her lawyers, and, if so

(c) whether such delay:

(i) will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action; or

(ii) is such as is likely to cause or to have caused serious prejudice to the defendants either as between themselves and the plaintiff or between each other or between them and a third party.

But as with so many areas in the law, it is one thing to identify general principles and another properly to apply them. It should always be borne in mind that the power to dismiss for want of prosecution calls for the exercise of discretion. It is a discretion that must be exercised judicially but is otherwise open. It exists to serve the ends of justice. Caution should therefore be employed so that these general principles are not elevated to the level of a 'test' or a 'rule'. They are more appropriately to be seen as guidelines indicating some of the matters to which the court should have regard in exercising the discretion. The court's discretion to dismiss an action for want of prosecution is not fettered by any absolute or inflexible rules. There are however five matters to be considered which will usually be relevant to the court's decision to exercise the discretion:

the length of the delay;
the explanation for the delay;
the hardship to the plaintiff if the action is dismissed and the cause of the action left statute-barred;
the prejudice to the defendant if the action is allowed to proceed notwithstanding the delay; and
the conduct of the defendant in the litigation.

Ulowski v Miller [1968] SASR 277 at 280 (FC); Dzienciol v Logie Brae Pty Ltd, unreported; FCt SCt of WA; Library No 980078; 25 February 1998.

15 The first matter to be considered here is the length of the delay and the explanation for the delay. Interim's action was commenced in 2005. It was consolidated with the action brought by Ninelen and Corvarr on 9 December 2008. Effectively, Interim has done nothing to progress its counterclaim since then. On 24 June 2009 I made orders requiring Interim to provide further discovery. Interim has not complied with the orders. Interim's explanation for the delay, and for its failure to comply with the further discovery order, is that on 21 July 2009 it entered voluntary administration, subsequently executed a deed of company arrangement which had effect from 8 September 2009 and on 2 May 2010 entered a creditors voluntary winding up. The deed administrator and subsequently the liquidator have not taken any steps to pursue Interim's counterclaim against Ninelen and Corvarr. It should be inferred that the liquidators do not intend to pursue that counterclaim unless there is some evidence to the contrary. Mr Levitan, who appeared as counsel for Interim, confirmed on the hearing of this application that Interim is not in a position to, and does not intend to, prosecute the counterclaim. Mr Levitan further informed the court that the counterclaim 'doesn't belong to Interim' because it has been assigned to Bridgefront Pty Ltd (Bridgefront). An issue arose on the hearing of this application whether Interim's cause of action against Ninelen and Corvarr has been effectively assigned to Bridgefront.

16 Mr Levitan appeared as counsel for Bridgefront as well as for Interim. Mr Levitan submitted that Bridgefront owns Interim's cause of action against Ninelen and Corvarr by reason of the following chain of events. Interim charged its right title and interest in and to debts and monetary claims, with the benefit of all related guarantees, indemnities and securities for their payment to the National Australia Bank (NAB). NAB assigned the charge held by it over Interim to Bligh & Vickers Investments Pty Ltd (Bligh). Bligh assigned Interim's right title and interest in the counterclaim to Bridgefront.

17 At the hearing on 9 December 2010 Mr Levitan sought leave to make further written submissions relating to the assignment of Interim's counterclaim to Bridgefront. I ordered that the defendants have leave to file and serve written submissions relating to the submission that the deed of assignment of 28 May 2010 between NAB and Bligh is effective to assign Interim's causes of action against Ninelen and Corvarr and the plaintiffs have leave to file and serve submissions in reply. The defendants subsequently delivered written submissions which dealt with the question whether the Charge of the NAB was over all the assets of Interim and whether the deed of assignment from NAB to Bligh was effective to assign the causes of action which Interim had against the plaintiffs. The defendants' written submissions also dealt with the deed of assignment from Bligh to Bridgefront 'to confirm the efficacy of the deed of assignment of the cause of action to Bridgefront'. At the same time as filing those submissions the defendants filed an affidavit sworn by Stephanie Douglas on 20 January 2011. Ms Douglas attached to her affidavit a copy of the deed of assignment from Bligh to Bridgefront. The plaintiffs filed written submissions in response to the defendants' written submissions of 21 January 2011. The plaintiffs objected to the defendants attempt to adduce further evidence in the form of the affidavit sworn by Stephanie Douglas on 20 January 2011.

18 Leave was given to the defendants to file written submissions relating to the submission that the deed of assignment between NAB and Bligh is effective to assign Interim's causes of action against Ninelen and Corvarr. Leave was not given to make submissions in relation to the effectiveness of the deed of assignment between Bligh and Bridgefront to assign Interim's cause of action against Ninelen and Corvarr to Bridgefront. In NT Power Generation Pty Ltd v Power & Water Authority [2004] HCA 48; (2004) 219 CLR 90, McHugh ACJ, Gummow, Callinan and Heydon JJ said:

It is impermissible to file further submissions without leave, and this cannot be evaded by adding on to submissions filed with leave other material for which leave should have been obtained [192].

No leave was sought or given to file the affidavit of Stephanie Douglas. It should not have been filed. However, in the circumstances of this case I will have regard to the deed of assignment between Bligh and Bridgefront which is attached to Ms Douglas' affidavit.

19 The plaintiffs submit that the assignment of the charge to Bligh was not effective to assign the assets subject to the charge. The plaintiffs referred to the judgment of North, Emmett and Rares JJ in IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) [2009] FCAFC 9; (2009) 253 ALR 240 where their Honours said:

A charge is a hypothecation creating a security interest in respect of property without transfer of either title or possession ...

The proprietary interest created by a charge entitles the holder to resort to the property only for the purpose of satisfying the liability actually secured by the charge. The owner of the property remains as owner and retains the entitlement to have the property restored to it when the secured liability has been discharged or performed. Ordinarily, the holder of the charge will have no right to the property in question other than to sell it upon default in the performance of the secured obligation [57] - [58].

20 The plaintiffs submitted that the charge over the assets of Interim did not confer on NAB title to any of Interim's assets. The assignment of the charge from NAB to Bligh conferred on Bligh the rights to resort to the charged property to satisfy the liability for which the charge was security, but did not transfer to Bligh title to any of the charged property. Accordingly, the plaintiffs submitted the assignment of the charge over Interim's assets did not operate as an assignment of assets subject to the charge. I accept that submission. The charge did not assign to Bligh Interim's right to damages for breach of the franchise agreements.

21 In her affidavit of 20 January 2011 Ms Douglas attaches a copy of a deed of assignment between Bligh and Bridgefront dated 12 November 2010. Clause 1.1 of the deed provides that Bligh assigns to Bridgefront all of Interim's right, title and interest in the counterclaim.

22 A bare right of action cannot be assigned. A distinction has often been drawn between bare rights of action, on the one hand, and on the other, property rights. The distinction is discussed by Campbell C D, in 'An Examination of the Champertous Assignment of Bare Causes of Action' (1999) 27 Australian Business Law Review 142. The assignment of bare rights of action is prohibited but the assignment of property rights, including choses in action, are permitted. The right to sue for unliquidated damages or breach of contract is a bare right of action, not property. There is an exception to the rule that a bare right of action cannot be assigned. In Trendtex Trading Corporation v Credit Suisse [1982] AC 679, 703 the House of Lords held that whilst a bare right of action cannot be assigned, an assignment is permitted if the assignment is of a property right or interest, and a cause of action is ancillary to that interest, or if the assignee had a genuine commercial interest in taking the assignment and enforcing it for his own benefit. The principle advanced in Trendtex has been followed in a number of first instance judgments in Australia: see Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2004] NSWSC 1041; (2004) 220 ALR 267; TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) [2007] FCA 151; (2007) 158 FCR 444 [78] - [81]. However, the principle advanced in Trendtex is contrary to dicta of Williams, Webb and Kitto JJ in Poulton v The Commonwealth (1952) 89 CLR 540.

23 Even if Trendtex was accepted as good law in Australia, the assignment by Bligh to Bridgefront of Interim's counterclaim is not effective. It is the assignment of a bare right of action without any property interest and there is no evidence that Bridgefront had any genuine commercial interest in taking the assignment.

24 I find that Interim's cause of action for damages for breach of the franchise agreements has not been validly assigned to Bridgefront, or at least that there is no enforceable assignment.

25 Interim has made no attempt to comply with the discovery order made against it or to proceed with its counterclaim since that order was made in June 2009. Interim, through its counsel, has informed the court that it does not intend to prosecute the counterclaim. In those circumstances the counterclaim should be dismissed. The appropriate costs order is that there be no order as to costs.

26 Ninelen and Corvarr seek orders discontinuing their action against Interim with no order as to costs. Interim is in liquidation and pursuing claims against it is practically futile. The plaintiffs should not be compelled to continue litigating against a defendant which, since the proceedings have commenced, has entered liquidation and against whom a judgment would be for all practical purposes useless. The plaintiffs' actions against Interim will be discontinued. In the circumstances, the appropriate cost order is that there be no order as to costs.

27 The plaintiffs seek the following further orders:

All unsatisfied costs orders in CIV 2506 of 2004, CIV 1676 of 2005, the consolidated action and the counterclaim in the consolidated action be and hereby are vacated.
The balance of the bank account into which the sum of $50,000 was paid in lieu of the plaintiffs providing security for the defendants' costs of CIV 2506 of 2004 pursuant to an agreement constituted by a letter sent by Stables Scott to Talbot & Olivier dated 15 December 2004 and a letter sent by Talbot & Olivier to Stables Scott dated 16 December 2004 shall be paid to the plaintiffs.

28 Interim did not oppose the making of those orders in the event that the consolidated action is discontinued and the counterclaim is dismissed. It is appropriate that those ancillary orders be made.

NINELEN PTY LTD -v- INTERIM ADVANCE CORPORATION PTY LTD [2011] WASC 107 (21 April 2011)

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Judgment (59 paragraphs)

NINELEN PTY LTD -v- INTERIM ADVANCE CORPORATION PTY LTD [2011] WASC 107 (21 April 2011)

Legislation Cited (1)

Cases Cited (8)