One. Tel (In Liq) v David Watson and Anor [2009] NSWCA 282

[2009] NSWCA 282

Court of Appeal (NSW)|2009-10-02|Before: Hodgson JA, Campbell JA, MacDougall J

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2009-10-02

Before

Hodgson JA, Campbell JA, MacDougall J

Source

Original judgment source is linked above.

Judgment

Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.

Appeal Outcome: Special leave granted by the High Court, 12 March 2010 s294/2009 [2010] HCATrans 60, [2010] HCATrans 123

Judgment handed down 4 August 2010 [2010] HCA 26

New South Wales

Court of Appeal

CITATION: One. Tel (In Liq) v David Watson and Anor [2009] NSWCA 282

HEARING DATE(S): 10 August 2009

JUDGMENT DATE:

2 October 2009

JUDGMENT OF: Hodgson JA at 1; Campbell JA at 6; Sackville AJA at 7

DECISION: (1) Appeal allowed. (2) The appellant (“One.Tel”) to file within 14 days short minutes of order giving effect to these reasons. (3) If the short minutes are not agreed, One.Tel should also file within 14 days brief written submissions supporting its proposed orders. (4) If the second respondent (“CGU”) wishes to dispute the orders proposed by One.Tel, it should file within a further seven days its proposed short minutes of order accompanied by brief written submissions supporting its proposed orders. (5) CGU to pay One.Tel’s costs of the appeal. (6) CGU, if otherwise qualified, to have a certificate under the Suitors’ Fund Act 1951 (NSW).

CATCHWORDS: BANKRUPTCY – deed of arrangement – debtor assigns to trustee debtor’s rights under directors’ liability insurance policy – termination of deed of arrangement – whether trustee entitled to maintain proceedings against insurer to enforce indemnity notwithstanding termination of deed of arrangement. - ASSIGNMENT – effectiveness at law of assignment of a chose in action – whether assignment “absolute” for the purposes of s 12 of the Conveyancing Act 1919 (NSW) – application of test that an assignment, in order to be absolute, must be unconditional.

LEGISLATION CITED: Bankruptcy Act 1966 (Cth) ss 27, 64ZB, 187, 188, 188A, 189B, 190, 195, 204, 213, 215, 216, 218, 219, 222, 223, 223A, 224, 233, 234, 234A, 234B, 235, 236, 237, 237AA, 235

Bankruptcy Legislation Amendment Act 2004 (Cth), ss 212(3), 212(1)

Conveyancing Act 1919 (NSW), s 12

Deeds of Arrangement Act 1887 (UK)

Judicature Act 1873 (UK) s 25(6) (now s 136 of the Law of Property Act 1925 (UK))

Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW)

Uniform Civil Procedure Rules 2005, r 28.2

CATEGORY: Principal judgment

CASES CITED: Barclay’s Bank Ltd v Quistclose Investments Ltd [1970] AC 567

HODGSON JA: I agree with the result of this appeal proposed in the judgment of Sackville AJA, and I agree substantially with his reasons.
In consideration of the Debtor’s covenant to assign the property described in Schedule A to the Deed of Arrangement, and the Debtor’s compliance with his obligations under the Deed and under the Bankruptcy Act 1996 (Cth), the Debtor was to obtain an immediate release from all provable debts other than his liabilities pursuant to orders made in the ASIC proceedings including orders to pay $20 million to One.Tel and $350,000 to ASIC, and pursuant to a certain costs order in favour of CGU (clauses 7 and 8); and a prospective (and apparently assured) release of those excepted liabilities following certain future actions or decision by the Trustee (clauses 9 and 10). In the meantime, any other action against the Debtor in respect of the orders in the ASIC proceedings was precluded (clause 11).
The Trustee’s issue of the certificate under clause 7 of the Deed was evidence that the Debtor had complied in all respects with his obligations, including the obligation to assign the Debtor’s rights under the CGU policy; and I do not understand this to have been contested.
The preclusion by clause 11 of other action against the Debtor in respect of the orders in the ASIC proceedings is expressed as existing “prior to” the Trustee’s execution of the clause 9 certificate; and in my opinion it could only exist as an incident of the prospect of the release from that liability by the Trustee’s execution of that certificate; so the question is whether Deed manifests an intention that this prospect be lost once the Deed terminated by effluxion of time. I see no good reason why it should be, when the Debtor has provided all the consideration required from him for what the Deed contemplated as a future but assured release.
I agree with Sackville AJA that the Trustee has standing to sue CGU as legal assignee of the Debtor’s rights under the CGU policy, without any necessity to rely on other authority given either by the Deed or by the Bankruptcy Act.
CAMPBELL JA: I agree with Sackville AJA.
SACKVILLE AJA: This is an appeal from a decision of a Judge of this Court entering judgment for the second respondent, the first defendant below (“CGU”). In substance, the principal issue for determination by his Honour was whether the plaintiff (“the Trustee") was entitled to enforce a Directors and Officers Liability Insurance Policy (“the Policy”) against CGU, the underwriter of the Policy.
The Policy indemnified the fourth respondent (“the Debtor”) against certain claims made against him in his capacity as a director of the third respondent (“One.Tel”). The Debtor covenanted to assign his rights under the Policy to the Trustee, pursuant to a Deed of Arrangement made under Part X of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”). The primary Judge held that the Trustee was not entitled to maintain the proceedings against CGU because the Deed of Arrangement had terminated by effluxion of time.
The appeal is not brought by the Trustee, but by One.Tel, the third defendant in the proceedings below, which is in liquidation. One.Tel has an interest in pursuing the appeal because the Deed of Arrangement provided that the Trustee was to apply amounts received by him under the Policy in payment, inter alia, of any liability of the Debtor to One.Tel. The Debtor had incurred a liability to One.Tel under an earlier judgment of the Supreme Court in proceedings brought by the Australian Securities and Investments Commission (“ASIC”) following the collapse of One.Tel.
Although the principal issue for determination in the case is capable of being stated briefly, the parties identified a series of nine separate questions (some containing sub-questions) for determination by the primary Judge. An order was made pursuant to the Uniform Civil Procedure Rules 2005, 28.2, for decision of the separate questions. His Honour duly answered each question, but concluded that in consequence of termination of the Deed of Arrangement the Trustee had no power to continue the proceedings against CGU. For that reason, he entered judgment for CGU without the parties or the Court having addressed CGU’s substantive defences to the Trustee’s claim. AGREED FACTS
The case proceeded before the primary Judge on the basis of a statement of agreed facts, as follows: “1. [CGU] issued [the Policy].
[The Debtor] was a director of One.Tel for the following periods:

The balance of the Deed of Arrangement provides as follows: “2. The Debtor covenants to convey, transfer or assign or cause to be conveyed, transferred or assigned to the Trustee all the property more particularly described in Schedule A hereto on trust to be dealt with by the Trustee in accordance with this Deed of Arrangement.
The Trustee accepts appointment as Trustee of this Deed and the conveyance and assignment of the said property upon the trusts hereinafter set out.
The Trustee shall get in and realise the assets set out in the said paragraph 2 hereto as soon as reasonably practicable provided that he shall have the power to postpone the sale of any part thereof as he in his discretion considers expedient.
The Trustee shall apply any amount received by him under the [Policy] in payment of any liability that [the Debtor] may have to [ASIC] and One.Tel.
Subject to clauses 5 and 18, the Trustee shall apply any moneys received by him pursuant to this Deed in making payments in the order described by Section 108 to 114 inclusive of the Act as modified by Section 237(2) thereof.
Immediately after the Debtor has in all respects complied with his obligations under this Deed and the Act the Trustee shall certify that the Debtor has complied with the Deed. Notice that such certificate has been executed shall be given by the Trustee to the Debtor and the Creditors.
The Debtor shall on the execution of the said certificate be absolutely released and discharged from all provable debts owed by him to each of his creditors respectively and from all claims, actions, suits, demands and other proceedings by each of the Creditors in respect of or on account of those debts except from any liability in respect of the compensation order and costs order made on 6 September 2004 in proceedings 5934 of 2001 in the New South Wales Supreme Court Equity Division (‘the ASIC proceedings’) and the costs order made on the 24 September 2004 in proceedings 50096 of 2002 in the Equity Division of the Supreme Court of NSW in favour of CGU Insurance Ltd (‘the CGU costs order’).
Immediately after the Trustee:

The Debtor shall upon execution of the said certificate by the Trustee be absolutely released and discharged from all liability in respect of the compensation and costs order made on 6 September 2004 in the ASIC Proceedings and the CGU Costs Order.
Prior to the execution of the certificate referred to in clause 9, neither the Trustee nor any creditor will take any steps to enforce against the Debtor the compensation order and the costs order made on 6 September 2004 in the ASIC Proceedings other than to seek recovery pursuant to the arrangement constituted by this Deed and the CGU costs order.
The Trustee shall call a meeting of creditors if requested in writing to do so by creditors whose debts at the date of such request amount collectively to not less than one-fourth of the total value of the provable debts of the Debtor or at any time when it may be necessary or when he considers it desirable to do so. Any meeting of the Creditors shall be held no earlier than seven (7) days after notice thereof has been given by the Trustee to each of the Creditors. Subject to the provisions of clause 12 hereof notice shall be delivered or sent and the meeting shall be held in accordance with the provisions of Section 223 and 223A of Part X of the Act and the Regulations with such adaptations, modifications and omissions as are necessary. Any questions concerning the right of a person to vote shall be determined by the Trustee and in the event that the Trustee is not also the chairman of the meeting, the chairman shall if so requested by the Trustee adjourn the meeting for a period not exceeding fourteen (14) days to enable the Trustee to investigate the matter. Save where this Deed requires that any question, decision or matter shall be determined or any power shall be exercised by or pursuant to a special resolution any resolution passed at a meeting of the Creditors voting in accordance with Section 64ZB of the Act shall be valid and binding upon the Trustee and each of the Creditors.
This Deed shall bind the secured creditors of the Debtor as well as the unsecured creditors PROVIDED HOWEVER that nothing herein contained shall affect the right of secured creditors to realise or otherwise deal with their security.

It is common ground that the effect of the Deed of Arrangement is governed by Part X of the Bankruptcy Act in the form it took immediately prior to the commencement on 1 December 2004 of the Bankruptcy Legislation Amendment Act 2004 (Cth) (“Bankruptcy Amendment Act”). The Bankruptcy Amendment Act made very substantial amendments to Part X. In its amended form, Part X replaces the three forms of arrangements between a debtor and his or her creditors – deeds of assignment, deeds of arrangement and compositions – with a single form of agreement known as a “personal insolvency agreement”.
The transitional provisions of the amending legislation state that, despite the repeals and amendments effected by the Bankruptcy Amendment Act, the unamended Bankruptcy Act continues to apply in relation to a “pre-commencement deed”: Bankruptcy Amendment Act, s 212(3). A “pre-commencement deed” includes a deed of arrangement executed by a debtor and trustee under Part X of the Bankruptcy Act prior to the commencement of the Bankruptcy Amendment Act: s 212(1).
Deeds of arrangement as an alternative to bankruptcy date from the Deeds of Arrangement Act 1887 (UK), although the 1887 Act had its antecedents in Parts VI and VII of the Bankruptcy Act 1869 (UK): Bunnings Forest Products Pty Ltd v Bullen (1994) 53 FCR 438, at 440, per curiam. Some, but not all, Australian States provided for deeds of arrangement in their legislation relating to bankruptcy or insolvency. The State legislation continued in force until the Commonwealth took over the field by enacting the Bankruptcy Act 1924 (Cth) (which commenced in 1928): Report of the Committee to Review the Bankruptcy Law of the Commonwealth (1962) (“Clyne Committee”), at pars 14-15, 271-278. Parts XI and XII of the Bankruptcy Act 1924 (Cth) provided for schemes of arrangement and deeds of arrangement: Clyne Committee, at pars 279-295.
Part X of the Bankruptcy Act introduced a modified regime for deeds of arrangement based on recommendations of the Clyne Committee. The structure of Part X remained largely intact until 2004, although significant amendments were made from time to time. The Australian Law Reform Commission in its General Insolvency Inquiry (1988) expressed the view (vol 1, par 476) that: “Since its introduction in 1968 [when the Bankruptcy Act came into force] Part X has afforded many thousands of individuals an administration of their insolvent financial affairs without recourse to bankruptcy. The benefits of the opportunity, which the legislation affords, of bringing together an insolvent debtor and the creditors of that debtor to consider the availability of alternative forms of administration to suit the circumstances of the individual debtor are self-evident.”

The Trustee pleaded (in effect) that, by virtue of cl 2 of the Deed of Arrangement, the Debtor had assigned to him the rights under the Policy and that notice had been given on 16 October 2006 to CGU for the purposes of s 12 of the Conveyancing Act. The Trustee further alleged that, following termination of the Deed on 30 November 2007, the Trustee was entitled to continue the proceedings and that he held the rights and any proceeds of realisation of the rights on trust for One.Tel and ASIC or, alternatively, for the Debtor.
At the hearing before the primary Judge, the Trustee made detailed submissions on the questions identified for separate determination. One.Tel’s submissions essentially supported the Trustee’s position as did the brief submissions put on behalf of ASIC. CGU presented arguments in opposition to those advanced by the Trustee and One.Tel. The Debtor did not appear. The separate questions addressed by the parties are set out below under the heading “The Primary Judgment”.
As I have noted, the notice of appeal was filed by One.Tel. The respondents to the appeal are the Trustee, CGU, ASIC and the Debtor. Both the Trustee and ASIC filed submitting appearances on the appeal. The Debtor, although served, took no part in the appeal.
On the commencement of the appeal, Mr Harrison announced an appearance on behalf of the Trustee and informed the Court that, unfortunately, the Trustee (Mr Watson) had passed away a short time previously. Mr Coles QC, who appeared with Mr Kulevski for One.Tel and Mr Bathurst QC, who appeared with Mr Street SC and Mr Silver, for CGU, accepted that Mr Watson’s death required at least some reconstitution of parties, since he had been the plaintiff in the proceedings. However, both Mr Coles and Mr Bathurst invited the Court, in order to avoid delay and expense, to proceed with the hearing and deliver judgment on the issues in dispute. They suggested that the Court defer making any orders until the parties have an opportunity to address any issues arising by reason of Mr Watson’s death. The Court indicated that it would adopt the suggested approach.

One.Tel challenged the primary Judge’s conclusion that the Trustee lacked power to maintain the proceedings. That conclusion had been based on the view that neither s 219 of the Bankruptcy Act nor cl 4 of the Deed of Arrangement could provide a source of power to maintain the proceedings, once the deed had terminated in accordance with cl 17(c) of the Deed and s 235(d) of the Bankruptcy Act.
Mr Coles QC submitted on behalf of One.Tel that the Trustee’s power to maintain the proceedings did not depend on the powers conferred by either s 219 or cl 4 surviving termination of the Deed of Arrangement. He contended that cl 2 of the Deed of Arrangement effected an assignment to the Trustee of the Debtor’s rights under the Policy and, once notice of the assignment had been given to CGU (as it was on 16 October 2006), the assignment operated at law. The Trustee therefore acquired the legal right to the Debtor’s rights under the Policy, as the primary Judge in substance held. That legal right remained with the Trustee after termination of the Deed of Arrangement. The Trustee was entitled to institute and maintain the proceedings against CGU quite independently of any powers conferred by s 213 of the Bankruptcy Act or cl 4 of the Deed of Arrangement.
Clauses 2, 3 and 5 of the Deed of Arrangement constituted the Trustee a trustee of the rights under the Policy for the benefit of One.Tel and ASIC. Consistently with the object of Part X, One.Tel and ASIC had put aside their rights to pursue the Debtor directly and instead had taken beneficial title to the chose in action (the right to sue CGU) as part of the Deed of Arrangement. Termination of the Deed in no way undermined the trust relationship.
Mr Coles QC submitted that: provided the statutory requirements governing entry into a deed of arrangement were complied with, the scheme of Part X of the Bankruptcy Act was that Part X left it to the parties to determine their rights and obligations including whether a particular provision survived termination of the deed;

In Bunnings Forest Products v Bullen, the Court (at 448) identified the object of Part X of the Bankruptcy Act as follows: “the object of the Part is to encourage a debtor to make early disclosure to creditors of the debtor’s inability to pay debts and to provide a procedure under which the debtor may call the creditors together to consider whether the debtor may be able to discharge those debts if the creditors permit the debtor to continue to trade, or alternatively, whether the debtor is able to offer an arrangement acceptable to the creditors under which the creditors would receive the benefits that would accrue to them from the bankruptcy of the debtor without incurring the expense of such a proceeding.”
From the debtor’s point of view, having his or her estate administered under Part X, specifically under a deed of arrangement, avoided the stigma of bankruptcy, the rigors of a public examination and the need to obtain a discharge from bankruptcy. From the creditors’ point of view, the appointment of a trustee allowed a debtor (if the creditors agreed) to carry on business under the supervision of the trustee and to facilitate the assignment to the trustee of only a portion of the debtor’s assets. In addition Part X contemplated arrangements (as in the present case) where a debtor or someone associated with the debtor contributed funds to be divided among the creditors: T Irlicht, Assignments, Arrangements and Compositions by Debtors (2nd ed 1986), at [202] (a passage cited with approval in Bunnings Forest Products v Bullen).
The differences between a deed of assignment and a deed of arrangement under Part X were explained by Gibbs J in Schmutter v Gee (Federal Court of Bankruptcy, 1971) (in a passage reproduced in Irlicht, at 38-39 [505]): “The consequences provided by Pt X as flowing from the execution of a deed of assignment are very different from those that result from the execution of a deed of arrangement. The execution of a valid deed of assignment operates to vest in the trustee forthwith upon the trusts and for the purposes of the deed all the divisible property of the debtor, subject to qualifications unnecessary to mention (s 229), but the execution of a deed of arrangement does not bring about any automatic vesting. A deed of assignment operates to release a debtor from all provable debts other than those, if any, that would not be released by his discharge from bankruptcy if he had become a bankrupt on the day on which he had executed the deed (s 230(1)) but a deed of arrangement does not operate as a release unless the deed itself so provides (s 234). A deed of arrangement may be terminated (inter alia) by the passing of a special resolution by the creditors or by an order of the Court (ss 235-6); there is no similar provision for the termination of a deed of assignment although there is provision for the issue by the trustee of a certificate that the divisible property of the debtor has, so far as is practicable, been realized and a final dividend has been paid to the creditors (s 232). Where a deed of assignment has become binding it is not competent for a creditor, so long as the deed remains valid, to enforce any remedy against the person or property of the debtor in respect of a provable debt or to commence any legal proceedings in respect of a provable debt or to take any step in such a proceeding (s 228(2)), whereas in the case of a deed of arrangement, the leave of the Court may be obtained to enforce such a remedy or to commence or carry on such proceedings (s 233(2)). Certain of the provisions of the bankruptcy law such as those relating to the stay of legal proceedings (s 60), the doctrine of relation back (s 115) and the avoidance of antecedent transactions (ss 120-122) are applicable in the case of a deed of assignment but not in the case of a deed of arrangement (ss 231 and 237).”

The primary Judge appears to have considered that the only available sources of power that enabled the Trustee to maintain the proceedings against CGU were s 219 of the Bankruptcy Act (which empowered the Trustee to sue by the prescribed official name) and cl 4 of the Deed of Arrangement (which obliged the Trustee to ”get in and realise the assets” specified in Schedule A, including the rights under the Policy). In his Honour’s view, termination of the Deed of Arrangement three years after its execution (cl 17(C) of the Deed, read with s 235(d) of the Bankruptcy Act) terminated the Trustee’s powers under s 219 and cl 4. His Honour did not specifically address the argument relied on by One.Tel on the appeal, namely that the Trustee was entitled to maintain the proceedings in its capacity as the legal owner of the rights under the Policy, quite independently of s 219 or cl 4.
In order to meet One.Tel’s argument, Mr Bathurst relied on the terms of cl 17(c) of the Deed, rather than the effect of termination of the Deed of Arrangement on the two sources of power identified by the primary Judge. As I have noted, Mr Bathurst contended that in the absence of an extension of the Deed of Arrangement pursuant to cl 17(c), the Deed did not allow the Trustee to maintain the proceedings against CGU. The terms of cl 17(c) have been set out earlier in this judgment ([15]).
Two observations may be made about cl 17(c). First, a resolution to extend the “operation of this Deed” had to be passed by a resolution of “the Creditors”. The latter term was defined (cl 1(b)) to mean the creditors of the Debtor on the date of execution of the Deed of Arrangement. It follows that a resolution extending the operation of the Deed of Arrangement could not be passed simply by CGU and ASIC without reference to the other creditors of the Debtor. This was so notwithstanding that cl 8 of the Deed of Arrangement released the Debtor from all provable debts owed to creditors, other than One.Tel and ASIC, upon execution of the certificate contemplated by cl 7.
Neither the evidence nor submissions addressed the question of whether, if the meeting contemplated by cl 17(c) were convened, One.Tel and ASIC would require the support of other creditors to secure passage of any resolution extending the operation of the Deed of Arrangement. Clause 12 of the Deed provides for the Trustee to call a meeting which is to be held in accordance with ss 223 and 223A of the Bankruptcy Act. Section 223A applied Div 5 of Part IV of the Bankruptcy Act, including s 64ZB, to a meeting called under s 223 by a trustee of a deed of arrangement. Under s 64ZB of the Bankruptcy Act the passage of a resolution required a majority in value of the creditors present and voting: see the definition of “resolution” in s 5. The evidence does not reveal the extent of the indebtedness of the Debtor at the date the Deed of Arrangement was executed. The argument did not address the question of whether the Creditors other than One.Tel and ASIC would have been entitled to vote at a meeting called pursuant to cl 17(c) of the Deed of Arrangement.
Secondly, cl 17(c) does not expressly state that if the Deed of Arrangement is not extended beyond the three year period, the Trustee can no longer maintain any proceedings against CGU to enforce the rights under the Policy. Clause 17(c) provides only that the Deed of Arrangement terminates three years from the date of execution unless the Creditors resolve to extend the operation of the Deed for the purpose of finalising any claim for the realisation of rights under the Policy. Clause 17(c) therefore does not address in terms the consequences of termination of the Deed of Arrangement for the enforcement of the rights assigned by the Debtor to the Trustee.
Termination of the Deed of Arrangement may well have had the effect of preventing the Trustee from taking or continuing to take steps specifically authorised by the Deed of Arrangement or the Bankruptcy Act. For example, cl 14 of the Deed of Arrangement authorises the Trustee, of the Debtor’s attorney under power, to institute and maintain proceedings in the name of the Debtor. On its proper construction, the operation of cl 14 may be limited to the period for which the deed of operation remains on foot. It follows that if the Trustee had commenced proceedings against CGU in the name of the Debtor in reliance on cl 14, termination of the Deed of Arrangement might have brought the proceedings to an end, at least in that form. Similarly, had the Trustee instituted proceedings against CGU in the Trustee’s prescribed official name, in accordance with s 219 of the Bankruptcy Act, the proceedings in that form may not have been properly constituted once the Deed had terminated.
The amended summons filed by the Trustee does not, however, rely either on s 219 of the Bankruptcy Act or cl 14 of the Deed of Arrangement to support the Trustee’s case against CGU. The proceedings as presently framed are brought in the Trustee’s own name, relying on his legal title to the chose in action constituted by the rights under the Policy. This is reflected in the pleading of the Trustee’s case, which rests his cause of action against CGU on the assignment to him of the Debtor’s rights under the Policy.
The Trustee’s case is that the assignment of the rights under the Policy was effective at law, once the notice of assignment was given to CGU on 16 October 2006. That proposition is disputed by CGU. If, however, it is correct, the assignment of the Debtor’s chose in action to the Trustee was complete at law before the Deed of Arrangement terminated on 30 November 2007. Section 12 of the Conveyancing Act permits an assignee at law of a chose in action to sue in his or her own name and to give a good discharge without the assignor’s concurrence: J Starke, Assignment of Choses in Action in Australia (1972), at 38 [54]; Norman v Federal Commissioner of Taxation [1963] HCA 21; 109 CLR 9, at 27 per Windeyer J.
In my opinion, there is nothing in the language of cl 17(c) of the Deed of Arrangement to suggest that the parties to the Deed intended that the Trustee, in effect, would be divested of the right to maintain an action in his own name once the Deed of Arrangement terminated. The Trustee (assuming his argument on this point to be correct) acquired legal title to the chose in action while the Deed of Arrangement remained on foot. Legal title to the chose in action carried with it the right to sue CGU in the Trustee’s own name. Therefore the Trustee, in pursuing the claim against CGU after the Deed of Arrangement had terminated, had no need to rely on any continuing powers conferred by the Deed. In these circumstances, it might be thought that clear words would be required if the Deed of Arrangement were to have the effect of depriving the Trustee of legal rights that accrued to him before the date of termination. Such words are not to be found in cl 17(c).
Clauses 9, 10 and 11 of the Deed of Arrangement seem to me to fit comfortably into this analysis. The Trustee’s certificate, to be issued under cl 9 upon completion or settlement of the Trustee’s claim against CGU or upon the Trustee deciding not to pursue the claim, can be executed, if appropriate, after the Deed of Arrangement has terminated. Under cl 10, the Debtor is released from all liability under the compensation and costs orders made in the ASIC proceedings when the certificate is executed, but not before. Pending execution of the cl 9 certificate, cl 11 prevents either the Trustee or any creditors from taking any steps to enforce the orders against the Debtor, other than to seek recovery pursuant to the arrangement constituted by the Deed. In this way, the “stay” in favour of the Debtor provided by cl 11 can continue even after the Deed of Arrangement itself is terminated. The cl 11 stay is different from the moratorium imposed by s 233(2) of the Bankruptcy Act which prevents creditors enforcing remedies against a debtor only “so long as the deed remains in force”.
The view that both cll 10 and 11 are capable of surviving termination of the Deed of Arrangement is entirely consistent with the language used in those provisions. The opening words of cl 11 (”Prior to the execution of the certificate referred to in clause 9”) imply that the stay provided by cl 11 continues only while it is still possible that the Trustee can execute a certificate under cl 9. If the Trustee were unable to maintain proceedings against CGU after termination of the Deed of Arrangement, it would presumably not be possible for him to execute a certificate under cl 9 following termination. Since a certificate could no longer be issued, the stay provided by cl 11 would come to an end. Construing cl 11 as permitting the stay to continue beyond the date of termination of the Deed (a proposition for which CGU contends) implies that cl 9 should be read so as to authorise the execution of a Trustee’s certificate after the date of termination of the Deed.
Construing the Deed of Arrangement in this way protects the interests of One.Tel and ASIC, on the one hand, and the Debtor on the other. The Trustee is entitled to continue the proceedings against CGU, in effect on behalf of One.Tel and ASIC, while the Debtor is protected by the stay pending the outcome of the proceedings. Once the proceedings are resolved, the Trustee is obliged to issue the cl 9 certificate thereby releasing the Debtor from all liability in respect of the compensation and costs orders made in the ASIC proceedings.
I add four further comments. First, if the operation of the Deed is viewed prospectively, the construction I prefer avoids an outcome where the fate of the Trustee’s proceedings being wholly dependent on the Creditors’ meeting contemplated by cl 17(c). As I have noted, it is not clear whether One.Tel and ASIC, despite being the only creditors affected by the proceedings against CGU (given that the debts to other creditors have been released), could necessarily secure passage of a resolution extending the terms of the Deed of Arrangement. It would be an odd result if the assignment of the chose in action to the Trustee could be rendered nugatory in this way.
Secondly, the Bankruptcy Act contemplates that a deed of arrangement can be terminated by the trustee where the debtor is in default (s 234B) and by the Court if it is satisfied that the deed of arrangement ought to be terminated (s 236). These provisions do not suggest either that the effect of termination is to render the deed of arrangement void ab initio or that none of its provisions is capable of surviving termination regardless of the intention of the parties. On the contrary, s 224 provides that where a deed of arrangement is terminated under ss 234B or 236 all acts and things done by the trustee or any other person before he or she had notice of the termination are “valid and effectual” and are not liable to be set aside in a subsequent bankruptcy.
Thirdly, contrary to Mr Bathurst’s submissions, I do not think that this construction of the Deed of Arrangement renders cl 17(c) otiose. While the Deed of Arrangement remained in force, the Trustee had certain powers conferred by the Bankruptcy Act that would not be available once the Deed terminated. The ability of the Trustee under s 219 to bring proceedings in the Trustee’s prescribed official name is one example. Another is the power of the Trustee (among others) to conduct an examination of the Debtor under s 81 of the Bankruptcy Act (see s 237).
Fourthly, I do not think that there is any force in the submission ([58] above) that because the “stay” provided for in cl 11 survived termination of the Deed of Arrangement, the Debtor had no liability to One.Tel or ASIC against which he could be indemnified under the Policy. Clause 11 merely prevents the Trustee or a creditor taking steps to enforce the compensation and costs “other than to seek recovery pursuant to the arrangement constituted by [the] Deed”. Clause 11 does not discharge or release the Debtor from the judgment debts. That occurs only on the execution of the certificate by the Trustee in accordance with cl 10 of the Deed of Arrangement.
I therefore conclude that, subject to CGU’s submissions concerning the efficacy of the assignment of the Debtor’s chose in action to the Trustee, the termination of the Deed of Arrangement did not prevent the Trustee maintaining the proceedings against CGU. Assignment at Law?
Mr Bathurst’s argument that the assignment of the Debtor’s rights under the Policy to the Trustee was not effective at law took as its starting point the proposition that the assignment did not carry with it the whole of the Debtor’s beneficial interest in the chose in action. As I have noted, according to Mr Bathurst, the Debtor retained a residual beneficial interest in the rights since the Trustee might decide, pursuant to cl 9(ii) of the Deed of Arrangement, not to pursue a claim under the Policy. In that event, there would be a resulting trust to the assignor (the Debtor), who would be able to enforce the rights against CGU.
One of the difficulties in a case that proceeds on agreed facts, is that arguments may be advanced that raise factual issues, at least potentially, not addressed in the agreed statement. This is particularly so when the argument is advanced at a late stage in the proceedings, as happened in the present case.
There was some debate as to whether there were any circumstances in which the rights under the Policy could be of any benefit to the Debtor, assuming that a resulting or Quistclose trust might come into existence upon the issue of a certificate to the Trustee pursuant of cl 9 of the Deed of Arrangement. Mr Bathurst pointed out that the Debtor had brought proceedings against CGU in 2002 seeking an indemnity in respect of legal costs paid by him in defending the ASIC Proceedings. (The further amended summons filed by the Debtor was before the primary Judge and was reproduced in the Blue Book). He submitted that a resulting or Quistclose trust might be of benefit to the Debtor in relation to the claim made in these proceedings. The agreed facts indicate that the proceedings were discontinued in September 2004. The question of whether they could be revived more than five years later was not explored in argument.
On the assumption that this proposition can be made good, the question is whether the assignment was an “absolute assignment” for the purposes of s 12 of the Conveyancing Act 1919 (NSW) (“Conveyancing Act”). If not, the assignment was not effective at law and, so Mr Bathurst argued, a mere equitable interest in the rights would not suffice to give the Trustee standing to pursue the claim against CGU. Section 12 of the Conveyancing Act provides as follows: “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 …”
Section 12 of the Conveyancing Act derives from s 25(6) of the Judicature Act 1873 (UK) (now s 136 of the Law of Property Act 1925 (UK)) and has counterparts in all Australian jurisdictions: G Tolhurst, The Assignment of contractual Rights (2006), ch 5. As Starke points out (Assignment of Choses in Action in Australia, at 38 [53]), in order for there to be an assignment of a chose in action in conformity with s 12, assuming the necessary intention to assign the chose in action, three principal conditions must be satisfied: (i) the assignment must be in writing under the hand of the assignor;

It will be seen that Mason J regarded an “absolute assignment” as one that is unconditional, thereby settling a point which was previously thought not to be entirely clear: cf Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669, at 679, per Samuels JA. Mason J held that the assignment of the taxpayer’s term deposits was to be characterised as “unconditional” notwithstanding that the assignment, which was expressed to be for “the assignee’s own … use and benefit absolutely”, was also expressed to be (and was in fact) by way of security. Mason J did not elaborate the precise nature of the “obligation” of the assignee once the loans were repaid, but it can hardly be doubted that, in those circumstances, the assignee would have held the term deposits on trust for the assignor. This is confirmed by his Honour’s reference to the three English authorities which support the proposition that a loan can be unconditionally assigned even if it is subject to an equity of redemption.
In Durham v Robertson, the Court of Appeal held that an assignment of a debt “until the money [due by the assignor to the assignee] be repaid” was not an absolute but a conditional assignment. Chitty LJ (with whom A L Smith and Collins LJJ agreed) reasoned as follows (at 773): “The commonest and most familiar instance of a conditional assurance is an assurance until J. S. shall return from Rome. The repayment of the money advanced is an uncertain event, and makes the assignment conditional. Where the Act applies it does not leave the original debtor in uncertainty as to the person to whom the legal right is transferred; it does not involve him in any question as to the state of the accounts between the mortgagor and the mortgagee. The legal right is transferred, and is vested in the assignee. There is no machinery provided by the Act for the reverter of the legal right to the assignor dependent on the performance of a condition; the only method within the provisions of the Act for revesting in the assignor the legal right is by a retransfer to the assignor followed by a notice in writing to the debtor, as in the case of the first transfer of the right. The question is not one of mere technicality or of form: it is one of substance, relating to the protection of the original debtor and placing him in an assured position.”
In Tancred v Delagoa, the Queen’s Bench Division held that an assignment of a debt to secure an advance, with a proviso for redemption and reassignment upon payment of all moneys due under the advance, was an absolute assignment. Denman J (with whom Charles J agreed) considered (at 242) that the proviso did not prevent the assignment being absolute. The difference between Durham v Robertson and Tancred v Delagoa was explained by Glass JA in Grey (at 673) this way: “A distinction is clearly drawn between a reassignment occurring by force of the original transaction (conditional), and a reassignment which depends on a further assurance.”

It follows from these authorities that if an assignment of a chose in action is unconditional, in the sense that the assignment transfers “unconditionally all the rights of the assignor in the chose to the assignee”, the assignment is absolute for the purposes of s 12 of the Conveyancing Act: Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724, at 732, per Hammond J. See also Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190, at 194, per Mathew LJ; Raiffeison v Zentralbank Ősterreich AG v Five Star General Trading LLC [2001] EWCA Civ 68; [2001] QB 825, at 855-856 [74], All ER 257, at [74], per Mance LJ. This is so notwithstanding that the assignment itself contemplates a resulting trust in favour of the assignor in certain circumstances (as in Burlinson v Hall). A fortiori, if an assignment unconditionally transfers all the rights of the assignor in the chose in action to the assignee, the fact that in certain circumstances, which may or may not occur, a resulting trust will be implied in favour of the assignor does not prevent the assignment being absolute.
By the Deed of Arrangement in the present case, the Debtor covenanted to assign, inter alia, his rights under the Policy, including the right to damages, to the Trustee “on trust to be dealt with in accordance with this Deed of Arrangement” (cl 2). The Trustee was obliged to realise the Debtor’s assets, including the rights, and to apply any amount received under the Policy in payment of any liability the Debtor may have had to One.Tel and ASIC (cll 4, 5). CGU does not dispute that, notice having been given of the assignment, an assignment of the chose in action took place.
The assignment transferred all of the Debtor’s legal title to the chose in action under the Policy. There was no qualification imposed on the entitlement of the Trustee to utilise the legal title to the chose in action in any manner he considered fit to fulfil the terms of trust which required him to apply any amount received under the Policy in payment of any liability of the Debtor to One.Tel and ASIC. The fact that there might be circumstances in which the rights under the Policy (or some of them) conceivably could be held on trust for the Debtor does not detract from the conclusion that the assignment was absolute.
It follows that the assignment to the Trustee of the Debtor’s rights under the Policy was effective at law. The Trustee is therefore entitled to pursue his claim against CGU for an indemnity under the Policy in respect of the Debtor’s liability to comply with the orders made in the ASIC proceedings. Equitable Assignment
If the assignment of the Debtor’s rights under the Policy was not effective at law, it would have taken effect as an equitable assignment. In these circumstances, there is a rule of practice that the Debtor, as assignor, may be a necessary party to proceedings brought by the assignee to enforce the interest assigned, although in some circumstances the rule may be departed from: R Meagher, D Heydon and M Leeming, Meagher Gummow & Lehane’s Equity Doctrines and Remedies (4th ed, 2002), at [6-520]; Long Leys Co Pty Ltd v Silkdale Pty Ltd (NSWCA, unreported, 19 December 1991), at 11-12, per Sheller JA (with whom Priestley and Meagher JJA agreed); William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, at 462, per Lord Macnaghten.
The Debtor was joined as a defendant in the proceedings brought by the Trustee against CGU and it appears that the Debtor has taken no objection to the Trustee pursuing the claim. It is not obvious why, even if the assignment of the Debtor’s rights under the Policy was effective only to equity, the proceedings brought by the Trustee not properly constituted. This point was adverted to in argument but was not developed. Accordingly, it is neither necessary nor appropriate to express a final view on it. CONCLUSION
The appeal must be allowed. CGU must pay One.Tel’s costs of the appeal.
One.Tel should file within 14 days short minutes of order giving effect to these reasons. If the short minutes are not agreed between the parties, the short minutes should be accompanied by One.Tel’s brief written submissions supporting its proposed orders. If CGU disputes the orders proposed by One.Tel, it should file within a further 7 days its short minutes of order, accompanies by CGU’s brief written submissions supporting its proposed orders.