PJM Litigation & Debt Management Pty Ltd v Flowers [2021] NSWDC 803 | Case summary

The rules

Rule 6.24 of the Uniform Civil Procedure Rules 2005 was relied upon by the plaintiff. Rule 6.24 provides: "6.24 Court may join party if joinder proper or necessary (cf SCR Part 8, rule 8(1); DCR Part 7, rule 8(1); LCR Part 6, rule 8(1)) (1) If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party. (2) Without limiting subrule (1), in proceedings for the possession of land, the court may order that a person (not being a party to the proceedings) who is in possession of the whole or any part of the land (whether in person or by a tenant) be added as a defendant."
Rule 6.30 was also referred to in argument. It provides: "6.30 Effect of certain changes on proceedings (cf SCR Part 8, rule 10; DCR Part 7, rule 10; LCR Part 6, rule 10) (1) Proceedings do not abate as a result of a party's death or bankruptcy if a cause of action in the proceedings survives. (2) If a cause of action survives, and the interest or liability of a party to any proceedings passes from the party to some other person, the court may make such orders as it thinks fit for the joinder, removal or re-arrangement of parties. (3) Without limiting subrule (2), if a party to an application under section 20 of the Property (Relationships) Act 1984 dies, the court may order the substitution of the legal representative, as mentioned in section 24(1) of that Act, as a party to the application."
Other provisions of the Uniform Civil Procedure Rules that may indirectly be relevant include the power of the Court to make orders to ameliorate any inconvenience resulting from joinder in r 6.22, the circumstance that misjoinder does not defeat proceedings, by reason of r 6.23, the entitlement of a non‑party to apply to be joined under r 6.27, the power of the Court to remove parties unnecessarily joined under r 6.29, and the general power of the Court to make orders regulating the proceedings, including, after a joinder, substituting one party for another party or former party, under r 6.32.
Mr Miles, who is effectively a party to the motion, is entitled to apply for joinder as plaintiff in accordance with r 6.27. He plainly consents to his joinder as plaintiff as is required by r 6.25. In the event that Mr Miles is joined, the date of commencement of the proceedings in the absence of any later date ordered is taken to be the date of joinder. [8]
The principal argument of the defendants is that r 6.24 does not permit a party to be joined if they had no entitlement to joinder at the commencement of the proceedings. This argument derives strength from the terminology in r 6.24: a precondition to joinder is that "the court considers that a person ought to have been joined as a party". The phrase "ought to have been" appears to refer back to the commencement of proceedings and can be distinguished from "ought to be". [9]
The defendants referred to three decisions. In Knight v McCann-Erickson Pty Ltd, [10] a New South Wales company was wound up under Queensland law and a liquidator was appointed; separately and subsequently in New South Wales, the company was wound up under New South Wales law and a different liquidator was appointed. The Queensland liquidator commenced proceedings in New South Wales for recovery of moneys as a void preference. Subsequently, the Queensland winding up orders were set aside as being beyond power. The New South Wales liquidator applied to be substituted as plaintiff for the Queensland liquidator in the preference proceedings. McLelland J referred to the relevant provisions of the Supreme Court operative at the time, namely Pt 8 rr 8, 9 and 10 which, relevantly, provide: "8(1) Where a person who is not a party- (a) ought to have been joined as a party; or (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceedings may be effectually and completely determined and adjudicated upon, the Court, on application by him or by any party or of it's own motion, may order that he be added as a party and make orders for the further conduct of the proceedings. ... 9 Where a party (a) has been improperly or unnecessarily joined; or (b) has ceased to be a proper or necessary party, the Court, on application by any party or of its own motion, may order that he cease to be a party and make orders for the further conduct of the proceedings. 10(1) Where a party dies or becomes bankrupt but a cause of action in the proceedings survives, the proceedings shall not abate by reason of the death or bankruptcy. (2) Where the interest or liability of a party passes by assignment transmission devolution or otherwise to another person, the Court may make consequential orders for the addition, removal or re-arrangement of parties and may make orders for the further conduct of the proceedings. (3)The Court may act under subrule (2) on application by a party or by a person to whom the interest or liability passes or of its own motion."
His Honour determined that: "Neither winding up was auxiliary to the other, and in no legal sense can the New South Wales winding up be regarded as a continuation of the Queensland winding up, notwithstanding that the Queensland order was set aside on the same day as the New South Wales order was made."
His Honour found that the titles of the two liquidators: "had quite separate origins in unrelated proceedings in different jurisdictions and their respective rights of action to recover preferential payments are separate and distinct."
McClelland J further held that the New South Wales liquidator had not been appointed at the commencement of the preference proceedings and could not have properly been joined under r 8(1)(a). Nor could r 8(1)(b): "be construed to authorise the reconstitution of proceedings by the substitution of a new plaintiff with a new cause of action for an old plaintiff whose cause of action is no longer maintainable." His Honour held that r 8 contemplated the addition, not substitution, of parties.
It is apparent that this decision concerns facts quite different from the present case, but the relevant principles remain applicable. The references to "ought to have been joined" in Pt 8 r 8(1)(a), and similarly that reference in its successor, r 6.24, look at the situation "in the first instance", and so would not assist Mr Miles here, whose rights under the assignment postdate the commencement of proceedings.
Further, the reference by McClelland J to r 8(1)(b) not authorising "the reconstitution of proceedings" seems also properly to apply to r 6.24, which adopts much of the terminology in r 8(1)(b). It follows that r 6.24 precludes the substitution sought by PJM and Mr Miles if that substitution effects a "reconstitution of proceedings" involving "a new cause of action".
McClelland J also referred to Pt 8 r 10 and held that there was no passing of any interest under r 10. His Honour determined that Pt 8 r 10 had no application because it requires that an interest "passes" to another person. Likewise, the application of UCPR 6.30(2), the replacement of Supreme Court Rule Pt 8 r 10, depends upon whether "the interest … to [the] proceedings passes" to Mr Miles.
In the second decision, Rickard Constructions and Anor v Rickard, Hails, Moretti and Ors, [11] McDougall J concluded that certain assignments were ineffective [12] and the ineffective assignor could not be joined because they were not impacted by the failure of Rickard's claim. [13] His Honour also held that the assignor was not a "necessary" party since Rickard's claims would "be litigated effectually and completely without the joinder [and] no commercial or other interest of [the assignor] will be affected by that process". [14] His Honour referred to Pegang Mining Company Ltd v Choong Sam [15] in holding that the test was: "whether the rights or liabilities of the person sought to be joined against or to any party to the action in respect of the subject matter of the action be directly affected by any order which might be made." [16]
It appears that the present case is the converse of the Rickard decision. Here, the assignee, Mr Miles, relies on a valid assignment; there, the assignor appeared to rely on the invalidity or ineffectiveness of the assignment. That difference would be sufficient to preclude any reliance on Pt 8 r 10 in the Rickard decision since there was expressly found to be no interest that "passes", which explains why no mention was made of r 10 in Rickard. To that extent, the decision does not guide the present case where there is assumed to be a valid assignment.
In respect of Pt 8 r 8, McDougall J relied upon the decision of McClelland J in Knight. [17] The finding of McDougall J that the interest of the assignor was not affected by the failure of the assignee's claim is easy to follow in circumstances where the assignee's claim was dismissed because of the failure of the assignment. In that respect, the assignor's rights are not adversely affected. It might be a question of whether they were favourably affected, since they were not ended by valid assignment. [18] McDougall J also found substantial discretionary reasons against joinder which are not present here. [19]
In Kassem v Zhang, [20] the third decision, the liquidator of a company claimed recovery from a director, Mr Zhang, of funds by reason of an alleged voidable transaction in favour of Mr Zhang. The application was made outside the limitation period applicable to voidable transaction claims, a time stipulation which has been held by high authority to be "of the essence" of the claim. [21] In the result, a "failure to commence action within the specified period means that an essential ingredient of the right of action the section creates [was] lacking" [22] and the liquidator's claim "must be dismissed". [23]
The liquidator sought to claim against Mr Zhang to allege a breach of director's duties in permitting the alleged voidable transaction. But the company and not the liquidator was the legal person to whom the duties were owed, so not only was the cause of action proposed to be changed, but also the identity of the plaintiff. Barrett J referred to the principle from Knight that joinder did not: "authorise the reconstitution of proceedings by the substitution of a new plaintiff with a new cause of action for an old plaintiff whose cause of action is no longer maintainable". [24] The applicability of that principle in the matter before Barrett J was clear enough. Whether it applied to the different circumstances here might raise other considerations.
In my view, the following principles can be distilled from these decisions: 1. Whether a person "ought to have been joined as a party" in r 6.24 is to be determined as at the date of commencement of proceedings. [25] 2. The requirement that a person's joinder be "necessary to the determination of all matters in dispute" in r 6.24 does not: "authorise the reconstitution of proceedings by the substitution of a new plaintiff with a new cause of action for an old plaintiff whose cause of action is no longer maintainable". Examples of an unauthorised "reconstitution" includes a case like Knight, where a liquidator seeks to take over proceedings not by his predecessor liquidator but by a liquidator appointed separately and invalidly under a separate system of law, and a case like Kassem, where a claim by a liquidator for recovery of moneys is sought to be changed to a claim by the company for damages for breach of duty. 1. A party is not a necessary party under r 6.24 if a claim could be litigated effectually and completely without joinder [26] and if no commercial or other interests will be adversely affected. [27] 2. Rule 6.24 contemplates addition not substitution of parties. [28] 3. Rule 6.30 requires the passing of an interest, which did not occur between two separately approved, but not successive, liquidators.
Mr Miles was not a party who ought to have been joined to the proceedings at the outset since the assignment had not been effected at that date. Accordingly, the first circumstance mentioned in r 6.24 and the first principle listed above does not assist Mr Miles.
The second alternative contemplated by r 6.24 - where "joinder as a party is necessary" - is not confined to the position at commencement but is directed to the present circumstance.
The reconstitution of proceedings sought in Knight and in Kassem are different from the present case. Save for the assignment, the cause of action is the same here, unlike in Kassem. Now it involves a valid assignment of a presumably valid claim, unlike in Knight where there was no assignment and a claim was defective for reasons other than an assignment, and unlike in Rickard which concerned the validity of an assignment, a matter not in issue in this application.
I am not persuaded that the joinder of Mr Miles effectuates a reconstitution of proceedings with a new cause of action. Here the claim by PJM cannot be fully and effectually determined in the present case without affecting the commercial interests of Mr Miles.
At present, it is unclear whether there is any issue about the assignment to Mr Miles. There is none in the current pleading. Were the present action to be dismissed, it would be because PJM is not entitled to recovery, a matter which would fundamentally and adversely affect Mr Miles' claim. The question of whether a res judicata might not apply to Mr Miles as a non‑party so as to leave Mr Miles able to relitigate his claim is not determinative of his commercial interest. In any event, it is not apparent to me that any entitlement of Mr Miles would remain after the Court has rejected PJM's claim. The validity of Mr Miles' debt by assignment cannot rise higher than the validity of PJM's debt.
Similarly, the PJM claim cannot effectually and completely be determined without joinder. Mr Miles has a direct interest in both the validity of the debt and the validity of the assignment, the grounds on which the PJM claim is or may be challenged.
The circumstance that r 6.24 contemplates the addition rather than the substitution of parties raises the question of whether a more appropriate order is for Mr Miles to be joined as a second plaintiff. If the validity of the assignment is not challenged, the presence of PJM as a party is unnecessary to the primary issue in the proceedings. But questions of the costs and costs orders to date, and the date of joinder of Mr Miles, remain of interest to PJM and to the defendants' entitlement against it. This was one discretionary issue raised by the defendants. Their interest would be protected if PJM remained a party.
Further, the defendants have foreshadowed a claim against PJM in respect of funds recovered pursuant to the default judgment, which would be likewise protected. No party opposed PJM remaining in the proceedings if Mr Miles is joined, at least so long as PJM is to have common representation, as appears to be intended.
As indicated earlier, r 6.30 is the successor to Supreme Court Rules Pt 8 r 10, which indicated that the circumstances where an interest "passes" include "assignment". The defendants sought to confine r 6.30(2) to a circumstance of death or bankruptcy mentioned in r 6.30(1).
The interpretation of r 6.30(2) must be informed by s 56 of the Civil Procedure Act 2005. It provides that when it interprets "rules of court", relevantly here r 6.30(2), the Court must seek to give effect to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings. [29]
The real issues in the proceedings appear to be the ownership of the funds, the use of them by the defendants, the existence of any guarantee, the debt of PJM and perhaps the assignment to Mr Miles. These are more likely to be resolved quickly and cheaply, and as justly, by doing so in the present proceedings than in further future proceedings, especially where there is no discretionary factor of prejudice asserted by the defendants.
Section 56 does not support a narrow interpretation of r 6.30(2). Nor does the text. The reference in subr (2) to where a "cause of action survives" does not create a connecting link to subr (1) sufficient to limit subr (2) to circumstances of debt and bankruptcy. It might be different if subr (2) spoke of the abatement of proceedings, for that, and not the survival of a cause of action is the connection in r 6.30(1) to death and bankruptcy.
For this reason, it may be that the presence of the final premise in subr (1) adds little to the meaning of the subrule. Death or bankruptcy does not abate proceedings, but of course, if the cause of action does not survive, then the proceedings are of no value.
There can be no doubt that the cause of action survives here. The defendants do not submit otherwise. That the proceedings were unaffected by death or bankruptcy is not a reason to prefer a narrow construction and limit the power in r 6.30(2) to a narrow class of proceedings only. Nor should the meaning of "passes" be limited to transmission: there is no reason to conclude that the meaning of the rule has changed from Pt 8 r 10, where "assignment" was expressly within its ambit. Further, the opening words of rr 6.24(2) and 6.30(3) indicate that rr 6.24(1) and 6.30(2) should not be read narrowly.
In the result, as the cause of action survives and the interests of PJM passes to Mr Miles, the Court may make such orders as it thinks fit under r 6.30(2). Likewise, the Court may order the joinder of Mr Miles as a party necessary to the determination of all matters in dispute under r 6.24(1).
In this case, the appropriate order is to join Mr Miles as a plaintiff. The Court's power to make orders to alleviate problems arising from joinder, [30] that proceedings are not defeated by misjoinder, [31] that Mr Miles consents to his joinder as a plaintiff, [32] his evident entitlement as a non‑party to apply to be joined, [33] the specification of the date of joinder, [34] and the ready power of the Court to remove an improper or unnecessarily joined party, [35] all tend to support a wide view of the power of joinder.
Accordingly, I find that I do have the power to order the joinder of Mr Miles. As no discretionary factors are raised against that course, I propose to so order. There is no opposition to the joinder of the corporate entity, Casa De Amor, or the filing of the Second Amended Statement of Claim, which are the other orders sought in the motion.
There is no need, utility or appropriateness in the Court noting the matter asserted by the plaintiff in paragraph 4 of the orders sought.

PJM Litigation & Debt Management Pty Ltd v Flowers

At a glance

Court

Decision date

Before

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Judgment (6 paragraphs)

Parties

Cases Cited (6)