Ag-Exports (Australia) Pty Ltd v Export Finance and Insurance Corporation

[2003] NSWSC 175

CITATION:	Ag-Exports (Australia) Pty Ltd & Anor v Export Finance and Insurance Corporation [2003] NSWSC 175
HEARING DATE(S):	12 March 2003
JUDGMENT DATE:	3 April 2003
JUDGMENT OF:	Simpson J
DECISION:	(i) the orders of Master Harrison of 30 May 2002 are set aside; (ii) pursuant to Part 13 Rule 5, the claim by Ag-Exports in contract is dismissed; (iii) pursuant to Part 15 Rule 26, Ag-Exports' claim in deceit is struck out; (iv) pursuant to Part 15 Rule 26, Lawn's claim in deceit is stuck out; (v) the plaintiffs are to pay EFIC's costs of the proceedings before the Master, and on the appeal.
CATCHWORDS:	appeal from judgment of Master - Supreme Court Rules Part 13 Rule 5, Part 15 Rule 26 - pleadings - an application for summary dismissal of proceedings - application to strike out pleadings - plea that benefit of policy assigned to third party - claim on policy of insurance - standing to bring or maintain proceedings - claim in contract - whether statute barred - claim in deceit - Limitation Act 1969 (NSW) - nature of an appeal from a Master
LEGISLATION CITED:	Bankruptcy Act 1966 (Cth) s58 Courts Legislation Amendment (Civil Juries) Act 2001 (NSW) Limitation Act 1969 (NSW) ss 14, 55(1) and 63 Limitation of Actions Act 1958 (VIC), s27 Supreme Court Act 1970 (NSW) ss75A, s88 Supreme Court Act 1970 (NSW) Schedule 4 Part 12 clause 19 Supreme Court Rules (NSW) Part 13 Rules 1 and 5 Supreme Court Rules (NSW) Part 15 Rules 23 and 26 Supreme Court Rules (NSW) Part 60 Rule 10
CASES CITED:	Ag-Exports & Anor v Export Finance and Insurance Corporation [2002] NSWSC 467 Ag-Exports (Australia) Pty Ltd v Export Finance and Insurance Corporation [2001] NSWSC 404 Applegate v Moss [1971] 1 QB 406 Associated Securities Finance Ltd v Harrow Properties Pty Ltd, unreported, NSWSC 26 May 1977 C v Mirror Group Newspapers [1997] 1 WLR 131 Frisby v Theodore Goddard & Co, The Times, 7 March 1984 Gould v Vaggelas (1985) 157 CLR 215 Piwinski v Corporate Trustees of the Diocese of Armidale [1977] 1 NSWLR 266 Skrijel v Mengler & Ors [1998] VSC 71
PARTIES :	Ag-Exports (Australia) Pty Ltd - 1st Appellant Brian John Lawn - 2nd Appellant Export Finance and Insurance Corporation - Respondent
FILE NUMBER(S):	SC 20702/00
COUNSEL:	DT Kennedy SC with J White - Appellants M Einfeld QC with D Williams - Respondent
SOLICITORS:	John McEncroe & Co - Appellants Abbott Tout - Respondent

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

SIMPSON J

3 April 2003

20702/00 Ag-Exports (Australia) Pty Ltd & Anor v Export Finance and Insurance Corporation

JUDGMENT

1 Her Honour: Pursuant to SCR Part 60 Rule 10, the appellants, Ag-Exports (Australia) Pty Ltd and Brian John Lawn (who were, respectively, the first and second plaintiffs in proceedings before Master Harrison which were heard on 6 May 2002 and decided on 30 May 2002 and to whom I shall refer, when it is necessary to refer to them individually, as “Ag-Exports” and “Lawn”), appeal from the Master’s judgment of that date: Ag-Exports & Anor v Export Finance and Insurance Corporation [2002] NSWSC 467.

2 The proceedings had and have some very unusual features. It is necessary at the outset of these reasons to outline the relevant facts and circumstances. The principal proceedings were commenced by statement of claim filed on 20 December 2000. An amended statement of claim was filed on 12 March 2001 and a further amended statement of claim on 3 July 2001. On 21 December 2001 a document also entitled “further amended statement of claim” (which should, strictly, have been entitled “second further amended statement of claim”) was filed. This is the operative initiating process, and I will refer to it, as did the Master, as “the FASC”. The FASC purported to plead causes of action by each plaintiff in contract (pursuant to an insurance policy) and in deceit. It will be necessary to say a good deal more about the detail of the pleading in due course. By notice of motion filed on 21 January 2002 the defendant, Export Finance and Insurance Corporation (“EFIC”) sought a variety of orders in relation to the statement of claim. Of present significance, EFIC sought an order that the FASC be struck out “pursuant to [SCR] Part 15 Rule 26 and/or Part 13 Rule 5” and, in the alternative, an order that the FASC be dismissed or permanently stayed pursuant to SCR Part 13 Rule 5. Other orders were also sought, concerning particularisation of the plaintiffs’ claims, security for costs and orders for costs, but these the Master deferred pending determination of the applications to strike out, dismiss or stay the proceedings.

3 An earlier notice of motion seeking orders to similar effect had come before Master Harrison and was dismissed by her on 4 June 2001: Ag-Exports (Australia) Pty Ltd v Export Finance and Insurance Corporation [2001] NSWSC 404. The then operative statement of claim was the amended statement of claim that had been filed on 12 March 2001.

4 By amended notice of motion filed 3 May 2000 the plaintiffs also sought a variety of orders, including an order that the defence filed be struck out or alternatively that the notice of motion filed on behalf of EFIC be struck out. Again, other orders were sought, concerning particularisation of the defence, the filing of affidavits, answers to interrogatories and costs. As with the subsidiary orders sought by EFIC, the Master deferred dealing with any of the orders sought in this notice of motion.

5 Thus it was that on 6 May 2002 Master Harrison had before her applications for the orders I have mentioned, that is, orders pursuant to Part 15 Rule 26 and Part 13 Rule 5.

6 Part 13 Rule 5 is in the following terms:

“13.5. (1) Where in any proceedings it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings:


(a) no reasonable cause of action is disclosed;

(b) the proceedings are frivolous or vexatious; or

(c) the proceedings are an abuse of the process of the Court,
the Court may order that the proceedings be stayed or dismissed generally or in relation to any claim for relief in the proceedings.
(2) The Court may receive evidence on the hearing of an application for an order under subrule (1).”

7 Part 15 Rule 26 is in the following terms:

“15.26. (1) Where a pleading:

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings; or

(c) is otherwise an abuse of the process of the Court,

the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleading be struck out.
cf. R.S.C. (Rev.) 1965, O. 18, r. 19 (1).

(2) The Court may receive evidence on the hearing of an application for an order under subrule (1).”

8 No transcript of the proceedings before the Master was put before me. I was told that no affidavit or oral evidence was relied upon. The only evidence put before the Master consisted of one document tendered on behalf of the plaintiffs (the present appellants) and two documents, being letters, put into evidence on behalf of EFIC (the present respondent). I will come to the content of these documents shortly.

9 In essence, as I understand it, the issues raised before the Master were these:

(i) whether Ag-Exports lacked the necessary standing to bring the proceedings;

(ii) whether Lawn lacked the necessary standing to bring the proceedings;

(iii) whether Ag-Exports’ claim in contract was barred by operation of the Limitation Act 1969;

(iv) whether the claims in deceit were misconceived.

10 Master Harrison held that Ag-Exports was without standing to maintain the proceedings; that except in one minor respect, Lawn was without standing to bring the proceedings; that Ag-Exports’ claim in contract was statute barred; and that Lawn’s action in deceit was unsustainable. Presumably because of her conclusion that Lawn lacked standing to bring the proceedings, she did not rule on whether his claim in contract was statute barred. The Master made an order dismissing the FASC and ordering the plaintiffs to pay EFIC’s costs of the motion.

11 The plaintiffs/appellants contend that the Master erred, in a variety of respects, in reaching her conclusions and making the orders she did.

12 It is necessary now to consider the claims made by the plaintiffs and the manner in which the FASC is pleaded.

the pleadings

13 As it seems to me, the claims sought to be made by the plaintiffs may be encapsulated as follows: in 1991 Ag-Exports, of which Lawn was Managing Director and principal shareholder, was an exporter of goods to overseas countries and held a policy of insurance issued by EFIC. A relevant risk against which it was covered by the policy was failure of its customers to pay for goods supplied. A condition of the policy was that Ag-Exports would notify EFIC, by written declaration, within seven days of the despatch of goods overseas. Another condition of the policy was that, in the event that Ag-Exports failed to pay premiums, and after giving notice to Ag-Exports, EFIC was entitled to suspend the policy. In May and June 1991 Ag-Exports fell into arrears with payments of premiums and EFIC took action to suspend the policy. It did not, as it was required to, give notice to Ag-Exports of its intention to do so.

14 On 23 September 1991 Ag-Exports paid the outstanding premiums and the policy was reinstated. Between 14 June 1991 (when EFIC took action to suspend the policy) and 23 September 1991 (when the policy was reinstated) Ag-Exports made numerous declarations to EFIC of the despatch of goods overseas. It did so in ignorance of the purported suspension of the policy.

15 A Singapore customer (in respect of whom Ag-Exports had made declarations to EFIC) defaulted in payment to Ag-Exports. The amount it owed was $565,535.00. Ag-Exports notified EFIC of the default on 27 November 1991 and on 28 January 1992 made a claim on the policy. EFIC paid to Ag-Exports the sum of $41,431.35 but refused to pay the balance of the claim. It represented to Ag-Exports that it had not received all of the declarations for shipments. The refusal to pay the balance of the amounts claimed constitutes the breach of contract alleged. It may here be observed that, although Lawn was not a party to the contract constituted by the policy, he nevertheless purports to sue upon the alleged breach.

16 It may be that the plaintiffs contend that, by the representation that it had not received the declarations, EFIC intended to assert that Ag-Exports had not forwarded them, and was therefore in breach of the condition of the policy requiring that it notify EFIC of shipments, and that EFIC was therefore not liable under the policy. The plaintiffs claim that the representation was “false and untrue” and that its falsity was known to EFIC, or alternatively that it was made recklessly. The plaintiffs also claim that the representation was made with the intention that Ag-Exports would not pursue its claims under the policy and that Ag-Exports, by its servants or agents, was induced not to proceed to recover moneys payable under the policy. It appears to be the fact that, until the commencement of these proceedings, both plaintiffs accepted the refusal of EFIC to pay the claims, and did not take action to recover any money payable. It seems that the allegedly false statement that EFIC had not received the declarations (which appears to be translated by the plaintiffs into a statement that Ag-Exports had not provided them) is the “fraudulent misrepresentation” giving rise to the claim in deceit.

17 Lawn claims that, as a result of Ag-Exports’ loss, a receiver was appointed and Ag-Exports was unable to carry on business, and Lawn was obliged to honour a guarantee he had given in relation to money payable by Ag-Exports to the Hong Kong Bank (“HKB”). He appears also to claim that that this led to his bankruptcy. Ag-Exports and Lawn accordingly claim damages, and aggravated and exemplary damages.

18 Ag-Exports claims damages representing the amount alleged to be owing under the unpaid claims on the policy, loss of income, and loss of good will. Neither of the last two claims has been particularised or quantified.

19 Lawn claims, by way of damages, loss of income, loss of value of shares in Ag-Exports, loss of assets in bankruptcy proceedings, and for “humiliation, embarrassment, anxiety and worry.”

20 Doing the best I can to construe the FASC, the causes of action sought to be pleaded are:

(i) a claim by Ag-Exports said to be for breach of contact, arising from the alleged refusal or failure to pay on the claim under the insurance policy;

(ii) a claim by Ag-Exports for fraudulent misrepresentation, or deceit, said to arise out of EFIC’s misrepresentation that it had not received (and, by implication, Ag-Exports had not forwarded) the declarations necessary under the terms of the insurance policy;

(iii) a claim by Lawn in contract, presumably also arising out of the insurance policy, although how it is said that he has rights under a contract to which he was not a party does not appear;

(iv) a claim by Lawn for fraudulent misrepresentation or deceit, again arising out of the misrepresentation concerning the non-existence or non-receipt of the declarations, although, again, how he is said to acquire a cause of action out of a misrepresentation alleged to have been made to Ag-Exports is not specified.

21 I have not, to this point, mentioned the allegation contained in paragraph 5 of the FASC. That paragraph is in the following terms:

“The said Policy was assigned to the Hong Kong Bank of Australia Ltd (“HKB”) which advanced to the first plaintiff ninety five per cent (95%) of the value of goods exported as each shipment was made.”

22 By paragraph 6 it is alleged that Lawn guaranteed Ag-Exports’ indebtedness to the HKB. It was this guarantee that Lawn alleges was called in following the failure of Ag-Exports and resulted in his being declared bankrupt.

23 I propose now to extract from the FASC certain material paragraphs, the terminology used being of significance in the issues as they emerged before the Master and on the appeal:

“18. The Defendant refused to pay the balance of the claim and falsely represented to the Plaintiffs that it did not receive all the declarations for shipments dispatched to Yoshikawa.”

[The word “falsely” is underlined to demonstrate that it was inserted into the FASC by amendment to the preceding pleading; “Yoshikawa” is the abbreviated name of the Singapore company alleged to have defaulted its debt to Ag-Exports.]

“22. By means of the representation the First Plaintiff by its servants and agents was induced not to recover the money due .”
“25. The Defendant in breach of contract refused to pay the First Plaintiff the money due to it .”
“27. The HKB called up the guarantee given by the Second Plaintiff, and the said Plaintiff was unable to pay the Bank and was declared bankrupt.”

[Again, the underlining indicates that the words underlined were inserted by the amendment made by the filing of the FASC; particulars of the allegation, which it is unnecessary here to extract, follow.]

24 Pursuant to SCR Part 15 Rule 23, the statements of fact in the FASC were verified by both plaintiffs.

25 A defence to the FASC was filed on 25 January 2002. EFIC specifically pleaded to many, if not all, of the allegations in the FASC in terms that need not here be mentioned. In respect of paragraph 5 EFIC expressly did not admit the allegation that the policy had been assigned but pleaded that, by reason of what was alleged therein, Ag-Exports had no cause of action. By this means EFIC raised the issue of Ag-Exports’ standing to bring the claims. In paragraph 24 it pleaded that, by reason of Lawn’s bankruptcy, he had no cause of action. By this pleading EFIC raised the issue of Lawn’s standing to bring the claims. In paragraph 29 EFIC invoked ss14 and 63 of the Limitation Act 1969, and pleaded that, by reason of those sections and the expiration of time, all causes of action pleaded in the FASC had been extinguished.

26 On 7 February 2002 a Reply was filed on behalf of both plaintiffs. Paragraph 1 of the Reply is in the following terms:

“As to paragraph 5 of the defence the assignment of the policy conferred rights upon the Hong Kong Bank, which were for the benefit of the first plaintiff, and were as an alternative to the first plaintiff and not in substitution for the first plaintiff.”

It seems that what the plaintiffs seek to do by this pleading is call into question that which they had asserted in paragraph 5 of the FASC.

27 In relation to EFIC’s plea that the claims were statute barred, the plaintiffs raised s55 of the Limitation Act, and particularised the claim as follows:

“(a) The deceit pleaded in the Statement of Claim was not discovered by the plaintiffs until the year 2000.
(b) The defendant concealed from the plaintiffs that they had received the relevant declarations and such concealment was not discovered by the plaintiffs until the year 2000, alternatively
(c) When the defendant claimed it had not received the declarations it did [not] know whether or not the declarations were received.”

(In particular (c) the word “not”, where I have inserted it in parentheses, does not appear. I have made the insertion because, it seems to me, that properly reflects the intention of the pleader, and its omission represents a transcription error.)

28 S55(1) of the Limitation Act is relevantly in the following terms:

“Subject to subsection (3) where:
(a) there is a cause of action based on fraud or deceit, or
(b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed,
the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment.”

the proceedings before the Master

29 At the commencement of the judgment the Master noted that all applications except “the defendant’s strike out application pursuant to Part 15 R 26” had been deferred pending her decision. There is no way of knowing whether or not this had been discussed with the parties, or how it came about.

(i) Ag-Exports’ standing to bring the proceedings

30 I turn now to comment on one unusual feature of the proceedings before the Master. This concerned paragraph 5 of the FASC, and EFIC’s first argument, that Ag-Exports lacked standing to bring the proceedings. Paragraph 5 of the FASC is the allegation that the insurance policy had been assigned to the HKB. On that basis EFIC argued that Ag-Exports had no standing to bring proceedings on the policy (the cause of action that was referred to as a cause of action in contract). Senior counsel who appeared before the Master for the plaintiffs apparently recognised the difficulty that that paragraph created. He sought to resile from the assertion so made. However, instead of seeking leave to amend the FASC by deleting the paragraph or varying its terminology, he sought to call its accuracy in question by the tender of a document which became exhibit 1. That was a document addressed to EFIC, dated 22 September 1989, and which was relevantly in the following terms:

“As an alternative to claims which may be submitted by us

WE HEREBY AUTHORISE YOU:-
To receive claims and proof of loss under the abovementioned Policy … from the HONGKONGBANK OF AUSTRALIA LTD … and to pay direct to the Bank all moneys which may be payable under claims submitted by us or by the Bank and to accept the Bank’s receipt in full discharge thereof.”

The document bore Ag-Exports’ name as exporter, and was signed by Lawn, identifying himself as “Director”.

31 Senior counsel for the plaintiffs submitted that this document demonstrated that paragraph 5 of the statement of claim erroneously pleaded assignment of the insurance policy when, in truth, all that Ag-Exports had done was to authorise EFIC to pay claims directly to HKB. This led to the tender, on behalf of EFIC, of the two letters which constituted exhibit A. The first of these was dated 2 March 1990 and is on the letterhead of the State Bank (of NSW) and addressed to the Manager of HKB. At the head of the letter an insurance policy was identified by number and I assume that this is the number of the policy held in the name of Ag-Exports. The substance of the letter is:

“The State Bank of New South Wales hereby assignes (sic) transfers and sets over all its right, title and interest in and to the Policy as owner, excepting F.B.N.’s as per attached schedule.”

(The term “F.B.N.” has never been explained.)

32 The second letter, also written on State Bank letterhead, is dated 26 March 1990 and is relevantly in the following terms:

“We advise that the State Bank of New South Wales has reassigned its primary interest in the Policy to the Hong Kong Bank following transfer of the client’s banking associations. The State Bank of New South Wales has several outstanding F.B.N.s associated prior to the reassignment which it would appreciate your noting as still covered under the Policy.”

33 There was no direct evidence that the State Bank of NSW had any right to assign Ag-Exports’ policy or had any interest in that policy. Senior counsel for EFIC argued that, from the first of these letters, an inference should be drawn that a valid assignment of the policy had previously been made to the State Bank prior to the subsequent assignment or purported assignment by the State Bank to HKB.

34 Having considered this material, Master Harrison concluded:

“14 It is my view that the first plaintiff correctly pleaded that it had assigned the comprehensive shipments policy. In 1990 the primary interest in the policy had been assigned to the State Bank by the company. In turn the State Bank reassigned its primary interest in the policy to the Hong Kong Bank. That being so, the first plaintiff has no rights under the policy and cannot maintain these proceedings. The first plaintiff’s claim for breach of contract and deceit are hopeless and should be dismissed.”

(ii) Lawn’s standing to bring the proceedings

35 The point taken before the Master in relation to Lawn’s standing to bring proceedings was quite different. Lawn asserted, and indeed put forward, as part of his case on damages, that he had been declared bankrupt. By s58 of the Bankruptcy Act 1966 the property of a bankrupt vests in the Official Trustee or registered trustee. By reason of the definition of “property”, contained in the Bankruptcy Act, a cause of action on which a bankrupt plaintiff sues becomes, upon the making of a sequestration order against him, vested in the Official Receiver and remains so vested notwithstanding the bankrupt’s subsequent discharge from bankruptcy. Accordingly, only the Official Receiver may proceed upon such a cause of action: see Piwinski v Corporate Trustees of the Diocese of Armidale [1977] 1 NSWLR 266, per Waddell J.

36 Master Harrison concluded that Lawn lacked standing to bring the claims for loss of income, loss of value of shares and loss of assets. Pursuit of those claims lay solely within the province of the Official Trustee. The Master dismissed those claims. She considered that what she described as “the personal injury claims”, that is, Lawn’s claim for damages for humiliation, embarrassment, anxiety and worry, arguably did not fall within the Bankruptcy Act definition of “property” and that it remained open to him to pursue claims of that kind.

(iii) Ag-Exports’ claim in contract

37 It is not easy to discern, from the FASC, the way in which Ag-Exports pleads its case in breach of contract. Again, doing the best I can to construe the FASC, I conclude that the averments contained in paragraphs 7 to 18 and 25 are intended to plead that claim. These include a variety of assertions concerning the terms and conditions of the policy and the dealings between the parties, concluding with paragraph 18 which has been extracted above.

38 Drawing on the facts stated in her prior judgment, Master Harrison held that the cause of action in contract arose in 1992 and became statute barred on 28 February 1998.

39 In paragraph 23 of the judgment Master Harrison wrote:

“In my prior judgment I stated that if the proposition that the plaintiffs knew they had a cause of action in contract in 1992 is correct, then the action is statute barred. The proceedings were commenced on 21 December 2000. The limitation period is six years with no extension for breach of contract. The statement of claim should have been filed on 28 February 1998. It was filed over two years out of time. To suspend the running of the limitation period, the plaintiff has to put forward an arguable case that the cause of action had been fraudulently concealed. I should add here that although my judgment refers to fraudulent concealment being a cause of action this is not the case. Fraudulent concealment is not a cause of action but merely a reason for postponing the running of time under the limitation period. The plaintiffs’ proposition is that time stopped running in 1992 and started running in 2000. This means that the statement of claim would not have been filed out of time.”

40 In paragraph 25 the Master wrote:

“… as the amended statement of claim specifically pleads that a breach of contract occurred when the defendant refused to pay the money due to the first plaintiff, I have to accept this pleading as being correct. This means that the claim for breach of contract is statute barred. The claim for breach of contract is hopeless and should be dismissed.”

The first part of this paragraph is a reference to paragraph 25 of the FASC, of which the Master had earlier written (para 24 of her judgment):

“Critically it is now pleaded that the defendant in breach of contract refused to pay the first plaintiff the money due to it. [para 25]”

(iv) Lawn’s action in deceit

41 Because of her earlier conclusion that Ag-Exports had assigned its rights under the policy, the Master did not give separate attention to its claim in deceit or the challenges made to the pleading in that respect by EFIC. She held that Lawn could only maintain a claim for deceit in relation to damages for “personal injury”.

42 Paragraph 18 of the statement of claim, besides apparently being part of the pleading of a breach of contract, appears also to be the commencement of the plea of deceit. This plea culminates at paragraph 22.

43 The Master set out the elements of a common law action of deceit in terms drawn from Bullen & Leake & Jacobs’ Precedents of Pleadings, 13th edition, and which are not subject to challenge. She referred to the decision of the High Court in Gould v Vaggelas (1985) 157 CLR 215 at 265, including the passage in which Dawson J observed that damage is “the gist of the action”.

44 The Master then wrote:

“30. The representation made is pleaded. The defendant’s knowledge that the representation was false is also pleaded. Even if it was pleaded that the damage suffered was the personal injuries particularised in paragraph 29(d) FASC, it is difficult to see how the second plaintiff can recover damages because the first plaintiff did not take action for breach of contract. It was the company that acted to its detriment, not the second plaintiff. In any event the object of awarding damages would be to put the company in the position it would have been had the tort not been committed.”

45 She held that Lawn’s action in deceit was unsustainable. The Master made an order dismissing the FASC, and ordered the plaintiffs to pay EFIC’s costs of the motion.

the appeal

46 The notice of appeal as originally filed contained nine grounds, set out as follows:

“1. The Master had no jurisdiction to hear and determine the motion.

2. The Master erred in not restricting her decision to the pleadings in the Statement of Claim.

3. The Master erred in holding that all rights pursuant to the policy of insurance had been assigned to the State Bank of New South Wales.
4. The Master erred in holding that the State Bank of New South Wales effectively re-assigned the policy of insurance to Hong Kong Bank.
5. The Master erred in failing to hold that the cause of action was concealed from the Appellants.
6. The Master erred in holding that the causes of action were statute barred.
7. Alternatively, the Master erred in not finding that the First and Second Appellants were in a class of person who would suffer damage as a result of the fraudulent representation of the Respondent.
8. The Master erred in not holding that the Second Appellant’s conduct was effected (sic) by the fraudulent representation of the Respondent.
9. The Master erred in holding that the Appellants’ claims were hopeless.”

47 At the hearing of the appeal the appellants abandoned ground 1 but sought to add two additional grounds. There being no argument presented in opposition to the grant of leave, I permitted the amendment to be made. Grounds 10 and 11 are in the following terms:

“10. The Master erred in deciding that she would only determine the Respondent’s application to strike out the Appellants’ further Statement of Claim and then proceeded to dismiss the Statement of Claim.
11 The Master erred in dismissing the further amended Statement of Claim in circumstances where the said document alleged fraud requiring that the issues raised be determined by a jury pursuant to s.88 of the Supreme Court Act. ”

the nature of an appeal from a Master

48 The right of appeal from the decision of a Master is conferred by SCR Part 60, Rule 10. That rule appears in Division 3 of Part 60, which Division contains additional provisions, not presently relevant. S75A of the Supreme Court Act is also relevant. So far as material that section provides:

“(5) Where the decision … under appeal has been given after a hearing, the appeal shall be by way of rehearing.
(6) The Court shall have the powers and duties of the court … from whom the appeal is brought …
(7) The Court may receive further evidence.
(8) Notwithstanding subsection (7), where the appeal is from a judgement after a trial or hearing on the merits, the Court shall not receive further evidence except on special grounds …
…
(10) The Court may make any finding or assessment, give any judgment, make any order to give any direction which ought to have been given or made or which the nature of the case requires.”

grounds 2, 3 and 4

49 Grounds 2, 3 and 4 are directed to the Master’s conclusion that Ag-Exports lacked standing to bring the proceeding, this being the consequence of assignment of its rights under the insurance policy to HKB. In written submissions (not prepared by counsel who appeared on the appeal) an attack was made upon the Master’s use of the documentary evidence to support her decision. This is, in my view, a quite unfair criticism of the Master. What she had before her was an initiating process, filed on behalf of the plaintiffs and verified (so far as it represented an allegation of fact and not of law) by both of them, asserting that Ag-Exports had assigned its rights under the policy to HKB. No application to amend that paragraph was made. The assertion itself in the pleading would have been sufficient for her to uphold EFIC’s contention that Ag-Exports had no right to sue on the policy.

50 However, by reason of the attempt on behalf of the plaintiffs to go behind, and indeed, contradict, the express pleading, the Master was induced to accept additional evidence. Here I think she was in error, but it was error into which she was led. Moreover, it was error which did not affect the result. The substance of the Master’s conclusion that Ag-Exports lacked standing to bring the proceedings was the factual finding that the policy had been assigned. It was quite unnecessary for the Master to determine that fact by reference to tendered evidence; it was baldly stated as a fact in the FASC. Not only was it open to the Master to find as she did, I can see no other conclusion she could properly have reached. The only error, as I have said, was in allowing the plaintiffs to seek to contradict their own pleading, and to delve into the correspondence that disputed the pleading.

51 That error does not affect the conclusion to which the Master came. Contrary to the argument advanced on behalf of the plaintiffs, it was unnecessary for her to rule upon the factual correctness of the pleading that the policy had been assigned. The pleading itself was sufficient. This alone meant that EFIC’s argument that Ag-Exports lacked standing to bring the proceedings in contract had to be upheld. Equally, Ag-Exports’ claim in deceit faced certain defeat. The deceit it alleged against EFIC was behaving in such a way as to deflect Ag-Exports from suing on the policy. But while it remained Ag-Exports’ stated position that it had assigned its rights under the policy, an action in deceit so framed could not have succeeded. Strictly speaking, it may well be the case that the plea that the policy had been assigned did not deprive Ag-Exports of standing to bring the proceedings in deceit; it merely doomed those proceedings to fail. That is because the damages the plaintiffs claim resulted from the deceit was the loss of whatever rights they had under the policy. If they (or either of them) had assigned their (or its or his) rights under the policy, then no damage could be suffered by the deceit.

52 Ground 2 is particularly difficult to follow. Apart from the fact that it raises criticism of the Master for proceeding on the path down which she was led by senior counsel then appearing for the plaintiffs, it asserts that the Master should have acted only on the pleading as it stood. Had she done so, she would have been obliged to hold (as she did, for other reasons) that Ag-Exports had no standing to bring the claims in contract. As it happens I consider that ground 2 states a correct proposition. That affords the appellants no comfort. Grounds 3 and 4 are rejected.

53 It will be necessary to turn to Ag-Exports’ claim in deceit at a later point in these reasons. For the moment it is necessary only to note that the Master’s decision that Ag-Exports’ claim in breach of contract was untenable and should be dismissed was correct.

54 At the hearing of the appeal senior counsel for the appellants sought leave to adduce additional evidence. This took the form of affidavits sworn by John Reginald McEncroe, solicitor for the appellants, Lawn, Daryl Lindsay Johnson and Colin Smith. After hearing argument I rejected the evidence. I did so because it seemed to me that it could in no way bear upon the issues to which it was purportedly directed. The sole matter to which the evidence was directed was the question of assignment of the policy. As was the case with the evidence put before the Master, this evidence was tendered for the purpose of undermining the allegation in the FASC of assignment. It is inappropriate to seek to amend a pleading in this way. For that reason I refused to admit the evidence.

ground 5

55 By ground 5 the plaintiffs complain that the Master erred in failing to hold that “the cause of action” was concealed from the appellants. The ground is misconceived. In the written submissions in support of this ground reference was made to paragraphs 21 to 25 inclusive of the Master’s judgment. Those paragraphs are concerned with whether or not Ag-Exports’ claim in contract was statute barred. In paragraph 25 Master Harrison concluded that it was.

56 In the written submissions reference was also made to the assertion by EFIC, said to have been made in 1992, that it had not received the declarations necessary to found a claim on the policy by Ag-Exports. It was asserted that EFIC had concealed from the plaintiffs that they had received the declarations. This is the allegedly false representation upon which the claim in deceit is founded. It is also pleaded in the Reply, as the foundation for invoking s55 of the Limitation Act, thereby deferring the expiration of the limitation period.

57 The language in which ground 5 is framed is the language of s55 of the Limitation Act. The ground is not, in its terms, directed to the cause of action in deceit, but to the matters pleaded in the Reply.

58 The reason that ground 5 is misconceived is that it is based upon a false premise, that is, that it was open to the Master to make a positive finding of fact as to concealment by EFIC. Given that no evidence was placed before the Master, no such finding of fact was open.

59 Concealment of a cause of action, once pleaded as postponing the statutory bar, involves issues of fact. It may be, in some cases, appropriate that those facts be determined as a preliminary issue, or under one or other of the rules invoked by EFIC. It was not appropriate in the present case. In any event, it was not done. There was no attempt to have a factual issue determined.

60 Ground 5 is rejected.

ground 6

61 By ground 6 the plaintiffs complain that the Master erred in holding that “the causes of action” were statute barred. This misstates what the Master found. She found that Ag-Exports’ claim in contract was statute barred. Whether she was asked to do so or not does not appear, but she did not rule upon the limitation status of any of the other causes of action. In dealing with the argument at first instance the Master referred to authorities establishing when a breach of contract occurs, and to the date specified in the FASC as the material dates of the alleged breach of contract.

62 Although the Master referred to the matters raised by the plaintiffs in the Reply, and to their argument that s55 of the Limitation Act had the effect of suspending the running of the limitation period, she nevertheless, by reference to the dates of the alleged breaches, held that Ag-Exports’ claim in contract was statute barred.

63 Such a conclusion was open only if the suspension of the limitation period was not properly pleaded in relation to that cause of action or if, on proper evidence being adduced, the Master concluded, as a factual matter, that the allegation of fraudulent concealment was untenable. No such evidence was adduced. It was not open to the Master to conclude, as a matter of fact, that s55 did not operate to postpone the statutory bar.

64 The Reply is no easier to construe than the FASC. In the particulars subscribed, it is stated that “the deceit” pleaded in the FASC was not discovered by the plaintiffs until the year 2000, that EFIC concealed from them the fact that they had received the declarations, or alternatively, that when EFIC claimed it had [not] received the declarations, it did not know whether that was so or not.

65 Just what is intended to be referred to by “the deceit” mentioned in particular (a) is not clear.

66 It is necessary to analyse s55 with some care. The section has a number of component parts. It provides, firstly, that where there is a cause of action based on fraud or deceit the reckoning of time for the purposes of the limitation period provided by the Limitation Act does not include the time from the commencement of the limitation period to the date upon which a person having the cause of action first discovers, or may with reasonable diligence discover, the fraud or deceit. However, that can, for present purposes, be put to one side. What is here under consideration is not the cause of action based on fraud or deceit but the cause of action based upon contract. That is because the Master did not hold that the claim in deceit was statute barred.

67 Relevantly to the cause of action in contract, s55 provides that where a cause of action is fraudulently concealed, the reckoning of time for the purposes of the limitation period does not include the time from the commencement of the limitation period to the date on which the person having the cause of action discovers, or may with reasonable diligence discover, the concealment. Obviously, questions of fact are raised by such a plea. These facts are not usually, and certainly were not in this case, suitable for resolution on an application of the kind that was before the Master.

68 Senior counsel for EFIC argued that the plea that the statutory bar was postponed by operation of s55 had no prospect of succeeding, and that, therefore, the Master’s decision on the limitation issue in relation to Ag-Exports’ claim in contract was correct. Again, it is necessary to approach the issues that arise with some care. What the plaintiffs appear to allege is that, by reason of EFIC’s (false) representation that it had not received the declarations, EFIC concealed from the plaintiffs the existence of their causes of action in contract.

69 Just what the legislature intended by its reference in s55 to the fraudulent concealment of a cause of action is not spelled out in the statute. I accept that a distinction is to be drawn between concealment of a cause of action and concealment of a fact which might provide evidence to support a cause of action. I do not accept that the two are necessarily mutually exclusive: indeed, it seems to me, concealment of a cause of action would almost invariably, if not invariably, entail concealment of facts that would provide evidence to support the cause of action. The converse is, of course, not necessarily the case. Concealment of an evidentiary fact is not necessarily concealment of a cause of action.

70 In United Kingdom authorities (construing comparable, but far from identical, legislation) an approach has been taken that starts with the proposition that a cause of action arises out of “a basic set of essential facts” and that a cause of action could be concealed by concealing one or more of those basic facts. That is to be contrasted with concealing the evidence establishing the causes of action: see C v Mirror Group Newspapers [1997] 1 WLR 131; Frisby v Theodore Goddard & Co, The Times, 7 March 1984; and Applegate v Moss [1971] 1 QB 406. In a case closer to home (Skrijel v Mengler & Ors [1998] VSC 71, unreported, Supreme Court of Victoria) Eames J noted that the United Kingdom legislation provided for postponement of the statutory bar “where any fact relevant to the plaintiff’s right of action” was concealed, a provision which Eames J describes as “more favourable” to a plaintiff than the Victorian section his Honour had under consideration (s27 of the Limitation of Actions Act 1958, which is set out in paragraph 17 of the judgment and bears greater similarities to s55 than does the United Kingdom section). Nevertheless, I do not think that the difference between the United Kingdom and NSW legislation diminishes the applicability of the approach taken in the United Kingdom to the approach that should be taken to the local section. If a basic fact essential to the cause of action has been fraudulently concealed, then, in my opinion, s55 operates to postpone the running of the limitation period. That is not the same as saying that concealment of an essential evidentiary fact so operates, although, for the moment, I am not sure that there exists any practical distinction.

71 The cause of action here relevant is Ag-Exports’ claim in contract. Basic facts essential to such a cause of action are:

(i) the existence of a contract;

(ii) breach of a term of that contract.

72 But those are generic facts. It is necessary to consider them in the context of the circumstances of this case. The term of the contract the plaintiffs allege has been breached is the term that, upon a valid claim being made by Ag-Exports on the policy, EFIC would make payment to compensate for Ag-Exports’ losses. For present purposes I assume that a claim would not be valid unless Ag-Exports had complied with its own obligations under the contract, including the obligation to provide written declarations of shipments. If Ag-Exports had not provided the declarations, EFIC would have been entitled to deny the claims. Action on the claims would have been defeated.

73 It was therefore an essential basic fact to its claim in contract that Ag-Exports had provided the declarations. If indeed EFIC fraudulently represented that the declarations had not been provided by Ag-Exports, that is capable, in my view, of amounting to fraudulent concealment of a fact essential to the cause of action and therefore fraudulent concealment of the existence of a cause of action.

74 In this regard the nature of the present exercise is to be borne in mind. The exercise is relevant to the pleading only. It is to be assumed that the facts asserted by the party whose pleading is under challenge are true and can be proved. This is not an assessment of the prospects of success in establishing the facts and matters asserted in a pleading.

75 Master Harrison was deflected from considering whether, if the facts pleaded in the Reply were provable, Ag-Exports might succeed in its claim that s55 had the effect of postponing the running of the limitation period. The Master seems to have taken the view that paragraph 25 of the FASC specified a date on which EFIC refused to pay Ag-Exports the money due to it. There is no express reference to a date in that paragraph, and nothing that could reasonably imply that Ag-Exports was asserting any date on which the breach of contract occurred. But even if it did, assuming the plea under s55 could be made out, specification of that date did not have the effect of rendering Ag-Exports’ claims out of time. The whole point of the s55 pleading was to delay the expiration of the limitation period.

76 Ground 6 is upheld to a limited extent. It is upheld to the extent that the Master erred in failing to consider the sufficiency of the s55 pleading, and in holding that Ag-Exports’ claim against EFIC in contract was statute barred.

grounds 7, 8 and 9

77 It is not easy to follow the argument advanced in support of these grounds. In the written submissions the only point made was that the plaintiffs are in a class of persons who, the maker of the false representation intended, would act upon the false representations, in a manner which would result in damage to it or him. The point of this submission is lost on me.

78 Like ground 5, grounds 7 and 8 are misconceived. They assume that a function of the Master in determining the issues raised by the notice of motion included findings of fact properly the province of the tribunal of fact in the ultimate proceedings – and this in the absence of any relevant evidence.

79 While both Part 13 Rule 5 and Part 15 Rule 26 contemplate that, in a proper case, evidence may be adduced and factual matters determined, no evidence other than that to which I have referred was led before the Master. There was no evidence on which she could have made the findings of fact envisaged in grounds 7 and 8. What was before the Master was limited to pleading issues. These grounds are rejected.

80 No separate argument was addressed to ground 9. It appears, in any event, to be a general statement of the particular matters of complaint identified in the preceding grounds.

ground 10

81 This ground is derived from two aspects of the judgment. In the introductory paragraph of the judgment, when she set out the various proceedings that were before her, the Master wrote:

“All but the defendant’s strike-out application pursuant to Part 15 Rule 26 have been stood over pending this decision.”

The rule referred to permits, in a proper case, a pleading to be struck out. It does not permit a cause of action to be dismissed.

82 However, in paragraph 14 (dealing with Ag-Exports’ claims), paragraph 20 (dealing with Lawn’s claims in deceit), paragraph 25 (dealing with Ag-Exports’ claim in contract on the limitation point), and paragraph 31 (dealing with Lawn’s claim in deceit) and in the orders she finally made, the Master consistently used the word “dismissed”. This is the language of Part 13 Rule 5 and not the language of Part 15 Rule 26.

83 It is frequently the case, when a defendant seeks to bring a plaintiff’s case to an untimely end, that both these rules are invoked. It is a mistake, however, to perceive them as coextensive. Generally speaking, Part 13 Rule 5 is applicable to proceedings brought by a plaintiff or claimant, including a cross-claimant. The language of the rule is generally inapt for application to a case made by a defendant. Part 13 Rule 5 is concerned with “proceedings” and with claims for relief in proceedings.

Part 15 Rule 26 is concerned, not with proceedings or claims for relief, but with pleadings. It has equal application to pleadings filed on behalf of a plaintiff and of a defendant.

84 This is not the only difference of significance. Both rules permit relief to be given where no reasonable cause of action (or, in the case of Part 15 Rule 26, defence) is disclosed and where the proceeding (in the case of Part 13 Rule 5) or the pleading (in the case of Part 15 Rule 26) in question is an abuse of the process of the court. Part 13 Rule 5 permits relief to be given where the proceedings are frivolous or vexatious; Part 15 Rule 26 permits relief to be given where the pleading in question has a tendency to cause prejudice, embarrassment or delay in the proceedings. However, the relief which may be granted pursuant to the two rules is very different. Pursuant to Part 15 Rule 26 the relief available is the striking out of the challenged pleading. This does not necessarily bring the proceedings to an end. Pursuant to Part 13 Rule 5 the proceedings may be stayed or dismissed generally or in relation to any claim for relief in the proceedings. Dismissal does bring an end to the proceedings as, in a practical sense, does a stay.

85 In my opinion, in determining in favour of an applicant an application under either rule, it is desirable, if not necessary, to identify which of the three bases specified in the rule is found to warrant the relief. That is, it is necessary, under Part 13 Rule 5, to identify whether it is found that no reasonable cause of action is disclosed, that the proceedings are frivolous or vexatious, or that the proceedings are an abuse of the process of the court. In dealing with an application under Part 15 Rule 26 it is equally necessary to state whether it has been found that the pleading discloses no reasonable cause of action or defence, has a tendency to cause prejudice, embarrassment or delay, or is otherwise an abuse of the process of the court. It is then necessary when using the powers conferred by Part 13 Rule 5 to state with precision which of the forms of relief envisaged by the rule is to be granted – that is, are the proceedings to be stayed or dismissed generally or as to any claim made for relief.

86 Here, the Master declared each cause of action to be “hopeless”. I think it may properly be inferred that what the Master found in relation to each claim was that no reasonable cause of action was disclosed. There remains the problem that, having stated that she was dealing only with an application for striking out a pleading under Part 15 Rule 26, she proceeded to make an order which, on its language, must have been made under Part 13 Rule 5.

87 There is substance in the complaint made by plaintiffs in this respect.

88 Pursuant to s75A(6) and (10) of the Supreme Court Act 1970 this court on appeal has the powers and duties of the Master and may make any finding or assessment, give any judgment, or make any order which ought to have been given or made or which the nature of the case requires.

89 In other words, I am in a position to make the assessments and judgments pursuant to the two rules which the Master ought to have made. I will defer taking that course until I have dealt with the final ground of appeal.

ground 11

90 By SCR Part 13 Rule 1, Part 13 applies to all proceedings except those within the application of s88 of the Supreme Court Act. S88 requires proceedings on a common law claim in which there are issues of fact (relevantly) on a charge of fraud against a party to be tried with a jury. (S88 was repealed by the Courts Legislation Amendment (Civil Juries) Act 2001 but by clause 19 of Part 12 of Schedule 4 of the Supreme Court Act the section continues to apply in relation to proceedings commenced but not finally determined before the commencement of the amendment as if the section had not been amended.)

91 For as long as the FASC contains an allegation of fraud, however made, and indeed, for as long as such an allegation remains in the proceedings, (see Associated Securities Finance Ltd v Harrow Properties Pty Ltd, unreported, NSWSC per Lee J, 26 May 1977; Ritchie: Supreme Court Procedure (NSW) para 13.003) Part 13 Rule 5 is excluded at least as far as the fraud issue is concerned. So far as the order was made under that rule (and so it must be interpreted) it was beyond power. This was erroneous.

92 If the fraud claims had been struck out pursuant to Part 15 Rule 26, there would have been nothing to prevent the application of the Part 13 Rule 5 procedure to the remaining causes of action. But this did not happen, and the dismissal under Part 13 Rule 5 of the deceit claim cannot stand.

93 There is one further matter that must be dealt with. That concerns Lawn’s standing to bring the proceedings. As I have indicated, Master Harrison accepted that, by reason of his bankruptcy, he was without standing.

94 No pleaded ground of appeal raised this issue and it was not suggested that the Master’s decision in this respect was incorrect at the time it was made. On the appeal, and without stated opposition on the part of EFIC, affidavit evidence was adduced that Lawn’s bankruptcy had been annulled on 27 February 2003. Senior counsel for EFIC accepted that the annulment had the consequence that Lawn was not deprived of standing to bring the proceedings, and that this operated retrospectively. By reason of that evidence the finding that Lawn was without standing to bring the proceedings must be set aside.

95 I have concluded that there were errors in the approach taken by the Master. Senor counsel for EFIC argued that I should, even if for different reasons, reach the same conclusions and make the same orders as the Master. It is necessary to deal with each of the matters raised before, and decided by Master Harrison.

96 For reasons I have given, while ever paragraph 5 remains as part of the plaintiff’s pleading, the pleading discloses no reasonable cause of action on the part of Ag-Exports, either in contract or in deceit. This is so whether the question is considered under Part 13 Rule 5 or Part 15 Rule 26. So far as the deceit claim is concerned, Part 13 Rule 2 precludes the application of Part 13 Rule 5. The appropriate order in relation to the contract claim is to dismiss Ag-Exports’ claim so far as it is pleaded in contract (pursuant to Part 13 Rule 5) and (pursuant to Part 15 Rule 26) to strike out those parts of the FASC that purport to plead a case in deceit.

97 At the time the Master made her decision Lawn was without standing to bring proceedings. That is no longer the situation and the determination of the Master should be set aside in that respect.

98 On the dates found by the Master, the claim by Ag-Exports in contract was prima facie statute barred. However, the pleading in the Reply invoking s55 of the Limitation Act raises issues of fact not appropriate to be determined either under Part 13 Rule 5 or Part 15 Rule 26. Ag-Exports’ claim in contract should not be dismissed as statute barred until the factual issues raised by the Reply have been determined. Given the finding of absence of standing, this conclusion is somewhat academic.

99 Even if Ag-Exports were able, by amendment, to resile from its assertion that the policy was assigned, its pleading in deceit is defective. It is so defective as to be an abuse of the process of the court and has a tendency to cause prejudice, embarrassment and delay. I am not satisfied that it discloses no reasonable cause of action. On behalf of EFIC it was argued that Ag-Exports’ claim in deceit was doomed to fail because, when properly analysed, it disclosed no reasonable cause of action. This was because its claim for damages was quantified in precisely the amount Ag-Exports claimed under the contract. Therefore, it was argued, the necessary causal link between the alleged deceit and the alleged losses could not conceivably be proved. Ag-Exports claimed losses resulting from the alleged breach of contract and not the deceit. I do not accept this argument. As I see it, it may be possible still for Ag-Exports validly to plead in deceit. It simply has not yet formulated its claim in an acceptable fashion. Pursuant to Part 15 Rule 26 paragraphs 18 to 22 of the FASC will be struck out.

100 Lawn’s pleading in deceit is likewise defective, such as to be an abuse of the process of the court, and to have a tendency to cause prejudice, embarrassment or delay in the proceedings. There is, for example, no clear allegation that any representation, false or otherwise, was made to him by or on behalf of EFIC; there is no allegation that he acquired any rights by reason of any representation made to Ag-Exports; there is no clear allegation that as a result of acting upon a false representation, he suffered any damage. Pursuant to Part 15 Rule 26 paragraphs 27 and 28 of the FASC will be struck out.

101 Senior counsel for EFIC also argued that, since the FASC is the plaintiffs’ fourth attempt at pleading their cases, EFIC ought not to be put to the trouble and expense of responding to a fifth attempt. I am sympathetic to their argument, and the plaintiffs ought to be aware that the patience of the court is not infinite. I do not, however, propose to make orders that will permanently shut out the plaintiffs.

102 The orders I make are:

(i) The orders of Master Harrison of 30 May 2002 are set aside.

(ii) Pursuant to part 13 Rule 5, the claim by Ag-Exports in contract is dismissed.

(iii) Pursuant to Part 15 Rule 26, Ag-Exports’ claim in deceit is struck out.

(iv) Pursuant to Part 15 Rule 26, Lawn’s claim in deceit is stuck out.

(v) The plaintiffs are to pay EFIC’s costs of the proceedings before the Master, and on the appeal.

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Last Modified: 04/07/2003