Asia Pacific IntP/L v Peel Valley Mushrooms Ltd & Symons - [1998] QSC 257

IN THE SUPREME COURT
OF QUEENSLAND
Brisbane No.1711 of 1998
Before the Hon. Mr Justice Mackenzie
[Asia Pacific Int.P/L v Peel Valley Mushrooms Ltd & Symons]
BETWEEN:

ASIA PACIFIC INTERNATIONAL PTY LTD
ACN 064 150 072 AS TRUSTEE FOR THE PACIFIC
PROPERTY RESOURCES GROUP
Plaintiff
AND:

PEEL VALLEY MUSHROOMS LIMITED
ACN 073 691 068
First Defendant

AND:
GREGORY BERNARD SYMONS
Second Defendant

JUDGMENT - MACKENZIE J.

Judgment delivered 13 November 1998
CATCHWORDS: PRACTICE - Jurisdiction of Supreme Court generally - counterclaim based on equitable duty or duty of care by plaintiff’s solicitors - failure to register mortgage - failure to caveat - counterclaim for moneys had and received - whether joinder in counterclaim is permissible.
s.244(3),(9) Supreme Court Act1995
O.25 rr 11 and 12 Supreme Court Rules of Queensland
Smith v Buskell (1919) 2 K.B. 362
Times Cold Storage Co v Lowther & Blankley (1911) 2 K.B. 100
Watkins Ltd v Plancorp No 6 Pty Ltd (1983) 2 Qd.R 501
Santos Limited v American Homes Assurance Company (1987) 4 ANZ Ins. Cases 60-795.

Counsel:Mr L Bowden for the plaintiff
Mr S Stanton for the first defendant

Solicitors:Lang Hemming & Hall Solicitors as town agents for Brown & Fowler Solicitors for the plaintiff
Kinneally Mahoney Solicitors as town agents for Aitken McLachlan & Thorpe for the first defendant

Hearing date: 21 October 1998

JUDGMENT - MACKENZIE J.

Judgment delivered 13 November 1998

On 24 September 1998, Helman J made orders including orders striking out the amended defence and counterclaim delivered on 5 June 1998, and granting leave to deliver a further amended defence and counterclaim on or before 8 October 1998. The further amended defence and counterclaim was delivered on 8 October 1998. On 13 October 1998 the summons before me, which seeks an order that the amended defence and counterclaim be struck out to the extent of the counterclaim against David Brown and Norman Fowler trading as Brown & Fowler Solicitors, (“Brown & Fowler”) on the grounds that it is frivolous or vexatious and/or that it discloses no reasonable grounds of claim was filed. Brown & Fowler are the solicitors for the plaintiff. The summons also seeks that a certificate of readiness be dispensed with and that the action be set down for trial, and such further order as the court thinks fit.
The aspect of the counterclaim which the applicant plaintiff seeks to strike out has not been raised in any previous pleadings. In particular it was not contained in the counterclaim struck out by Helman J. In the defence and counterclaim delivered on 8 October 1998, the first 12 paragraphs of the defence are substantially the same as those in the pleading which was struck out. Thereafter what is pleaded is in an amended form. So far as the counterclaim is concerned paras.5 to 12 make allegations against Mr Brown and Mr Fowler, who are partners of a firm of solicitors bearing the name of Brown & Fowler, alleging the firm had an equitable duty to perfect a mortgage which they failed to do by ensuring its registration and/or a duty to take reasonable care that the benefit of the registered mortgage should not be lost. It was alleged that there was a failure to caveat when it appeared that the mortgage documents had gone missing in transit.
The plaintiff’s claim as against the first defendant is for moneys due and owing under a guarantee. The moneys advanced were for a short term at a high interest rate and interest is currently accruing rapidly. The defence pleaded in the defence and counterclaim of 8 October 1988 is that it was an express term of a Deed of Variation that there should be a registered second mortgage over the property, that there was an implied term that there would be a registered second mortgage over the property, and that the plaintiff owed the first defendant an equitable duty to take reasonable care that the benefit of the registered mortgage would not be lost. It is alleged that there has been a breach of duty which has discharged the first defendant of its liability to the plaintiff under the guarantee. The counterclaim seeks to recover over $578,000 as money paid under a mistake, namely that the first defendant had no liability to make the payment at all.
As against Brown & Fowler the allegation is that the solicitors owed the first defendant the equitable duty to perfect the security and/or a duty to take reasonable care that the benefit of the registered mortgage should not be lost. It is alleged that failure to ensure that the mortgage was registered and failure to caveat once it appeared that the mortgage was not available for registration armed the borrower, Elitact Pty Limited, with the ability to borrow further funds on the security of the property. The allegation is that Elitact borrowed further large sums from another lender, which advance was secured by first registered mortgage over the property with the result that the value of the registered mortgage which was to be security for the loan had been diminished to an extent that it rendered valueless the first defendant’s entitlement to be subrogated to the registered mortgage if it was required to repay moneys advanced by the plaintiff to Elitact.
It is apparent from the evidence in the affidavits before me that this is merely the skeleton of the dispute. The allegations and counter allegations made in the affidavits are much more complex than this. However, I am not required to form a view on those issues for the purposes of these proceedings.
The applicant relied on four points in support of the application. The first was that the amended defence and counterclaim struck out by Helman J raised a counterclaim seeking a declaration that the first defendant was exonerated from liability, recovery of moneys paid under a mistake, equitable compensation, injunctions and other relief. It was submitted that no amendment to add Brown & Fowler was in contemplation before Helman J and that the amendment relating to the firm should be struck out as it went beyond the leave given to replead.
The second was that neither s.244(3) of the Supreme Court Act 1995, nor Order 25 rr.11 and 12, permitted joinder. The third was that neither the claim for equitable relief nor the cause of action for breach of common law duty of care were viable. The fourth was that if all else failed an order under Order 22 r.3(2) that that part of the counterclaim be disposed of separately should be made.
In my opinion it is unnecessary to go beyond the second point in deciding the application. Paragraphs 1 to 4 of the counterclaim show that the counterclaim against the plaintiff is for damages for breach of equitable duty or duty of care by the plaintiff and for moneys had and received. What is claimed against Brown & Fowler is, on the face of it, damages for a breach of equitable duty and breach of duty of care by the firm and repayment of moneys had and received by the plaintiff.
Mr Stanton relied on s.244(9) of the Supreme Court Act (formerly s.4(8) of the Judicature Act 1876) the essence of which is there is power to grant in a cause or matter “all such remedies whatsoever as any of the parties thereto may appear to be entitled to in respect of any and every legal or equitable claim properly brought forward by them” in the cause or matter.
It was also submitted that Order 25 rr.11 and 12 permitted the first defendant to join the solicitors in the counterclaim. Order 25 r.11 is concerned with setting up a counterclaim which raises questions between the defendant and the plaintiff together with any other person. Order 25 r.12 provides that where a person named in Order 25 r.11 is not a party to the action the party must be served personally.
In Smith v Buskell (1919) 2 K.B. 362, the damaged condition of goods in respect of which the plaintiff had claimed payment for goods sold and delivered may have resulted from the actions of the plaintiff alone or the carrier alone or from the combination of actions of each of them. It was held that claims for damages against the plaintiff and the carrier could be joined under the corresponding English Rule. Warrington LJ said the following at 370:-
“It seems to me it is impossible for us to say that there may not arise circumstances when the evidence comes to be gone into at the trial which may show that the defendant is entitled to some relief arising out of the same state of facts against both these defendants to the counterclaim - the original plaintiff and the railway company. And circumstances may arise which will render it necessary for the Court in some way to apportion the damages as between these two defendants. If that is so, then I think that there is a sufficient connection shown between the relief claimed against the railway company and the original subject of the cause or matter to enable the claim against the railway company to be joined with that against the original plaintiff.”
This situation was contrasted with Times Cold Storage Co v Lowther & Blankley (1911) 2 K.B 100, where there were “mutually exclusive claims which could not exist together, which arose out of different sets of facts, either of which would give a right to a remedy, but the existence of either of which had not been established at the time of commencement of the action” (Smith v Buskell, 372-3). 14 McPherson J considered the position in Queensland in Watkins Ltd v Plancorp No 6 Pty Ltd (1983) 2 Qd.R 501. The facts were that for the purpose of avoiding a planning permit lapsing before settlement of a contract for sale of real property the owner, the prospective owner and the builder entered into a Deed that the builder would do works on the land for the owner. Payment was to be deferred until after the settlement date specified in the contract of sale of the land. After that the prospective purchaser would assume liability for the cost of the work already done and for the completion of the work under the building contract. McPherson J held that leave should be given to deliver an amended defence where the builder had claimed moneys invoiced to the owner who wished to deliver a counterclaim against the builder in which it wished to join the prospective purchaser as co-defendant. McPherson J held that such a joinder was permitted by the rules which referred to the case of a defendant setting up a counterclaim “which raises questions between himself and the plaintiff together with any other person”. He went on to point out that the primary source of authority to effect such a joinder of a non-party was s.4(3) of the Judicature Act 1876 (now s.244(9) of the Supreme Court Act 1995). McPherson J expressed his understanding of the provision in the following passage (504):-
“A primary purpose of this provision was, as is suggested by the marginal note to the subsection, to enable a defendant, in the action in which he is sued, to obtain relief against the plaintiff in respect of a claim by him which prior to the Act would have been required to be made the subject of a separate cross-action of cross-bill. As between the plaintiff and defendant alone, no limit is imposed upon the nature of the matters that may be made the subject of a counterclaim (cf. Gray v Webb (1882) 21 Ch. D. 802), which is to have the same effect as a cross-action, so as to enable the court to pronounce a final judgment, both on the original claim and the cross-action, in the same action: but a discretion is reserved to the court to strike out the counterclaim if it cannot be conveniently disposed of in the pending action, or ought not to be allowed: or to order that it shall be disposed of separately: O.22.r.3.
Not quite the same degree of freedom to raise issues distinct from those in the original action exists in the case where it is sought to counterclaim against the plaintiff and a person not already a party to the action. In that event the counterclaim against the non-party is by s.4(3) of The Judicature Act authorized only in respect of “relief relating to or connected with the original subject of the cause or matter ...” : and, even where this requirement is satisfied, the court retains its discretion under O.22 r.3 to order that the counterclaim be disposed of separately.
There is not a great deal of authority on the precise meaning and effect of the restriction introduced by s.4(3) in the case of a counterclaim against a non-party; but it is clear that the relation or connection which is required must exist between the “subject” of the original action and the “relief” claimed against the plaintiff and the non-party: S.F. Edge Limited v Weigel (1907) 97 L.T. 447,450.”
He later said that the problem was to discern the “subject” of the original action and to see whether the “relief” envisaged by the counterclaim is related to or connected with it as required by the sub-section. Watkins was referred to with apparent approval by White J in Santos Limited v American Home Assurance Company (1987) 4 ANZ Ins. Cases 60-795.
The statement of claim is for the sum remaining unpaid by the first defendant as guarantor of Elitact. There are two aspects to the defence. The first, which arises from paragraphs up to para.17 is that events set out therein have entitled the first defendant to be discharged from its obligation as surety. The second, in paras.18 to 23, is that by reason of an equitable duty to take reasonable care that the benefits of the registered mortgage should not be lost the first defendant was entitled to be discharged from its obligation as surety.
This breach of equitable duty is based on the failure of the plaintiff to ensure that “its agent David Cass” (a solicitor acting on the first defendant’s behalf), arrange registration of the mortgage and to instruct its agent David Cass or any other person to lodge a caveat “immediately it became aware through its solicitors Brown & Fowler” that the Bill of Mortgage had been lost or alternatively was not registered within a reasonable time.
Curiously, and for reasons which are not explained, the defence does not specifically allege any failure on the part of the plaintiff to ensure that Brown & Fowler acted to ensure that registration of the mortgage occurred or to lodge the caveat. It would only be by oblique means, by including Brown & Fowler under the category of “any other person” in para.19(b) of the defence and then only in respect of lodging the caveat, not in respect of registering the mortgage, that Brown & Fowler’s role would be within the scope of the defence as pleaded. It is true that the allegation of negligence as such on the part of Brown & Fowler is not germane to the defence but it is nevertheless odd that where the issue of the failure of the plaintiff to ensure that registration of the mortgage occurred and that the caveat was lodged is focused on, there is reference to the failure with respect to one alleged agent but not to the plaintiff’s own solicitors.
With respect to the counterclaim, I have come to the conclusion that the claims against Brown & Fowler are not ones which may properly be joined in the counterclaim in accordance with the principles laid down in the authorities referred to above.
The claim of breach of equitable duty made against the plaintiff is essentially different from that made against Brown & Fowler in that the former is concerned with an allegation of failure on the part of the plaintiff to instruct its agents to do certain things which would protect the first defendant’s position. The claim against Brown & Fowler is essentially an alleged breach of the firm’s equitable duty or breach of common law duty to take steps which a professional person acting prudently would have taken in the circumstances of the case. The situation is in my view not one which falls within the category of cases where the action may be brought into being as a counterclaim. As was said in Smith v Buskell, 370, the cases require an overlapping and I do not think that that occurs in this case in the required manner.
In that case it is unnecessary for me to explore the alternative bases upon which the applicant relied to have the defence and counterclaim insofar as it relates to Brown & Fowler struck out.
The orders are as follows:
1.The amended defence and counterclaim of the first defendant delivered on 8 October 1998 is struck out to the extent that the counterclaim relates to David Brown and Norman Fowler trading as Brown & Fowler Solicitors.
2.I order that the certificate of readiness be dispensed with.
3.I order that the action be placed on the callover list.
4.I order that the first defendant pay the plaintiff’s costs of and incidental to the summons to be taxed.
5.To the extent that is necessary, the order of Helman J that the action be certified as one which ought to be tried speedily is confirmed.