Campbell v Brazel

[2016] NSWSC 198

Supreme Court

New South Wales

Medium Neutral Citation:

Campbell v Brazel [2016] NSWSC 198

Hearing dates:

3 March 2016

Date of orders:

04 March 2016

Decision date:

04 March 2016

Jurisdiction:

Common Law

Before:

Fagan J

Decision:

1. The plaintiffs’ notice of motion filed 13 August 2015 is dismissed.

 

2. These proceedings are declared incompetent and a nullity.

 

3. The plaintiffs are to pay the defendants’ costs from the filing of the defendants’ notice of motion on 26 February 2015.

 4. The costs to be paid by the plaintiffs under order 3 to the defendants are to be on the indemnity basis on and from 16 April 2015.

Catchwords:

PRACTICE AND PROCEDURE – civil – lack of standing to sue – cause of action vested in trustee in bankruptcy at time of commencement – assignment of cause of action to plaintiffs after commencement – proceedings a nullity

 

PRACTICE AND PROCEDURE – civil – amendment – proceedings not curable by amendment to plead assignment of cause of action after commencement – Civil Procedure Act 2005 (NSW), ss 64, 65

BANKRUPTCY – vesting of cause of action in trustee – no revesting upon discharge of bankrupt – Bankruptcy Act 1966 (Cth) – ss 58, 129AA, 149

Legislation Cited:

Bankruptcy Act 1966 (Cth)
Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Limitation Act 1969 (NSW)

Cases Cited:

Chahwan v Euphoric Pty Ltd [2008] NSWCA 52
Chahwan v Euphoric Pty Ltd [2009] NSWSC 805, (2009) 73 ACSR 252
Darrington v Caldeck (1990) 20 NSWLR 212
Deveigne v Askar [2007] NSWCA 45
D’Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1
Foss v Harbottle (1843) 2 Hare 461; 67 ER 189
Marshall v DG Sundin & Co Pty Ltd (1989) 16 NSWLR 463
Samootin v Shea [2010] NSWCA 371

Category:

Principal judgment

Parties:

Gregory William Campbell (1st Plaintiff)
Jennifer Campbell (2nd Plaintiff)
Geoffrey Ronald Brazel (1st Defendant)
Peter Gerard Moore (2nd Defendant)
Joseph McCarthy(3rd Defendant)

Representation:

Counsel:
Mr H W Somerville (Plaintiffs)
Mr G P Craddock SC (Defendants)

  Solicitors:
Mr R Brown, Stacks Goudkamp (Plaintiffs)
Ms K Kumar, HWL Ebsworth Lawyers (Defendants)

File Number(s):

2014/219954

Publication restriction:

Nil

Judgment

1. The plaintiffs claim that their former solicitors, the defendants, breached common law and contractual duties owed to them in connection with the defence of proceedings brought against the plaintiffs by the assignees of Raine & Horne Queensland Pty Ltd in 2008 (“Raine & Horne”).

2. The defendants’ negligence and breach of contract is said to have resulted in the plaintiffs suffering default judgment against themselves followed by bankruptcy.

3. After they had been discharged from bankruptcy on 7 May 2012 the plaintiffs commenced this action against the defendants for damages by filing the statement of claim herein on 25 July 2014. The defendants say that the plaintiffs had no title to the pleaded causes of action at the time they commenced; that standing to sue was solely with the plaintiffs’ trustees in bankruptcy and that in consequence the proceedings are incompetent and a nullity.

4. By “a nullity” the defendants mean to contend that the proceedings are void from the outset rather than merely amenable to being set aside and that they are incompetent by reason of an incurable deficiency rather than affected by an irregularity which might be remedied by some order of the Court.

5. By notice of motion filed on 26 February 2015 the defendants have applied for the proceedings to be summarily dismissed or, alternatively, for the statement of claim to be struck out. These orders are sought primarily on the ground that the proceedings are a nullity but, alternatively, because the defendants say they are immune from the plaintiffs’ claim as it is based upon negligence or breach of contractual duty in connection with the conduct by a legal practitioner of proceedings in Court: D’Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1.

6. The plaintiffs expressly admit that they had no title to the causes of action pleaded and no standing to sue when they commenced the proceedings. After the defendants’ notice of motion for dismissal had been filed, the plaintiffs obtained an assignment of the causes of action from their trustees in bankruptcy. This was effected by a deed of 10 July 2015. A notice in writing of the assignment was given to each of the defendants dated 27 July 2015 and served on 30 July 2015.

7. The plaintiffs filed a notice of motion on 13 August 2015 seeking leave to amend their statement of claim to plead the assignment. They have resisted the defendants’ summary dismissal application on the basis that the assignment and the pleading of it by the amendment, if allowed, would cure the lack of title and standing to sue as at the date when the initiating process was issued.

The Defendants’ alleged negligence

8. The background of the original claim against the plaintiffs which led to their bankruptcy is that in 2005 they controlled a company named Reda Holdings Pty Ltd (“Reda”). On 25 August 2005 they caused Reda to enter into a written franchise agreement with Raine & Horne pursuant to which Reda acquired the exclusive right to operate a business under the name Raine & Horne Surfers Paradise from a shop in Elkhorne Avenue, Surfers Paradise, Queensland. The plaintiffs guaranteed the obligations of Reda under this agreement.

9. In February 2008 Raine & Horne commenced proceedings against Reda in the District Court of Queensland claiming debts and damages totalling about $170,000. These liabilities were said to have accrued under the franchise agreement in consequence of the operation of its terms and, in some case, as damages for breach of its terms. The plaintiffs were also sued in this proceeding for an alleged liability, in the same amount, as guarantors.

10. On 8 May 2008 the trustees of the Atkinson GC Trust commenced proceedings in the Queensland District Court against the plaintiffs and their company for exactly the same relief and on the same causes of action. Raine & Horne had apparently assigned its interest in the claim against the plaintiffs to the Atkinson G C Trust on 29 April 2008.

11. In the first half of 2008 the defendants carried on practice as solicitors in partnership under the name Brazel Moore. The plaintiffs engaged the defendants to act for Reda and for the plaintiffs themselves in defence of the proceedings brought by Raine & Horne and by the Atkinson Trustees, Raine & Horne’s assignees. No defence was filed in either proceedings and default judgment for a sum just short of $100,000 was entered by the Atkinson Trustees against Reda and the plaintiffs on 29 July 2008.

12. After judgment had been entered the plaintiffs were served with bankruptcy notices. These were not satisfied. The Atkinson Trustees then petitioned for bankruptcy. Sequestration orders were made against the plaintiffs in March 2009. The plaintiffs both filed their statements of affairs in their respective bankruptcies on 7 May 2009. Accordingly, by force of s 149(4) Bankruptcy Act 1966 (Cth) they were discharged from bankruptcy three years later, on 7 May 2012.

13. In the statement of claim by which they commenced these proceedings on 25 July 2014, the plaintiffs allege that the defendants breached their common law duty of care owed to the plaintiffs and contractual obligations owed under the terms of their retainer, in three respects. First, it is said the defendants were instructed to defend the claims in the Queensland District Court and failed to do so thereby causing the plaintiffs to suffer the default judgment where otherwise no judgment or a lesser judgment would have been entered. This cause of action was complete on 29 July 2008 when the default judgment was entered. Time ran under the Limitation Act 1969 (NSW) from then.

14. Secondly, they allege that they gave instructions to the defendants to apply for the default judgment to be set aside and those instructions were not carried out. This, they say, caused the judgment to stand to their detriment. Damage from this alleged breach would have occurred and the cause of action would therefore have accrued at the latest when bankruptcy notices were issued on the basis of the judgment. The evidence does not disclose a date for this. Obviously it was before March 2009, when the sequestration orders were made.

15. Thirdly, the plaintiffs allege that they gave instructions for an application to be made to have the bankruptcy notices be set aside and that the defendants failed to implement these instructions also. Thereby, they say, they suffered the detriment of the sequestration orders, which could have been avoided. Damage sufficient to complete this cause of action was sustained when the bankruptcy orders were made, on 18 March 2009 in the case of the first plaintiff and 4 March 2009 in the case of the second.

Title to the causes of action

16. The causes of action against the defendants upon these particulars vested in the plaintiffs’ trustees in bankruptcy upon the sequestration orders being made in March 2009: s 58 Bankruptcy Act.

17. Upon discharge on 7 May 2012 the rights to these causes of action and the standing to commence proceedings upon them did not revest in the plaintiffs. Revesting by force of s 129AA Bankruptcy Act could not possibly occur any earlier than six years after discharge, that is, 7 May 2018. Even that date of statutory revesting would depend upon the existence of the causes of action having been disclosed to the trustees in bankruptcy and the evidence does not show that it was.

18. After their discharge the plaintiffs could only obtain or derive the right and the standing to sue the defendants for their alleged negligence and breach of contract by assignment of those causes of action from the trustees in bankruptcy – as occurred, but not until one year after the plaintiffs had commenced these proceedings.

19. The discharge of a bankrupt from bankruptcy does not bring about the revesting of assets, including causes of action, to the bankrupt: Samootin v Shea [2010] NSWCA 371, Campbell JA at [92] – [97]. The proceedings commenced here were by parties who had no standing to bring them. That is, no title to the causes of action. Consequently these proceedings are a nullity incapable of amendment.

20. There is no difference of principle between, on the one hand, a proceeding such as the present commenced by discharged bankrupts who had been divested of title to causes of action through the operation of sequestration orders in conjunction with s 58 of the Bankruptcy Act and, on the other hand, a proceeding commenced by an executor in respect of a cause of action belonging to an estate before the grant to him of probate. In Darrington v Caldeck (1990) 20 NSWLR 212, Young J (as his Honour then was) held that proceedings brought prematurely by an executor were an incurable nullity. The same is true of these proceedings brought by the plaintiffs.

21. Deveigne v Askar [2007] NSWCA 45; (2007) 69 NSWLR 327 was a case concerned with proceedings brought in the District Court against a named person who had died two years before the filing of the statement of claim. An interested party attempted to be joined in the proceedings and to obtain the benefit of an order for costs which had been made in favour of the deceased. This prompted a full examination in the Court of Appeal, particularly by McColl JA at [85] – [141], of “decisions in which the Courts have considered whether proceedings or a step in them constituted a nullity”: see [85]. Her Honour demonstrated that a widely accepted criterion for discriminating between deficiencies which give rise to null proceedings and those which constitute mere curable irregularities is whether the deficiency can be effectively waived by the opposing party: see the authorities cited by her Honour at [87], [88], [94] and [95].

22. My conclusion that these proceedings are a nullity is dictated by the factual analogy of the present case with Marshall v DG Sundin & Co Pty Ltd (1989) 16 NSWLR 463 and with Darrington v Caldeck. The conclusion is consistent with application of the waiver test. The defendants could not, either expressly or by conduct (for example by taking a step in the proceedings), elect to overlook the incompetence of this action from its commencement.

Amendment to plead assignment of causes of action

23. The plaintiffs invoke ss 64 and 65 Civil Procedure Act 2005 (NSW):

“64 Amendment of documents generally

(1) At any stage of proceedings, the court may order:

(a) that any document in the proceedings be amended, or

(b) that leave be granted to a party to amend any document in the proceedings.

(2) Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.

(3) An order under this section may be made even if the amendment would have the effect of adding or substituting a cause of action that has arisen after the commencement of the proceedings but, in that case, the date of commencement of the proceedings, in relation to that cause of action, is, subject to section 65, taken to be the date on which the amendment is made.

(4) If there has been a mistake in the name of a party, this section applies to the person intended to be made a party as if he or she were a party.

(5) This section does not apply to the amendment of a judgment, order or certificate.

65 Amendment of originating process after expiry of limitation period

(1) This section applies to any proceedings commenced before the expiration of any relevant limitation period for the commencement of the proceedings.

(2) At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the court under section 64 (1) (b), amend the originating process so as:

(a) to enable the plaintiff to maintain the proceedings in a capacity in which he or she has, since the proceedings were commenced, become entitled to bring and maintain the proceedings, or

(b) to correct a mistake in the name of a party to the proceedings, whether or not the effect of the amendment is to substitute a new party, being a mistake that, in the court’s opinion, is neither misleading nor such as to cause reasonable doubt as to the identity of the person intended to be made a party, or

(c) to add or substitute a new cause of action, together with a claim for relief on the new cause of action, being a new cause of action that, in the court’s opinion, arises from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process.

(3) Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced.

(4) This section does not limit the powers of the court under section 64.

(5) This section has effect despite anything to the contrary in the Limitation Act 1969.

(6) In this section, originating process, in relation to any proceedings, includes any pleading subsequently filed in the proceedings.”

24. Neither of these sections assists the plaintiffs. Both, on my reading of them, are premised upon the existence of proceedings which are competent. There is no indication in the language in the sections that they are intended to apply in such a way as to permit an amendment of proceedings which are a nullity from the outset by reason of the lack of standing of the plaintiffs to sue. To my understanding the concept of a power to “amend” a proceeding which is a nullity in that sense, in such a way as to convert it by amendment into a valid proceeding, would involve contradiction and incongruity.

25. If it had been the intention of the legislature effectively to abolish the null status of a proceeding such as the present and to render all proceedings capable of being made competent no matter how fundamental the defect in their commencement, then very clear expression of such legislative intent would have been required. It is not to be found in ss 64 and 65.

Purported reliance upon a second capacity of the plaintiffs

26. Specifically with respect to s 65(2)(a) the plaintiffs argued that they are here seeking to amend merely to rely upon a different capacity in which they bring their original action. One prerequisite of the operation of s 65 is present. Namely, the limitation period for their causes of action has expired. The limitation period for the first cause expired on 29 July 2014, six years after the entry of default judgment in Queensland. The other causes of action accrued with the sustaining of damage no later than 18 March 2009 when the first plaintiff was made bankrupt. Six years from then expired 18 March 2015, well before the plaintiffs obtained their assignment of the causes of action from their trustees in bankruptcy and before their notice of motion was filed seeking an amendment.

27. The plaintiffs say that they now wish to invoke a “capacity,” within the meaning of s 65(2)(a), as assignees of their trustees in bankruptcy instead of their purported capacity, which was assumed in the statement of claim originally filed, as outright direct owners of the causes of action. But that analysis does not assist if there was no capacity in which they had standing when they filed in July 2014. I find that to have been the case.

28. I do not interpret s 65(2)(a) as intended to enable a plaintiff to amend to rely upon a capacity in which he would be entitled to sue where, at the time of commencing, he did not enjoy some other but valid and sufficient capacity but in fact had no capacity at all from which he could claim standing. For the section to have that effect, again, clear words would be required and I find in it no words at all which could support the plaintiffs’ contention.

29. The plaintiffs rely upon a decision of Brereton J in Chahwan v Euphoric Pty Ltd [2009] NSWSC 805, (2009) 73 ACSR 252. In that case the plaintiff, Mr Chahwan was a shareholder in Bycoon Pty Ltd (“Bycoon”). Bycoon owned a piece of real property. The company was put into liquidation. Mr Chahwan asserted that Bycoon had a claim against a director and another party who had acted wrongfully against the company. He wished to have the company take action against the alleged wrongdoers. The liquidator of Bycoon was unwilling to act. Mr Chahwan applied, firstly, to Barrett J in the Corporations List of the Equity Division for leave pursuant to s 237 Corporations Act 2001 (Cth) to bring the action in the company’s name. This was refused on grounds that he could not demonstrate bona fides. On appeal to the Court of Appeal (Chahwan v Euphoric Pty Ltd [2008] NSWCA 52) Barrett J’s finding of lack of bona fides was upheld. The refusal of leave for Mr Chahwan to commence proceedings in the name of Bycoon therefore stood.

30. Mr Chahwan then applied to Brereton J for leave to commence proceedings in the name of Bycoon upon an entirely different basis. He said that Bycoon held the real property as trustee for him on a resulting trust because he had put up the purchase money. As beneficiary he sought to demonstrate exceptional circumstances which would justify him invoking the jurisdiction in equity to permit a beneficiary to commence proceedings which ought otherwise be brought only by his trustee. Brereton J upheld this application and Mr Chahwan consequently was able to commence proceedings in the name of the company, albeit on a different basis from that which he had first asserted to Barrett J.

31. I fail to see that this case assists the plaintiffs at all, although they place significant reliance on it. It is simply an example of a plaintiff in the Corporations List changing from one ground to another in his endeavour to avoid the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189. Each basis was arguable. The plaintiff had standing and competence to argue each ground. He failed on the first and succeeded on the second. The case provides no rule or solution for the issue before me.

No determination of advocate’s immunity point

32. As I find that these proceedings are a nullity, for the reasons given above, I will declare them to be such. I do not consider it necessary to determine the second and alternative application of the defendants that the proceedings be struck out as disclosing no viable cause of action in the face of the principles relating to advocate’s immunity from suit. To decide that point I would have to consider carefully whether it is sufficiently clear that the nature of the solicitors’ work alleged to have been undertaken by the defendants was so connected to the conduct of the proceedings in the courts in Queensland as to attract the immunity.

33. In the course of argument it was drawn to my attention that on 7 August 2015 the High Court granted special leave to appeal in Attwells v Jackson Lalic Lawyers Pty Ltd [2015] HCA Trans 176. The transcript of the special leave hearing suggests that questions raised in that appeal include whether the High Court’s decision in D’Orta-Ekenaike v Victoria Legal Aid Commission will stand with full force or will be in some degree modified. Where this aspect of the law is potentially subject to change because the High Court is to hear that appeal, and where there would in any event be some tentativeness on my part in drawing final conclusions about the nature of the defendants’ legal work in connection with past court proceedings upon the limited evidence presented upon this strike out application, I consider it not appropriate to decide the second part of the defendants’ claim given that this is not necessary in order to resolve the two notices of motion which are before me.

34. Accordingly, the orders I make are:

1. The plaintiffs’ notice of motion filed 13 August 2015 is dismissed.

2. These proceedings are declared incompetent and a nullity.

3. The plaintiffs are to pay the defendants’ costs from the filing of the

  defendants’ notice of motion on 26 February 2015.

35. With respect to the last order, for costs, my reasons are as follows. After the plaintiffs’ statement of claim had been served upon the defendants, they did not immediately raise the point upon which they have now established that the proceedings against them are incompetent. On the contrary, they sought particulars of the plaintiffs’ claim and when they considered the initial response to such request inadequate, they sought more. The defendants then filed a defence. It does not appear to me that they would be entitled to any of the costs of those steps because they initially treated the proceedings as competent and defended them accordingly.

36. The defendants may well have sought the particulars and filed their defence with a view to flushing out whether they had sufficient grounds for the alternative basis of having the proceedings struck out. Namely, that they are protected by the advocate’s immunity. For the purposes of the exercise of my discretion as to costs it appears to me that their decision to embark on dealing with the proceedings substantively must be to their own account and that is why the costs order that I make against the plaintiffs is limited in time as I have indicated.

37. On 18 March 2015 the defendants served on the plaintiffs an offer of compromise by which they offered that there be a judgment in their favour with no order as to costs. They stipulated that this was open for acceptance for 28 days. The offer expired on 15 April 2015. As is apparent from these reasons it was not accepted. It should have been.

38. The basis upon which the defendants have now succeeded was well and truly before the plaintiffs by 18 March 2015. The notice of motion on which the defendants alleged the proceedings were incompetent was filed and served in late February 2015.

39. On the grounds that this offer of compromise was made and not accepted I make the following further order:

4. The costs to be paid by the plaintiffs to the defendants under order 3

  are to be on the indemnity basis on and from 16 April 2015.

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Decision last updated: 23 March 2016