Corporate Systems Publishing Pty Ltd v Lingard [No 4]
[2008] WASC 21 (S)
•28 FEBRUARY 2008
CORPORATE SYSTEMS PUBLISHING PTY LTD -v- LINGARD [No 4] [2008] WASC 21 (S)
| Link to Appeal : |
|
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WASC 21 (S) | |
| Case No: | CIV:1788/2003 | 17 - 19 & 21 SEPTEMBER, 5 - 8 & 12 NOVEMBER 2007 & 15 FEBRUARY 2008 | |
| Coram: | BEECH J | 27/02/08 | |
| 27/03/08 | |||
| 19 | Judgment Part: | 1 of 1 | |
| Result: | Final orders made | ||
| B | |||
| PDF Version |
| Parties: | CORPORATE SYSTEMS PUBLISHING PTY LTD (ACN 009 412 622) NICK CHRISTOU KEITH GRAEME LINGARD STANTON PARTNERS AUSTRALASIA PTY LTD (ACN 085 103 206) STANTON ACCOUNTANTS & ADVISORS PTY LTD (ACN 085 059 909) NEIL KEVIN JOYCE DEMANDEM HOLDINGS PTY LTD (ACN 009 258 664) GLENLEA ENTERPRISES PTY LTD (ACN 065 274 544) |
Catchwords: | Practice and procedure Trial of action Final orders to be made Turns on own facts Practice and procedure Pleadings Amendment of pleadings Whether leave should be granted to amend pleadings after delivery of reasons for decision |
Legislation: | Nil |
Case References: | Beatty v Brashs Pty Ltd [1998] 2 VR 201 Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386 Clairs Keeley v Treacy [2003] WASCA 299; (2003) 28 WAR 139 Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148 National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR 390 Re Timothy's Pty Ltd and the Companies Act [1981] 2 NSWLR 706 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
DECISION : 28 MARCH 2008 FILE NO/S : CIV 1788 of 2003 BETWEEN : CORPORATE SYSTEMS PUBLISHING PTY LTD (ACN 009 412 622)
- First Plaintiff
NICK CHRISTOU
Second Plaintiff
AND
KEITH GRAEME LINGARD
First Defendant
STANTON PARTNERS AUSTRALASIA PTY LTD (ACN 085 103 206)
Second Defendant
STANTON ACCOUNTANTS & ADVISORS PTY LTD (ACN 085 059 909)
Third Defendant
NEIL KEVIN JOYCE
Fourth Defendant
- DEMANDEM HOLDINGS PTY LTD (ACN 009 258 664)
Fifth Defendant
GLENLEA ENTERPRISES PTY LTD (ACN 065 274 544)
Sixth Defendant
Catchwords:
Practice and procedure - Trial of action - Final orders to be made - Turns on own facts
Practice and procedure - Pleadings - Amendment of pleadings - Whether leave should be granted to amend pleadings after delivery of reasons for decision
Legislation:
Nil
Result:
Final orders made
Category: B
Representation:
Counsel:
First Plaintiff : Mr A P Rumsley
Second Plaintiff : Mr A P Rumsley
First Defendant : Mr M L Bennett
Second Defendant : Mr M L Bennett
Third Defendant : Mr M L Bennett
Fourth Defendant : Mr M L Bennett
Fifth Defendant : Mr M L Bennett
Sixth Defendant : Mr M L Bennett
(Page 3)
Solicitors:
First Plaintiff : Alan Rumsley
Second Plaintiff : Alan Rumsley
First Defendant : Lavan Legal
Second Defendant : Lavan Legal
Third Defendant : Lavan Legal
Fourth Defendant : Lavan Legal
Fifth Defendant : Lavan Legal
Sixth Defendant : Lavan Legal
Case(s) referred to in judgment(s):
Beatty v Brashs Pty Ltd [1998] 2 VR 201
Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386
Clairs Keeley v Treacy [2003] WASCA 299; (2003) 28 WAR 139
Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148
National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514
Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR 390
Re Timothy's Pty Ltd and the Companies Act [1981] 2 NSWLR 706
Trendtex Trading Corporation v Credit Suisse [1982] AC 679
(Page 4)
- BEECH J:
Introduction
1 On 28 February 2008 I delivered reasons for decision after the trial of the plaintiffs' action and the fifth and sixth defendants' counterclaim.
2 Having received an advance copy of the reasons, on 28 February 2008 the parties each provided minutes of proposed orders. The orders proposed by each party were in markedly different terms. Thereafter, the parties filed a series of written submissions in support of the orders sought. These supplementary reasons relate to the orders to be made in the plaintiffs' action and the fifth and sixth defendants' counterclaim, following delivery of my reasons on 28 February 2008.
3 I propose to deal with the orders to be made under the following headings:
1. the plaintiffs' monetary claim against the second and third defendants;
2. the plaintiffs' monetary claims against the beneficiary defendants;
3. the winding up of the partnership;
4. the costs of the action;
5. the fifth and sixth defendants' counterclaim.
The plaintiffs' monetary claim against the trustee defendants
4 First, I deal with an uncontroversial matter. An order should be made granting leave to the second and third defendants to amend their defence, as I concluded in the reasons [208] - [226]. Order 1 will be in these terms:
1. The second and third defendants have leave to amend their defence by inserting a new paragraph in terms that, in the event that the defence in pars 9, 23 and 32D of the first and fourth to sixth defendants' defence is made out, then the second and third defendants rely on such defence.
5 There were substantial issues between the parties as to the orders which should flow from my reasons on the plaintiffs' monetary claim against the second and third defendants. The plaintiffs sought an order that judgment be entered for the plaintiffs in the amount of $540,661.05 against the second and third defendants. The defendants invited an order that the claims against the second and third defendants be dismissed. For
(Page 5)
- the reasons which follow, I do not accept the submissions of either of the parties as to the orders which should be made.
6 In the reasons, I came to the following relevant conclusions:
(1) Both the Stanton Partners Trust Deed and the NFI Trust Deed required equal distributions of the income of the trust to unitholders [194].
(2) Subject to the question of the effect of the January 2002 Agreement:
(a) SPA breached the Stanton Partners Trust by failing to distribute the income of the Trust in the 2001 and 2002 financial years equally between the three beneficiaries, in that the payments of partner's salary ($422,474 in 2001 and $1,474,105 in 2002) were, properly characterised, income of the Trust which should have been distributed equally; and
(b) SAA breached the NFI Trust in that it distributed the net income of the Trust for the 2002, 2003 and 2004 financial years in unequal amounts, as reflected in the NFI tax returns for those years [204].
(3) By the January 2002 Agreement, the plaintiffs consented to the distribution to the plaintiffs of the income of SPA and SAA in an amount equal to 50% of Mr Christou's fee collections, in satisfaction of the plaintiffs' entitlement under the trust deeds to equal distributions of income. The balance of what would have been the plaintiffs' share of income was to be distributed equally between Messrs Joyce and Lingard or their private companies. (There was an immaterial qualification relating to Mr Christou attaining average collections over a 12 month period of $100,00 per month) [303] and [304(e)].
7 Thus, I did not find that the plaintiffs consented to receiving no distribution of income of the two trusts. What they consented to, by the January 2002 Agreement, was to receiving an amount calculated as 50% of net collections in satisfaction of their entitlement to an equal distribution of income. Thus, to the extent that the trustees did not distribute the excess of an equal share of net income above the amount representing 50% of collections, the January 2002 Agreement provides a defence of consent. However, the agreement would not provide a defence of consent in respect of any amount by which distributions made to the
(Page 6)
- plaintiffs were less than 50% of Mr Christou's collections (and less than an equal one-third share).
8 The plaintiffs claim that they are entitled to judgment in the sum of $540,661.05, on the basis that it represents the amount by which distributions to the plaintiffs fell short of the amount calculated as 50% of Mr Christou's net collections. For reasons to be developed, I accept that the plaintiffs are entitled to judgment in an amount representing the extent (if any) to which distributions of the plaintiffs' equal share of income fell short of the amount due based on the 50% formula, but I do not accept that the sum claimed by the plaintiffs represents that amount.
9 The defendants submit that, for a number of reasons, no orders in favour of the plaintiffs should be made.
10 First, the defendants point to passages in the reasons in which it is concluded that the plaintiffs' monetary claims should be dismissed: [5], [228], [323], [324] and [397]. These passages state a conclusion that the plaintiffs' monetary claims should be dismissed by reason of the consent constituted by the January 2002 Agreement. However, in submissions at trial, while numerous issues were raised respecting whether the January 2002 Agreement gave rise to a defence of consent, attention was not given to whether distributions were made to the plaintiff in an amount equal to 50% of collections and whether, to the extent that that was not so, the agreement could give rise to any defence. On the findings which I have made, this seems to me to remain an issue. The plaintiffs should not be foreclosed from putting submissions on the point.
11 Secondly, the defendants complain that the plaintiffs did not plead, whether in the alternative or otherwise, any claim of the sort which would support the orders now sought. The defendants say that there was no monetary claim in respect of amounts said to be unpaid under the 50% formula.
12 I accept that no claim of the kind referred to was pleaded by the plaintiffs. However, I accept the submissions of the plaintiffs that it was not incumbent upon the plaintiffs to plead a claim in this respect, because the Agreement was relied on by the defendants as a defence. The plaintiffs' claim pleaded a breach of trust. In some respects (although not in all respects pleaded by the plaintiffs) I made findings of breach of trust, set out in [6(2)] of these reasons. The defendants pleaded the January 2002 Agreement as a defence. The defendants succeeded in relation to a defence based upon the Agreement in that I found that it gave rise to a
(Page 7)
- defence of consent. Consent is by its nature a positive defence [207]. In my opinion, it was for the defendants to prove that the consent of the plaintiffs, arising from the Agreement, to breaches of trust extended to authorise all breaches of trust that were established by the plaintiffs.
13 However, in that context, it is important to give careful attention to the proper identification of the trustees' obligations and any breaches of those obligations. The relevant obligations of the trustees were to make distributions of income in equal amounts [14], [18], [194], [199] and [202]. Although the plaintiffs' case complained of the making of unequal payments, the breaches of trust which I have found to have occurred related to the making of distributions in unequal amounts [199], [202], [204] (the conclusion at [397](1)(c) and (2)(a) mistakenly refers to payments when it should refer to distributions). In this regard, I also refer to the discussion, in the reasons, of the distinction between drawings and distributions: see, for example, [330], [333].
14 The breaches by SAA were the distributions of net income for the 2002, 2003 and 2004 financial years in unequal amounts, as reflected in the NFI tax returns for those years. The breaches I have found in respect of the Stanton Partners Trust relates to the financial years 2001 and 2002. In those years, the accounts of the company reflected equal distributions of what was stated in the accounts to be the net income of the trust. However, I found [197] - [199] that the amounts shown in the accounts for those years as partners' salary were, properly characterised, part of the income of the trust which should have been distributed equally, but were not, in that they were paid to Demandem and Glenlea and accounted for as salary.
15 The plaintiffs' calculation of the amount which they now claim to be entitled to, in light of the reasons, is based upon evidence as to payments made to the plaintiffs. For the reasons I have given, attention is not to be directed to the amount of payments made to the plaintiffs, but rather to the amount of distributions of income made to them. Consequently, I do not accept the basis of the plaintiffs' calculation of the amount they now claim to be entitled to.
16 However, to the extent that the amount of income distributed to the plaintiffs fell short of the amount calculated under the 50% formula (and fell short of the plaintiffs' one-third share), then, in my opinion, the plaintiffs are entitled to judgment in such an amount. I turn to identifying the amounts actually distributed to the plaintiffs and the amounts to which they were entitled under the 50% formula.
(Page 8)
17 The evidence as to the amounts distributed to the plaintiffs is of a different character in respect of the two trusts. The evidence respecting the Stanton Partners Trust is the financial statements of the company. The evidence respecting the NFI Trust is the tax returns of that company. Because of that difference, there may be thought to be a degree of artificiality in the exercise I now undertake. Nonetheless, it seems to me that the exercise must be undertaken and must be done with such evidence as is available.
18 The plaintiffs are content for the court to proceed on the basis of the defendants' evidence as to the amounts to which the plaintiffs were entitled under the 50% formula. Mr Joyce's witness statement (exhibit B, par 136) referred to and tendered a document entitled 'Summary' that set out Mr Christou's collections for each financial year and calculated an amount for 50% of collections net of disbursements (exhibit 1, page 838). That evidence is to the effect that, under the 50% formula, the plaintiffs' entitlements in respect of each financial year were as follows:
2001 $118,389.10
2002 $233,500.17
2003 $183,650.32
2004 $151,608.90
2005 $145,075.87
2006 $152,157.40
2007 $115,461.70
20 In the 2002 financial year, distributions to the plaintiffs were made in amounts of $19,253.79 by SPA [38], and $91,847 by SAA [46]. Thus, the distributions made in favour of the plaintiffs totalled $111,100.79. According to the 50% formula, the plaintiffs were entitled to distributions in the sum of $233,500.17. Thus, to the extent of the difference - $122,399.38 - the defence of consent does not apply. It is necessary to consider the position of the two trusts separately.
(Page 9)
21 SPA's breach of trust in respect of the 2002 financial year was its failure to distribute the amount of $1,474,105 (shown in the accounts as partners' salaries) equally between the beneficiaries. Mr Christou's one-third of that sum is $491,368.33. To the extent of the sum of $122,399.38, the defence of consent does not excuse the breach. Mr Christou is entitled to judgment against SPA in that sum. Because the 'partners' salaries' were paid to Demandem and Glenlea, it is appropriate to order payment of the amount by SPA to Mr Christou, rather than simply declaring that he is entitled to a further distribution in that amount. Thus, order 2 will be in these terms:
2. The second defendant do pay to the second plaintiff the sum of $122,399.38, and interest thereon at 6% per annum from 30 June 2002 until judgment.
22 SAA's breach of trust in respect of the 2002 financial year was in distributing $239,862 of its income to each of Demandem and Glenlea, but only $91,847 to Corporate Systems. Thus, the distribution to Corporate Systems should have been its equal one-third share - $190,523.66, whereas the distribution to it was $91,847. SAA is liable in respect of the difference of $98,676.66.
23 Corporate Systems is, consequently, entitled to judgment against SAA in the sum of $98,676.66.
24 The plaintiffs submitted that, on the defendants' case (which was, it said, accepted), the plaintiffs' entitlement to distribution based on the 50% formula is not conditioned upon or limited by the extent of the income of the trust for that year. That would be relevant if the plaintiffs were enforcing the January 2002 Agreement. However, as I have said, the plaintiffs' claims are not of that character. Their claims are for breach of the obligation to distribute income equally. Thus against SAA, in respect of the 2002 financial year, Corporate Systems is entitled to judgment in the sum of $98,676.66 (not $122,399.38).
25 Order 3 will be in these terms:
3. The third defendant do pay to the first plaintiff the sum of $98,676.66, and interest thereon at 6% per annum from 30 June 2002 until judgment.
26 It will be seen that orders 2 and 3 included a provision for payment of simple interest on the sum awarded, calculated from the end of the relevant financial year. The defendants opposed interest on the basis that the plaintiffs were not entitled to payment of any sum, but only to an order
(Page 10)
- that a distribution be made by an accounting entry. Because there was the evidence that interest was charged on loan amounts, interest should not, it was submitted, be awarded. As I have given judgment for payment of a sum of money, I consider an award of interest to be appropriate.
27 The plaintiffs' entitlement under the trust deeds and the January 2002 Agreement is to distributions totalling the sum calculated by the 50% formula. Payment to either Mr Christou or Corporate Systems would satisfy the entitlements of both. If, for example, order 2 is satisfied, any entitlement under order 3 would disappear. Thus, order 4 will be in these terms:
4. Satisfaction of order 2 discharges order 3 and satisfaction of order 3 discharges, to the extent of the payment made, order 2.
28 In the 2003 financial year (and subsequently) I found, accepting Mr Joyce's evidence, that the income of SPA was not distributed, but was retained, as is reflected in the accounts [200]. No amount was distributed to the plaintiffs by SAA in the 2003 financial year [46]. In respect of the 2003 financial year, I found that no breach was established in respect of SPA, but a breach was established in respect of SAA [200] - [204]. (In their written submissions in reply dated 14 March 2008, the plaintiffs made reference to and attached copies of correspondence between the parties' solicitors relating to the sum of $226,136 in respect of the 2003 financial year. I made findings in relation to that issue [200] - [201]. The correspondence was not put before me at trial, including on 15 February 2008 when the question of the evidence supporting the claim that a distribution was made in 2003 in the sum of $226,136 was specifically raised with the parties. Consequently, I have not had regard to the correspondence attached to the plaintiffs' submissions of 14 March 2008.)
29 The January 2002 Agreement permitted the defendants to deal with the income of SPA and SAA in a global fashion; so long as the plaintiffs received distributions in amounts totalling the sum calculated under the 50% formula, there could be no complaint by the plaintiffs.
30 I note that a one-third share of the income of SPA for the 2003 financial year exceeds the amount of $183,650.32, that is the amount which the plaintiffs are entitled to under the 50% formula.
31 In the circumstances I have outlined, I would grant declaratory relief in respect of the 2003 financial year.
(Page 11)
32 At trial, less attention was directed to the accounts of SPA for the 2004 and subsequent financial years, because no claim of breach was made in relation to those years. (An application to amend to add such a claim, made by the plaintiffs on resumption of the trial in November 2007, was refused.) Nonetheless, had I found that the Agreement did not give rise to a defence of consent, I would have been inclined to make a declaration that the plaintiffs were entitled to a one-third share of the income of the trusts of which each was a beneficiary [229]. For corresponding reasons I would make a declaration in respect of the 2004 and subsequent years in terms similar to that for the 2003 year. I note that the accounts for SPA for these years suggest or may suggest that the distribution to Corporate Systems exceeded the amount to which it was entitled under the 50% formula. The making of declarations should not be thought to cast any doubt on whether that is so. I do not consider that issue was joined at trial in respect of the amount of distributions in the financial years 2004 onwards, so I do not make any findings in that regard.
33 For these reasons, order 5 will be in these terms:
5. The court declares that the plaintiffs are entitled to a distribution of their respective shares of the income of SPA and SAA for the following financial years in amounts which total the following sums:
2003 $183,650.32
2004 $151,608.90
2005 $145,075.87
2006 $152,157.40
2007 $115,461.70
34 The plaintiffs sought orders that judgment be entered for the plaintiffs in respect of the amounts owed by the second and third defendants, and interest thereon, against the beneficiary defendants.
35 Given the findings I have made in the reasons, I do not consider the plaintiffs are entitled to judgment against the beneficiary defendants. The claim based on knowing assistance failed because of the absence of a dishonest and fraudulent design on the part of the trustee [325] - [338].
(Page 12)
36 In its submissions following delivery of the reasons, the plaintiffs sought to reformulate the fraudulent and dishonest design said to have been engaged in by the trustees. I would not be prepared to permit that course. A party alleging a dishonest and fraudulent design is confined to the matters pleaded and particularised in support of that allegation [326]. In any event, I would not be prepared to make findings of the (new) fraudulent and dishonest design invited by the plaintiffs, which were not put to Mr Lingard or Mr Joyce.
37 As to the claim based on recipient liability, I was not satisfied that the beneficiary defendants had the knowledge required for liability to be established [340]. I would not be prepared to make the finding now invited by the plaintiffs: that Messrs Lingard and Joyce knew at the relevant time that the payments made to Demandem and Glenlea (characterised in the accounts as partners' salary, but on my findings properly characterised as part of the income of the Stanton Partners Trust), were made in circumstances where the distributions to the plaintiffs were insufficient to cover their entitlements under the 50% formula. No such allegation was put to Mr Lingard or Mr Joyce and I would not draw an inference to the effect sought by the plaintiffs.
38 For these reasons I would not make any orders against the beneficiary defendants.
The winding up claim
39 I found that the partnership ought be wound up [362] - [364].
40 The plaintiffs seek orders in the following terms:
1. Pursuant to s 50 of the Partnership Act 1895 (WA) the partnership of the second plaintiff, first defendant and fourth defendant be wound up under the direction of the court.
2. Pending the winding up of the partnership, the second defendant, pursuant to the licence agreement dated 12 November 1998, continue to operate the practice as defined in the licence agreement.
41 The defendants propose an order that the business and affairs of the partnership known as Stanton Partners be dissolved pursuant to s 50 of the Partnership Act.
(Page 13)
42 There appears to be a little dispute in substance as to the first of the orders sought by the plaintiffs in respect of the partnership. Order 6 will be in the following terms:
6. Pursuant to s 50 of the Partnership Act 1895 (WA) the business and affairs of the partnership of the second plaintiff, first defendant and fourth defendant known as Stanton Partners be wound up.
43 The plaintiffs sought an order in terms that the winding up be 'under the direction of the court', submitting that such an order would allow applications to be made to the court as and when required. In the event that the need for an application to the court arises in the course of the winding up of the partnership, such an application is to be made by way of new proceedings.
44 I would not be prepared to make an order in terms of the second order sought by the plaintiffs. The order for winding up of the partnership does not warrant an order compelling the second defendant to continue to operate the Practice (as defined in the licence agreement), under the licence agreement. Apart from anything else, the licence agreement is, as explained in the reasons, terminable by either party by not less than three months' written notice [354]. It would not be appropriate to make an order precluding the exercise by any party of that right.
45 Order 7 is not controversial and will be in the following terms:
7. The plaintiffs' claims be otherwise dismissed.
Costs of the action
46 The plaintiffs sought orders that the trustees pay both the plaintiffs' costs and the beneficiary defendants' costs of the action. The plaintiffs relied upon O 66 r 4 of the Rules of the Supreme Court 1971 (WA), and submitted that in a claim arising out of a trust the successful applicant's costs are usually paid from the trust fund. The plaintiffs also pointed to the fact that they succeeded in establishing breaches of trust; that the consent defence was, they submitted, only partially successful; and the fact that the trustees' defence was amended at a late stage (to plead reliance on the January 2002 Agreement to the extent that the beneficiary defendants' defence succeeded in that regard).
47 I do not accept the plaintiffs' submissions that the trustees should pay the costs of the plaintiff beneficiaries and the beneficiary defendants.
(Page 14)
48 In substance, this litigation involved a contest between the plaintiffs, on the one hand, and the beneficiary defendants, on the other. The central issues related to the existence, enforceability, conditionality, construction and effect of the January 2002 Agreement. In my judgment, the beneficiary defendants have been substantially successful in the contest. A beneficiary whose claim of breach of trust fails on the ground that the beneficiary had consented to the breach of trust should not necessarily expect that the costs of the action will be paid by the trustee. Given the equal beneficial entitlements of the three parties, an order that the costs of the action be paid by the trustee defendants would, in substance, have the result that two-thirds of those costs would be borne by the beneficiary defendants. To my mind, that would not be a just exercise of the costs discretion in this case. Rather, the plaintiffs should pay the beneficiary defendants' costs of the action. However, because the plaintiffs had a measure of success in certain respects, I would not order that the plaintiffs pay the whole of the beneficiary defendants' costs, rather, order 8 will be in these terms:
8. The plaintiffs pay 80% of the first and fourth to sixth defendants' costs of the action, including reserved costs, such costs to be taxed if not agreed and to be taxed as one set of costs.
49 The defendants sought that the costs order in their favour include a specific provision including the costs of the appeal in appeal proceedings FUL 24 of 2004. However, there is no need or occasion for any orders in that regard; the Full Court made orders on 15 June 2004 that the applicants (the plaintiffs in this action) pay the respondents' costs of the application to be taxed if not agreed. Nor is there any need to provide for the costs of the application to the Full Court in CIV 1936 of 2004. The order of the Full Court was that the costs of the application be costs in this action. By force of that order the costs of that application will be governed by order 8.
50 The trustee defendants were very much secondary players in the defence of the action. It is to be expected that the costs incurred on behalf of the trustee defendants are relatively insignificant. The argument which they advanced in respect of s 65(7) of the Trustees Act was not successful. It seems to me appropriate that there be no order as to the costs of the trustee defendants. Order 9 will be in these terms:
9. There be no order as to the costs of the second and third defendants.
(Page 15)
Counterclaim
51 In the reasons I upheld the fifth and sixth defendants' counterclaim against Mr Christou. The fifth and sixth defendants brought the counterclaim pursuant to an assignment, by SPA, of SPA's relevant rights against Mr Christou. At [371] - [392] I dealt with the merits of the counterclaim, finding that Mr Christou breached his duty of reasonable care and diligence as a director of SPA causing loss and damage to SAA which I assessed in the sum of $150,000. I then dealt with the plaintiffs' pleadings and submissions in relation to the assignment by SPA of SPA's rights against Mr Christou [393] - [394]. I rejected the point raised by the plaintiffs in relation to the enforceability of the assignment.
52 In concluding that section of my reasons, I recorded [395] that no issue was raised by Mr Christou, by pleading or submissions, as to whether the assignment amounted to an assignment of a bare right of litigation and, if so, whether, on that account, it was unenforceable. Based upon that observation, following delivery of my reasons for decision, the plaintiffs applied for leave to amend Mr Christou's defence to counterclaim to plead that the assignment by SPA was unenforceable as an assignment of a bare right to litigation.
53 The plaintiffs did not, on the delivery of the reasons, advance any substantive submissions in relation to the merits of the defence which they now seek to raise. The plaintiffs seek that leave be given and that, subsequently, they be given an opportunity to put on submissions in support of the plea that the assignment was unenforceable. In their final written submissions in reply to the defendants' submissions as to the orders to be made following the reasons, the plaintiffs referred to the proposition that 'the prohibition against assigning a bare right to litigation still remains a fundamental principle of our law': Trendtex Trading Corporation v Credit Suisse [1982] AC 679, 703; Clairs Keeley v Treacy [2003] WASCA 299; (2003) 28 WAR 139 [141].
54 In Trendtex (703) it was held that an assignee who has a genuine commercial interest in taking the assignment and enforcing it for his own benefit, can enforce an assignment without infringing any prohibition against assigning a bare right of litigation.
55 That principle has been applied and considered in many cases in Australia: see, for example, Re Timothy's Pty Ltd and the Companies Act [1981] 2 NSWLR 706, 711; Beatty v Brashs Pty Ltd [1998] 2 VR 201; Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR
(Page 16)
- 390, 394; Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148.
56 There is, at the least, doubt as to whether a claim for damages in tort can be effectually assigned to a party with a 'genuine commercial interest'; compare Monk and National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514.
57 There may also be room for doubt as to whether a genuine commercial interest would permit an effective assignment of a claim by a company for breach of duty by its director (see, generally, Meagher RP, Gummow WMC and Lehane JRF, Equity: Doctrines and Remedies (4th ed, 2002) [6-480]).
58 The decision of the High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386 does not determine the questions which would arise in this case if leave were granted.
59 In determining whether an assignee has a genuine interest in taking the assignment, the court may look at the totality of the circumstances surrounding the transaction: Seddon NC and Ellinghaus MP, Cheshire & Fifoot's Law of Contract (8th Aust ed, 2002) [8.7].
60 In opposing the plaintiffs' application to amend their defence to counterclaim, the fifth and sixth defendants submit that they would plead by way of reply that they had a genuine commercial interest in taking the assignment and say that they would adduce evidence in support of that plea. While the defendants have not identified such evidence with any specificity, I am unable to be satisfied that the granting of leave to amend Mr Christou's defence to counterclaim would not give rise to the need for the trial to be re-opened so that further evidence could be led.
61 Mr Christou's application for leave to amend his defence to the counterclaim, after the delivery of reasons after trial, must be viewed in the context of the history of this litigation. The action was commenced in 2003. In September 2007 the action came on for trial. It was listed to be heard in five days from 17 to 21 September 2007. The plaintiffs opened their case on 17 September 2007. Following submissions from both parties on 18 September 2007, I made rulings, as a result of which the plaintiffs applied for leave to amend their statement of claim to plead a fraudulent and dishonest design on the part of the trustees. The plaintiffs first attempted to move for an amendment on 19 September 2007 and
(Page 17)
- were ultimately granted leave on 21 September 2007. The result was that the trial was adjourned to November 2007.
62 When account is taken of the history of the matter, the circumstances in which the application is made and the prospect that the proposed amendment may give rise to the need for the re-opening of the trial for further evidence to be adduced, I would not grant leave to Mr Christou to amend his defence to the counterclaim.
63 That leaves the question of the appropriate orders to be made in consequence of the success of the counterclaim.
64 I assessed damages on the counterclaim in the sum of $150,000. Notwithstanding that, the plaintiffs propose that judgment be entered for the fifth and sixth defendants on the counterclaim in the amount of $100,000, and for the first plaintiff in the amount of $50,000, against Mr Christou. In support of that submission, the plaintiffs point to cl 2.2 of the deed of assignment between SPA, Demandem and Glenlea (exhibit 1 page 706). By that clause, Demandem and Glenlea agree that they would hold one-third of the net proceeds of SPA's claim against Mr Christou, after deduction of all legal costs associated with its enforcement, in trust for Corporate Systems. It does not seem to me to be appropriate to make an order which seeks, in effect, to enforce, in a pre-emptive way, the trust arising from cl 2.2 of the deed of assignment. Rather, the appropriate order is that Mr Christou pay damages in the sum of $150,000 to Demandem and Glenlea. It will then be for those companies to perform their obligations arising from cl 2.2 of the trust deed.
65 It is not in dispute that there should be an order that the second plaintiff pay the fifth and sixth defendants' costs of the counterclaim to be taxed if not agreed, or that interest should be payable on the damages, calculated from about when the proceeds of sale on 16 August 2002 should have been received. Orders 10 and 11 will be in these terms:
10. The second plaintiff pay the sum of $150,000 to the fifth and sixth defendants, together with interest thereon at 6% per annum from 20 August 2002 until judgment.
11. The second plaintiff pay the fifth and sixth defendants' costs of the counterclaim to be taxed if not agreed.
Conclusion
66 For the reasons given, I make orders in the following terms:
(Page 18)
- 1. The second and third defendants have leave to amend their defence by inserting a new paragraph in terms that, in the event that the defence in pars 9, 23 and 32D of the first and fourth to sixth defendants' defence is made out, then the second and third defendants rely on such defence.
2. The second defendant do pay to the second plaintiff the sum of $122,399.38, and interest thereon at 6% per annum from 30 June 2002 until judgment.
3. The third defendant do pay to the first plaintiff the sum of $98,676.66, and interest thereon at 6% per annum from 30 June 2002 until judgment.
4. Satisfaction of order 2 discharges order 3 and satisfaction of order 3 discharges, to the extent of the payment made, order 2.
5. The court declares that the plaintiffs are entitled to a distribution of their respective shares of the income of SPA and SAA for the following financial years in amounts which total the following sums:
2003 $183,650.32
2004 $151,608.90
2005 $145,075.87
2006 $152,157.40
2007 $115,461.70
7. The plaintiffs' claims be otherwise dismissed.
8. The plaintiffs pay 80% of the first and fourth to sixth defendants' costs of the action, including reserved costs, such costs to be taxed if not agreed and to be taxed as one set of costs.
9. There be no order as to the costs of the second and third defendants.
10. The second plaintiff pay the sum of $150,000 to the fifth and sixth defendants, together with interest thereon at 6% per annum from 20 August 2002 until judgment.
(Page 19)
- 11. The second plaintiff pay the fifth and sixth defendants' costs of the counterclaim to be taxed if not agreed.
0
8
1