Dover v Lewkovitz

[2013] NSWCA 452

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Dover v Lewkovitz [2013] NSWCA 452

Hearing dates:

2 December 2013

Decision date:

18 December 2013

Before:

McColl JA at [1]
Macfarlan JA at [2]
Barrett JA at [28]

Decision:

The appeal is dismissed with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

PERSONAL PROPERTY - assignment of bare right to damages constituted by rights arising under or out of a lease - assignee a beneficiary under a discretionary trust which indirectly owned shares in assignor company - whether assignee had a "genuine commercial interest" in the rights - Trendex Trading Corporation v Credit Suisse [1982] AC 679 - whether necessary for the existence of a relevant genuine commercial interest that the assignee has a pre-existing legal right against the assignor

Legislation Cited:

Administrative Decisions Tribunal Act 1997

Cases Cited:

Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814; 153 FCR 509
Beatty v Brashs Pty Ltd [1998] 2 VR 201
CAL (No 14) Pty Ltd v Motor Accidents Board [2009] HCA 47; 239 CLR 390
Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Ltd [2007] FCAFC 52; 158 FCR 417
Equuscorp Pty Ltd v Haxton [2012] HCA 7; 246 CLR 498
Farah Constuctions v Say-Dee Pty Limited [2007] HCA 22; 230 CLR 89
Hazard Systems Pty Ltd v Car-Tech Services Pty Ltd (in liq) [2013] NSWCA 314
Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd [2013] FCAFC 62
Kennon v Spry [2008] HCA 56; 238 CLR 366
National Mutual Property Services v Citibank Savings [1995] FCA 1628; 132 ALR 514
Project 28 Pty Ltd v Barr [2005] NSWCA 240
Re Daley [1992] FCA 395; 37 FCR 390
Trendtex Trading Corporation v Credit Suisse [1982] AC 679
WorkCover Queensland v Amaca Pty Limited [2012] QCA 240

Category:

Principal judgment

Parties:

Tom Dover (Appellant)
George Lewkovitz (Respondent)

Representation:

Counsel:
C Stomo (Appellant)
L Doust (Respondent)
Solicitors:
Klonis & Co Lawyers (Appellant)
Norbert Lipton & Co Solicitors (Respondent)

File Number(s):

CA 2013/170180

 Decision under appeal 

Citation:

Dover v Lewkovitz [2013] NSWADTAP 22

Date of Decision:

2013-05-17 00:00:00

Before:

M Chesterman DP, D Bluth JM, M Foldi non JM

File Number(s):

129038

Judgment

1. McCOLL JA: I agree with Macfarlan JA's reasons and the orders his Honour proposes.

1. MACFARLAN JA: On 22 September 2009 Mr Dover, the appellant and lessee with others of premises in Coogee, vacated those premises. The landlord, Tolicar Pty Ltd, then took possession of and later relet the premises. By deed of 20 June 2011 Tolicar purported to assign its rights under and arising out of the lease to Dr George Lewkovitz, the respondent, for a consideration of $1.

1. Dr Lewkovitz subsequently commenced proceedings against Mr Dover in the Retail Leases Division of the Administrative Decisions Tribunal (the "ADT") claiming outstanding rent, outgoings and liquidated damages under the lease. The Retail Leases Division found in favour of Dr Lewkovitz, as did an Appeal Panel, the latter by decision of 17 May 2013 ([2013] NSWADTAP 22). At both levels it was held that the assignment to Dr Lewkovitz was valid because, although its subject included a bare right to damages, Dr Lewkovitz had a genuine commercial interest in the claim for damages, of the nature discussed in Trendtex Trading Corporation v Credit Suisse [1982] AC 679.

1. Mr Dover appealed to this Court under s 119 of the Administrative Decisions Tribunal Act 1997. A party may only appeal under that section "on a question of law".

1. Mr Dover's Notice of Appeal impermissibly raises a number of factual questions such as whether Dr Lewkovitz in fact had a genuine commercial interest in the claim at the time of the assignment to him. The questions of law raised by his Notice of Appeal and submissions are as follows:

(1)   Is it necessary for the existence of a relevant genuine commercial interest that the assignee has a pre-existing legal right against the assignor?

(2)   If the ADT treated Dr Lewkovitz's right under the discretionary trust referred to below as absolute, did it err in so doing?

DR LEWKOVITZ'S INTERESTS

1. At the relevant times the ordinary shares in Tolicar were owned by Solrose Investments Pty Ltd. The shares in Solrose were owned by Barak Pty Ltd and Lewkovitz Nominees Pty Ltd. Dr Lewkovitz, his wife and sister were the directors of Tolicar, Solrose and Barak.

1. The shares in Barak (and its shares in Solrose) were held by Lewkovitz Nominees Pty Ltd in its capacity as trustee of the Solomon Lewkovitz Testamentary Trust which was created on 4 January 1999. Dr Lewkovitz and his sister were identified by the trust deed of that trust as its "principal beneficiaries". Under the trust deed the trustee could, in its discretion, distribute the net income of the trust amongst the principal and other beneficiaries. In default of distribution, the principal beneficiaries were entitled to the net income. The trustee also had a discretion to determine which of the principal beneficiaries would be entitled to the remaining capital of the trust on the trust's specified vesting date. Failing such a determination, the capital was to be held for the surviving principal beneficiaries in equal shares. The trustees could be removed and replaced by Dr Lewkovitz and his sister acting jointly.

1. The parties to the proceedings agreed that:

"Since the establishment of the Trust, the net income earned by Tolicar has been distributed to Solrose, which distributed its dividends to Lewkovitz Nominees, which distributed its income to the respondent Dr Lewkovitz and his sister".

1. This agreed fact does not refer to Barak, which was situated between Solrose and Lewkovitz Nominees in the chain of companies, but neither party suggested that that omission was of present significance. As a result, it can be assumed that the dividends declared by Tolicar duly flowed through the chain of companies to Lewkovitz Nominees and thence, by way of trust distribution, to Dr Lewkovitz and his sister. The Appeal Panel referred to evidence given by Dr Lewkovitz that this occurred for a period of more than 12 years between the creation of the trust on 4 January 1999 and 30 June 2011 (at [80]).

THE APPEAL PANEL'S DECISION

1. In finding that Dr Lewkovitz had a pre-existing genuine commercial interest of the type referred to in Trendtex, the Appeal Panel said:

"84 Dr Lewkovitz's expectation, at that time, of receiving a more substantial sum if Tolicar's claim were upheld was of course subject to contingencies. These included, as Mr Stomo emphasised, the contingency that the Trustee, in its absolute discretion, might decide to distribute all of the income of the Trust to beneficiaries other than Dr Lewkovitz in the year (or years) when the proceeds of Tolicar's claim formed part of the moneys received as income by the Trust. But a 'commercial' interest may be subject to contingencies. Frequently, this is a characteristic of interests that are labelled 'commercial'. What matters is that from a practical point of view Dr Lewkovitz's expectation of receiving a larger sum of money from the Trust in due course if Tolicar's claim succeeded was distinctly greater than a mere 'hope' of a 'nebulous' nature. It was the likely outcome".

1. The Appeal Panel then quoted passages from the decision of French J in Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814; 153 FCR 509 which included observations to the following effect:

(1)   An "exhaustive discretionary trust" is one where the donee of the power of selection has a discretion only as to the time or method of making payments to the beneficiaries (Carey at [20]).

(2)   Depending upon the context in which it is used, the term "interest" may have a popular, non-technical meaning (at [33]).

(3)   "A contingent interest may be described broadly as the possibility that a right of a proprietary character will come into existence at a future time if some event occurs" (at [34]). The possibilities upon which contingent interests depend are to be distinguished from "bare or naked possibilities, eg the hope of inheritance entertained by the heir" (at [34]).

(4)   "[T]he beneficiary who effectively controls the trustee's power of selection because he is the trustee or one of them and/or has the power to appoint a new trustee has something approaching a general power [of appointment] and the ownership of the trust property" (at [37]).

1. The Appeal Panel then observed:

"89 Support for the conclusion that we have reached is to be found, we believe, in His Honour's observations [in ASIC v Carey] on each of the following topics, and in particular the last of them: (a) the distinction between exhaustive discretionary trusts (in which, like the Trust in this case, the income must be distributed each year) and non-exhaustive discretionary trusts; (b) the flexible and non-technical nature of the term 'interest'; (c) the recognition that 'contingent' interests differ from 'mere' hopes or expectancies; and (d) the proposition that if a beneficiary under a discretionary trust has the power to appoint the trustee, he or she 'has something approaching a general power and the ownership of the trust property'".

1. The Appeal Panel however made it clear that it did not base its decision on ASIC v Carey as the decision had only come to its attention after argument had concluded.

RESOLUTION OF THE APPEAL

The first question of law: genuine commercial interest

1. The authority of Trendtex in Australia was confirmed by the High Court in Equuscorp Pty Ltd v Haxton [2012] HCA 7; 246 CLR 498 at [51] - [53], [79] and [156]. In that case a lender to investors in a blueberry farm project assigned to its financier the rights that it had against the investors. Those rights included such rights as it had under allegedly invalid loan agreements between the lender and the investors and the restitutionary rights of the lender against the investors.

1. French CJ, Crennan and Kiefel JJ found the assignment of the restitutionary claims to be valid because the claims were not assigned as bare causes of action but "along with contractual rights, albeit their existence is contestable" and, seemingly as an additional reason, that the financier had a "legitimate commercial interest ... in acquiring the restitutionary rights should the contract be found to be unenforceable" (at [53]). Gummow and Bell JJ held that the financier had a relevant interest because it held a charge over the assets of the lender to secure its indebtedness to the financier and "the recovery on the restitutionary claim would, as counsel put it 'fill the gap created by the debts imploding under illegality'" (at [79]). Heydon J's reasoning on this point was to the same effect (at [156]).

1. In Trendtex, the assignee of a right of action was owed money by the assignor and had rights against the assignor referable to the assignor's right of action against a third party. This right of action was purported to be transferred to the assignee. Save for the fact that the purported assignment contemplated that the assignee might further assign the right of action (to a party that clearly did not have any genuine commercial interest in it), the House of Lords would have held that the assignment was valid because the assignee had a genuine commercial interest in the right of action as enforcement of it against the third party would have enhanced the assignee's prospect of recovery of the amounts owed to it by the assignor (at 694, 703 - 704).

1. The recent decision of this Court in Hazard Systems Pty Ltd v Car-Tech Services Pty Ltd (in liq) [2013] NSWCA 314 concerned an assignment to an insurer of causes of action in tort (and also in contract and under statute) against the supplier of allegedly defective equipment. In reliance upon Trendtex and Equuscorp, the Court held the assignment to be valid "because it supported and enlarged the existing right acquired by way of subrogation" (at [15]).

1. In each of Trendtex, Equuscorp and Hazard Systems the assignee had a pre-existing enforceable right against the assignor. Likewise, the assignee had such a right against the assignor in Re Daley [1992] FCA 395; 37 FCR 390 (right of subrogation as a result of guarantee of assignor's overdraft) and in Beatty v Brashs Pty Ltd [1998] 2 VR 201 (assignees were creditors of assignors). However in none of these cases was it suggested that a relevant genuine commercial interest could not exist in the absence of such a right. The following further authorities point against such a requirement.

1. Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Ltd [2007] FCAFC 52; 158 FCR 417 was concerned with an agreement, alleged to be in effect an agreement to assign a right of action, under which a bank was given the benefit and control of litigation against a third party. By majority, the Court held that the bank had a genuine commercial interest in the subject right of action on the basis that it was the holding company of the owner of the shares in the company that held the right of action when the right of action arose.

1. In WorkCover Queensland v AMACA Pty Limited [2012] QCA 240 a deceased worker's estate assigned a cause of action for damages for personal injury to an insurer. McMurdo P noted that although an insurer would ordinarily have a right of subrogation to the rights of the insured, the appeal was conducted upon the basis that the insurer did not in that case have any statutory or common law right of subrogation. It was accordingly a case that proceeded upon the basis that the assignee did not have any pre-existing enforceable right against the assignor. McMurdo P continued:

"[16] The cases pertaining to assignments of causes of action which I have discussed do not suggest that the concept 'legitimate (or genuine) commercial interest', which brought them within the exceptions to the rule, requires an enforceable legal or equitable right. WorkCover, as an insurer which fully indemnified its insured, Mr Rourke, clearly had a close relationship with him and, after his death, his estate. True it is that the assigned cause of action was for damages for personal injury. But it is not offensive to the interests of justice or intermeddling for some collateral reason for WorkCover to seek to recover the amount it has expended, together with costs and outlays, through pursuing the assigned cause of action against Amaca Pty Ltd. Indeed, this is entirely consistent with the interests of justice. WorkCover's interest in the assigned cause of action here, which predated the assignment, was a legitimate or genuine commercial interest, akin to an insurer's right of subrogation. There is nothing to taint the present assignment with the common law offences and torts of maintenance or champerty. For these reasons, I consider the primary judge erred in finding that WorkCover's interest in this case was not akin to a right of subrogation and did not amount to a legitimate or genuine commercial interest sufficient to support the assignment.

[17] The common law rule remains that ordinarily causes of action in tort based on a personal wrong such as personal injury are not assignable. There are still sound policy considerations for this general rule. But as this case demonstrates, even causes of action for personal injury may be assigned in unusual cases like the present where the assignee has a pre-existing legitimate commercial interest in the enforcement of the claim so that the assignee is not acting against the interests of justice as an officious intermeddler guilty of maintenance or champerty" (citations omitted).

1. This approach accorded with that of Gotterson JA (with whom Martin J agreed), whose reasoning included the following:

[66] Secondly, the pre-existing commercial interest need not be an interest which, itself, is enforceable at law or in equity. In [Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499], for example, the commercial interest that a defendant who had settled with the plaintiff had in recouping, if only partially, against another defendant who had refused to settle, was held sufficient to sustain an assignment of the plaintiff's rights against that defendant to the other defendant who had settled. The assignee's interest in recoupment was not a legally enforceable interest; yet, clearly, it was a genuine commercial interest which was in existence at the time of the assignment. Another example is found in Victoria Insurance Co v King [(1895) 4 QLJ 202] which concerned an assignment by an insured to an underwriter of causes of action against a tortfeasor in circumstances where the insured did not have a right of subrogation. The underwriter clearly had a commercial interest in recouping payment made under the policy. Griffith CJ (with whom Chubb and Real JJ concurred) was in no doubt that the assignment was valid [at 204].

...

[68] At the dates when the parties respectively executed the Deed, WorkCover had an interest in an assignment to it by the Estate of the causes of action. The interest it had was in recoupment, fully or partially, of the amount that it had paid out to Rourke by way of statutory compensation. That interest was not a legal one; but it was a genuine commercial interest. Moreover, it was an interest which arose upon payment of the compensation and well before execution of the Deed".

1. In Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd [2013] FCAFC 62, the Full Federal Court found that an assignee had a genuine commercial interest in the subject of the assignment without relying upon the existence of any pre-existing enforceable right of the assignee against the assignor. Rather, the Court cited Deloitte v JP Morgan for the proposition that "[a] holding company has a legitimate commercial interest in the enforcement of a cause of action obtained by a company which had been one of its subsidiaries when the cause of action arose, even though the ownership of the subsidiary subsequently changes" (at [28]) and had regard to the commercial context and relationships between the parties concerned.

1. It is apparent from the description given above that the Queensland Court of Appeal decision in WorkCover Queensland v AMACA specifically addressed, and determined unfavourably to Mr Dover's argument in the present case, the first of the questions of law which I identified in [5] above. As it is a decision of an intermediate appellate court of another Australian jurisdiction, this Court should follow it unless it considers the decision to be plainly wrong (Farah Constuctions v Say-Dee Pty Limited [2007] HCA 22; 230 CLR 89 at [135]; CAL (No 14) Pty Ltd v Motor Accidents Board [2009] HCA 47; 239 CLR 390 at [49] and [50]). In fact, I consider the decision to be correct. Neither authority nor principle suggests that a pre-existing genuine commercial interest can only exist for the purpose of the Trendtex principle if the assignee had a relevant pre-existing enforceable right against the assignor. The prima facie prohibition against the assignment of bare rights of action is founded upon a public policy of precluding trafficking in litigation. Trendtex recognised that that policy would not be infringed if the assignee had a pre-existing genuine commercial interest in the right of action sought to be assigned. In my view this is so whether or not that interest is constituted, or accompanied, by a pre-existing enforceable right of the assignee against the assignor. In neither type of case is the assignee acting as "an officious intermeddler" (see WorkCover Queensland v AMACA at [17] quoted in [20] above).

1. Before concluding on this issue, I should refer to two decisions upon which Mr Dover relied. One was National Mutual Property Services v Citibank Savings [1995] FCA 1628; 132 ALR 514 in which Lindgren J found that the assignee there did not have a relevant genuine commercial interest. His Honour reached that conclusion because such interest as the assignee had arose from the same arrangement of which the impugned assignment was an essential part. The interest was thus not pre-existing.

1. The second decision was that of this Court in Project 28 Pty Ltd v Barr [2005] NSWCA 240 in which the Court found that an assignee did not have a genuine commercial interest of the type found by the primary judge in that case. The primary judge had found that the assignee had not been motivated by a desire to engage in litigation funding but rather, as a developer, had acted because "it wanted to acquire the [subject land] for redevelopment". This Court held that this "mere wish" to acquire the land was "far too insubstantial and tenuous" to qualify as a relevant commercial interest. Ipp JA said in this context that such an interest must be "rights-based and not a mere hope" (at [42]). I do not consider that this observation supports Mr Dover's argument. It was not in my view intended to indicate that the assignee needed to have a pre-existing enforceable right against the assignor. Rather, it was intended to indicate that the commercial interest must be based upon some sound pre-existing legal status or right (whether or not the right is against the assignor). An example would be a shareholding in the assignor.

The second question of law: Mr Lewkovitz's interest in the trust

1. Contrary to Mr Dover's submission, I do not consider that the Appeal Panel treated Dr Lewkovitz as having a legal right to distributions from the trust. Rather, the Panel's references to ASIC v Carey were designed to emphasise the strength of Dr Lewkovitz's practical, commercial interest in the trust and its assets (see [10] - [12] above). The subsequent decision of the High Court in Kennon v Spry [2008] HCA 56; 238 CLR 366 further emphasises that position. As a result, I do not consider that the Appeal Panel erred in the second respect contended by Mr Dover.

ORDER

1. As Mr Dover has not established that the Appeal Panel erred on a question of law, his appeal should be dismissed with costs.

1. BARRETT JA: For the reasons stated by Macfarlan JA, this appeal should be dismissed with costs.

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Decision last updated: 18 December 2013