Franks v Equitiloan Securities Pty Limited

[2007] NSWSC 812

CITATION:	Franks v Equitiloan Securities Pty Limited [2007] NSWSC 812
HEARING DATE(S):	6 July 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	6 July 2007
DECISION:	“Equities” do not include cross-claims exceeding quantum of assigned obligation that would entitle obligor to damages against assignee, but only to cross-claims to extent of reducing or extinguishing assignee’s claim. Application for leave to amend cross-claim refused.
CATCHWORDS:	PROPERTY – Choses in action – assignment – (NSW) Conveyancing Act s12 – assignment “subject to all equities” – equities include set-offs, cross-claims and counterclaims – whether such equities extend to cross-claims in excess of amount of assigned obligation so as to entitle obligor to judgment for damages against assignee
LEGISLATION CITED:	(CTH) Corporations Act 2001 s 444E (NSW) Civil Procedure Act 2005 ss 58, 64 (NSW) Conveyancing Act 1919 ss 11, 12 (NSW) Limitation Act 1969 s 74
CASES CITED:	Government of Newfoundland v Newfoundland Railway Co (1888) 134 App Cass 199 Franks v Equitiloan Securities Pty Limited [2007] NSWSC 706 McDonnell & McGregor v East Limited (1936) 56 CLR 50 Mersey Steel & Iron Co v Naylor Benson & Co (1892) 9 QBD 648 Mitchell v Purnell Motors Pty Limited (1960) 78 WN (NSW) 26 Provident Finance Corporation Pty Ltd v Hammond [1978] VR 312 Re Harry Simpson and Co Pty Ltd v the Companies Act (1964) 81 WN (NSW) 207 Roxburghe v Cox (1881) 17 Ch D 520 Young v Kitchin (1878) 3 Ex D 127 Meagher, Gummow & Lehane’s Equity Doctrines & Remedies, 4th ed
PARTIES:	Phillip Maurice Franks (plaintiff) Equitiloan Securities Pty Limited (first defendant) Equitiloan Limited (second defendant) Wayne McIvor (third defendant) Mark McIvor (fourth defendant) Equitiloan Limited (first cross-claimant) Equitiloan Securities Pty Limited (second cross-claimant) Windy Dropdown Pty Limited (cross-defendant)
FILE NUMBER(S):	SC 4333/00
COUNSEL:	Mr M S Willmott SC (plaintiff/cross-defendant) Mr E Cox (defendants/cross-claimants)
SOLICITORS:	DTA Lawyers (plaintiff/cross-defendant) Tucker & Cowen (defendants/cross-claimants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Friday, 6 July 2007

4333/00 Phillip Maurice Franks v Equitiloan Securities Pty Limited & 4 Ors

JUDGMENT (ex tempore)

1 HIS HONOUR: The second defendant and cross-claimant, Equititrust Limited (formerly Equitiloan Limited), seeks leave to amend its cross-claim by filing an amended cross-claim, the effect of which would be to vary the quantum of its claim, to amend the consideration pleaded in paragraph 4(e), and to substitute the plaintiff Phillip Maurice Franks for Windy Dropdown Pty Limited as cross-defendant. The application is uncontroversial in the first two respects, which will be permitted, but is opposed so far as the substitution of Mr Franks as cross-defendant is concerned.

2 The proceedings arise from commercial transactions in the late 1990s which broke down in late 2000, whereupon Windy Dropdown, the original plaintiff, commenced these proceedings to compel the first defendant Equitiloan Securities Pty Limited to discharge a mortgage it held over Windy Dropdown’s development site at North Curl Curl, the development which was being financed by Equitiloan Securities. The mortgage was ultimately discharged not long after the proceedings were instituted, but to procure that discharge, Windy Dropdown was required to pay, under protest, an amount that included a component for what is often called penalty interest.

3 Windy Dropdown pursued these proceedings to recover, by way of restitution, first, from Equitiloan Securities, that claimed overpayment; and, secondly, from the second defendant Equititrust, an amount which it had paid to Equititrust under a profit share agreement between Windy Dropdown, Equitiloan Securities and Equititrust, being Equititrust’s profit share under that agreement in respect of lots 14 and 15 in the subdivision, which Windy Dropdown alleged it paid under a mistaken apprehension that there was an enforceable obligation to make the payment when, so it contended, any such obligation was unsupported by consideration moving from Equititrust. In due course, Equititrust brought the cross-claim against Windy Dropdown for a further $722,000, said to be its profit share under the profit share agreement in respect of lots other than lots 14 and 15.

4 Windy Dropdown went into voluntary administration, and Martin John Green and Peter Krezic were appointed its administrators. A meeting of creditors held on 13 August 2004 resolved that Windy Dropdown execute a Deed of Company Arrangement, which it did on 26 August 2004; one of the consequences was that Equititrust’s cross-claim against Windy Dropdown was stayed.

5 On 24 September 2004, Equititrust lodged a proof of debt with the deed administrators, claiming $24,000 in respect of costs awarded to it in earlier interlocutory aspects of these proceedings, and a further $722,000, being the profit share which was also the subject of its cross-claim in these proceedings.

6 On 1 September 2005, the administrators executed a deed assigning to the present plaintiff, Phillip Maurice Franks, “any claim or cause of action by WDD against Equitiloan Securities in respect of or arising out of the dealings between WDD and Equitiloan Securities in relation to the development by WDD of property, being lot 8 in Deposited Plan 224946, at Molong Street, North Curl Curl, New South Wales, including but not limited to claims which WDD has against Equitiloan Securities”.

7 On 7 April 2006, the administrators rejected Equititrust’s proof of debt in respect of the costs in part, and rejected it in respect of the profit share claim in toto. By originating process filed in proceedings 2473/06, Equititrust appealed from that decision of the administrators.

8 A further deed, dated 10 July 2006, between Windy Dropdown and Mr Franks provided that, for avoidance of doubt, the subject matter of the assignment under the deed of 1 September 2005 “includes all matters relating or arising out of” these proceedings, “including the actions by WDD against all defendants in those proceedings, being Equitiloan Securities Pty Limited, Equitiloan Limited [now Equititrust], Wayne McIvor and Mark McIvor.”

9 On 11 July 2006, the Registrar heard a contested application by which Mr Franks sought, ultimately successfully, to be substituted as plaintiff for Windy Dropdown, its causes of actions having been assigned to him. During the course of the discussions between counsel about the matter that day, Mr McHugh, junior counsel for the defendants, who appeared that day for them; said to Mr Sneddon, junior counsel for Mr Franks: “You cannot take the benefit of the assignment without also taking its burden too”, to which Mr Sneddon replied, “We do take the burden – if we lose, we will be liable for costs”.

10 During June, July, August and September of 2006 there was disputation between the parties as to the sequence in which the appeal from the administrators’ rejection of the proof of debt, and the cross-claim in these proceedings – each of which concern and pertain to the same issues – should be heard. At one stage, Equititrust’s appeal was set down for hearing on 4 August 2006 before Barrett J; that was later adjourned, to be heard before White J on 7 and 8 November 2006.

11 Before 7 November 2006 there were further discussions between the parties on the same issue, whether the appeal should proceed before the hearing of the cross-claim or should be deferred. Apparently in the context of those discussions, on 4 September 2006, Tucker & Cowen, solicitors for Equitiloan Securities and Equititrust, wrote to DTA Lawyers, for Mr Franks, relevantly as follows:

Our client may wish to persist with its counter claim. There are certain considerations which bear upon this. Obviously, one consideration is the outcome of the appeal against the administrators’ rejection of our client’s proof of debt. Another consideration is whether Mr Franks, by substituting in the proceedings, has thereby made himself liable on the counter claim. We think rather that he has.

12 As I have said, Equititrust’s appeal against the rejection of its proof of debt was fixed for hearing before White J to commence on 7 November 2006. The present proceedings had not yet been fixed for hearing, but a callover was imminent and the parties had further discussions about the manner and sequence in which both cases should proceed. At that stage, Equititrust did not have leave to proceed with its cross-claim against Windy Dropdown, which leave was required by (CTH) Corporations Act 2001, s 444E. One of the proposals under discussion involved the possibility that Equititrust would defer prosecuting the appeal against the rejection of its proof of debt, and instead obtain leave to prosecute its cross-claim against Windy Dropdown in these proceedings, and that Equititrust and the administrators would agree to be bound by the decision of the Court in these proceedings, for the purposes of the appeal.

13 When the parties appeared before White J on 7 November 2006, his Honour made no orders (as some formalities concerning the draft orders required further attention), but the hearing of the appeal did not proceed and it is plain that all parties then envisaged that the hearing of the cross-claim would proceed first, that Equititrust would be given leave to prosecute the cross-claim against Windy Dropdown, and that the hearing of the appeal from the rejection of the proof of debt would abide the outcome of the cross-claim, in respect of which the administrators agreed to be bound by the Court’s decision.

14 Although it was envisaged that his Honour would make orders in chambers when short minutes were brought in, that had not been done when the matter came before me for pre-trial directions on 6 February 2007. I then, by consent, made the following directions:

1. Subject to paragraph 2, below, pursuant to section 444E(3) of the Corporations Act 2001, leave be granted to the Cross-Claimant, Equititrust Limited (formerly known as Equitiloan Limited) to begin and proceed with its Cross-Claim against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement).
2. The leave granted in paragraph 1, above, is conditional upon Equititrust Limited not taking any step to enforce any judgment obtained by it in relation to its Cross-Claim against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement) without further leave of the Court.
3. Pursuant to section 237(2) of the Corporations Act 2001, leave be granted to Phillip Maurice Franks to defend the Cross-Claim by Equitiloan Limited against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement), on behalf of Windy Dropdown Pty Limited (subject to Deed of Company Arrangement).

15 I also made, by consent, further directions by way of pre-trial directions, which provided, inter alia, for the plaintiff to file and serve a further amended Statement of Claim by 12 February, the defendant to file a Defence thereto by 16 February together with any reply to the Defence to the cross-claim, and permitting both parties to serve additional evidence. Significantly, the directions did not contemplate any amendment to the cross-claim; and given my practice at pre-trial directions of clarifying what, if any, amendments to the pleading are proposed, it can be inferred that no amendment to the cross-claim was then envisaged.

16 However, ten days later, on 16 February 2007, Equititrust’s solicitors wrote to Mr Franks’ solicitors, as follows:

Out of an abundance of caution our clients sought and obtained consent orders in terms of the short minutes of order signed on behalf of the administrators, your client and ours. Notwithstanding this, we put your client on notice that at the trial of these proceedings our client will be proceeding on the cross-claim directly against Mr Franks and will be seeking judgment against him. On established principle, a cross-claim is available against the assignee.

17 On 22 February 2007, Equititrust’s solicitors forwarded by e-mail to Mr Franks’ solicitors drafts of a Reply to the Defence to Cross-Claim, leave to file which had been granted at the pre-trial directions hearing, together with a proposed Amended Cross-Claim and a proposed Second Amended Defence. The significant aspect of the proposed Amended Cross-Claim was then, as it is now, that it would substitute Mr Franks personally for Windy Dropdown as the cross-defendant in respect of the claim for further profit share of some $722,000.

18 On 14 March 2007, Tucker & Cowen again wrote to DTA Lawyers, referring to the correspondence of 22 February, indicating that the Reply to Defence to Cross-Claim had been filed and served, observing that advantage had not been taken of the order permitting the filing of a Further Amended Statement of Claim, and noting that, as there was no order permitting the filing of an Amended Cross-Claim, it had not been filed. They indicated that leave to file the Amended Cross-Claim would be sought at the commencement of the trial, and proposed that copies of the proposed amended pleading be provided to the Court in advance “given that we understand your counsel offers no objections to the filing of amended pleadings”. There appears to have been no meaningful response to any of this correspondence. I do not understand it to have been asserted, then or since, that at any stage it was clearly said before the commencement of the trial on 10 April that the proposed amendments would be opposed, although I similarly do not understand it to be asserted that it was ever clearly indicated that they would not be opposed.

19 It was in that state of affairs that the final hearing commenced before me on 10 April this year, when counsel for both parties opened their cases, tendered the documentary material and read the affidavit evidence. That there would be an application for leave to amend by filing the proposed Amended Cross-Claim was adverted to on a number of occasions during the first day of the hearing, the ultimate position being that it was to be dealt with on the morning of the second day. No oral evidence had yet been taken.

20 On 11 April 2007, counsel for Mr Franks applied for an adjournment of the hearing of the application for leave to amend the Cross-Claim and, as a consequence, of the final hearing of the proceedings. For reasons which I gave at that time [[2007] NSWSC 706], I acceded to that application, and I reserved the question of costs of the application and of the costs thrown away by the adjournment, to the hearing which has taken place today. The application for leave to amend was stood over to today, with some directions for its preparation in the meantime.

21 On an application for leave to amend, the starting point is provided by (NSW) Civil Procedure Act 2005, s 64, namely that subject to s 58, all necessary amendments are to be made for the purpose of determining the real questions raised or otherwise depending on the proceedings, correcting any defect or error in the proceedings, and avoiding multiplicity of proceedings. The reference to s 58 picks up the injunction to the Court that, in deciding whether to make any order or direction for management of proceedings, including any order for the amendment of a document, the Court must seek to act in accordance with the dictates of justice. Section 58 then identifies various relevant considerations to which the Court must or may have regard; without reciting them in detail, on an application such as the present those considerations include whether the proposed amendment is sufficiently arguable to justify a grant of leave to amend, whether the grant of such leave would be unduly prejudicial to the other party, and the comparative delinquency of the parties in procedural aspects of the proceedings.

22 For Mr Franks, Mr Willmott SC submits that there are three grounds on which leave to amend should in this case be refused: the first is that the proposed amendment would, in the circumstances, be futile; the second is that it is contrary to an agreement made between the parties in November 2006 as to the future conduct of the proceedings; and the third is that Equititrust is estopped from seeking such leave to amend.

23 So far as the first ground is concerned, the essence of the argument is that an obligor cannot, on a cross-claim against an assignee of the obligation, recover more than the assignee recovers on the claim against the obligor. In other words, it is said that Equititrust would not be entitled to a judgment against Mr Franks on its cross-claim in excess of the amount which Mr Franks recovers on his claim against Equititrust, and as the only circumstance in which the cross-claim against Mr Franks could succeed is that his claim against Equititrust fails – because each is the converse of the other – there could be no situation in which the cross-claim could result in a judgment in favour of Equititrust.

24 This argument depends on the effect of (NSW) Conveyancing Act 1919, s 12, in respect of the assignment of a chose in action (upon which the two deeds, to which I have referred, rely). It provides as follows:

Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose of action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would be entitled to receive or claim such debts or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor…

25 I accept that the reference to “equities” in this context is not to be narrowly interpreted, and not only includes defences which may be raised by way of set-off, but also extending to cross-claims and counter-claims that the person subject to the assigned obligation is entitled to set up in opposition to the claim of the person entitled to its benefit [Meagher, Gummow and Lehane’s Equity Doctrines & Remedies, 4th ed, [6-500]; Roxburghe v Cox (1881) 17 Ch D 520; Mitchell v Purnell Motors (1960) 78 WN (NSW) 26; Young v Kitchin (1878) 3 Ex D 127; McDonnell & McGregor v East Limited (1936) 56 CLR 50, 60]. But, in my view, both authority and principle establish that it does not extend to make an assignee liable in damages to the obligor in excess of the amount to which the assignee is entitled on the assigned claim.

26 So far as authority goes, the starting point is Young v Kitchin, in which Cleasby J held that the defendant/obligor was not entitled to recover any damages against the plaintiff but was entitled, by way of set off or deduction from the plaintiff’s claim, to the damages which he had sustained by the assignor/obligee’s non-performance of the contract. With reference to a statutory provision corresponding to s 12, his Lordship said (at 130) (emphasis added):

In substance, I think the defendant is entitled to the benefit of this defence in reduction of the plaintiff’s claim .

27 His Lordship considered that the reference to “equities” in the section was a reference to “all equities which would be enforced in a Court of Equity. I think this is a case where, in equity, the whole matter might be dealt with and the plaintiff’s claim settled, after deducting all that ought to be deducted in respect of the failure to complete and deliver the buildings.” On the form of the defence and counter-claim, and having observed that the form followed was that of a counter-claim in an ordinary case where the plaintiff sued not as assignee of a chose of action, and the defendant was entitled to judgment for the balance of the counter-claim if it overtopped that of the plaintiff, his Lordship said “But this is not the case here; the defendant has no claim to recover anything against the plaintiff; he only meets the plaintiff’s claim by a counter-claim of damages arising out of the same contract, and this ought to appear upon his defence and counter claim”. The defendant was therefore required to amend the counter-claim by showing on the face of it that he did not claim to recover damages against the plaintiff, but only to set them off against the plaintiff’s claim.

28 Young v Kitchin was referred to, with approval, by the Privy Council in Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cass 199, 213, but the present point did not arise in that appeal. However, exactly the same result was reached by Jacobs J, when a judge of this Court, in Mitchell v Purnell Motors Pty Limited (1961) 78 WN (NSW) 26. The facts were very similar to those in Young v Kitchin. His Honour said (at 28-29):

The answers to all these questions are resolved by a consideration of the rights and liabilities of the trustee to whom the contractual right has been assigned. The trustee thereby became the assignee of the chose in action. The consequence in law can be expressed in two propositions: (1) the assignee can only recover the amount, if any, which remains after deducting all that ought to be deducted in respect of the failure to complete and deliver the buildings; (2) the building owner has no right to recover anything against the assignee; it can only meet the assignee’s claim by its right to set off the deductions last referred to.

…

In my view, the assignment of the chose in action is effected under the general law enacted in the Conveyancing Act , s 12, with the consequence with which I shall now deal. By the terms of that section the assignee takes ‘subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not been passed’.

Within a very few years of the first enactment in England of a provision in terms similar to s 12 the precise points which have been submitted in this case stated were determined in Young v Kitchin . In that case the statement of claim alleged the plaintiffs sued as assignees by deed of a debt due from the defendant to the assignor of the building contract. The defendant pleaded by way of set-off and counter-claimed that he was entitled to damages for breaches of account by the assignor to build and deliver the buildings at the specified time whereby the defendant lost the use of them. The plaintiff demurred to so much of the defence as alleged breaches of contract by the assignor. And it was argued on the plaintiff’s behalf that the plaintiff demurred and could not be allowed other than as a set off or as a counter claim. It was held that the defendant was not entitled to recover any damages against the plaintiff. It was entitled by way of set off or deduction from the plaintiff’s claim to the damages which he had sustained by the non-performance of the contract by the assignor.

29 Applying that to the case before him, Jacobs J concluded (at 29) that while the whole of the assigned debt may be absorbed in the set off of damages, nonetheless if the damages were proved to exceed the debt, no award of damages in respect of the excess could be made against the assignee.

30 Mr Cox, for Equititrust, frankly conceded that he had been unable to find any case to the contrary of Young v Kitchin or Mitchell v Purnell Motors, but argued that the rationale of those cases was not apparent, and that if the true basis of s 12 was that an assignee could not take the benefit of any assignment without the accompanying burden, then it was at least sufficiently arguable that they were wrong to justify permitting the matter to go to final hearing – and, thus, allowing the amendment for that purpose.

31 First, it has to be said that while the two cases to which I have referred are only decisions at first instance, they have stood, so far as I can tell unquestioned and uncriticised, for many years. Secondly, I think they do have a fairly clear rationale. The reason why s 12 makes an assignment subject to the equities is in order that the obligor is no worse off, and the assignee no better off than was the assignor prior to the assignment. This was explained, also by Jacobs J, in Re Harry Simpson and Co Pty Ltd v the Companies Act (1964) 81 WN (NSW) 207, in which his Honour said (at 209):

However, I think that that assignment is, in accordance with s 12, subject to the equities attaching to the original debt. In the context of s 12 I think the word “equities” has to be given a wide meaning and it has been said that the assignee can be in no better position than the assignor was prior to the assignment.

32 The reference to “it has been said” is probably a reference to the dictum of Lord Jessell MR in Mersey Steel & Iron Co v Naylor Benson & Co (1892) 9 QBD 648 (at 664) in which, in the context of an assignment to a trustee in bankruptcy, his Lordship said:

Judges have said that the assignee in bankruptcy, as he was then called, was not to be in a better position by bringing an action than if the claim had been made in the bankruptcy court.

33 The preserving of the “equities”, by s 12, means that the obligor can raise against an assignee all matters that he could have raised against the assignor in extinguishment or reduction of the liability. This ensures that the obligor does not become liable to pay the assignee a sum which, because of an available set-off or counter-claim, it would never have had to pay to the assignor. But that is not to say that the obligor should be better off. The obligor retains its rights against the assignor, who remains primarily liable on any counter-obligation. This leaves the obligor in no worse position than would have been the case in the absence of an assignment. As against the assignee, the obligor retains the benefit of the defences it would have had against the assignor. That extends to defences by a way of cross-claim, which can be set off in extinguishing or reduction of the obligor’s liability, but it does not extend to improving the obligor’s position by creating new rights to sue the assignee, in circumstances where those rights lie against the assignor. Liabilities, unlike assets, are not capable of assignment. It is consistent with this that the idea of an equity, in this context at least, is that while it impeaches the right of the assignee, it does not create a right in the obligor. Although it is not directly on point, some observations of Lush J in Provident Finance Corporation Pty Ltd v Hammond [1978] VR 312 also illuminate the position. His Honour said (at 319):

The essential concept of an equity in this context is that it is a transaction or event or circumstance which entitles the debtor to say that it is unjust that the debt should be enforced against him without bringing into account his cross-claim arising from the transaction, event or circumstance. In some cases, e.g. Athenaeum Life Assurance Society v Pooley (1858) 3 De G and J 294, the equity would have been enforced by restraining the creditor or his assignee from suing at law. The result seems to have been that the whole dispute was then dealt with in the Chancery courts, even if the chose sued upon was a legal chose.

34 This tends to show that the equities spoken of are defensive, being matters which justice requires be brought to account in permitting a claim to be enforced. It does not support the view that the equities are “offensive” ones creating new rights or improving the position of the obligor.

35 The only basis upon which the contrary has been advanced is that. with the benefit of the assignment, comes the burden. But, once again, liabilities are not capable of assignment, and the fact that a right is assigned does not mean that a corresponding liability is assigned with it, even if closely connected to it.

36 What s 12 does is to ensure that the ability to set up such a corresponding liability, in extinguishment or reduction of the assigned right, is preserved. The cases in this territory do not speak in the language of benefit and burden. Rather, the concept is analogous to assignment of property subject to equities generally. An assignee of property subject to a charge does not, by accepting the assignment, become personally bound by the covenants in the charge. The assignee takes the property subject to the encumbrance, and the third party chargee retains its rights against the property; but by taking an assignment, the assignee does not make itself liable to the chargee on the personal covenants in the charge. This, I think, is closely analogous to how s 12 works.

37 Mr Cox argued that this might all depend on the facts and on the particular construction of the assignment in question, but I do not agree. The question is one of principle. I cannot see how the precise form and wording of a deed of assignment between assignor and assignee could affect the obligor’s rights and, in particular, what equities the obligor could raise.

38 The proposed cross-claim in this case is not a claim in reduction or extinguishment of the plaintiff’s claim; rather, it is the converse of the plaintiff’s claim. The only situation in which the proposed cross-claim could succeed would be one in which the plaintiff’s claim against the second defendant failed. In those circumstances, there would be no amount to which Mr Franks would be entitled, which could be reduced or extinguished by a successful cross-claim. Accordingly, there is no situation in which the proposed amendment can avail Equititrust against Mr Franks. It is, therefore, without utility and on that basis, I would refuse leave to make the amendment substituting Mr Franks for Windy Dropdown as cross-defendant.

39 Having reached that conclusion, I shall deal with the other issues in a more abbreviated form. As I have said, the parties were over a period of some months, in dispute as to whether the cross-claim brought by Equititrust against Windy Dropdown, or Equititrust’s appeal from the rejection of its proof of debt, would proceed first and provide the medium for resolving whether and to what extent Windy Dropdown was liable to Equititrust. At first, it seems that the view was taken that the cross-claim should proceed first. Then later, the view prevailed that the appeal should proceed first appears to have prevailed. Finally, it seems that the parties again agreed that the cross-claim should proceed first.

40 However, this dispute was about the procedural mechanism for litigating the issue as to whether or not and, if so, to what extent, Windy Dropdown was liable to Equititrust for profit share. I am inclined to think, but I need not decide that the outcome, agreed by the parties before White J, was misconceived in circumstances where a proof of debt had already been lodged and rejected. But this dispute, and its resolution, was quite silent as to the entitlement of Equititrust to set up in answer to a claim made against it – whether by Windy Dropdown or by an assignee of Windy Dropdown – such claims as Equititrust might have against Windy Dropdown.

41 The contrary argument involves attributing to the parties an implied agreement, or at least a common assumption, that Equititrust’s “equities” under s 11 were to be released. There is no apparent reason why Equititrust would release its equities under s 11. There is nothing in the evidence to suggest that the parties discussed or contemplated that Equititrust would not retain those rights. There is some slight reference in the material which I have summarised to the possibility that such a claim might be brought, but none to the idea that it was ever abandoned. The circumstance that the parties vacillated between the procedural mechanisms that might be used to determine the extent of Equititrust’s rights against Windy Dropdown does not imply that they were contemplating at the same time whether Equititrust would be entitled to set off any such rights in extinguishment or reduction of a claim that Windy Dropdown might have against it and assign to Mr Franks. I would, therefore, not have refused the amendment on the second and third grounds argued.

42 Nor would I have done so on the ground of undue prejudice. Two potential grounds of prejudice were identified. The first was that, so it was said, on the faith of the matter proceeding without him being joined as a defendant to the cross-claim, Mr Franks gave instructions for consent to Equititrust having leave to prosecute the cross-claim against Windy Dropdown. In the course of argument, I think it was accepted and, in any event, it is plainly correct, that no such consent or leave was required for the purpose of bringing a cross-claim against Mr Franks who, of course, is not himself in liquidation or otherwise the subject of insolvency administration.

43 The other ground of prejudice adverted to was the possibility that causes of action otherwise statute-barred would be resurrected. It appears at least possible that part, but a relatively small part, of Equititrust’s cross-claim arose more than six years before the date on which any order granting leave to amend would be made, although within six years before the application for leave to amend was made on 10 April this year. It is probably a consequence of the (NSW) Limitation Act 1969, s 74, that if Mr Franks were joined, a cross-claim against him would be taken to have been commenced on the day when he first became a party to the proceeding as plaintiff, and that there be no limitation problem in that respect. In any event, in circumstances where he had taken the benefit of the assignment of a claim commenced many years ago, it is very difficult to see that, taking “subject to the equities”, he would be permitted to invoke a limitation defence that was not available to the assignor. Had I otherwise been of the view that leave to amend ought to be granted, I would have made the order with effect from 10 April 2007, in which event there would have been no question of a limitation difficulty.

44 But because, in my view, the proposed amendment would be futile, I will refuse leave to amend. I will hear the parties on the question of costs including the reserved costs.

[Counsel addressed on costs]

45 On the application for leave to amend, the defendant has failed and, prima facie, should bear the costs of the application. However, those costs have been increased – and, it seems to me, significantly increased – by issues on which the plaintiff has itself failed, which were the issues on which factual investigation was required and on which evidence was adduced, and which necessitated the vacation of the hearing. The delinquency of both parties significantly contributed to the need for the hearing to the vacated: the defendants, by leaving their application for leave to amend until unacceptably late after the pre-trial directions hearing, and the plaintiff by not responding in a timely manner after that late application was notified. In circumstances where ultimately the application for leave to amend failed, so that it can now be said that the plaintiff’s application to vacate the hearing was occasioned by Equititrust’s late and unsuccessful application for leave to amend, I do not think that any order in respect of the costs thrown away by the vacation is warranted; each party should be left to bear their own costs occasioned by the vacation of the earlier hearing.

46 While the plaintiff successfully opposed the application for leave to amend, I do not think that the plaintiff should recover the whole of its costs of the application for leave to amend, since those costs were increased by the issues on which it failed.

47 I make no order as to the costs thrown away by the vacation of the hearing on and following 11 April 2007. I order that the defendant pay one half of the plaintiff’s costs of the application for leave to amend, including of today.

48 I adjourn the proceedings to Friday 24 August 2007 at 10am before me for directions, following the Expedition List.

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