Garlick v Kerbaj (No 3)
[2023] VSC 147
•30 March 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 02573
BETWEEN:
| DARRYN GARLICK (as Representative of the estate of JACK JOHN ERMAN) | Plaintiff |
| v | |
| DANIEL KERBAJ & Ors (according to the attached Schedule) | Defendants |
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JUDGE: | Matthews AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 March 2023, last of the supplementary submissions filed 28 March 2023 |
DATE OF RULING: | 30 March 2023 |
CASE MAY BE CITED AS: | Garlick v Kerbaj & Ors (No 3) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 147 |
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PRACTICE AND PROCEDURE – Application by former solicitor for two parties to be substituted for them as party to the proceeding as a consequence of an assignment – Whether assignors should remain parties to the proceeding where the assignment is an equitable assignment rather than a legal assignment – Jurisdiction to order substitution enlivened – Special circumstances exist so as to justify assignors not remaining as parties – Potential for conflict with earlier ruling restraining solicitor from acting in this proceeding (Garlick v Kerbaj & Ors (No 2) [2022] VSC 778) – Substitution ordered, subject to conditions so as to not bring the administration of justice into disrepute – Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (2018) 58 VR 1 – Culve Engineering Pty Ltd v Apollo General Engineering (Aust) Pty Ltd (in liq) (2017) 53 VR 219 – Timbercorp Finance Pty Ltd (in liq) v FTM Nominees Pty Ltd [2015] VSC 498 – Property Law Act 1958 (Vic), s 134 – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 9.09(2)(a).
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APPEARANCES: | Counsel | Solicitors |
| The Applicant (Patrick Lennon) in person | ||
| For the First Defendant | Mr S Clemens of counsel | EC Legal |
HER HONOUR:
Introduction
By summons filed 1 March 2023, Patrick Lennon (‘Lennon’) applies for orders that he be substituted for the Third and Fourth Defendants in this proceeding, pursuant to r 9.06 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’); alternatively that he be given leave to prosecute the claims of the Third and Fourth Defendants in the proceeding (‘Application’). The Application is supported by two affidavits sworn by Lennon on 1 and 15 March 2023, an affidavit sworn 1 March 2023 by the Third Defendant and an affidavit sworn 1 March 2023 by the Fourth Defendant.
The Application came on for hearing on 10 March 2023. On that date, Lennon appeared and made submissions in support of the Application. The First Defendant appeared, by his counsel, and opposed the Application. No other party appeared. After hearing submissions, I made orders that Lennon file and serve a further affidavit by 15 March 2023, the First Defendant file and serve a short supplementary outline by 20 March 2023, and Lennon file and serve a short supplementary outline in reply by 23 March 2023. Lennon filed a further affidavit and the First Defendant filed a supplementary outline by the dates stipulated. Lennon had not filed a supplementary outline in reply and so on 27 March 2023, I had my Associate inform the parties that Lennon’s supplementary outline must be filed by 4:00 pm on 28 March 2023 and that I would make a decision on the papers after that time. Lennon’s supplementary outline in reply was filed within that extended time.
The background to this proceeding is set out in two previous rulings delivered by me in 2022: Garlick v Kerbaj & Ors;[1] and Garlick v Kerbaj & Ors (No 2),[2] and familiarity with those rulings is assumed.
[1][2022] VSC 336 (‘Overpayment Ruling’).
[2][2022] VSC 778 (‘Restraint Ruling’).
Evidence and submissions
In Lennon’s first affidavit, he deposes that on 7 February 2023, he executed a deed of assignment (‘Deed’) whereby the Third and Fourth Defendants assigned all of their right title and interest in their claims in this proceeding to him for the consideration set out in the Deed and on the terms and conditions set out in the Deed. He deposes that he paid the consideration to the Third and Fourth Defendants on 26 February 2023. Lennon deposes that he is entitled under the Deed to prosecute the proceeding in his own name or in the name of the Third and Fourth Defendants. He also deposes that on 17 February 2023, he sent an email to the other parties in the proceeding providing formal notice of the assignment and inviting their views, including as to any need to change the name of the parties to give effect to the assignment and that he intended to act on his own behalf. A copy of the Deed is exhibited to this affidavit.
At the hearing on 10 March 2023, Lennon submitted that:
(a) the Third and Fourth Defendants’ debt claim against Erman and Cohen has been assigned to him;
(b) in this proceeding the Third and Fourth Defendants pursue the residue of their debt;
(c) if he is substituted for the Third and Fourth Defendants in the proceeding, they will still be able to swear affidavits and give evidence at trial, and they have confirmed this in their affidavits; and
(d) he should be substituted for them in light of the assignment.
The First Defendant’s counsel informed the Court that he was instructed to oppose the Application, due to there being insufficient evidence regarding the validity of the assignment, a lack of clarity about what was being assigned, and what role Lennon would be taken on. The First Defendant submitted that:
(a) for a substitution order to be made, the Court has to be satisfied that a valid assignment has occurred, referring to Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd;[3]
[3](2018) 58 VR 1 (‘Pentridge’).
(b) a valid assignment under s 134 of the Property Law Act 1958 (Vic) (‘PLA’) requires notice of the assignment to the debtor for it to be effective. Here, there is no evidence that notice has been given to Erman’s estate, acknowledging that there was notice given to Garlick who is Erman’s legal personal representative for the purposes of this proceeding but he is not the executor or the legal personal representative of the estate for all matters;
(c) there is a lack of clarity about what is being assigned, since it is not clear what is left for the Third and Fourth Defendants in this proceeding. If Lennon has taken an assignment of the Third and Fourth Defendants’ legal costs of the default under the loan to Erman, then Bell Lawyers Pty Ltd v Pentelow[4] may apply; and
(d) Lennon prosecuting the claims for or in the name of the Third and Fourth Defendants gives rise to a potential conflict with the decision made by the Court to restrain Lennon and his firm, Lennon Lawyers, from acting for any party in the proceeding. In this regard, the First Defendant was referring to the Restraint Ruling and the consequent orders made on 21 December 2022 (‘Restraint Orders’).
[4][2019] HCA 29 (‘Bell Lawyers’).
In response, Lennon submitted that:
(a) what was being assigned was the residue of the debt, which was about $30,000 to $40,000 at the time;
(b) notice of the assignment has been given to Garlick and Cohen is aware of it, but he is happy to put on a further affidavit about this; and
(c) if there is an issue arising out of the Restraint Ruling or the Restraint Order, then he is happy to have lawyers represent him.
The First Defendant replied that whether to allow the substitution is plainly a discretionary matter for the Court, and a condition such as the one suggested by Lennon would address, at least somewhat, the concerns in respect of the restraint.
In his second affidavit, Lennon deposes that:
(a) he had provided notice of the assignment to Garlick as he has been substituted for Erman as the original plaintiff in the proceeding;
(b) he is not aware of any legal representative having been appointed in relation to Erman’s estate;
(c) he is unable to provide Erman or his lawful representative notice of the assignment;
(d) he emailed Cohen notice of the assignment on 17 February 2023; and
(e) other than the First Defendant’s objection made at the hearing on 10 March 2023, he has not received any communication from anyone objecting to the assignment of the debt claim of the Third and Fourth Defendants.
In his supplementary outline of submissions, the First Defendant submits that:
(a) the power to order substitution is discretionary.[5] Where the discretionary power is enlivened as a result of an assignment, although it is not mandatory to order substitution, absent disentitling circumstances a substitution order should be made.[6] Disentitling circumstances might be constituted by matters arising under the Civil Procedure Act 2010 (Vic) (‘CPA’), including where a continuation of the proceeding would contravene or be inconsistent with that legislation;[7]
[5]Pentridge, 14-18.
[6]Culve Engineering Pty Ltd v Apollo General Engineering (Aust) Pty Ltd (in liq) (2017) 53 VR 219, [59] (‘Culve’).
[7]Culve, [61].
(b) the concerns raised at the hearing on 10 March 2023 as to the lack of clarity about what is being assigned by the Third and Fourth Defendants to Lennon have not been addressed by Lennon in his second affidavit, despite having the opportunity to do so, and granting the Application is therefore not consistent with the just, efficient, timely and cost-effective resolution of the real issues in dispute. The First Defendant has an application for summary judgment against the Third and Fourth Defendants listed for hearing on 5 June 2023 and a central pillar of that application is that as a consequence of the overpayment to the Third and Fourth Defendant in June 2020, there is no proper basis for their claim to continue. The First Defendant says that absent evidence from Lennon that there is utility in the substitution order being made, that is, an explanation of what claims he seeks to prosecute, the Application ought be refused;
(c) this is enhanced by the findings set out in the Restraint Ruling, which are disentitling conduct;
(d) where an alleged assignment is relied upon for the substitution of a party, it is a threshold condition to the enlivening of the discretionary power that the application establish the existence of an assignment, not merely allege that it has occurred;[8]
[8]Pentridge, 12-18, 34-37.
(e) there is an issue as to whether notice of the assignment has been given to Erman versus notice being given to his representative for the purpose of this proceeding only;
(f) an assignment is deemed to be effective at law only if express notice is given to ‘the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action’;[9] and
(g) there may nevertheless be an equitable assignment absent notice to the debtor (cf. a legal assignment) which may entitle the recipient of that equitable interest to bring proceedings in their own name. There is some conjecture in the authorities about the procedure for the recipient of an equitable assignment to bring proceedings in such circumstances: see summary by Judd J in Timbercorp Finance Pty Ltd (in liq) v FTM Nominees Pty Ltd,[10] including whether the assignors ought to remain party to the proceedings to avoid the prospect of double recovery and the requirement of notice to be given to the debtor.
[9]PLA, s 134.
[10][2015] VSC 498, [10]-[26] (‘Timbercorp’).
In his supplementary outline in reply, Lennon submits that:
(a) it is difficult to discern what ‘disentitling circumstances’ within the meaning of Culve that the First Defendant relies upon. The First Defendant suggests that it arises from the earlier rulings, but no articulation of the conduct relied upon by the First Defendant is provided;
(b) the Deed clearly identifies what is being assigned and that the Third and Fourth Defendants have assigned the residual of the Debt being the outstanding costs and interest arising out of the loan with Erman and Cohen. He also says that the proposition that the First Defendant’s summary dismissal application against the Third and Fourth Defendants being extant is a basis to resist the Application for substitution has no merit;
(c) as he stated at the hearing, he is content to abide by a condition that independent lawyers be appointed;
(d) notice of the assignment, as is required for an assignment of the legal interest, has occurred. His affidavits depose to service of notice of the assignment on Cohen and on Garlick and that he has spoken with both and they have consented to it; and
(e) if the Court does not accept that notice of the assignment has occurred, then there has been an equitable assignment of the Third and Fourth Defendants’ claims, although that is not the primary position.
Consideration
The Application is stated, in the summons filed 1 March 2023, to be made pursuant to r 9.06 of the Rules. This appears to be an error, as it is r 9.09 which provides, inter alia, for substitution of a party due to an assignment. Relevantly, r 9.09(2) of the Rules provides that where at any stage of a proceeding the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may order (a) that the other person be added as a party to the proceeding or made a party in substitution for the original party; and (b) that the proceeding be carried on as so constituted.
Accordingly, I will treat the Application as if made pursuant to the correct Rule, being r 9.09(2).
Before turning to the Application, I note for the record that following the Restraint Ruling and the Restraint Orders, Lennon Lawyers filed a notice of ceasing to act for the Plaintiff, Third Defendant and Fourth Defendant in the proceeding on 30 January 2023.
I accept the First Defendant’s submissions as to the power to substitute a party being discretionary and as to the usual approach regarding substitution as a result of an assignment, as set out in paragraph 10(a) above.
I do not accept the First Defendant’s submissions that there is a lack of clarity about what is being assigned, since it seems tolerably clear to me from the recitals to the Deed and the definition of ‘Debt’ contained therein that what was assigned was the residual debt, default costs and interest arising from the loan to Erman and Cohen. Any lack of clarity is not in terms of what was assigned under the Deed. Rather, it arises from events which have occurred since June 2020, including since delivery of the Overpayment Ruling. The Third and Fourth Defendants have not made clear what claims they now press in light of those events. I do not consider the assignment itself to be a disentitling reason for refusing substitution. To the extent that clarification of the claims now pressed in the proceeding requires clarification, that can be dealt with in accordance with the ordinary processes of the Court. The First Defendant’s submission about the application of Bell Lawyers is similarly a matter for the ordinary processes of the Court.
Further, I do not consider the Application for substitution is something that cuts across the First Defendant’s summary judgment application or that the former can be used as a proxy for the latter.
I am greatly concerned as to whether granting the Application is inconsistent with, or in conflict with, the Restraint Ruling. I am also concerned about ensuring that the interests of the administration of justice, a key factor in respect of the Restraint Ruling, are not undermined by allowing Lennon to be substituted for the Third and Fourth Defendants. In my view, allowing Lennon to be substituted for the Third and Fourth Defendants would, absent any conditions, be contrary to the Restraint Ruling and may bring the administration of justice into disrepute. The substitution cannot be a means of Lennon, and the Third and Fourth Defendants, getting around the operation of the Restraint Ruling and the Restraint Orders. Accordingly, if the Application is granted, it must be on condition that Lennon may participate in the proceeding only through an independent solicitor (for example, he cannot act for himself or have another lawyer from Lennon Lawyers act for him).
I am fortified in this view by Lennon’s supplementary outline in reply. While the summons and affidavits relied on by Lennon have all been filed on behalf of Lennon, the supplementary outline in reply is stated in the formal part of the document to have been filed on behalf of the Third and Fourth Defendants. Further, parts of this outline contain phrases such as ‘the Third and Fourth Defendants contend that the position in Culve Engineering …’; the ‘Third and Fourth Defendants submit that there is no conduct of Patrick Lennon that in fact exists to justify any so called “disentitling conduct”’; and Lennon and the Third and Fourth Defendants ‘are content to abide by a condition of the granting of the Substitution Application that independent lawyers be appointed’.[11] These submissions are not being made on behalf of the Third and Fourth Defendants, and they ought not have been written as if they were. It is as if Lennon has conflated his role and is now making submissions on his own behalf and on behalf of the Third and Fourth Defendants. He has no business making any submissions on behalf of the Third and Fourth Defendants now that he no longer acts as their solicitor in this proceeding. While he appears to have signed the outline in his personal capacity, that does not alleviate my concerns and I consider it imperative that the condition I have referred to be imposed when granting leave for him to substitute for the Third and Fourth Defendants as parties in this proceeding.
[11]Similar phrases are used elsewhere in this outline, but in the context of outlining what the Third and Fourth Defendants’ claims in the proceeding are, which use is appropriate. The ones I have described are not.
It seems to me that there has been an equitable assignment here rather than a legal one. This is because the requirements for a legal assignment are strict: notice must have been given to the debtor. Here, there is no issue that Cohen (one of the debtors) has been given notice. However, there is no evidence that notice has been given to the legal personal representative for Erman’s estate since, as Lennon deposes, he does not know if there is such a person and the notice has been given to Garlick but his status as representative for Erman is in respect of this proceeding only.
That raises the question as to whether the assignee (i.e., Lennon) can be substituted in the proceeding for the assignor (i.e., the Third and Fourth Defendants). It is clear from the discussion in Timbercorp[12] that an equitable assignee can sue the debtor but that ordinarily there is a procedural requirement that the assignor is joined to the proceeding before judgment is given, so as to bind the assignor to the outcome and thereby protect the debtor against double recovery. At paragraph [14], Judd J in Timbercorp cites Peter Gibson LJ in Three Rivers District Council v Governor and Company of the Bank of England[13] that an equitable assignee can sue, but “save in special circumstances the court will require him to join the assignor as a procedural requirement so that the assignor might be bound and the debtor protected”. Judd J also refers to instances where the assignee has sued, referring to the UK Court of Appeal in Raiffeisen Zentralbank Osterreich AG v Five Star Trading LLC[14] where it was said that “There is a rule of practice that the assignor should be joined, but that rule will not be insisted upon where there is no need, in particular if there is no risk of a separate claim by the assignor”.
[12]Timbercorp, [10]-[26].
[13][1996] QB 292 at 313F.
[14][2001] QB 825.
Rule 9.09(2)(a) permits the assignee to be added as a party or for them to be substituted for the assignor. It might therefore be thought appropriate here, in light of the usual procedural requirement for joining the assignor when the equitable assignee is the one who has initiated the suit, for Lennon to be added as a party rather than substituted. Here, both the Third and Fourth Defendants have sworn affidavits confirming the assignment and expressing their wishes that Lennon prosecute their claims pursuant to the Deed. They both express a preference for Lennon to be substituted for them as parties to the proceeding.
In light of the express position adopted by the Third and Fourth Defendants in their sworn affidavits, it seems difficult to conceive of a situation where they would be in a position to pursue the debtor (Erman and Cohen) for the Debt if they are not formally bound by final orders in this proceeding if they are no longer parties. This, taken together with the obvious difficulty in achieving a legal assignment due to the status of Erman’s estate, means that I consider that special circumstances do exist such the assignors do not need to remain parties to the proceeding as there seems to be no realistic risk of a separate claim by the assignors.
The alternative relief of allowing Lennon to prosecute the Third and Fourth Defendants’ claims in the proceeding lacks meaning and clarity. In some ways, this is more obviously a conflict with the Restraint Ruling and more likely to bring the administration of justice into disrepute than allowing the substitution on the condition I have already referred to. Having made the Restraint Orders, Lennon ought not be permitted to participate in the proceeding on behalf of any party. The matters referred to in paragraph 19 above reinforce this view.
Accordingly, I will grant the Application, but pursuant to r 9.09(2)(a) rather than r 9.06, that Lennon be substituted for the Third and Fourth Defendants in the proceeding on condition that he retains an independent solicitor to act for him in this proceeding.
I will make orders in accordance with this, and will adjourn the summons filed 1 March 2023 to 5 June 2023 for the making of any other orders in respect of the summons, including as to costs.
The orders made this day, contemporaneously with publishing these reasons, are:
1. Pursuant to r 9.09(2)(a) of the Rules, Patrick Lennon be substituted for the Third and Fourth Defendants as a party in the proceeding, on condition that he retain an independent solicitor to act for him in this proceeding.
2. The summons filed 1 March 2023 is otherwise adjourned to 5 June 2023.
3. Costs reserved.
SCHEDULE OF PARTIES
| S ECI 2020 02573 | |
| BETWEEN: | |
| DARRYN GARLICK (as Representative of the estate of JACK JOHN ERMAN) | Plaintiff |
| - v - | |
| DANIEL KERBAJ | First Defendant |
| MARZELLE COHEN | Second Defendant |
| GRAHAM GEORGE ALI | Third Defendant |
| VICTORIA LOUISE HORNER | Fourth Defendant |
| CREDIT CORP SERVICES PTY LTD ACN 082 928 572 | Fifth Defendant |
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