JT Nominees Pty Ltd v Macks
[2007] SASC 151
•2 May 2007
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
JT NOMINEES PTY LTD v MACKS
[2007] SASC 151
Reasons for Decision of The Honourable Justice Bleby
2 May 2007
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - SUMMARY JUDGMENT
Application by the defendant for summary judgment pursuant to rule 232(2)(b) of Supreme Court Rules 2006 – Interpretation of Rule 232(2)(b) and its predecessors – Meaning of “no reasonable basis for the (plaintiff’s) claim” – Consideration of authorities – Discussion of relevant considerations to determine whether summary judgment is appropriate – Held: appropriate case for summary determination.
EQUITY - GENERAL PRINCIPLES - ASSIGNMENTS IN EQUITY - WHAT AMOUNTS TO AN EQUITABLE ASSIGNMENT
Claim for a declaration that the plaintiff as assignee is entitled to the beneficial interest in a deceased estate – Beneficial interest vested after death of alleged assignor – Assignor’s estate bankrupt – Alternative claim for a declaration that trustee in bankruptcy holds the beneficial interest on constructive trust for the plaintiff – Agreement between alleged assignor and the plaintiff as security for liability of alleged assignor under alleged guarantee to the plaintiff – Whether agreement contemplates absolute assignment or assignment by way of charge – Nature of assignment by equitable charge – Whether agreement constitutes an immediate assignment or an agreement to assign – Whether agreement to assign vests beneficial interest in the plaintiff – Whether principle in Holroyd v Marshall applies – Whether consideration paid or provided – Held: no beneficial interest vested in the plaintiff – Claim dismissed.
Stamp Duties Act 1923 (SA), s 22; Supreme Court Civil Rules 2006 (SA), r 4, 104, 117, 117(2)(e), 118, 193, 232; Supreme Court Rules 1987 (SA), r 25, 46.18; Bankruptcy Act 1966 (Cth), s 249(3); Supreme Court Act 1935 (SA), s 23(1); Instruments Act 1958 (Vic), Part IX; Companies Act 1958 (Vic), s 72; Supreme Court Rules (1947) (SA), O 10, r 1, r 4, O 25, r 4; High Court Rules O 26, r 18; Uniform Civil Procedure Rules 1999 (Qld), r 292 and 293; Federal Court of Australia Act 1976 (Cth), s 31A; Judiciary Act 1903 (Cth), s 25A; Federal Magistrates Act 1999 (Cth), s 17A, referred to.
Holroyd v Marshall (1862) 10 HLC 91; 11 ER 999; Tailby v Official Receiver (1888) 13 AC 523; Re Row Dal Constructions Pty Ltd (In Liquidation) [1966] VR 249, applied.
General Steel Industries Inc v Commissioner for Railways (NSW) & Ors (1964) 112 CLR 125; Fancourt & Anor v Mercantile Credits Limited (1983) 154 CLR 87, distinguished.
Gray v Morris [2004] 2 QdR 118, not followed.
Chapman & Chapman v Australian Broadcasting Corporation (2000) 77 SASR 181; Bernstrom v National Australia Bank Limited [2003] 1 Qd R 469; Swain v Hillman [2001] 1 All ER 91; Deputy Commissioner for Taxation v Salcedo [2005] 2 QdR 232; The State of South Australia and the Australian Formula One Grand Prix Board v The Corporation of the Town of Hindmarsh, unreported, 10 March 1993, Judgment No S3841; Coombes and Barei Pty Ltd v Lincolne Scott Australia Pty Ltd and Anor, unreported, 28 February 1997, Judgment no S6045; Three Rivers District Council and Others v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1; Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2007) 70 IPR 146; Duncan v Lipscombe Child Care Services Inc (2006) 150 IR 471; Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401; Hicks v Ruddock & Ors (2007) 156 FCR 574; Comptroller of Stamps (Vic) v Howard-Smith 54 (1936) CLR 614; Norman v Federal Commissioner of Taxation (1963) 109 CLR 9; Palette Shoes Pty Ltd (in liquidation) v Krohn (1937) 58 CLR 1; In Re Lind. Industrials Finance Syndicate, Limited v Lind [1915] 2 Ch 345, discussed.
Macks v Tucker & Ors & QBE Insurance (Australia) Ltd [2006] SASC 272; Egan v Commonwealth Minister for Transport (1976) 14 SASR 445; Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd (1988) LSJS 398; Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd (1988) 146 LSJS 150; Lawrence v Griffiths & Anor (1987) 47 SASR 455; Bellas v Kipouros (1974) 8 SASR 418; Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and the Registrar-General (1985) 124 LSJS 225; Adelaide Steamship Industries Pty Ltd v The Commonwealth of Australia (1974) 8 SASR 435; Allianz Australia Insurance Ltd v National Jet Systems Pty Ltd (2005) 238 LSJS 93; Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2003] 1 Qd R 259; Smith v Williams & Ors [2005] QSC 267; Club LaBourse Travel Pty Ltd v CLB International Pty Ltd & Ors [2005] QSC 380; Commonwealth Bank of Australia v ACN 000 247 601 Pty Ltd (In Liq) & Ors [2006] FCA 1416; Australian & International Pilots Association v Qantas Airways Ltd [2006] FCA 1441; White Industries Aust Ltd v Commissioner of Taxation [2007] FCA 511; Booth v Commissioner of Taxation (1987) 164 CLR 159; McIntyre v Gye (1994) 51 FCR 472; Ford & Lee, "Principles of the Law of Trusts"; Meagher Gummow and Lehane, "Equity Doctrines & Remedies", 4th edition, 2002, considered.
JT NOMINEES PTY LTD v MACKS
[2007] SASC 151Civil
BLEBY J:
Introduction
By his Will, William Wigham McGregor bequeathed, so far as is material, a one half interest in his residuary estate to his wife, Joan McGregor, for her life or until her remarriage, with remainder over such of his children as were living at the time of his death in equal shares. There were two sons who qualified, one of whom was James Alistair McGregor (“McGregor”). He therefore became entitled to a one half interest (“the beneficial interest”) in that part of the residuary estate.
William Wigham McGregor died on 13 September 1945. Joan McGregor, his widow, did not remarry and died in February 2003.
McGregor died on 11 December 1990. After his death, his estate was declared bankrupt. On 19 March 2001 the defendant was appointed trustee of the bankrupt estate.
Following the death of Joan McGregor in February 2003, the trustees of the estate of W.W. McGregor paid, by two instalments, on 13 November 2003 and 7 July 2004, the amount of the beneficial interest to the bankrupt deceased estate of McGregor.
Those facts are either admitted by the defendant in his defence or are not in dispute for the purpose of this application.
By paragraph 8 of the statement of claim in these proceedings, the plaintiff alleges that, by an agreement in writing dated 8 December 1990, three days before McGregor died, he agreed “for the valuable consideration specified therein to forthwith assign to the Plaintiff the whole of” the beneficial interest.
Paragraph 9 of the statement of claim alleges in the alternative that by the agreement McGregor, “for the valuable consideration specified therein, forthwith assigned to the Plaintiff the whole of” the beneficial interest, and that McGregor thereby became a constructive trustee of that interest for the benefit of the plaintiff.
The plaintiff claims to have become absolutely entitled to the beneficial interest upon the death of Joan McGregor. It claims the amount of the beneficial interest from the defendant pursuant to that alleged entitlement. Alternatively, it alleges that the defendant holds the amount of the beneficial interest on trust for the plaintiff. In the further alternative it claims, if the amount has been expended by the defendant, equitable compensation from the defendant. In the further alternative it claims the sum as money had and received to the use of the plaintiff.
In its prayer for relief the plaintiff seeks the following relief:
1. A declaration that the plaintiff is entitled to the beneficial interest;
2. In the alternative, a declaration that the defendant holds the beneficial interest on trust for the plaintiff;
3. An order that the defendant pay the amount of the beneficial interest with interest thereon to the plaintiff as cestui que trust of the trust created upon the execution of the agreement, or in the alternative of the trust or trusts created on the date or dates of receipt by the defendant of the beneficial interest.
4. In the alternative, an order that the defendant pay to the plaintiff equitable compensation;
5. In the further alternative, payment by the defendant of the amount of the beneficial interest as money had and received to the plaintiff’s use;
6. Interest and costs.
By its defence the defendant denies that McGregor entered into the agreement but says that if he did so, it was not binding on or enforceable against McGregor for the following reasons:
1. The plaintiff did not provide valuable consideration as alleged;
2. The agreement was incomplete and inchoate, in that McGregor did not execute the deed of assignment or notice of assignment provided for in the agreement;
3. None of the documents referred to in the agreement and on which it is said to rely had been produced by the plaintiff either before the death of McGregor or before the institution of the action; and
4. The agreement was not and has not been duly stamped in accordance with the requirements of section 22 of the Stamp Duties Act 1923 (SA).
The defendant further pleads that if McGregor did enter into the agreement, the agreement did not operate as an agreement to assign or as an assignment forthwith of the beneficial interest, and that the plaintiff provided no or insufficient consideration to support the agreement. The defendant denies that McGregor became a constructive trustee of the beneficial interest for the benefit of the plaintiff.
The defendant has applied for the following orders:
1. Summary judgment in favour of the defendant;
2. In the alternative, that the proceeding be struck out as an abuse of process;
3. In the alternative, that the statement of claim be struck out.
The application is made pursuant to rules 104, 117(2)(e) and 232 of the Supreme Court Civil Rules 2006 (SA) (“the 2006 Rules”).
In support of its application the defendant relies on an affidavit deposing to the receipt and banking of the two cheques comprising the beneficial interest by and on behalf of the bankrupt estate.
By an affidavit of its solicitor the plaintiff exhibits what purports to be a copy of the agreement on which it relies. There is no proof of execution of the agreement by McGregor or the plaintiff. However, in favour of the plaintiff, I am prepared to assume for present purposes the due execution of the agreement. The copy exhibited bears a photocopy of South Australian adhesive duty stamps to the value of 20 cents. In correspondence exhibited to the affidavit the defendant’s solicitors acknowledge having received a copy of the purported agreement in November 2002, but no other documents. Correspondence between the previous trustee in bankruptcy of the deceased estate and trustees of the estate of William Wigham McGregor makes no mention of the latter having received any notice of the purported assignment. Rather, a letter dated 11 January 2000 from one of the trustees to the then trustee of the bankrupt estate records, in part:
The estate of the late Mr [James Alistair] McGregor would also have a present entitlement to a share in the remaining equal share in the residuary estate of his late father. However, that interest is subject to the prior life interest granted to his mother pursuant to the Will. Mrs McGregor is still living and has not remarried.
Such a statement would be surprising if the trustees, at least at the time of writing, were aware of an assignment of the beneficial interest to someone else.
The relief claimed by the plaintiff in each alternative is based on an alleged beneficial entitlement at the date of death of Joan McGregor to the beneficial interest. The amount is not claimed as an amount alleged to be due and payable by McGregor under the agreement, nor is it a claim for payment allegedly due and payable by McGregor pursuant to a guarantee referred to in the agreement. Further reference is made to that guarantee later in these reasons. A claim either for money due and payable under the agreement or for money payable under the guarantee would each be in respect of a debt provable in the administration of the bankrupt estate and could not be brought without leave of the Federal Court of Australia.[1] No such leave has been sought or given.
[1] Section 249(3) Bankruptcy Act 1966 (Cth).
The other proceedings
The present defendant, as trustee of the bankrupt estate of McGregor, has commenced proceedings against David John Tucker, the present plaintiff and two firms of solicitors of which Mr Tucker is said to have been a member at relevant times. The present defendant, and plaintiff in those proceedings, alleges various breaches of fiduciary and contractual obligations on the part of the defendants in those proceedings in their dealings with McGregor and his estate. That action was commenced on 24 May 2004.
On 6 July 2006 the present plaintiff applied in those proceedings for leave to amend its defence and to file a counterclaim. For reasons given on 1 September 2006 I refused that leave.[2] As a result of various amendments made to the proposed counterclaim, the course taken in the hearing of that application and the assertion of counsel for the present plaintiff that Mr Macks was being sued in his personal capacity, I concluded that, if sued in that capacity, and as the action had clearly been brought in his capacity as trustee of the bankrupt estate, the counterclaim did not come within s 23(1) of the Supreme Court Act 1935 (SA). I also identified other reasons why leave to file a counterclaim should not be granted.
[2] Macks v Tucker & Ors & QBE Insurance (Australia) Ltd [2006] SASC 272.
In the course of those reasons I expressed the view that if the intended counterclaim was brought against Mr Macks in his capacity as trustee of the bankrupt estate, the counterclaim would fail because it was not brought with leave of the Federal Court of Australia. That view was formed on the basis that the plaintiff was suing for monies due under a contract allegedly entered into between McGregor and the present plaintiff. It was also formed without any analysis or full argument as to the nature of the present plaintiff’s intended counterclaim. I undertook no analysis, and it was not necessary to undertake any analysis, of the detail of the counterclaim or of the alleged agreement on which it was said to be based, nor were such matters relied on for the purposes of that argument before me as it developed in those proceedings.
The statement of claim in the present proceedings is similar in substance to the intended counterclaim for which leave was sought in those other proceedings. However, the application by the present defendant now raises squarely a consideration of the nature and merit of the plaintiff’s claim – matters which were not considered on the previous application.
Relief claimed on the present application
The primary application of the defendant is for summary judgment pursuant to r 232 of the 2006 Rules. That rule provides:
(1) The Court may, on application by a party, give summary judgment for that party.
(2) Summary judgment may only be given if the Court is satisfied that –
(a)if the applicant is a plaintiff – there is no reasonable basis for defending the applicant’s claim; or
(b)if the applicant is a defendant – there is no reasonable basis for the claim against the applicant.
It will be necessary to return in due course to consider the origin, nature and effect of that rule.
The first alternative claim of the defendant is that the proceeding be struck out as an abuse of process. There are two relevant rules of the 2006 Rules which deal with striking out a proceeding for possible abuse of process. The first is r 117 which appears in Chapter 6 – Case management, Part 3 – Court’s powers to manage and control litigation, Division 1 – General powers of management and control. Rule 117 relevantly provides:
(1) The Court may make any order it considers necessary for the proper conduct of a proceeding or otherwise in the interests of justice.
(2) The Court may (for example) –
…
(e)strike out a document or proceeding if the Court considers it frivolous, vexatious or an abuse of the process of the Court;
…
Paragraph (e) is one of twelve examples given of the Court’s power under this rule.
Rule 4 defines a document as meaning “anything that records information”. The same rule defines “proceeding” as including –
(a) an action, interlocutory proceeding or appellate proceeding; and
(b) any step in an action, interlocutory proceeding or appellate proceeding.
It is therefore possible under that rule to strike out the action if the Court considers it frivolous, vexatious or an abuse of process of the court.
Relevant to the operation of this rule is r 118:
The Court may exercise a discretion or make an order under this Part on the basis of information the Court considers reasonably reliable without requiring formal proof.
The second rule relevant to abuse of process and striking out proceedings is r 193. This is contained in Chapter 7 – Pre-Trial procedures, Part 13 – Power to stay or dismiss proceedings. The rule provides:
The Court may dismiss proceedings if –
(a) the pleadings disclose no reasonable cause of action; or
(b) the proceedings are frivolous, vexatious or an abuse of the process of the Court.
Once again, that rule would enable the dismissal of the action if the proceedings constitute an abuse of process. However, it also allows dismissal of an action if the pleadings disclose no reasonable cause of action. I will have reason to refer again to that aspect of this rule when considering r 232.
There is obviously an overlap between rules 117 and 193 in relation to alleged abuse of process of proceedings.
The second alternative application of the defendant is that the statement of claim be struck out. This may be by way of alternative to striking out the proceedings as an abuse of process. That ground may be applied under r 117 merely to strike out the pleading as a “document”.
There is, however, a further reference to abuse of process relevant to pleadings in r 104. That rule is contained in Chapter 5 – Parties and pleadings, Part 2 – Defining issues, Division 2 – General rules about pleadings. The rule provides:
The Court may strike out a pleading in whole or part if the pleading –
(a) does not comply with these rules; and
(b) is an abuse of the process of the Court or prejudices the proper conduct of the action.
Example –
If a statement of claim discloses no reasonable cause of action, or a defence discloses no reasonable ground of defence, the Court may strike it out as an abuse of the process of the Court.
The differences between this rule and rules 117 and 193 are, first, that it is limited to striking out a pleading, and not the whole action, and secondly, that the requirements of paras (a) and (b) of the rule are cumulative and not in the alternative.
However, r 104 also refers to striking out pleadings on grounds other than abuse of process. That is in the example quoted in the rule. One does not normally associate failure to disclose a reasonable cause of action with abuse of process. Although the latter is a compendious term, it is usually associated with some improper or collateral purpose, impugning some other court decision, involving more than one action for the same relief or some complaint associated with the process itself rather than the cause of action. Nevertheless, if the example carries weight, it would justify striking out a pleading under r 104 on the ground that it discloses no reasonable cause of action. Compare r 193, where the “proceedings” may be dismissed on this ground.
The predecessor to rule 232(2)(b) of the 2006 Rules was r 25.04 of the Supreme Court Rules 1987 (SA) (“the 1987 Rules”). Rule 46.18 of the 1987 Rules enabled a pleading to be struck out on a number of grounds, including the fact that the pleading disclosed no reasonable cause of action or defence. It has its nearest equivalent in r 104 of the 2006 Rules. It was held in Chapman & Chapman v Australian Broadcasting Corporation[3] that where a statement of claim is defective for any of the reasons given in r 46.18, it is inappropriate to apply for summary judgment under r 25.04. That is because, if a pleading is defective, the party affected should be given an opportunity to amend the pleading or to give further particulars, if either such course is appropriate, rather than dismiss the action. However, it will depend on the grounds on which the attack is made. If an attack on the pleading cannot be cured by amendment, then it may be appropriate to strike out the proceedings. Where that involves a consideration of the pleadings alone without more, it is a jurisdiction to be exercised sparingly.[4]
[3] (2000) 77 SASR 181 at 185, [2000] SASC 146 at [27].
[4] Egan v Commonwealth Minister for Transport (1976) 14 SASR 445.
In this case the second alternative application requires only a consideration of the statement of claim as pleaded. If that succeeds on the grounds that it discloses no reasonable cause of action, it might be more appropriate to strike out the pleading rather than the action. Accordingly, I proceed to deal with that application first.
That the statement of claim be struck out
Insofar as this application is merely a second alternative to the first alternative based on abuse of process, I will consider it when dealing with the first alternative based on abuse of process.
Although some parts of the statement of claim might properly be said to be superfluous and others lacking in particularity, there has been no request for an order that the plaintiff file further particulars of its case under r 102 of the 2006 Rules. It cannot be said that the statement of claim, on its face, fails to disclose a cause of action. In essence, it pleads the agreement between McGregor and the plaintiff as an agreement to assign the beneficial interest or as constituting an assignment itself of the beneficial interest such that, on the death of Joan McGregor, the plaintiff became entitled to the beneficial interest absolutely. The pleading may be lacking in detail, even to the point of being inadequate when the full terms of the agreement are known and analysed. One or more of the bases of the claim may be inappropriate, and may not succeed. However, they are not reasons to strike out the statement of claim as disclosing no reasonable cause of action. On its face it does disclose a cause of action.
The claim based on abuse of process
This claim also relies on the statement of claim as well as the plaintiff’s application for leave to file a counterclaim in the other proceedings to which reference has been made.
As I understand it, the defendant’s argument is that the present statement of claim is for all practical purposes in identical terms to the counterclaim sought to be filed in the other proceedings; it therefore continues the assertion that the defendant is sued in these proceedings in his personal capacity; that such an approach is inconsistent with assertions in the statement of claim itself and with a number of paragraphs of the present plaintiff’s defence in the other proceedings, whereby it is asserted that the present defendant was acting in his official capacity as trustee of the bankrupt estate, and that the proceeds of the beneficial interest were paid to the estate rather than to Mr Macks.
It is the plaintiff’s statement of claim itself which must be analysed to see if there is any inconsistency with other proceedings such as to constitute an abuse of the process of court. The question is not whether there is some inconsistency with the procedural course taken in those other proceedings.
Mr Macks is described in paragraph 2.3 of the statement of claim as “the trustee of the bankrupt deceased estate of James Alistair McGregor”. It is clearly alleged that it was only in that capacity that Mr Macks had any dealings with the estate of William Wigham McGregor, and although he is described in the statement of claim as “the defendant” it is clear that whatever it is alleged that Mr Macks did was done in his capacity as trustee of the bankrupt estate. The defendant has also placed evidence before me that the cheques representing the beneficial interest were made payable to “The Estate of J.A. McGregor (deceased)” and were deposited in the bank account of the bankrupt estate. The present defendant had no reason to receive the funds in any other capacity.
If that is the effect of the statement of claim there is no inconsistency with the present plaintiff’s defence pleaded in the other action. It is not necessary to refer to details, but those pleadings, insofar as they relate to dealings with the beneficial interest, are entirely consistent with the present statement of claim. In my opinion there is no substance in the defendant’s first alternative. I am therefore relieved of the need to decide whether only the pleading[5] or the whole action[6] should be struck out on that ground.
[5] Rules 104 and 117.
[6] Rules 117 and 193.
The application for summary judgment
That brings me to the principal relief claimed by the defendant, namely a claim for summary judgment pursuant to r 232(2)(b) of the 2006 Rules.
Rule 232, although not in the same terms, is the successor in the 2006 Rules to r 25.02 (claim for summary judgment by a plaintiff) and r 25.04 (claim for summary judgment by a defendant) of the 1987 Rules. Those rules were in turn based on the provisions of O 10 r 1 of the Supreme Court Rules, as they were then known (“the 1947 Rules”). For an explanation of the differences see Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd.[7]
[7] (1988) 143 LSJS 398, and on appeal, (1988) 146 LSJS 150. See also Lawrence v Griffiths & Anor (1987) 47 SASR 455.
It is clear that the remedy of summary judgment is discretionary. Unlike rules which allow a pleading or proceedings to be struck out where a pleading discloses no reasonable cause of action, consideration of the application is not limited to the pleadings. The court must make an assessment of both matters of fact and of law. The application will usually be decided on affidavits and by reference to documents referred to in the pleadings, although in some cases it may be necessary or desirable to hear brief oral evidence. In this case, the plaintiff filed an affidavit exhibiting a copy of the agreement on which the plaintiff relies in the action and exhibiting the correspondence already referred to. The plaintiff did not seek to lead any other evidence of events relevant to what had been done under the agreement. The defendant did, but only as to the receipt and banking of the cheques representing the beneficial interest.
Before turning to a consideration of the merits of the defendant’s application, it is necessary to consider the proper interpretation of r 232(2)(b) of the 2006 Rules.
The interpretation of Rule 232(2)(b)
The rule has its origin in O 10 of the 1947 Rules. Order 10 r 1 allowed a plaintiff or defendant to apply to a Judge for “any relief which he claims or to dispose of the action summarily”. No other criteria were specified.
Under O 10 r 4 the court was able to make “an order that judgment be entered for the plaintiff or defendant (as the case may be) for the relief claimed, or such portion thereof, or such other relief or declaration as may be just, or otherwise disposing of the action, or of any issue or question in the action”.
As Bright J noted in Bellas v Kipouros,[8] it was devised as a South Australian expedient. It did not have a counterpart in the UK Rules of Court or in other Australian jurisdictions. It was for an applicant to show cause why the matter should not be dealt with in the ordinary trial list. Of the procedure under O 10 of the 1947 Rules, King CJ said in Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and the Registrar-General[9] that O 10 was inappropriate for the resolution of substantial disputes as to facts or even as to the law requiring extensive argument and consideration. He said:
The Summons for Immediate Relief [O 10] is a convenient vehicle for disposing expeditiously of cases in which there is not substantial dispute or in which the nature of the dispute is such that it can be resolved readily and speedily in Chambers. An attempt to determine by means of the Summons for Immediate Relief issues of fact and law requiring substantial hearing time produces mischiefs which are well illustrated by the course which the present case took.[10]
[8] (1974) 8 SASR 418 at 419.
[9] (1985) 124 LSJS 225.
[10] Ibid at 226.
The operation of O 10 and its successors is not to be confused with the operation of other rules related to striking out pleadings or dismissing actions based on defective pleadings, nor with rules allowing summary judgment based on what were formerly known as specially endorsed writs.
The 1947 Rules also included O 25 r 4:
The Court or a Judge may order any pleading to be struck out on the ground that it discloses no reasonable cause of action or answer, and in any such case or in case of the action, defence, counter-claim, or reply being shown by the pleadings to be frivolous or vexatious, the Court or a Judge may order the action to be stayed or dismissed or judgment to be entered accordingly, as may be just.
This was modelled on the then English O 25 r 4. Most other Australian jurisdictions then had a rule in similar terms, including the High Court. Order 26 r 18 of the former High Court Rules provided:
(1.) The Court or a Justice may order a pleading to be struck out on the ground that it does not disclose a reasonable cause of action or answer.
(2.) In that case, or in case of the action or defence being shown by the pleadings to be frivolous or vexations, the Court or a Justice may order the action to be stayed or dismissed, or judgment to be entered accordingly, as is just.
Those requirements were interpreted stringently. When speaking of O 26 r 18 of the High Court Rules in General Steel Industries Inc v Commissioner for Railways (NSW) & Ors[11] Barwick CJ noted that previous cases –
uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action – if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal – is clearly demonstrated.[12]
[11] (1964) 112 CLR 125.
[12] Ibid at 129.
The Chief Justice continued:
The test to be applied has been variously expressed; “so obviously untenable that it cannot possibly succeed”; “manifestly groundless”; “so manifestly faulty that it does not admit of argument”; “discloses a case which the Court is satisfied cannot succeed”; “under no possibility can there be a good cause of action”; “be manifest that to allow them” (the pleadings) “to stand would involve useless expense”.
At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or “so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument”; “so to speak apparent at a glance”.
As I have said, some of these expressions occur in cases in which the inherent jurisdiction was invoked and others in cases founded on statutory rules of court but although the material available to the court in either type of case may be different the need for exceptional caution in exercising the power whether it be inherent or under statutory rules is the same. [13]
[13] Ibid.
Fancourt & Anor v Mercantile Credits Limited[14] was a case not based on the equivalent of O 26 r 18 of the High Court Rules but on O 18, r 1 of the Queensland Rules of the Supreme Court. That involved a specially endorsed writ where the plaintiff was entitled to summary judgment unless the defendants satisfied the master that there was a question in dispute which ought to be tried, or that there ought, for some reason, to be a trial of the claim. It was a procedure similar to that available under O 14 of the 1947 Rules, and carried through in modified terms to r 25.01 of the 1987 Rules. It has no present counterpart in the 2006 Rules. Of that procedure the High Court in a joint judgment said in Fancourt:
The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.[15]
[14] (1983) 154 CLR 87.
[15] Ibid at 99.
It might be said that satisfaction that a pleading “discloses no reasonable cause of action”,[16] justifying dismissal of an action, is little different from satisfaction that “there is no reasonable basis for the claim”,[17] also justifying dismissal of the action. However, in the case of General Steel Industries Inc and cases based on similar rules, if summary judgment was ordered, it was given only on a consideration of the pleadings, thus precluding any trial at all. It is not surprising that stringent tests of the type described in General Steel Industries Inc were adopted. Likewise, with the former specially endorsed writ procedure, if summary judgment was to be entered, it could only be entered if the defendant failed to show that there was a good defence on the merits or failed to disclose sufficient facts to entitle the defendant to defend the action. This type of application was not a trial but an examination to see whether the defendant could satisfy the court that there was an issue to be tried.[18] Courts expressed a natural reluctance to enter judgment for a plaintiff on such a claim unless it was clear that there was no real question to be tried.
[16] For example, 0 25 r 4, 1947 Rules; r 46.18, 1987 Rules; example to r 104, 2006 Rules.
[17] R 232(2)(b), 2006 Rules.
[18] Adelaide Steamship Industries Pty Ltd v The Commonwealth of Australia (1974) 8 SASR 425 at 430.
It is the procedures described in the preceding paragraph which have shaped the attitude of courts to ordering summary judgment in those circumstances. However, those circumstances are different from the circumstances attending an application for summary judgment under O 10 of the 1947 Rules and its successors.
The O 10 procedure in respect of a plaintiff’s application for summary judgment was replaced by r 25.02 of the 1987 Rules. It was called an application for immediate relief, and by virtue of r 25.03 the Court, on hearing such an application, could make an order that judgment be entered for the plaintiff for the whole or part of the relief claimed. No criteria for the granting of the relief were specified. However, there had to be sufficient evidence on all essential matters to enable the Court to determine the matter summarily.[19] Of the r 25.02 procedure White J said in Lawrence v Griffiths:[20]
[I]f there is a genuine dispute of fact which can be dealt with quickly or if it is peripheral or if there is a question of construction which can be dealt with quickly in chambers, the r 25.02 (O 10) procedure can be used to dispose summarily of the matter. A r 25.02 proceeding is in the nature of a “mini-hearing” even of disputed matters of fact and complex questions of law provided they can be decided quickly. There is an onus upon the plaintiff to show that he has an urgent matter entitling him to “jump the queue” ahead of other litigants. If he has, he might, in the discretion of the court, obtain the benefit of a quick short hearing (even including a little evidence) with some argument on the law. Unlike the r 25.01 procedure, the court may under r 25.02 proceed to hear and determine the matter forthwith if satisfied of the existence of the settled r 25.02 criteria. The court has a discretion to hear and determine summarily under r 25.02 but not under r 25.01 once the defendant raises the necessary r 25.01 criteria. The procedures can be quite similar in some cases and quite different in others.[21] [Original emphasis]
[19] Allianz Australia Insurance Ltd v National Jet Systems Pty Ltd (2005) 238 LSJS 93, [2004] SASC 438.
[20] (1987) 47 SASR 455.
[21] Ibid at 463.
While plaintiffs and defendants had been treated identically in applications for summary judgment under O 10 of the 1947 Rules, the 1987 Rules saw a substantial parting of the ways. A defendant’s application for summary judgment was dealt with under r 25.04 with the qualification that the defendant had to show that the plaintiff’s claim could not succeed “on any possible view of the facts or the law”. That created a substantial hurdle for a defendant which did not exist under the previous O 10 procedure. No similar test was put in place for a plaintiff under r 25.02. At the same time, r 46.18 still provided for the ability to strike out a statement of claim which disclosed no reasonable cause of action. That rule was the successor to O 25 r 4 of the 1947 Rules and was cast in similar terms.
The authorities confirm that the test under Rule 25.04 of the 1987 Rules is a stringent test that is difficult to satisfy. It is a “jurisdiction [that] must be exercised with great care and only used where it is clear that the action is devoid of merit”.[22] It is a test that is more difficult to satisfy that than for a plaintiff.[23]
[22] The State of South Australia and the Australian Formula One Grand Prix Board v The Corporation of the Town of Hindmarsh, unreported, 10 March 1993, Judgment no S3841 at 5.
[23] Ibid.
In The State of South Australia and the Australian Formula One Grand Prix Board v The Corporation of the Town of Hindmarsh Bollen J noted that when deciding whether on any possible view of the facts or law the plaintiff could not succeed, he was required to decide -
whether the plaintiff has, and I think obviously has, no case. By using the word “obviously” I do not mean that the plaintiff can be said, on a mere cursory view of the material, to have no case. But absence of the case must be plain when all the facts, arguments and authorities have been considered.[24]
[24] Ibid at 14.
In Coombes and Barei Pty Ltd v Lincolne Scott Australia Pty Ltd and Anor[25] Doyle CJ commented upon rule 25.04:
However one expresses the obligation imposed by r 25.04 upon a defendant or third party seeking to take advantage of it, it is a stringent one. The cases make it clear that the undoubted power of the Court must be exercised with great care. It is not sufficient that the Court might think it is likely that at the end of the day the party who invokes r 25.04 will succeed, or even that the Court thinks success for that party is more than likely. The requirement of the Rule is more demanding than that. The Rule performs an important function, particularly these days where there is an emphasis upon efficiency in the conduct of litigation, in enabling the Court to dispose promptly and economically of claims entirely lacking in merit. But at the same time the Court must be careful not to dispose of claims in this way unless they really are lacking in merit … the Court has to be satisfied that there is, at the least, no real question to be tried.[26]
[25] Unreported, 28 February 1997, Judgment no S6045.
[26] Ibid at 3 – 4, Bollen and Duggan JJ concurring.
As can be seen, the test in South Australia has not always been an inability to succeed “on any possible view of the facts or the law”. It has only been so since the 1987 Rules.
Rule 232 of the 2006 Rules has again placed plaintiffs and defendants on the same level, having to establish similar criteria, if they are to be successful in a summary judgment application. In my opinion this shows a substantial departure from the provisions of both r 25.02 and r 25.04 of the 1987 Rules. In the case of a plaintiff the discretion to grant summary judgment is no longer at large. In the case of a defendant, the barrier to summary judgment has been lowered. It follows that what has been said by this Court about the operation of r 25.04 does not necessarily apply to r 232(2)(b). The approach will not now be required to be as stringent as previously stated. Given the origin of the rule and its evolution, for the reasons I have identified, the approach under rule 232(2)(b) will not be governed by decisions relevant to the dismissal of an action based on an allegation that the statement of claim discloses no reasonable cause of action.
Counsel for the Plaintiff, Mr Slattery QC, relied on the Queensland case of Gray v Morris[27] as authority for the proposition that the underlying principles had not been altered. Rule 293(2) of the Queensland Uniform Civil Procedure Rules 1999 provides that summary judgment may be granted for the defendant if the court is satisfied that:
(a)the plaintiff has no real prospect of succeeding on all or a part of the plaintiff’s claim; and
(b) there is no need for a trial of the claim or the part of the claim
Before 1999 it had not been possible for a defendant to apply for summary judgment in Queensland.
[27] [2004] 2 QdR 118, [2004] QCA 5.
In Gray v Morris Chesterman J discussed the “no real prospect” of success test in rule 293. In his Honour’s view, to order judgment in advance of trial is a “serious step” that should only be exercised with caution.[28] There was, according to his Honour, no change in philosophy from the old rule which allowed a plaintiff to obtain summary judgment, unless the defendant showed that there was “a question in dispute which ought to be tried or that there ought for some other reason to be a trial”.[29] In other words, his Honour was choosing to adapt the test applicable to the old specially endorsed writ procedure. It was therefore not surprising that Chesterman J considered that the concerns expressed by the High Court in Fancourt v Mercantile Credits Limited were still valid.[30] He concluded:
In my opinion summary judgment is not to be given, either to defendant or plaintiff, except where it is just to do so and it will not be just to deprive a party of a trial unless it can be seen that their case is hopeless, or bound to fail. Unless that can be said of it, the conclusion cannot be reached that a claim or defence has no “real” prospect of success.[31]
[28] Ibid at 125 [10]-[11], 126 [18].
[29] Ibid at 124 - 127, [9] – [23].
[30] Ibid at 125 [10]-[11], 127 [22] - [23].
[31] Ibid at 127 [23].
Chesterman J referred to an earlier decision of Bernstrom v National Australia Bank Limited[32] in which Jones J, (with whom Cullinane J agreed) said:
This new rule results, not only in a change of terms, but also reflects a change in the philosophy from that embodied in the former rules and in the propositions identified in Fancourt v Mercantile Credits Ltd.[33] Wilson J. considered this new rule in Foodco Management Pty Ltd v Go My Travel Pty Ltd[34] and found guidance in the approach taken by the Court of Appeal in the United Kingdom in Swain v Hillman.[35] The latter case considered an equivalent rule in the United Kingdom, namely, r. 24.4 of the Civil Procedure Rules. That rule is couched in terms which are almost identical with r. 293(2) of the UCPR. The U.K. Court of Appeal also made reference, in the same case, to r. 3.4, which provides for the court to strike out a statement of claim if it appears that it discloses “no reasonable grounds for bringing or defending a claim”. That latter rule has its equivalent in the UCPR r. 171.
In Swain Lord Woolf said concerning the relevant rules:
“… the court now has a very salutary power, both to be exercised in a claimant’s favour or, where appropriate, in a defendant’s favour. It enables the court to dispose summarily of both claims or defences which have no real prospect of being successful. The words ‘no real prospect of succeeding’ do not need any amplification, they speak for themselves. The word ‘real’ distinguishes fanciful prospects of success or … they direct the court to the need to see whether there is a ‘realistic’ as opposed to a ‘fanciful’ prospect of success.”[36]
Of the rationale for those new rules, his Lordship said:
“It is important that a judge in appropriate cases should make use of the powers contained in Pt 24. In doing so he or she gives effect to the overriding objectives contained in Pt 1. It saves expense; it achieves expedition; it avoids the court’s resources being used up on cases where this serves no purpose, and I would add, generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in the claimant’s interests to know as soon as possible that that is the position. Likewise, if a claim is bound to succeed, a claimant should know that as soon as possible.”[37]
This statement by Lord Woolf is clearly consonant with the philosophy of the UCPR as set out in r. 5. It is this philosophy which underpins the change in approach reflected in the new rules. These remarks apply with equal force to both rr. 292 and 293 of the UCPR.[38]
[32] [2003] 1 QdR 469, [2002] QCA 231.
[33] (1983) 154 CLR 87 at 99.
[34] [2002] 2 QdR 249.
[35] [2001] 1 All ER 91.
[36] Ibid at 92.
[37] Ibid at 94.
[38] Bernstrom v National Australia Bank Limited [2003] 1 QdR 469 at 475, [2002] QCA 231 at [36] – [38].
In reaching his conclusion in Gray v Morris Chesterman J disagreed with Jones J’s interpretation of the statement of Lord Woolf MR in Swain v Hillman contained in the passage of Jones J’s judgment.
In Gray v Morris McMurdo J acknowledged that there had been such a change in wording in respect of applications by plaintiffs for summary judgment but concluded that what the High Court said in Fancourt “remains a forceful and authoritative guidance and is in no way in tension with the application of these rules according to their own terms”. [39]
[39] [2004] 2 QdR 118 at 133, [2004] QCA 5 at [46].
The Queensland rules for summary judgment were again considered by the Court of Appeal in Deputy Commissioner for Taxation v Salcedo.[40] The approach taken to rules 292 and 293 in Gray v Morris was not followed. Williams JA considered that the comments of Chesterman J to the effect that the UCPR had not brought about any substantial change were not correct. Rather, Williams JA was of the view that “[r]ule 292 and r. 293 brought about significant changes in the law and procedure relating to summary judgment.”[41] Williams JA endorsed the comments of Lord Woolf in Swain v Hillman, and after reviewing a number of authorities concluded:
[T]here has been a significant change brought about by the implementation of r 292 and r 293 of the UCPR. The test for summary judgment is different, and the court must apply the words found in the rule. To use other language to define the test … only diverts the decision-maker from the relevant considerations. But, and this underlies all that is contained in the UCPR, ultimately the rules are there to facilitate the fair and just resolution of the matters in dispute. Summary judgment will not be obtained as a matter of course and the judge determining such an application is essentially called upon to determine whether the respondent to the application has established some real prospect of succeeding at a trial; if that is established then the matter must go to a trial.[42]
[40] [2005] 2 QdR 232, [2005] QCA 227.
[41] Ibid at 234 [11].
[42] Ibid at 236-237 [17].
Such an approach, according to Williams JA, was not inconsistent with the observations of the High Court in Fancourt v Mercantile Credits Ltd. In my view that is explained by the fact that they are dealing with different situations.
In Deputy Commissioner for Taxation v Salcedo Williams JA cited with approval the comments by Holmes J in Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq)[43] to the effect that the new test may not require as high a level of satisfaction as that enunciated by Barwick CJ in General Steel.[44] That is quite consistent with the view I have formed, as General Steel is also dealing with a different situation.
[43] [2003] 1 QdR 259, [2002] QCA 224.
[44] Ibid at 264-265 [7], as quoted in Deputy Commissioner for Taxation v Salcedo [2005] 2 QdR 232 at 236, [2005] QCA 227 at [14].
In Deputy Commissioner for Taxation v Salcedo[45] McMurdo P and Atkinson J agreed with the reasons of Williams JA, and added only brief further remarks. Atkinson J noted that a party applying for summary judgment was “no longer required to satisfy the test set out by Barwick CJ” in General Steel Industries[46] and said:
What a court must do in determining an application for summary judgment pursuant to r. 292 and r. 293 of the Uniform Civil Procedure Rules 1999 (UCPR), is to apply the plain meaning of the words of those rules and not impose a gloss taken from the practice and procedure that applied to summary judgment applications before the introduction of the UCPR.[47]
[45] [2005] 2 QdR 232.
[46] Ibid at 242 [46].
[47] Ibid at 241 [42].
McMurdo P commented that the rules “should be applied using their clear and unambiguous language”.[48]
[48] Ibid at 233 [2].
Deputy Commissioner for Taxation v Salcedo has been followed by the Supreme Court of Queensland in Smith v Williams & Ors[49] and Club LaBourse Travel Pty Ltd v CLB International Pty Ltd & Ors.[50]
[49] [2005] QSC 267 at [19].
[50] [2005] QSC 380 at [18].
Mr Slattery’s reliance on Gray v Morris is therefore misconceived. It no longer represents the law of Queensland, and as the Queensland cases emphasize, reliance must be placed on the wording of the rule itself.
The rule relating to summary judgment in England is in the same terms as the Queensland rule. The English rule was considered by Lord Woolf MR in Swain v Hillman.[51] His Lordship’s observations appear sufficiently from the extract quoted by Jones J in Bernstrom v National Australia Bank Ltd.[52] What was described by Lord Woolf as a new but “salutary” power has had its counterpart in this State since the 1947 Rules.
[51] [2001] 1 All ER 91.
[52] [2003] 1 QdR 469 at 475; [2002] QCA 231 at [36] – [38].
Lord Woolf’s approach was approved by the House of Lords in Three Rivers District Council v Bank England (No 3).[53] In a passage which generally reflects the approach of this Court to summary judgment applications, Lord Hope of Craighead said:
The method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule there are some well-recognised exceptions. For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, at p 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all.[54]
[53] [2003] 2 AC 1 at 259, [90], 260, [93], Lord Hope of Craighead; 272 – 273, [134], Lord Hutton; Lord Steyn agreeing with Lord Hope and Lord Hutton at 237, [1]; 282 – 285, [159] – [162], Lord Hobhouse of Woodborough. See also Lord Millett at 294, [192].
[54] Ibid at 260 – 261, [95].
Lord Hobhouse of Woodborough, although in dissent, did not express the principle in a manner inconsistent with the majority. He said of the English rule:
It requires the judge to undertake an exercise of judgment. He must decide whether to exercise the power to decide the case without a trial and give a summary judgment. It is a “discretionary” power, ie one where the choice whether to exercise the power lies within the jurisdiction of the judge. Secondly, he must carry out the necessary exercise of assessing the prospects of success of the relevant party. If he concludes that there is “no real prospect”, he may decide the case accordingly. I stress this aspect because in the course of argument counsel referred to the relevant judgment of Clarke J as if he had made “findings” of fact. He did not do so. Under RSC Ord 14 as under CPR Part 24, the judge is making an assessment not conducting a trial or fact-finding exercise. Whilst it must be remembered that the wood is composed of trees some of which may need to be looked at individually, it is the assessment of the whole that is called for. A measure of analysis may be necessary but the “bottom line” is what ultimately matters.[55]
[55] Ibid at 282, [158].
The English rule was originally accompanied by a practice direction which seemed to impose a stricter standard than that stated in the rule. For example, the practice direction stipulated that a defendant must show that “the claim would be bound to be dismissed at trial”.[56] The practice direction has since been removed due to the apparent conflict with the rules. As Lord Woolf commented, the practice direction “was laying down a different standard which indicated that the approach required was one of certainty”, and that this was incorrect as it was inconsistent with his interpretation (as explained in the passage quoted by Chesterman J above) of the word ‘real’.[57]
[56] See Swain v Hillman [2001] 1 All ER 91 at 93, where the text of the practice direction is set out.
[57] Ibid.
A similar approach to summary judgment has now been taken by the Commonwealth Parliament in respect of such applications in the Federal Court of Australia. Section 31A of the Federal Court of Australia Act 1976 (Cth) was enacted in that Act with effect from 1 December 2005.[58] That section provides:
[58] Similar amendments were made at the same time by the insertion of section 25A of the Judiciary Act 1903 (Cth) and s 17A of the Federal Magistrates Act 1999 (Cth).
31A(1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
(2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceedings need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Court has apart from this section.
In Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd[59] Rares J reviewed a number of the relevant authorities, including the English cases. He summarised the relevant principles as follows:
I am of opinion that in assessing what reasonable prospects of success are for the purposes of s 31A, the court must be very cautious not to do a party an injustice by summarily dismissing the proceedings where, in accordance with the principles in Hocking v Bell (1947) 75 CLR 125, contested evidence might reasonably be believed one way or the other so as to enable one side or the other to succeed. As soon as the evidence may have such an ambivalent character prior to a final determination, I am of opinion that then, as a matter of law, at that point there are reasonable prospects of success within the meaning of s 31A. Unless only one conclusion can be said to be reasonable, the moving party will not have discharged its onus to enliven the discretion to authorise a summary termination of the proceedings which s 31A envisages. In moving the second reading of the bill introducing s 31A (the Migration Litigation Reform Bill 2005) the Attorney-General said that it strengthened “the power of the courts to deal with unmeritorious matters by broadening the grounds on which federal courts can summarily dispose of unsustainable cases”.[60]
He continued:
The purpose of the enactment is to enable the court to deal with matters which should not be litigated because there is no reasonable prospect of any outcome but one. If there is a reasonable danger that a claim or defence could be dismissed under s 31A, which could succeed at a trial, the provision would create miscarriages of justice. It is a key feature of the judicial power under Ch III of the Constitution that the court be in a position to, and in fact does, quell a controversy. The exercise of the judicial power to prevent the substantive agitation of a controversy in which each side has a reasonable prospect of success would defeat, not advance, the ends of justice.
It could not have been the intention of the parliament in introducing s 31A to the Federal Court Act to require the court to engage in lengthy and elaborate trials on an interlocutory basis for the purpose of determining whether or not a proceeding had no reasonable prospects of success. Obviously, there will be cases in which, because of their nature, it is necessary to undergo detailed analysis. However, the assessment of whether there is a reasonable prospect of successfully prosecuting the proceeding must depend upon the evidence and pleading the subject of the application.[61]
[59] (2007) 70 IPR 146, [2006] FCA 1352.
[60] Ibid at 157 [45]. See also Commonwealth Bank of Australia v ACN 000 247 601 Pty Ltd (In Liquidation) & Ors [2006] FCA 1416 at [30], Jacobson J; Australian & International Pilots Association v QantasAirways Ltd [2006] FCA 1441 at [23], Tracey J; White Industries Aust Ltd v Commissioner of Taxation [2007] FCA 511 at [45] – [60], Lindgren J.
[61] Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2007) 70 IPR 146 at 158, [2006] FCA 1352 [47] – [48].
In Duncan v Lipscombe Child Care Services Inc[62] Heerey J observed:
Plainly s 31A was introduced to establish a lower standard for strikeouts (either of claims or defences) than that previously laid down by the High Court’s decisions in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130, namely that the allegations are "so clearly untenable that [they] cannot possibly succeed".[63]
[62] (2006) 150 IR 471, [2006] FCA 458.
[63] Ibid at 473, [6].
French J disagreed with that approach in Fortron Automotive Treatments Pty Ltd v Jones (No 2).[64] If Heerey J was merely speaking of striking out pleadings, and it appears that he was, then I respectfully agree with French J. Section 31A of the Federal Court of Australia Act is not directed to striking out pleadings or to dismissing an action where the pleading discloses no reasonable cause of action. Nevertheless, the observations of Heerey J are, with respect, correct insofar so as they apply to a summary judgment application under s 31A.
[64] [2006] FCA 1401 at [21].
Finally, in Hicks v Ruddock & Ors[65] Tamberlin J said of s 31A:
Section 31A of the Federal Court of Australia Act was introduced to impose a lower requirement to dismiss an action by way of summary judgment than that which was imposed in General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125. In that case, the requirement was expressed in terms of "manifestly groundless" or "obviously untenable".
In a case where evidence can give colour and content to allegations and where questions of fact and degree are important, the Court should be more reluctant to dismiss a proceeding on the face of a pleading: see Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 70 IPR 146 at [45]. The underlying principle is that the need for a summary judgment must be clear before the court will intervene to prevent a plaintiff submitting a case for determination in the usual way. Once it appears that there is a real issue to be determined, whether it be of fact or law, and that the rights of the parties depend on it, the court should not terminate the action by way of summary judgment. As Barwick CJ said in General Steel 112 CLR at 129-130, great care must be exercised to be sure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of the opportunity to have his or her case tried by the appointed tribunal. The general principle that a person should not lightly be shut out from a hearing is cogent – the onus on the party applying for summary judgment is heavy.[66]
[65] (2007) 156 FCR 574, [2007] FCA 299.
[66] Ibid at 582, [12] – [13].
In my opinion, for reasons which I have already given, general Steel Industries Inc v Commissioner of Railways (NSW) was dealing with a different situation from that provided for in s 31A of the Federal Court of Australia Act 1976. For that reason I would not place the same weight on the General Steel Industries Case as did Tamberlin J when considering an application under s 31A of the Federal Court Act or under r 232 of the 2006 Rules.
The test of “no reasonable prospect of successfully prosecuting the proceeding” in s 31A would appear to be an easier hurdle for a defendant to overcome than the Queensland provision, even without the assistance of subsection (3) of s 31A of the Federal Court of Australia Act.
Under both the Queensland and Federal Court provisions one must examine the prospect of success of the claim. If it is not “real” or “reasonable” respectively, the defendant will succeed. By contrast, the South Australian rule requires an examination of the claim. If it has no reasonable basis, the defendant will succeed. If it has no reasonable basis it is also likely to have no reasonable prospect of success. In that sense, the South Australian position is more akin to the Federal Court position and less stringent than the Queensland and UK position.
Whether that is so or not, two points need to be made. The first is that in r 232(2)(b) there has been a substantial relaxing of the requirement compared with the provisions of r 25.04 of the 1987 Rules. The second is that, as demonstrated by the Queensland cases, the words of the rule must be given their ordinary and natural meaning, unfettered by extraneous and unjustifiable paraphrases and concepts. The qualifications on the application of r 25.04 do not apply. The type of qualifications on different applications described in cases like General Steel Industries do not apply. It is not necessary to establish that the plaintiff’s claim is manifestly groundless or does not admit of reasonable argument or other like expressions. There is increased scope for summary determination of claims that are unlikely to succeed. The test to be applied is whether there is no reasonable basis for the plaintiff’s claim.
In the application of that test the court will be guided by similar considerations that have guided the operation of r 25.02 of the 1987 Rules.
First, an assessment will need to be made as to whether the case is appropriate for summary determination. It will usually not be so if there are substantial questions of disputed facts to be resolved or complex and interdependent questions of law. The procedure may lend itself to resolution of a genuine but discrete question of fact or a question of construction which can be dealt with quickly. One of the relevant considerations will be the saving of court resources and expense to the parties. The considerations I have mentioned are not intended to be exhaustive.
Once the process of summary judgment is embarked on, and no doubt because it is a necessarily abbreviated procedure, judgment cannot be given (for a defendant) unless the court is satisfied that there is no reasonable basis for the claim. That will need to take into account factual matters proved or admitted on the pleadings and the application of relevant legal principles. In determining whether there is no reasonable basis for the claim the court will take into account, among other things, essential factual matters which the plaintiff must prove, which it has had the opportunity to prove, but which it has failed to prove unless, of course, they are matters of such complexity or involve disputed evidence such that they should be left to a conventional trial. What members of the House of Lords said in Three Rivers D.C. v Bank of England (No 3)[67] will be relevant considerations.
[67] See paragraphs 75 and 76 above.
Whether this is an appropriate case for summary judgment
Most of the relevant facts are admitted on the pleadings. One significant fact that is not is McGregor’s execution of the agreement on which the plaintiff relies. Another is the denial of adequate consideration in the agreement.
It was against that background that the defendant made the present application. It would have been clear to the plaintiff that proof of the agreement was fundamental to its claim. It exhibited a copy of the purported agreement to an affidavit of the plaintiff’s solicitor. The defendant did not object to the reading of the affidavit. Had he done so, it would have been incumbent upon the plaintiff, given the disputed fact, to produce evidence of due execution of the agreement. Because the defendant did not object to the affidavit and because the defendant’s argument assumes, in favour of the plaintiff, due execution of the document, it is not fatal that that contested fact is not resolved on this application.
Similar observations may be made about the alleged lack of consideration. Success of the defendant’s argument on this application does not depend on his succeeding on that question.
While I have held that the statement of claim does not, in its terms, fail to disclose a cause of action, perusal of the agreement reveals that proof of other facts not pleaded might be necessary to establish the plaintiff’s claim if it was to rely on an agreement to assign, rather than on the agreement itself as the assignment. However, as will be seen, they are facts well within the knowledge of the plaintiff, and are capable of relatively straightforward proof by the plaintiff if they have happened. The plaintiff was fully aware of the defendant’s application and of its nature. It is clear that it required consideration of some factual matters beyond what was alleged or admitted on the pleadings.
The plaintiff’s claim turns largely on the effect of the agreement and what was done or not done under it. There is nothing in the affidavits which suggested a requirement to resolve complex or any disputed factual issues.
In those circumstances it is an application which lends itself to resolution under r 232(1)(b) if the Court is satisfied on the material before it that there is no reasonable basis for the claim against the defendant.
The nature of the agreement
Before determining whether there is a reasonable basis for the plaintiff’s claim against the defendant, it is necessary to examine in more detail the nature of the agreement relied on by the plaintiff.
The agreement purports to have been entered into between McGregor (“the Assignor”) and the plaintiff (“the Assignee”) on 8 December 1990. It contains a number of recitals which include the fact that McGregor is beneficially entitled to the beneficial interest; that he is a director of and potential beneficiary of some trusts which are the beneficial owners of the shares in a company known as Gulftarget Ltd, a company incorporated in the UK; that Gulftarget is indebted to the plaintiff as assignee under a deed of assignment dated 2 October 1989 made between David John Tucker as assignor and the plaintiff as assignee in respect of a sum stated therein in British pounds, together with accumulating interest; and that McGregor has guaranteed repayment of the debt and has secured the guarantee by a mortgage over his land and improvements described in schedule 1 of the agreement. The final paragraph of the recitals provides:
E. For the purpose of further securing the said guarantee and for certain other purposes as hereinafter set forth and in consideration of the agreements hereinafter contained the Assignor has agreed to assign the beneficial interest to the Assignee upon and subject to the terms of this Agreement.
Clauses 1 and 2 of the agreement provide:
1. The Assignor shall forthwith assign the beneficial interest to the Assignee absolutely.
2. For the purpose of giving further effect to such assignment the Assignor agrees to forthwith execute a Deed in the form of the Deed of Assignment comprised in Schedule 3 hereto and to also execute a Notice of Assignment in accordance with Schedule 4 hereto.
Clause 3 purports to provide the consideration for the assignment. By clause 3.1 the plaintiff agrees –
3.1 that the Assignor shall have no personal liability to repay the debt beyond the amount of the beneficial interest and that hereafter the guarantee of repayment of the debt given by the Assignor to the Assignee shall be without recourse to any other asset and that the Assignee shall accordingly forthwith execute a discharge of the said mortgage in accordance with Schedule 1 hereto;
Schedule 1 includes a description of the mortgage and of McGregor’s land the subject of the mortgage. The mortgage is purportedly dated 4 December 1990.
Clauses 3.2, 3.4 and 3.5 impose certain other obligations on the plaintiff, but these appear to be contingent upon McGregor taking certain action which might or might not be taken, or which require further agreement of the parties which might or might not be forthcoming. In any event, the application of monies pursuant to those subclauses depends upon there being a surplus of the proceeds of the beneficial interest, when received, over the amount of the debt guaranteed, and assumes a continuing liability on the part of McGregor to satisfy the guarantee. However, the surplus (if any) of the beneficial interest over the amount guaranteed is not specifically charged with such payments. The obligations are only cast as personal obligations on the plaintiff.
Clause 3.3 requires the plaintiff to pay certain monies out of the proceeds of the beneficial interest which, when received, exceed the amount of the debt and interest as described in the agreement. The obligations depend upon there being such a surplus, and a number of them depend on actions taken by McGregor or agreement between the parties.
Although there are some difficulties about its construction, clause 4 of the agreement also contemplates the payment by the plaintiff of an amount equivalent to surplus monies in the hands of the plaintiff to McGregor’s spouse and children in such shares as he shall from time to time direct or as provided in his Will, although this too seems to be cast as a personal obligation on the plaintiff rather than a charge on the surplus monies held.
Whether the agreement contemplates an absolute assignment or an assignment by way of charge
Under recital E the agreement is said to be “for the purpose of further securing the said guarantee and for certain other purposes” as set forth in the agreement. Those other purposes are stated by way of the purported consideration for the agreement, but as noted above, these appear to be purposes contingent upon McGregor taking certain action which might or might not be taken, or which requires further agreement of the parties which might or might not be forthcoming. In any event, the application of monies for those purposes depends upon there being a surplus of the proceeds of the beneficial interest, when received, over the amount of the debt guaranteed, and assumes a continuing liability on the part of McGregor to satisfy the guarantee. Nothing is recorded in the agreement about conditions under which the guarantee may be called on or how or when the surplus (if any) is calculated where there are continuing interest payments apparently guaranteed.
Although the principal purpose of the agreement is said to be for that of further securing the guarantee, it does not follow that this is an assignment by way of charge. The essence of an equitable charge is conveniently described by the Editors of Ford and Lee : “Principles of the Law of Trusts” at 1 – 4053 – 1 - 4054:
While an equitable charge confers an equitable proprietary interest on the chargee by way of security, it does so without making the chargee the owner of the property out of which the charge is to be satisfied.
That is clearly so where a testator gives property to a devisee or legatee subject to an equitable charge in favour of a third person. Again it would seem to be so where an owner of property creates a fixed equitable charge in favour of another either unilaterally or as part of a contract between them. That charge will not operate as an assignment to the chargee for the purpose of the chargee enjoying the property charged for his own benefit. Although the charge creates a security interest in the chargee, it does so without the property charged being assigned to the chargee for the purpose of satisfying the chargee’s claim. Hence it differs from a conditional assignment expressly by way of mortgage. It also differs from an apparently unconditional assignment that is really intended to provide security for performance of some obligation.
There is no mention in this agreement of the assignment being by way of charge only. On the contrary, clause 1 uses the language of an absolute assignment, thus purporting to vest McGregor’s beneficial interest in the plaintiff when perfected. However, that does not mean, where the assignment is by way security, even though expressed to be absolute, that the assignee is free from any obligation with respect to the beneficial interest.
In Re Row Dal Constructions Pty Ltd (In Liquidation)[68] a bank took as security for a loan an order directing another party to pay to the bank certain monies due or to become due to the company. At the time of the order there was no question of the company being unable to meet its debts as they fell due. The monies were duly paid to the bank, thereby discharging the company’s indebtedness to the bank. The question was whether the payment was a preference, as the order had not been registered under Part IX of the Instruments Act 1958 (Vic) as an assignment or transfer of book debts, or under s 72 of the Companies Act 1958 as a charge. The order was held to operate as an equitable assignment of all monies due and payable by the third party. Being given for valuable consideration, it effectively passed the interest of the company in all the monies as soon as they became due by the third party, and were never the property of the company. In the course of his judgment Herring CJ said:
[T]here can be no question I think that in fact the assignment was given by way of security. The bank asked for it as security, obtained it as security and regarded it as security; and, in my view, though the document says nothing whatever about redemption or re-assignment on repayment, equity would imply a right to a re-assignment on redemption : Durham Bros. v. Robertson, [1898] 1 Q.B. 765, at p. 772. This means, I think, that the substance of the transaction here is a mortgage and it is just as much a mortgage as if a right of redemption had been expressly given by the document which effected the transfer of the property from mortgagor to mortgagee. The transaction is clearly not a “charge” in the strict sense, for as was point out by Denman, J., in Tancred v. Delagoa Bay & East Africa Railway Co. (1889), 23 Q.B.D., 239, at p. 242, “a document given ‘by way of charge’ is not one which absolutely transfers the property with a condition for re-conveyance, but is a document which only gives a right to payment out of a particular fund or particular property, without transferring that fund or property”. The Court of Appeal approved this decision in Durham Bros. v. Robertson, supra: see particularly at pp. 771-2 in the judgment of Chitty, L.J.[69]
[68] [1966] VR 249.
[69] Ibid at 259.
The assignment contemplated by this agreement is not an assignment by way of charge but an absolute assignment subject nevertheless to the condition that certain monies will be paid out of the proceeds by the plaintiff, if the necessary conditions are fulfilled, as contemplated by clause 3.3 of the agreement, and subject to a necessarily implied term that the plaintiff will reassign the beneficial interest on discharge of McGregor’s obligation under the guarantee.
Whether the agreement itself constitutes an assignment or merely an agreement to assign
The subject matter of the agreement is the beneficial interest. It is equitable property, being an interest which could only be enforced in equity. As such it can be the subject of a voluntary assignment in equity where the assignment is absolute and not by way of charge. It is capable of being assigned by a variety of means. In Comptroller of Stamps (Vic) v Howard-Smith[70] Dixon CJ noted:
A beneficiary who is sui juris and entitled to an equitable interest corresponding to the full legal interest in property vested in his trustee may require the transfer to him of the legal estate or interest. He may then transfer the legal interest upon trust for others. Without going through these steps he may simply direct the existing trustee to hold the trust property upon trust for the new beneficiaries. He cannot without the trustee's consent impose upon him new active duties. But he may substitute a new object, at any rate in the case of any passive trust. Accordingly, a voluntary disposition of an equitable interest may be effected by the communication to the trustee of a direction, intended to be binding on him, thenceforward to hold the trust property upon trust for the donee. But it must be a direction, and not a mere authority revocable until acted upon. Such an authority is not in itself an assignment. It may, it is true, result in a transfer of an equitable interest. For the trustee acting upon it may make an effectual appropriation of the trust property to the new beneficiary, or may acknowledge to him that he holds the trust property thenceforward on his behalf. If the authority contemplates or allows such a method of imparting an equitable interest to the donee, the action of the trustee may be effectual to bring about the result. But, in such a case, it is not the donor's expression of intention which per se constitutes the assignment. It is the dealing with the trust property under his authorization. The distinction is, of course, of great importance in considering whether a document is itself an assignment, and, as such, liable to stamp duty.[71]
[70] (1936) 54 CLR 614.
[71] Ibid at 622 – 623.
However, if the document concerned is to take effect as an equitable assignment in itself, it must be in the form of and be intended as such. In Norman v Federal Commissioner of Taxation[72] Windeyer J said:
If the interest to be assigned is a creature of equity, such as the beneficial interest of a cestui que trust, then, apart from any statutory provisions, an assignment of it can, of course, only be effected in equity; for the common law does not know it. Any present assignment of such an interest, that is to say of a chose in equity, is therefore necessarily an equitable assignment. Such an assignment can be by way of gift; and, except that writing is required by s. 9 of the Statute of Frauds, no formality is necessary beyond a clear expression of an intention to make an immediate disposition. In short, there is no reason at all why a person should not give away any beneficial interest that is his: the classic statement is that of Knight Bruce L.J. in Kekewich v. Manning (1851) 1 De G M & G 176 (42 ER 519); see too In re McArdle (dec'd) [1951] 1 Ch 669. It is, of course, necessary that the transaction should take the form of, and be intended as, an immediate transfer of the beneficial interest of the assignor, as distinct from an agreement to assign it. The distinction is critical, for consideration is always necessary to attract the support of equity to a transaction that is a contract rather than a conveyance. The judgment of Stuart V.C. in Voyle v. Hughes (1854) 2 Sm & G 18 (65 ER 283), puts all this clearly.[73] [citations added]
[72] (1963) 109 CLR 9.
[73] Ibid at 30 – 31.
In my opinion, there is every indication in the agreement that the agreement itself does not constitute the assignment. The agreement uses no words of immediate disposition. Recital E merely speaks of McGregor having agreed to assign the beneficial interest to the plaintiff “upon and subject to the terms of this Agreement”. Clause 1 speaks of a future obligation to assign the beneficial interest to the plaintiff. Clause 2 contemplates that the assignment (i.e. that contemplated by clause 1) will be given further effect by McGregor executing a deed in the form of the deed of assignment contained in Schedule 3, together with the execution of a notice of assignment in accordance with Schedule 4. In my opinion the use of the word “further” does not detract from the plain words of clause 1 that this is an agreement to assign, requiring further action to perfect the assignment. I should add that there is no evidence that McGregor ever executed documents in the form of Schedule 3 or Schedule 4.
The agreement purports to provide consideration for the assignment which includes a requirement that the plaintiff execute a discharge of the mortgage referred to in the agreement. The implication would be that this be contemporaneous with the execution of the deed of assignment referred to in clause 2. There is no evidence that that has been done.
In my opinion there is no evidence in the agreement that the agreement itself is intended to constitute the assignment. The indications are to the contrary. For what it is worth, the document, having apparently been prepared in South Australia between South Australian parties, has never been stamped as a conveyance. It has only ever been stamped as an agreement. There is no other evidence that would suggest that the parties intended that the agreement should operate as an assignment.
However, merely because it is an agreement to assign rather than an assignment itself does not mean that the beneficial interest did not become vested in the plaintiff.
The principle of Holroyd v Marshall
McGregor’s equitable interest in the beneficial interest would normally have become vested in McGregor upon the death of Joan McGregor. However, by the time that occurred, McGregor had died, his estate had been declared bankrupt and the defendant had been appointed trustee in bankruptcy of the estate. The question is whether the principle of Holroyd v Marshall[74] has application to the agreement.
[74] (1862) 10 HLC 91; 11 ER 999.
In that case the grantor of a Bill of Sale, Taylor, was in financial difficulties and sold the machinery and implements in his mill to the appellants. They agreed to resell the machinery and implements to Taylor for 5,000 pounds. The property was transferred to a trustee on trust for Taylor absolutely if he should pay 5,000 pounds to the appellants on demand. If he should not, the property was held upon trust to sell it and apply the proceeds in payment of the appellants. The deed included an assignment of future acquired property. Although Taylor acquired further property the subject of the deed, he did nothing further to assure it to the trustee. Subsequently, two judgment creditors attempted to levy execution against the additional machinery. The House of Lords held that the title of the grantee of the Bill of Sale prevailed against the judgment creditors. The general principle was expressed by Lord Westbury LC as follows:
But if a vendor or mortgagor agrees to sell or mortgage property, real or personal, of which he is not possessed at the time, and he receives the consideration for the contract, and afterwards becomes possessed of property answering the description in the contract, there is no doubt that a Court of Equity would compel him to perform the contract, and that the contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired. This, of course, assumes that the supposed contract is one of that class of which a Court of Equity would decree the specific performance. If it be so, then immediately on the acquisition of the property described the vendor or mortgagor would hold it in trust for the purchaser or mortgagee, according to the terms of the contract. For if a contract be in other respects good and fit to be performed, and the consideration has been received, incapacity to perform it at the time of its execution will be no answer when the means of doing so are afterwards obtained.
Apply these familiar principles to the present case; it follows that immediately on the new machinery and effects being fixed or placed in the mill, they became subject to the operation of the contract, and passed in equity to the mortgagees, to whom Taylor was bound to make a legal conveyance, and for whom he, in the meantime, was a trustee of the property in question.[75]
[75] Ibid at 211; 1007.
It was subsequently held by the House of Lords in Tailby v Official Receiver[76] that vagueness in such contract, such as would prevent an order for specific performance, was no bar to the vesting of relevant future required property in the assignee. Lord Watson expressed the rule in this way:
The rule of equity which applies to the assignment of future choses in action is, as I understand it, a very simple one. Choses in action do not come within the scope of the Bills of Sale Acts, and though not yet existing, may nevertheless be subject of present assignment. As soon as they come into existence, assignees who have given valuable consideration will, if the new chose in action is in the disposal of their assignor, take precisely the same right and interest as if it had actually belonged to him, or had been within his disposition and control at the time when the assignment was made. There is but one condition which must be fulfilled in order to make the assignee’s right attach to a future chose in action, which is, that, on its coming into existence, it shall answer the description in the assignment, or, in other words, that it shall be capable of being identified as the thing, or as one of the very things assigned. When there is no uncertainty as to its identification, the beneficial interest will immediately vest in the assignee.[77]
Lord Macnaghten said:
It has long been settled that future property, possibilities and expectancies are assignable in equity for value. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. To effectuate the intention on assignment for value, in terms present and immediate, has always been regarded in equity as a contract binding on the conscience of the assignor and so binding the subject-matter of the contract when it comes into existence, if it is of such a nature and so described as to be capable of being ascertained and identified.[78]
[76] (1888) 13 App Cas 523.
[77] Ibid at 533. See also Herschell at 530–531.
[78] Ibid at 543.
His Lordship continued:
The truth is that cases of equitable assignment or specific lien, where the consideration has passed, depend on the real meaning of the agreement between the parties. The difficulty, generally speaking, is to ascertain the true scope and effect of the agreement. When that is ascertained you have only to apply the principle that equity considers that done which ought to be done if that principle is applicable under the circumstances of the case. The doctrines relating to specific performance do not, I think, afford a test or a measure of the rights created.[79]
[79] Ibid at 547-548.
Subsequent cases make it quite clear that the bankruptcy of the assignor does not affect the operation of this principle. In In Re Lind. Industrials Finance Syndicate, Limited v Lind,[80] Lind assigned his expectant share in his mother’s estate to two persons from whom he had borrowed money. He became bankrupt and was, in due course, discharged, the lenders not having proved in the bankruptcy. After his discharge Lind assigned the expectancy to the plaintiff. His mother died. The plaintiff claimed the interest on the basis that the rights of the previous assignees were terminated by Lind’s discharge in bankruptcy. The argument was rejected by the Court of Appeal. Swinfen Eady LJ, after considering Holroyd v Marshall, Tailby v Official Receiver and other authorities said:
It is clear from these authorities that an assignment for value of future property actually binds the property itself directly it is acquired – automatically on the happening of the event, and without any further act on the part of the assignor – and does not merely rest in, and amount to, a right in contract, giving rise to an action. The assignor, having received the consideration, becomes in equity, on the happening of the event, trustee for the assignee of the property devolving upon or acquired by him, and which he had previously sold and been paid for.[81]
[80] [1915] 2 Ch 345.
[81] Ibid at 360.
In a similar vein, Phillimore LJ said:
But notwithstanding these allusions to the doctrine of specific performance of contracts, it is I think well and long settled that the right of the assignee is a higher right than the right to have specific performance of a contract, that the assignment creates an equitable charge which arises immediately upon the property coming into existence. Either then no further act of assurance from the assignor is required, or if there be something necessary to be done by him to pass the legal estate or complete the title, he has to do it not by reason of a covenant for further assurance the persistence of which through bankruptcy it is unnecessary to discuss, but because it is due from him as trustee for his assignee.[82]
[82] Ibid at 365-366. See also Bankes LJ at 373-374.
In Re Lind has been adopted in Australia. In Palette Shoes Pty Ltd (in liquidation) v Krohn[83] Dixon J said:
For the purpose of deciding in the present case whether the respondents' title to the book debts depends upon what amounts to an assignment, it is important to notice the essential elements upon which Lord Macnaghten dwells. As the subject to be made over does not exist, the matter primarily rests in contract. Because value has been given on the one side, the conscience of the other party is bound when the subject comes into existence, that is, when, as is generally the case, the legal property vests in him. Because his conscience is bound in respect of a subject of property, equity fastens upon the property itself and makes him a trustee of the legal rights or ownership for the assignee. But, although the matter rests primarily in contract, the prospective right in property which the assignee obtains "is a higher right than the right to have specific performance of a contract," and it may survive the assignor's bankruptcy because it attaches without more eo instanti when the property arises and gives the assignee an equitable interest therein (In re Lind; Industrials Finance Syndicate Ltd. v. Lind).[84] [citation omitted]
[83] (1937) 58 CLR 1.
[84] Ibid at 26-27. See also Booth v Commissioner of Taxation (1987) 164 CLR 159 at 177; McIntyre v Gye (1994) 51 FCR 472 at 481.
The learned authors of Meagher Gummow and Lehane’s “Equity Doctrines & Remedies” (Fourth Edition) at 6-265 conveniently summarise the position as follows:
Where:
(a) A for valuable consideration agrees to assign, or purports presently to assign, an expectancy, or future property, to B;
(b) the consideration has been paid, or executed; and
(c) A acquires property which falls within the description of that which he agreed, or purported presently, to assign;
then in equity that property vests in B as soon as it is acquired by A and can be identified, without any further assurance by A and without any action by B. It is an example of equity regarding as done that which ought to be done.
As it was not put in issue by the defendant for the purposes of its argument, I am prepared to assume for present purposes that the agreement is for valuable consideration, although that is formally denied by the defendant. It is plain that the beneficial interest was the subject of the intended assignment and that it was quantified on the death of Joan McGregor. More importantly for present purposes, in order for the principle of equity to operate, the consideration must have been paid or executed. It is here that, in my opinion, the plaintiff encounters difficulties.
There seems to be an assumption in parts of the agreement that, at the time of vesting of the beneficial interest in McGregor, the debt guaranteed will have become payable and that there will be a corresponding liability on the part of McGregor to make payment under the guarantee, or that at least McGregor’s liability under the guarantee will not have been discharged for some reason. There is no evidence that payment under the guarantee had ever become due. There are many reasons why McGregor’s liability under the guarantee might have been discharged between the date of the agreement and the date of vesting, not least of which is payment of the principal debt, not necessarily by McGregor. If, at the time of vesting, his liability under the guarantee had been discharged, the necessarily implied term that the plaintiff would reassign the beneficial interest would arise, and the beneficial interest would not have become vested in the plaintiff by operation of the principle of Holroyd v Marshall.
The plaintiff does not plead or prove any continuing actual or potential liability on the part of McGregor to make payment under the guarantee at the time of vesting of the beneficial interest, such as to ensure that the principle of Holroyd v Marshall would apply so as to vest the residuary interest in the plaintiff. The plaintiff does not plead or prove that the contract to assign the beneficial interest by way of security for the guarantee had not been overtaken between the date of the agreement and the death of Joan McGregor by discharge of McGregor’s liability under the guarantee. On that ground alone, the plaintiff’s pleading and proof of facts do not establish a cause of action.
However, assuming that McGregor’s liability under the guarantee had not been discharged, the principle of Holroyd v Marshall, if it is to apply, requires that the assignor has received the consideration. Valuable consideration will only arise under paragraph 3.1 of the agreement, assuming that the guarantee has not been discharged, if the amount due under the guarantee, if and when due and payable, exceeds the amount of the beneficial interest. That has not been pleaded or established, and it is quite impossible to tell whether that aspect of the consideration has been received. Furthermore, it has not been pleaded or established that the plaintiff “forthwith” executed or discharged the mortgage referred to in paragraph 3.1.
Paragraph 3.2 places an obligation on the plaintiff to procure that David John Tucker will provide certain legal services to McGregor on credit subject to certain conditions. I do not decide whether that amounts to valuable consideration, but if it does, there is no pleading or proof to establish that the consideration has been provided.
Clauses 3.4 and 3.5 require payment of certain monies by the plaintiff to David John Tucker, again subject to certain conditions which may or may not constitute valuable consideration. There is no pleading or proof that the conditions have been fulfilled or that payment has been made.
Clauses 3.3 and 4 of the agreement, to the extent that they may provide valuable consideration at all, cannot arise until after receipt by the plaintiff of the beneficial interest.
There are no other provisions in the agreement which might provide valuable consideration which the plaintiff could plead or prove has been paid or executed. It follows that neither by its statement of claim nor by its evidence does the plaintiff assert any facts which would justify a conclusion that, as at the date of death of Joan McGregor, the beneficial interest became vested in equity in the plaintiff. The existence of those facts was within the knowledge of the plaintiff. If it is considered that they were not relevant to its claim, the plaintiff has misunderstood the effect of the agreement and of its own alternative pleading. It was fairly placed on notice of the nature and effect of the defendant’s application. If the facts were not proved because they did not exist, then the plaintiff never did have any reasonable basis for its claim.
Conclusion
Without a vesting of the beneficial interest in the plaintiff either by virtue of the agreement itself or by virtue of the principle of Holroyd v Marshall, the plaintiff is left merely with a possible remedy to sue for breach of contract. As previously mentioned, that is not relied on, and given McGregor’s bankruptcy, and assuming that the contract is otherwise enforceable, the plaintiff only has a provable debt and cannot maintain an action on the contract without leave of the Federal Court.
It follows that I am satisfied that there is no reasonable basis for the claim against the defendant. There will be judgment for the defendant.
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