Krishell Pty Ltd v Nilant - [2006] WASCA 223

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: KRISHELL PTY LTD -v- NILANT & ORS [2006] WASCA 223

CORAM: WHEELER JA
MCLURE JA
BUSS JA

HEARD: 11 APRIL 2006

DELIVERED : 27 OCTOBER 2006

FILE NO/S: CACV 19 of 2005

BETWEEN: KRISHELL PTY LTD
Appellant
AND
CHARLES PHILIPPE LOUIS NILANT
OREN ZOHAR
First Respondents
CHARLES DANIEL GARDNER
Second Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :MASTER NEWNES
Citation  :KRISHELL PTY LTD -v- NILANT & ORS [2005] WASC 14
File No  :COR 73 of 2004

Catchwords:

Set-off - Order conferring a right to set off a judgment debt entered in favour of a company against a judgment debt entered against the company - Joint and several debtors - Whether order mandatory and automatically set off and extinguished the judgment debts - How a right of set-off may be exercised

Insolvency - Liquidator's power to sell or otherwise dispose of the company's property - Whether a right of appeal against a judgment dismissing the company's claim is "property" as defined in s 9 Corporations Act 2001 (Cth) - Assignment of a thing in action in the context of set-off of judgment debts under s 553C Corporations Act 2001 (Cth) - Liquidator has power to assign the right to the net balance, if any, owing after the judgment debts are set off under s 553C - Liquidator also has power to assign a future contingent thing in action - Whether related rights of appeal can also be assigned - Appeal against the dismissal of the company's claim is part of the process of retrospective calculation to determine the net balance owing, if any

Contract - Construction of written contract - Contract to be construed with regard to the factual and legal background against which it was concluded and the practical objects it was intended to achieve - Whether contract effective to assign a thing in action and related rights of appeal - Absence of language of assignment not decisive

Appeal - Review by appellate court of exercise of judicial discretion by Master - Turns on own facts

Legislation:

Bankruptcy Act 1966 (Cth), s 86
Corporations Act 2001 (Cth), s 9, s 236, s 237, s 436A, s 477(2)(c), s 477(2)(m), s 553C, s 1321
Property Law Act 1969 (WA), s 20
Rules of the Supreme Court 1971 (WA), O 18 r 7
Supreme Court Act 1935 (WA), s 60(1)(f)

Result:

Leave to appeal granted in relation to grounds 1 to 5 but not ground 6
Appeal dismissed

Category: A

Representation:

Counsel:

Appellant:     Mr P A Kyle
First Respondents         :     Ms P E Cahill
Second Respondent       :     Dr J T Schoombee

Solicitors:

Appellant:     Kyle & Co
First Respondents         :     Jackson McDonald
Second Respondent       :     Bruce Havilah & Associates

Case(s) referred to in judgment(s):

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Baker v Sheridan [2005] NSWCA 408
Barton v Atlantic 3 Financial (Australia) Pty Ltd (in liq) (2004) 212 ALR 348
Blair v Curran (1939) 62 CLR 464
Carob Industries Pty Ltd (in liq) v Simto Pty Ltd (2000) 23 WAR 515
Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 1007; (2004) 211 ALR 457
Chamberlain v Deputy Commissioner of Taxation (ACT) (1988) 164 CLR 502
Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550
Coles v Wood [1981] 1 NSWLR 723
Cory Brothers & Co Ltd v Owners of Turkish Steamship "Mecca" [1897] AC 286
Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124
Edwards v Hope (1885) 14 QBD 922
Elfic Ltd v Macks [2003] 2 Qd R 125
Frederikshavn Vaerft A/S v Stena Rederi Aktiebolag [2002] FCA 1024; (2002) 124 FCR 243
Gardner Corporation Pty Ltd v Zed Bears Pty Ltd [2003] WASC 13
Gardner Corporation Pty Ltd v Zed Bears Pty Ltd, unreported; SCt of WA; Library No 990181; 13 April 1999
Georgiadis v Australian & Overseas Telecommunications Corporation (1994) 179 CLR 297
GM & AM Pearce & Co Pty Ltd v RGM Australia Pty Ltd [1998] 4 VR 888
Goodman v Robinson (1886) 18 QBD 332
Goodwin v Duggan (1996) 41 NSWLR 158 at 167
Gray v Dalgety & Co Ltd (1916) 21 CLR 509
Gye v McIntyre (1991) 171 CLR 609
Handberg v Smarter Way (Aust) Pty Ltd (2002) 190 ALR 130
Harley v Samson (1914) 30 TLR 450
Holroyd v Marshall (1862) 10 HL Cas 191
House v The King (1936) 55 CLR 499
HPM Pty Ltd v Fear [2002] WASCA 249; (2002) 171 FLR 12
In re A Debtor No 21 of 1950 (No 2) [1951] 1 Ch 612
In re Bank of Credit and Commerce International SA (No 8) [1998] AC 214
Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757
Kearns v Hill (1990) 21 NSWLR 107
Kostka v Addison [1986] 1 Qd R 416
Krishell Pty Ltd v Nilant & Ors [2005] WASC 14
Loxton v Moir (1914) 18 CLR 360
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749
Metal Manufacturers Ltd v Hall (2002) 41 ACSR 466
Norman v Federal Commissioner of Taxation (1963) 109 CLR 9
Pitt‑Owen v Lenin [2006] NSWSC 748
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Poulton v The Commonwealth (1953) 89 CLR 540
Re Her Honour Chief Judge Kennedy; Ex parte West Australian Newspapers Ltd [2006] WASCA 172
Re Kenneth Wright Distributors Pty Ltd (in liq); W J Vine Pty Ltd v Hall [1973] VR 161
Re Quatrovision Pty Ltd (in liq) (1982) 1 NSWLR 95
Re Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327
Re William Felton Co Pty Ltd (subject to a deed of company arrangement); Ex parte Sims (1998) 28 ACSR 228
Reid v Cupper [1915] 2 KB 147
Smolarek v Liwszyc (2006) 32 WAR 129
Stein v Blake [1996] AC 243
Tailby v The Official Receiver (1888) 13 App Cas 523
Taylor v Ansett Transport Industries Ltd (1987) 18 FCR 342
The Commonwealth v Construction, Forestry, Mining & Energy Union (2000) 98 FCR 31
The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40
Trendtex Trading Corporation v Credit Suisse [1982] AC 679
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667
White v Brunton [1984] QB 570
William Brandt's Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454
Wilson v Metaxas [1989] WAR 285
Witness v Marsden (2000) 49 NSWLR 429

Case(s) also cited:

Esber v Commonwealth (1992) 174 CLR 430
Gardner Corporation Pty Ltd v Zed Bears Pty Ltd [2001] WASC 106
Gardner Corporation Pty Ltd v Zed Bears Pty Ltd [2001] WASC 237
Hiley v The Peoples Prudential Assurance Co Ltd (in liq) (1938) 60 CLR 468
MS Fashions Ltd v Bank of Credit & Commerce International SA (in liq) (No 2) [1993] Ch 425
Torkington v Magee [1902] 2 KB 427

WHEELER JA:

Background - the original litigation and orders

In 1995 Gardner Corporation Pty Ltd ("Gardner Corporation"), a company which employed the second respondent ("Mr Gardner") as managing director, sold its franchise, Gardner's Electronics, to the appellant, Krishell Pty Ltd ("Krishell"), and another company, Zed Bears Pty Ltd ("Zed Bears"). Under the terms of the franchise agreement each of the directors of Zed Bears and Krishell guaranteed the performance of their companies.
In August 1996, Gardner Corporation commenced proceedings against Krishell and Zed Bears, and their directors, claiming that Krishell and Zed Bears had breached the terms of the franchise agreement. Gardner Corporation claimed damages for the breach and moneys allegedly due and owing under the agreement. Krishell, Zed Bears and their directors denied the breach and counterclaimed that they had been induced to enter into the franchise agreement by misleading and deceptive conduct on the part of Gardner Corporation, conduct with which Mr Gardner was alleged to have been knowingly concerned.
On 13 April 1999, after a 15‑day trial, Steytler J (as he then was) found that Krishell, Zed Bears and their directors were jointly and severally liable to pay Gardner Corporation outstanding franchise fees and certain other moneys payable under the franchise agreement: Gardner Corporation Pty Ltd v Zed Bears Pty Ltd, unreported; SCt of WA; Library No 990181; 13 April 1999. The amount owing was referred to a Master for determination.
On the original defendants' counterclaim under the Trade Practices Act 1974 (Cth), Steytler J found that Gardner Corporation had engaged in misleading and deceptive conduct and that Mr Gardner had been knowingly concerned in that conduct. His Honour found, however, that only Krishell and its directors had been misled by the conduct and only they were entitled to damages. The question of Krishell's entitlement to damages was stood over for further hearing.
A Master of this Court subsequently found that Krishell and its directors, Mr and Mrs Myers, were liable under the franchise agreement to pay to Gardner Corporation the total sum of $98,559.50 and interest on that sum.
The hearing of Krishell's entitlement to damages took place over five days in November 2002 and judgment was delivered in January 2003: Gardner Corporation Pty Ltd v Zed Bears Pty Ltd [2003] WASC 13.
The orders flowing from that judgment were made in two tranches. On 23 January 2003, Gardner Corporation and Mr Gardner were ordered to pay Krishell $109,932.28, in respect of the counterclaim. On 4 February 2003, it was also ordered that:
"1.The First [Zed Bears], Second [Krishell], Fifth and Six [sic] Defendants [Mr and Mrs Myers] are jointly and severally liable to pay the Plaintiff [Gardner Corporation] the sum of $98,559.50.
2.The First Defendant [Zed Bears] do pay the Plaintiff [Gardner Corporation] interest on the sum of $90,659.52 from 10 August 1996 to 27 April 2001 in the sum of $51,502.68 and thereafter interest on the said sum of $90,659.52 at 6% per annum to the date of judgment.
3.The First and Second Defendants (by Counterclaim) [Gardner Corporation and Mr Gardner] do pay the Second Plaintiff (by Counterclaim) [Krishell] the sum of $98,559.50.
4.The Second, Fifth and Sixth Defendants [Krishell, Mr Myers and Mrs Myers] be entitled to set‑off the sum of $98,559.50 awarded in favour of the Second Plaintiff (by Counterclaim) [Krishell] against the sum of $98,559.50 awarded in favour of the Plaintiff [Gardner Corporation]."

Post-judgment events

In February 2003, Gardner Corporation lodged an appeal against Steytler J's findings, seeking orders that Krishell's counterclaim be dismissed and that Krishell pay Gardner Corporation the sum of $98,559.50 plus interest, found payable by the Master.
The effect of the appeal, if successful, would be that the damages awarded to Krishell in the sums of $109,932.28 and $98,559.50 would be set aside and Gardner Corporation would be entitled to recover the sum of $98,559.50 which had been found to be due and payable to it.
Subsequently, in August 2003, an order was made that Gardner Corporation be wound up in insolvency. The first respondents, Mr Nilant and Mr Zohar ("liquidators"), were appointed as liquidators of Gardner Corporation. After obtaining legal advice that continuing the appeal was not in the interests of Gardner Corporation creditors, Mr Nilant wrote to Mr Gardner and to Mr Myers (for Krishell), in October 2003, in the following terms:
"I refer to the above matter and the Company's Appeal Number FUL 14 of 2003 against Krishell Pty Ltd ('the Appeal').
It is not my intention to pursue this action on behalf of the Company however I have a responsibility to realise the asset being the Company's rights to the Appeal for the benefit of creditors generally.
Accordingly, I am able to sell the Company's rights to the Appeal to any interested person. I am therefore, writing to yourself and Mr Denis Meyers [sic] of Krishell Pty Ltd seeking offers for the purchase of the Company's rights to the Appeal.
Any offer that is submitted must be a cash offer, payable within seven (7) days and I advise that it is my intention to accept the highest offer."
On 11 November 2003, Mr Gardner submitted an offer of $5000. This offer was accepted on 12 November 2003. The terms of the agreement required Mr Gardner to obtain leave of the Court to proceed in the name of the company and to be responsible for the costs of the application.
During this time, Krishell had made an application to dismiss Gardner Corporation's appeal for want of prosecution. This application was dismissed on 14 November 2003, at which time the Court also ordered that any application to proceed with the appeal in Gardner Corporation's name be filed within 10 days.
The liquidators, on behalf of Gardner Corporation, and Mr Gardner entered into a "Deed of Confirmation" to ratify the 12 November agreement on 24 November 2003 ("first deed"). Clause 1 of the first deed provided that:
"The parties HEREBY RATIFY AND CONFIRM the agreement made on 12 November 2003 for [Mr Charles Gardner] to purchase from [Gardner Corporation (in liquidation)] as Liquidators of the Company all [Gardner Corporation's] rights to the Appeal for the consideration of five thousand dollars…which agreement becomes unconditional upon the Court granting the Purchaser leave to proceed with the Appeal in the name of the Company."
Clause 2 recited that the parties further ratify and confirm that the right to appeal sold to Mr Gardner included the "right to claim payment from [Krishell and Mr Myers], jointly and severally, in the sum of $98.559.50 … [a]ny and all interest on the aforesaid sum of $98,559.50 … [and] [a]ny rights or entitlements of the Company in the Appeal to defeat or limit any claims awarded to [Krishell] … at first instance" (ie, the judgment debt).
On the same day, 24 November 2003, and thus within the 10‑day period ordered by the Court, Gardner Corporation and Mr Gardner applied for an order that Mr Gardner be granted leave to proceed with the company's appeal in the name of the company. An affidavit sworn by Mr Nilant, with a copy of the first deed attached, was filed in support of the application and served on Krishell.
During this time Krishell had been in contact with the liquidators, objecting to their transaction with Mr Gardner, and requesting that a meeting of creditors be called to discuss the matter. In a letter dated 14 November 2003, two days after the sale, Krishell's solicitor wrote that "any further attempt to benefit the directors of the company to the detriment of creditors will be the subject of serious complaint by our client". However, after receiving a reply from Mr Nilant on 18 November 2003 which required Krishell to pay $2323 as security for the cost of holding a creditors' meeting and which stated that the agreement for sale of the appeal rights was expressly subject to Mr Gardner successfully applying for leave of the Court, an application upon which Krishell could be heard, Krishell decided not to pursue the request for a creditors' meeting.
A meeting of Gardner Corporation's creditors was later held, on 8 January 2004. Krishell contended that the right of appeal was not an asset of Gardner Corporation and complained that Krishell had not been offered the right to purchase the judgment debt owed by Krishell to Gardner Corporation. The liquidators' response was to the effect that the judgment debt was valueless unless the appeal was successful and therefore inextricably connected to the right of appeal.
The liquidators and Mr Gardner entered into a second deed on 5 March 2004 ("second deed"). Clause 1 of the first deed was amended so that it became unconditional upon the Court granting Mr Gardner leave to proceed with the appeal in the name of the company "and/or in…[his own name] as assignee".
On 9 March 2004, Master Newnes ordered that the proceedings for Mr Gardner's application for leave to proceed with the appeal be adjourned and any application by Krishell to contest the liquidator's decision to sell and assign the appeal rights to Gardner be filed and served by 23 March 2004.
On 26 March 2004, four and a half months after the first deed was signed and three days after the deadline ordered by Master Newnes, Krishell filed an application under s 1321 of the Corporations Act 2001 (Cth) to set aside the transaction which transferred Gardner Corporation's appeal rights to Mr Gardner. On 7 April 2004, Krishell made an application for an extension of time within which to file the application under s 1321 because the 21‑day period from the date of the liquidators' decision had long expired.
Section 1321 provides:
"Appeals from decisions of receivers, liquidators etc.
A person aggrieved by any act, omission or decision of:
(a)a person administering a compromise, arrangement or scheme referred to in Part 5.1; or
(b)a receiver, or a receiver and manager, of property of a corporation; or
(c)an administrator of a company; or
(ca)an administrator of a deed of company arrangement executed by a company; or
(d)a liquidator or provisional liquidator of a company;
may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit."
The appellant's applications were dismissed by Master Newnes. Leave to extend the time for the making of the application was refused and the Master held that he would have refused the substantive application in any event: Krishell Pty Ltd v Nilant & Ors [2005] WASC 14.

The Master's reasons

The reasons of the learned Master were detailed and careful. He referred to the breadth of the discretion to grant an extension of time and to relevant factors, including the length of delay, the reasons for delay, questions of prejudice, and the question of whether the claim sought to be advanced was arguable. He considered that the delay was substantial. He noted that, by 24 November 2003 or thereabouts at the latest, Krishell must have been aware that Mr Gardner had acquired the company's rights to enforce the judgment in favour of Gardner Corporation. He noted that, at a meeting of creditors on 8 January 2004, Krishell's solicitor had complained that Krishell had not been afforded that opportunity. However, the application to set aside the transaction was not made until at least four months after the transaction came to Krishell's attention. The Master also noted that, over that period, it must have been apparent to Krishell and its advisers that the winding‑up was proceeding and that Mr Gardner was taking steps to pursue his rights.
So far as the explanation for the delay was concerned, the Master considered that the amendment of 5 March 2004, far from being critical as Krishell had suggested, was of a minor nature not going to the heart of the agreement. So far as prejudice was concerned, the Master noted the prejudice to Mr Gardner in taking a variety of steps and, in particular, in expending significant amounts of legal costs in pursuing the appeal rights, which steps and costs would be wasted if the agreement was set aside. He also noted an affidavit sworn by the liquidators to the effect that the application had delayed the finalisation of the liquidation and had absorbed costs which might otherwise go to creditors. The Master also noted that, on the other hand, Mr Myers on behalf of Krishell had asserted that, if Krishell was afforded an opportunity to acquire the appeal rights and the judgment debt, it would be prepared to pay "significantly more" than the $5000 paid by Mr Gardner.
Turning to the merits of the substantive application, the Master noted that Courts have consistently been reluctant to interfere with the decisions of liquidators where the issue was whether in some business or commercial sense a liquidator had acted prudently. The Master noted that Krishell's argument was that the appeal rights were not property of the company and could not therefore be disposed of by the liquidators. However, the respondents submitted to the Master that the judgment debt itself was clearly capable of assignment and that the assignment of the debt carried with it as an incidental right, the right to contest by way of appeal Krishell's set‑off against that debt. They also submitted that the assignment was, in truth, an assignment of the net balance (if any) in favour of Gardner Corporation as between the judgment debts of Krishell and Gardner. It is to be observed, then, that even before the Master, the respondents did not contend that the appeal rights in themselves were property capable of assignment. Rather, they relied upon the assignment either of the judgment debt or of the net balance.

Having considered the relevant authorities, in [50] of his reasons, the Master expressed the view that the right of appeal could be considered to be property of Gardner Corporation which was capable of assignment. However, the Master's reason for doing so appears to have been based upon the proposition that the right of appeal was a right necessary to enforce the right to recover the judgment debt which had been assigned. The Master did not consider the position beyond argument. However, the Master considered that, in any event, the question of whether or not the agreement effected a valid assignment of the right of appeal was a matter which could be dealt with (if necessary) on Mr Gardner's application for leave to proceed with the appeal, either in his own name or in the name of the company.
Further, the Master considered that the "real complaint" of Krishell against the liquidators was that it asserted that neither Krishell nor any other creditor had been offered the opportunity to acquire the judgment debt. As to this, the Master was not persuaded that Krishell did not understand that the original offer of the appeal rights involved an assignment of the judgment debt. In addition, the Master set out a number of matters which appeared to him to suggest that it was unlikely that Mr Myers would have paid, as he then asserted, "considerably more" than Mr Gardner paid for that judgment debt. The Master also dealt with a number of subsidiary issues which do not seem to be in issue in the present application.
Drawing the various considerations to which he had adverted together, the Master concluded in [67] of his reasons:
"In the circumstances, I would refuse leave to extend the time for the making of the application. The plaintiff knew of the transaction by, at the latest, 24 November 2003 and it knew that Mr Gardner was proceeding on the basis that he had acquired the rights concerned and was incurring costs on that basis. Krishell took no steps to impugn the transaction until 16 March 2004. Mr Gardner now faces the prospect of losing all the money he has spent on the matter to date. The liquidators face the prospect of further costs and delay in the liquidation in offering the appeal rights for sale. No satisfactory explanation for the delay by Krishell has been offered and, in my view, it is simply too late now to endeavour to set aside all that has been done, against an uncertain increase in the return to creditors."

Leave application

Although in form an appeal, the first order sought in the "notice of appeal" is that the appellant have leave to appeal against the order of the Master dismissing the application for extension of time. The Master's decision was plainly interlocutory and therefore leave is required pursuant to s 60(1)(f) of the Supreme Court Act1935 (WA), which provides that "no appeal shall lie" unless such leave is obtained. The jurisdiction to hear the appeal is founded upon the grant of leave: Wilson v Metaxas [1989] WAR 285, at 294, per Malcolm CJ (Brinsden and Smith JJ agreeing); White v Brunton [1984] QB 570, at 573; Coles v Wood [1981] 1 NSWLR 723, at 727.
In the present proceedings, it was left to the Court to raise of its own motion the question of leave. That issue was not addressed in any of the appellant's submissions. Such a course is highly improper. The requirement for leave is no mere technicality, but serves an important function in the administration of justice by discouraging unnecessary interlocutory appeals.
Turning to the criteria relevant to the grant of leave to appeal, the discretion to grant leave is a broad one. In general, it must be shown that the decision in respect of which leave to appeal is sought is wrong, or at least attended with sufficient doubt to justify the grant of leave, and, in addition, that substantial injustice would be done by leaving the decision unreversed: Wilson v Metaxas, at 294. These are not rigid requirements, and if the point is an important one, it may be appropriate to grant leave, notwithstanding that one or the other of those criteria may not be met.
I note in passing that the second order sought in the notice of appeal is that "the actions of the first respondents" in purporting to sell the rights of appeal and in executing the deed of confirmation of 24 November 2003 "be reversed". How that order can be sought, or can properly be made, on an appeal from a refusal of extension of time, remains unexplained. The appeal appears to that extent to be incompetent.

The grounds of appeal

Before I turn to the question of whether either of the criteria in Wilson v Metaxas is satisfied, or whether it is otherwise in the interests of justice to grant leave, it is desirable to note the issues raised by the grounds of appeal. They fall broadly into three categories.
Proposed grounds 1 and 2 assert that the Master erred in law in deciding that the right to appeal Steytler J's judgment was properly capable of being assigned.
Grounds 3, 4 and 5 deal with various alleged errors of fact. Ground 3 asserts that the learned Master erred in finding that the notice of appeal sought an order that the appellant pay Gardner Corporation the sum of $98,559.50. Ground 4 asserts that the Master should have decided as a matter of fact that the appeal right "did not include" an entitlement to the benefit of the judgment. It also asserts that the Master should have decided as a matter of law that the appeal right "could not be deemed to include" an entitlement to the benefit of that judgment. Despite having heard argument addressed to the issue, I still do not know what this second limb of the ground is intended to address. Ground 5 is to the effect that the Master should have decided that the liquidators' offer to sell the appeal rights did not include an entitlement to the benefit of the judgment.
Finally, in the third broad category of appeal issues, the Master's discretion in not extending time within which to appeal is attacked, not on the basis of any erroneous application of principle (save perhaps for the first subparagraph which asserts that the liquidators acted "without power", apparently a reference back to grounds 1 and 2), but by reference to a variety of particular facts ventilated before the Master, such as Krishell's opposition to the liquidators' decision being made clear in a letter dated 14 November 2003.

"Assignment" issues - grounds 1 and 2

Had the learned Master's decision been squarely concerned with the ability of Mr Gardner, either in his own name or in the name of Gardner Corporation, to pursue the appeal, and had all the potential bases upon which it might be argued that it could be open to Mr Gardner to take that course been ventilated, either before the Master or before us, I might well have been prepared to grant leave to appeal. That is because the question of the ability of Mr Gardner to bring such an appeal may well be an issue either in any application made by Mr Gardner to proceed in his own name, or in the name of the company (one or the other of such applications being, it should be remembered, a condition imposed by the first and second deeds between Mr Gardner and the liquidators), or may well arise at the hearing of the appeal itself. A multiplicity of proceedings dealing with the same issue is not in the interests of justice. There is much to be said for the proposition that, had the question been squarely raised before us, it would have been preferable for it to be determined now, rather than having the parties put to the expense of re‑agitating the same issue on another occasion.
However, the Court can deal only with those grounds which are before it, and is constrained by the course which the proceedings have taken to date, including the course of proceedings before the Master. It is necessary therefore to deal with the merits of the grounds as they are, not as they might have been. Bearing that in mind, I turn to the question of whether the Master's decision was wrong or attended with sufficient doubt.
So far as grounds 1 and 2 are concerned, as I have noted, it seems to have been conceded before the Master that a bare right of appeal was not itself property and was not assignable. That concession is not surprising in the light of the decision of the High Court in Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124. That case is, in my view, authority for the proposition that a bare right of appeal is not "property" within the meaning of s 5 of the Bankruptcy Act 1966 (Cth). Although the reasoning of the majority in that case (Brennan CJ, Gaudron and McHugh JJ) is primarily concerned with refuting a variety of propositions advanced in support of the contention that such a right may be "property", the underlying conception of "property" is not discussed in detail. However, as I understand it, a right of litigation may be considered to be property if it can be characterised as a "chose in action", that being a species of property. Not all rights to take action are choses in action; that expression extends only to rights "of a proprietorial or quasi‑proprietorial nature which are claimable or enforceable by action" (Starke, Assignments of Choses in Action in Australia, 1972, page 2; Halsbury's Laws of England, vol 6, 4th ed, par 1). A right to sue may be incapable of assignment because it is not a chose in action (ie, not "property" capable of assignment) or for other reasons, including the prohibition on maintenance (eg, Starke, pages 62 ‑ 66). As will appear, these considerations are not always kept distinct in the cases.
To the extent that the Master appeared to express the view that the right of appeal itself was "property" capable of being assigned, I would accept that he was in error. No party in this application made any submission to the contrary. It may be accepted for present purposes that the "assignment", if made on that basis, would not be valid, and that the issue could be raised by Krishell on an application by Mr Gardner pursuant to O 18 r 7 (as was done in a similar context, on an application under the equivalent Federal Court rule, in Frederikshavn Vaerft A/S v Stena Rederi Aktiebolag [2002] FCA 1024; (2002) 124 FCR 243).
However, that leaves unresolved the question of whether the assignment of the judgment debt, which was property capable of assignment, carried with it the right to appeal in respect of the judgment debt which was set off against it. It is submitted on behalf of the second respondents that, by reason of s 20(1)(b) of the Property Law Act 1969 (WA), the assignment of the debt carries with it the right to attack the set‑off. The second respondents refer in this context also to Crossley Vaines on Personal Property, 5th ed, at 271 ‑ 2. However, the cases discussed in the text are concerned with the rather different question of when an assignment will or will not be impermissible as offending the prohibitions on maintenance and champerty.
Alternatively, it was submitted that, because of the mutuality of debts, what the liquidators sold and assigned to Mr Gardner was effectively the net balance, if any, as between the two opposing sets of judgment debts: see s 553C Corporations Act 2001; Stein v Blake [1996] AC 243.
Whether the appellant dealt with those submissions before the Master is not clear from the Master's reasons. However, before us, the appellant simply ignored them. Despite attempts from the Bench to explore broader issues, the appellant's whole case was put on the basis that what had been attempted between the liquidators and Mr Gardner was both in fact and in law a bare assignment of the right of appeal, which right was not assignable.
It appears to me, although unfortunately I have not had the benefit of any argument to the contrary, that it is arguable that there is such a close connection between the judgment debt and the appeal, that assignment of one may carry with it as an incident the right to pursue the other. As a practical matter, the judgment debt would be of no value without the right to contest the judgment sum set off against it. In Trendtex Trading Corporation v Credit Suisse [1982] AC 679, in the context of considering whether an assignment should be struck down as assignment of a "bare" cause of action or as savouring of maintenance, Lord Roskill said at [45]:
"The court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment … [there is] no reason why the assignment should be struck down as an assignment of a bare cause of action ... "
This dictum was considered by Toohey J (dissenting in the result) in Georgiadis v Australian & Overseas Telecommunications Corporation (1994) 179 CLR 297, at 319, his Honour observing that assignability is relevant "for the light it throws on the concept of property". That case was concerned with the concept of "property" for the purpose of s 51(xxxi) of the Constitution.
Alternatively, it appears to me also to be arguable that the right assigned may be viewed as a right to assert, by pursuing an appeal, that the "net balance" owing to Gardner Corporation is greater than the zero balance established by the current judgment, following Stein v Blake.
Further, as counsel for Mr Gardner pointed out, although he was required to obtain leave of the Court to proceed, he could apply for leave either in his own name as assignee, or in the name of the company. The application presently on foot, and which has been adjourned, is an application pursuant to O 18 r 7 of the Rules of the Supreme Court1971 (WA) to proceed in his own name. However, it was submitted that it would be open to him to apply to proceed in the name of the company, and that, when regard was had to the criteria generally applied by the Court in relation to such applications, there appeared to be no reason why leave should not be granted. Mr Gardner's counsel referred in that context to s 236 and s 237 in Pt 2F.1A of the Corporations Act 2001, and to the commentary on it at par 11.240 of Ford's Principles of Corporations Law.
The question of whether such an order may be made in respect of a company in liquidation is one which has not been authoritatively determined, and it has been doubted whether Pt 2F.1A is intended to apply to a company in liquidation: HPM Pty Ltd v Fear [2002] WASCA 249; (2002) 171 FLR 12 (cf Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 1007; (2004) 211 ALR 457, at [8] per Barrett J). However, it has been held in a number of cases that, even if Pt 2F.1A is unavailable where a company is in liquidation, the inherent power of the Court to permit proceedings to be taken in the name of the company at the instigation of a member or creditor has survived the commencement of that Part, and that rather similar criteria apply in relation to the discretion to permit such proceedings (see Carpenter v Pioneer Park at [34] ‑ [36], and cases there cited).
The point of these observations is that it is clear that Krishell's real concern is not about the action of the liquidators, but is directed to the possibility that Mr Gardner may be able to proceed with the appeal. That issue will not be put to rest even if leave to extend time is granted and it is determined that the liquidators lacked power to assign a bare right of appeal to Mr Gardner to pursue in his own name. This is not therefore a case in which it could be finally determined that Gardner Corporation's appeal could not be pursued by Mr Gardner.
So far as the merits of the "assignment" issue in grounds 1 and 2 is concerned, then, the matter may be summarised in this way. It is not contended by any party that a bare right of appeal is assignable by a liquidator. If the Master purported to decide that it was, he was in error. However, in the absence of any argument to the contrary, it would appear to me that the assignment of the judgment debt brings with it the right to pursue that appeal, on either of the two potential bases advanced by counsel for Mr Gardner.

Remaining grounds

So far as the other grounds of appeal are concerned, in my view, the Master's decision was not attended with any doubt in the respects complained of. So far as ground 3 is concerned, which deals with the notices of appeal, although the notice dated 12 June 2003 does refer only to the orders made by Steytler J on 23 January 2003 (being that relating to the order that Krishell pay Gardner Corporation $98,559.50 plus interest), it is clear that this was a patent error, as in the substance of the appeal notice, the orders of 4 February 2003 were specifically referred to. When the notice is read in its entirety, it seems to be plain that it is intended to appeal not only against the orders of January 2003, but also against those of February.
So far as grounds 4 and 5 are concerned, these grounds, in essence, revolve around the question of whether the offer of the appeal right should have been understood to include the entitlement to the judgment debt. The first deed specifically provided that that was a right which formed part of the agreement between the liquidators and Mr Gardner. So far as those parties are concerned, there is no reason to go behind the deed. If the question intended to be raised by these grounds is that of whether

Krishell should have understood that an entitlement to the benefit of the judgment debt was included in the offer of 2003 by the liquidator, then, in my view, the Master's finding that Krishell did understand the offer in that way is correct for the reasons given by him.

So far as the various factual matters canvassed in ground 6 are concerned, they are merely some matters to which the Master was entitled to have regard in the exercise of his discretion. In my view, [67] of his reasons, which I have quoted above, amply justifies the conclusion which he reached.

Conclusion

For the reasons outlined above, it is my view that none of the grounds of appeal is sufficiently arguable to justify a grant of leave. Further, I am of the view that no substantial injustice would flow to Krishell from leaving the Master's decision unreversed. As I have noted, even if leave were granted for Krishell to bring its application to review the decision of the liquidator, there may still be alternative avenues open to Mr Gardner to pursue the appeal. Further, as the Master observed, it may yet be open to Krishell in an application by Mr Gardner to obtain the Court's leave to proceed - whatever form that application ultimately takes - to be heard in opposition. Those proceedings, unlike the application for which the extension of time was sought in this case, would not involve the liquidators in further unnecessary expense. To the extent that further expense is caused to Krishell as a result of having to raise the same issues in a further proceeding, that hardship would stem, as the Master found, from Krishell's own delay.
I would refuse leave to appeal.
McLURE JA: I have had the advantage of reading the reasons for judgment of Wheeler JA and Buss JA. I agree with the orders proposed by Buss JA. I also agree with his reasons for dismissing grounds 3 to 6 inclusive of the grounds of appeal. However, I wish to state my own reasons in relation to grounds 1 and 2. The material facts and grounds of appeal are detailed in the other judgments and not repeated here unless required for an understanding of these reasons.
The learned Master refused the appellant's application for an extension of time in which to apply under s 1321 of the Corporations Act 2001 (Cth) to set aside the sale by the liquidators of Gardner Corporation Pty Ltd ("the company") of the company's right of appeal and judgment debt to the second respondent, Mr Charles Gardner. The Master indicated

he would also have refused the substantive application. The appellant required leave to appeal.

The Master did not determine the first ground on which the appellant relied in support of its substantive application to set aside the relevant agreements (referred to compendiously hereafter as "the agreement") being that the right of appeal was not property of the company in which event the liquidator could not sell or assign it. Although the Master inclined to the view that the right of appeal, in the circumstances of the particular case, was property of the company, he accepted it was arguable that the appeal right was not property and thus was incapable of assignment by the liquidators to Mr Gardner. The Master did not regard that issue as determinant of either the application for an extension of time or the substantive application. He gave two reasons for that conclusion. First, even if the right of appeal was not property, the only effect would be that the agreement was not effective to transfer the right of appeal but would otherwise be operative; in particular it would not affect the assignment of the judgment debt. Second, whether or not the agreement was effective to assign the right of appeal could be determined, if necessary, on Mr Gardner's application for leave to proceed with the appeal either in the name of the company or in his own name as provided for in the agreement. There was no challenge to the correctness of either observation. As both the appellant's application for an extension of time and the application under s 1321 of the Corporations Act involve the exercise of a discretion, the appellant must demonstrate a material error of fact or law: House v The King (1936) 55 CLR 499. I am unable to discern any material error of fact or law that enlivens this Court's jurisdiction to intervene. That being the case, the appellant's appeal must fail.
However, as the parties made submissions on the question whether the right of appeal was effectively assigned by the agreement and that issue will in all probability arise for determination on the hearing of Mr Gardner's application to proceed with appeal FUL 14 of 2003, it is appropriate to address the question.
The appellant relied on Cummings v Claremont Petroleum NL (1996) 185 CLR 124 in support of its contention that the right of appeal was not property of the company and therefore could not be assigned by the liquidators. The question in Cummings was whether two bankrupts had standing to institute an appeal against a money judgment entered against them after the commencement of their bankruptcy. The High Court held by a majority (Brennan CJ, Gaudron and McHugh JJ) that the right of appeal in that case was not "property" as defined in the Bankruptcy Act 1966 (Cth).
The term "property" was (and still is) broadly defined by s 5(1) of the Bankruptcy Act to mean:
" … real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property."
The phrase "the property of the bankrupt" was defined in s 5(1) to include:
" … any rights and powers in relation to [the property divisible among the bankrupt's creditors] that would have been exercisable by the bankrupt if he or she had not become a bankrupt;"
Property divisible among the creditors of a bankrupt is defined in s 116(1)(b) to include the capacity to exercise and to take proceedings for exercising all such powers over or in respect of property as might have been exercised by the bankrupt for his own benefit at or before the commencement of the bankruptcy. The property of the bankrupt vested in the trustee (s 58(1)).
The majority in Cummings said (at 133):
"A right to appeal may be a substantive right, but it is another question whether such a right has the character of property. Some rights created by statute can constitute property, but a right to appeal does not have the character of property merely because it is the creature of statute. A chose in action may be the property of the person entitled to enforce it, but a liability to satisfy a judgment enforcing a chose in action is not property of the person against whom the judgment is entered. A liability is not property of the person liable. Nor is a right to appeal against a money judgment property of the judgment debtor. Nor does such a right to appeal answer the description of property divisible among creditors defined by s 116(1)(b) … the powers referred to are authorities to dispose of property or interests in property for the benefit of the donee of the power or of some other person. In this case, there is no property 'over or in respect of' which the bankrupt is or would have been capable of exercising a power. As a matter of ordinary language, a judgment debtor's right to appeal against the judgment is not property." [Footnotes omitted]
As I understand the reasons of the majority, their conclusion is based on the fact that a liability to satisfy a judgment enforcing a cause of action is not the property of the person against whom judgment is entered and therefore a right to appeal from such a money judgment is not property of the judgment debtor. The majority did not address the question whether a right of appeal from the dismissal of a cause of action or a right of appeal that relates to a claim for money or other property is property. In this case, the company is appealing its liability to satisfy a judgment debt in the appellant's favour which, if the appeal was successful, would ipso facto enable the company to recover the amount of the judgment debt in its favour which is not the subject of challenge. In substance and without regard to technical niceties, the appeal is for the recovery by the company of its judgment debt. That judgment debt has been assigned, together with the right of appeal, to Mr Gardner.
Cummings was distinguished by Mason P in Baker v Sheridan [2005] NSWCA 408. In that case a bankrupt's trustee in bankruptcy assigned to a third party the chose in action of the bankrupt in proceedings in which the bankrupt had been unsuccessful and had commenced an appeal. The Judge characterised it as an assignment of the appeal and the fruits of any success in the appeal. Under s 60 of the Bankruptcy Act, an action commenced by a person who subsequently becomes a bankrupt is stayed until the trustee makes an election to prosecute or discontinue the action. Mason P distinguished Cummings on the basis that it had no application to an appeal from the dismissal of a claim. He held that the trustee's capacity to elect to prosecute the appeal was property divisible amongst the creditors and could be assigned.
The definition of property in s 9 of the CorporationsAct differs from the definition of property in the Bankruptcy Act. Section 9 of the Corporations Act defines property to mean "any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action" (emphasis added). The definition in the Bankruptcy Act does not expressly refer to a thing in action.
However, there is no equivalent in the Corporations Act to "property divisible amongst the creditors". Moreover, under s 474 of the Corporations Act the liquidator must take into his or her custody or control all the property to which the company is or appears to be entitled. The property does not vest in the liquidator unless the Court makes an order under s 474(2).
Like a trustee in bankruptcy, a liquidator has the power to sell or otherwise dispose of all or any part of the property of the company (s 477(2)(c)). A liquidator also has the power to bring or defend any legal proceeding in the name of and on behalf of a company (s 477(2)(a)).
For present purposes I will proceed on the basis that the company's judgment debt has been assigned to Mr Gardner and that the appeal is in substance for the recovery of that judgment debt. A judgment debt is property and can be assigned under s 20 of the Property Law Act1969 (WA) or in equity. Section 20(1)(b) of the Property Law Act relevantly provides that any absolute assignment of any debt or other legal chose in action is effectual in law to pass all legal and other remedies for the debt or chose in action. The appellant contended that the right of appeal is a "legal or other remedy" for the judgment debt that passed to Mr Gardner by virtue of s 20. I do not accept that submission. A judgment debt is a chose in action because it can only be claimed or enforced by action. Section 20(1)(b) refers to the remedies by which the judgment debt itself can be directly claimed or enforced. In this jurisdiction a judgment debt is enforced under the Civil Judgments Enforcement Act 2004 (WA).
Section 553C of the Corporations Act is also of no assistance to the respondents in this case. Judgment on the company's claim and the appellant's counter‑claim had been entered prior to the company going into liquidation. There being a final judicial decision on the merits pronounced by a judicial tribunal having competent jurisdiction over the causes or matter in litigation and over the parties to that litigation, the doctrine of res judicata applies. This has the consequence that the causes of action set up in the claim and counter‑claim are extinguished; they merged in the judgment which was pronounced: Blair v Curran (1939) 62 CLR 464 at 532, Chamberlain v Deputy Commissioner of Taxation (ACT) (1988) 164 CLR 502 at 511, Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 613. A judgment for a sum of money gives rise to a new set of rights in substitution of the causes of action that existed before judgment.
The doctrine of res judicata applies even if the judgment is the subject of a pending appeal: Taylor v Ansett Transport Industries Ltd (1987) 18 FCR 342. Unless and until the judgment is set aside, it prevails. This conclusion is unaffected by the liquidator's power in limited circumstances to go behind a judgment and reject a proof of debt. That power applies to judgments obtained by consent or default (Re Quatrovision Pty Ltd (in liq) (1982) 1 NSWLR 95). Where, as in this case, judgment has been obtained on the merits, the liquidator's power to go behind the judgment is co‑extensive with the general law for setting aside judgments (Ford's Principles of Corporations Law vol 2 at 27‑441).
Before going further, it is appropriate to analyse what has been assigned to Mr Gardner. The starting point is the effect of the judgments below and of a successful appeal. The question is whether the orders made by Steytler J (as he then was) on 4 February effected an automatic set‑off so as to discharge the judgment debt or alternatively gave the appellant a right (which it had not exercised) to elect to set‑off the judgment debt. In any event, automatic set‑off of the judgment debts under s 553C of the Corporations Act would, for analytical purposes, be equivalent to a discharge of the judgment debt owed to the company because the net balance has been authoritatively determined unless set aside on appeal. However, even if the judgment debt has been discharged (either by the original orders or by statute), if the appeal is successful the company's liability to Krishell (and the set‑off orders) would be set aside with the automatic consequence that the judgment debt in favour of the company would revive. Ordinarily a judgment of the Court of Appeal operates from the day it is pronounced: Smolarek v Liwszyc (2006) 32 WAR 129. That being so, the assignment of a discharged "judgment debt" would in substance be a purported present assignment of future property for value which is effective in equity to assign the judgment debt if and when it comes into existence in the future: Holroyd v Marshall (1862) 10 HL Cas 191 at 211; (1862) 11 ER 999 at 1007. For reasons that will become apparent, it is unnecessary to determine whether the assignment was of a present or future judgment debt because it does not affect the outcome.
I now turn to the central question which is whether the right of appeal alone or in combination with the assignment of the judgment debt is property under s 9 of the Corporations Act. The liquidator's power to sell or assign is confined to "property" as defined in the Corporations Act. That includes future property and "things in action" which I take to mean choses in action. A chose in action is a personal right of property which can only be claimed or enforced by action as distinct from taking physical possession: Loxton v Moir (1914) 18 CLR 360 at 379 per Rich J. Choses in action include shares, debts, judgment debts, negotiable instruments and rights enforceable by action (or causes of action). According to Starke, Assignments of Choses in Action in Australia (at p 3), an essential criterion of a chose in action is that the right be of a proprietary character; a purely personal right is not a chose in action because it is not property. Assignability is not an essential characteristic of a right of property but a proprietary right must be capable in its nature of assumption by third parties (Re Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 342 ‑ 343).
In this case it is necessary to consider whether a right of appeal is a chose in action which in turn requires consideration of other bare rights to litigate. The first issue is whether a right of appeal is a purely personal right. A right of appeal is a creature of statute. The source of the right of appeal in this case is s 58(1)(b) of the Supreme Court Act 1935 (WA) which provides for a right of appeal from a judge of the Supreme Court. Section 58 does not identify the persons to whom the right is given. However, a party to the proceedings below who is adversely affected by the determination below has a right of appeal. The company had a right of appeal from the orders made by Steytler J. Further, a non‑party to an action may appeal from a judgment with the leave of the court: Re Her Honour Chief Judge Kennedy; Ex parte West Australian Newspapers Ltd [2006] WASCA 172 at [24]. There is authority to the effect that a person "aggrieved" or "sufficiently interested" in the decision below has standing to appeal: Witness v Marsden (2000) 49 NSWLR 429; The Commonwealth v Construction, Forestry, Mining & Energy Union (2000) 98 FCR 31 at 37. Whether or not the assignment of the judgment debt to Mr Gardner would give him standing to appeal was not addressed before us. That may be an alternative route to the same end which could arise for determination on Mr Gardner's application for leave to proceed with the appeal. In any event, there is nothing in the Supreme Court Act, as it has been construed, to suggest that a right of appeal is a purely personal right. I turn now to bare rights to litigate.
Some bare rights to litigate, including a bare right to litigate a cause of action in tort, are not capable of being assigned under the general law: Poulton v The Commonwealth (1953) 89 CLR 540 at 602. It would seem to follow that such bare rights to litigate are not property and thus are not choses in action. On the other hand, it is suggested in Meagher Gummow and Lehane's Equity Doctrines and Remedies 4th ed at [6‑480] that all bare rights to litigate are choses in action regardless of whether or not they are property. A partial reconciliation of the position might be that bare rights that are incapable of being assigned in isolation are in fact property because they are capable of being assigned when annexed or ancillary to other property. I will return to this topic. Other bare rights to litigate (such as a right of action arising under a contract) are capable of being assigned, are property and are choses in action. The fact that the rules of maintenance and champerty might otherwise prevent assignment does not alter the characterisation of these bare rights to litigate as property and a chose in action. The rules relating to maintenance and champerty do not apply to the exercise of a liquidator's power under s 477(2)(c) of the Corporations Act.
The next question is whether a right of appeal is a thing (chose) in action for the purposes of the definition of property in the Corporations Act. Ordinarily, a chose in action in the form of a right enforceable by action involves a substantive and independent right (cause of action), whether under the general law or pursuant to statute, which right is enforced by court proceedings. A person with a right of appeal has a substantive right but no present separate or underlying cause of action to enforce by proceedings. Rather it is a right to bring proceedings to have a judgment set aside or varied. If the appeal is from the dismissal of a cause of action, a successful appeal will revive the cause of action. The "thing" the subject of such an appeal is not a present but future cause of action which is capable of assignment in equity. The minority in Cummings (at p 144 ‑ 145) did not reject the possibility of a right of appeal being a chose in action. The characterisation of a right of appeal as a chose in action is not expressly rejected by the majority in Cummings. However, if as appears to be correct, all choses in actions must be property, the majority must impliedly reject the proposition that a right of appeal in isolation is itself a chose in action. As to the suggestion in the majority judgment that the result would have been different if the right of appeal was exercised in order to vindicate a claim to property rather than solely to resist a liability, that may be because of the extended definition of property of the bankrupt in the Bankruptcy Act to include a power over property. However, there is an additional or perhaps alternative explanation.
A bare right of action that is itself incapable of being assigned can be assigned if it is annexed or ancillary to property. Thus, a right of action in tort can be assigned if it is annexed to a right of property which is also assigned, such as an assignment of chattels together with a right to sue a bailee for damage to the chattels caused by negligence: Re Kenneth Wright Distributors Pty Ltd (in liq); W J Vine Pty Ltd v Hall [1973] VR 161.
It is said that a sufficient interest in the right to litigate is at the root of the distinction between rights of action that are property and capable of

being assigned and those that are not (Equity Doctrines and Remedies at [6‑480]). Lord Roskill in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 said (at 703):
"If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action …"

This reasoning applies by analogy to the right of appeal in this case. The right of appeal is closely connected with Mr Gardner's interest in (ownership of) the judgment debt that either exists or will come into existence if the appeal is successful. In either event Mr Gardner's interest in the judgment debt is "property" under the Corporations Act which can only be claimed in appellate proceedings. As such, the right of appeal is property capable of being assigned, together with the judgment debt, by the liquidator. For these reasons I would dismiss grounds 1 and 2.
Alternatively, even if the right of appeal is not property and cannot be assigned, it is arguable that Mr Gardner has a sufficient interest in the appeal to be made a party to the appeal with the leave of the Court.
BUSS JA: Most of the material facts and the principal issues in this application for leave to appeal are summarised in the reasons of Wheeler JA.

The orders made by Steytler J in CIV 1864 of 1996

The orders made by Steytler J (as his Honour then was) in CIV 1864 of 1996 comprised, relevantly:
(a)On 23 January 2003:
(i)Gardner Corporation Pty Ltd ("Gardner Corporation") and the second respondent in this appeal ("Mr Gardner") pay the appellant in this appeal ("Krishell") the sum of $109,932.28; and
(ii)all other issues in the action be adjourned for further consideration.
(b)On 4 February 2003:

(i)Zed Bears Pty Ltd ("Zed Bears"), Krishell and Mr and Mrs Myers (the directors of Krishell) are jointly and severally liable to pay Gardner Corporation the sum of $98,559.50;
(ii)Gardner Corporation and Mr Gardner do pay Krishell the sum of $98,559.50;
(iii)Krishell and Mr and Mrs Myers be entitled to set off the sum of $98,559.50 awarded in favour of Krishell against the sum of $98,559.50 awarded in favour of Gardner Corporation; and
(iv)various orders in relation to the payment of interest and costs including orders requiring Gardner Corporation and Mr Gardner to pay some interest and costs to Krishell.

The order conferring on Krishell and Mr and Mrs Myers the entitlement to set off appears to have been made in exercise of the Court's discretion to allow the setting off of judgments and orders as part of its inherent jurisdiction. In Edwards v Hope (1885) 14 QBD 922 Brett MR said, at 926:
"Under the old practice in the common law courts no question as to setting off damages in the same action could arise, and it is only since the introduction of counter‑claims that such a set‑off is possible. The Courts, however, always had an equitable jurisdiction, for the purpose of preventing absurdity or injustice in cases where there had been judgments for damages between the same parties in distinct actions, to set‑off one judgment against the other and to allow execution to issue in respect of the balance only."
The "equitable jurisdiction" of the common law courts referred to by Brett MR was a jurisdiction to do that which was "fair". See Reid v Cupper [1915] 2 KB 147 per Buckley LJ at 149. Also see the observations of McPherson J in Kostka v Addison [1986] 1 Qd R 416 at 420 ‑ 421 in relation to the "equitable jurisdiction" of the common law courts to allow set‑off of judgments and permit execution to issue only in respect of the balance, and the similar practice which prevailed in the Court of Chancery. Where a court has a discretion to allow a set‑off, it also has power, if it thinks fit, to order a stay of execution. See In re A Debtor No 21 of 1950(No 2) [1951] 1 Ch 612 per Danckwerts J at 618.
The sum of $98,559.50 payable to Gardner Corporation was a joint and several liability of Zed Bears, Krishell and Mr and Mrs Myers. By contrast, the sum of $98,559.50 payable to Krishell was a liability of Gardner Corporation and Mr Gardner. However, as observed in S R Derham, The Law of Set‑Off, 3rd ed, at [12.21]:
"The indebtedness of a truly joint and several debtor, and a debt owing by the creditor to that debtor, constitute mutual debts, and may be set off. The occurrence of the set‑off would bring about a pro tanto reduction in the joint and several debt, and would release the other debtors as well."
Also see Goodwin v Duggan (1996) 41 NSWLR 158 at 166 ‑ 167; In re Bank of Credit and Commerce International SA (No 8) [1998] AC 214 at 224 ‑ 225; Handberg v Smarter Way (Aust) Pty Ltd (2002) 190 ALR 130 at 137 ‑ 139 [32] ‑ [38].
Steytler J's orders did not effect a mandatory or automatic set‑off of the judgment debts of $98,559.50. His Honour's orders did not, of their own force, extinguish those judgment debts. Rather, those orders conferred on Krishell and Mr and Mrs Myers a right to set off Krishell's asset, namely the $98,559.50 awarded in its favour, against Krishell's joint and several liability, namely the $98,559.50 awarded in favour of Gardner Corporation. Krishell and Mr and Mrs Myers were not obliged to exercise their right of set‑off. Until the right of set‑off was exercised, the judgment debts of $98,559.50 continued to exist as separate debts (subject, of course, to any set‑off under the law of insolvency).

The amended notice of appeal in FUL 14 of 2003

In FUL 14 of 2003, Gardner Corporation is the first appellant, Mr Gardner is the second appellant, Krishell is the first respondent, and Mr and Mrs Myers are the second and third respondents respectively.
The amended notice of appeal dated 9 June 2003 in FUL 14 of 2003 is, relevantly, in these terms:
"TAKE NOTICE that the Full Court of the Supreme Court of Western Australia will be moved by Counsel for the Appellants … for orders that part of the judgment of His Honour Justice Steytler delivered on 23 January 2003 in matter CIV 1864 of 1996 be set aside, being the orders then made that:
1.The Appellants pay the First Respondent $109,000 [sic] and pre‑judgment interest thereon.
2.The Appellants pay the First Respondent $98,559.50.
3.The First Respondent be entitled to set of [sic] the sum in 2 against the First Appellant's established claim against it for the same amount.
4.The Appellants pay part of the costs of the Respondents in respect of the First Appellant's (Plaintiff's) claim and the Respondent's [sic] counterclaim.
AND THAT in lieu thereof:
IT BE ORDERED THAT:
1.The appeal be upheld with costs.
2.The First Respondent's counterclaim for damages be dismissed.
3.The Respondents pay the First Appellant interest on the sum of $98,559.50 at 8% per annum from 10 August 1996 to 13 September 1997 and at 6% per annum from 14 September 1997 till date of the determination of the appeal.
4.The Respondents pay 75% of the Appellants' cost of the claim and the counterclaim until 12 August 1999 and thereafter the Appellants' cost of the claim and counterclaim, including any reserved costs and costs ordered to be in the cause.
5.The items to be included in the costs awarded in 4 be further specified.
…"
Krishell has not cross‑appealed against the order that it pay Gardner Corporation the sum of $98,559.50.

The administration and liquidation of Gardner Corporation

On 6 August 2003, Gardner Corporation appointed the first respondents in this appeal, Mr Nilant and Mr Zohar, to be the administrators of the company pursuant to s 436A of the Corporations Act 2001 (Cth) ("the Act").
On 2 September 2003, the creditors of Gardner Corporation resolved that the company be wound up, and Mr Nilant and Mr Zohar were appointed as the liquidators.

The terms of the "sale"

By letter dated 20 October 2003, the liquidators wrote to Mr Gardner, and also to Mr and Mrs Myers, in these terms:
"I refer to the above matter and the Company's Appeal Number FUL 14 of 2003 against Krishell Pty Ltd ("the Appeal").
It is not my intention to pursue this action on behalf of the Company however I have a responsibility to realise the asset being the Company's rights to the Appeal for the benefit of creditors generally.
Accordingly, I am able to sell the Company's rights to the Appeal to any interested person. I am therefore, writing to yourself and Mr Denis Meyers [sic] of Krishell Pty Ltd seeking offers for the purchase of the Company's rights to the appeal.
Any offer that is submitted must be a cash offer, payable within seven (7) days and I advise that it is my intention to accept the highest offer.
In the event you are interested in purchasing the Company's rights to the Appeal, would you please advise the terms of your offer by Friday 24 October 2003."
On 11 November 2003, Mr Gardner made an offer to the liquidators to purchase the "appeal rights" of Gardner Corporation in relation to FUL 14 of 2003. By letter dated 12 November 2003, the liquidators accepted that offer. The letter states, relevantly:
" …
I confirm that I accept your offer to purchase the Company's rights to the Appeal against Krishell Pty Ltd (FUL 14 of 2003) in the sum of $5,000 on the conditions outlined in my letter dated 10 November 2003 and which are summarised below.
1.The sum of $5,000 is payable immediately by bank cheque made payable to KordaMentha Trust Account.
2.You will instruct Bruce Havilah & Associates (at your cost) to appear at the hearing of the Respondent's application to have the proceedings dismissed for want of prosecution.
3.You will obtain the leave of the Court to proceed in the name of the Company and will be responsible for the costs of that application which must be filed within fourteen (14) days of determination of the dismissal proceedings referred to above.
4.In the event conditions 2 and 3 are not satisfied, the sum of $5,000 held in trust will be refunded to you.
…"
On 24 November 2003, Gardner Corporation, by the liquidators, and Mr Gardner, executed a deed ("the first deed"). In the first deed, Mr Gardner is described as "the Purchaser". Clauses 1 and 2 provide:
"1.The parties HEREBY RATIFY AND CONFIRM the agreement made on 12 November 2003 for the Purchaser to purchase from the Company as Liquidators of the Company all the Company's rights to the Appeal for the consideration of five thousand dollars ($5,000.00) receipt of which the Company hereby acknowledge [sic], and which agreement becomes unconditional upon the Court granting the Purchaser leave to proceed with the Appeal in the name of the Company. Should such leave be refused, the said sum of $5,000.00 shall be repaid to the Purchaser by the Company.
2.The parties FURTHER RATIFY AND CONFIRM that the Company's rights to the Appeal include:
(i)Its right to claim payment from the First, Second, Fifth and Second [sic] Defendants, jointly and severally, in the sum of $98,559.50, as set out in order 1 of the orders made in the proceedings at first instance, on 4 February 2003.
(ii)Any and all interest on the aforesaid sum of $98,559.50 which are [sic] payable, or may become payable by reason of the Appeal, to the Company.
(iii)Any rights or entitlements of the Company in the Appeal to defeat or limit any claims awarded to the respondents to the Appeal in terms of the judgments at first instance.
(iv)Any and all costs which may be recoverable by the Company as a result of the Appeal."
On 5 March 2004, Gardner Corporation, by the liquidators, and Mr Gardner, executed another deed ("the second deed"). In the second deed, the parties amended cl 1 of the first deed by adding the following words at the end of the first sentence:
"and/or in the name of the Purchaser as assignee."

Leave to appeal is required

The learned Master's decision was interlocutory and leave to appeal is therefore required.
In general, an applicant for leave must demonstrate that the relevant decision was wrong or at least attended with sufficient doubt to justify the grant of leave, and that substantial injustice would occur if the decision were left unreversed. See Wilson v Metaxas [1989] WAR 285 at 294. It must be emphasised, however, that these are not rigid or exhaustive requirements, and leave may be granted if, in all the circumstances, it is in the interests of justice to grant leave. See The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40 at 56 ‑ 57.

Proposed grounds of appeal

The proposed grounds of appeal are these:
"1.The Learned Master erred in law in deciding that the right of Gardner Corporation Pty Ltd ('Gardner Corporation') to appeal against the judgment of the Honourable Justice Steytler delivered on 23 January 2003 in matter CIV 1864 of 1996 ('the appeal right') was property of Gardner Corporation and was therefore assignable by the First Respondents ('the liquidators') as liquidators of Gardner Corporation.
2.The Learned Master should have found that the appeal right (being a right of appeal against a liability under a money judgment) was not property of Gardner Corporation and therefore the liquidators had no power under S.477 of the Corporations Act to sell or assign it.
3.The Learned Master erred in fact in finding that the notice of appeal of Gardner Corporation sought an order that the Appellant ('Krishell') pay Gardner Corporation the sum of $98,599.50 plus interest. By a separate judgment dated 4 February 2003 the Honourable Justice Steytler had already made that order in favour of Gardner Corporation and that judgment was not the subject of any appeal.
4.The Learned Master should have decided:
(a)As a matter of fact that the appeal right did not include the entitlement to the benefit of the judgment dated 4 February 2003.
(b)As a matter of law that the appeal right could not be deemed to include the … entitlement [to the] benefit of the judgment dated 4 February 2003 as the liquidators and the Second Respondent ('Gardner') purported to do in their deed dated 24 November 2003.
5.The Learned Master should have decided that the liquidators' offer to each of Krishell and Gardner, by their letter dated 20 October 2003, to sell the appeal rights did not include any entitlement to the benefit of the judgment dated 4 February 2003 and that consequently the attempt by the liquidators to include that entitlement in the sale to Gardner, if effective at all, was a gift to Gardner which provided no benefit for the creditors of Gardner Corporation.
6.The Learned Master erred in law in not extending the time for Krishell to appeal against the liquidator's [sic] decision:
(a)Because the liquidators acted without power.
(b)Krishell's opposition to the liquidator's [sic] decision was made clear to the liquidators by letter dated 14 November 2003 from Krishell's solicitors to the liquidators.
(c)By letter dated 20 November 2003 from Krishell's solicitors to the liquidators Krishell stated the basis of its objection to the liquidator's [sic] decisions [sic] and that this would be advanced before the Master on an application by Gardner for leave to proceed with the appeal.
(d)By order dated 9 March 2004, on Gardner's application for leave to proceed with the appeal in the name of Gardner Corporation, Master Newnes ordered that any application by Krishell to contest the liquidator's [sic] decision to sell the appeal rights to Gardner be filed and served by 23 March 2004. The application was in fact filed on 26 March 2004 - a delay of only 3 days.
(e)Gardner and Gardner Corporation have twice been granted extensions of time to enter the appeal for hearing after substantial delays and it would [be] inequitable not to grant additional time to Krishell in those circumstances."
Grounds 1 ‑ 5 relate to the nature and efficacy of the "sale" made by the liquidators on behalf of Gardner Corporation to Mr Gardner. Ground 6 attacks the learned Master's decision to refuse to extend the time for the making of an application by Krishell, under s 1321 of the Act, for an order that the "sale" be set aside.

The power of a liquidator to sell or otherwise dispose of the company's property including a cause of action, a judgment debt and a future and contingent interest in property

A liquidator's role is to wind up the company's affairs and distribute its property. See s 477(2)(m) of the Act. The company's property does not, without special order, vest in the liquidator. By s 477(2)(c), subject to s 477, the liquidator may "sell or otherwise dispose of, in any manner, all or any part of the property of the company". In s 9, "property" is defined, as follows:
"property means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action."
A "thing in action" is the equivalent of a "chose in action". See Carob Industries Pty Ltd (in liq) v Simto Pty Ltd (2000) 23 WAR 515 at 520 [13]. In Halsbury's Laws of England, 4th ed, 2003 Reissue, vol 6, it is said, at par 1:
"The expression 'chose in action' or 'thing in action' in the literal sense means a thing recoverable by action, as contrasted with a chose in possession, which is a thing of which a person may have not only ownership but also actual physical possession. The meaning of the expression 'chose in action' or 'thing in action' has varied from time to time, but is now used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession. It is used in respect of both corporeal and incorporeal personal property which is not in possession."
A cause of action is a "thing in action", within the definition of "property" in s 9 of the Act, and s 447(2)(c) empowers a liquidator to assign it. See Carob Industries Pty Ltd (in liq) at 525 [40]. A liquidator may assign to a third party a cause of action to which the company is entitled, even though such an assignment would otherwise be void for champerty or some other form of maintenance, or because it purported to assign a bare right of action. See UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667 at 681 ‑ 682 (on appeal: (1996) 21 ACSR 457 at 463 ‑ 464); Re William Felton Co Pty Ltd (subject to a deed of company arrangement); Ex parte Sims (1998) 28 ACSR 228 at 233 ‑ 236; Elfic Ltd v Macks [2003] 2 Qd R 125 at 137 ‑ 141 [62] ‑ [83].
A judgment debt is a "thing in action" and therefore "property" as defined in s 9 of the Act. It may be assigned. See Goodman v Robinson (1886) 18 QBD 332 at 334 ‑ 335; Harley v Samson (1914) 30 TLR 450 at 450 ‑ 451.
The definition of "property" in s 9 of the Act includes a future and contingent interest in property (including a future and contingent interest in a thing in action). In Tailby v The Official Receiver (1888) 13 App Cas 523, Lord Watson said, at 533:
"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 the 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. Mere difficulty in ascertaining all the things which are included in a general assignment, whether in esse or in posse, will not affect the assignee's right to those things which are capable of ascertainment or are identified. …"
Lord Herschell expressed, at 553, his concurrence with Lord Watson's speech. In Meagher Gummow & Lehane's Equity Doctrines & Remedies, 4th ed, the principle enunciated in Tailby is summarised, at [6‑265], 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. This appears from the speeches of Lord Herschell at 527‑32; 488‑90, Lord Watson at 533; 491, Lord Macnaghten at 543, 546‑8; 495, 497‑8 and see [3‑200]. The principle applies equally whether the transaction is couched in the terms of agreement to assign (as in Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999; [1861‑73] All ER Rep 414) or present assignment (as in Tailby v Official Receiver); it applies equally whether the assignment is by way of security (as in Holroyd v Marshall; Tailby v Official Receiver; Allsopp's Silver Spray Flour Mills Ltd v McMahon (1939) 39 SR (NSW) 271 and Wreckair Pty Ltd v Emerson [1992] 1 Qd R 700 at 704) or outright (as, for instance, the after‑acquired covenant in the typical marriage settlement: see for example, Re Reis [1904] 2 KB 769; affirmed on other grounds sub nom Clough v Samuel [1905] AC 442; [1904‑7] All ER Rep Ext 1669). Nor does it matter that the subject matter of the assignment is property an executory contract for the sale of which equity would not specifically enforce - see the example in Lord Westbury's speech in Holroyd v Marshall itself at 209‑10; 1006; 417. See generally Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724 at 733."

The duty of a trustee in bankruptcy is to realise the bankrupt's estate, and the right to the net balance is part of the property of the bankrupt which is vested in the trustee. The process of realisation may include the transfer or assignment of an individual asset or assets for value. Lord Hoffmann rejected the defendant's submission that the trustee cannot assign the right to the net balance until the balance has been quantified by the account taken under s 323. His Lordship said, at 258:
"If bankruptcy set‑off is self-executing, it does not require the trustee or anyone else to execute it. … The case of Gye v McIntyre, 171 CLR 609 shows the account being taken in proceedings to which the trustee was not a party. It is true that the situation arose because in a composition the parties are able to decide which property should vest in the trustee and could exclude the claim against Mrs McIntyre. In the case of a bankruptcy, vesting is determined by the law. But for present purposes I can see no logical distinction between a case in which the trustee assigns the right to the net balance and one in which the bankrupt's claim, though subject to bankruptcy set-off, did not vest in him in the first place.
It is true that the trustee will ordinarily not be party to the action between assignee and creditor. So if the creditor is asserting that there is actually a net balance in his favour for which he is entitled to prove, a successful outcome of the action will not, as a matter of res judicata, oblige the trustee to allow his proof. But there is no reason why a defendant should not, with leave, join the trustee as a defendant to his counterclaim. Even if the action had been brought by the trustee, the creditor would have needed the leave of the court to make a counterclaim. In these circumstances, there seems to me little additional inconvenience in having to add the trustee as a party. I would therefore hold that a trustee may assign the right to the net balance like any other chose in action."
The deed of assignment executed by the trustee in bankruptcy in favour of Mr Stein purported to assign:
"such claim or claims against Mr Blake as the trustee may have as trustee in the bankruptcy of the assignee as presently formulated, or as amended by counsel with the trustee's approval, based only on the facts pleaded in [the action] …"
The assignment made no express reference to the defendant's cross‑claim. Lord Hoffmann held, at 259, that the absence of such an express reference was not an obstacle to holding the assignment effective to carry whatever balance was due after its deduction.
The reasoning of Lord Hoffmann in Stein has been applied consistently in Australia. See, for example, Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550 at 567; GM and AM Pearce & Co Pty Ltd at 890, 896 ‑ 902; Metal Manufacturers Ltd v Hall (2002) 41 ACSR 466 at 469; Barton v Atlantic 3 Financial (Australia) Pty Ltd (in liq) (2004) 212 ALR 348 at 353 ‑ 355 [42] ‑ [52]; Pitt‑Owen v Lenin [2006] NSWSC 748 at [15] ‑ [17]. It should be applied by this Court.
In Pitt‑Owen, the plaintiff was the alleged assignee of causes of action said to have accrued to Sydney Accommodation Group Pty Ltd ("SAG"). He sued the defendant in connection with various representations alleged to have been made by the defendant to SAG when SAG accepted a lease of certain premises from the defendant. The plaintiff, as assignee, also claimed against the defendant for alleged breaches of the covenant for quiet enjoyment contained in the lease. The defendant denied the plaintiff's claim and sought to cross‑claim for, amongst other things, unpaid rent owing under the lease. The purported assignment was effected by a deed between, amongst others, the liquidator of SAG and the plaintiff. Barrett J said, at [17] ‑ [19]:
" … The deed of 19 May 2004, if effective as an assignment, was to cause to be assigned to Mr Pitt‑Owen any balance due by Mr Lenin to SAG after allowing for any sum due by SAG to Mr Lenin and set‑off pursuant to s 553C. This is because the deed operated after the winding up had begun.
But does it follow that ascertainment of the amount to be taken into account against SAG (that is, the sum due by SAG to Mr Lenin) must - or ought most conveniently - be ascertained in the proceeding in which Mr Pitt-Owen, as SAG's assignee, sues Mr Lenin; or may it more appropriately be determined by proof of debt lodged by Mr Lenin in the winding up of SAG?
In my opinion, the matter needs to be determined in the proceedings in which Mr Pitt‑Owen, as assignee of SAG, sues Mr Lenin. This is principally because any concept of proof in SAG's winding up by Mr Lenin for the gross amount of any debt due to him is not, in the circumstances, a meaningful concept. Proof for what I have termed the gross amount is precluded by s 553C(1)(c): '… only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be'. Because the subject matter of the assignment is not ascertainable except by reference to this 'balance of account', and because the extant proceedings in which the subject matter of the assignment is pursued by Mr Pitt‑Owen are necessarily the occasion for a determination in the first instance of the amount, if any, due by SAG pursuant to the causes of action asserted by Mr Pitt‑Owen as assignee, it seems to me inevitable that the court must also determine in those proceedings the amount, if any, due to SAG by Mr Lenin in respect of the matters raised in the cross-claim."

Grounds 1 and 2

Immediately before the commencement of Gardner Corporation's winding up, there was a judgment debt of $98,559.50 owing by Gardner Corporation and Mr Gardner to Krishell, a judgment debt of $98,559.50 owing by Zed Bears, Krishell and Mr and Mrs Myers to Gardner Corporation, and a judgment debt of $109,932.28 owing by Gardner Corporation and Mr Gardner to Krishell.
Those judgment debts, and the right of set‑off pursuant to Steytler J's orders in respect of the judgment debts of $98,559.50, were, however, subject to Gardner Corporation's rights of appeal in FUL 14 of 2003. The appeal does not merely attack the money judgments entered against Gardner Corporation. It also seeks to impugn the order which conferred the right of set‑off. Krishell has not challenged the money judgment entered against it. If the appeal were to be wholly successful, the judgment debt of $98,559.50 owing by Zed Bears, Krishell and Mr and Mrs Myers to Gardner Corporation, immediately before the commencement of Gardner Corporation's winding up, would be vindicated.
Although a judgment which is subject to an appeal is final and creates an issue estoppel (Taylor v Ansett Transport Industries Ltd (1987) 18 FCR 342), no estoppel arises in respect of issues which the appellate court overturns or orders be re‑tried (Gray v Dalgety & Co Ltd (1916) 21 CLR 509).
The judgment debts as between Gardner Corporation and Krishell arose from mutual dealings between the parties within s 553(1) of the Act. At the material time those judgment debts were in existence, they were commensurable, and there was the requisite element of mutuality. See Handberg at 137 ‑ 139 [32] ‑ [38].
In my opinion, the liquidators were empowered, by s 477(2)(c) of the Act, to assign the right to the net balance (if any) as between Gardner Corporation and Krishell in relation to the judgment debts in question. That net balance (if any) was an assignable item of property. It was a thing in action which was able to be assigned absolutely in equity or in accordance with s 20 of the Property Law Act. The liquidators were entitled to make the assignment prior to the appeal in FUL 14 of 2003 being finally determined and prior to the net balance (if any) being quantified by the account taken under s 553C(1). The liquidators were also empowered to assign the rights of Gardner Corporation in the pending appeal, FUL 14 of 2003. Those rights were incidental to the thing in action which comprised the net balance (if any) as between Gardner Corporation and Krishell.
When the rights and liabilities of Gardner Corporation (or its assignee) and Krishell, which are being litigated in FUL 14 of 2003, are finally determined by this Court (or, potentially, the High Court), it will be possible to quantify the net balance (if any) owing between them. The account required by s 553C(1) cannot be taken until the pending litigation has been finally determined. The appeal in FUL 14 of 2003 is part of the process of retrospective calculation, for the purposes of s 553C(1).
I should mention that if, contrary to the opinion I have expressed in [105] ‑ [107], Krishell or Mr and Mrs Myers exercised the right of set-off, or the judgment debts for $98,559.50 were otherwise extinguished, before the commencement of Gardner Corporation's winding‑up, Gardner Corporation's property (as defined in s 9 of the Act) at the commencement of its winding up included a future contingent thing in action, namely the $98,559.50 claimed from Krishell and others. The appeal seeks to vindicate that future contingent thing in action. If the appeal succeeds, the thing in action will cease to be future and contingent. In my opinion, the future contingent thing in action is an item of property, as defined in s 9 of the Act, which the liquidators were empowered, by s 477(2)(c) of the Act, to assign, together with the incidental rights of Gardner Corporation in FUL 14 of 2003.
Grounds 1 and 2 fail.

Ground 3

The amended notice of appeal in FUL 14 of 2003 expressly refers to the orders made by Steytler J on 23 January 2003, but not to the orders which his Honour made on 4 February 2003. That omission is a manifest error. It is plain, on a fair reading of the amended notice of appeal as a whole, that Gardner Corporation and Mr Gardner challenge the orders for the payment to Krishell of the sums of $109,932.28 and $98,559.50, interest on those amounts, and costs, and also the order conferring on Krishell and Mr and Mrs Myers the set‑off entitlement.
On 23 January 2003, Steytler J ordered that Gardner Corporation and Mr Gardner pay Krishell the sum of $109,932.28, and that "[all] other issues in the action be adjourned for further consideration". After giving those other issues further consideration, on 4 February 2003 his Honour made the additional orders. There was one judgment, after the trial of CIV 1864 of 1996, with the orders being pronounced in two stages.
Ground 3 fails.

Grounds 4 and 5

By their letter dated 20 October 2003, the liquidators invited Mr Gardner and Mr and Mrs Myers to submit an offer to purchase Gardner Corporation's "rights to the Appeal". In the letter, the liquidators described those rights as an "asset" which they had a responsibility to realise for the benefit of Gardner Corporation's creditors generally.
By the agreement made on 12 November 2003, Gardner Corporation, by the liquidators, sold to Mr Gardner, for the sum of $5000, the "rights to the Appeal" of Gardner Corporation against Krishell in FUL 14 of 2003. In the first deed, Gardner Corporation and Mr Gardner recorded their agreement, purportedly by ratification and confirmation of the agreement made on 12 November 2003, that the "rights to the Appeal" included, relevantly:
(a)Gardner Corporation's rights to claim payment from Krishell and others in the sum of $98,559.50, together with interest on that sum;
(b)any rights or entitlements of Gardner Corporation in the appeal to defeat or limit the orders which Steytler J made in favour of Krishell on 23 January 2003 and 4 February 2003; and
(c)any and all costs which may be recoverable by Gardner Corporation as a result of the appeal.
The general principles to be applied in the construction of written contracts are set out in the judgment of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 ‑ 110. The factual and legal background against which a written contract was concluded, and the practical objects which it was apparently intended to achieve, are important considerations in construing the document. See Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757, where Lord Hoffmann said, at 773 ‑ 774:
"The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement - evidence of such negotiations is inadmissible - and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail."
Also see his Lordship's observations in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 775. The existence in a written contract of infelicities and mistakes does not justify a court adopting a construction of its provisions which is narrow or unreal. See Kearns v Hill (1990) 21 NSWLR 107 at 109.
The agreement made on 12 November 2003 and the first and second deeds must be construed with regard to the factual and legal background against which they were concluded, and the practical objects which they were apparently intended to achieve. The language of the letter dated 12 November 2003 and the first and second deeds indicates that the person who drafted them was not properly acquainted with the nature of an assignment by a liquidator of a thing in action of the company, either in the context of set‑off under s 553C of the Act or otherwise. Also, the letter and the first and second deeds refer to a sale and purchase and do not mention an assignment.
However, the linguistic difficulties with the documents do not obscure the plain intention of Gardner Corporation and Mr Gardner that, in consideration of Mr Gardner paying the sum of $5000, Gardner Corporation would sell and assign to him its proprietary and personal rights and interests (whether present or future and whether vested or contingent) in, or arising from, the judgment debt of $98,559.50 in its favour and the appeal and its subject matter. This intention is obvious on a fair reading of the letter dated 12 November 2003 and the first and second deeds against the relevant factual and legal background, including the liquidators' letter dated 20 October 2003 and the legal nature of an assignment by a liquidator of a thing in action of the company. In the letter dated 20 October 2003, the liquidators evinced their intention to realise an "asset" of the company for cash and, in context, the asset in question was the item of property which I identified in considering grounds 1 and 2. The rights and interests sold and assigned comprised, in law, that item of property and any and all other rights and interests in, or arising from, the appeal and its subject matter. The sum of $5000 payable by Mr Gardner was good consideration for the sale and assignment to him of all of those rights and interests. The matters expressly stated in the first deed were implicit in the agreement made on 12 November 2003. The absence of the language of assignment in the documents is not decisive. It is the intention of the parties, ascertained by the process of construction I have described, that is critical. See Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 30; William Brandt's Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462.
Grounds 4 and 5 fail.

Ground 6

The learned Master said, at [65] ‑ [66]:
"In the end, I am not satisfied on the evidence that in entering into the transaction with Mr Gardner the liquidators acted unreasonably or other than in good faith and on the basis that the assignment to Mr Gardner was in the best interests of the company. I consider that the plaintiff [Krishell] has fallen well short of making out its contention that the assignment to Mr Gardner (including, as I think is the case, the appeal rights themselves) was imprudent and that in entering into it the liquidators were in error.
As to the assignment of the right of appeal itself, the judgment debt in favour of Gardner Corporation was of no value unless and until the appeal was successful, so that the set-off which precluded its recovery was removed. The prosecution of the appeal would involve significant cost and the risks inherent in any appeal, including the risk of an adverse costs order on the appeal. In the circumstances it was clearly open to the liquidators to conclude that it was not worthwhile for them to pursue the appeal in an endeavour to obtain the value of the judgment debt. It was also reasonable for the liquidators to attempt to realise any value that the judgment debt may have to a third party. The liquidators, in my view rightly, concluded that the only parties likely to be interested in it - albeit it for different reasons - were Mr Gardner and Krishell. But in order to realise any amount for an assignment of the judgment debt the right of appeal of Gardner Corporation clearly had to be made available to the assignee. In my view, it was not unreasonable for the liquidators to take the course they did and to provide the appeal rights to Mr Gardner as assignee of the judgment debt, subject to the approval of the Court to Mr Gardner proceeding with the appeal."
The learned Master then said, at [67]:
"In the circumstances, I would refuse leave to extend the time for the making of the application. The plaintiff [Krishell] knew of the transaction by, at the latest, 24 November 2003 and it knew that Mr Gardner was proceeding on the basis that he had acquired the rights concerned and was incurring costs on that basis. Krishell took no steps to impugn the transaction until 16 March 2004. Mr Gardner now faces the prospect of losing all the money he has spent on the matter to date. The liquidators face the prospect of further costs and delay in the liquidation in offering the appeal rights for sale. No satisfactory explanation for the delay by Krishell has been offered and, in my view, it is simply too late now to endeavour to set aside all that has been done, against an uncertain increase in the return to creditors."
The learned Master also noted, at [68]:
"In any event, I would have refused the substantive application for the reasons that I have set out above. In the end, I am not persuaded that grounds have been shown which would warrant this Court interfering with the decision of the liquidators."

The principles of law which regulate the circumstances in which an appellate court may review the exercise of a judicial discretion are not in doubt, and apply to the learned Master's decision to refuse leave to extend time. Generally see House v The King (1936) 55 CLR 499 at 504 ‑ 505.
Although the learned Master's characterisation of the legal nature of the rights and interests sold and assigned to Mr Gardner is inaccurate, in that it refers to Mr Gardner as an assignee of "the judgment debt", it was not, for present purposes, a material error which vitiated his exercise of discretion. The learned Master's findings of fact in relation to Krishell's delay and the prejudice to Mr Gardner and Gardner Corporation's creditors generally, if leave to extend time were granted, were reasonably open to him. Also, Krishell has not demonstrated that the learned Master was wrong in concluding that, in any event, Krishell's substantive application would have failed. Further, for the reasons I have given in the context of grounds 1 ‑ 5, the liquidators acted within power in making the agreement on 12 November 2003 and executing the first and second deeds.
I am satisfied that the learned Master did not make any relevant error which requires his exercise of discretion to be set aside.
Ground 6 is without merit.