Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S CI 2016 02546

PENTRIDGE VILLAGE PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 087 151 068)	First Plaintiff
WEST HOMES AUSTRALIA PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 004 964 185)	Second Plaintiff
v
CAPITAL FINANCE AUSTRALIA LTD (ACN 069 663 136)	Defendant

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JUDGE:	Connock J
WHERE HELD:	Melbourne
DATE OF HEARING:	10 August and 5 September 2018
DATE OF JUDGMENT:	24 October 2018
CASE MAY BE CITED AS:	Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd
MEDIUM NEUTRAL CITATION:	[2018] VSC 633

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PRACTICE AND PROCEDURE – Substitution of a party – Rule 9.09(2)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) – Assignment of statutory causes of action – Whether determination of valid assignment a precondition to exercise of court’s discretion – Scope of s 477(2)(c) of the Corporations Act 2001 (Cth).

PRACTICE AND PROCEDURE – Strike out application – Rule 23.02(a) and/or 23.02(b) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).

CORPORATIONS – Statutory derivative action – Section 237 of the Corporations Act 2001 (Cth) – Impact of liquidation of a company on availability of statutory derivative action – Good faith – Best interests of company – Company in liquidation – No power.

CORPORATIONS – Section 477(2)(c) of the Corporations Act 2001 (Cth) – Assignment – Assignment of causes of action – Liquidator’s power of sale.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S Anderson QC Mr A Bailey Mr W Newland	Howard Bear – Legal Consulting Services
For the Defendant	Ms C Harris QC Ms E Murphy	Gilbert + Tobin

TABLE OF CONTENTS

INTRODUCTION AND SUMMARY OF CONCLUSIONS...................................................... 1

A PROCEDURAL MATTER — CLARIFICATION OF CURRENT PARTIES..................... 6

EVIDENCE, BACKGROUND AND SUBMISSIONS................................................................. 6

THE APPLICATIONS — ORDER OF APPROACH................................................................... 7

THE SUBSTITUTION APPLICATION......................................................................................... 9

THE STRIKE OUT APPLICATION............................................................................................. 46

THE SECTION 237 APPLICATION............................................................................................. 61

CONCLUSION AND ORDERS.................................................................................................. 113

BACKGROUND SCHEDULE..................................................................................................... 115

HIS HONOUR:

INTRODUCTION AND SUMMARY OF CONCLUSIONS

The claims in this proceeding (Proceeding) relate to financing and other dealings between the plaintiffs and the defendant (Capital Finance) in connection with a property development project in Coburg, Victoria.

From May 2002, the first plaintiff (Pentridge Village) was a participant in, custodian for, and manager of a joint venture, the business of which was to purchase, develop, manage, lease and sell land upon which the former Coburg prison complex was located (Project). The second plaintiff (West Homes) was subsequently engaged by Pentridge Village to undertake the construction of buildings and other works on the land.

The plaintiffs allege that Capital Finance was the provider of banking services to Pentridge Village in respect of the Project, including the provision of credit, and from August 2005 until February 2010, its financial adviser.

Pentridge Village is said to have been in receivership since July 2014 and in liquidation since August 2014, and West Homes is alleged to have been in receivership since July 2014.

By their amended statement of claim (ASOC) the plaintiffs seek damages from Capital Finance, including damages pursuant to s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s 1041I of the Corporations Act 2001 (Cth) (Act) and ss 82 and/or 87 of the Trade Practices Act 1974 (Cth) (TPA), in respect of alleged contraventions of statutory prohibitions on misleading or deceptive conduct and unconscionable conduct regarding the renewal of an existing facility agreement between Pentridge Village and Capital Finance, and the financing of the Project (collectively, Statutory Claims). An equitable estoppel claim is also pleaded in connection with the renewal of the relevant facility agreement (Estoppel Claim).

Capital Finance denies liability on the grounds set out in its defence to the ASOC.

Pentridge Village and its sole director, Mr Chiavaroli, allege that on 3 August 2017 Pentridge Village, by its liquidator Mr Marsden (Liquidator), irrevocably assigned to Mr Chiavaroli all of Pentridge Village’s right, title and interest in certain property, including the causes of action and the claims the subject of the Proceeding, and all and any proceeds recovered. The assignment is said to be recorded in a deed of assignment dated 3 August 2017 (Original Deed) and a supplemental deed of assignment dated 26 October 2017 (Supplemental Deed) (collectively, Assignment Deeds).

Capital Finance contends that, as a matter of law, the Statutory Claims are not capable of assignment and have not been validly assigned to Mr Chiavaroli. This issue is central to the three applications now before the court. It also contends that the Estoppel Claim should be struck out, that West Homes’ damages claims in the relevant parts of the ASOC should be struck out, and that West Homes should cease to be a party to the Proceeding.

The three applications before the court are:

(a) an application by the plaintiffs by summons seeking to substitute Mr Chiavaroli as the first plaintiff in place of Pentridge Village pursuant to r 9.09(2)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Rules) on the basis that all of Pentridge Village’s claims and causes of action have been assigned to Mr Chiavaroli (Substitution Application);

(b) an application by Capital Finance by amended summons filed 6 September 2018 seeking an order pursuant to r 23.02(a) and/or 23.02(b) of the Rules striking out those parts of the ASOC that plead the assignment, the Estoppel Claim, and West Homes’ claims,[1] and an order pursuant to r 9.06(a) of the Rules that West Homes cease to be a party to the Proceeding (Strike Out Application); and

(c) an application by Mr Chiavaroli by summons, made in the alternative to the Substitution Application, seeking leave pursuant to ss 236 and 237 of the Act to intervene in the Proceeding for the purpose of taking responsibility for the Proceeding on behalf of Pentridge Village (Section 237 Application).

[1]Being paragraphs 1 (in part); 65–70; 89–95; 25, 87, and 88 (in part) of the ASOC.

Capital Finance opposes the Substitution Application and the alternative Section 237 Application. The plaintiffs resist Capital Finance’s Strike Out Application.

For the reasons that follow it has been concluded that:

(a) as a matter of law the Statutory Claims are incapable of assignment and the purported assignment of these claims to Mr Chiavaroli is ineffective;

(b) because the purported assignment of the Statutory Claims is ineffective:

(i) Mr Chiavaroli’s application to be substituted as first plaintiff in place of Pentridge Village should be refused; and

(ii) the paragraphs of the ASOC that plead the assignment should be struck out;

(c) the Estoppel Claim should not be struck out and the parties should be given a further opportunity to consider the position regarding the Estoppel Claim in light of these reasons and the foreshadowed proposed amendments to the Estoppel Claim;

(d) an order should not be made at this point directing that West Homes cease to be a party to the Proceeding;

(e) West Homes‘ claims against Capital Finance should not be struck out and the parties should be given a further opportunity to consider the position in light of these reasons and the foreshadowed proposed amendments to West Homes’ claims; and

(f) Mr Chiavaroli’s application for leave to intervene pursuant to ss 236 and 237 of the Act for the purpose of taking responsibility for the Proceeding on behalf of Pentridge Village should be refused because:

(i) even if Part 2F.1A of the Act (which includes ss 236 and 237) is assumed to apply to a company in liquidation, on the evidence before me the statutory criteria in ss 237(2)(a) and 237(2)(c) of the Act have not been satisfied because it has not been established by Mr Chiavaroli that it is probable that Pentridge Village through the Liquidator will not properly take responsibility for the Proceeding, or that it is in the best interests of Pentridge Village that leave be granted; and

(ii) in any event, Part 2F.1A of the Act does not apply to a company in liquidation.

The balance of these reasons is divided as follows:

(a) A procedural matter – clarification of current parties.

(b) Evidence, background and submissions.

(c) The Applications – order of approach.

(d) The Substitution Application:

(iii) Introduction.

(iv) Rule 9.09(2)(a) – assignment as a threshold condition.

(v) Satisfaction of the threshold condition – have the Statutory Claims been validly assigned?

(vi) Conclusion and further observations.

(e) The Strike Out Application:

(i) Introduction.

(ii) Consideration:

• The assignment paragraphs.

• The Estoppel Claim.

• West Homes’ claims.

(iii) Conclusion.

(f) The Section 237 Application:

(i) Introduction.

(ii) The legislation.

(iii) The issues.

(iv) Section 237 – General observations.

(v) Standing.

(vi) Nature of Mr Chiavaroli’s application.

(vii) Section 237(2)(a) – Probable that Pentridge Village will not properly take responsibility for the Proceeding.

(viii) Section 237(2)(b) – Applicant acting in good faith:

• Good faith requirement – general observations.

• Mr Chiavaroli and good faith.

(ix) Section 237(2)(c) – Best interests of the company that leave be granted:

• Best interests requirement – general observations.

• Mr Chiavaroli and the best interests requirement.

(x) Section 237(2)(e) – 14-day notice requirement.

(xi) Conclusion – Section 237 criteria.

(xii) Part 2F.1A (including ss 236 and 237) of the Act and companies in liquidation.

(g) Conclusion and proposed orders.

(h) Background Schedule.

A PROCEDURAL MATTER — CLARIFICATION OF CURRENT PARTIES

To reduce the risk of confusion it is necessary to say something about how it is that the filed ASOC records on its face that the first plaintiff is Mr Chiavaroli, as assignee of Pentridge Village, in circumstances where he was not originally named as a plaintiff and no order has been made substituting him as the first plaintiff in place of Pentridge Village.

The ASOC was filed on 27 October 2017 and records that it was amended pursuant to r 36.04(1)(a) of the Rules. That rule permits a party to amend their pleadings once without leave provided pleadings have not closed. When amending the statement of claim the plaintiffs named Mr Chiavaroli on the document as the first plaintiff (as assignee of the rights, title and interest in the proceeding of Pentridge Village) in place of Pentridge Village, and filed the document in that form.

The ASOC therefore impermissibly states on its face that Mr Chiavaroli is the first plaintiff. The issue was raised with the parties, and the plaintiffs and Capital Finance each confirmed what had occurred, that no substitution order had been made, and that Pentridge Village remains the first plaintiff, not Mr Chiavaroli.[2]
[2]Accordingly, references in these reasons to the plaintiffs are references to Pentridge Village and West Homes.

This aspect will need to be addressed and regularised.

EVIDENCE, BACKGROUND AND SUBMISSIONS

The plaintiffs and Mr Chiavaroli relied upon the affidavits of Mr Chiavaroli sworn 22 July and 7 August 2018[3] and the affidavits of the plaintiffs’ solicitor, Mr Bear, affirmed 7 and 8 May 2018. They also relied upon eight written submissions.[4]
[3]Including several volumes of exhibits, although only a limited number of documents were relied on. See, for example, Transcript of Proceedings, Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (Supreme Court of Victoria, S CI 2016 02546, Connock J, 10 August 2018) 62.
[4]Dated 10 May, 23 July, 3 August, 24 August, 29 August, 4 September (two submissions) and 5 September 2018.

Capital Finance relied upon a short affidavit of its solicitor, Ms Whiting, sworn 3 August 2018 (Whiting Affidavit), an email dated 15 June 2018 from the Liquidator (Cussen Email), and six written submissions.[5] A small number of additional documents were admitted into evidence without objection.[6] No witnesses were sought to be cross-examined and the parties’ written submissions were supplemented by extensive oral submissions on 10 August and 5 September 2018.
[5]Dated 16 May, 23 July, 3 August, 24 August, 31 August and 3 September 2018.
[6]Comprising an ASIC current and historical extract for Daimleigh Pty Ltd (Exhibit 1), a presentation of accounts and statement of Pentridge Village Pty Ltd (ASIC Form 524) (Exhibit 2), an email from Mr Glen Cussen to Mr Howard Bear dated 15 June 2018 at 10:49am (Exhibit 3), and an ASIC historical company extract for Daimleigh Capital Pty Ltd (Exhibit A).

Given the conclusions that I have reached and the operation of r 23.04(2) of the Rules[7] most of the evidence is not relevantly germane to the Substitution Application or the Strike Out Application. However, the need to have regard to a range of factual circumstances in connection with the Section 237 Application made in the alternative means it is desirable to set out parts of the evidentiary background from the affidavits in some detail.[8] Because of the order in which the applications are dealt with below, it is convenient to set this background out in a schedule appearing at the end, but forming part, of these reasons (Background Schedule).
[7]That rule provides that no evidence shall be admissible on the question of whether an indorsement of claim or pleading offends against r 23.02 of the Rules, although regard can be had to documents referred to in a pleading. See, for example, Wheelahan v City of Casey (No 12) [2013] VSC 316 [25(n)] (Dixon J) and Annesley v Westpac Banking Corp [2016] VSC 323 [71(e)] (Derham AsJ), each citing Day v William Hill (Park Lane) Ltd [1949] 1 KB 632 (Bucknill and Singleton LJJ).
[8]The only affidavit evidence currently before the court regarding the background to the Proceeding was that contained in the affidavits of Mr Chiavaroli and Mr Bear, to which there was no objection.

THE APPLICATIONS — ORDER OF APPROACH

The plaintiffs’ and Mr Chiavaroli’s primary position is that Pentridge Village’s causes of action have been assigned to Mr Chiavaroli. Consequently there is a direct overlap between matters raised in the Substitution Application and the Strike Out Application. Although materially affected by the assignment question, the Section 237 Application is made in the alternative to the Substitution Application and it is appropriate and convenient to address the Substitution Application and the Strike Out Application before turning to the Section 237 Application.

In their written submissions the plaintiffs raised what was described as a ‘Practical Path Forward’; namely, to decide the (alternative) Section 237 Application first so that if the court determined that Mr Chiavaroli had a right to intervene in the Proceeding under the derivative action regime the question of the assignment need not be resolved ‘now, or at any stage’. It was said that if Mr Chiavaroli was successful in his derivative action application he would withdraw the Substitution Application and amend the statement of claim to delete the allegations which refer to the assignment. It was also said that if the court determined that Mr Chiavaroli was not entitled to intervene under the derivative action regime then the question of the assignment must be dealt with but that this should not occur on a strike out application.[9]
[9]See Pentridge Village and West Homes, ‘Plaintiffs’ Further Submissions on Application Returnable Before the Honourable Justice Connock on 5 September 2018’, Submission in Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd, S CI 2016 02546, 24 August 2018, [7]–[8] (Plaintiffs’ Submissions dated 24 August 2018). If considered in isolation, this submission overlooks the Substitution Application.

Given that the Assignment Deeds exist and the plaintiffs’ primary position is that the causes of action have been validly assigned to Mr Chiavaroli, this ‘practical path’ faced a logical and legal difficulty. If, as contended by the plaintiffs, the assignment was effective at law then the causes of action would no longer be claims that Pentridge Village could pursue on its own account. This would be a matter necessary to consider in the Section 237 Application and an impediment to the grant of leave to intervene to Mr Chiavaroli to take proper responsibility for the assigned claims on behalf of the company (that is, Pentridge Village), even if Part 2F.1A of the Act applies to a company in liquidation and the relevant criteria in s 237 of the Act were satisfied.

In light of this irreconcilable tension between the plaintiffs’ primary position regarding the validity of the assignment and the postulated ‘Practical Path Forward’, at the further hearing on 5 September 2018, senior counsel for the plaintiffs was asked and confirmed that the plaintiffs’ primary position remained that the causes of action had been validly assigned to Mr Chiavaroli, and that the Section 237 Application was being brought in the alternative to the Substitution Application.[10] That being so, the plaintiffs responsibly recognised that the suggested ‘Practical Path Forward’ faced difficulty.
[10]See Transcript of Proceedings, Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (Supreme Court of Victoria, S CI 2016 02546, Connock J, 5 September 2018) 195.

I turn now to the Substitution Application.

THE SUBSTITUTION APPLICATION
Introduction

By its summons in the Substitution Application the plaintiffs seek an order pursuant to r 9.09(2)(a) of the Rules that Mr Chiavaroli be substituted for Pentridge Village as the first plaintiff in the Proceeding. Such an order is said to be appropriate because Pentridge Village irrevocably assigned to Mr Chiavaroli all of Pentridge Village’s right, title and interest in the causes of action the subject of the Proceeding and any proceeds, including costs. The assignment is said to have been made pursuant to the Assignment Deeds.[11]
[11]See ASOC, [89]–[95] and Pentridge Village and West Homes, ‘Plaintiffs’ Submissions Regarding Substitution’, Submission in Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd, S CI 2016 02546, 10 May 2018, [4]–[6] (Plaintiffs’ Submissions dated 10 May 2018).

The plaintiffs did not and do not seek an order[12] that Mr Chiavaroli be added as a further plaintiff in addition to Pentridge Village, whether pursuant to rr 9.02, 9.06, 9.09 of the Rules or otherwise.[13]
[12]In the alternative or otherwise.
[13]A point also emphasised in the submissions of Capital Finance. See, for example, Capital Finance, ‘Defendant’s Submissions on Rule 9.09(2)’, Submission in Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd, S CI 2016 02546, 24 August 2018 [2] (Capital Finance’s Submissions dated 24 August 2018).

Capital Finance opposed the Substitution Application. It raised a discrete legal point and contended that the Statutory Claims were not assignable at law and therefore were not validly assigned to Mr Chiavaroli, meaning that the Substitution Application must fail.[14] As will be seen, determination of this point did not require the resolution of any issue of contested fact and was addressed at length in written and oral submissions. The same legal point lies at the heart of the Strike Out Application insofar as it relates to the Statutory Claims.[15]
[14]See, for example, Capital Finance, ‘Defendant’s Outline of Submissions In Support of Application for Strike Out Made By Summons dated 23 July 2018’, Submission in Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd, S CI 2016 02546, 23 July 2018 [3]–[5] (Capital Finance’s Submissions dated 23 July 2018). In the Strike Out Application it makes the same substantive contention regarding the assignment and also seeks to strike out the Equitable Estoppel Claim.
[15]Capital Finance also stated that if, contrary to its position on the legal point, the Statutory Claims were validly assigned to Mr Chiavaroli, then Pentridge Village would lack standing to seek relief or remain as a party in the Proceeding and, in those circumstances, Capital Finance would not oppose the substitution of Mr Chiavaroli as first plaintiff.

For the reasons that follow I have concluded that the Statutory Claims were not validly assigned to Mr Chiavaroli and I do not propose to order that Mr Chiavaroli be substituted as the first plaintiff in the Proceeding in place of Pentridge Village.

Rule 9.09(2)(a) – Assignment as a threshold condition

Rule 9.09(2) of the Rules provides as follows:

(2)Where at any stage of a proceeding the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may order–
(a)that the other person be added as a party to the proceeding or made a party in substitution for the original party; and
(b)that the proceeding be carried on as so constituted.

Submissions – Rule 9.09(2)(a) and assignment as a threshold condition

During the hearing a question was raised with the parties as to whether establishing the existence of a valid assignment under r 9.09(2)(a) of the Rules was a threshold condition to enlivening the power to make a substitution order, or whether it was sufficient to allege the existence of an assignment.[16] There was a difference of view on the point, although at that stage the issue had not been raised or fully considered by the parties. The parties were invited to examine the issue further and it was addressed in the plaintiffs’ and Capital Finance’s separate written submissions dated 24 August 2018, and their oral submissions on 5 September 2018. These submissions revealed that the parties remained at odds on the issue.
[16]See, for example, Transcript of Proceedings, Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (Supreme Court of Victoria, S CI 2016 02546, Connock J, 10 August 2018) 36–38, 85–86.

The plaintiffs’ research found no authority on point, but they submitted that provided that allegations of assignment were made and were not frivolous or untenable then that was sufficient to enliven the jurisdiction.[17] Although they did not seek to draw attention to any particular features of r 9.09(2) of the Rules or its language that would suggest the existence of an assignment was not a threshold condition, the plaintiffs submitted that the decision in WorkCover Queensland v Amaca Pty Ltd[18] (WorkCover) was ‘highly persuasive authority’ for the proposition that the question of the validity of the assignment in the present proceeding is not appropriate for resolution in a strike out proceeding[19] or, I inferred, an application for substitution under r 9.09(2)(a).
[17]See Transcript of Proceedings, Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (Supreme Court of Victoria, S CI 2016 02546, Connock J, 5 September 2018) 191–2 and Plaintiffs’ Submissions dated 24 August 2018 [3].
[18][2013] 2 Qd R 276 (Margaret McMurdo P, Gotterson JA and Martin J).
[19]See, for example, Plaintiffs’ Submissions dated 24 August 2018 [5] and Transcript of Proceedings, Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (Supreme Court of Victoria, S CI 2016 02546, Connock J, 5 September 2018) 191.

The plaintiffs also pointed to the decision in Davidovic v Vesuvius Australia Pty Ltd (No 3) (Davidovic)[20] and submitted that it provided guidance because it was a case in which Stevenson J did not consider it appropriate to determine the validity of an assignment in the context of a substitution application but still made a substitution order.[21]
[20][2017] NSWSC 76 (Stevenson J).
[21]Plaintiffs’ Submissions dated 24 August 2018 [6]. In footnote 3 of these submissions reliance was placed upon the decision of Master Luppino in Territory Pastoral Company Pty Ltd v Elders Ltd [2009] NTSC 69 but as even the plaintiffs’ written submissions revealed the circumstances in that case were different and the relevant party was added as a party and not substituted.

Capital Finance’s position on the operation of r 9.09(2)(a) of the Rules was different. It submitted that a finding by the court that there has been a valid assignment is a pre-condition or ‘jurisdictional fact’[22] to the court exercising any discretion pursuant to this particular rule.
[22]Capital Finance’s Submissions dated 24 August 2018 [1].

Capital Finance drew attention to what it submitted was the clear language of the rule, also observing that it is cast in the past tense and speaks of events which have occurred. It submitted that a valid assignment would result in an assignor no longer being entitled to be a party to the Proceeding and that it was necessary for the question of the validity of the assignment to be determined before substitution is permitted. It also contended that leaving the question of the existence or otherwise of a valid assignment to the trial would lead to ‘untenable uncertainty’, and that this substantial and expensive proceeding would be futile if a substitution order was made and it was ultimately found that the assignment was invalid. It was further submitted that such an approach would not be consistent with the overarching purpose of the Rules or the Civil Procedure Act 2010 (Vic) (CPA).[23]
[23]See s 7 of the Civil Procedure Act 2010 (Vic).

With respect to the authorities, Capital Finance submitted that there was no authority in this court on the point, but that other authorities addressing substitution supported the contention that, having regard to the terms of r 9.09(2)(a) of the Rules, it must first be established that a valid assignment existed before the discretionary power to substitute a party pursuant to this rule can be exercised. The cases referred to in this context included Vintage Developments Pty Ltd v GHD Pty Ltd (No 2),[24] APT Finance Pty Ltd v Bajada,[25] Yorkshire Regional Health Authority v Fairclough Building Ltd,[26] Computer Accounting & Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd,[27] Platinum Mortgage Securities Ltd & Ors v Nikolyn Pty Ltd (in liq) & Ors,[28] Aspendale Holdings Pty Ltd v Wellington Street Investments Pty Ltd (Aspendale Holdings),[29] and Territory Pastoral Company Pty Ltd v Elders Ltd.[30]
[24][2006] FCA 1437 (Bennett J).
[25][2008] WASCA 73 (Pullin JA and Newnes AJA).
[26][1996] 1 All ER 519, 522 (Neill, Evans and Millett LJJ).
[27][2014] WASC 360 (Simmonds J).
[28][2018] WASC 117 (Acting Master Strk).
[29][2009] VCC 1309 [19].
[30][2009] NTSC 69 (Master Luppino).

The last two cases were raised in the context of joinder by addition of a party rather than substitution. In this context observations were made by Capital Finance regarding the absence of the assignment pre-condition in rr 9.02 and 9.06 of the Rules[31] and the ability to permit joinder of an additional plaintiff where such an order was sought and the validity of alleged assignments remained in question. As mentioned, Capital Finance also placed some emphasis on the fact that the plaintiffs do not seek an order[32] that Mr Chiavaroli be added or joined as an additional plaintiff (as opposed to being substituted), and it referred to aspects of the authorities that have addressed joinder or addition of a party in the context of assignment and disputed assignments.[33]
[31]And their equivalents in the Northern Territory.
[32]In the alternative or otherwise. See, for example, Capital Finance’s Submissions dated 24 August 2018 [2].
[33]Joinder powers under other rules are expressed in different terms and do not refer to the need for the existence of an assignment. See for example r 9.06 of the Rules (which also allows substitution orders to be made in certain circumstances).

Consideration – Rule 9.09(2)(a) and assignment as a threshold condition

The language of r 9.09(2)(a) of the Rules is clear and unambiguous and reveals that establishing that there ‘is’ an assignment is a threshold condition to the enlivening of the discretionary substitution power where r 9.09(2)(a) and an alleged assignment is relied upon as the sole basis for seeking a substitution order. As the terms of the rule provide, the court ‘may order’ substitution ‘where at any stage of the proceeding the interest or liability of any party is assigned … to … some other person …’ (emphasis added).

The clear, simple and unqualified language speaks of the existence of an assignment having occurred.

Further, concluding that the existence of an assignment is a threshold condition to enlivening the discretionary power in r 9.09(2) of the Rules is consistent with what has been observed by the Victorian Court of Appeal in relation to the operation of other similarly structured rules and, in particular, r 62.02(1) of the Rules.

Rule 62.02(1) of the Rules deals with security for costs and allows a discretion to be exercised regarding the ordering of security for costs if one of a number of threshold conditions are first satisfied. To employ the language of Maxwell P and Buchanan JA when addressing the similarly structured r 62.02(1) of the Rules in Livingspring Pty Ltd v Kliger Partners (Livingspring),[34] ‘… [t]he first question to be addressed is whether the threshold condition for the exercise of the power is satisfied’. In that case the ‘threshold condition’ in the relevant rule was whether the applicant had established on the evidence that there ‘… is reason to believe that the corporation will be unable to pay the costs of the defendant if successful’.[35]
[34](2008) 20 VR 377, 381 [11]–[17] (Maxwell P and Buchanan JA), which dealt with, among other things, the power to order security for costs under Order 62.
[35]Emphasis added.

In the present application the language of r 9.09(2)(a) of the Rules dictates that the relevant ‘threshold condition’ [is whether ‘… at any stage of the proceeding the interest or liability of any party is assigned …] to … some other person.’[36] To borrow again from the language in Livingspring, ‘[t]hat jurisdictional condition must be satisfied before the discretionary power … is enlivened.’[37] The need for the interest or liability to have been ‘assigned … to … some other person’ is therefore a ‘touchstone of jurisdiction’[38] under r 9.09(2)(a) of the Rules. If that touchstone is established on the balance of probabilities[39] and the discretionary power is enlivened, the court will then consider whether the discretionary power should be exercised.[40]
[36]Emphasis added.
[37]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, 381 [11] (Maxwell P and Buchanan JA), also citing FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241, 247–248 [21] (Pidgeon and Owen JJ).
[38]Ibid 382 [15] (Maxwell P and Buchanan JA).
[39]See ss 4(1)(b) and 140 of the Evidence Act 2008 (Vic), noting also the same position at common law if it was to be successfully contended that the language of s 140 of the Act (‘case of a party’) does not include interlocutory proceedings (which in my view it does).
[40]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, 382 [17] (Maxwell P and Buchanan JA).

I do not accept the plaintiffs’ submissions that the decisions in WorkCover[41] and Davidovic[42] are persuasive in the way suggested or that they ought to lead to a different result. Neither case was addressing the issue in question and each is distinguishable.
[41]WorkCover Queensland v Amaca Pty Ltd [2013] 2 Qd R 276 (Margaret McMurdo P, Gotterson JA and Martin J).
[42]Davidovic v Vesuvius Australia Pty Ltd (No 3) [2017] NSWSC 76 (Stevenson J).

For example, in WorkCover[43] the Queensland Court of Appeal was dealing with an appeal from a determination by a trial court of a separate question about the validity of a pleaded assignment of non-statutory causes of action, rather than a substitution application under an equivalent to r 9.09(2)(a) of the Rules. It appears that at the time the relevant civil procedure rules of the Supreme Court of Queensland did not have a rule in the same terms as r 9.09(2)(a) of the Rules. Further, the question of the previously made substitution order was not in issue and there is no suggestion that the point now under consideration was raised or considered. It also appears that the terms of the rule relied upon for the earlier substitution order were not referred to, identified or considered.
[43]Ibid.

In Davidovic,[44] Stevenson J was not concerned with statutory causes of action, and did not consider the issue before me. Stevenson J was concerned with an application for substitution of a party under an equivalent to r 9.06 of the Rules (in the Uniform Civil Procedure Rules 2005 (NSW)) and not an equivalent to r 9.09(2)(a). The rule considered by Stevenson J uses different language and does not contain the same threshold condition. It was in this context that his Honour decided not to determine a factual controversy arising on the application, being a contention by the respondent that neither of the plaintiffs had a ‘[g]enuine commercial interest in the taking of the assignments and their pursuing of the assigned rights for their own benefit in the sense described by authorities such as [Trendtex]’.[45] It will also be seen in the reasons that follow that this factual ‘Trendtex issue’ has not been necessary to determine in this case.
[44]Ibid.
[45]Ibid [37]–[38].

To the extent that it was submitted by the plaintiffs that the threshold condition to the enlivening of the power should be construed as requiring no more than an allegation of an assignment or an allegation of an assignment that is not frivolous, untenable or vexatious, I do not accept that submission. That is not what the rule says, and its plain and clear language says otherwise. Further, where the Rules intend to employ language of a more qualified kind or requirements that are easier to satisfy, they do so. There are numerous examples in the Rules, including r 62.02(1)(b) referred to by the Court of Appeal in Livingspring[46] (‘… is reason to believe …’). Other examples are r 37B.03(1)(a) (‘… a strong prima facie case …’), r 37B.03(1)(c) (‘… there is sufficient evidence that … there is a real possibility that …’), and r 80.12(2)(b) (‘… has a prima facie defence …’).
[46]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 (Maxwell P and Buchanan JA).

To this it may be added that if the rule had been intended to enliven the discretionary power where only an allegation of assignment was made, or an allegation of assignment was made that was not frivolous, vexatious or untenable, that could have been easily stated. Such language is far from foreign to the Rules, as Order 23, which deals with summary stay or dismissal and striking out a pleading, well illustrates.[47]
[47]See, for example, rr 23.01(1)(a), 23.01(2) and 23.02(b) of the Rules.

Given the conclusion that I have reached it is not necessary for me to address Capital Finance’s other submissions, including those regarding the asserted futility and ‘untenable uncertainty’ that is contended to result if the assignment issue is not addressed as a threshold condition to enlivening of the discretionary power under r 9.09(2) of the Rules. The position is the same regarding the authorities relied on by Capital Finance, although I make the following three brief observations:

(a) It should not be too readily accepted that allowing an issue regarding an assignment to be addressed at trial gives rise to untenable uncertainty. It is not uncommon for assignment issues to be addressed at trial, and two ways in which that can occur are where more than one plaintiff commences the proceeding and allegations are made in the alternative, or where a party claiming to be an assignee is joined as an additional plaintiff pursuant to, for example, r 9.06(b) or r 9.02. Such an approach is also evident in a number of the cases referred to by Capital Finance.[48]

(b) Although some of the cases referred to by Capital Finance reveal instances where, in the particular circumstances of each case, the existence or otherwise of an assignment has been determined, in the circumstances of the present case I do not find that to be particularly relevant or germane. As the High Court has often observed, it is the language of the provision or rule that must guide, as is the case here.[49]

(c) With respect to the decision of the County Court of Victoria in Aspendale Holdings,[50] I make the following observations. That case was dealing with an application for joinder and not substitution and the issue was being addressed in the context of r 9.06 and also r 9.09 and joinder was refused. It was also concluded that simply alleging the existence of an assignment was not enough. Insofar as it was held that under rr 9.06 and 9.09(2) there must be presented to the court a satisfactory basis for a prima facie argument that an assignment has occurred, or that what is required is to establish to a prima facie or arguable standard that the circumstances giving rise to an assignment have occurred, in my respectful opinion that approach ought not to be followed. In this regard, I refer to my reasoning above regarding the operation of r 9.09(2) and add, respectfully, that so to construe rr 9.09(2) and 9.06 is to impermissibly depart from the language of the rule in each case. As earlier observed, r 9.06 involves different language and criteria, and r 9.09(2)(a) speaks in plain terms and neither rule employs language of the kind referred to in Aspendale Holdings. It may also be noted again that where criteria or requirements akin to those referred to in Aspendale Holdings are intended to be employed in the Rules, that is done expressly.[51]

[48]As earlier observed, in the present case, the plaintiffs seek only substitution and do so only pursuant to r 9.09(2)(a) and therefore different considerations arise.

[49]See, for example, Agar v Hyde (2000) 201 CLR 552, 571 [43] (Gaudron, McHugh, Gummow and Hayne JJ) where it was stated that ‘[t]he starting point for the present inquiry, however, must be the terms of the Rules, not any general considerations of the kind just mentioned.’ See also Lew Footwear Holdings Pty Ltd v Madden International Ltd [2014] VSC 320 [121]–[122] (Elliott J), noting also Madden International Ltd v Lew Footwear Holdings Pty Ltd (2015) 50 VR 22 (Mandie and Beach JJA and Dixon AJA).

[50][2009] VCC 1309.

[51]See, for example, paragraph 45 above. The relevant observations in Aspendale Holdings Pty Ltd v Wellington Street Investments Pty Ltd [2009] VCC 1309 appear at [16]–[19] and [35]–[39].

Having concluded in the present case that establishing the existence of an assignment is a threshold condition to the enlivening of the discretionary power to substitute Mr Chiavaroli pursuant to r 9.09(2)(a) of the Rules, it is now necessary to turn to the competing contentions regarding the satisfaction or otherwise of the threshold condition by reference to the discrete point of law in issue between the parties. This is also relevant to the Strike Out Application addressed later below.

Satisfaction of the threshold condition — Have the Statutory Claims been validly assigned?

The Statutory Claims in the ASOC said to have been assigned to Mr Chiavaroli comprise damages claims:

(a) under ss 82 and 87 of the TPA, s 12GF of the ASIC Act and s 1041I of the Act in respect of alleged misleading or deceptive conduct (under s 52 of the TPA, s 12DA(1) of the ASIC Act, and s 1041H of the Act); and

(b) under ss 82 and 87 of the TPA, and s 12GF of the ASIC Act in respect of alleged unconscionable conduct (under s 51AA of the TPA, and ss 12CA and 12CB of the ASIC Act).

Plaintiffs’ submissions — Have the Statutory Claims been validly assigned?

The plaintiffs submit that:

(a) Rule 9.09(2)(a) of the Rules enables a person to be substituted for another person in a proceeding where the first person has acquired the second person’s rights and causes of action by assignment.[52]
[52]Plaintiffs’ Submissions dated 10 May 2018 [12].

(b) In the present case the Liquidator in the course of the liquidation transferred by assignment Pentridge Village’s causes of action in the Proceeding to Mr Chiavaroli who was a sole director of that entity and, absent disentitling circumstances, a substitution order should be made; and there were no disentitling circumstances.

(c) Having regard to the decision in Trendtex Trading Corp v Credit Suisse (Trendtex),[53] as referred to in EWC Payments Pty Ltd v Commonwealth Bank of Australia (EWC Payments),[54] it is uncontroversial that an interest in a cause of action is assignable where the assignee has a genuine and substantial interest in the success of the litigation or a genuine commercial interest in the enforcement of the claim and there can be no doubt that the exception identified in Trendtex must be treated as good law in Australia.[55]
[53][1982] AC 679 (Lords Wilberforce, Edmund-Davies, Fraser, Keith and Roskill).
[54][2014] VSC 207 (Elliott J).
[55]Pentridge Village and West Homes, ‘Plaintiff’s (sic) Submissions In Reply to Defendant’s Outline of Submissions dated 23 July 2018’, Submission in Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd, S CI 2016 02546, 3 August 2018, [7]-[10] (Plaintiffs’ Submissions dated 3 August 2018),
citing Elliott J in EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207 [62].

(d) In determining whether an assignee has a genuine commercial interest the whole of the transaction must be looked at, and in this case it is clear from the affidavit evidence[56] that Mr Chiavaroli has an interest of the required kind.
[56]Referred to in the Background Schedule.

(e) In any event, s 477(2)(c) of the Act expressly permits the Liquidator to assign statutory causes of action notwithstanding that such an assignment might otherwise be held void for maintenance and champerty or purports to assign a bare right of action.

(f) Although the plaintiffs in their written submissions initially stated that the decision in UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd (UTSA1)[57] ‘did not relate to statutory provisions analogous to those pleaded in the ASOC’,[58] it was submitted that the decision on appeal, UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (UTSA2)[59] is authority for the proposition that the ‘general words of section 477(2)(c) should not be read down’[60] and therefore should be read as permitting the assignment of statutory causes of action even if they would otherwise be unassignable.[61]
[57][1997] 1 VR 667 (Hansen J).
[58]Plaintiffs’ Submissions dated 3 August 2018 [17]. This position was recalibrated during oral submissions when attention was drawn to Hansen J’s summary of the claims. See, for example, Transcript of Proceedings, Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (Supreme Court of Victoria, S CI 2016 02546, Connock J, 10 August 2018) 152–154.
[59](1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA).
[60]Plaintiffs’ Submissions dated 3 August 2018 [17]
[61]It was not submitted that s 100-5(1) of Division 100 of Schedule 2 to the Corporations Act (Insolvency Practice Schedule (Corporations)) applies and no approval was sought pursuant to s 100-5(2). In M Murray and J Harris, Keay’s Insolvency: Personal & Corporate Law & Practice, (Thomson Reuters, 10^th edition, 2018) it has been observed that, as the language of the provision suggests, the power in s 100-5(1) is in relation to rights conferred by the Act on external administrators to sue in their own name. This point was also noted in Capital Finance, ‘Defendant’s Outline of Submissions’, Submission in Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd, S CI 2016 02546, 16 May 2018 [25] (Capital Finance’s Submissions dated 16 May 2018) and Capital Finance’s Submissions dated 23 July 2018 [22] and footnote 31.

(g) Having regard to the decisions in UTSA1,[62] UTSA2;[63] Cant; Re Novaline Pty Ltd (in liq) (Re Novaline);[64] and the decision of Jackson J in Lanai Unit Holdings Pty Ltd v Mallesons Stephen Jaques (No 1) (Lanai);[65] it has been held that it is ‘unclear’ on the authorities whether or not the Statutory Claims based on the provisions of the legislation pleaded in the ASOC can be assigned,[66] and North J in Re Novaline held that they could be.

(h) The Court of Appeal in UTSA2[67] endorsed the decision of Hansen J at first instance and held that statutory causes of action of the kind in question were assignable pursuant to s 477(2)(c) of the Act and, as a judge at first instance, I am bound to follow that decision.

(i) Where the discretionary power is enlivened as a result of an assignment, although it is not mandatory to order substitution, the correct test was as described by the Court of Appeal in Culve Engineering Pty Ltd v Apollo General Engineering (Aust) Pty Ltd (in liq)[68] and that, absent ‘disentitling circumstances’, a substitution order should be made.

[62]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667 (Hansen J).

[63]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA).

[64](2011) 282 ALR 49 (North J).

[65][2017] 2 Qd R 456 (Jackson J).

[66]Plaintiffs’ Submissions dated 3 August 2018 [21].

[67]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA).

[68](2017) 53 VR 219, 232 [59] (Whelan JA and Ferguson JA).

Capital Finance’s submissions — Have the Statutory Claims been validly assigned?

Capital Finance submits that:

(a) As a matter of law, statutory causes of action for damages for misleading or deceptive conduct and unconscionable conduct, including those the subject of the Statutory Claims, are not assignable. It is said that this is a consequence of the statutory language which makes such claims personal and restricted only to the person who suffered loss ‘by’ the relevant conduct and that this has been confirmed by the authorities which are ‘overwhelmingly’ to that effect.[69]
[69]Capital Finance’s Submissions dated 16 May 2018 [11]. The authorities are discussed below.

(b) Because it is the terms of the statutory language creating the Statutory Claims and not simply the principles of maintenance and champerty that render the Statutory Claims unassignable, there is no reason why s 477(2)(c) of the Act would have the effect that causes of action under the relevant statutes would become assignable, and this is also well accepted in the authorities. Section 477(2)(c) of the Act does not ‘render assignable the unassignable’.[70]
[70]Ibid [17].

(c) The issue of the assignability of statutory causes of action was not raised or determined in UTSA1[71] or on appeal and those decisions say nothing on the point. Further, the decisions in Re Novaline[72] and Lanai[73] provide no support for the plaintiffs’ contentions because each decision effectively rests upon what was decided in UTSA1 and UTSA2.[74]

(d) With respect to Trendtex,[75] although it must be accepted for present purposes that it is arguable that Australian law recognises an exception to the prohibition on an assignment of a bare right of action as identified in Trendtex and EWC Payments,[76] Mr Chiavaroli has not established that he has the necessary genuine and substantial interest in the success of the litigation or a genuine commercial interest in the enforcement of the claim.[77]

(e) Although the Estoppel Claim is not a statutory cause of action, it should be struck out because, among other things, it fails to disclose a cause of action. This last aspect is addressed later in these reasons when dealing with the Strike Out Application.[78]

[71]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667 (Hansen J).

[72]Cant; Re Novaline Pty Ltd (in liq) (2011) 282 ALR 49 (North J).

[73] Lanai Unit Holdings Pty Ltd v Mallesons Stephen Jaques (No 1) [2017] 2 Qd R 456 (Jackson J).

[74]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA).

[75]Trendtex Trading Corp v Credit Suisse [1982] AC 679 (Lords Wilberforce, Edmund-Davies, Fraser, Keith and Roskill).

[76]EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207, [62] (Elliott J).

[77]Trendtex Trading Corp v Credit Suisse [1982] AC 679, 703 (Lord Roskill).

[78]See paragraphs 132 to 142 below.

Consideration — Have the Statutory Claims been validly assigned?

The central issue raised by Capital Finance involves a question of law as to whether statutory causes of action of the kind the subject of the Statutory Claims are capable of assignment pursuant to a liquidator’s power of sale under s 477(2)(c) of the Act. The conclusions I have reached mean that the determination of this issue does not involve or require exploration of factual matters or the determination of any disputed question of fact.

That being so, and the matter having been the subject of extensive written and oral submissions and able and full argument by senior counsel for the plaintiffs and Capital Finance, it is in my view desirable and appropriate to determine this discrete legal point. Not only does this address the discrete point of law raised in connection with the satisfaction or otherwise of the threshold condition in the Substitution Application and the same legal issue raised in the Strike Out Application, but in circumstances where Mr Chiavaroli seeks only to be substituted rather than added as a plaintiff, and a Section 237 Application has been made in the alternative, there are time, cost and efficiency benefits given the likely scale and cost of the litigation. In my opinion the adoption of this course well serves the overarching purpose of the CPA and the Rules and is consistent with the court seeking to give effect to the overarching purpose in the exercise of its powers as required by s 8 of the CPA.[79]

Trendtex and s 477(2)(c)

[79]Whilst different considerations might have arisen if it was proposed only to add (as opposed to substitute) Mr Chiavaroli as a plaintiff, that is not the position.

Two matters can be addressed swiftly at the outset, namely, whether the ‘Trendtex exception’ is good law, and whether an assignee of a cause of action needs to fall within the Trendtex exception where a cause of action is assigned by a liquidator pursuant to s 477(2)(c) of the Act. This will also reveal why, for present purposes, it is not necessary to consider or determine any disputed question of fact.

Following a helpful review of the authorities in EWC Payments, Elliott J concluded ‘… that the exception identified in Trendtex Trading Corporation v Credit Suisse now must be treated as good law in Australia’.[80] Capital Finance did not make any substantive submission to the contrary, although it expressed the position more cautiously in its written submissions, stating that it accepted for the purposes of the applications that they must proceed on the basis that it is arguable that Australian law recognises an exception to the prohibition on an assignment of a bare right of action as identified in Trendtex.[81]
[80]EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207, [62] (Elliott J).
[81]Capital Finance’s Submissions dated 23 July 2018 [36].

Substantially for the reasons referred to by Elliott J in EWC Payments, I respectfully share the view that the exception identified in Trendtex is ‘good law in Australia’.[82] In any event, for the reasons that follow the point is not material because even if it was to be assumed that it was not good law, that would not aid Capital Finance’s challenge to the assignment. In UTSA1 Hansen J held that ‘… the assignment of a cause of action … by a liquidator is valid notwithstanding that such an assignment might otherwise be held void for maintenance and champerty, or (if there be any difference) because it purported to assign a bare right of action.’[83]
[82]EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207, [62] (Elliott J). See also Mateljan v HTT Huntley Heritage Pty Ltd (2016) 111 ACSR 277 [42] (Gleeson and Leeming JJA and Emmett AJA).
[83]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667, 685 (Hansen J).

On appeal the appellant in UTSA2 contended that the words of s 477(2)(c) of the Act are to be read ‘as not permitting a liquidator to sell the company’s cause of action to anyone who does not already have an interest in the outcome of it because a sale to such a person will lead to maintenance or, if there is to be some sharing of the proceeds of the litigation, champerty.’[84] It was held by the Court of Appeal that it would be ‘surprising indeed’ if the liquidator were able to sell a particular form of the company assets to only a limited class of persons being those who are already interested in the outcome of the action concerned and that the proposed sale of the company’s rights of action was within the power of the liquidator.[85]
[84]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457, 463 (Hayne JA, Brooking and Phillips JJA agreeing).
[85]Ibid 464–465.

It follows from the decisions in UTSA1[86] and UTSA2[87] that, whether or not the exception in Trendtex[88] is recognised as part of the law in Australia (which in my view it is), and whether or not Mr Chiavaroli has a sufficient interest in the Statutory Claims or their outcomes to satisfy what might be described as the ‘Trendtex test’, the validity of the alleged assignment in question cannot be successfully attacked on the basis of maintenance or champerty related considerations, or on the basis that Mr Chiavaroli does not have a sufficient interest to satisfy the Trendtex test. This is because an assignment of a cause of action by a liquidator pursuant to s 477(2)(c) of the Act is valid notwithstanding that such an assignment might otherwise have been held to be void for maintenance or champerty, or because it purported to assign a bare right of action.
[86]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667 (Hansen J).
[87]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA).
[88]Trendtex Trading Corp v Credit Suisse [1982] AC 679 (Lords Wilberforce, Edmund-Davies, Fraser, Keith and Roskill).

That being so, it is not necessary to embark on a factual enquiry to decide whether or not Mr Chiavaroli has an interest of the kind required to satisfy the ‘Trendtex test’ or determine the competing positions on the point. Even if Mr Chiavaroli was assumed to be a stranger to the litigation, the Court of Appeal in UTSA2[89] has made it clear that this, of itself, would be no impediment to an effective assignment by a liquidator of causes of action pursuant to s 477(2)(c) of the Act.

Assignability of statutory causes of action and s 477(2)(c) of the Act

[89]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA).

The above conclusion serves more to expose the central issue regarding the validity of the assignment rather than to resolve it. If, as I have concluded, the issues of maintenance and champerty or genuine interest in the litigation or its outcome can be put to one side, it is then necessary to ascertain the legal position regarding the assignability of statutory causes of action of the kind in question by a liquidator pursuant to s 477(2)(c) of the Act.

The position of the parties regarding the authorities relating to the assignment of statutory causes of action generally and in the context of s 477(2)(c) of the Act, and particularly the decisions in UTSA1[90] and UTSA2,[91] mean that it is necessary to say something further regarding the main authorities.

Authorities

[90]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667 (Hansen J).

[91]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA).

Although it involves a small element of repetition, it is convenient first to consider the position regarding the assignment of the statutory causes of action generally, and largely without having regard to the impact, if any, of s 477(2)(c) of the Act.

As was observed by Rares J in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (Boston Commercial Services),[92] a number of decisions identify that a cause of action for recovery of damages under s 82 of the TPA is not one which is capable of assignment because the terms of the section confer a right which is personal to the person who suffers loss or damage by the conduct of another, in contravention of the relevant provision of the TPA.
[92](2006) 236 ALR 720, 732 [49]–[55] (Rares J).

In Salfinger v Niugini Mining (Aust) Pty Ltd (No 3),[93] Heerey J observed that it was ‘well established’ that a cause of action for recovery of damages or compensation under either ss 82 or 87 of the TPA was not one capable of assignment, and his Honour made reference to the relevant authorities identified by Rares J in Boston Commercial Services,[94] being Park vAlliedMortgage Corporation Limited,[95] Allstate Life Insurance Co v Australia & New Zealand Banking Group Limited,[96] Pritchard v Racecage Pty Ltd (Pritchard),[97] and Chapman v Luminis Pty Ltd (No 4) (Chapman).[98]
[93][2007] FCA 1532.
[94]Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 (Rares J).
[95](1993) ATPR (Digest) 46–105 at 534667 (Davies J).
[96][1994] FCA 814, [18] (Beaumont J).
[97](1997) 72 FCR 203, 218 (Branson J).
[98](2001) 123 FCR 62, 116–117, [204]–[207] (von Doussa J).

Numerous cases since have reinforced the position, and Gordon J in Mijac Investments Pty Ltd v Graham (No 2)[99] made observations regarding the reason that statutory causes of action have been held not to be assignable, also referring to that which was stated by Rares J in Boston Commercial Services,[100] and the fact that the distinction is well established. Another example is Chapman[101] in which von Doussa J observed that it had been ‘consistently held’ that the cause of action created by s 82 of the TPA cannot be assigned and must be enforced by action by the person who suffers loss or damage. This was cited with approval by Ward JA in Mahommed v Unicomb.[102]
[99][2009] 72 ACSR 684, 696, [32] (Gordon J).
[100]Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 (Rares J).
[101](2001) 123 FCR 62, 116, [204] (von Doussa J).
[102][2017] NSWCA 65, [59] (Macfarlan J and McDougall JJA agreeing at [1] and [64]).

Cases in which the issue has been similarly addressed include: Park v Allied Mortgage Corporation Limited;[103] Brookfield & Septic Products Australia Pty Ltd (in liq) v Davey Products Pty Ltd (Brookfield);[104] Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia (No 6) (Rosebridge Nominees);[105] Owners of Strata Plan No 5290 v CGS & Co Pty Ltd (CGS);[106] Re Novaline;[107] Re Colorado Products Pty Ltd (in prov liq) (Re Colorado Products);[108] Aquatic Air Pty Ltd v Siewert (Aquatic Air 1);[109] Aquatic Air Pty Ltd v Siewert (Aquatic Air 2);[110] and Lanai;[111] and Mahommed v Unicomb.[112]
[103](1993) ATPR (Digest) 46–105, [4] (Davies J).
[104](1996) 14 ACLC 303 (Branson J).
[105][2014] WASC 203, [18]–[22] (Le Miere J).
[106](2011) 81 NSWLR 285 (Giles, Campbell JJA and Sackville AJA).
[107](2011) 282 ALR 49, 54 [19]–[21] (North J).
[108](2014) 101 ACSR 233, 340–341, 357–358, 360, [339], [341], [391]–[396], [404] (Black J).
[109][2015] NSWSC 928, [87] (Brereton J)
[110][2016] NSWCA 318, [103], [113]–[114] (Emmett AJA, Macfarlan and Ward JJA agreeing).
[111][2017] 2 Qd R 456, 459, [6]–[9] (Jackson J).
[112][2017] NSWCA 65, [59] (MacFarlan, Ward JJA and McDougall J).

As is apparent from the list of cases referred to, even the two cases upon which the plaintiffs placed reliance on in the context of their submissions regarding s 477(2)(c) of the Act, being Re Novaline[113] and Lanai[114] (addressed below), accepted this to be the position. As North J observed in Re Novaline, ‘[i]t is established that a statutory right to damages under section 82 of the [TPA] cannot be assigned…’ and ‘[t]he reasoning applied in s 82 cases applies equally... ‘ to claims for compensation for damage pursuant to s 1317H of the Act.[115]
[113]Cant; Re Novaline Pty Ltd (in liq) (2011) 282 ALR 49 (North J).
[114] Lanai Unit Holdings Pty Ltd v Mallesons Stephen Jaques (No 1) [2017] 2 Qd R 456 (Jackson J).
[115]Cant; Re Novaline Pty Ltd (in liq) (2011) 282 ALR 49, 54 [19]–[21] (North J). After observing that the bare right to litigate such a claim was ‘thus not assignable’, North J then identified what in substance is the primary discrete legal issue regarding the assignment in question in this case, namely, ‘… whether a liquidator is able to assign [such a] cause of action pursuant to the power in s 477(2)(c).

Recognising that the authorities referred to above address Commonwealth legislation, and artificially putting s 477(2)(c) of the Act and the decisions in UTSA[116] to one side for the moment, it is appropriate to accept and follow what has been consistently held and become well established. It will be recalled in this regard that the Statutory Claims in question are claims for damages for misleading or deceptive conduct and unconscionable conduct pursuant to ss 82 and 87 of the TPA, s 1041I of the Act and s 12GF of the ASIC Act. Consequently, and as appeared to be common ground between the parties, they are statutory claims of the character addressed in the authorities.
[116]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667 (Hansen J); UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA).

I turn then to the impact, if any, of the authorities that address or touch upon s 477(2)(c) of the Act in the context of the assignment of statutory causes of action of the kind under consideration. In so doing, it is helpful to recall that s 477 of the Act deals with the powers of a liquidator, and that s 477(2)(c) provides that, subject to the section, a liquidator of a company may ‘… sell or otherwise dispose of, in any manner, all or any part of the property of the company; …’.[117]
[117]Property is defined in s 9 and, relevantly for present purposes, 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 …’. For the purposes of part 5.4B (winding up in insolvency or by the court), of which s 477 forms part, the definition is affected by s 465 in connection with the Personal Property and Securities Act 2009 (Cth) but that is not relevant for present purposes.

Although it is not necessary to address every case on the topic, a useful starting point in this context is the decision of Branson J in Brookfield.[118] In Brookfield it was alleged that Mr Brookfield had been assigned by a liquidator all of a company’s right, title and interest in a particular proceeding including causes of action for damages under s 82 of the TPA. Branson J concluded that the court had consistently expressed the view, that on its proper construction, s 82 of the TPA does not allow recovery by an assignee who has not himself or herself suffered the loss and damage sought to be recovered.
[118]Brookfield & Septic Products Australia Pty Ltd (in liq) v Davey Products Pty Ltd (1996) 14 ACLC 303 (Branson J).

It was also observed that ‘[o]n this question of the proper construction of section 82 of the [TPA], section 477(2)(c) of the Corporations Law, … can, in my view, have no bearing.’[119] It was concluded that the claim for damages made pursuant to ss 52 and 82 of the TPA must fail. Although there was no further relevant detailed discussion of s 477(2)(c) in connection with the statutory cause of action,[120] it appears that Branson J was of the view that because the statutory cause of action was not capable of assignment, s 477(2)(c) of the Corporations Law[121] could not alter the position and make the unassignable, assignable.
[119]Ibid [75].
[120]Though there was in connection with the causes of action which were regarded to be validly assigned, namely in negligent misrepresentation and breach of contract. See Brookfield & Septic Products Australia Pty Ltd (in liq) v Davey Products Pty Ltd (1996) 14 ACLC 303 [108]–[109] (Branson J).
[121]Which was relevantly in the same terms as the same section of the Act.

This was one aspect of the decision challenged on appeal,[122] where it was relevantly contended that the deed of assignment was effective to assign the cause of action under ss 52 and 82 of the TPA by reason of the operation of s 477(2)(c) of the Corporations Law.[123] The court concluded that if the critical findings of fact that were challenged on appeal were upheld, the s 477(2)(c) appeal ground and the other grounds of appeal would not need to be dealt with, and therefore addressed the factual grounds first. The appellants failed to establish error regarding the findings of fact and it was not necessary for the Full Court to consider the other grounds of appeal. The appeal was dismissed.[124]
[122][1996] FCA 1771 (von Doussa, O’Loughlin and Lehane JJ).
[123][1996] FCA 1771 [24] (von Doussa, O’Loughlin and Lehane JJ). And also the principle in Trendtex Trading Corp v Credit Suisse [1982] AC 679 (Lords Wilberforce, Edmund-Davies, Fraser, Keith and Roskill).
[124][1996] FCA 1771 [54]–[55] (von Doussa, O’Loughlin and Lehane JJ).

UTSA1[125] involved an application by the liquidators for an order pursuant to s 511 of the Corporations Law that they be authorised to assign UTSA’s causes of action in a proceeding by UTSA against a number of defendants, including former directors, employees and shareholders, alleging breaches of duty in connection with the disposition of assets to another company. The relief claimed included damages.
[125]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667 (Hansen J).

A summary of the allegations in the statement of claim was set out in the reasons of Hansen J and was said to include allegations that a sale of certain assets was brought about by directors and employees of UTSA in breach of their duties (statutory, contractual and fiduciary) which they owed to UTSA, including breaches of duties of fidelity; to exercise due care and diligence; and not to advantage themselves or to place themselves in a position of conflict or to profit from their position. It was further alleged that the directors of UTSA signed the sale contract in contravention of ss 232(2), (4) and (6)[126] of the Corporations Law and that UTSA suffered loss and damage as a result.[127]
[126]Section 232 of the Corporations Law is now largely reflected in ss 180–184 of the Act.
[127]Damages was one of the remedies sought, although the reasons do not specify pursuant to which section they were sought.

In UTSA1[128] the objection to the assignment was that it was tainted by maintenance and champerty and involved the assignment of a bare right of action, which, so it was submitted, was impermissible. The primary submission in response to this objection was that the proposed deed of assignment was made in exercise of the statutory power of sale in s 477(2)(c) of the Act and that this power represented an exception to the principles of maintenance and champerty.[129] As earlier mentioned, on this point Hansen J concluded that:

In my opinion, the assignment of a cause of action (which is clearly within the definition of ‘property’ in s.9 of the Corporations Law) by a liquidator is valid notwithstanding that such an assignment might otherwise be held void for maintenance and champerty, or (if there be any difference) because it purported to assign a bare right of action.[130]

Because of the conclusion reached on the ‘main objection’ it was not necessary for his Honour to consider the liquidators’ alternative submissions that the proposed assignment was not void as being champertous because the intended assignee had a sufficient commercial interest to overcome that objection.[131]

[128]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667 (Hansen J).

[129]UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667, 681 (Hansen J).

[130]Ibid 685.

[131]Or because what was being assigned was a right to retrieve property.

Hansen J’s detailed reasons do not suggest or refer to any objection being made to the assignment on the basis that the assignment included statutory causes of action that were unassignable at law, or reveal or suggest that the issue was raised by the parties or otherwise considered.

The Court of Appeal recognised that the principal contention against the assignment was advanced with a large number of variations and with many matters being agitated, but that his Honour ‘dealt with each of those matters in the course of his long and careful reasons for judgment’.[132] It appears clear from a review of the reasons that the statutory cause of action assignment issue which falls for consideration in this case was not raised for consideration, notwithstanding that the claims as described by Hansen J included claims for damages in respect of alleged breaches of statutory directors’ duties.[133]
[132]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457, 458 (Hayne JA) (emphasis added).
[133]See UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667, 670–672 (Hansen J).

I add that I do not accept Capital Finance’s submission that I cannot be satisfied from the reasons of Hansen J that the claims in UTSA1 involved statutory damages claims for breaches of directors’ duties. Given the express reference to such claims in Hansen J’s reasons summarising the allegations in the statement of claim, I am so satisfied.[134]
[134]Ibid 671–672. See also the observations of North J in Re Novaline (2011) 282 ALR 49, 52 [16]. It should be noted that the plaintiffs’ acknowledgement in their written submissions that statutory causes of action were not in issue in UTSA is inaccurate, although this was recognised and addressed during oral submissions.

As earlier observed, the decision of Hansen J was upheld on appeal. There, too, the court referred to the principal contention before Hansen J being, ‘that the arrangement which the liquidators proposed to make … was contrary to public policy as being an agreement for the unlawful maintenance of the action or as being a champertous agreement’.[135] In the context of s 477(2)(c) of the Corporations Law, Hayne JA (with whom Brooking and Phillips JJA agreed) addressed this principal contention concluding that there was no warrant for reading down the general words of the Corporations Law and that permitting the sale or disposal ‘in any manner’ makes plain that it is the intention of the legislature that the powers of the liquidator are to be ample. As mentioned, his Honour observed that it would be surprising indeed if the liquidators were able to sell a particular form of the company’s assets (such as rights of action) to only a limited class of persons being those who were already interested in the outcome of the action concerned.[136] Hayne JA agreed with Hansen J, ‘substantially for the reasons that his Honour gave’,[137] that the proposed sale of the company’s rights of action was within the power of the liquidator.
[135]UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457, 458 (Brooking, Phillips and Hayne JJA).
[136]Ibid 463.
[137]Ibid 464.

As with the reasons of Hansen J, it is clear from the reasons of the Court of Appeal that the issue regarding the assignment of statutory causes of action for reasons not related to maintenance and champerty was not raised or considered on appeal. There is no reference to, or consideration of, the issue in the careful reasons of Hayne JA. Put simply, that matter was not in issue.

There are various decisions subsequent to UTSA2[138] which refer to the UTSA decisions as confirming that s 477(2)(c) of the Act allows a liquidator to sell a cause of action or bare right of action and that such an assignment, being made under that statutory power, will be exempt from the rule against champerty and maintenance. Those decisions include, for example, Bank of Melbourne Limited v HPM Pty Ltd[139] and a number of the decisions referred to below.
[138]Ibid 457.
[139](1997) 26 ACSR 110, 112 (Lee J).

In Chapman,[140] von Doussa J was considering the validity of assignments of, among other things, a cause of action seeking damages pursuant to s 82 of the TPA. In that case his Honour concluded that if the general law prohibition upon assigning a bare right of action was the only obstacle to the maintenance of an action under s 82 by an assignee of the person who suffered loss or damage by a contravention of the relevant provision of the TPA, it was probable in that case that s 477(2)(c) and the principles discussed in Trendtex[141] would overcome that obstacle. However, after referring to the authorities dealing with the inability to assign statutory causes of action and noting that the principle had been unanimously endorsed by the Full Court of South Australia in Pritchard,[142] von Doussa J concluded that, notwithstanding the terms of s 477(2)(c), the cause of action was not assignable and therefore the claims were not maintainable.[143]
[140]Chapman v Luminis Pty Ltd [2001] 123 FCR 62 (von Doussa J).
[141]Trendtex Trading Corp v Credit Suisse [1982] AC 679 (Lords Wilberforce, Edmund-Davies, Fraser, Keith and Roskill).
[142]Pritchard v Racecage Pty Ltd (1997) 72 FCR 203 (Branson J).
[143]There appears to have been no discussion of UTSA Pty Ltd (in liq) v UltraTune Australia Pty Ltd [1997] 1 VR 667 (Hansen J) or UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Brooking, Phillips and Hayne JJA) in that decision.

In Ex parte McGrath, Re; Pan Pharmaceuticals Ltd (in liq),[144] Jacobsen J made reference to Bank of Melbourne,[145] observing that it had been held that s 477(2)(c) entitled a liquidator to sell a company’s rights of action to a stranger.[146] The issue now before me for consideration appears not to have been raised, and it is also not evident from the reasons what particular causes of action were assigned.
[144]Ex parte McGrath, Re; Pan Pharmaceuticals Ltd (in liq) [2008] FCA 563.
[145]Bank of Melbourne Limited v HPM Pty Ltd (1997) 26 ACSR 110 (Lee J).
[146]Ex parte McGrath, Re; Pan Pharmaceuticals Ltd (in liq) [2008] FCA 563 [35]–[38].

Although dealing with a different issue in connection with the appointment of a new trustee, in Rosebridge Nominees[147] the position regarding the assignment of a statutory cause of action based on s 82 of the TPA was referred to, including that which was said by von Doussa J in Chapman.[148] Le Miere J reasoned similarly to von Doussa J and concluded that because an assignee was not a person who comes within the terms of the statutory remedy under s 82, the cause of action was not trust property and did not vest in the new trustees. This case was not addressing the impact, if any, of s 477(2)(c) on the ability to assign statutory causes of action that are otherwise not assignable.
[147]Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia (No 6) [2014] WASC 203 (Le Miere J).
[148]Chapman v Luminis Pty Ltd [2001] 123 FCR 62.

In CGS,[149] the issue came before the New South Wales Court of Appeal more squarely. In that case, a liquidator purported to assign a chose in action that by the express terms of the relevant contract was not assignable to a third party. After reviewing the authorities, including the decisions in UTSA1 and UTSA2, the legislative context and history, and considering the construction of s 477(2)(c), Sackville AJA (Giles and Campbell JJA agreeing) concluded that there was nothing in the language of the earlier legislation to suggest that the power to sell or dispose of a chose in action could be exercised so as to defeat a limitation on assignability resulting from the express agreement entered into by the company and the obligor, and that substantially the same analysis applied to the legislation in its current form. That is:

The language of s 477(2)(c) of the Corporations Act is not apt to bring about the somewhat startling result that a liquidator, by exercising the statutory power to sell or dispose of the company’s property, can override an otherwise perfectly valid restraint on assignability which arises by virtue of a specific agreement entered into and binding on the company and which (as CGS accepted) renders property inherently incapable of being assigned. If that were the correct construction of s 477(2)(c), it would be open to the liquidator, by exercise of the statutory power, to affect adversely the right of a third party who has entered into a contract with the company on the express basis that the contract is not to be assignable.[150]

[149]Owners of Strata Plan No 5290 v CGS & Co Pty Ltd (2011) 81 NSWLR 285 (Sackville AJA).

[150]Ibid 299 [59] (emphasis in original).

The court reached this conclusion whilst also accepting that the language of s 477(2)(c) was broad, but held that it is not so broad or unequivocal that it should be interpreted so as to empower a liquidator to render nugatory restraints on assignability that have been expressly agreed to by the company and that are regarded by the law as valid and effective to render property incapable of being assigned.

Sackville AJA further observed that ‘[t]he contrary construction of s 477(2)(c) would authorise the liquidator not merely to sell or dispose of the company’s choses in action, but to transform their character deriving from an express agreement entered into by the corporation’.[151] His Honour also observed that this construction recognises that clearer words are required to interpret the liquidator’s power to sell or dispose of the company’s property so as to change the nature of the contractual liabilities undertaken by the obligor.
[151]Owners of Strata Plan No 5290 v CGS & Co Pty Ltd (2011) 81 NSWLR 285, 300 [64] (Sackville AJA).

(f) The only reference to the decision in Re Fresh Start[388] is in footnote 9, where reference is made to paragraph 15 of that decision in the context of Scarel[389] and considering the statutory criterion of the best interests of the company and whether a court should ‘… permit another to supplant the liquidator as the personification of the company …’ for the purpose of bringing a proceeding.[390]

[386]Malhotra v Tiwari (2007) 25 ACLC 917 [75] (Chernov, Nettle and Redlich JJA).

[387](1998) 17 FCR 344, 350.

[388]Re Fresh Start Australia Pty Ltd; Scuteri v Lofthouse (2006) 59 ACSR 327 (Whelan J).

[389]Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (No 2) (1998) 17 FCR 344 (Gummow J).

[390]Malhotra v Tiwari (2007) 25 ACLC 917 [77] (Chernov, Nettle and Redlich JJA).

It is clear that the issue now under consideration was not considered, addressed or determined by the Court of Appeal in Malhotra.[391] Consequently, I do not accept the plaintiffs’ submission that this decision compels me to decide the issue differently to the manner in which it was decided by the New South Wales Court of Appeal in Chahwan[392] and the numerous decisions that have followed Chahwan. I add that even if it was to be concluded that because of the way the case below or on appeal was conducted by the parties it was assumed that Part 2F.1A applied to a company in liquidation, that would not alter my conclusion. This is because of the operation of the principles regarding assumptions made in court decisions, discussed in cases such as Markisic v Commonwealth of Australia,[393] Coleman v Power,[394] CSR Limited v Eddy.[395]
[391]Ibid.
[392]Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780 (Tobias JA, Beazley and Bell JJA agreeing).
[393](2007) 69 NSWLR 737, 56 (Campbell JA, Handley AJA and Bell J), where it was observed that ‘a decision is not authority for a matter that has been assumed, rather than actually decided, in the course of making the decision …’.
[394](2004) 220 CLR 1, 44–45 [79] (McHugh).
[395](2005) 226 CLR 1, 11 [13]–[14] (Gleeson CJ, Gummow and Heydon JJ), where it was observed that ‘… where a proposition of law is incorporated into the reasoning of the particular court, that proposition, even if it forms part of the ratio decidendi, is not binding on later courts if the particular court merely assumed its correctness without argument’. ‘[T]he precedents … sub silentio without argument, are of no moment.’

I make two further observations. First, the observations of Crennan J in the special leave application are of no precedential value given that they relate to an application for special leave to appeal to the High Court, noting also that they were comments made during the course of exchanges with counsel during the hearing of the application.

Second,[396] the brief observation made in Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liquidation)[397] on the topic does not alter the position. That case was an appeal from the decision of Davies J in VFS Group Pty Ltd v BM2008 Pty Ltd (No 2)[398] in connection with applications to set aside statutory demands in which one party asserted that there was a ‘conflict’ between the decision in Malhotra and Chahwan and sought to rely upon this asserted conflict in a context associated with a statutory demand, the detail of which need not be canvassed for present purposes. On appeal, a number of matters fell away and it was noted that it was not necessary to discuss any difference between Chahwan and Malhotra. Again, the matter before me was not addressed, considered or determined. In any event, had the matter been in issue and necessary to explore on appeal it would have revealed only that which I have discussed above regarding what was and was not considered and determined in Malhotra.
[396]Although not a decision relied upon by the plaintiffs, or addressed by the parties.
[397][2011] VSCA 62 (Maxwell P and Kyrou AJA).
[398][2010] 246 FLR 235.

Having regard to the above, I have concluded that the New South Wales Court of Appeal’s conclusion in Chahwan should be followed and that Part 2F.1A of the Act does not apply to Pentridge Village because it is a company in liquidation.

CONCLUSION AND ORDERS

The plaintiffs’ application to be substituted as the first plaintiff in place of Pentridge Village is refused. Paragraphs 1 (in part) and 89 to 95 of the ASOC will be struck out and Capital Finance’s strike out application will be otherwise dismissed. Mr Chiavaroli’s application for leave to intervene in the Proceeding to take responsibility for it on behalf of Pentridge Village is refused.

It is proposed to make orders to the following effect:

1.The plaintiffs’ application by summons filed 10 May 2018 seeking an order pursuant to r 9.09(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) that Mr Chiavaroli be substituted as the first plaintiff is dismissed.
2.Paragraph 1 (in so far as it refers to Mr Chiavaroli being the first plaintiff) and paragraphs 89 to 95 of the Amended Statement of Claim dated 27 October 2017 be struck out and the defendant’s application by amended summons filed 6 September 2018 is otherwise dismissed.
3.Mr Chiavaroli’s application by summons filed 23 July 2018 for leave to intervene in this proceeding on behalf of Pentridge Village pursuant to s 237 of the Corporations Act 2001 (Cth) is dismissed.

I will hear the parties on the question of costs.

BACKGROUND SCHEDULE

The affidavit and other evidence includes evidence to the following effect.

Mr Chiavaroli and members of his family are ‘indirect shareholders’ in Pentridge Village through various corporate entities resulting in Mr Chiavaroli and other family members holding, indirectly, 89 of the 100 shares in Pentridge Village. Brooklyn Timber Traders Pty Ltd holds the remaining shares in Pentridge Village, and neither Mr Chiavaroli nor anyone in his family holds shares in Brooklyn Timber Traders Pty Ltd.

Fifty-two shares in Pentridge Village are owned by Piero One, and Mr Chiavaroli holds the only share on issue in Piero One. Tower and Tower Developments Pty Ltd (Tower Developments) holds 37 shares in Pentridge Village and through Mr Chiavaroli or members of his family the Chiavaroli family interests hold approximately 61.02 per cent of the shares in Tower Developments. Tower Developments was deregistered on 9 October 2016 but is in the process of being re-registered and it is expected that once re-registration of Tower Developments is complete the shareholdings will be revested.

Since May 2002, Pentridge Village has been the custodian and manager of the joint venture known as the Pentridge joint venture. The business of the joint venture was to purchase, develop, manage, lease and sell the land at 13 Urquhart Street, Coburg, which was the former Coburg prison complex (Land). Pentridge Village was until about April 2015 the registered owner of the Land.

From 15 March 2004 until 30 July 2012 Mr Chiavaroli was an alternate director of Pentridge Village and thereafter a director. His father, Peter Chiavaroli, was a director and company secretary of Pentridge Village from 16 April 1999 until 18 April 2016.

During the period 14 October 2003 to 3 April 2008 Mr Chiavaroli was, and from 18 April 2016 to date he was and remains, a director of West Homes. From about 2001 onwards West Homes worked exclusively on the Project, but prior to this time West Homes had multiple display homes across Victoria and during the period 2005 until early 2008 Mr Chiavaroli divided his time between a sales role for Pentridge Village and a construction role for West Homes. In early to mid-2008 he began to focus exclusively on his construction role as a result of the multi-stage development strategy being developed in 2007, and that throughout 2007 when the sales phase of the multi-stage strategy was being pursued he focused on selling apartments and townhouses, with the focus turning to construction occurring in mid-2008 of those apartments and townhouses.

Mr Chiavaroli’s role for West Homes included project and building related activities and liaising with Mr Mallon regarding delayed payments, progress claims and variations in the loan.

On 4 August 2005 Pentridge Village entered into a facility agreement with Capital Finance (2005 Facility Agreement) which was varied from time to time by letters passing between Capital Finance and Pentridge Village.

From 4 August 2005 until late February 2010 Pentridge Village’s primary point of contact at Capital Finance was Mr John Mallon who held Capital Finance’s power of attorney and who was the senior manager, property finance, for Victoria, and subsequently an associate director.

Prior to 4 August 2005 Mr Mallon was employed by Suncorp Bank which had provided Pentridge Village with a credit facility for the financing of the Project. Mr Mallon was Pentridge Village’s primary contact at Suncorp Bank in relation to financing of the Project during that time.

During the period between August 2005 and February 2010 Mr Mallon regularly visited Mr Chiavaroli, his father Peter, and his brother Damian in relation to matters regarding the finance of the Project. Peter Chiavaroli often said that he considered Mr Mallon to be Pentridge Village’s financial adviser. Mr Chiavaroli also considered Mr Mallon to be Pentridge Village’s financial adviser because of the role he assumed in advising Pentridge Village in relation to the financing of the Project, his involvement in the negotiation and management of the loan funds advanced to Pentridge Village, and his review and approval of cash flow spreadsheets produced by Pentridge Village in respect of the Project. Mr Mallon regularly referred to himself as Peter Chiavaroli’s and Pentridge Village’s financial adviser.

In about July 2005 Mr Mallon moved from Suncorp Bank to take up his position at Capital Finance.

Prior to 2008 Pentridge Village’s strategy for the Project was to develop successive individual stages and utilise profits from each completed stage to assist in paying down the debt owed to Suncorp Bank (and, later, Capital Finance), with the net profits from the sale and settlement of apartments and townhouses also assisting ongoing cash flow for the Project.

During the period 2001 until about December 2007 Pentridge Village developed, completed, sold and settled 100 per cent of the apartments and townhouses built on the Land utilising the successive stage strategy. By the end of 2007, 18 stages of the development had been successfully completed, with overall gross revenue of approximately $142 million.

As a result of conversations between Mr Mallon, Mr Chiavaroli and his father during late 2007, Pentridge Village altered its strategy of developing successive stages and began developing multiple stages at the same time. Mr Mallon had said that Pentridge Village ought to develop multiple stages concurrently rather than in succession and that it should do so immediately as it would benefit Pentridge Village financially as a result of the buoyant property market and historically low interest rates for homebuyers. Mr Mallon said that developing in multiple stages would lead to an increased return on the investment for Pentridge Village.

Mr Mallon said that Capital Finance would provide Pentridge Village with funding to ensure the implementation and completion of the multiple stage development strategy. On 15 January 2008 Capital Finance sent a letter to Pentridge Village offering a loan facility varying the 2005 Facility Agreement which had as its stated purpose ‘development of multi stage residential and commercial master planned project comprising ongoing development of super lots as medium density dwellings and commercial space’. That letter offered a facility amount of $167,364,229 with peak debt not exceeding $85 million. The letter records the date of acceptance as 21 January 2008 and is signed by directors of Pentridge Village, including Mr Chiavaroli.

Following acceptance of the offer from Capital Finance to provide finance to develop multiple stages of the Project, during 2008 Pentridge Village began to develop and pre-sell 100 per cent of the apartments and townhouses for each of the stages to be developed concurrently. The gross realisation of the pre-sales of these apartments and townhouses was approximately $173 million.

Shortly before changing the strategy, Capital Finance, through Mr Mallon, was provided with a copy of the construction contract with West Homes and a sample apartment and townhouse sale contract, which Mr Mallon had indicated he required for the purpose of completing due diligence on the Project. West Homes was the builder engaged to oversee construction and a project manager to oversee the whole of the Project.

The apartment and townhouse sale contracts included a term to the effect that if the purchase was not completed and settled within three years of the date of the contract the purchaser was not obliged to settle the purchase of the apartment and was entitled to a refund of his or her deposit. Neither Mr Mallon nor anyone else from Capital Finance requested or suggested any amendments be made to these contracts.

During the period June 2008 and April 2012 there were various occasions when Capital Finance did not make payment on approved progress claims which led to the builder, West Homes, not being paid and, in turn, contractors not being paid. This resulted in regular stoppages and delays to the Project throughout this period. Pentridge Village’s concerns regarding Capital Finance’s approach to payment and funding was the subject of dispute and correspondence with Capital Finance at times throughout this period.

The ‘Repayment Date’ for the Capital Finance credit facility was 30 June 2010, but at that time the progress with the Project was less advanced than had been planned as a result of, among other things, stoppages and delays to the construction work. In March 2009 it became obvious to Mr Chiavaroli that Pentridge Village would require a rollover or renewal of the Capital Finance credit facility to extend its terms to at least the end of June 2011 and to increase the peak debt level by at least $10 million to $95 million to ensure there was enough finance in place to complete the multiple stages of the Project.

From around February 2009 Mr Chiavaroli, his father and his brother began discussions with Mr Mallon about renewing or rolling over the credit facility and increasing the peak debt level, and there were regular meetings with Mr Mallon and he was provided with cash flow spreadsheets which are said to have been reviewed and approved by him. By June 2009 the cash flow spreadsheets incorporated figures extending out to June 2011 and reflecting peak debt in the facility of over $90 million.

From at least 27 March 2006[399] Mr Mallon held himself out as being the only point of contact at Capital Finance and being the person who put the finance package together and could obtain constant rollover of facilities. During various conversations in 2008 and 2010 Mr Mallon said words to the effect that he and he alone possessed the total authority on behalf of Capital Finance to approve renewal and rollover of the credit facility.
[399]Exhibit “LAC-28” at exhibit book page 0855.

During a meeting on 2 July 2009 in the Pentridge Village boardroom Mr Mallon said to Mr Chiavaroli and his father that obtaining the approval to extend the credit facility by 12 months (to June 2011) involved ‘a simple rollover’ of the existing facility. It is also said that Mr Mallon referred to it just being a timing issue, that it would be ‘cool’, that there is ‘no problem’ and that ‘she’ll be right mate’. Later that day it is also said that Mr Mallon confirmed by telephone that the facility acceptance confirmation was near.

At no time until Mr Mallon’s employment with Capital Finance ceased at the end of February 2010 did Mr Mallon or anybody else say that Mr Mallon did not have the authority to rollover or renew the Pentridge Village credit facility for another 12 months or that any such rollover or renewal would not be or had not been approved by Capital Finance. Various conversations are said to have occurred in the second half of 2009 regarding renewal and rollover of the facility during which it is said that Mr Mallon referred to the renewal and rollover as a ‘formality’. It is also said that Mr Mallon said that if equity was to be put in by the joint venturers in the meantime, the equity could be repaid on rollover of the facility and the peak debt limit could be increased to $95 million.

At a meeting with Mr Mallon on 28 January 2010 he said to Mr Chiavaroli and his father that he would prepare a paper for simple acceptance by Capital Finance as a rollover and there was no need for concern and that the new facility would be due in April 2010 for rollover review. On 9 February 2010 he wrote confirming that an 18-month extension of the facility was being sought and that he was in the process of writing up the credit paper.

On 15 February 2010 Pentridge Village’s then solicitors wrote to Mr Mallon seeking prompt confirmation regarding the renewal and rollover of the facility for the Project. In a telephone conversation the following day between Mr Chiavaroli and Mr Mallon, Mr Mallon said it was all okay but not to have lawyers write to him again and that it was ‘under control’. Mr Chiavaroli says Mr Mallon also said that there was no one else to see at Capital Finance, that he was the highest authority, and that Mr Chiavaroli should tell the Pentridge Village board to be patient and there was no need to chase refinancing alternatives. In a telephone conversation on 19 February 2010 Mr Mallon is said to have stated that funding was fine and that Pentridge Village should just keep working on the site and be patient so as to increasing value.

As a result of the various conversations held with Mr Mallon and correspondence passing from him it is said that it was Mr Chiavaroli’s and Pentridge Village’s understanding until early March 2010 that:

(a) a multi-staged development strategy was necessary, should be undertaken, and would benefit Pentridge Village as a result of the property market and low interest rates;

(b) adopting a multi-staged development strategy would lead to an increased return on investment for Pentridge Village;

(c) Capital Finance would provide Pentridge Village with funding support to ensure the successful implementation and completion of a multi-staged development strategy;

(d) Mr Mallon alone possessed the total authority on behalf of Capital Finance to approve renewal and rollover of the credit facility;

(e) Capital Finance would renew the facility agreement on terms no more onerous than the existing facility and would allow an increase in the limit of peak debt to $95 million for a 12-month period expiring on 30 June 2011;

(f) the loan renewal had been approved by Capital Finance; and

(g) Capital Finance would increase peak debt level by $10 million and that this increase had been approved and was a formality.

Acting on this understanding Pentridge Village did not, during the period 2 July 2009 until the end of February 2010, pursue alternative sources of debt or equity financing with which to replace the Capital Finance facility agreement upon its expiry on 30 June 2010. Instead, Pentridge Village focused on implementing the multi-staged development strategy by upgrading the Pentridge Village master plan, which included adding a full commercial precinct and increased residential density on the remaining lots of the development where construction had not yet commenced. This upgraded master plan was gazetted on 24 December 2009 and reference was made in correspondence on 15 February 2010 that if Capital Finance did not provide refinancing it would have to enter negotiations with other finance providers and would require all of the last quarter of the then current financial year to be able to effect the same so as to be in a position to repay the loan to Capital Finance on 30 June 2010.

On 24 February 2010 notice was received by Pentridge Village that, as of the previous day, Mr Mallon was on ‘redeployment and [has] no access to the office, file or anything. Even [his] remote internet access has been revoked’. On 26 February 2010 Mr Mallon informed Pentridge Village that he was ‘going on gardening leave’. At this time there were numerous stages of the Project that were under construction and had been commenced pursuant to the multi-stage strategy and were scheduled to be completed by 30 June 2010. At the time the forecast total return on investment for these stages excluding GST was $111,706,068.

At a meeting on 4 March 2010 Capital Finance’s Mr Moulden (Head of Property Finance Victoria) and Mr De Garis (Associate Director of Property Finance Victoria) informed Mr Chiavaroli that Mr Mallon had left everything in a mess and had destroyed or disposed of Capital Finance’s entire Pentridge Village files. They said Capital Finance had not approved a variation or renewal of the facility agreement, and Mr Mallon did not have total authority at Capital Finance to approve the type of credit facility rollover contemplated by Pentridge Village. They said that Mr Mallon had been dismissed as an employee and Mr Moulden was now assuming responsibility at Capital Finance for the Project.

In that meeting Mr Moulden said he had expected that the stages under construction were all on schedule and that the facility would be repaid on 30 June 2010. He said there was no record at Capital Finance of any credit facility renewal application having been made or approval process having been commenced. He said that Capital Finance would work with Pentridge Village to ‘sort this out’.

At a further meeting on 19 March 2010 Mr Moulden said that the facility agreement would be rolled over and all would be fine as long as Pentridge Village worked together with Capital Finance. On 29 March 2010 Mr De Garis said Capital Finance management would work with Pentridge Village and not to worry because so far as he could see all would be okay.

During the period April and November 2010 there were further communications between Pentridge Village and Capital Finance regarding renewal of the facility and the progress of the Project, including those referred to in paragraphs 112 and following of Mr Chiavaroli’s affidavit. This is said to include statements by Mr De Garis in correspondence that Pentridge Village ‘should/can proceed with the construction of lot S 13 (both townhouses and apartments) ASAP’.

Also during this period, on 7 July 2010, Capital Finance sent an email informing Pentridge Village that Capital Finance’s lawyers would shortly be issuing notices of default given the facility expiry but that these letters were issued as ‘standard practice’ and simply allowed reservation of rights in respect of the default. The email also stated that Capital Finance was keen to work with Pentridge Village to finalise the restructure for such extension of the facility as soon as possible. Thereafter exchanges of correspondence occurred between solicitors, including a letter dated 28 July 2010 from Pentridge Village’s then solicitors, Madgwicks, to Capital Finance’s solicitors, Maddocks.

That letter, being exhibit “LAC-51” to Mr Chiavaroli’s affidavit, made reference to alleged representations made by Capital Finance over an extended period regarding continuing funding. It also stated that Pentridge Village and West Homes had acted in reliance upon the representations that the facilities would be extended and proceeded on the basis that funding would be available as a result of which Pentridge Village and West Homes withdrew from discussions with alternative financiers. The letter further asserted that Capital Finance was estopped by its conduct from alleging that there were breaches under the facilities and, further or alternatively, that Capital Finance had engaged in conduct that was misleading or deceptive in contravention of the TPA. The letter stated that Pentridge Village and West Homes did not propose to take this any further at this point but all rights were reserved. Madgwicks also informed Maddocks that Pentridge Village and West Homes wished to maintain a productive relationship with Capital Finance.

Maddocks responded by letter dated 29 July 2010 stating that it was standard Capital Finance practice to issue letters reserving its rights but that Capital Finance was working on a proposal to seek credit approval to extend the facilities for a further 12 months but that such credit approval had not yet been obtained. It was suggested to be neither helpful nor appropriate for Madgwicks to be intervening or responding as they had, and a request was made to refrain from doing so in order to allow the credit process to proceed.

During this period Mr Chiavaroli’s father raised a concern with Capital Finance about missing the registration dates and sunset clauses in the sale contracts, to which Mr Moulden said it was not Capital Finance’s problem, that it did not have the time or the appetite for the issue, that Mr Mallon had painted a different picture to Capital Finance that the loan would be repaid by 30 June 2010, and that it was now a matter for ‘credit’ in the UK.

On 15 September 2010 a draft of a new facility agreement was received from Capital Finance and it is said that its terms were materially different to that which had been discussed with Mr Mallon. Following further correspondence this resulted in a new facility agreement between Pentridge Village and Capital Finance being entered into on 15 November 2010 (2010 Facility Agreement) in less favourable terms than had been discussed with Mr Mallon. Relevant adverse differences are said to include:

(a) removal of the builder’s margin so that there were no funds to pay West Homes for construction;

(b) no amount for contingencies (variations) despite the original facility agreement containing approximately 10 per cent coverage for contingencies;

(c) a reduction in peak debt limit from $85 million to $80 million;

(d) a requirement for Pentridge Village to sell $29 million of ‘Englobo Land’ by 31 October 2010;

(e) removal of the marketing budget;

(f) a reduction in the loan-to-value ratio so that from the date of agreement to 31 January 2011 it could not exceed 85 per cent, and on and from 1 February 2011 it could not exceed 75 per cent;

(g) the inclusion of an event of default if the loan-to-value ratio was breached and not cured within two business days;

(h) Capital Finance’s obligation to allow a drawing under the facility being subject to conditions precedent that the advance would not breach or cause to be breached any undertaking or ratios, and the absence of any existing event of default;

(i) a requirement that further personal guarantees be provided by Mr Chiavaroli’s father and another; and

(j) a further reduction in the amount payable to Pentridge Village from the facility by an amount of $3.5 million which was to be applied by Capital Finance to offset an unrelated loan from Capital Finance to a company named Regent Way Pty Ltd, which further reduced Pentridge Village’s access to funds.

From the date the 2010 Facility Agreement was executed, Pentridge Village was unable to comply with the loan-to-value ratios and by about April 2010 numerous purchasers to whom apartments had been pre-sold for various stages had either rescinded their contracts of sale and refused to settle their purchase and requested refunds of deposits, or sought and were given reduced prices for settlement of their purchases.

On 17 July 2014 receivers and managers were appointed to Pentridge Village and on 20 August 2014 Mr Marsden was appointed as the liquidator.

By generally indorsed writ filed 30 June 2016 Pentridge Village and West Homes commenced proceedings against Capital Finance in relation to alleged misleading or deceptive conduct by Capital Finance in connection with the facility agreements and, in particular, the renewal and extension of the facility.

The ASOC was filed on 27 October 2017 and the claims made include damages claims pursuant to s 12GF of the ASIC Act, s 1041I of the Act, and ss 82 and/or 87 of the TPA in respect of alleged misleading or deceptive conduct and unconscionable conduct.

The ASOC was prepared on the basis of instructions provided by Mr Chiavaroli and the factual allegations in the pleadings so far as they involve him directly are true and accurate to the best of his knowledge. He is informed by his legal representatives that Pentridge Village’s case against Capital Finance as pleaded in the ASOC has a reasonable prospect of success and as a result of this and the other matters referred to in his affidavit it is his honest belief that a good cause of action exists on the part of Pentridge Village against Capital Finance.

Alleged loss and damage is referred to in further and better particulars of loss and damage dated 2 March 2018.[400] As summarised in Mr Chiavaroli’s affidavit, the loss and damage claimed by Pentridge Village is said to be as follows:
[400]Exhibit “LAC-58” at page 1054ff.

(a) lost net profit for partially completed stages (based on historical net profits from prior completed stages) of $44,468,224;

(b) alternatively to (a), lost net profit for partially completed stages (based on contemporaneous forecast and budgets) of $86,177,243;

(c) loss of the opportunity to develop the land to its full potential (including the net profit that would have been achieved on such an opportunity) of $242,997,000; and

(d) increased financing costs of $20,144,915.

West Homes’ loss is said to include an amount equal to the loss of its 20 per cent builder’s margin and its annual project fees in respect of certain lots.

With respect to payment of expenses related to the Proceeding, Mr Chiavaroli says that all expenses relating to the Proceeding to date have been paid by him and that his alternative application to intervene in the Proceeding on behalf of Pentridge Village is made on the basis ‘that all expenses, including any adverse costs orders, will continue to be met by me and not by [the] Pentridge Village’.

The evidence regarding Pentridge Village’s creditors is limited and documents exhibited are relied on by Mr Chiavaroli ‘… not as an accurate record of precisely who [Pentridge Village’s] creditors are and how much each is owed, but to demonstrate, for the purposes of this application only, that there are various secured and unsecured creditors of [Pentridge Village]’.[401]
[401]Mr Chiavaroli’s July affidavit at [151]. This is discussed in more detail earlier in the reasons above.

The ‘Presentation of accounts and statement’ (Form 524) lodged with ASIC by the Liquidator on 15 March 2018[402] refers to the existence of 2 ‘Priority’ creditors totalling $9,581.05, 3 ‘Secured’ creditors totalling $1,827,816.25, and 87 ‘Unsecured’ creditors totalling $15,512,220, as at 19 February 2018. This document also records that the Liquidator does not expect a dividend to be paid to any class of creditor.
[402]Exhibit 2, tendered by Capital Finance during the hearing.

Correspondence has passed with the Liquidator to obtain an updated list of creditors, but that has not yet been provided. The correspondence also addresses the assignment, the Section 237 Application, costs and other matters.[403]
[403]Referred to further below.

Mr Chiavaroli says further that if his (alternative) Section 237 Application is successful and the claims against Capital Finance succeed, he proposes to make an application to the court at an appropriate time for orders that any sum obtained as a result of the Proceeding be paid 75 per cent to Pentridge Village and 25 per cent to him.

Mr Chiavaroli as assignee of Pentridge Village is the first plaintiff in the CFMEU Proceeding[404] and West Homes is the second plaintiff. In that proceeding allegations of conspiracy and other unlawful conduct are made against the CFMEU and others in connection with delay and disruption associated with the Project, including damages for disruption and delay and the alleged consequent inability to service loans and obtain access to funds, and the failure of the Project.
[404]Referred to earlier in the reasons above.

[2018] VSC 633

24 October 2018