Scholle Industries Pty Ltd v AEP Industries (NZ) Ltd - [2007] SASC 322

SUPREME COURT OF SOUTH AUSTRALIA
(Miscellaneous Appeal: Civil)
SCHOLLE INDUSTRIES PTY LTD v AEP INDUSTRIES (NZ) LIMITED & ANOR
[2007] SASC 322
Judgment of The Honourable Justice White
31 August 2007
EQUITY - GENERAL PRINCIPLES - ASSIGNMENTS IN EQUITY - WHAT MAY BE ASSIGNED
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PLEADINGS - GENERALLY
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - EFFECT OF ILLEGALITY OR INVALIDITY - SEVERANCE
Appeal from decision of a master refusing permission to amend statement of claim - plaintiff sought to plead additional cause of action in tort in respect of losses allegedly incurred by parent company - assignment of cause of action by parent company to plaintiff - whether common law rule against maintenance invalidates the purported assignment - whether plaintiff has a genuine commercial interest in the cause of action - whether proposed amendment to statement of claim adequate - whether invalid assignment of cause of action under Trade Practices Act 1974 voids whole deed of assignment - whether invalid assignment severable from remainder .
Held: appeal allowed - plaintiff has a reasonably arguable claim that it has taken a valid assignment of the cause of action in negligence of its parent company - proposed form of pleading adequate - reasonably arguable that the invalid assignment of the Trade Practices Act cause of action is severable from the balance of the assignment - permission to plead parent company's cause of action in negligence granted.
Trade Practices Act 1974 (Cth) s 52, s 82; Supreme Court Rules 1987 r 46A, referred to.
Rentokil Pty Ltd v Lee (1995) 66 SASR 301, applied.
Trendtex Trading Corporation v Credit Suisse [1982] AC 679; Poulton v The Commonwealth (1953) 89 CLR 540; Bandwill Pty v Spencer-Laitt (2000) 23 WAR 390; Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Ltd (2007) 158 FCR 417; Vangale Pty Ltd (in liq) v Kumagai Gumi Co Ltd [2002] QSC 137; Chapman v Luminis Pty Ltd (No 4) (2001) 123 FCR 62; Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 ALR 58, discussed.
Park v Allied Mortgage Corporation Ltd (1993) 15 ATPR 46-105; Rajski v Powell (1987) 11 NSWLR 522; Deloitte Touche Tohmatsu v Cridlands Pty Ltd (2003) 134 FCR 474; Re Timothy's Pty Ltd (1981) 2 NSWLR 706; Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR 390; Browntown Ltd v Edward Moore Imbucon Ltd [1985] 3 All ER 499; Beatty v Brashs Pty Ltd (1998) 2 VR 201; Giles v Thomson [1994] 1 AC 142; British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006; Bradlaugh v Newdegate (1883) 11 QBD 1; Harris v Brisco (1886) 17 QBD 504, considered.

SCHOLLE INDUSTRIES PTY LTD v AEP INDUSTRIES (NZ) LIMITED & ANOR
[2007] SASC 322
Appeal from a Master

WHITE J: This is an appeal from a decision of a master refusing permission to the appellant to amend its statement of claim so as to add a new cause of action. It is convenient in these reasons to refer to the appellant by its original designation as “plaintiff”.
The principal question raised on the appeal is whether the master was correct in holding that a cause of action sought to be added by the plaintiff had not been validly assigned to it, and could not be enforced by the plaintiff.
The plaintiff’s action was commenced on 25 February 2004. Its complaint is that certain taps which it acquired from predecessors of the first defendant (“AEP”) and for which AEP is responsible, and later from the second defendant (“Smith”), were defective. The taps were used in wine cask inserts manufactured by the plaintiff and sold by it to winemakers. The plaintiff alleges that it has suffered loss as a result of the defective supply, including the amounts which it paid to its customers in respect of wine which was spoilt by use of the defective taps. The plaintiff seeks to enforce a contractual indemnity in respect of its losses against AEP. In the alternative, it pleads as against AEP breaches of contract, misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) (“the TPA”), negligent misstatement, and negligent supply and manufacture of the taps. As against Smith, the plaintiff pleads that it was the designer of the taps and that its design was in breach of a duty of care owed to the plaintiff. The plaintiff also pleads as against Smith misleading and deceptive conduct contrary to s 52 of the TPA, breach of contract (in relation to taps manufactured and supplied by Smith itself) and misrepresentation.
The master allowed a number of amendments to the statement of claim relating to the above causes of action and the losses alleged by the plaintiff. No complaint is raised on the appeal concerning the decision of the master in that respect.
The Assigned Cause of Action
The plaintiff is a company incorporated in Australia. It is wholly owned beneficially by a company incorporated in the United States of America, Scholle Corporation. A Netherlands’ company, Scholle Europe BV, is also wholly owned by Scholle Corporation.
The plaintiff alleges that on discovering the defects in the taps supplied by AEP and Smith, and in order to meet its obligations to supply wine casks and tap inserts to its customers, it purchased replacement taps manufactured and supplied by Scholle Europe BV. It says that this expenditure was incurred by way of mitigation of its loss. The pleading by which it seeks to recover that expenditure from the defendants is not controversial. However, the plaintiff also alleges that the supply of replacement taps to it by Scholle Europe BV caused losses to the parent company, Scholle Corporation. It seeks to recover those losses in this action.
The plaintiff alleges that loss was caused to Scholle Corporation in the following way. At the time of its supply of replacement taps to the plaintiff, Scholle Europe BV had contracted to supply wine cask inserts, including taps, to various European customers. By reason of its supply of taps to the plaintiff, Scholle Europe BV had insufficient taps to meet its obligations to those customers. It therefore obtained taps from another supplier for that purpose, but at greater cost. In other words, the allegation is that the loss suffered by one subsidiary of Scholle Corporation (the plaintiff) was minimised at the expense of a loss being incurred by another subsidiary. The loss of that other subsidiary (Scholle Europe BV) is ultimately the loss of the parent company, and is, on the plaintiff’s case, a loss which is recoverable by Scholle Corporation from the defendants. It is not necessary for present purposes to make any comment on the steps of reasoning involved in the plaintiff’s assertion of this loss.
The plaintiff says that, subject to amendment of its pleading, it can enforce the cause of action of Scholle Corporation because of an assignment of that cause of action to it. In October 2005, Scholle Corporation assigned (or purported to assign) to the plaintiff, by way of deed, whatever rights it may have to recover from the defendants the losses which it alleged that it had suffered by reason of their conduct in relation to the supply of the taps. It was that assignment which led the plaintiff to seek to amend its statement of claim so as to plead the causes of action of Scholle Corporation. The causes of action were said to be (as against each defendant) negligence and misleading and deceptive conduct contrary to s 52 of the TPA.
The Decision of the Master
The master held that the plaintiff’s cause of action arising from s 52 and s 82 of the TPA could not, as a matter of law, be assigned. In this respect the master relied upon the decisions of Davies J in Park v Allied Mortgage Corporation Ltd[1] and of von Doussa J in Chapman v Luminis Pty Ltd (No 4).[2]
[1] (1993) 15 ATPR 46-105 at 53,469.
[2] (2001) 123 FCR 62 at 116-7.
The master accepted that it was arguable that AEP and Smith owed a duty of care to Scholle Corporation. While recognising that causation may be a significant issue, the master also accepted that it was arguable that Scholle Corporation suffered loss as a result of the negligence alleged against AEP and Smith. The master held, however, that the purported assignment of the cause of action of Scholle Corporation in tort was invalid because the plaintiff did not have a genuine commercial interest in the subject matter of the assignment. The master considered also that the plaintiff’s proposed amended statement of claim did not contain any plea alleging such an interest.
For these reasons, the plaintiff’s application to amend the statement of claim so as to plead matters relevant to the assigned causes of action was refused.
Issues on Appeal
The plaintiff did not appeal against the master’s decision concerning the TPA cause of action. The plaintiff argued that the master was in error in finding that the purported assignment of Scholle Corporation’s cause of action in tort was invalid, and also in error in his finding that there had not been a sufficient plea by the plaintiff of the genuine commercial interest upon which it relied. Mr Ericson, for the plaintiff, submitted that the pleading did raise an arguable case that the plaintiff had a genuine commercial interest in accepting the assignment of the cause of action in negligence.
Smith raised a Notice of Alternative Contention. It contended that the invalidity of the assignment of the TPA cause of action affected the whole of the purported assignment of Scholle Corporation’s cause of action. This was so, it was said, because the manner of expression of the deed of assignment meant that it was not possible to sever the invalid assignment from the remainder. AEP supported this contention.
The defendants did not challenge the finding of the master that it was reasonably arguable that Scholle Corporation did have a cause of action in tort against them. Nor did the defendants contend that a cause of action could not be assigned when an assignee has a genuine commercial interest in the assignment. The appeal proceeded on the basis that it is at least reasonably arguable that Scholle Corporation did have a cause of action in tort against the defendants which, in appropriate circumstances, was capable of assignment.
In these circumstances, the first issue to be addressed is whether the proposed amendments to the statement of claim raised an arguable case that the plaintiff had taken a valid assignment of Scholle Corporation’s cause of action against the defendants. There are two aspects to that issue. The first is whether it is reasonably arguable that the plaintiff had a genuine commercial interest in taking the assignment of Scholle Corporation’s cause of action in negligence. That was all that it was necessary for the plaintiff to establish on the application to amend.[3] It was not necessary for the plaintiff to establish, as a matter of fact and law, that there had been a valid assignment of Scholle Corporation’s cause of action. The second aspect is the form of the plaintiff’s proposed pleadings.
[3] Rajski v Powell (1987) 11 NSWLR 522 at 524.
A Genuine Commercial Interest
A bare cause of action cannot validly be assigned from one person to another.[4] Equity did not permit the assignment of such a cause of action because it savoured of maintenance.[5] But the rule against an assignment of a bare cause of action is now applied more narrowly than was the case in former times. This is apparent in the reasons of Lord Roskill in Trendtex Trading Corporation v Credit Suisse:
[J]ust as the law became more liberal in its approach to what was lawful maintenance, so it became more liberal in its approach to the circumstances in which it would recognise the validity of an assignment of a cause of action and did not strike down such an assignment as one only of a bare cause of action.[6] (Emphasis in original)
Regard must be had to the totality of the transaction. If the circumstances indicate that the assigned cause of action is ancillary to the transfer of an interest in property, or that the assignee has a genuine commercial interest in taking the assignment, the assignment may be valid:
If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.[7]
[4] Poulton v The Commonwealth (1953) 89 CLR 540 at 602. See also Deloitte Touche Tohmatsu v Cridlands Pty Ltd [2003] FCA 1413 at [102]-[103]; (2003) 134 FCR 474 at 498-9 per Selway J.
[5] Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 702 per Lord Roskill.
[6] Ibid at 702-3.
[7] Ibid at 703.
Subsequent authority has illustrated the variety of circumstances in which a genuine commercial interest may exist. A substantial creditor of the assignor,[8] a sole shareholder who was the guarantor of the overdraft of the assignor,[9] and a defendant who had paid money into court to satisfy a plaintiff’s claim and who had taken an assignment of the plaintiff’s cause of action against a co-defendant[10] have each been held to have an interest amounting to a genuine commercial interest sufficient to sustain an assignment. But in all cases in which it has been held that the assignee had a genuine commercial interest in taking the assignment, that interest has existed independently of, and prior to, the assignment itself.[11] That is to say, the interest of the assignee in the subject matter of the assignment was distinct from the benefit which it sought to derive from it.[12]
[8] Re Timothy’s Pty Ltd (1981) 2 NSWLR 706.
[9] Re Daley; ex parte National Australia BankLtd (1992) 37 FCR 390.
[10] Browntown Ltd v Edward Moore Imbucon Ltd [1985] 3 All ER 499.
[11] Beatty v Brashs Pty Ltd (1998) 2 VR 201 at 214-5 per Smith J.
[12] See Giles v Thomson [1994] 1 AC 142 per Lord Mustill.
In the present case, the genuine commercial interest of the plaintiff in the assignment was said to be found in the combination of the following factors: first, the loss alleged by Scholle Corporation was a loss suffered by it as a result of action taken to assist the plaintiff; secondly, at the time of the assignment the plaintiff already had litigation on foot against the defendants in which it seeks to recover losses said to arise from the same conduct of the defendants causing the alleged loss of Scholle Corporation; thirdly, the taps supplied by Scholle Europe BV became the property of the plaintiff before the sale to the plaintiff’s customers and it is appropriate that the cause of action should “follow” the passing of the property; fourthly, the plaintiff is a wholly owned subsidiary of Scholle Corporation and has an interest in the financial viability of its parent; and, fifthly, regard should be had to the interests of the Scholle Group as a whole rather than just that of an individual member. It was the fourth and fifth of these features which were the subject of most of the submissions on the appeal by both the plaintiff and the defendants.
In support of his submission that it is at least arguable that the plaintiff’s status as a wholly owned subsidiary of Scholle Corporation gave it a genuine commercial interest in taking the assignment from its parent, Mr Ericson referred to a number of authorities concerning assignments of causes of action or, alternatively, claims of unlawful maintenance or champerty in which the interests of a shareholder, or a member of a corporate group, has been recognised as sufficient. The first was Bandwill Pty Ltd v Spencer-Laitt.[13] In that case, the defendants sought a stay of the action on the ground that the action was being maintained against them pursuant to champertous agreements (one, a funding agreement, and the other, an investigation and litigation support agreement). The circumstances were that one member of a corporate group had lent monies to a borrower. Its security extended to any claim or right of action to which the borrower was, or might become, entitled in respect of a secured fund. Later, the borrower and the lender proposed litigation on a cause of action which formed part of the security. They entered into a litigation funding agreement with company A and a litigation support agreement with company B. Each of the lender and companies A and B formed part of the one commercial group. Although finding that the litigation funding and litigation support agreements in question were champertous, Templeman J declined to conclude that they were unlawful. This was because each company was a member of the same corporate group. It was said that the “association between the companies” made it “artificial” to say that the companies providing funding and litigation support had no pre-existing interest in the outcome of the litigation.[14]
[13] [2000] WASC 210; (2000) 23 WAR 390.
[14] Ibid at [128], 407.
Next, Mr Ericson referred to Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Ltd.[15]It was held (by majority) in that case that an agreement which gave the entire benefit and virtually unfettered control of the conduct of litigation to a non-party to the proceedings (Westpac) did not constitute an abuse of process. The applicant in the proceedings, JP Morgan Portfolio Services Ltd (“Portfolio Services”), had formerly been a part of the Bankers’ Trust Group of companies (“BT”). While a member of the BT Group circumstances had arisen giving rise to a cause of action by Portfolio Services against a third party. Subsequent to that cause of action arising, the BT Group had been acquired by Westpac. However, Portfolio Services had been acquired by Chase Manhattan Bank on terms which involved an assignment to the BT Group of its rights and interest in claims or causes of action by Portfolio Services against the third party. That arrangement was ineffective. Portfolio Services then agreed to bring its action in circumstances in which Westpac would receive the benefit of the success in the action and would, in effect, control the litigation. Tamberlin and Jacobson JJ had regard to the full commercial context of the agreement between Westpac and Portfolio Services. This context included the fact that the cause of action had arisen in Portfolio Services at a time when it was a member of the BT Group; that Westpac was now the ultimate holding company of that Group; and that the benefit of the cause of action had been expressly retained within the BT Group when the shares in Portfolio Services had been sold to Chase Manhattan Bank. These factors meant that the case was not one of “an officious intermeddler ‘huckstering in litigious discord’ without any genuine commercial interest that can be traced to the inception of the cause of action.”[16]
[15] [2007] FCAFC 52; (2007) 158 FCR 417.
[16] Ibid at [55], 426.
Next, reference was made to Vangale Pty Ltd (in liq) v Kumagai Gumi Co Ltd.[17] In that case, Mullins J held that the interest of shareholders of the plaintiff company in recovering losses suffered by a previous company in which they had an interest was sufficient to make valid the assignment to the plaintiff company of a cause of action by creditors of the previous company. Finally, the remarks made by way of dicta by von Doussa J in Chapman v Luminis Pty Ltd (No 4) also suggest that a shareholder’s interest may be the sufficient basis for a valid assignment of a cause of action.[18]
[17] [2002] QSC 137.
[18] [2001] FCA 1106 at [205]; (2001) 123 FCR 62 at 116-7.

These authorities indicate that the concept of a genuine commercial interest is to be applied in a broad and practical way and that such an interest may be found in the relationship of members of the one corporate group, as well as in the relationship of shareholder and company.
Further, in considering whether an asserted interest is sufficient to support an assignment, regard may appropriately be had to the vice which the rule against assignment of causes of action seeks to prevent. The identification of the vice gives some colour to the concept of a genuine commercial interest. As already noted, the relevant vice is the unlawful maintenance of litigation. The basis of the law’s disapproval of maintenance was discussed in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd.[19] Gummow, Hayne and Crennan JJ referred to authority indicating the law’s distaste of “trafficking” in litigation and of “wanton and officious intermeddling with the disputes of others.”[20] Although for the purposes of determining this appeal it is not appropriate to express a concluded view, it can at least be said that the circumstances of the present case do not appear to have the flavour of “trafficking” in litigation or of an inappropriate intermeddling by the plaintiff in the claim of its parent company. It is also of interest that in two of the authorities to which Gummow, Hayne and Crennan JJ referred, the existence of a common interest in the litigation, such as that between persons of near kin, was recognised as an exception to the general prohibition against maintenance.[21]
[19] [2006] HCA 41; (2006) 229 ALR 58.
[20] Ibid at [78], 78 (citing British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 at 1013-14 per Fletcher Moulton LJ). See also the judgment of Callinan and Heydon JJ at [257]-[259], 123-4.
[21] Bradlaugh v Newdegate (1883) 11 QBD 1 at 11; Harris v Brisco (1886) 17 QBD 504 at 513.
Mr Rochow, for AEP, submitted that there was not as yet any authority recognising the interest of a subsidiary company in assisting its holding company as a sufficient interest for an assignment of a cause of action. That may be so, but the question on the appeal is not to be determined by enquiring whether the plaintiff fits into a category which has already been recognised. That would be to approach the matter too narrowly. Mr Hoffmann QC, for Smith, submitted that each of the authorities upon which the plaintiff relied, and to which reference has been made, could be distinguished from the present. I accept that that may be so. I also accept that the points of distinction to which Mr Hoffmann referred may be points which are ultimately decisive. But all the plaintiff has to demonstrate at this stage is that its proposed claim is reasonably arguable. It must demonstrate this in a context in which the existence of the requisite interest is to be considered in a broad and practical way having regard to the totality of the circumstances, including, the relationship between the assignor and assignee, the purpose of the assignment, the subject matter of the litigation, and the vice which the rule against assignment of causes of actions seeks to avoid. When regard is had to those matters, it should be accepted that the plaintiff’s claim is at least reasonably arguable.
Mr Hoffmann QC also referred to the reason for the assignment stated in the deed of assignment between Scholle Corporation and the plaintiff, namely, the perceived convenience to the parties in having Scholle Corporation’s cause of action pursued by the plaintiff in the present proceedings. Mere convenience, it was submitted, did not amount to a genuine commercial interest. I do not regard this as a significant consideration. The statement in the deed of assignment of convenience appears to be an explanation of the purpose or motive for the assignment. It does not exclude the existence or materiality of the other considerations upon which the plaintiff relies. Considerations of convenience may explain why Scholle Corporation thought it appropriate, given its relationship with the plaintiff, to assign its cause of action to it. The motive of Scholle Corporation on the one hand, and the plaintiff’s interest on the other, are not necessarily co-incidental.
For these reasons, I am satisfied that the master erred in not concluding that the plaintiff had a reasonably arguable claim that it had taken a valid assignment of the cause of action of Scholle Corporation. This means that regard must now be had to the form of the plaintiff’s proposed pleading.
The Form of the Pleading
The pleading proposed by the plaintiff is too long to set out in these reasons. The plaintiff alleges the identity and relationship of each of Scholle Corporation, Scholle Europe BV and itself, (paras 54-56). It then alleges the circumstances of supply by Scholle Europe BV and the losses said to have been incurred by Scholle Corporation (paras 57-65). It then alleges that Scholle Corporation’s loss was caused by the negligence and/or misleading or deceptive conduct of the defendants (paras 66 and 67). These are pleadings of the facts to which reference has been made earlier. The proposed pleading then has the following plea in para 68:
By a Deed of Assignment dated 19 October 2005, Scholle Corporation assigned to the plaintiff all of its rights to bring any claim against the first and second defendants with regard to such losses.
The pleading does not contain any further particularity of the assignment. The master said of this pleading:
As to the purported assignment of the tortious action, in my view there is no plea within the proposed PASOC of a genuine commercial interest on the part of the assignee such as to give any prospect of the assignment being found valid in law. To be valid there has to be a genuine commercial interest in the plaintiff taking the assignment of the causes of action and enforcing them for its own benefit. … To come within the exceptions to the rule in Poulton v The Commonwealth the assignment must be for the legitimate and genuine commercial interest of the assignee. There is no proposed plea anywhere within the PASOC that makes that assertion. There is no suggestion in the PASOC that the plaintiff will or can benefit as assignee.
It is true that the proposed amended statement of claim does not in terms contain any assertion of a genuine commercial interest. It is to be remembered, however, that an assertion that a party has a genuine commercial interest in an assignment is a conclusion of combined law and fact. It is not a fact in itself. Its existence depends upon the proof of other facts.
The pleading rules require a plaintiff to plead only the material facts relied upon, and not the evidence or argument by which those facts are to be proved.[22] That meant, in this case, that it was necessary for the plaintiff to plead the facts to be relied upon for the conclusion that it did have a genuine commercial interest. Those facts are, in my opinion, found in the earlier paragraphs in the proposed Amended statement of claim. The plaintiff will, absent any further pleading (such as a Reply) be taken to be confined to those matters. It was not necessary, in my opinion, for the plaintiff to go further and to assert that the effect of the pleaded facts was to give it a genuine commercial interest in the subject matter of the assignment. It is often convenient for the legal conclusion for which a plaintiff contends to be pleaded. This can assist in giving proper notice to a defendant of the nature of the claim which it must meet and can also assist in giving an appropriate shape to the pleading. But in the circumstances of this case, the pleading rules did not require the plaintiff, having pleaded the matters contained in paragraphs 54-67 inclusive, to assert then that the effect of those matters was to give it a genuine commercial interest in taking the assignment.
[22] Supreme Court Rules 1987, r 46A.02(b); r 46A.03.
That means, in my opinion, that the form and content of the proposed pleading was not a reason for refusing the amendment.
Severance
Each of the defendants submitted that the master’s ruling as to the invalidity of the purported assignment of the TPA cause of action had the effect of invalidating the whole of the assignment. As already noted, the master’s ruling concerning the assignment of the TPA action ruling of invalidity therefore stands. The terms of the deed of assignment, it was said, were such that it was not possible to sever the invalid portion of the assignment from the remainder. Hence, the argument was that the whole of the assignment was invalid.
The operative clause of the deed of assignment is in the following terms:
2.1 Assignment
The Assignor absolutely and unconditionally assigns to the Assignee all of its rights in and to the Cause of Action with immediate effect.
2.2Acceptance
The Assignee unconditionally and irrevocably accepts the assignment of all of the Assignor’s rights in and to the Cause of Action referred to in clause 2.1.
The “Cause of Action” which is the subject of clause 2 is defined in clause 1.1 in the following way:
Cause of Action means all rights of any description whatsoever which Scholle Corporation may have to recover from the tap suppliers any loss or damage (including any interest in legal costs) arising from or out of (directly or indirectly) the supply, manufacture and/or design by the tap suppliers of wine cask taps supplied to Scholle Industries Pty Ltd.
This includes, but is not limited to, any losses or damages of Scholle BV, a wholly owned subsidiary of Scholle Corporation, or Scholle Corporation, occasioned by or arising out of the supply, manufacture and/or design of the defective wine cask taps, including but not limited to the supply by Scholle BV of wine cask taps to Scholle Industries Pty Ltd to replace defective wine cask taps previously supplied, manufactured and/or designed by the tap suppliers.
AEP and Smith were identified earlier in the deed as the “tap suppliers”.
The defendants submitted that the manner of definition of the expression “cause of action” meant that the purported assignment of the TP cause of action was inextricably bound up with the assignment of the other causes of action of Scholle Corporation. This had the consequence that it was not possible to sever the invalid assignment of the TPA cause of action.
The defendants referred to a number of authorities concerning severance of illegal and invalid terms in a contract. However, in my opinion, it is not necessary to refer to those authorities in any detail. The principles are well established. In Rentokil Pty Ltd v Lee,[23] Doyle CJ held:
It is well established by the cases that if part of an agreement is invalid or unenforceable, that part may, under certain circumstances, be severed from the balance of the agreement or disregarded. In considering this issue the Court is not concerned with the construction of the particular provision. … The Court in considering severance is concerned with the question of whether, properly construed, the relevant agreement should be permitted to operate as between the parties with some part of its apparent or intended operation not being given effect. But while the courts have said on many occasions that they will not rewrite the contract for the parties, in order to create a valid restraint from an invalid restraint, the question is again ultimately one of intention. The question is whether, construing the contract as a whole, it may be concluded on an objective basis that the parties intended the relevant provision to have the reduced operation if it could not have its full operation.[24]
I take that as the statement of principle to be applied.
[23] (1995) 66 SASR 301.
[24] Ibid at 306.
On this appeal, the question is again whether the plaintiff has demonstrated a reasonably arguable case that, despite the invalidity of the assignment of Scholle Corporation’s TPA cause of action, the assignment of the remainder is valid. That is, adapting the language of Doyle CJ in Rentokil, the question is whether it is at least reasonably arguable that, considering the deed of assignment as a whole, it may be concluded on an objective basis that the parties intended clause 2 and the definition of “cause of action” to have a reduced operation if it could not have its full operation. Put that way, the question must be answered in the affirmative. It is at least reasonably arguable that, objectively considered, the parties did not intend the validity of the whole assignment to depend upon the ability of Scholle Corporation to transfer each of the individual causes of action which were available to it. Further, as Mr Ericson submitted, this is an arrangement between two parties and it is, at the least, reasonably arguable that it was open to the plaintiff to waive the requirement that all of the causes of action of Scholle Corporation should be assigned to it.
For these reasons I am satisfied that the possible invalidity of the whole of the deed of assignment was not a reason to disallow the plaintiff’s amendment.
Discretionary Matters
The defendants raised a number of matters going to the exercise of the Court’s discretion to allow an amendment.
First, the defendants raised the prospect that they may face a multiplicity of proceedings: by the present plaintiff; by Scholle Corporation if it chose to pursue its TPA cause of action in separate proceedings; and by Scholle Corporation in the event that the assignment of its cause of action in tort is ultimately held in these proceedings to be invalid. It was said that the prospect of the defendants facing a multiplicity of proceedings should incline the Court against allowing the amendment. However, refusing the amendment for that reason would seem to enhance, rather than reduce, the possibility of the defendants facing a multiplicity of proceedings. It was submitted, in the alternative, that the Court should endeavour at this stage to quell the possibility of further litigation by making it a condition of the amendment being allowed that Scholle Corporation be joined in the proceedings so that it will be bound by any judgment. There is more substance in this submission. I do think it appropriate for the amendment to be allowed only on terms which will ensure that all matters in dispute may be determined in the one set of proceedings. I will hear the parties further about such terms.
Mr Hoffmann QC submitted that, in the event that the amendment is allowed, the defendants will be at a disadvantage in obtaining discovery of documents. It was said that the plaintiff may not be in possession, custody or power of Scholle Corporation’s documents and it may be difficult for the defendants to obtain discovery from a non-party who is offshore. However, I do not regard difficulties of this kind as indicating that the amendment is inappropriate. Those difficulties, if they arise, can be accommodated by appropriate interlocutory orders directed to the plaintiff.
Conclusion
For the reasons given above, my opinion is that the appeal should be allowed. I will hear from the parties further as to the terms upon which the plaintiff should be given leave to file an Amended statement of claim incorporating paras 54-69 inclusive as proposed so as to avoid any possibility of a multiplicity of proceedings. I will also hear the parties as to costs.