Storey v Harmse

[2013] NSWSC 1641

Supreme Court

New South Wales

Medium Neutral Citation:

Storey v Harmse [2013] NSWSC 1641

Hearing dates:

8 November 2013

Decision date:

08 November 2013

Jurisdiction:

Common Law

Before:

Beech-Jones J

Decision:

(1) There be a grant of leave to appeal under s 40(2) of the Local Court Act but the appeal be dismissed.

(2) The proceedings be otherwise dismissed.

(3) The plaintiff pay the defendant's costs of these proceedings.

Catchwords:

JUDICIAL REVIEW - leave to appeal from interlocutory decision of Local Court - application to amend statement of claim - application to join trustee in bankruptcy - whether proceedings statute barred - construction of loan agreement - whether cause of action accrued on default in payment of first instalment - whether proceedings futile - plaintiff lacked standing to bring proceedings - whether there was a mistake in the name of a party - Civil Procedure Act, s 65(2)(b).

Legislation Cited:

- Civil Procedure Act 2005
- Limitation Act 1969
- Local Court Act 2007
- Uniform Civil Procedure Rules 2005

Cases Cited:

- Acuthan v Coates (1986) 6 NSWLR 472
- Eakin, Ex parte; re Notley (1939) 39 SR (NSW) 221
- Eakin v Notley (1939) 13 ALJR 417
- Lesley-Swan v Owners SP 32735 [2013] NSWSC 1635
- Luck, Re [2003] HCA 70; 78 ALJR 177
- Mitry v Business Australia Capital Finance Pty Limited (in liq) [2010] NSWCA 360
- Page v McKensey [2004] NSWCA 437
- Parisienne Basket Shoes Pty Ltd v Whyte [1938] HCA 7; 59 CLR 369
- Reeves v Butcher [1891] 2 QB 509
- Sayed v Deng [2012] NSWSC 851

Category:

Principal judgment

Parties:

Malcolm Scott Storey (Plaintiff)
Christiaan Wynand Harmse (Defendant)

Representation:

Counsel:
Ms E. Cohen (Plaintiff)
B.C. Dean (Defendant)
Solicitors:
Stephen Wright (Plaintiff)
Rural Law (Defendant)

File Number(s):

2013/178426

EX TEMPORE Judgment

1. The plaintiff, Mr Storey, seeks to appeal a decision from the Local Court dismissing proceedings he commenced against the defendant, Mr Harmse. Mr Storey had sought the recovery of moneys owing under a Loan Agreement dated 1 November 2002 (the "Loan Agreement"). The precise basis upon which the proceedings were dismissed is not entirely clear, but it certainly did not follow a final hearing on the merits. As I will explain, there was some dispute as to whether that meant that the orders appealed from were interlocutory or final.

Background

1. At the hearing of the application that led to the dismissal of the proceedings before the Presiding Magistrate, the only evidence that appears to have been formally tendered was the Loan Agreement. It recorded an agreement between Mr Storey and Mr Harmse under which the former agreed to lend the latter $65,000. The agreement included the following clauses:

"1. Subject to the following conditions the Lender has lent the sum of Sixty-Five Thousand Dollars ($65,000) (the Loan) to the Borrower. The Loan shall be repaid by the Borrower to the Lender or as the Lender may direct, on or before 1st November 2006. If the Loan is not repaid on or before the due date for payment the Loan or any part not repaid shall become a debt repayable on demand.

2. The Loan shall be repaid by the Borrower by three (3) consecutive annual installments of Fifteen Thousand Dollars ($15,000), the first installment to be paid on or before 1st November 2003 and with the last installment of Twenty Thousand Dollars ($20,000).

...

4. If the Loan is not repaid by 1st November 2006 then the amount of Loan remaining unpaid shall bear interest calculated in accordance with Clause 2 above but at the rate of twenty percent (20%) per annum with no concession for payment on or before the due date for payment.

...

10. Any waiver or forbearance in regard to the performance of this agreement shall operate only in writing and shall apply only to the specified instance, and shall not affect the existence and continued applicability of its conditions."

1. Beyond the term of the Loan Agreement it is difficult to ascertain precisely what factual basis the Presiding Magistrate proceeded upon. As I will explain, his Honour appears to have ultimately acted on a notice of motion filed on behalf of Mr Harmse which sought summary dismissal of the proceedings. The motion also referred to "Regulation 14.28(a)" of the Uniform Civil Procedure Rules 2005 ("UCPR"). UCPR r 14.28(a) does not confer a power of summary dismissal but instead confers a power to strike out a pleading which, inter alia, displays no reasonable cause of action. Applications under that rule usually proceed by way of an acceptance, for the sake of argument, that the pleaded facts are established. Even though it seems the matter was ultimately treated as an application for summary dismissal, nevertheless it appears that the matter proceeded on that basis before his Honour. In particular the detailed written submissions prepared on behalf of Mr Harmse refer to and appear to, in part, adopt certain facts pleaded by Mr Storey in a proposed amended statement of claim. The brief facts that follow are taken from the facts pleaded in that document.

1. On 14 April 2003 Mr Storey was made bankrupt. Mr Morgan Chubb was appointed his trustee in bankruptcy. The proposed amended statement of claim then pleads as follows:

"7. On or about 10th November 2004 the defendant by himself or his servant or agent confirmed the loan agreement and agreed that the defendant would repay the principal by instalments by 30th November 2007 (the written waiver agreement - condition 10 - Loan Agreement).

8. Between 8th December 2004 and 12th July 2005 the defendant paid the sum of $10,500.00 by way of interest to the said Morgan Chubb in partial performance of the loan agreement and failed to make the payment of $20,000 on 30th November 2007 in breach of the written waiver agreement."

1. On 15 April 2006 Mr Storey was discharged from his bankruptcy. The proposed amended statement of claim further pleads that on 1 November 2006 Mr Harmse failed to repay the balance of the loan. It is otherwise pleaded that he had failed to make various instalment payments. It is also pleaded that on 31 March 2011 Mr Chubb authorised Mr Storey in writing to collect, on behalf of Mr Chubb, any moneys owing by Mr Harmse to Mr Storey pursuant to the terms of the Loan Agreement.

1. At this point it is appropriate to say something further about the form of the pleading of the waiver agreement in paragraph 7 that I have extracted above (at [4]). The full effect of the waiver agreement is not pleaded. In particular, the amount and timing of instalments, other than the last one, is not specified. What is clear is that the balance of the pleading proceeds on the basis that there was some breach of the waiver agreement prior to 1 November 2006 because it is pleaded that on that date the balance of the loan was due. That assertion necessarily means that, by that time, the waiver agreement was no longer operative.

The proceedings

1. On 31 October 2012 a statement of claim was filed in the Local Court naming Mr Storey as the plaintiff and seeking recovery of moneys said to be owing by Mr Harmse under the Loan Agreement. Two points should be noted at the outset about the statement of claim. First, it follows that s 14 of the Limitation Act 1969 had operated to extinguish any cause of action in Mr Storey, or Mr Chubb, against Mr Harmse that had accrued prior to 1 November 2006. Second, as constituted, the proceedings were misconceived in that Mr Storey's rights under the Loan Agreement had vested on his bankruptcy in Mr Chubb. There was no automatic revesting of them in Mr Storey upon his bankruptcy being discharged, and there was otherwise no suggestion that those rights had been assigned back to Mr Storey.

1. On 7 February 2013 Mr Harmse filed a notice of motion. As noted, it sought an order for summary dismissal, although it made reference to "regulation 14.28(a)". By way of response on 12 April 2013, Mr Storey filed a notice of motion. He sought various orders, including leave to file and serve the proposed amended statement of claim, to which I have referred, and an order that "Morgan Chubb be added as a plaintiff". I have already discussed the terms of the proposed amended statement of claim. There was a fundamental incongruity between the notice of motion and the proposed amended statement of claim in that, although the motion sought an order that Mr Chubb be added as a plaintiff, the proposed amended statement of claim did not name him as such. Instead, it retained Mr Storey as the sole plaintiff and only recited Mr Chubb as having authorised Mr Storey to bring the proceedings.

1. The notices of motion were returnable on 14 May 2013. When the matter was called, the solicitor for Mr Harmse advised the Presiding Magistrate of the two motions and the fact that the legal representatives considered that the best course was that Mr Storey's motion seeking leave to amend be heard first. However, his Honour indicated a strong preference to deal with the "statute of limitations" question first. There was some further debate in which the legal representatives noted that one of Mr Harmse's points was that the amendments sought on behalf of Mr Storey were futile because, on any view, the proceedings were time barred.

1. Just prior to the luncheon adjournment the solicitor for Mr Harmse handed up detailed written submissions which addressed the orders sought in Mr Storey's notice of motion but which were also applicable to his own client's notice of motion. For present purposes, it is pertinent to note the three particular submissions made in that document. First, it was contended that Mr Storey lacked standing to bring the proceedings. In particular, the submissions pointed to the deficiencies in the proposed amended statement of claim concerning his standing that I have already discussed. Second, the submissions contended that the existing proceedings were statute barred by the time they were filed on 31 October 2012. Amongst other matters, it was contended that the action for recovery under the Loan Agreement accrued from the time of the failure to pay instalments pursuant to clause 2 and that, even if the running of the limitation period was suspended by various other events in the meantime, it was never extended to a period beyond 31 October 2006. Third, the submissions also addressed why leave should not be granted under s 64 of the Civil Procedure Act 2005 to allow the amendments. I note that section 65 was not addressed.

The judgment appealed from

1. His Honour's reasons were brief. Given the exigencies of a busy list, a significant degree of leeway must be allowed for the usual infelicitous expressions that occur in the provision of ex tempore reasons, including in the Local Court (see Acuthan v Coates (1986) 6 NSWLR 472 at 478-479 per Kirby P). In any event, his Honour stated as follows:

"The defendant is seeking to have the [statement of claim] struck out because he contends it is not within the jurisdiction of the Local Court. There is two arms, one is the matter has been - the plaintiff was made bankrupt, he has been discharged, but the only person with authority to commence these proceedings is the Registrar in Bankruptcy. The plaintiff says he has authority from the Registrar in Bankruptcy to pursue this matter on his behalf. He is now discharged from his bankruptcy, and that is the first issue.

The second issue is whether the application is stymied by the Statute of Limitations. It is submitted by the defendant on his amended Statement of Claim that in the initial contract the payments had to be made by a certain date which brings the matter into the jurisdiction of the court. The defendant submits that the time runs from the last cause of action and there has been a number of causes of action in this matter.

There have been payments made on the debt, the last to the Trustee in Bankruptcy.

There is authority cited as to the time the Statute of Limitations runs from and I have not had an opportunity to look at those. It is my opinion that on the authorities, once someone goes into bankruptcy, basically they need the leave of the Supreme Court to take proceedings in the Local Court because the Local Court has not got equitable powers, as the Supreme Court.

In relation to the question of the Limitation Act, it would appear on the face of it that the applicant is out of time. In his original application he has filed a copy of a purported amended [statement of claim], attached to his affidavit, however I consider that - I have not got jurisdiction and I decline to allow leave to file the amended Statement of Claim. It is my opinion that the plaintiff is Statute barred and I have got no jurisdiction. Because I have no jurisdiction, have I got powers to order costs."

1. Next, his Honour addressed the orders to be made. In that regard his Honour stated:

"Leave to file amended Statement of Claim is refused. Proceedings caught by the Limitation Act, I have no jurisdiction. I consider an order for costs appropriate and I order the plaintiff to pay the defendant's costs of the motion, assessed at $700.

... I have no jurisdiction. That takes me right out of it. What do I say, motion dismissed. In addition, the Statement of Claim is dismissed."

1. In my view, a fair reading of these reasons in their context is that his Honour accepted the second argument put on behalf of Mr Harmse noted above, namely that the proceedings were statute barred and that this was so, irrespective of whether the amendment as sought was granted and when it operated from. Such an amendment could never operate from a date prior to the time when the proceedings were first commenced. This is consistent with his Honour's approach at the outset when the matter was called on and explains why it was not necessary for his Honour to expressly address the considerations relevant to the application to amend the statement of claim and join Mr Chubb. On his Honour's approach, none of those matters could extend the time of the commencement of the proceedings back to a point before 31 October 2012, and thus they could not cure the problem raised by the Limitation Act.

1. At this point I note two further matters. First, in these reasons his Honour referred to not having jurisdiction as a result of the operation of the Limitation Act. With respect, his Honour was incorrect. In the ordinary course, the Local Court's jurisdiction to determine a matter is not affected by the operation of limitations statutes (see Parisienne Basket Shoes Pty Ltd v Whyte [1938] HCA 7; 59 CLR 369).

1. Second, as stated, it is not entirely clear what power of the Court his Honour invoked. It is clear that his Honour dismissed Mr Storey's notice of motion. It also seems that his Honour "dismissed" the statement of claim which, in the context of a motion for summary dismissal, appears to have been an order dismissing the proceedings (see UCPR r 13.4).

The appeal

1. Sections 39 to 41 of the Local Court Act 2007 relevantly provide:

"39 Appeals as of right

(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law.

...

40 Appeals requiring leave

(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court.

(2) A party to proceedings before the Court sitting in its General Division who is dissatisfied with any of the following judgments or orders of the Court may appeal to the Supreme Court, but only by leave of the Supreme Court:

(a) an interlocutory judgment or order,

(b) a judgment or order made with the consent of the parties,

(c) an order as to costs.

41 Determination of appeals

(1) The Supreme Court may determine an appeal made under section 39 (1) or 40:

(a) by varying the terms of the judgment or order, or

(b) by setting aside the judgment or order, or

(c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or

(d) by dismissing the appeal.

..."

1. There was some debate as to whether the orders made by his Honour were final or interlocutory and thus whether leave to appeal is required under s 40(2) or whether there is an appeal as of right on a question of law in accordance with s 39(1). Given my conclusion that his Honour summarily dismissed the proceedings, it appears that the orders made were interlocutory, bearing in mind that theoretically, at least, such an order does not preclude fresh proceedings being commenced (see s 91 of the Civil Procedure Act, Re Luck [2003] HCA 70; 78 ALJR 177, Page v McKensey [2004] NSWCA 437 at [30].) I addressed some of the principles governing the granting of leave to appeal from an interlocutory decision of the Local Court in Sayed v Deng [2012] NSWSC 851 at [26] to [34] and I will not repeat them. Given that the effect of the orders made is that they are likely to be decisive of the claim made against Mr Harmse and, as I will explain, his Honour's reasons turn upon a contestable construction of the Loan Agreement which was not exposed in his Honour's reasoning, I will grant leave to appeal.

Limitation Act

1. Grounds 1, 2 and 3 of the summons initiating this appeal identify the alleged errors on the part of his Honour as follows:

"1. The Honourable Local Court Magistrate erred in law when he failed to allow the amendment of the Statement of Claim (S.64 and S.65 Civil Procedure Act).

2. The Honourable Local Court Magistrate erred in law when he failed to add Morgan Chubb as a Plaintiff of the Statement of Claim (S.64 and S.65 Civil Procedure Act).

3. The Honourable Local Court Magistrate erred in law when he heard the Defendant's Notice of Motion in the knowledge that the Plaintiff had already filed a Notice of Motion to amend the Statement of Claim and add Morgan Chubb as a Plaintiff."

1. It follows from what I have already concluded that these grounds are misconceived in that his Honour's judgement was made in full knowledge of the amendment application, but nevertheless his Honour found that the proceedings were statute barred, regardless of whether the amendments were made or allowed. As the matter transpired, the oral argument on the appeal focused on his Honour's conclusion in that regard. As I will explain, its correctness turns upon a construction of the Loan Agreement which, in itself, is purely a question of law.

1. Before his Honour and again before this Court, it was submitted on behalf of Mr Harmse that the proper construction of the Loan Agreement is that first, upon a default in payment of an instalment, a cause of action in its own right accrues and that secondly, upon such a default, the last sentence of clause 1 has the effect that the entirety of the balance of the loan becomes a debt repayable on demand. On this argument, and if that construction is right, then Mr Storey's and, upon his bankruptcy, Mr Chubb's cause of action to recover the balance of the loan first accrued upon the failure to pay the first instalment. Thus in Reeves v Butcher [1891] 2 QB 509 at 511 Lindley LJ stated as follows:

"The agreement is one reasonably easy to be understood. It provides a loan for five years, subject to a provision that if default is made in punctual repayment of interest the principal shall be recoverable at once. Now, the Statute of Limitations (21 Jac. 1, C. 16) that such actions as therein mentioned, including 'all actions of debt grounded upon any lending or contract without specialty', shall be brought 'within six years next after the cause of such action or suit, and not after'. This expression, 'cause of action', has been repeatedly the subject of decision, and it has been held, particularly in Hemp v Garland, decided in 1843, that the cause of action arises at the time when the debt could first have been recovered by action. The right to bring an action may arise on various events; but it has always been held that the statute runs from the earliest time at which an action could be brought."

1. Further, the fact that such an amount might only be payable "on demand" was not a matter that would otherwise prevent time running (see Ex parte Eakin; re Notley (1939) 39 SR (NSW) 221 at 230 to 231 per Jordan CJ overturned in Eakin v Notley (1939) 13 ALJR 417 but not on this point.)

1. Although various facts were pleaded in the proposed amended statement of claim which were either said to or indeed might have suspended the running of the limitation period from the time of the first default in payment of an instalment, none of the matters pleaded had the effect of extending that time up to and including 31 October 2006. The only possible matter of exception to that is the waiver agreement which I have already addressed.

1. Counsel for Mr Storey, Ms Cohen, disputes those steps in this argument that concerned the proper construction of the Loan Agreement. She submitted that one could simply not treat the phrase "the due date for payment" in the last sentence of clause 1 as referring to the dates for the payment of instalments as provided for in clause 2.

1. Having considered the matter, I do not agree. Needless to say clauses 1 and 2 are not easy to reconcile. Nevertheless they must be read together. In particular, clause 1 is expressed to be "subject to the following conditions" which, of course, includes clause 2. The machinery for repayment in clause 1 is subjected to the instalment regime established in clause 2. Thus in clause 1 where it says that the loan shall be repaid "on or before 1 November 2006", that obligation is subject to clause 2, so it is to be taken as a reference to being paid on or before 1 November 2006 in the manner provided for in clause 2. Further, when the last sentence in clause 1 refers to the "due date for payment", it must therefore be contemplating not only the date for payment of the final instalment of 1 November 2006, but those relating to the instalment payments in clause 2. This is reinforced by the reference to "any part not repaid" in the last sentence of clause 1 which contemplates any instalments not paid under clause 2.

1. Ms Cohen also sought to rely on clause 4. That only specifies that a higher rate of interest is accrued on amounts outstanding after 1 November 2006. Ms Cohen also sought to invoke clause 10 but it was not clear what waiver or forbearance was being referred to or relied on. A simple forbearance to commence an action if an instalment was not paid does not mean that the causes of action do not accrue or that the time period under the Limitation Act does not run.

1. It follows that I consider that his Honour did not err in law in concluding that, irrespective of whether the statement of claim was amended and what date any such amendments took effect from, including whether any such amendment extended to the addition of Mr Chubb as a plaintiff, the proceedings were time barred.

Proceedings futile in any event

1. It follows from the above that the appeal will be dismissed. However it is appropriate to refer to certain further submissions made by counsel for Mr Harmse, Mr Dean. Mr Dean submitted that, irrespective of which of the competing constructions of the Loan Agreement is correct, Mr Storey's proceedings were nevertheless bound to fail. The starting point for Mr Dean's argument is the incontestable proposition that Mr Storey did not have standing to enforce the Loan Agreement when the proceedings were commenced as the right to recover had vested in Mr Chubb and had not been reassigned to Mr Storey.

1. Next Mr Dean submits that, even if Ms Cohen's suggested construction of the Loan Agreement was correct, the relevant limitation period had well expired by the time the notice of motion was heard in the Local Court on 14 May 2013. He submitted that, even if one accepted Ms Cohen's construction, the proceedings could have only been considered to have been commenced properly and within time if an amendment had been made by the Local Court making Mr Chubb the plaintiff and if such amendment took effect from the date the proceedings were commenced and not from the date when any such application to amend might have been allowed.

1. In this case, the only possible power conferred on the Local Court to make an amendment which had that effect was that conferred by s 65(2)(b) of the Civil Procedure Act. Section 65 relevantly provided:

"Amendment of originating process after expiry of limitation period

(1) This section applies to any proceedings commenced before the expiration of any relevant limitation period for the commencement of the proceedings.

(2) At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the court under section 64 (1) (b), amend the originating process so as:

...

(b) to correct a mistake in the name of a party to the proceedings, whether or not the effect of the amendment is to substitute a new party, being a mistake that, in the court's opinion, is neither misleading nor such as to cause reasonable doubt as to the identity of the person intended to be made a party, or

...

(3) Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced.

(4) This section does not limit the powers of the court under section 64."

1. These provisions should be read with s 64(4) of the Civil Procedure Act which provides:

"(4) If there has been a mistake in the name of a party, this section applies to the person intended to be made a party as if he or she were a party."

1. Absent the invocation of s 65(2)(b) it follows that any amendment which sought to add Mr Chubb as a party would only take effect from the date that such amendment was allowed (see UCPR r 6.28). Hence, even if one adopted Ms Cohen's construction of the Loan Agreement, the only way in which the proceedings could have been constituted in a proper form and be taken to have been commenced within the appropriate time limit was if an order had been made invoking the power conferred by s 65(2)(b).

1. I have been taken to the material that was available to the Presiding Magistrate. That material and the material available in this Court indicates that Mr Storey and Mr Chubb would never have been able to demonstrate that there was a relevant "mistake in the name of a party" for the purposes of s 65(2)(b). Clearly it was intended to commence proceedings in the name of Mr Storey and for Mr Storey. The only mistake was "one as to the entity in which the right of action was vested rather than one as to the name of the person entitled to sue" (see Mitry v Business Australia Capital Finance Pty Limited (in liq) [2010] NSWCA 360 at [46] per Macfarlan JA with whom Hodgson and Young JJA agreed).

1. Thus, even if I had reached a contrary view as to the proper construction of the Loan Agreement and concluded that his Honour had erred in law, I would nevertheless have dismissed the appeal. Based on the material before his Honour the application to amend the plaintiff's statement of claim and the application to join Mr Chubb were bound to have been refused, and the proceedings would have had to have been dismissed in any event.

Other matters

1. Mr Dean also made various other submissions concerning the likely success of Mr Storey's application to amend which it is not necessary to address. He also submitted that, if an error of law had been demonstrated in relation to his Honour's decision, which would otherwise warrant the setting aside of the orders, this Court should nevertheless have made such factual findings as it needed to in order to determine the balance of Mr Storey's notice of motion. I addressed and rejected a similar contention in the matter of Lesley-Swan v Owners SP 32735 [2013] NSWSC 1635.

Disposition

1. Accordingly, I order that:

(1) There be a grant of leave to appeal under s 40(2) of the Local Court Act but the appeal be dismissed; and

(2)   The proceedings be otherwise dismissed.

[The parties addressed on costs.]

1. Mr Dean seeks an order for indemnity costs. He submits that in the light of my reasons it was evident that the matter was doomed to fail. That may be the effect of my reasoning but it seems to me that there were some matters of some complexity involved. Further, the plaintiff had the added difficulty that, as I have stated, his Honour's reasons were less than fulsome in explaining the basis upon which his Honour proceeded and the reasons for the orders that his Honour made.

1. I do not consider that the conduct of the matter is such that it warrants an order for indemnity costs. Instead I will order the plaintiff to pay the defendant's costs of these proceedings.

**********

Decision last updated: 19 November 2013