The Owners - Strata Plan No 5290 v CGS & Co Pty Ltd
[2011] NSWCA 168
•30 June 2011
Court of Appeal
New South Wales
Case Title: Owners of Strata Plan 5290 v CGS & Co Pty Ltd Medium Neutral Citation: [2011] NSWCA 168 Hearing Date(s): 6 May 2011 Decision Date: 30 June 2011 Jurisdiction: Before: Giles JA at 1, Campbell JA at 2,
Sackville AJA at 3.Decision: 1. Leave to appeal granted.
2. Appeal allowed.
3. Set aside the answers to Separate Questions 1(a)(ii)(B) and 1(a)(iii) given by Bryson AJ on 15 October 2010.
4. In lieu of the answers set aside, order that the Separate Questions be answered as follows:
Question 1(a)(ii)(B) : No.
Question 1(a)(iii) : No.
5. The Respondent pay the Appellant's costs of the appeal, including the application for leave to appeal.
6. If the parties are in agreement as to the further orders (if any) that should be made in consequence of the Court's judgment, a joint note to that effect should be filed within seven days.
7. If the parties do not agree:
(a) the Appellant should file within seven days brief written submissions as to the further orders (if any) that should be made; and
(b) the Respondent should file brief written submissions in reply within a further seven days.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]Catchwords: CORPORATIONS - assignment of choses in action - Corporations Act 2001 (Cth), s 477(2)(c) - liquidator of building company assigns company's entitlements against proprietor under a building contract - building contract expressly prohibits assignment of rights under the contract - whether purported assignment by liquidator effective to enable the assignee to sue the proprietor.
Legislation Cited: Bankruptcy Act 1966 (Cth)
Corporations Act 2001 (Cth)Companies Act 1874 (NSW)
Companies Act 1899 (NSW)
Companies Act 1936 (NSW)
Conveyancing Act 1919 (NSW)
Supreme Court Act 1970 (NSW)Companies Act 1862 (UK)
Joint Stock Companies Act 1856 (UK)
Judicature Act 1873 (UK)Cases Cited: Broadcast Australia Pty Ltd v Minister Assisting the Minister for Natural Resources (Lands) [2004] HCA 4; 221 CLR 178
Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; 229 CLR 386
Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; 220 CLR 592
Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238
Cummeragunga Pty Ltd (in liq) v Aboriginal and Torres Strait Islander Commission [2004] FCA 1098; 139 FCR 73
Cummings v Claremont Petroleum NL [1996] HCA 19; 185 CLR 124
Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225
Don King Productions Inc v Warren [2000] Ch 291
Ex parte McGrath; Re Pan Pharmaceuticals Ltd (in liq) [2008] FCA 563; 26 ACLC 386
Krishell Pty Ltd v Nilant [2006] WASCA 223; 32 WAR 540
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85
Loxton v Moir [1914] HCA 89; 18 CLR 360
Seear v Lawson (1880) 15 Ch D 426
Torkington v Magee [1902] 2 KB 427
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667Texts Cited: W Blackstone, Commentaries on the Laws of England, (18th ed, 1829), vol ii
HAJ Ford, RP Austin, IM Ramsay, Ford and Austin's Principles of Corporations Law (7th ed, 1995)
MGR Gronow, McPherson's Law of Company Liquidation (5th ed, 2006)
W S Holdsworth, A History of English Law (1925), vol 7
G McCormack, "Debts and Non-Assignment Clauses" (2000) J Bus L 422
NG Pilcher, AH Uther, WJ Baldock, The Australian Companies Acts Reconciled and Annotated (1937)
J G Starke, Assignments of Choses in Action in Australia (1972)
Category: Principal judgment Parties: The Owners-Strata Plan No 5290 (Applicant)
CGS & Co Pty Limited (ACN 105 851 232) (Respondent)
Representation - Counsel: Counsel:
Mr F Corsaro SC (Applicant)
Ms P Lane (Respondent)
- Solicitors: Solicitors:
Doyle Edwards Anderson (Applicant)
CCS Legal Pty Ltd (Respondent)
File number(s): 2008/00290637 Decision Under Appeal - Court / Tribunal: Supreme Court - Before: Bryson AJ - Date of Decision: 15 October 2010 - Citation: CGS & Co Pty Ltd v The Owners-Strata Plan No. 5290 [2010] NSWSC 1173 - Court File Number(s) 2008/290637 Publication Restriction:
Judgment
GILES JA : I agree with Sackville AJA.
CAMPBELL JA : I agree with Sackville AJA.
SACKVILLE AJA : The issue before the Court is whether s 477(2)(c) of the Corporations Act 2001 (Cth) (" Corporations Act ") authorises the liquidator of a company to assign a chose in action that, by its express terms, is not assignable to a third party. The applicant for leave to appeal (" Owners Corporation ") contends that the primary Judge erred in holding that s 477(2)(c) empowers the liquidator to assign such a chose in action without the consent of the debtor.
Section 477(2)(c) of the Corporations Act provides as follows:
"Subject to this section, a liquidator of a company may:
...
(c) sell or otherwise dispose of, in any manner, all or any part of the property of the company."
Section 9 of the Corporations Act provides that, unless the contrary intention appears:
" property means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action."
The thing in action in the present case is the right to claim moneys under a building contract between the present applicant (" Owners Corporation ") and a builder. The contract (GC 9.1) provided that neither party could assign the contract or any payment thereunder. The builder claimed to be owed moneys under the contract. The builder having gone into liquidation, the liquidator purported to assign the benefit of the builder's entitlement to the present respondent (" CGS "). CGS commenced proceedings against the Owners Corporation on 14 August 2008 seeking to recover the amount due to the builder.
The Owners Corporation denied liability on a number of grounds. The Court below made orders for the separate determination of certain questions. These raised for decision, inter alia , whether the assignment was effective to permit CGS to sue the Owners Corporation for the moneys due to the builder notwithstanding the express prohibition on assignment in the contract.
BACKGROUND
The Owners Corporation is the body corporate of a residential apartment building in Harbord. It entered into a contract with BMP Industrial Pty Ltd (" BMP ") on 20 September 2002 (" Contract "). BMP undertook under the Contract to carry out extensive repairs to the apartment building, including repairing all spalled and drummy concrete.
The Proceedings at First Instance
CGS commenced proceedings in the Supreme Court against the Owners Corporation, seeking an order for payment of $1,038,918.00 for work carried out pursuant to the Contract. CGS pleaded its case in a Further Amended Technology and Construction List Statement filed on 23 March 2009 (" List Statement "). CGS in its pleadings relied on two separate deeds of assignment to which BMP, the liquidators and CGS were parties. The second existed in two versions, the later of which was dated 30 October 2008. It purported to assign BMP's claims against the Owners Corporation arising out of the Contract (para 14).
The List Statement pleaded that, under General Conditions of Contract (" GC ") 3.2(b) and 40.2(c), if the total volume of material necessary to complete certain repairs exceeded specified limits, BMP was entitled to be paid reasonable rates or prices for the cost of performing the additional work (paras 16-22). It alleged that in breach of GC 40.2(c), the Owners Corporation neglected or refused to pay a reasonable price for work in fact carried out by BMP (para 23). BMP had submitted a claim to the Superintendent (appointed under the Contract) in the amount of $1,038.918.00 (para 26) and, pursuant to GC 42.1, the due date for payment of this amount was 25 July 2005 (para 27). Accordingly, CGS claimed $1,038,918.00 as the reasonable rate or price for performing the additional work (para 24).
Statement of Agreed Facts
On 2 July 2010, an order was made for the separate determination of a number of questions. The trial of the separate questions was conducted on the basis of a Statement of Agreed Facts
The Statement of Agreed Facts is as follows:
" 1. On or about 20 September 2002, the [Owners Corporation] entered into a partly lump sum and partly schedule of rates contract for the works with [BMP]. The contract documents relevantly included:
(a) the AS 2124 - 1986 form of General Conditions of Contract;
(b) specifications prepared by Mahaffey Associates Pty Ltd;
(c) the BMP tender offer dated 19 April 2002; and
(d) the Owners Corporation's letter of acceptance dated 19 September 2002.
2. The Owners Corporation appointed Mahaffey Associates to act as the Superintendent under the Contract.
3. Under clause 3.2 of the General Conditions of Contract, the parties agreed to adjust the contract sum payable to BMP where the quantity of any item actually required varied from the allowances provided for in the bill of quantities. For work performed at agreed rates, an adjustment only applied where the actual quantities required varied by more than 50% of the quantities allowed for in the bill.
4. On 13 August 2004, BMP went into administration and appointed Mr Richard Albarran and Mr Geoffrey McDonald as administrators of the company under section 436A of the Corporations Act , 2001.
5. On 20 September 2004, BMP entered into a deed of company arrangement.
6. On 24 June 2005, BMP submitted a written claim for additional payment under clause 3.2 of the General Conditions of Contract for the extra over component over the allowances in the bill of quantities for the item described as 'Repair of spalling concrete - Greater than 15 litres' in the BMP tender. Mahaffey Associates rejected BMP's claim.
7. On 12 September 2005, BMP issued a Notice of Dispute under clause 46.2 of the General Conditions of Contract disputing the Superintendent's rejection of the BMP claim.
8. On 31 March 2006, BMP went into voluntary liquidation following a resolution of the creditors of the company pursuant to section 445E of the Corporations Act 2001. Mr Albarran and McDonald were appointed the liquidators of the company at that time.
9. The Liquidators entered into a Deed on 16 October 2006 which purported to assign BMP's rights, claims and actions against third parties to the Plaintiff ( 'CGS' ) (the 'First Alleged Assignment' ). The First Alleged Assignment was subject to the following conditions:
(a) the Creditors of the Companies approving the sale of the Claims to CGS; and
(b) the payment by CGS of the Purchase Price of $150,000
( 'the Conditions Precedent' )
10. CGS paid the Liquidators the sum of $75,000.00 on 8 May 2007; and a further sum of $75,000 on 15 June 2007.
11. On 17 April 2008, the Plaintiff's representative provided to the Defendant's former solicitors a copy of a letter from the Liquidators dated 16 April 2008 which stated that the Conditions Precedent had been met.
12. In or around June 2007 a document alleged by CGS to be a second deed of assignment was brought into existence between the BMP Group of companies, the Liquidator and CGS. Sometime between June 2007 and 14 August 2008 (the date of commencement of proceedings) the document was executed by each of the parties except BMP Industrial and GMP Group ( 'the Second Alleged Assignment - June 2007 Document' ).
13. CGS commenced these proceedings against the Owners Corporation on 14 August 2008, relying on the Second Alleged Assignment June 2007 Document.
14. On 30 October 2008, the Liquidators executed the Second Alleged Assignment - June 2007 Document on behalf of BMP Industrial and BMP Group. The document alleged by its recitals as 'providing more particularity' to the assignment of BMP's third party rights and claims in the First Alleged Assignment ( 'the Second Alleged Assignment - October 2008 Document' ).
15. CGS filed an Amended List Statement on 1 December 2008 and again at paragraph 10 of the Amended List Statement relied on the Second Alleged Assignment - June 2007 Document .
16. By its List Response, dated 11 December 2008, the Owners Corporation denied that it was ever liable to BMP, and also denied the enforceability of the assignment on the basis that any assignment to CGS would be against public policy for maintenance or champerty.
17. [CGS] filed a Further Amended List Statement on 23 March 2009 relying on:
(a) the First Alleged Assignment; or alternatively,
(b) The Second Alleged Assignment - June 2007 Document or the Second Alleged Assignment - October 2008 Document.
18. On 16 April 2010, the Owners Corporation filed a List Response to the Further Amended List Statement which alleged that all of the purported assignments were invalid and unenforceable on the basis that clause 9.1 of the contract prohibits assignment of the contract or any payment thereunder without the prior written approval of the Owner Corporation and that no prior written approval was ever sought or provided by the Owners Corporation.
19. Clause 9.1 of the General Conditions states:
'Neither party shall, without the prior written approval of the other and except on such terms and conditions as are determined in writing by the other, assign the Contract or any payment thereunder'.
20. Neither BMP nor the Liquidators obtained the written approval of the Owners Corporation to the assignment of the Contract or any payment thereunder, or of the BMP claim to CGS." (Emphasis in original.)
The Statement of Agreed Facts refers to the " Second Alleged Assignment - October 2008 Document " (" Second Deed of Assignment "), which was executed by the Liquidators of BMP on 30 October 2008. BMP was a party to the Second Deed of Assignment, as were a number of other companies within the same group.
The Second Deed of Assignment included the following provisions:
" Background Recitals
...
G. The Companies may have certain potential rights, claims and actions (" the Claims ") available to them against third parties which are yet to be ascertained. The claims include:
(a) The claims by [BMP] against the proprietors of strata plan 5290 or the building consultant Mahaffey Associates Pty Limited employed by strata plan 5290 arising out of the contract for the Repairs and Surface Coating of External Concrete Elements and Related Works on the property known as 69 Evans Street, Harbord, NSW.
...
4. Assignment
4.1 The Companies assign to CGS absolutely all of their respective right title and interest to any legal, equitable or proprietary claim or cause of action which any of the companies may have had against any person not being a party to this Deed, arising out of or in any way associated with the particular businesses carried out by each of the companies prior to the liquidation including but not limiting the generality of the foregoing:
(a) The claims by [BMP] against the proprietors of strata plan 5290 or the building consultant Mahaffey Associates Pty Limited employed by strata plan 5290 arising out of the contract for the Repairs and Surface Coating of External Concrete Elements and Related Works on the property known as 69 Evans Street, Harbord, NSW.
...
5. Payment
5.1 CGS will pay the Liquidators the Purchase Price of $150,000.00 inclusive of any GST ..."
Separate questions
The order for the determination of separate questions was in the following terms:
"1. Pursuant to rule 28.4 of the Uniform Civil Procedures Rules 2005, that the following separate questions be determined before a trial of all other issues in the proceedings, on the basis of the Statement of Agreed Facts:
(a) assuming for the purposes of the separate determination, but not deciding, that BMP... had the alleged cause of action referred to in paragraphs 15 to 23 of the [List Statement] against the Defendant [Owners Corporation] ( 'the Cause of Action' ):
(i) whether the Cause of Action was assignable having regard to:
(A) the terms of clause 9 of the [C]ontract between BMP and the Owners Corporation [set out in [19] of the Statement of Agreed Facts]; and
(B) whether the Owners Corporation waived its entitlement to rely on clause 9, as referred to in paragraph 2(d) of the Amended Reply?
(ii) if clause 9 of the [C]ontract applies to prevent the assignment of the Cause of Action :
(A) is clause 9 unenforceable or void in that it constitutes an attempt to contract out of the Corporations Act 2001 or is otherwise contrary to public policy;
(B) does CGS have title to the Cause of Action on the grounds that there was a sale or disposal of the Cause of Action to CGS, by BMP's liquidator pursuant to Section 477(2) of the Corporations Act 2001?
(iii) Having regard to the determination of 1(a)(i) and (ii), was the Cause of Action assigned or sold to the Plaintiff ( 'CGS ') ? ;
(A) by the deed referred to in paragraph 9 of the List Statement ( 'First Alleged Assignment' ) ? ;
(B) alternatively, by the deed referred to in paragraph 14 of the List Statement ( 'Second Alleged Assignment' ); or
(C) alternatively, by the sale or disposal of the Cause of Action [?]
(b) Did CGS have a valid cause of action against the Owners Corporation at the time these proceedings were commenced?
(c) If the answer to 1(b) is 'no', is CGS nevertheless entitled to maintain these proceedings against the Owners Corporation on the grounds that CGS filed an Amended List Statement on 1 December 2008; or on the grounds that CGS filed [the] List Statement on 23 March 2009?" (Emphasis added in Questions 1(a)(ii) and (iii))
The Answers
The primary Judge (Bryson AJ) answered the separate questions (at [61]) as follows:
| (a) | (i)(A) | No, it was not assignable. |
| (i)(B) | No, it did not waive its entitlement. | |
| (ii)(A) | No | |
| (ii)(B) | Yes | |
| (iii) (A)(B) and (C) | The cause of action was disposed of to the plaintiff by the second Deed of Assignment in its second form . | |
| (b) | No | |
| (c) | CGS is entitled to maintain these proceedings on the grounds that CGS filed a Further Amended List Statement on 23 March 2009. |
(Emphasis added.)
These answers, if not disturbed by this Court, mean that the proceedings will continue and a further hearing will be required to resolve the remaining issues in dispute.
THE APPLICATION FOR LEAVE TO APPEAL
The Owners Corporation has filed a summons in this Court seeking leave to appeal from the determination of the answers to questions 1(a)(ii)(B) and 1(a)(iii). Leave to appeal is necessary because the orders made by the primary Judge were interlocutory: Supreme Court Act 1970 (NSW), s 101(2)(e). Argument on the application for leave to appeal was heard at the same time as the argument on the appeal.
There may be an issue as to whether the amount claimed by CGS from the Owners Corporation was due and payable to BMP on the date the Second Deed of Assignment was executed, particularly having regard to the dispute resolution procedure provided for in the Contract. However, neither party suggests that this is an impediment to the separate questions being asked and answered. The parties accept, in effect, that for the purposes of the separate questions and for the present application, the allegations in paras 26 and 27 of the List Statement ([9] above) should be taken to be correct and that the separate questions should be read as incorporating that assumption.
Ms Lane, who appeared on behalf of CGS, submitted that leave to appeal should be refused because the decision of Bryson AJ was not attended with sufficient doubt to warrant the grant of leave. The argument in this Court demonstrated, however, that the correctness of the decision is, to say the least, not clear-cut. Moreover, the question of construction is potentially of some significance for liquidators of companies and parties who have contracted with such companies on the basis that rights under the contract are non-assignable. Accordingly, the Owners Corporation should be granted leave to appeal in relation to the issues identified in its summons for leave to appeal.
THE PRIMARY JUDGMENT
The primary Judge noted (at [14]) that the significance of the dispute resolutions procedure in the Contract had not been debated before him. Accordingly, while he considered that this issue might have to be addressed later, it was not necessary for him to do so.
The primary Judge said (at [35]) that it followed from the reasoning of the House of Lords in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, that GC 9.1 of the Contract prevented BMP from assigning the payment due to it under the Contract. A fortiori (at [35]) BMP:
"... could not effectively assign the payment due to it under the contract, and (in my opinion it follows) could not effectively assign a claim to be entitled to such a payment which had not been carried through an agreed dispute resolution process or upheld by a determination."
GC 9.1 was even clearer than the clause under consideration in Linden Gardens because GC 9.1 specifically forbade the assignment of "... the Contract or any payment thereunder " (at [38]). After considering the authorities, the primary Judge concluded (at [42]) as follows:
" On its correct construction GC 9.1 prohibits the assignment in clause 4.1 of the Second Deed of Assignment. I accept the characterisation which senior counsel for [the Owners Corporation] gave that rights assignment of which is prohibited by GC 9.1 are inherently incapable of being assigned; it is not simply a matter of giving effect to the contractual prohibition on assignment; it is an inherent characteristic of those rights that they cannot be assigned, and they are given this characteristic by the agreement of the parties which is the sole source of their existence. Those rights do not have any existence on any other basis than that they are not assignable."
The primary Judge then considered whether, despite the construction he had given to cl GC 9.1, s 477(2)(c) of the Corporations Act empowered the liquidators to assign to CGS BMP's right to recover the sum of $1,038,918.00 from the Owners Corporation. In his Honour's view (at [51]), the authorities established that the power in s 477(2)(c) extends to disposing of a cause of action. Further, he said (at [55]-[56]) that CGS's claim to be entitled to a payment of $1,038.918.00:
"55 ... is a chose in action or thing in action within the ordinary meaning of that expression, and there is no reason to suppose that the expression has a different or qualified meaning when used in s 9 of the Corporations Act . It is difficult to see the claim as included within general concepts of property or within the references to property interests in the first part of the definition in s 9, but the extension by inclusion of "thing in action" in the definition shows that the reference to a thing in action has a longer reach than general concepts of property rights. It is authoritatively established that disposition of a claim within the power in s 477(2)(c) is effective notwithstanding that without that power assignment would be illegal and void under the law relating to maintenance and champerty.
56 In my opinion the claim is no less a thing in action and no less susceptible to disposition by a liquidator because under the general law an assignment would be ineffective for another reason. The disposition did not take place under the general law; it has the force that s 477(2)(c) gives it."
His Honour expressed (at [57]-[58]) concern that this construction of s 477(2)(c):
"57 ... gives the transaction a severe adverse effect against the interests of the [Owners Corporation]. According to the terms of its contract, the [Owners Corporation] was entitled to have any disputes about payments limited to disputes with the party it was contracting with; there are good reasons for such a limitation, especially in building cases, as explained in Linden Gardens . The Court looks for clear expression of legislative intention to override rights under the general law including contractual rights, but powers of disposition under Bankruptcy Law and Corporations Law have long been understood to operate with amplitude and I regard the intention as clear.
58 The defendant's senior counsel gave great stress and clear illustration to the position that according to the contract and the general law of assignment, the subject matter of the supposed assignment is inherently incapable of being assigned. The inherent incapacity is as counsel contended, but statute law has created machinery under which the right can be disposed of, and it is the Court's function to give effect to that disposition so as to serve the purpose of enabling realisation of a company's resources for the benefit of those interested."
The primary Judge went on to hold (at [59]) that the Owners Corporation had not waived its entitlement to rely on GC 9.1. He also held (at [60]) that CGS was not disentitled, by reason of the timing of amendments to the pleadings, from relying on the Second Deed of Assignment. No issue arises as to either of these matters in this Court.
His Honour answered the separate questions in the manner recorded earlier (at [15] above).
SUBMISSIONS
Common Ground
CGS expressly did not dispute the conclusions reached by the primary Judge at [35] and [42] of the judgment. Thus the argument in the appeal proceeded on the basis that his Honour had correctly held that the chose in action purportedly assigned by the liquidators of BMP was " inherently incapable of being assigned " and that the rights of BMP " do not have any existence on any other basis than that they are not assignable ".
As the primary Judge pointed out (at [38]), a dictum in the High Court ( Broadcast Australia Pty Ltd v Minister Assisting the Minister for Natural Resources (Lands ) [2004] HCA 4; 221 CLR 178, at [15 n 10], per curiam ) indicates that there may be cases where, as a matter of construction:
"an assignment in breach of covenant against assignment [is] not invalid as between obligor and assignee, though it [gives] the obligor [sic] a right to sue the assignor for damages."
See, too, Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225, at 236, per curiam (making the same point and noting that there is a distinct body of authority relating to the operation of a covenant against an assignment of a lease); G McCormack " Debts and Non-Assignment Clauses " (2000) J Bus L 422, at 442-444. No argument was advanced in this Court based on these authorities.
Owners Corporation's Submissions
Mr Corsaro SC, who appeared for the Owners Corporation, submitted that the category of " choses in action " is very broad and includes interests with a variety of characteristics. In this case, on the primary Judge's unchallenged holding, BMP's chose in action was inalienable. Accordingly, the right to enforce the chose in action remained personal in the liquidator's hands.
Mr Corsaro did not suggest that the Parliament of a State lacked the power (no doubt subject to any possible constitutional constraints) to convert, for certain purposes, an unassignable chose in action into an assignable chose in action. However, he submitted that in the absence of a clearly expressed intention to achieve such a result, s 477(2)(c) of the Corporations Act should be read as confined to choses in action that are in their nature assignable. Mr Corsaro contended that there are very good reasons why a contracting party, particularly to a building contract, would wish to insert a non-assignment clause into the contract. There was no compelling reason to construe s 477(2)(c) of the Corporations Act as intended to diminish the rights of the obligor by exposing the obligor to detriments not envisaged or authorised by the terms of the contract:
"It is one thing to say that section 477(2)(c) may reflect an modification of public policy considerations, that might otherwise invalidate an assignment of a chose in action which is otherwise assignable, but quite another to say that section 477(2)(c) brings about a modification of the nature of the chose in action itself, to sever from the property created by a contract the unassignability element."
In the alternative, Mr Corsaro submitted that the right given to BMP under the Contract was purely personal and should not be classified as " property " that could be disposed of pursuant to s 477(2)(c). He contended that the liquidator of a company must take the company's assets subject to whatever limitations and encumbrances bind those assets. The statutory policy of facilitating the liquidator's role in realising the assets of the company must be understood as facilitating the realisation of the assets subject to their inherent limitations.
CGS's Submissions
Ms Lane submitted that the language of s 477(2)(c) of the Corporations Act is broad enough to empower the liquidator to dispose of a chose in action that is otherwise unassignable. Since there was no dispute that the right assigned was a " thing in action " for the purposes of the definition of " property " in s 9, the effect of s 477(2)(c) is to allow the liquidator to assign the right to a third party even though the right is, as the primary Judge found, " inherently incapable of being assigned ".
Ms Lane relied on authorities holding that s 477(2)(c) permits a liquidator to sell or dispose of choses in action that otherwise would be unassignable. She gave as examples UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 (Vic CA) and Ex parte McGrath; Re Pan Pharmaceuticals Ltd (in liq) [2008] FCA 563; 26 ACLC 386. Ms Lane submitted that these authorities demonstrate that s 477(2)(c) should be given a broad reading such that if an interest can be described as a " thing in action " s 477(2)(c) makes it assignable by the liquidator.
Ms Lane also submitted that a broad construction of s 477(2)(c) would promote the object of ensuring that the assets of a company in liquidation are available for the benefit of its creditors. She submitted that it would be " anomalous " if the liquidator of a company is precluded from assigning all choses in action containing a non-assignability clause. Unless the statutory power overrides such a clause, so she argued, the creditors may be denied the opportunity to benefit from the company's assets.
REASONING
The Legislative Context
Section 477(2)(c) of the Corporations Act is in Div 2 of Part 5.4B. Part 5.4B is headed " Winding up in insolvency or by the Court ", while Div 2 is headed " Court-appointed liquidators ".
On an order being made for the winding up of a company, the Court may appoint an official liquidator to be liquidator of the company: s 472(1). If a company is being wound up in insolvency or by the Court the liquidator must:
"take into his or her custody or under his or her control all the property to which the company is or appears to be entitled (s 474(1))."
A winding up order does not divest the company of the beneficial ownership of property. In Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; 220 CLR 592, the joint judgment approved the following statement as to the effect of a winding up order:
"Whether the company is insolvent or solvent, the company holds its property beneficially but subject to the statutory scheme of liquidation under which the liquidator is to pay creditors and distribute any surplus among members. Unsecured creditors and contributories have the benefit of the liquidator's administration of the company's estate. Their special interest is to some extent like that of objects of a discretionary trust; they have a right to have a fund of assets protected and properly administered. That interest, although not an interest in specific assets, will be protected against third persons."
Linter Textiles , at [54], per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ, citing Ford and Austin's Principles of Corporations Law (7 th ed, 1995), at 1013. The joint judgment observed (at [54]) that the critical point (for the resolution of the particular case) was that:
"the change in control of the affairs of the company has no impact upon its beneficial ownership of its assets."
See also at [125]-[130], per McHugh J.
The position of a company in liquidation is to be contrasted with the effect of a sequestration order upon a bankrupt's property. It has long been the law that where a debtor becomes a bankrupt, the property of the bankrupt vests forthwith in his or her trustee in bankruptcy and after-acquired property vests as soon as it is acquired by the bankrupt: see Bankruptcy Act 1966 (Cth), s 58(1); W Blackstone, Commentaries on the Laws of England , (18 th ed, 1829), vol ii, at 485-486.
The Corporations Act makes provision for the Court, on application by the liquidator, to direct that all or part of the property of the company vest in the liquidator. If such an order is made, the property vests in the liquidator accordingly: Corporations Act , s 474(2). However, vesting orders are not commonly made, probably because the liquidator has extensive powers in any event to dispose of the company's property: MGR Gronow, McPherson's Law of Company Liquidation (5 th ed, 2006), at [1.120].
Section 477(1) of the Corporations Act confers powers on the liquidator. These include carrying on the business of the company so far as is necessary for the beneficial disposal or winding up of the business; compromising any claims against debtors or others liable to the company; and giving a complete discharge in respect of any such debt or liability: s 477(1).
Section 477(2) confers additional powers on the liquidator, including the following:
"(a) bring or defend any legal proceeding in the name and on behalf of the company; and
...
(c) sell or otherwise dispose of, in any manner, all or any part of the property of the company; and
...
(d) do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents ...
...
(m) do all such other things as are necessary for winding up the affairs of the company and distributing its property."
The liquidator is obliged, as soon as practicable after a company has been wound up, to cause the company's property to be collected and applied in discharging the company's liabilities: s 478(1).
Chose in Action
I have already set out the definition of " property " in s 9 of the Corporations Act (at [4] above). There was no dispute between the parties that " thing in action " in s 9 has the same meaning as " chose in action ": Krishell Pty Ltd v Nilant [2006] WASCA 223; 32 WAR 540, at [73], per McLure JA.
Torkington v Magee [1902] 2 KB 427 is frequently cited as an authoritative definition of " chose in action ". In that case, Channell J was actually considering the expression " debt or other legal chose in action " used in s 25(6) of the Judicature Act 1873 (UK). His Lordship said (at 430-431):
"'Chose in Action' is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession. It is an expression large enough to include rights which it can hardly have been intended should be assignable by virtue of the sub-section in question, as, for instance, shares, which can only be transferred as provided by the Companies Acts. It is probably necessary, therefore, to put some limit upon the generality of the words; but I think that the necessary limitation is shewn by the considerations to which I have already referred, and also by the words of subs. 6 itself. I think the words 'debt or other legal chose in action' mean 'debt or right which the common law looks on as not assignable by reason of its being a chose in action, but which a Court of Equity deals with as being assignable'."
See also Loxton v Moir [1914] HCA 89; 18 CLR 360, at 379, per Rich J (the primary sense of " chose in action " is " a right enforceable by an action ").
As I have noted, Ms Lane did not dispute the primary Judge's characterisation of the " thing in action " relied on by CGS as inherently incapable of being assigned. It is important to bear in mind that the non-assignability of BMP's chose in action flowed from the express terms of the Contract it entered into with the Owners Corporation. But for GC 9.1 in the Contract, BMP's legal chose in action would have been assignable by statute, either by BMP or, after the making of the winding up order, by the liquidator.
Some Legislative History
The origins of modern legislation governing the winding up of companies lie in the Joint Stock Companies Act 1856 (UK) (19 and 20 Vic c 47) which established the foundations of modern company law. Section 90 of the 1856 Act empowered the liquidator of a company, with the sanction of the Court, to act in particular ways. These included bringing proceedings in the name of and on behalf of the company, compromising debts or claims, and carrying on the business of the company for the purpose of the winding up.
Section 90 was also the forerunner of s 477(2)(c), in that it empowered the liquidator, with the consent of the Court:
"To sell the Real and Personal and Heritable and Moveable Property, Effects, and Things in Action of the Company by Public Auction or Private Contract, with Power, if they think fit, to transfer the whole thereof to any Person or Company, or to sell the same in Parcels."
This provision was carried over to s 95 of the Companies Act 1862 (UK) (25 & 26 Vic C89). The 1862 Act provided the template for the Companies legislation of the Australian Colonies.
New South Wales was relatively slow to adopt the 1862 Act but ultimately did so, with some variations, in the Companies Act 1874 (NSW) (37 Vic No 19). Section 154 of the 1874 Act was to the same effect as s 95 of the Companies Act 1862 (UK), although it used the expression " choses in action " rather than " things in action ". Relevantly, s 154 empowered the official liquidator, with the sanction of the Court:
"To sell the real and personal property effects and choses in action of the company by public auction or private contract with power to transfer the whole thereof to any person or company or to sell the same in parcels."
The Companies Act 1899 (NSW), s 104(c) repeated the formula in s 154 of the 1874 Act , except that the expression " choses in action " was replaced by " things in action ".
Subsequent legislation removed the need for the Court to sanction the exercise by the liquidator of the statutory powers. This change was effected by the Companies Act 1936 (NSW), s 231(2)(c), which provided that the liquidator in a winding up by the court had power:
"(c) to sell the real and personal property and things in action of the company by public auction or private contract, with power to transfer the whole thereof to any person or company, or to sell the same in parcels."
It will be seen that this provision was very similar to s 154 of the 1874 Act , except that the sanction of the court was no longer necessary. The liquidator's power was, however, subject to the control of the court and any creditor or contributory would apply to the court with respect to any exercise or proposed exercise of the power: see N G Pilcher, A H Uther and W J Baldock, The Australian Companies Acts , Reconciled and Annotated (1937), at 620-621.
Three observations should be made about the early legislation empowering a liquidator to sell the property of the company, including choses in action. The first is that a power to sell was necessary because the companies legislation did not provide for the property of the company to vest in the liquidator upon the making of a winding up order (see Joint Stock Companies Act 1856 (UK), s 89). In the absence of a power to sell, or some equivalent statutory power, the liquidator would not have been able to realise the assets of the company for the benefit of the creditors by disposing of the assets to third parties.
Secondly, the liquidator's statutory power to sell was concerned, at least in part, with procedural matters, in particular the mechanisms available to the liquidator to effect a sale of the company's property. The liquidator was empowered to sell by public auction or private contract and was authorised to transfer the whole or to sell the property in parcels.
Thirdly, there was a particular reason for the early Companies legislation to refer specifically to choses in action. It was not until the enactment of s 25(6) of the Judicature Act 1873 (UK) (36 & 37 Vic C66) that legal choses in action became readily assignable. That legislation was not copied in New South Wales until the enactment of the Conveyancing Act 1919 (NSW), s 12.
The history of choses in action is complex and the terminology associated with them often confusing. Over time, as Holdsworth explains, choses in action that were once regarded as unassignable personal rights were transformed so as to become assignable and were thenceforth no longer regarded as purely personal: W S Holdsworth, A History of English Law (1925), vol 7, at 515-539. But until the intervention of the legislature, legal choses in action were generally regarded as unassignable. There were exceptions to the general rules and there were procedural mechanisms available to allow an assignee of a legal chose in action to sue the obligor in the assignee's own name: see J G Starke, Assignments of Choses in Action in Australia (1972), at [11]. Moreover, the position in equity was different: see Starke, Ch 3. Nonetheless, in the absence of a statutory power to sell choses in action, a liquidator wishing to assign to a third party debts due to the company would face procedural hurdles. Provisions such as s 154 of the Companies Act 1874 (NSW) overcame these procedural hurdles.
Construction of s 477(2)(c) of the Corporations Act
Despite the differences in form, the relevant provisions of the Corporations Act are very similar in substance to their predecessors in the early Companies legislation. The liquidator is given power to sell or dispose of the company's property; that power may be exercised " in any manner "; the liquidator may sell or dispose of the whole or any part of the property; and the " property " of the company includes a thing in action.
As with the early legislation, the Liquidator's statutory power to sell or dispose of the company's property:
·is necessary because the property of the company does not vest in the liquidator upon the winding up;
·deals with procedural matters, in that it permits the liquidator to sell or dispose of the company's property " in any manner " and in whole or in part; and
·specifically refers to " things in action " as a species of property which can be the subject of the liquidator's power of sale or disposition.
The early legislation was clearly intended to address the difficulty that legal choses in action were regarded as non-assignable, even though procedural techniques had developed by the mid-nineteenth century to overcome the difficulty. To adapt the language of Channell J in Turkington v Magee , the legislation removed the restrictions on assignability inherent in the nature of a chose in action. There is, however, nothing in the language of the early 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 an express agreement entered into by the company and the obligor .
In my opinion, substantially the same analysis applies to the legislation in its current form. 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.
Professor McCormack has explained why there may be very good reason to insert a non-assignability clause in a contract: G McCormack, " Debts and Non-Assignment Clauses ", at 424-425. For example, a non-assignment clause may be designed to prevent an obligor dealing with a party with whom he or she would not have chosen to deal. This applies particularly to building contracts, as recognised by Lord Browne-Wilkinson in Linden Gardens . His Lordship explained (at 105, 107) that a party to a building contract may have a genuine commercial interest in ensuring that he or she has to deal only with the other party to the contract:
" The reason for including the contractual prohibition viewed from the contractor's point of view must be that the contractor wishes to ensure that he deals, and deals only, with the particular employer with whom he has chosen to enter into a contract. Building contracts are pregnant with disputes: some employers are much more reasonable than others in dealing with such disputes."
The second reason identified by Professor McCormack is that the obligor may wish to preserve set off claims which might be prejudiced if a contract is capable of being assigned. Lord Browne-Wilkinson gave an example in Linden Gardens (at 105):
" disputes frequently arise in the context of the contractor suing for the price and being met by a claim for abatement of the price or cross-claims founded on an allegation that the performance of the contract has been defective. Say that, before the final instalment of the price has been paid, the employer has assigned the benefits under the contract to a third party, there being at the time existing rights of action for defective work. On the Court of Appeal's view, those rights of action would have vested in the assignee. Would the original employer be entitled to an abatement of the price, even though the cross-claims would be vested in the assignee? If so, would the assignee be a necessary party to any settlement or litigation of the claims for defective work, thereby requiring the contractor to deal with two parties (one not of his choice) in order to recover the price for the works from the employer?"
For another example, see Linden Gardens at 105-106.
The third reason given by Professor McCormack is that an assignor of a chose in action may be less interested in performing his or her contractual obligations if the benefit of the contract has been assigned to a third party: cf Don King Productions Inc v Warren [2000] Ch 291 (management agreement for a boxer).
Not all of these considerations necessarily apply with equal force to the assignment of a chose in action comprising a debt or other cause of action. But as Ms Lane accepted, the logic of CGS's construction of s 477(2)(c) is that a liquidator could, for example, force a party to a contract for personal services containing an express non-assignability clause into a relationship with a person with whom that contracting party has no wish to be associated. Contrary to the contention advanced by Ms Lane in her careful and thorough argument, I do not think that there is anything anomalous in construing s 477(2)(c) so as not to permit a liquidator, in effect, to override a non-assignability clause in a contract entered into by the company itself.
I accept that the language of s 477(2)(c), as Ms Lane submitted, is broad. But that does not mean that the language is 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 general law as valid and effective to render property incapable of being assigned. In my opinion, the liquidator's statutory power to sell or dispose of the company's choses in action does not extend to a chose in action which is not assignable by reason of an express agreement entered into by the company, where that agreement is valid and effective under the general law. The 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.
This construction of s 477(2)(c) is consistent with the history of the provision. It is true that legal choses in action are no longer non-assignable. But the fact that the legislation has remained in substantially the same form for a century and a half suggests that its meaning has not changed. Moreover, there is a sound basis for the legislation to retain a specific reference to things in action. The definition of " property " in s 9 precludes any argument as to whether things in action should be regarded as " property " for the purposes of s 477(2)(c) (and other provisions).
In addition, the power to sell or dispose of things in action " in any manner " is granted to the liquidator independently of any power conferred by s 12 of the Conveyancing Act . It is not necessary in this case to examine the relationship between s 477(2)(c) of the Corporations Act and s 12 of the Conveyancing Act . It is enough to observe that the procedures available to a liquidator to assign a legal chose in action under s 477(2)(c) are not necessarily confined to that laid down by s 12 of the Conveyancing Act .
The construction I prefer also 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. If CGS's contention is correct, a party which, for good commercial reasons, has negotiated a non-assignable contract with the company will find the character of its contractual obligations changed if the company goes into liquidation and the liquidator chooses to exercise the statutory power to sell the company's property. There are other powers available to the liquidator to enable the company's assets to be realised. The policy of facilitating realisation of those assets does not require the contractual rights of third parties who have dealt with the company to be overridden.
Authorities
Ms Lane accepted that there is no decision that precisely addresses the present question. However, as I have noted, she relied on UTSA v Ultra Tune . The issue in UTSA V Ultra Tune was whether s 477(2)(c) of the Corporations Act empowered the liquidator to assign the company's cause of action in pending proceedings, where the proposed assignee which had no previous interest in the proceedings. An objection was taken on the ground that the arrangement was contrary to public policy as champertous.
In the Victorian Court of Appeal, Hayne JA (with whom Brooking and Phillips JJA agreed) rejected the objection (at 463):
"It may be accepted, for present purposes, that public policy frowns upon 'trafficking in litigation' ... But if there is such a rule, it is not absolute ...
In my view there is no warrant for reading down the general words of the law. The reference to sale or disposal 'in any manner' makes plain that it is the intention of legislature that the powers of the liquidator are to be ample. If a liquidator is to realise the assets of the company in liquidation to the best advantage, it would be surprising indeed if the liquidator were able to sell a particular form of the company's assets (its rights of action) to only a limited class of persons - those who are already interested in the outcome of the action concerned. Especially is this so when it is to be assumed that the provisions about realisation of the company's assets are to be read in light of the long established rule in relation to bankruptcy which permits the trustee in bankruptcy to sell the bankrupt's rights of action to a third party ..."
UTSA v Ultra Tune did not turn on whether s 477(2)(c) of the Corporations Act empowers a liquidator to sell or dispose of an otherwise non-assignable chose in action. It does not appear to have been suggested in that case that the company's cause of action was not assignable, provided that the proposed assignee had a sufficient interest in the proceedings. Much less was UTSA v Ultra Tune concerned with an attempt by a liquidator to sell or dispose of a chose in action that was non-assignable by virtue of an express agreement between the company and the obligor.
The question in UTSA v Ultra Tune was whether the public policy reflected in the doctrines of champerty and maintenance restricted the class of persons to whom the liquidator could assign the company's cause of action. Hayne JA applied principles well settled in the law of bankruptcy to hold that the object of the legislation would be frustrated if the public policy underlying the doctrines of champerty and maintenance prevented a liquidator discharging his or her statutory duty of realising the company's assets to advantage: see, for example, Seear v Lawson (1880) 15 Ch D 426, at 430; per Bacon V-C; Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238; UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667, at 682-683, per Hansen J; Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; 229 CLR 386, at [75], per Gummow, Hayne and Crennan JJ.
It is true that historically the common law's distaste for trafficking in causes of action largely explains the non-assignability of legal choses in action: Holdsworth, A History of English Law , vol 7, at 532-535: Campbells Cash & Carry , at [75]. But as the joint judgment in Campbells Cash & Carry explained, the doctrine did not rest on solid foundations and has long been regarded as outmoded, if not obsolete: at [76]-[82]. It is therefore not surprising that UTSA held that the doctrine of champerty did not preclude assignment by a liquidator of a chose in action to a person who does not already have an interest in the litigation. That holding does not affect the question of construction of s 477(2)(c) that arises in the present case.
Ex parte McGrath , to which Ms Lane referred, carries the matter no further than construing s 477(2)(c), in accordance with well-established authority, as empowering the liquidator to assign the company's cause of action to a stranger. Jacobson J was not concerned with a purported assignment of a contractual chose in action which was subject to a non-assignability clause agreed to by the company itself: cf Cummeragunga Pty Ltd (in liq) v Aboriginal and Torres Strait Islander Commission [2004] FCA 1098; 139 FCR 73, at [126]-[127], where Jacobson J observed that a liquidator takes property subject to whatever constraints exist in its nature.
Ms Lane also referred to Krishell v Nilant , a decision of the Western Australian Court of Appeal. In that case it was held that, while a bare right of appeal divorced from a judgment debt may not be assignable ( Cummings v Claremont Petroleum NL [1996] HCA 19; 185 CLR 124), it was arguable that a liquidator could assign a judgment debt in combination with a right of appeal against a separate judgment in favour of the judgment debtor. The judgments in Krishell do not provide guidance on the question of construction that arises in the present case.
CONCLUSION
The Owners Corporation should be granted leave to appeal against the decision of the primary Judge. The appeal should be allowed. The answers to Questions 1(a)(ii)(B) and 1(a)(iii) should be set aside. In lieu thereof, the Questions should be answered as follows:
Question 1(a)(ii)(B): No.
Question 1(a)(iii): No.
It may be that the consequence of these answers is that the proceedings by CGS against the Owners Corporation must be dismissed. However, it is not clear, in view of the answer given by the primary Judge to Question 1(c), whether CGS relies on some other basis to maintain an action against the Owners Corporation.
My present view is that the answer to Question 1(c) should be set aside and the answer " No " substituted. If this is correct, it would follow that an order should be made dismissing CGS's proceedings against the Owners Corporation.
However, before making the orders referred to in the previous paragraph, the parties should be given an opportunity to make written submissions on whether these orders should be made. If there is agreement that the orders should be made, the parties should file a note to that effect within seven days. If not, CGS should file written submissions within seven days as to which consequential orders it says should be made. The Owners Corporation should file its written submissions in reply within a further seven days.
CGS should pay the Owners Corporation's costs of the appeal, including the application for leave to appeal.
**********
21
6
10