Thomas v National Australia Bank Ltd

[1999] QSC 61

IN THE SUPREME COURT

OF QUEENSLAND

No. 237 of 1996

Brisbane

Before: de Jersey CJ

[Thomas v National Australia Bank Ltd & Ors]

BETWEEN:

GRAHAM ARNOLD PRANCE THOMAS

(Plaintiff)

AND:

NATIONAL AUSTRALIA BANK LIMITED

(ACN 004 044 937)

(First Defendant)

AND:

LLOYD BANK NZA LIMITED

(ACN 000 931 760)

(Second Defendant)

AND:

ARTHUR ANDERSEN (a firm)

(Third Defendant)

AND:

JOHN EBBAGE

(Fourth Defendant)

REASONS FOR JUDGMENT - de JERSEY CJ

Judgment delivered:   25 March 1999

The plaintiff sues in respect of claims which passed to his Trustee in Bankruptcy, upon his being declared bankrupt on 24 October 1991.   The bankruptcy terminated on 8 December 1994.   By a deed of assignment dated 5 January 1996, in consideration of the plaintiff’s agreeing to pay to his trustee the sum of $500, the trustee assigned to the plaintiff:

“all of its right, title and interest in any Rights of Action or litigation which may been (sic) or become vested in the Trustee in Bankruptcy in relation to the estate of Graham Arnold Prance Thomas which it may have against or in relation to”

amongst others, the defendants.  The plaintiff commenced this action on 9 January 1996.  He had not previously given the defendants written notice of the assignment.  He did subsequently give the notice, apparently at the earliest in October 1996, and within the limitations period with respect to at least some of the claims.

The first, third and fourth defendants applied for the separate and preliminary determination of this question:

“Was the plaintiff entitled to bring and maintain this action, in that prior to the commencement of the action no notice was given to the defendants (or any of them) of an assignment made by a deed of assignment dated 5 January 1996 executed by the Trustee in Bankruptcy of the plaintiff’s estate?”

The plaintiff agreed to my determining that question separately, should I consider it appropriate.  It is appropriate that I do so: the question can be determined in isolation, and it may be of utility to the parties to have it determined in that way before the rest of the action is progressed.  The applicants contend the plaintiff had no entitlement to bring the action, which is consequently a nullity and should be dismissed.

The issue is whether the plaintiff gained title to sue upon these claims through an assignment effective in equity. There was no legal assignment because, as required by section 119 of the Property Law Act 1974, the plaintiff did not give “express notice in writing ... to the debtor ... or other person from whom the assignor would have been entitled to claim such debt or thing in action”.

Mr Keane, QC, who appeared for the applicant defendants, particularly relied on the decision of the New Zealand Court of Appeal in Mountain Road (No. 9) Ltd v. Michael Edgley Corporation Pty Ltd [1999] 1 N.Z.L.R. 335, for the view that notice to the person liable on the chose in action said to have been assigned, is necessary to entitle the assignee to enforce the chose in action against that person. That case concerned a purported assignment not effectual in law because no notice had been given, either before commencement of the proceedings or before expiration of the limitations period. It was contended however that the assignment was effective in equity. The Court concluded that an equitable assignee’s title to sue on the chose in action arises against third parties only if notice has first been given to them. It was said (page 343):

“... in the case of an equitable assignment of a chose in action, notice to the person liable is not necessary to complete the equitable title of the assignee as between assignor and assignee.  Whereas in such circumstances the legal title to the chose remains in the assignor until the requirements for a legal assignment have been satisfied, equitable title is vested in the assignee immediately.  But notice to the person liable has consistently been regarded as necessary to give the assignee title to claim the benefit of the chose in action against that person.”  (underlining added)

That position is consistent with Halsbury (4th, vol 6, para 42):

“In order to make the assignee’s title effective against the debtor or fund holder and third parties notice of the assignment must be given to the debtor or fund holder ...”

The statement from Halsbury was approved by Lord Denning MR in Warner Bros Records Inc v. Rollgreen Ltd [1976] 1 Q.B. 430, 442. It is also consistent with the approach of Roskill J, as he was, in Compania Colombiana de Seguros v. Pacific Steam  Navigation Co [1965] 1 Q.B. 101, 129:

“antecedent notice to the debtor before action brought is clearly required by ... English law.”

Bollen J of the Supreme Court of South Australia took the same view in Squires v. S.A. Steel and Sheet Pty Ltd (1987) 45 S.A.S.R. 142, 144, observing that “notice is essential even in equity”, and having referred to in the passage cited above from Halsbury, added:

“This applies in Australia ... there must be notice.  A debtor who has received no notice of an assignment may discharge his debt by payment to his original creditor, the assignor.  He may so discharge his debt if he has had no clear and unambiguous notice of the assignment. ”

As to the contrary view expressed by Scott J in Weddell v. J.A. Pearce and Major [1988] Ch 26, 42-3, I am content to adopt the response of the New Zealand Court of Appeal expressed at p.343 of Mountain Road:

“The Judge did not recognise any difference between a proceeding lacking a party (the assignor not joined) and a proceeding where there is no title in the plaintiff to sue at all because a prerequisite to the right to sue (notice of the assignment to the defendant) is absent.

It was in a case of the second kind that Roskill J held that the proceeding was a nullity in contrast to cases of the first kind which are not nullities.  The difference is between the formality of parties and the substance of a precondition to the existence of the cause of action.  The equitable assignee’s ability in some circumstances to commence proceedings without joining the assignor cannot logically be equated with a similar ability to sue without giving notice to the third party.  The fact that Scott J did not accept the essential distinction between the two situations is apparent from his comment that if the House of Lords’ cases (which dealt with the absence of the assignor as a party) had been cited to him, Roskill J could not have decided the equitable assignee point as he did.  This is not so because the House of Lords’ cases were dealing with a materially different point from that decided by Roskill J, who, in our judgment, was right on the limitation issue.

Time continues to run in favour of a prospective defendant in respect of an existing cause of action unless and until someone entitled to enforce the cause of action validly commences proceedings for the purpose.  If notice of the assignment has not been given to the prospective defendant, the assignee plaintiff is not competent to enforce the cause of action so assigned. 

When Scott J said in Weddell that the plaintiffs, as equitable assignees, had locus standi to sue, he appears to have based his conclusion on the proposition that the absence of the assignor did not make the suit a nullity.  To the extent that he meant the absence of notice was not fatal, we cannot agree.

For the reasons given earlier, notice to the person liable is required before an assignee (whether legal or equitable) can enforce the cause of action assigned.  It follows that Edgley’s proceeding is invalid, not only because at its commencement the assignment was in any event contractually incomplete, but also because no notice of the assignment had been given to the defendants.”

There is no doubt that principle and the weight of authority support the approach affirmed in Mountain Road.  Mr Morris, QC, who appeared for the plaintiff, submitted, however, that the position expressed on this point in Mountain Road amounted strictly to obiter dicta, because unlike the assignment here, there was in Mountain Road merely an inchoate agreement to assign, or as it was put in the passage just quoted, an assignment “contractually incomplete” (p.345).  The decision should, in my view, be read as providing two reasons, each sufficient in itself, for the conclusion that the plaintiff was not competent to bring the suit.  But even if - because the completeness of the assignment was the anterior point -  the Court’s conclusion on the issue of notice was strictly obiter, it is nevertheless highly persuasive, especially in light of its comprehensively based affirmation of a position earlier so well established (as by Warner, Compania Colombiana, Halsbury, etc).

Mr Morris relied perhaps more vigorously on the unreported decision of the Court of Appeal in Equus Financial Services Ltd v. Glengallen Investments Pty Ltd (Appeal No. 262 of 1993, judgment given 19 May 1994).  The Court decided the particular point that proceedings brought by the assignee were not a nullity because of the absence of the assignor.  The then President, Justice Fitzgerald, said:

“If there has been an equitable assignment, the only possible defect in the proceeding commenced by the appellant is the absence of Rural as a party, which does not justify the dismissal of the action ...”

In fact, notice had there been given to the debtor, sufficient in equity, as held by the President and McPherson JA, and even in law, per Derrington J.  The case is  distinguishable from this one: it concerned an issue which does not arise here.

That brings me to the final question, involved in Mr Morris’s third point: is the action validated by the notice which was in fact given, albeit after the commencement of the action, leaving only the arguable need to join the assignor as a party - a present “deficiency” not warranting the striking out of the proceedings?  Mountain Road would deem the absence of prior notice to the debtor fatal to the proceedings (p.345).  So would Warner Bros: “an inherent and incurable defect” (p.434).  And I refer to what Ambrose J said in the unreported case of Francis v. National Mutual Life Association of Australasia Ltd (No. 2673 of 1995, 26th June 1998):

“Due to the absence of any cause of action in the plaintiff when he issued his writ it was simply a nullity and in my view it remains a nullity.”

I conclude that the plaintiff was not entitled to bring and maintain this action, because prior to its commencement he had failed to give notice to the defendants of the assignment made by the deed of 5 January 1996.  It follows that the action should be dismissed as against the applicants, the first, third and fourth defendants.  There will be an order to that effect, and that the plaintiff pay those defendants’ costs of and incidental to the summonses and the action to be taxed.