Timbercorp Finance Pty Ltd (In Liq) v FTM Nominees Pty Ltd
[2015] VSC 498
•17 September 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
List B
S ECI 2014 000703
| TIMBERCORP FINANCE PTY LTD (IN LIQUIDATION) (ACN 054 581 190) | Plaintiff |
| v | |
| FTM NOMINEES PTY LTD & ANOR | Defendants |
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JUDGE: | JUDD J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 August 2015 | |
DATE OF JUDGMENT: | 17 September 2015 | |
CASE MAY BE CITED AS: | Timbercorp Finance Pty Ltd (In Liq) v FTM Nominees Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2015] VSC 498 | Third revision: 24 February 2016 |
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CORPORATIONS – Managed Investment Scheme – Debt recovery proceeding by scheme lender – Defendants alleged equitable assignment of debt by the plaintiff to a bank – Allegation by defendant that assignment must be pleaded and assignee joined as a party Application by defendants for stay – Application by plaintiff to strike out pleading – Plaintiff competent to commence and maintain proceeding – Pleading struck out.
PRACTICE AND PROCEDURE – Application to strike out pleading – Equitable assignment alleged by defendants – Whether assignment must be pleaded and assignee joined as a party – Competency of assignor as plaintiff – Pleading struck out.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Batt, One of Her Majesty’s Counsel with Mr C Parkinson | Mills Oakley Lawyers |
| For the First and Second Defendants | Mr G Clarke, One of Her Majesty’s Counsel | Andrew Gray & Associates |
HIS HONOUR:
By Originating Process filed 24 December 2014 the plaintiff, Timbercorp Finance Pty Ltd (In Liquidation) claimed against the defendants, FTM Nominees Pty Ltd, Ron Lesh and Shirley Lesh, $4,571,995.11 with interest and costs under loan agreements entered into by them with Timbercorp Finance to fund their investment in managed investment schemes operated by the Timbercorp Group.
The defendants filed a defence and counterclaim on 23 March 2015, in which they alleged that the plaintiff had no cause of action due to an assignment of the debts. They alleged:
263.At all material times, TFPL as borrower had a Securitisation Programme Facility, under Loans Acquisition and Servicing Agreements with the corporations named below:
a.from in or about 2003, the programme limit was $60 million with Perpetual Company Trustee Limited as the lender;
b.from in or about 2004, the programme limit was increased to $100 million and the lender became ANZ;
c.from on or about 17 August 2006 the programme limit was again increased to $125 million and the lender was ANZ;
(the Securitisation Agreements).
PARTICULARS
FTM and Lesh refer to ANZ’s submission 145 to the Senate Forestry Managed Investment Schemes Inquiry, and in particular to Appendix 5 thereof. A copy is available by arrangement with their solicitor. Further particulars will be provided after discovery.
264.At all material times, TFPL as borrower had Grower Loan Facilities with ANZ as follows:
a.From in or about 2005, “GLF 1” with a facility limit of $20 million.
b.From on or about 21 December 2005, “GLF 2” with a limit of $28 million.
c.From on or about 13 July 2007, “GLF 2” with a limit of $45 million.
d.From on or about October 2007, “GLF 2” with a limit of $60 million.
e.From on or about 28 March 2008, the GLF 2 loan facility increased to $150 million, and the GLF 1 facility was absorbed into GLF 2 (the Growers Loan Facility Agreements).
PARTICULARS
The Defendants refer to ANZ’s submission 145 to the Senate Forestry Managed Investment Schemes Inquiry, and in particular to Appendix 5 thereof. Further particulars will be provided after discovery.
265.At about the time of or on a date subsequent to FTM submitting the loan applications referred to above, TFPL assigned to ANZ pursuant to the Securitisation Agreements, alternatively the Growers Loan Facility Agreements, all of TFPL’s right, title and interest in any loans owed to it by FTM, including the loans which were subsequently refinanced by TFPL (the TFPL/ANZ assignments).
PARTICULARS
Further Particulars will be provided after discovery. The Defendants’ solicitor has, by letter dated 11 February 2015, sought the documents comprising the Securitisation Agreement and novation or assignment of any loans said to be owing by FTM but these have not been provided.
266.Neither TFPL or ANZ gave notice to FTM of any of the TFPL/ANZ Assignments when they occurred, nor have they done so subsequently, and accordingly the assignments are effective in equity but not in law.
267.Insofar as any loans from TFPL to FTM have been assigned in equity to ANZ under the TFPL/ANZ Assignments:
a.ANZ is the beneficial owner of TFPL’s rights under the TFPL/ANZ assignments; and
b.TFPL holds its interest in the TFPL/FTM loans as bare trustee for ANZ.
268. Notwithstanding (a) and (b) above:
a.TFPL purports in this proceeding to be entitled to the full legal and beneficial interest in the TFPL/FTM loans when, to the knowledge of TFPL, that is not the case; and
b.TFPL has not joined the equitable assignee of the TFPL/FTM loans, ANZ, as a party to this proceeding on account of ANZ holding the beneficial interest in the applicable loans.
269.Accordingly, in relation to the applicable TFPL/FTM loans which were the subject of the TFPL/ANZ assignments, the Statement of Claim does not disclose a cause of action and ought be stayed, struck out or dismissed.
PARTICULARS
Further Particulars will be provided after discovery. The Defendants’ solicitors have sought particulars of the same by letter dated 11 February 2015, to which they have not received any reply. Further, the Defendants refer to the decision in Kapoor v National Westminster Bank Plc [2011] ECWA Civ 1083.
270.Further, if TFPL assigned any debts owed to it by FTM without assigning the guarantees of those debts alleged to have been given by Lesh, then Lesh is discharged from those guarantees by operation of law.
It may be observed from the pleading that the defendants alleged an assignment of the loans to the ANZ Bank pursuant to a Securitisation Agreement. They alleged that the assignment was effective in equity but not in law; that the ANZ was the beneficial owner of the lender’s rights; and that the lender held its interest as bare trustee for the ANZ. The defendants further alleged that Timbercorp Finance purported to be the full legal and beneficial owner when it was not, and had failed to join the ANZ as equitable assignee. They alleged that, in such circumstances, the statement of claim did not disclose a cause of action and ought to be stayed, struck out or dismissed. They relied upon Kapoor v National Westminster Bank plc.[1]
[1][2011] EWCA Civ 1083.
The defendants did not have, in admissible form, evidence to support the alleged assignment. They relied on an affidavit of Andrew Gray, their solicitor, filed 28 May 2015, in which he deposed to the content of a submission to a Senate enquiry. The plaintiff objected to the admissibility of that material on the ground that it was subject to parliamentary privilege. The objection was well founded. As a remedy, the defendants sought discovery of particular documents under r 29.08 of the Supreme Court (General Civil Procedure) Rules 2005 and s 55 of the Civil Procedure Act 2010. The particular discovery sought was in relation to the alleged assignment.
In response, the plaintiff filed a summons on 27 July 2015, by which it sought an order that paragraphs 263 to 270 of their defence and counterclaim be struck out. Alternatively, the setting down and hearing of the following preliminary question under r 47.04,
Assuming the facts pleaded in paragraphs 263 to 266 of the defence and counterclaim dated 23 March 2015, does the statement of claim dated 24 December 2014 fail to disclose a cause of action as alleged in paragraph 269 of that defence and counterclaim?
The summonses were heard together. The plaintiff pressed for the determination of a separate question on the basis that it would provide clarity of the legal position which, it submitted, may not result from a determination of their strike‑out application. The defendants resisted the setting down and determination of the separate question, contending that the more correct approach, if allegations of fact were assumed to be established for the purpose of the application, was to apply to strike out the offending paragraphs. I agree. The plaintiff’s formulation of the preliminary question called for a determination, under r 47.04, of the viability of a pleading.
The defendants amended their summons to also seek a stay of the proceeding until such time as the plaintiff had pleaded the assignment, and joined the ANZ as a party. They did not contend that the proceeding was a nullity by reason of the non‑joinder of the bank, but argued that the plaintiff’s statement of claim was incomplete and inadequate in the absence of a pleaded assignment, and the participation of the beneficial owner of the loans as a defendant. The defendants contended that the equitable assignee was a necessary party for two reasons. First, to prevent the risk of double recovery by the assignor and assignee; and secondly, because the assignor did not reveal the true capacity in which it sued. In other words, it misrepresented its title.
The defendants contended that ordinarily, a court will stay a proceeding if the assignee of a debt does not join the assignor as a party. They relied on well‑known authority which supported a more limited proposition, which was not challenged by the plaintiff. That is to say, the assignor must be joined in a proceeding instituted in the name of an assignee before proceeding to final judgment. Such a proceeding is liable to be stayed until that has occurred. A brief review of the authorities on this point explains the basis for the more limited proposition, and informs the resolution of a second limb to the defendants’ case, and the real issue in dispute between the parties.
The real issue in dispute was the defendants’ contention that the propositions operated in reverse. They contended that an assignor cannot obtain final relief without joining the assignee, and that the proceeding must be stayed until the assignee is joined. They argued that there was no relevant distinction between the situation where the equitable assignee alone sued and where the assignor alone sued, following an equitable assignment.
In Equuscorp Pty Ltd v Haxton,[2] Gummow and Bell JJ held:
However that may be, an action by an equitable assignee without joining the assignor is not a nullity; the action may be liable to be stayed pending joinder, but no such application for a stay has been made in the present litigation.[3] The authorities considered by Lord Collins of Mapesbury in Roberts v Gill & Co[4] indicate that any outstanding assignor must be joined before final judgment can be obtained by the assignee, but that has been held not to be necessary where the assignee is seeking interlocutory relief. As noted above, if Equuscorp were to obtain the relief it seeks in these appeals, this would not be final in nature.
[2](2012) 246 CLR 498, [78]. See also Westbourne Grammar School v Sanget Pty Ltd [2007] VSCA 39, [8], [9], [10]; Weddell v Pearce & Major [1988] Ch 26 [38]–[41]; Alma Hill Constructions Pty Ltd v Onal (2007) 16 VR 190 [11], [13], [41], [43]–[44].
[3]See Weddell v Pearce & Major [1988] Ch 26 at 38–41; Oshlack v Richmond River Council (1998) 193 CLR 72 at 88–89 [41].
[4][2011] 1 AC 240 at 262–263 [64]–[67].
In Westbourne Grammar School v Sanget Pty Ltd,[5] Nettle JA said:
8Secondly, it is rudimentary that an assignment of a debt or other chose in action is not effective for the purposes of s 134 until notice of assignment has been given. Until then, an assignee does not have standing at law to sue to recover the debt or other chose in action in the assignee’s own name.[6] There is also authority that the notice must be given before the action is brought.[7]
9That does not mean that a proceeding begun before notice is a nullity. It may be cured by joinder of the assignor, and now, with the advent of Rule 13.08 of the Supreme Court (General Civil Procedure) Rules 2005 and cognate provisions in other jurisdictions, it may be that an assignee could cure its position by giving notice after the institution of the proceeding and amending its statement of claim to allege the fact of notice. But unless and until notice has been given or the assignor has been joined, a proceeding instituted in the name of the assignee cannot proceed to final judgment and it is liable to be stayed, even on appeal, until the formalities are in order.[8]
10In this case, the appellant made clear from the outset of the proceeding that it disputed the entitlement of the respondent to bring the proceeding in its own name, and the appellant made clear why the proceeding was incompetent. Yet the respondent continued obstinately throughout the proceeding and on appeal to insist that it was entitled to do what it has done. In those circumstances, in my view, even if the respondent had otherwise succeeded in proving its claim — and for the reasons given by Ashley JA it has not done so — it would be too late to allow the respondent to amend its procedural hand.
[5][2007] VSCA 39.
[6]Performing Right Society v London Theatre of Variety [1922] 2 KB 433, reversed on other grounds, [1924] AC 1.
[7]Re Westerton, Public Trustee v Gray [1919] 2 Ch 104 at 111; McIntosh v Shashoua (1931) 46 CLR 494 at 514–5; cf Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 4, and 5–6.
[8]Weddell v J A Pearce & Major (a firm) [1988] 2 Ch 26 at 39, Oshlack v Richmond River Council (1998) 193 CLR 72 at [41], Meagher, Heydon, Leeming, Meagher, Gummow & Lehane’s Equity Doctrines & Remedies 4th Ed at [6-520]
To similar effect, in Alma Hill Constructions Pty Ltd v Onal,[9] Kaye J reviewed the authorities and held:
[9][2007] VSC 86.
11In respect of the first issue, in my view Mr Jones is correct in maintaining that the magistrate considered that, in order that the appellant, as the assignee in equity of the debt owed by the respondent, be entitled to maintain an action against the respondent for that debt, the appellant must have first given notice to the respondent.
…
13I am further of the view that, in reaching that conclusion, the learned magistrate was wrong in law. Indeed so much was conceded by Mr Matters, and correctly so. It is clear on all the authorities that it is not necessary for an equitable assignee to give notice to the debtor or obligor in order to perfect the interest of the assignee in equity. Further, the assignee in equity is entitled to commence proceedings in its own name against the debtor or obligor, regardless of whether the assignee (or indeed the assignor) has given prior notice of the assignment to the debtor. The giving of such notice is irrelevant to the right of the assignee in equity to commence such proceedings. However the authorities also make it clear that ordinarily, and indeed save for exceptional cases, the assignee in equity must join the assignor as a party to the proceeding, and, if necessary, as a defendant to it. The authorities, particularly in the last century, have characterised that requirement as one of practice, and not as a requirement which goes to the substance of the cause of action of the assignee in equity against the obligor. As a matter of practice, the Court ordinarily insists that the assignor in equity be joined as a party to the proceeding. However, if the assignor has not been so joined, that is not fatal to the validity of the cause of action asserted by the assignee against the obligor. In such circumstances, the Court should, ordinarily, give the assignee the opportunity to join the assignor in the suit, if necessary by staying the proceeding unless and until the assignor is joined as a party to it.
…
41In the William Brandt’s case, to which I have already referred, Lord Macnaghten stated:[10]
[10]At 462.
“Strictly speaking, Kramrisch and Co, or their trustee in bankruptcy, should have been brought before the Court. But no action is now dismissed for want of parties, and the trustee in the bankruptcy had really no interest in the matter. At your Lordship’s Bar the Dunlops disclaimed any wish to have him present, and in both courts below they claimed to retain for their own use any balance that may remain after satisfying Brandt’s.”
…
43In Weddell and anor v J.A. Pearce and Major and anor,[11] the plaintiffs had a cause of action against a firm of solicitors. Subsequently the plaintiffs were declared bankrupt. Two years later the trustee in bankruptcy assigned to the plaintiffs the causes of action against the firm of solicitors. The plaintiffs commenced proceedings against the firm, without joining the trustee in bankruptcy as a party. The defendant issued a summons seeking to set aside the writ on the grounds that the plaintiffs lacked the necessary locus standi to bring the action. The Registrar upheld the defendants’ contentions, and ruled that the action was a nullity from its commencement. Scott J allowed the appeal of the plaintiff, holding that the failure to join the trustee in bankruptcy did not vitiate the commencement of the proceedings. His Lordship stated:[12]
“Its seems, therefore, that an equitable assignee can sue in his own name. He cannot, however, recover damages or a perpetual injunction without joining as a party the assignor in whom legal title to the chose in action is vested. The same would apply to recovery of a debt. The reason for this is, however, a pragmatic one. The debtor must not be at risk of suit by the legal owner of the chose. To put the point another way, the debtor must, if he is adjudged liable, be in a position to obtain a complete discharge from his liability by paying the plaintiff, the equitable assignee … (His Lordship then referred to William Brandt’s case and the Performing Rights Society case). … In neither of the authorities to which I have referred was the action, begun by an equitable assignee without the assignor being joined as a party, treated as a nullity. … It is, I think, a common practice for an action commenced by an equitable assignee to be stayed pending joinder, either as co‑plaintiff or as co‑defendant, of the assignor … In my judgment, therefore, it is clearly established that an action commenced by an equitable assignee without joining the assignor is not a nullity. It may be liable to be stayed until the proper parties have been joined, but it is not a nullity.”
44There are a number of other authorities which express a like conclusion. They include: Three Rivers District Council and ors v Governor and Company of the Bank of England;[13] National Mutual Life Nominees Limited and ors v National Capital Development Commission and ors;[14] Showa Shogi Australia Pty Ltd v Oceanic Life Limited;[15] Long Leys Co Pty Ltd v Silkdale Pty Ltd.[16] Indeed, in Jenkins v Visualeyes Pty Ltd,[17] Hargrave J (obiter) cited Thomas’ case (among others) in expressing the view that the respondent (obligor) in the case before him had been correct in conceding that in that case it was not necessary for the assignor (which was a deregistered company) to be made a party to the proceeding.[18] Thus, I consider that the second proposition relied upon by the appellant is good law, namely, that the requirement that the assignor be joined as a party to the proceeding is a requirement of practice or procedure, and is not an essential ingredient of the cause of action relied on by the appellant.
[11][1988] 1 Ch 26.
[12]At 40–41.
[13][1996] QB 292 at 298–9 (Staughton LJ), 308, 309 (Peter Gibson LJ).
[14](1975) 6 ACTR 1 at 7 to 8 (Blackburn J).
[15]Above at 561 (Giles J).
[16](1991) 5 BPR 11, 512 at 11, 518 (Sheller JA).
[17][2005] VSC 218.
[18]At [119] to [121].
These cases were concerned with a proceeding brought by an assignee. What if the proceeding was commenced by the assignor? Is there a material difference?
In their defence and counterclaim, the defendants expressly relied on Kapoor v National Westminster Bank plc & Anor,[19] in which Lord Justice Etherton said:
[19][2011] EWCA Civ 1083 [30]–[42].
30The law does not, in my judgment, require a different conclusion. The current state of the authorities, binding on this court, is that an equitable assignee of debt is entitled in its own right and name to bring proceedings for the debt. The equitable assignee will usually be required to join the assignor to the proceedings in order to ensure that the debtor is not exposed to double recovery, but that is a purely procedural requirement and can be dispensed with by the Court. By contrast, the assignor cannot bring proceedings to recover the assigned debt in the assignor's own name for the assignor's own account. The assignor can sue as trustee for the assignee if the assignee agrees, and, in that event the claim must disclose the assignor's representative capacity. In any other case, the assignor must join the assignee, not because of a mere procedural rule but as a matter of substantive law in view of the insufficiency of the assignor's title. These points emerge clearly from the following authorities.[20]
[20]Emphasis added.
31In Central Insurance Co Ltd v Seacalf Shipping Corporation (The “Aiolos”) [1983] 2 Lloyd's Rep 25 Oliver LJ, with whom Ackner LJ agreed, said (at pp. 33 and 34):
“That there is a long-standing practice that, before giving judgment in an action at the suit of an equitable assignee, the Court will normally require him to bring his assignor before the Court is beyond doubt. But it does not follow from that that there is no cause of action vested in the assignee and capable of being asserted by him alone or, indeed, that the assignor has in all cases, and necessarily to be a party. The reason for the requirement is not that the assignee has no right which he can assert independently, but that the debtor ought to be protected from the possibility of any further claim by the assignor who should therefore be bound by the judgment. A further reason given by Lord Justice Chitty in Durham Brothers v Robertson, [1898] 1 QB 765 is that the assignor ought to be given the opportunity to challenge the assignment if he wishes, though this probably comes to the same thing. The concept behind the rule is that the debtor should not be put in double jeopardy.
…
These cases by themselves demonstrate the subsistence of a cause of action in the assignee, but in fact the authorities go further. In William Brandt's Son & Co Ltd v Dunlop Rubber Co Ltd [1905] AC 454, judgment was given for the assignee although the assignor was not made party to the action. The case was, it is true, an exceptional one, for the debtor had in fact settled with the assignor and disclaimed any desire to have him there. Nevertheless, it demonstrates that the requirement is a procedural and not a substantive one upon which the assignee's cause of action depends.”
32In Three Rivers District Council v Governor and Company of the Bank of England [1996] QB 292 Staughton LJ said (at p. 303B) that he accepted that The Aiolos established that an equitable assignee has a cause of action which it can enforce on its own. He said that it is a cause of action in equity; and, if the assignee chooses to exercise it, its claim prevails over that of the assignor. The same point was made by Peter Gibson LJ, with whom Waite LJ agreed. Peter Gibson LJ said (at p. 307C):
“It is now more that 120 years since the confluence of the separate streams of common law and equity through the Judicature Act 1873 . As its modern version ( section 49 of the Supreme Court Act 1981 ) makes clear, every civil court has to administer law and equity on the basis that whenever there is any conflict between common law and equity, the rules of equity shall prevail, every court is to continue to give effect to equitable rights and subject thereto to common law rights and the court's jurisdiction is to be exercised so as to secure that as far as possible all matters in dispute are completely and finally determined and multiplicity of proceedings is avoided.”
33 Peter Gibson LJ then said (at pp. 307H–308B):
“For my part, I regard it as sufficient to look at the position as established by the authorities since 1873. In doing so, it is important to distinguish between what is a requirement of substantive law and what is merely a procedural requirement. It is, in my judgment, elementary that where, as here, there is an agreement to assign a legal chose, in equity the assignee becomes the owner and controller of the legal chose. He is entitled to sue for the recovery of the chose, but as a matter of practice he will normally be required by the court to join the assignor either as plaintiff or, if he refuses to give his consent to this, as defendant. All this seems to me to be in conformity with section 49 of the Act of 1981. An assignor, if the assignment is known, will not be allowed to sue in his own name for himself. He may sue as trustee for the assignee if the assignee so wishes, but in that event he should reveal his representative capacity … and if he attempts to recover for himself, even if, for example, only part of the debt has been assigned, he will be required to join the assignee.”
34The reference in those passages to the Supreme Court Act 1981 s.49 is a reference to what is now the Senior Courts Act 1981 s.49 .
35Peter Gibson LJ then referred to William Brandt's Son & Co v Dunlop Rubber Co [1905] AC 454 , Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 , Walter & Sullivan Ltd v Murphy & Sons Ltd [1955] 2 QB 584, The Aiolos, Weddell v JA Pearce & Major [1988] Ch 26 and Deposit Protection Board v Dalia [1994] 2 AC 367. He then said (at p. 313F):
“These authorities, in my judgment, clearly establish that the equitable assignee can be regarded realistically as the person entitled to the assigned chose and is able to sue the debtor on that chose, but that save in special circumstances the court will require him to join the assignor as a procedural requirement so that the assignor might be bound and the debtor protected. If, unusually, the assignor sues, he will not be allowed to maintain the action in the absence of the assignee.”
36He then referred to Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430, a case heavily relied upon by Mr Smith before us. He said (at p. 315A) that the reasoning of Roskill LJ in that case was not a complete or accurate analysis of the effect of an equitable assignment:
“as in my judgment it is clear from the line of authorities to which I have referred that an equitable assignment creates in the equitable assignee the right to sue the debtor, subject to the procedural rule requiring the joinder of the assignor.”
37Peter Gibson LJ said that (p. 315B), in any event, the comments of Roskill LJ, like those of Sir John Pennycuick in Warner Bros Records , had to be read in context, namely that the decision was confined to the particular preliminary issue which it determined.
38Peter Gibson LJ dismissed (at p.315E-F) the view expressed by the authors of “Meagher, Gummow and Lehane on Equity: Doctrines and Remedies” (see now 4th ed at 6–520), which reflects the view expressed by Mr Marcus Smith in his work to which I have referred, that the joinder of the legal owner as a necessary party to an action by the equitable assignee is a substantive and not merely a procedural requirement. Peter Gibson LJ took the view that Brandt's case, which was binding on the Court of Appeal, had decided the contrary.
39That view of Brandt's case had been the view of the Court of Appeal in The Aiolos , as is shown by the second of the two paragraphs of the judgment of Oliver LJ which I have quoted earlier. It also seems to have been the view of the Court of Appeal in Raiffeisen Zentralbank Osterreich AG v Five Star Trading LLC [2001] QB 825, in which Brandt's case was cited in argument. Mance LJ, with whom the other members of the court agreed, said ([60]), citing The Aiolos and Weddell:
“There is a rule of practice that the assignor should be joined, but that rule will not be insisted upon where there is no need, in particular if there is no risk of a separate claim by the assignor.”
40In terms of principle, I do not share the doubts and misgivings expressed by Mr Smith and the academic commentators whose opinions support his argument. There is no good reason of policy or principle for the courts to refuse to recognise the title of the undisputed equitable assignee of part of a debt, and every good reason for the courts to refuse to recognise the bare legal title of the assignor, except where the assignor is a trustee for the assignee and expressly suing as such or the assignee joins in the proceedings. As the Court of Appeal in Three Rivers said, that approach is entirely consistent with section 49 of the Senior Courts Act 1981 .
41The procedural requirement to join an assignor in an action by an equitable assignee does not prevent an equitable assignee, without joining the assignor, presenting a winding up petition since the concerns giving rise to the procedural rule have no application in such a case. As PO Lawrence J said in Re Steel Wing Co Ltd [1921] Ch 349 (at p. 357):
“The main reason why an assignee of a part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him is in my opinion because the Court cannot adjudicate completely and finally without having such parties before it. The absence of such parties might result in the debtor being subjected to future actions in respect of the same debt, and moreover might result in conflicting decisions being arrived at concerning such debt. In my opinion, however, this reasoning does not apply to a winding up petition. After a winding up order has been made the Court in all cases when it is necessary will investigate, adjudicate upon, and settle the petitioner's debt as well as the debts of the other creditors. In the case of an assignee of part of a debt the Court in adjudicating upon his claim can and will do so in the presence of the persons entitled to the remainder of the debt, and the rights of all parties interested in the debt will be completely and finally settled once and for all.”
42That reasoning was applied by the Privy Council in Parmalat in holding that an equitable assignor has a sufficient interest to present a petition without joining the assignee. As Lord Hoffmann said, delivering the judgment of the judicial committee, having quoted PO Lawrence J in Re Steel Wing :
“[8] In other words, a winding-up order does not affect the legal rights of the creditors or the company. It only puts into effect a process of collective execution against the assets of the company, for the benefit of all creditors. In the course of that process, the rights of creditors may have to be determined. But such a determination is not necessary at the stage when the order is made. An equitable assignor therefore has a sufficient interest without joining the assignee.”
Thus, it would seem, there is a body of English law which requires an assignor commencing a proceeding to at least sue as trustee for the assignee, if the assignee agrees, disclosing the assignor’s representative capacity.
The plaintiff submitted that the proposition for which the English authorities stood — precluding an assignor from recovering the debt in its own name, without disclosing its capacity and joining the assignee — does not reflect the law in Australia. The plaintiff also submitted that, in any event, the English authorities to which reference was made were distinguishable because in each case the defendant had knowledge of the assignment. It is unnecessary to decide whether the fact of some knowledge was a distinguishing feature. I think not.
The plaintiff submitted that the material difference between the position of an assignor and assignee as plaintiff was that the assignor retained the legal title, having contracted for the subject debt. It was entitled, as the contracting party, to enforce the contract. When payment was made, whether under the contract or pursuant to a judgment, the debt was discharged. There is no risk of double recovery, as the assignee could not contradict the discharge, although it would have a claim against the assignor to account to it in equity for any proceeds recovered. While an equitable assignee is unable to give a complete discharge, an assignor, holding the legal title, may do so.
The plaintiff submitted that the Australian authorities upon which the defendants relied provided no support for the defendants’ contention. Rather, they emphasised the material distinction between a proceeding brought by an assignee and one brought by an assignor. More importantly, there is Australian authority on this very issue, which I am bound to follow.
In Treadwell v Hickey,[21] Barrett J differentiated between the position of the assignor and the assignee, identifying the assignor as the party with legal title to sue, and the assignee with no title to sue at law unless and until a legal assignment with notice had been completed. His Honour acknowledged that, although the title to sue at law did not arise in the assignee until notice had been given to the debtor, an action commenced by the assignee before that point would be fully and completely constituted if the assignor became a party. As his Honour explained:[22]
This is because the party with the title to sue at law is privy to the action.
In reaching his decision, Barrett J referred[23] to the observations of Nettle JA in Westbourne Grammar School, concluding:[24]
It is thus clear (and logically to be expected) that, although the title to sue at law does not arise in the assignee until notice is given to the debtor, an action commenced by the assignee before that point will be fully and completely constituted if the assignor is a party to it at inception. This is because the party with the title to sue at law is privy to the action.
[21][2009] NSWSC 1395.
[22][2009] NSWSC 1395 [92].
[23][2009] NSWSC 1395 [90]–[91].
[24][2009] NSWSC 1395 [92].
In Weddell v JA Pearce & Major,[25] to which Nettle JA made reference, Scott J, rejecting a submission that an action commenced by an assignee was a nullity said,
It seems, therefore, that an equitable assignee can sue in his own name. He cannot, however, recover damages or a perpetual injunction without joining as a party the assignor in whom legal title to the chose in action is vested. The same would apply to recovery of a debt. The reason for this is, however, a pragmatic one. The debtor must not be at risk of suit by the legal owner of the chose. To put the point another way, the debtor must, if he is adjudged liable, be in a position to obtain a complete discharge from his liability by paying the plaintiff, the equitable assignee.
In Weddell, the debtor had no notice of assignment. But the emerging point of distinction, between an action commenced by an assignee and assignor, is the possibility of a subsequent action commenced by the assignor creating a risk of double liability, not the other way around. The question is: who may give an effective discharge?
[25](1988) Ch 26 at 40.
Barrett J also referred to the judgment of McPherson JA in Equus Financial Services Ltd v Glengalan Investments Pty Ltd,[26] in which McPherson JA said:
As Lord Macnaghten said in William Brandt's Sons & Co v Dunlop Rubber Company Limited [1905] AC 454, 462, no action is now dismissed for want of parties. To countenance this application to strike out the action would go far towards resurrecting the old rules for joinder of parties along with many of their abuses, which it was the avowed object of the Judicature system to eliminate. See Werdeman v. Societe Generale d'Electricite (1881) 19 Ch 246, 251, 254, 255; Carrick v. Armstrong [1969] QdR 185, 191-192. Now under Order 3, rule 11 of The Rules of the Supreme Court, the Court must not refuse to determine a cause or matter by reason only of non-joinder of parties; instead, the names of anyone who ought to have been joined may be added, either as plaintiffs or as defendants, if their presence is necessary in order to enable the Court to adjudicate effectually and completely, and settle all the questions involved.
In an action such as the present it was therefore not correct procedure to apply to strike out the action on the ground that the assignment alleged in favour of the plaintiff was defective or incomplete...
The matter of non-joinder arises here only if the assignment is not statutory but simply equitable, or if it is at present nothing more than a mere agreement to assign. To cover those possibilities the assignor Rural Finance Pty. Ltd. should have been made a co-plaintiff with Equus Financial Services Limited. To achieve that now, Rural's written consent is needed under Order 3, rule 11. If it is not obtained, Rural may be joined co-defendant: cf. Meldrum v. Scorer (1887) 56 LT 471.
The reason for making the assignor a party to an action brought by an equitable assignee is to ensure that the assignor is bound by the outcome of the proceedings. If the assignor is not bound, payment by the debtor to the assignee in accordance with the judgment involves the risk that it will not necessarily discharge the debt. See Weddell v. J A Pearce & Major [1988] Ch 26, 40-41. Even so, the court does not always insist on joinder if satisfied that it can, in terms of Order 3, rule 11, effectually and completely adjudicate without adding parties. An example is where it can be predicated that, apart from the plaintiff assignee in equity, no one has an interest in the subject debt, so that the assignor is in substance a bare trustee for the assignee. In cases like that joinder of the assignor has been dispensed with. See William Brandt's Sons & Co v Dunlop Rubber Co Limited [1905] AC 454, 462; Camfield Pastoral Company v Dixon [1972] QdR 289, 305; Calaby Pty Ltd v Ampol Pty Ltd [1990] NTSC 28; (1990) 71 NTR 1, 18-19.”
[26]Unreported QCA 19 May 1994.
In conclusion, Barrett J said:[27]
The decided cases thus make it clear that an action commenced by an assignee before the giving of notice to the debtor or other person bound — that is, an action commenced by a mere equitable assignee of a legal chose in action — is not a nullity or liable to be struck out or dismissed out of hand. But such an action will not be an appropriate vehicle for the ultimate recovery of a remedy at law unless and until the assignor who is alone entitled to sue at law is a party. By joining the assignor at a later stage (“in due course”, to use Viscount Cave’s words), the mere equitable assignee by whom the action was initiated makes that existing action a means of obtaining the common law remedy. The action attains that quality because the joinder ensures that the assignor is privy to the eventual judgment and thereby disabled from afterwards asserting the same cause of action against the defendant. It is because the assignor is a party when judgment is ordered that the possibility of double recovery is forestalled. It is beside the point that the assignor was not a party when the equitable assignee acted alone to initiate the proceedings or at any other time before judgment.
[27][2009] NSWSC 1395, [98].
In Hazard Systems Pty Ltd v Car‑Tech Services Pty Ltd,[28] a question arose as to whether, despite an equitable assignment by Car‑Tech of all its interest in causes of action to CGU Insurance Ltd, Car‑Tech retained the right to sue in the absence of CGU as assignee. The New South Wales Court of Appeal held:
For present purposes, the significant point is that, despite the equitable interest of CGU arising from each deed, the title to sue at law remained at all material times in Car-tech. CGU, acting alone, has never been in a position to prosecute to judgment any common law action maintainable by Car-Tech against Hazard. But CGU does have, by virtue of the deeds (and separately from its subrogation rights), a claim maintainable in equity against Car-Tech in respect of such recoveries as Car-Tech's rights of action at law may produce as against Hazard.
The District Court proceedings were regularly commenced in July 2010 when Car-Tech alone sued Hazard. There was no want of necessary parties, despite the absence of the equitable owner of the rights of action. If the proceedings had been brought at that time by CGU alone, they would also have been regularly commenced (in the sense of not being a nullity) but joinder of Car-Tech as either an additional plaintiff or a defendant would have been necessary before judgment was given: Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498 at [78].
Because the proceedings brought by Car-Tech asserting common law causes of action against Hazard were regularly commenced and there was no want of necessary parties, there was no occasion for the making of any order causing CGU to be a party, whether by "correcting a mistake in the name of a party" or otherwise.[29]
[28][2013] NSWCA 314 [38]–[40], (Basten JA, Meagher and Barrett JJA in agreement).
[29]Emphasis added.
In McLean v Westpac Banking Corporation,[30] the Western Australian Court of Appeal considered an appeal relating to two actions for possession commenced by Westpac following default under mortgages. In their defences, which were identical in all material respects, the defendants sought to put Westpac to ‘strict proofs’, because it had engaged in ‘securitisation activities’, which involved an equitable assignment of the loans to third parties. Newnes JA, who delivered the principal judgment, said:[31]
The appellant's pleading was plainly defective. To the extent it was an assertion that the respondent was put to 'strict' proof of its case, it sat oddly with the appellant's defence which admitted the essential elements of the respondent's case. It appears, however, to have been intended to put the respondent on notice that the issue in the case would be whether the respondent had 'securitised' its interest in the loan agreements and the mortgages to a third party, but without actually asserting that the respondent had done so. Couched as it was, the defence went beyond timorous to being embarrassing. It was self-evidently a speculative plea and if it was intended to cast an onus on the respondent to prove that no securitisation had occurred, it did not have that effect. To the extent that such a plea was relevant (and for reasons I will come to, I do not consider it was) the onus to prove any alleged 'securitisation' lay on the appellant.
[30][2012] WASCA 152 (Newnes and Murphy JJA).
[31]Ibid [8].
The relevant aspect of the appeal arose out of an allegation by the borrowers that the securitisation process meant that the bank could not sue. The court held:[32]
[32]Ibid [19], [30].
19The appeals suffer from the fundamental and fatal flaw that the appellant's so-called defence of securitisation was in law no defence at all. So far as it was given any specific meaning, the 'securitisation' alleged involved an equitable assignment of the respondent's interest in the loan agreements and the mortgages to a third party. That, contrary to the appellant's case, did not have the effect that the respondent was no longer able to enforce its securities. It will be necessary to come to that, but, subject to that comment, it is convenient to deal with each of the grounds of appeal in turn.
…
30But most importantly, the issue was irrelevant. As I have said, it was never part of the appellant's case that there had been a legal assignment to a third party of the respondent's interest in the loan agreements and the mortgages. In the absence of a legal assignment, the contention that the respondent was not entitled to enforce the loan agreements or the mortgages must fail. As the legal title remained with the respondent, it was clearly entitled to do so.
In Hou v Westpac Banking Corporation,[33] the Court of Appeal in this State dealt with similar defences to those raised in McLean. In a joint judgment, Whelan and Beach JJA said:
[33][2015] VSCA 57 (Whelan and Beach JJA).
65The Court of Appeal of the Supreme Court of Western Australia addressed a relevantly similar defence in McLean v Westpac Banking Corporation.[34]
66In McLean, a defence asserting that Westpac could not take recovery action due to securitisation, and that its securitisation activities constituted misleading and deceptive conduct, had been pleaded. There had been a trial at which evidence had been led as to securitisation. In that case, the borrower, Mrs McLean, failed to establish that the loan had been securitised but the trial judge found the argument would have failed in any event as a matter of law. Mrs McLean appealed. The Court of Appeal relevantly held:
The appeals suffer from the fundamental flaw that the appellant’s so-called defence of securitisation was in law no defence at all. So far as it was given any specific meaning, the ‘securitisation’ alleged involved an equitable assignment of the respondent’s interest in the loan agreements and the mortgages to a third party. That, contrary to the appellant’s case, did not have the effect that the respondent was no longer able to enforce its securities.[35]
The decision in McLean is, in our view, correct.[36] This postulated defence is also untenable.
[34][2012] WASC 152 (‘McLean’).
[35]Ibid [19]. See also Ibid [30]–[31].
[36]As a decision of another intermediate appellate court, in any event we could only depart from it if convinced it was ‘plainly wrong’: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151–2 [135].
On this issue I am bound to follow the Court of Appeal. Timbercorp Finance, if an equitable assignor, would be competent to sue without joining the assignee or pleading the assignment. The risk of double recovery, postulated by the defendants, does not arise. Payment to the plaintiff of the amount of the debt, would fully discharge the obligation, enforceable against the assignee. It must follow that the allegations made in paragraphs 263 to 270 of the defence and counterclaim are untenable and should be struck out. It also follows that the defendants’ summons dated 24 July 2015 is dismissed.
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