Redhill Development (NZ) Limited v SK Brothers Builders & Developers Limited HC Auckland CIV-2008-404-6510 [2011] NZHC 60 (25 February 2011)

Last Updated: 12 March 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2008-404-6510}

BETWEEN REDHILL DEVELOPMENT (NZ) LIMITED

Plaintiff

AND SK BROTHERS BUILDERS & DEVELOPERS LIMITED Defendant

Hearing: 10 September 2010

Counsel: G A Keene and M R Nand for proposed Plaintiff

J D Atkinson for Defendant

Judgment: 25 February 2011 16:30:00

RESERVED INTERIM JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Application for Joinder and Security for Costs)

This judgment was delivered by me on 25 February 2011 at 4.30 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

_{Date ..........................}

Solicitors:

Patel Nand Legal, PO Box 26717, Epsom

_{Dawsons, PO Box 38143, Botany Town Centre}

REDHILL DEVELOPMENT (NZ) LIMITED V SK BROTHERS BUILDERS & DEVELOPERS LIMITED HC AK CIV-2008-404-6510 25 February 2011

Introduction

[1] In the proceeding to which the present applications relate, the plaintiff, Redhill Development (NZ) Limited, claims against the defendant, SK Brothers Builders & Developers Limited, for losses suffered on the resale of lots in a new subdivision, following the defendant’s failure to settle agreements for sale and purchase.

[2] The plaintiff is now in liquidation. Prior to its being placed in liquidation it assigned its rights in the proceeding to Sonsram Trustee Limited.

[3] Sonsram, by application of 3 June 2010, seeks to be joined as a second plaintiff in the proceeding. The defendant opposes the application.

[4] Should its opposition be unsuccessful, the defendant, by application of 7 July

2010, seeks an order requiring Sonsram to give security for costs. Sonsram opposes the application.

Background

[5] On 1 October 2008 the plaintiff applied for summary judgment on its claim against the defendant. The application for summary judgment was opposed. The defendant contended the plaintiff misrepresented the location and contour of the lots to which the agreements for sale and purchase related. This, the defendant contended, founded an arguable defence, but in any case the parties had resolved the dispute that had arisen by written settlement agreement of 12 November 2008 (that is, prior to the hearing).

[6] Associate Judge Abbott granted the application for summary judgment: Redhill Development (NZ) Ltd v SK Brothers Builders & Developers Ltd HC Auckland CIV-2008-404-6510, 3 February 2009. He found the alleged misrepresentations were statements as to a future state of affairs or expectation, and could not constitute an actionable misrepresentation. He found, in any case, that the parties had expressly agreed in the agreements for sale and purchase that they would

not rely on any statement made in pre-contractual negotiations, and that it was fair and reasonable that provision should be conclusive between the parties. As to the settlement agreement, he found it did not give rise to an arguable defence as the plaintiff was not a party to it, and in any case it was subject to a condition not fulfilled within time.

[7] The defendant appealed. The Court of Appeal allowed the appeal: SK Brothers Builders & Developers Ltd v Redhill Developments (NZ) Ltd [2009] NZCA

599. The Court found the defendant had an arguable defence based on actionable misrepresentation notwithstanding the exclusion clause. It found, as had Associate Judge Abbott, that there was no arguable defence based on the agreement. It awarded costs in favour of the defendant.

[8] The Court of Appeal delivered its judgment on 15 December 2009. On 2

December 2009 the plaintiff was placed into liquidation. Earlier, on 30 October

2009, the plaintiff assigned its cause of action to Sonsram.

The present applications and the purpose of this interim judgment

[9] Sonsram, on the basis of its having been assigned the plaintiff’s cause of action, applies under r 4.56 of the High Court Rules for an order that its name be added as a second plaintiff because its presence before the Court is necessary to adjudicate on and settle all questions involved in the proceeding. The alternative, it says, is that the plaintiff discontinues its proceeding and Sonsram commences proceedings afresh, with attendant expense and delay.

[10] The defendant opposes the application. Its position is that Sonsram’s presence before the Court is not necessary to adjudicate on and settle all questions involved in the proceeding because the proceeding is properly brought in the name of the plaintiff (and may be brought by the liquidator) and because Sonsram’s interest is divorced from the subject-matter of the proceeding. In any case, it says, the liquidation of the plaintiff and the assignment of its cause of action to Sonsram were abusive of the process of this Court in that they were effected to avoid liability

for, inter alia, costs ordered against the plaintiff by the Court of Appeal. The Court,

it says, should not countenance the same in granting Sonsram’s application.

[11] For reasons which I shall come to this application and the submissions of counsel in respect of it are misconceived. The appropriate application is under r 4.52 for an order that the proceeding be carried on between Sonsram, in substitution for the plaintiff, and the defendant. I propose to make such an order on my own initiative. The purpose of this interim judgment is to give the parties an opportunity to be heard on that proposed course.

[12] Should the defendant’s opposition be unsuccessful and Sonsram added as a plaintiff (or, by extension, substituted for the plaintiff) in this proceeding, the defendant applies for an order under r 5.45 that Sonsram give security for costs. Both the plaintiff and Sonsram are, it says, insolvent. That is, there is reason to believe that neither will be able to pay the costs of the defendant if unsuccessful in the proceeding. Such an order, it says, is just in all the circumstances.

[13] Sonsram, at the hearing, properly conceded that if successful in its application an order that it give security for costs was appropriate. Counsel differed only in the sum properly considered sufficient.

[14] For reasons which I shall come to I propose to make such an order. It would seem expedient such an order encompass the conditions that would ordinarily attach to an order made under 4.52 to prevent it doing injustice to the defendant (most obviously in respect of the costs awarded in its favour by the Court of Appeal). The purpose of this interim judgment is to give the parties an opportunity to be heard on that course also, and on the sum properly considered sufficient.

[15] I deal presently with the proposed orders and my reasons for them as prefaced above. I begin, however, with the assignment of 30 October 2009.

Assignment of causes in action

[16] A cause of action is a thing in action in terms of subpart 5 of Part 2 of the

Property Law Act 1952.

[17] The subpart governs assignment of things in action. Its application is determined by s 49. Section 49 relevantly provides:

49 Application of subpart

(1) This subpart applies to an assignment of a thing in action made only on or after 1 January 2008.

(2) A thing in action that is not capable of being assigned cannot be assigned under this subpart.

...

[18] The assignment of the cause of action was made on 30 October 2009. I return to whether the cause of action was capable of being assigned. It will not be capable of being assigned if its assignment savours of maintenance and champerty.

[19] Section 50 of the Act governs how a thing in action to which the subpart applies is assigned. Section 50 relevantly provides:

50 How thing in action assigned

(1) The absolute assignment in writing of a legal or equitable thing in action, signed by the assignor, passes to the assignee—

(a) all the rights of the assignor in relation to the thing in action;

and

(b) all the remedies of the assignor in relation to the thing in action; and

(c) the power to give a good discharge to the debtor.

...

[20] If an assignment to which the subpart applies complies with s 50(1) of the

Act it is effective as a legal assignment. There are three requirements:

a) That the assignment is absolute;

b) That the assignment is in writing; and

c) That the writing must be signed by the assignor.

[21] It is not in dispute that the purported assignment was in writing nor that the writing was signed by the assignor.

[22] There are therefore two issues going, respectively, to the validity and effectiveness as a legal assignment of the assignment of 30 October 2009:

1. Whether the cause of action was capable of being assigned; that is, whether its assignment savoured of maintenance and champerty.
   

b) Whether the assignment was absolute.

Whether the cause of action was capable of being assigned: the doctrines of maintenance and champerty

[23] Neither law nor equity will recognise the assignment of a bare right of action because the transaction is one which savours of maintenance and champerty: Prosser v Edmonds (1835) 1 Y & C 481 (KB) at 499, Wayby Investments Ltd v Krukziener (2003) 16 PRNZ 907 (HC) at [13]. If, however, as counsel accepted, the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit that will not offend the rules relating to maintenance and champerty: Trendtex Trading Corp v Credit Suisse [1982] AC 679 (HL) at 703 per Lord Roskill, Wayby Investments Ltd v Krukziener at [13].

[24] The House of Lords accepted in Trendtex Trading Corp v Credit Suisse that a creditor who has financed the transaction giving rise to the right of action will have a genuine commercial interest in it and an assignment will be valid unless it appears that the object of the assignment was not to protect that interest: Trendtex Trading Corp v Credit Suisse at 703 per Lord Roskill. See also HG Beale (ed) Chitty on Contracts (30th ed, Sweet & Maxwell, London, 2008) vol 1 at [19-050].

[25] The essential submission of counsel for Sonsram, though not couched in precisely these terms, is that Sonsram, as a creditor of the plaintiff who had financed the subdivision giving rise to the plaintiff’s right of action, had a genuine commercial interest in taking the assignment and enforcing it for its own benefit. The object of the assignment, as expressed by counsel, was the part satisfaction of debts the plaintiff owed Sonsram and, in effect, to ―keep alive‖ the debt owed the plaintiff by the defendant for the benefit of a group of companies with which the plaintiff was associated.

[26] The essential evidence of Mr Sami for Sonsram in this respect is this. In

2005 Sonsram advanced funds to Sonsram Development Holdings Limited (now in liquidation). Sonsram Development Holdings advanced funds to, inter alia, the plaintiff. The plaintiff applied these funds to the subdivision in question. The plaintiff acknowledged and guaranteed the repayment of those funds in an agreement of 27 October 2005. It executed a general security agreement in favour of Sonsram on 30 October 2008.

[27] The result was, I accept, that Sonsram was a secured creditor of the plaintiff who had financed the transaction giving rise to the plaintiff’s right of action. Sonsram had a genuine commercial interest in taking the assignment and enforcing it for its own benefit. Counsel for the defendant took no issue with this at the hearing.

[28] I find, therefore, that the assignment did not offend the rules relating to maintenance and champerty and that it is one which the law will recognise. That is, the cause of action was capable of being assigned.

Whether the assignment was absolute

[29] Absolute is defined in s 48 of the Act:

absolute, in relation to an assignment, means–

(a) not conditional; or

(b) not by way of charge only

[30] It is a matter of construction whether an assignment is absolute and not merely by way of charge: Petrou v Weathertight Homes Resolution Service HC Auckland CIV-2009-404-1533, 24 November 2009 at [23].

[31] Clause 1.1 of the deed of assignment of 30 October 2009 provides:

In consideration of the sale by the Assignor to the Assignee of the right to litigate by the Deed of Sale and Assignment herein for the sum of

$150,000.00, the Assignor assigns to the Assignee absolutely each of the following:

(a) The benefit of any cause of action in respect of the claim for damages against the Defendants;

(b) The Assignor’s rights under the Litigation;

(c) Any damages, compensation, interest and legal costs awarded against the Defendants in the Litigation or in any other proceedings instituted by the Assignee in respect of the said claim, including those awards arising from conduct which has occurred prior to the date of this Deed.

[32] Counsel for the defendant, at the commencement of the hearing, accepted the cause of action was thereby assigned absolutely for the purposes of subpart 5 of Part

2 of the Act. He subsequently resiled from this position. He relied on cl 3 of the deed of assignment which provides:

The Assignor in addition to the sale herein irrevocably appoints the Assignee its attorney for the purposes of conducting and completing the Litigation and enforcing any order made in Litigation in the name of the Assignor for the benefit of the Assignee. The Assignor covenants to execute any further instrument or authority which may reasonably be required to give effect to this power of attorney. NOTWITHSTANDING the above, the Assignor irrevocably gives consent to the Assignee for the purposes of conducting and completing the litigation and enforcing any order made in litigation in the name of the Assignor or in any proceedings in the name of the Assignor for the benefit of the Assignee.

[33] Counsel for the defendant, aptly, described cl 3, in light of cl 1.1, as anomalous. He submitted it was inconsistent with an absolute assignment of the cause of action. Were the assignment absolute, he submitted, there would be no need for the appointment of Sonsram as the plaintiff’s attorney.

[34] Clause 3 appears inconsistent with cl 1.1 but I prefer the view that it is redundant, rather than rendering the assignment other than absolute. It is either an

unnecessary bolster to cl 1.1 or a throwback to the general rule at common law that choses in action could not be assigned being circumvented by including in assignments an appointment of the assignee as the assignor’s attorney for the purpose of collecting debts (see Laws of New Zealand Choses in Action: Assignment of Choses in Action (online ed) at [9]).

[35] I find the assignment was absolute notwithstanding cl 3 of the deed of assignment.

The consequences of assignment

[36] Proceeding on the above basis I now consider the consequences of the assignment and their bearing on the present applications.

[37] Sonsram has had passed to it from the plaintiff, in terms of s 50(1) of the Act:

(a) all the rights of the assignor in relation to the thing in action; and

(b) all the remedies of the assignor in relation to the thing in action; and

(c) the power to give a good discharge to the debtor.

[38] Randerson J in Petrou v Weathertight Homes Resolution Service, in the context of an absolute equitable assignment of a chose in action, stated at [23]:

An absolute assignment of a chose in action effects an immediate transfer of the chose from the assignor to the assignee. The chose no longer belongs to the assignor and the assignor cannot sue on the cause of action constituting the chose: Public Trustee v Till [2001] 2 NZLR 508 at [86]; Halsbury’s Laws of England (4 ed) at [21]; Laws of New Zealand: Choses in Action at [5] and [20]; and s 50 Property Law Act 2007.

[39] It follows that the plaintiff no longer has any right to bring this proceeding. The thing in action represented by the rights claimed in the proceeding no longer belongs to the plaintiff but belongs instead to Sonsram (see Public Trustee v Till [2001] 2 NZLR 508 (HC) at [86]-[87]).

The application for joinder

[40] Sonsram applies for an order under r 4.56 of the High Court Rules that it be joined as a second plaintiff in the proceeding. That application is misconceived. If Sonsram is correct the appropriate order would be that it enter the proceeding in substitution for the plaintiff, to whom the rights claimed in the proceeding no longer belong.

A new parties order

[41] The appropriate rule is r 4.52 of the High Court Rules. Rule 4.52 provides:

4.52 New parties order

(1) Subclause (2) applies if, after a proceeding has commenced, there is an event causing a change or transmission of interest or liability (including death or bankruptcy) or an interested person comes into existence, making it necessary or desirable—

(a) that a person be made a party; or

(b) an existing party be made a party in another capacity.

(2) An application without notice may be made for an order that the proceeding be carried on between the continuing parties and the new party (a new parties order).

(3) The new parties order must, unless the court otherwise directs, be served on—

(a) the continuing parties to the proceeding; and

(b) each new party, unless the person making the application is the only new party.

(4) The new parties order is binding on a person served from the time of service.

(5) A person who is not already a party who is served with a new parties order must file a statement of defence in the same time frame and manner as a person served with a statement of claim.

[42] Rule 4.52 is designed to authorise, in a proper case, continuation of proceedings by an assignee instead of a plaintiff: Colonial Patent Cheese Hoop Co Ltd v Alexander Harvey and Sons Ltd [1927] NZLR 459 (SC) at 461. See also

Wayby Investments Ltd v Krukziener. The purpose of the rule is to facilitate the carrying-on of proceedings without undue expense or delay: Smytheman v Clark [1935] NZLR 604 (SC) at 606.

[43] The effect of an order under r 4.52 is that the substituted party stands in the same position as the party replaced, is bound by its acts, and may be subject to or entitled to all the costs of the proceedings from the beginning of the action: Colonial Patent Cheese Hoop Co Ltd v Alexander Harvey and Sons Ltd at 461. See also McGechan on Procedure (online looseleaf ed, Brookers) at [HR4.52.04]. Once the order is effective the original plaintiff is discharged from the action.

[44] The Court ought not to make an order under r 4.52 except on conditions which prevent the order from doing injustice to the defendant, or from prejudicially affecting any advantage which the defendant may possess in the action before the order is made: Colonial Patent Cheese Hoop Co Ltd v Alexander Harvey and Sons Ltd at 461. See also McGechan on Procedure at [HR4.52.05].

[45] The authors of McGechan on Procedure state at [HR4.52.05]:

Plaintiffs wishing to withdraw in favour of assignees cannot be required to remain in the proceeding so as to ensure liability for costs. However, terms may be imposed refusing application unless such withdrawing plaintiffs lodge security for costs: Colonial Patent Cheese Hoop Co Ltd v Alexander Harvey & Sons Ltd [1927] NZLR 459, at pp 461-462.

[46] Master Faire cited the above passage in Wayby Investments Ltd v Krukziener at [17]. He declined to make the new parties order sought on the ground that the assignment of the cause of action was void. It was opposed, however, on the additional ground that an order should not be made releasing the withdrawing plaintiffs unless such plaintiffs lodged security for costs (see [9]). To this, the Master noted that had the matter been able to proceed an undertaking by the assignee to pay any costs incurred against the withdrawing plaintiffs ―may well have been an appropriate method of meeting the objection to the order sought‖ (at [17]).

[47] The defendant in the present case expresses a similar concern, indeed its position is that the plaintiff assigned its cause of action and was subsequently placed

in liquidation precisely to avoid liability for the costs awarded against it by the Court of Appeal.

The present applications

[48] I consider the present applications against this background. It is regrettable the applications proceeded on several incorrect bases. It is apparent, however, that the essential submissions of counsel in respect of each are relevant in considering the appropriateness of any order under r 4.52. Those essential submissions are:

1. For Sonsram, that its presence in the proceeding is necessary to enable complete and effective adjudication; and
   
2. For the defendant, that it ought not be done injustice by the order sought, particularly in respect of costs.
   

[49] I refer to r 7.43 of the High Court Rules:

7.43 Making of interlocutory orders

(1) A Judge may make any interlocutory order that—

(a) is provided for in these rules; or

(b) may be made under rule 1.6. (2) An interlocutory order may be made—

(a) on the interlocutory application of a party; or

(b) on a Judge's own initiative.

(3) Before making an order under subclause (2)(b), the Judge must give the parties an opportunity to be heard.

[50] In the circumstances I propose to make an order under r 4.52 on my own initiative in terms of r 7.43(2)(b). The purpose of this interim judgment is to give the parties an opportunity to be heard in terms of r 7.43(3).

[51] The assignment of the cause of action by the plaintiff to Sonsram makes it necessary that Sonsram be substituted for the plaintiff in this proceeding. That is, a

new parties order under r 4.52 that the proceeding be carried on between Sonsram and the defendant is plainly appropriate.

[52] My principal concern is as to the appropriate conditions to attach to any such order to prevent injustice to the defendant, particularly in respect of costs incurred against the plaintiff. I invite submissions of counsel on this point.

The application for security for costs

[53] The defendant applies, should Sonsram be successful in its application for joinder (or, by extension, be the subject of a new parties order), for an order requiring Sonsram to give security for costs. Sonsram filed a notice of opposition to the application but its counsel at the hearing conceded such an order was appropriate.

[54] Indeed, counsel accepted an appropriate order for security for costs would require Sonsram to give security for costs for a sum by paying that sum, in the form of cash or cash equivalent to the satisfaction of the Registrar, into court in three stages. Counsel differed only on the sum properly considered sufficient. I invite submissions of counsel on this point.

[55] I note that given the plaintiff is in liquidation, and counsel for Sonsram accepts Sonsram is impecunious, security both in respect of costs incurred against the plaintiff to date (for the purposes of an order under r 4.52) and in respect of the costs of the defendant if Sonsram is unsuccessful (for the purposes of an order under r 5.45) will need to be given by a third party. In these circumstances I would not envisage making separate orders in relation to each.

Result

[56] I therefore issue this judgment as an interim judgment and invite submissions of counsel on:

1. The proposed order under r 4.52 that the proceeding be carried on between Sonsram, in substitution for the plaintiff, and the defendant;
   
2. The appropriate conditions to attach to such an order to prevent injustice to the defendant; and
   

c) The sufficient sum to be the subject of an order under r 5.45 requiring

Sonsram to give security for costs.

[57] The case is to be listed in the chambers list on 23 March 2011 at 2.15 pm for further directions. Submissions should be filed at least two days prior with proposed orders.

Costs

[58] Costs on the present applications are reserved. I will hear from counsel on costs at the chambers hearing in March.

Associate Judge Sargisson