Drake v Wood Marshall Williams Solicitors

1. [1]

   HER HONOUR: By notice of motion filed 20 May 2015, the defendants seek orders that the amended statement of claim filed 30 March 2015 filed be dismissed pursuant to rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), or alternatively, that the amended statement of claim be struck out pursuant to UCPR 14.28.

2. [2]

   The plaintiffs are Lawrence Drake and Judith Drake (“the Drakes”). The Drakes appeared in court and their son Christopher Drake spoke on their behalf. The defendants are Neal Marshall and Charles Parisi (“the solicitors”). The Drakes relied upon the affidavits of Lawrence Drake sworn 14 May 2015 and 21 July 2015 and the affidavit of Christopher Paul Drake filed 29 July 2015. The solicitors relied on the affidavit of Malcolm John Cameron dated 19 May 2015 and the affidavit of Morgan Bedford Moroney sworn 28 July 2015

3. [3]

   The solicitors’ motion in these proceedings was heard with the defendant’s motion in 2014/370202 Drake v Wight & Strickland Lawyers. The defendant in those proceedings is Wight & Strickland Lawyers.

4. [4]

   On 10 June 2015, the motions came on before me for hearing. The Drakes sought an adjournment on the basis that they were not legally represented and wanted an opportunity to seek whether the trustee in bankruptcy would “revest the Drakes’ right of action to them”. An adjournment was granted. On 29 July 2015, the notices of motion were heard.

5. [5]

   The solicitors contend they are entitled to the orders sought because the Drake’s claim against them is doomed to fail as any right of action, which vested in the Drakes’ trustee in bankruptcy, did not divest from the trustee and revest in the Drakes on their discharge from bankruptcy.

Background

1. [6]

   For the purposes of this application only, I have taken the Drakes’ case at its highest and I will take what they have pleaded as being correct.

2. [7]

   The solicitors are legal practitioners who, at the relevant time, practised at the firm Wood Marshall Williams Solicitors (“Wood Marshall Williams”).

3. [8]

   On 17 December 2014, the Drakes filed a statement of claim against the solicitors.

4. [9]

   On 30 March 2015, pursuant to leave granted by the Court, the Drakes filed an amended statement of claim (ASC).

5. [10]

   The Drakes’ claim against the solicitors arises from the solicitors allegedly acting for the Drakes in a transaction that settled on 4 February 2008. That transaction is said to involve a transfer of property from Armond Shoostovian (“Mr Shoostovian”) to the Drakes.

6. [11]

   The ASC contains the following allegations:

Badman v Drake

1. [12]

   The judgment of Young CJ in Eq in Badman indicates that the vendor was AS Group Nominees Pty Ltd. Wood Marshall Williams acted for this company.

2. [13]

   On 19 December 2008, Young CJ in Eq held that the transaction should be set aside due to equitable fraud and undue influence. His Honour determined that the appropriate order was that the Drakes pay equitable compensation to Ms Badman in the sum of $378,623.19 plus interest.

3. [14]

   As noted above, the Drakes claim loss as a result of the judgment in Badman. The particulars of loss refer to the order for payment of $378,623.19. It is also alleged that had the solicitors required Ms Badman to obtain independent legal advice, the transaction would have either proceeded lawfully or not at all. In addition, the Drakes claim the legal costs associated with defending the Supreme Court proceedings.

Summary dismissal

1. [15]

   UCPR 13.4(1) provides that the Court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are, if the proceedings are frivolous or vexatious, if no reasonable cause of action is disclosed or if the proceedings are an abuse of the process of the court.

2. [16]

   UCPR 14.28(1) provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court.

3. [17]

   UCPR 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under subrule (1).

4. [18]

   In O’Brien v Bank of Western Australia Ltd [2013] NSWCA 71, the Court of Appeal applied the High Court decision of Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118. In Spencer, the High Court was concerned with s 31A(2) of the Federal Court Act 1976 (Cth), but the following principles are of general application (O’Brien at [3]):

5. [19]

   See also General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, in which Barwick CJ comments that a lack of a cause of action must be “clearly demonstrated” in terms that the case is untenable and cannot possibly succeed (at 128-129).

6. [20]

   Recent decisions of this Court and the Court of Appeal demonstrate that the impact of s 56 of the Civil Procedure Act 2005 (NSW) is such as to expand the circumstances where an order for dismissal under UCPR 13.4 may be made.

7. [21]

   In Simmons v Protective Commissioner of NSW [2012] NSWSC 455 at [28], Hammerschlag J expressed support for the proposition that the combination of the words in UCPR 13.4(1)(b) and s 56 of the Civil Procedure Act lead to a result that:

8. [22]

   Simmons was subsequently cited by Ward J in McDonald v Grech; Bank of WA v McDonald [2012] NSWSC 717 at [32]-[33].

9. [23]

   In Bott v Carter [2012] NSWCA 89, also a dismissal application involving a defence of advocate’s immunity, Basten JA observed that while s 56 of the Civil Procedure Act may not reduce the conditions for the engagement of the power to dismiss proceedings under UCPR 13.4, it limits the circumstances in which the court, satisfied that the power is available, might be inclined to refuse relief on discretionary grounds (at [14]).

Bankruptcy

1. [24]

   On 30 January 2009, the Drakes were declared bankrupt. On 31 January 2012, they were each discharged from bankruptcy. The Drakes have been discharged from bankruptcy for over three years.

2. [25]

   Section 58 of the Bankruptcy Act 1966 (Cth) provides:

3. [26]

   “Property” is defined in s 5 of the Bankruptcy Act as:

4. [27]

   Section 58 of the Bankruptcy Act provides that when a debtor becomes bankrupt, the property of the bankrupt vests forthwith in the trustee. The property includes any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt.

5. [28]

   A bare right to sue in respect of alleged property and economic losses is property of the bankrupt which will vest in the trustee pursuant to s 58: see Campbell J in Kovarfi v BMT & Associates Pty Ltd (No 2) [2014] NSWSC 100 at [27]. The exceptions to s 58, as set out in s 116(2)(g) of the Bankruptcy Act, are not applicable to these current proceedings.

6. [29]

   The issue as to whether a cause of action such as this divests from the trustee and revests in the (former) bankrupt was expressly considered by Campbell J in Kovarfi (No 2). Kovarfi (No 2) also involved an application to dismiss a statement of claim. In those proceedings, the plaintiffs became bankrupt in 2005 and were discharged from bankruptcy in 2008. They subsequently commenced proceedings in respect of losses allegedly suffered in 2004.

7. [30]

   As stated by Campbell J in Kovarfi (No 2), the issue above was “settled beyond argument” by the decision of the Court of Appeal in Daemar v Industrial Commission of NSW (No 2) (1990) 22 NSWLR 178. In Kovarfi (No 2) at [35] his Honour continued:

8. [31]

   Following the judgment in Daemar, Campbell J in Kovarfi (No 2) held that the cause of action did not divest upon discharge (at [40]):

9. [32]

   On that basis, Campbell J ordered that the statement of claim in those proceedings be summarily dismissed.

The position of the Trustee

1. [33]

   Christopher Drake and his father depose to a number of conversations and there are emails by Christopher Drake addressed to Mr Mark Marlow (“Mr Marlow”) of Jones & Partners, the trustee in bankruptcy (Aff, Christopher Drake 29/7/15). There is also evidence of correspondence between Mr Marlow and the solicitor for Wight & Strickland (Aff, Morgan Moroney 28/7/15). As any assignment given by the trustee has to be in writing, I shall refer to what the trustee has said in writing.

2. [34]

   On 27 July 2015 at 11.42 am, Mr Marlow emailed Christopher Drake and stated:

3. [35]

   On 27 July 2015 at 12.09 pm, Mr Marlow emailed Christopher Drake in the following terms:

4. [36]

   On 27 July 2015 at 1.24 pm, Mr Marlow emailed Christopher Drake as follows:

5. [37]

   On 27 July 2015, Ms Moroney, the solicitor for Wight & Strickland, wrote to Mr Marlow stating:

6. [38]

   On 27 July 2015 at 11.32 am, Mr Marlow replied to Ms Moroney:

7. [39]

   From this correspondence it is clear that the trustee has not assigned this cause of action or show in action to the Drakes. Any cause of action remains vested in the trustee.

8. [40]

   However, the Drakes submitted that the trustee has denied them the right to appeal or otherwise review the decision, despite their requests, and that in that manner, the trustee divested himself of the specific property of the Drakes that he had been vested with, being a claim against the solicitors. Therefore, the Drakes say that the general proposition that the property vested in the trustee and remained with him does not apply in this case. They submitted that the case ought to be differentiated from the authorities referred to by the solicitors.

9. [41]

   In support of this proposition, the Drakes referred to Ersh v The Greek Orthodox Parish and Community of Burwood and District Saint Nectarios Limited [2015] NSWSC 331. Ersh was an appeal from a decision of a Local Court Magistrate. In those proceedings, it was common ground that on 18 October 2005, Ms Ersh was declared bankrupt. She was discharged from bankruptcy on 18 October 2008. She had not disclosed to the trustee the debt said to be owed by her to the Greek Orthodox Parish and Community of Burwood and District Saint Nectarios Limited (“the Greek Orthodox Parish”). On 14 February 2014, the trustee subrogated and assigned the debt to Ms Ersh for the purposes of authorising her absolutely to continue on in taking any and all such recovery action or proceedings with respect to the amount against the Greek Orthodox Church as she deemed fit.

10. [42]

    The Drakes submitted that in these current proceedings, consent operates in the same way as a rejected vested interest would, in the sense that the interest is returned to them. I do not agree. In these current proceedings, unlike what occurred in Ersh, the trustee has not assigned the cause of action to them.

11. [43]

    The Drakes also drew this Court’s attention to Windsurf Holdings Pty Ltd v Leonard; Carlson v Leonard; Wyvill v Leonard [2009] NSWCA 6. That was an appeal from a decision I made in relation to applications to extend limitation periods pursuant to the Limitation of Actions Act 1974 (Qld). In the appeal, counsel for the plaintiffs submitted at [73]:

12. [44]

    This argument was rejected by the Court of Appeal (at [24] and [114]). Hence, s 63 of the Civil Procedure Act does not overcome the lack of assignment of the cause of action by the trustee.

13. [45]

    The Drakes also referred to s 56 of the Limitation Act 1969 (NSW) and ss 56 and 58 of the Civil Procedure Act as a means of overcoming s 58 of the Bankruptcy Act. Section 56 of the Limitation Act concerns an action based on mistake rather than a “mistake” made in the commencement of proceedings. Sections 56 and 58 of the Civil Procedure Act also do not assist the Drakes to overcome their bankruptcy problem.

14. [46]

    It is my view that the right to sue the solicitors for damages in negligence vested in the trustee in bankruptcy. On discharge from bankruptcy, that right did not divest from the trustee and revest in the Drakes. There has been no assignment by the trustee of the cause of action. The Drakes’ current pleading is incompetent.

15. [47]

    This is not a matter where I would exercise my discretion to permit the Drakes to replead their claim, because the flaw is a fatal one. It cannot be overcome by a repleading of the ASC. As these current proceedings have not been competently commenced they are dismissed.

16. [48]

    Costs are discretionary. Costs usually follow the event. The plaintiffs are to pay the defendant’s costs of the proceedings.