Mearns v Australian Litigation Fund Pty Ltd & Anor [2006] FCAFC 81 (26 May 2006)

Last Updated: 29 May 2006

FEDERAL COURT OF AUSTRALIA

Mearns v Australian Litigation Fund Pty Ltd & Anor [2006] FCAFC 81

BANKRUPTCY - non-compliance with bankruptcy notice – ‘Deed of Assignment of Debt’ – ‘Notice of Assignment’ – assignee substituted as petitioner – sequestration order – provision for variation of deed– assignment pursuant to s12 of the Conveyancing Act 1919 (NSW) – assignment must be absolute – provision for variation not a condition – assignment absolute - appeals dismissed








Conveyancing Act 1919 (NSW) s12


Australian Litigation Fund Pty Ltd v Mearns & Anor [2005] FMCA 1727
Australian Litigation Fund Pty Ltd v Mearns (No.4) [2005] FMCA 1815
Durham Bros v Robertson [1898] 1 QB 765
Interstate Investment Company Limited v Mobbs (1928) 28 SR (NSW) 572









ROBYN HAYDN MEARNS v AUSTRALIAN LITIGATION FUND & ANOR
NSD 2303 of 2005 &
NSD 2601 of 2005


NICHOLSON, CONTI and DOWNES JJ
26 MAY 2006
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2303 OF 2005 & 2601 OF 2005

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	ROBYN HAYDN MEARNS APPELLANT
AND:	AUSTRALIAN LITIGATION FUND PTY LTD FIRST RESPONDENT (ACN 078 747 092) WILLOUGHBY COMMUNITY PRE-SCHOOL INC SECOND RESPONDENT
JUDGE:	NICHOLSON, CONTI and DOWNES JJ
DATE OF ORDER:	26 May 2006
WHERE MADE:	SYDNEY

THE COURT ORDERS:

1. Appeals dismissed with costs.
2. Liberty is reserved within 28 days for the respondents in both appeals to apply to the court for orders that the costs orders just made be taxed on an indemnity basis. Liberty is also reserved within the same time for the respondents in both appeals to apply for a lump sum to be assessed for the costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2303 OF 2005 & 2601 OF 2005

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	ROBYN HAYDN MEARNS APPELLANT
AND:	AUSTRALIAN LITIGATION FUND PTY LTD (ACN 078 747 092) FIRST RESPONDENT WILLOUGHBY COMMUNITY PRE-SCHOOL INC SECOND RESPONDENT

JUDGE:	NICHOLSON, CONTI and DOWNES JJ
DATE:	26 May 2006
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT

1. On 25 August 2003 Willoughby Community Pre-School Inc. obtained judgment against Robyn Haydn Mearns in the District Court of New South Wales for a sum in excess of $430,000.

2. On 16 September 2003 Ms Mearns was served with a bankruptcy notice issued by the Pre-School out of the Federal Magistrates Court. By failing to comply with the notice Ms Mearns committed an act of bankruptcy. On 18 December 2003 the Pre-School petitioned the Federal Magistrates Court for a sequestration order against the estate of Ms Mearns.

3. On 6 April 2004 the Pre-School and Australian Litigation Fund Pty Ltd entered into a deed described as a ‘Deed of Assignment of Debt’. Clause 2 of the Deed contained the following provisions:


"2.1 Assignment of the Debt by the Assignor

In consideration of these presents and in the consideration of the payment of the Assignment Sum, the Assignor hereby transfers and assigns to the Assignee, free from all encumbrances, with effect from the Assignment Date all right, title and interest in and to the Judgment Debt.

2.2 Acceptance of Assignment

The Assignee accepts the assignment under clause 2.1.

2.3 Notices of Assignment

The Assignor must contemporaneously with execution of this Deed execute and deliver to the Assignor two undated (2) originals of the executed Assignment Notice. The Assignor irrevocably authorises the Assignee to date and send by ordinary post (or any other means the Assignee deems fit) the executed Assignment Notice to the Debtor on or after the Assignment Date."

4. On or after 7 December 2004 the following ‘Notice of Assignment’ was served on Ms Mearns:

"Notice of Assignment

TO: Robyn Haydn Mearns
92 Artarmon Road, Artarmon, NSW 2064

This Notice of Assignment is Schedule 1 to a Deed of Assignment ("Deed") entered into by Willoughby Community Preschool Inc NSW Y1327732 as the Assignor and Australian Litigation Fund Pty Ltd ACN 078 747 092 as the Assignee.

The debt referred to in this Notice of Assignment arises from the orders of the District Court of New South Wales made on 25 August 2003. On that day it was ordered by the Court that you are to pay to Willoughby Community Preschool Inc. the sum of $431,759.86. Annexure 1 to the Deed (attached) is a copy of the judgment dated 25 August 2003.

NOW TAKE NOTICE that Willoughby Community Preschool Inc has, under the Deed, assigned and transferred to Australian Litigation Fund Pty Ltd, all right title and interest in and to the Judgment Debt together with your indebtedness to pay under the Judgment Debt (being the sum of $431,759.86 plus interest accruing from the date of 25 August 2003 and costs) and you are irrevocably directed to pay those amounts to Australian Litigation Fund Pty Ltd or as it may otherwise direct.

TAKE FURTHER NOTICE that only Australian Litigation Fund Pty Ltd can give a good and valid discharge of the Judgment Debt.

Dated: 7 December 2004"

The Notice of Assignment was executed under seal by the Pre-School.

5. On 24 November 2005 the Litigation Fund was substituted for the Pre-School as petitioning creditor and on 16 December 2005 a sequestration order was made. Ms Mearns defended both the application for substitution and the application for a sequestration order on a number of grounds. Barnes FM, who heard both applications in the Federal Magistrates Court, did not accept the arguments put on behalf of Ms Mearns and accordingly made both the substitution order and subsequently the sequestration order.

6. Ms Mearns has appealed to this Court. Before us the grounds of appeal were considerably confined. They concentrated on a particular clause of the Deed of Assignment as follows:

"11.4 Variation

This Deed may be varied by instrument in writing executed under seal of, or signed by, in respect of the Assignor, the Assignor and, in respect of the Assignee, a duly authorised officer."

7. Clause 11.4 clearly confers a right to vary the deed of assignment in writing. What additional power that confers over the right of all parties to any agreement or deed to vary the document by mutual agreement we will put to one side. Not only did the deed confer the right to vary, it was twice exercised. "Assignment Date" was originally defined in cl 1.1 to mean " ... sixty (60) days after the date of execution of this Deed." On 26 May 2004, before the original Assignment Date had arrived, the Deed was amended by deed to change the date to 9 July 2004. By further deed dated 5 July 2004, again before the Assignment Date occurred, it was amended to 30 November 2004.

8. The appellants argument proceeded on the basis that the foundation of the claim of the Litigation Fund to be entitled to be substituted was that there had been an assignment pursuant to s12 of the Conveyancing Act 1919 (NSW). We will consider the appeal on that basis. The section is as follows:

"12 Assignments of debts and choses in action

Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees."

9. The appellant reminds us that for an assignment under s12 to be effective it must be an "absolute assignment" and argues that the assignment in the present case was not absolute because the parties could vary the deed of assignment pursuant to cl 11.4.

10. We do not think that the appellants argument has substance.

11. It is important to distinguish the Deed providing for assignment from the assignment itself. Section 12 is concerned with the act of assignment and not with an agreement for assignment, whether or not contained in a deed. In terms the deed provided for an absolute assignment on a particular day. That day could be varied before it occurred. On the facts of this case it was. However, when a day appointed arrived, the deed operated to effect an assignment. When notice of the assignment was given by the assignor that resulted in the assignment having force by virtue of the terms of s12 of the Conveyancing Act.

12. Accepting for the moment that the deed was not wholly spent by the assignment and notice, it would be true that the parties could subsequently vary the deed pursuant to cl 11.4. However, such a variation could not undo the assignment which had occurred. It might re-assign the debt to the Pre-School but that would be a further assignment which would not have effect under s12 until notice was given. Ms Mearns could not have found herself in the position that payment made to the Litigation Fund did not discharge her from the debt because of a re-assignment unless she had been given notice of that assignment.

13. This is quite a different case from the cases which were cited to us in argument such as Interstate Investment Company Limited v Mobbs (1928) 28 SR (NSW) 572 at 574 and Durham Bros v Robertson [1898] 1 QB 765 at 772. Both these cases involved assignments which were conditional. Chitty L.J. in Durham Bros gives the following illustration of a conditional assignment (at 773): "The commonest and most familiar instance of a conditional assurance is an assurance until J.S. shall return from Rome." This is to be compared with an unqualified assignment even though the parties may intend that upon J.S. returning from Rome, there will be a re-assignment which would itself require notice. Where there is a conditional assignment, notice of the assignment will disclose the condition. That creates the problem. The present case did not involve any qualification of the assignment.

14. These observations dispose of both appeals. The substitution was correctly made and so was the sequestration order. Both appeals must be dismissed with costs.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Nicholson, Conti and Downes

Associate:

Dated: 26 May 2006

Counsel for the Appellant:	Mr R Killalea
Solicitors for the Appellant:	Mendika Law Pty Ltd
Counsel for the Respondents:	Mr S Dawson
Solicitors for the Respondents:	Abbott Tout Lawyers
Date of Hearing:	23 May 2006
Date of Judgment:	26 May 2006