District Court New South Wales Medium Neutral Citation: Miles v Trustee for Luneburger Franchising Trust trading as Luneburger Franchising Pty Ltd [2021] NSWDC 30 Hearing dates: 3 and 5 February 2021 Date of orders: 5 March 2021 Decision date: 05 March 2021 Jurisdiction: Civil Before: Smith SC, DCJ Decision: The proceedings be dismissed with costs. Catchwords: COMMON LAW – Assignment of debt – Breach of contract – alternative findings on breach Legislation Cited: Competition & Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law Conveyancing Act 1919 (NSW), s 12 Imperial Acts Application Act 1969 (NSW), s 8(1) Cases Cited: Bakewell v Anchorage Capital Master Offshore Ltd [2019] NSWCA 199 National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 Whyked Pty Limited trading as Ezysend v Yahoo Australia and New Zealand Pty Limited [2006] NSWSC 650 Texts Cited: O'Donovan & Phillips, The Modern Contract of Guarantee, (online edition, Thomson Reuters) at [3.300] Category: Principal judgment Parties: Phillip Jacob Miles – Plaintiff Trustee for Luneburger Franchising Trust t/as Luneburger Franchising Pty Ltd - Defendant Representation: Counsel: Mr G Carolan - Defendant Solicitors: Plaintiff – Self represented MCK Lawyers - Defendant File Number(s): 2019/53629 Publication restriction: Nil Judgment 1. The defendant conducts the business as franchisor of a bakery franchise. MJ Chatswood Pty Ltd was a franchisee of that franchise and owed the defendant for the supply of goods by the defendant in connection with that franchise. 2. On 21 March 2018 the defendant entered into a contract with PJM Litigation & Debt Management Pty Ltd (PJM Litigation) for the collection of the debt owed by MJ Chatswood. 3. PJM Litigation instructed the firm Jessie Icao, Solicitors, to commence proceedings in this court against MJ Chatswood for the recovery of the debt and against three other defendants (District Court proceedings). One of those, Tadami Pty Ltd, was a related entity of MJ Chatswood, and the other two were directors of MJ Chatswood and said to be guarantors of its debt to the defendant. 4. In August 2018 default judgment was entered against the two corporate defendants. The matter was then set down for hearing commencing on 29 November 2018. 5. On 22 November 2018 MCK Lawyers, on instructions from the defendant, wrote to Jessie Icao Solicitors stating, amongst other things, that the defendant had not authorised the District Court proceedings and demanding an indemnity for any liability as to costs in respect of the proceedings. 6. Thomas Baena, a solicitor employed by Jessie Icao Solicitors, replied to that letter by email on the same day denying the allegations made by MCK Lawyers. 7. By letter dated 26 November 2018 MCK Lawyers sent Jessie Icao Solicitors a signed authority from Ahmet Yaltirakli, a director of the defendant, for MCK Lawyers to take over the conduct of the District Court proceedings. 8. On 29 November 2018 Candan Koyuncu, a lawyer from MCK Lawyers, appeared at the hearing of the matter. On his application, the proceedings against the remaining two defendants were dismissed with costs. 9. On 13 December 2018 PJM Litigation executed a deed by which it purported to assign for value to the plaintiff "all its rights, title and interest of the debt and chose in action". 10. On 18 February 2019 the plaintiff commenced these proceedings in his name against the defendant. In his amended statement of claim, the plaintiff alleges that the defendant terminated the debt collection contract by the letter from MCK Lawyers dated 26 November 2018 (paragraph 12) and by filing a notice of change of solicitor in the District Court proceedings (paragraph 13). He also claims that the defendants engaged in unconscionable conduct and misleading and deceptive conduct. 11. As a result, the plaintiff claims an entitlement to the fee payable under the debt collection contract ($117,378.80, being 40% of the debt owed by MJ Chatswood). He also claims exemplary damages. 12. The following issues arise: first, was the assignment dated 13 December 2018 effective in law; secondly, was the debt collection contract breached; and thirdly, if so, what damages flowed from that breach. 13. No amount is, or was ever owed under the debt collection agreement and the only matter that could have been assigned to the plaintiff was PJM Litigation's cause of action to sue for damages for any breach of that agreement. However, there was no breach of the agreement and, even if there had been, no damages flowed from that breach. The proceedings must be dismissed with costs. The following are my reasons for those conclusions. Debt Collection agreement 1. It is convenient first to set out the relevant portions of the debt collection contract. It is not a well-drafted document. It consists of three pages, each of which appears to have a different purpose. They are all standard forms with sections enabling the relevant details to be inserted. The first, headed "Debt Collection Authority & Contract" sets out the creditor and debtor details. The debtor is noted as MJ Chatswood Pty Ltd. There are then four numbered paragraphs as follows (without alteration): "1. We will collect your debt for a fee of 35% [this is crossed out and 40% is handwritten both above it and below it] of your debt amount and payable from the payment we collect from the debtor/s. 2. While we are acting and collecting your debt, you cannot do anything about your debt until we are finish with our collection process and inform you or until we return your debt to you. In the event that your debt is recovered by you or anyone while we are acting and pursuing the debtor, you shall pay us our fee in para (1). We're entitled to costs payable by the debtor. 3. If we are unable to collect your debt, we will return your debt to you without us being held liable for anything and you don't have to pay us our fee at para (1). Para means paragraph. 4. After you or your Authorised person or Solicitor signed this form, you authorise us to do anything lawful on your behalf to collect your debt. You want us to believe and accept as genuine any information, any material, you give to us including the details and signature you provide on this form without us being held liable for anything. This agreement shall be construed & governs in accordance with the laws in force in New South Wales and shall takes effect immediately after it is signed. You can cancel this contract if we failed to pursue the debtor." 1. Mr Yaltirakli's signature appears below these paragraphs together with the name and signature of a witness. 2. At the foot of the first page there is the following instruction: "COMPLETE THIS PAGE (1) & PAGE (2) IN CLEAR HAND WRITING IN BLUE PEN AND ATTACH THE DOCUMENTS RELATED TO THE DEBT/S AND POST TO: PO BOX 579 MASCOT NSW 1460 OR EMAIL: pjm@pjmlitigation.com.au" (Emphasis in original) 1. The second page is headed "CERTIFICATE OF AUTHORITY". The details of the creditor and debtor are again set out (the name of the trust of which the defendant is trustee and MJ Chatswood Pty Ltd respectively). Below this, is the following (without alteration): "THIS AUTHORITY REMAIN ENFORNCE UNTIL OUR DEBT IS COLLECTED IN FULL." 1. This page was signed by Mr Yaltirakli and dated 21 March 2018. 2. The third page has the heading "PRIVACY CONSENT AND AUTHORITY ACT". The first substantive paragraph states (without alteration): "By signing this document, you consent to us (PJM Litigation & Debt Management Pty. Ltd. ACN 622 collecting, using, holding and disclosing personal and credit information about you. You can find out more about how we deal with your privacy by obtaining copy our privacy policy. If you do not provide us with this consent or provide us with your personal information we may not be able to provide our services to you or manage your litigation." 1. There follow a number of paragraphs dealing with privacy and personal information. The final substantive paragraphs before the signature block at the bottom of the page are relevantly as follows: "You appoint us as your agent to manage your litigation and or debt and obtain your personal and financial information including but not limited to: … Legal proceedings: * You authorise us to request and receive any documentation concerning you from any Court, lawyer, solicitor and barrister. * To appoint and instruct any lawyer, solicitor and barrister to represent you. * You have also employ us to represent you. This appointment as your agent to obtain your personal, financial, and credit information is effective until revoked in writing by you." 1. Again, the document was signed and dated 21 March 2018. 2. Leaving aside the disparate nature of each of the three pages, the fact that the creditor is noted as the trust, not the trustee, and the obvious focus of the third page on privacy, it is readily apparent that this was meant to be one agreement whereby the defendant engaged PJM Litigation to collect the debt said to be owing by MJ Chatswood. This authority extended to doing "anything lawful" on behalf of the defendant including the appointment and instruction of lawyers in litigation. Given the overall scope and purpose of the agreement, it is also clear that the authority concerning lawyers and litigation extended only to the collection of the debt. 3. Importantly, the fee payable under cl 1 on the first page was described to be "payable from the payment we collect from the debtor/s". There are two important points that arise from this. First, given that only one debtor is named in the document, and the forms are standard forms, the reference to "debtor/s" is to be understood as a reference to a single debtor, namely, MJ Chatswood Pty Ltd. Secondly, the fee is only payable if PJM Litigation succeeds in obtaining some money from MJ Chatswood in relation to the debt. "Collect" here has its ordinary meaning of asking for and getting, rather than simply asking for. That is reinforced by the word "payment" in cl 1 and cl 3 which provides that no fee is payable if the debt is not collected. 4. It is common ground that, although default judgment was entered against MJ Chatswood Pty Ltd in respect of the debt owed by it, no money was ever obtained in satisfaction or partial satisfaction of that judgment or otherwise. In other words, the debt has never been collected. As a consequence, no fee is, or ever has been, payable by the defendant under the Debt Collection agreement. 5. Next, it is necessary to consider the assignment relied on by the plaintiff to bring these proceedings in his name. The assignment 1. The plaintiff (as assignee) entered into a deed of assignment with PJM Litigation (as assignor) on 13 December 2018. The operative portion of the deed is cl J which provides relevantly: "J. NOW, THEREFORE, for and in consideration of the foregoing premises … the ASSIGNOR hereby assigns, transfers and conveys onto the ASSIGNEE, all its rights, title and interest to the aforementioned Debt and causes of action pursuant to this DEED and the ASSIGNEE by these presents hereby accepts the assignment. …" 1. The "Debt" is a reference to the amount of $117,378.80 said to have been owing to PJM Litigation by the defendant under the debt collection agreement. However, as I have explained, no fee was payable under that agreement. Accordingly, there was no debt to assign. 2. The "causes of action" said to have been assigned were described in cl F of the Deed: "F. WHERE AS: The causes of action that the assignor has identified which are increasing, but not limited to, are: 1. Breach of contract. 2. Deceptive conduct. 3. Unconscionable conduct. 4. Director / Fiduciary and statutory duties." 1. Although the Deed is not particularly well-drafted, it is sufficiently clear that these causes of action are said to be against both the defendant and Mr Yaltirakli and to relate to the debt collection agreement. 2. Subject to what follows, a chose in action may be assigned at law pursuant to s 12 of the Conveyancing Act 1919 (NSW). Amongst other things, that provision requires the assignment to be absolute, in writing and for written notice to be given to the debtor or other person from whom the "assignor would have been entitled to receive or claim such debt or chose in action". There is no issue here that the assignment at least purported to be absolute or that written notice was given to the defendant. The only issue is whether the subject matter of the assignment was assignable at law. [1] 3. The fourth cause of action may be left to one side as it appears to relate only to Mr Yaltirakli who is not a party to these proceedings. 4. The second and third causes of action, deceptive conduct and unconscionable conduct appear to be either tortious claims or claims under the Australian Consumer Law. [2] As such, they are not assignable: National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514, 538 (Lindgren J). 5. A claim based on a breach of contract is a bare right to sue that is not ordinarily assignable in either law or equity. An exception to this, however, is where the assignee has a genuine commercial interest in the enforcement of the claim: Trendtex Trading Corporation v Credit Suisse [1982] AC 679, 694. Whether there is such an interest will depend on all the facts of the case: Bakewell v Anchorage Capital Master Offshore Ltd [2019] NSWCA 199; 372 ALR 349 at [72] (Bell P) referring to Whyked Pty Limited trading as Ezysend v Yahoo Australia and New Zealand Pty Limited [2006] NSWSC 650 at [24] and [26] (Bergin CJ in Eq). The relevant facts here are that the plaintiff is the sole director and shareholder of PJM Litigation. In those circumstances the defendant did not dispute that he had the requisite "genuine commercial interest" in the outcome of the proceedings and, so, there was an effective assignment of any cause of action for breach of contract. Breach of contract 1. The plaintiff alleges that the defendant breached the debt collection agreement by instructing Mr Koyuncu of MCK Lawyers to take over the District Court proceedings. He argues that, by taking over the proceedings in this way, the defendant breached cl 2 on the first page of the agreement. 2. It will be recalled that this clause prevented the defendant from doing "anything about (its) debt until (PJM Litigation) are finish with (its) collection process." However, on its proper construction, the debt collection agreement only authorised PJM Litigation to "collect" the debt from the debtor, that is, from MJ Chatswood. That was the company whose details were included in the debtor details of the first page of the agreement and cl 1 provided that PJM Litigation was only entitled to a fee from the "payment we collect from the debtor/s". As I have explained, "debtor/s" must be taken to mean MJ Chatswood. 3. The breach is said to have occurred by reason of the letter signed by Mr Yaltirakli dated 26 November 2018 authorising Mr Koyuncu to take over the conduct of the proceedings. At that time, default judgment had been entered against MJ Chatswood as well as against another defendant, Tadami Pty Ltd. The only matter still on foot was the claim against the directors of MJ Chatswood on the basis that they had guaranteed MJ Chatswood's obligations to the defendant and had not paid the amount outstanding. The matter was listed for hearing on 29 November 2018. 4. Given the limited scope of the debt collection agreement, the act of authorising a different firm of solicitors to take over the District Court proceedings in late November 2018 was not "doing anything about the debt" owed by MJ Chatswood. The purpose of the prohibition in cl 2 against doing anything about the debt was to ensure that PJM Litigation could fulfil its obligation of collecting the debt from MJ Chatswood. As I have explained, its authority to instruct lawyers and manage litigation was not at large and, likewise, neither was the prohibition contained in cl 2. 5. Contrary to the plaintiff's argument, the steps taken by the defendant to take control of the District Court proceedings against the directors of MJ Chatswood did not deny it the opportunity of collecting the debt from MJ Chatswood. There was default judgment against that company. Although, by the time of that judgment, the company was de-registered, steps may still have been available to have the company reinstated and then to enforce the judgment. The plaintiff led no evidence to establish that this was not possible. 6. For those reasons, there was no breach of the debt collection agreement and the proceedings must be dismissed. Alternative finding on breach 1. In the event that I am wrong, and the defendant did breach the debt collection agreement, it is necessary to determine what damages, if any, the plaintiff is entitled to. 2. He claims the amount of $117,378.80. This amount is calculated as 40% of the amount claimed in the District Court proceedings plus interest. That calculation proceeds on the incorrect premise that the fee was in fact payable by the defendant. The correct approach for the assessment of damages for breach of contract is to place the injured party, so far as money can do it, in the same position as if the contract had been performed. The counterfactual here is that PJM Litigation retained control of the litigation against the directors of MJ Chatswood. That, in turn, provided PJM Litigation with the opportunity of obtaining judgment against those directors and, in turn, enforcing that judgment. This requires an assessment of the probability of each of those events occurring: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 349. 3. The case against the directors rested on the proposition that they were "guarantors responsible and personally liable for the debt". [3] The statement of claim particularises the guarantee in [5], as arising from cl 8 of the supply agreement. In addition, the allegation is said to have been based on statements made to Mr Yaltirakli by each of the two directors at the same meeting that they would pay for any supply by the defendant to MJ Chatswood. The directors denied the allegation and, in their affidavits, denied ever meeting together with Mr Yaltirakli or otherwise agreeing to guarantee the obligations of MJ Chatswood to the defendant. 4. There is no general requirement in New South Wales for a contract of guarantee to be in writing: Imperial Acts Application Act 1969 (NSW), s 8(1); The Modern Contract of Guarantee, O'Donovan and Phillips, online edition, Thomson Reuters, [3.300]. For that reason, the failure by the plaintiff here, or PJM Litigation in the District Court proceedings, to be able to produce a written guarantee is not fatal to the claim. However, it is not an easy matter to establish that an oral guarantee is binding in circumstances where there was, on the plaintiff's case, a written document. Even so, the probability of doing so cannot be set at zero. 5. The real difficulty with the plaintiff's case, however, is that there is no evidence at all to establish that there was any real chance of enforcing any judgment obtained against the two directors. Without any evidence it is impossible to assess the probability of PJM Litigation enforcing any judgment against the directors. For that reason, even if the defendant breached the debt collection agreement, I am not satisfied that there was any loss occasioned by the breach. ********** Endnotes 1. The plaintiff did not assert or rely on an equitable assignment. 2. Competition & Consumer Act 2010 (Cth), sch 2 – Australian Consumer Law. 3. See the Statement of Claim in the District Court proceedings at [2], Exhibit TB1 at p 113. Amendments 05 March 2021 - No amendments have been made. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 March 2021