Local Court of New South Wales CITATION: Maroubra Auto Refinishers Pty Ltd v Johnson [2004] NSWLC 3 JURISDICTION: Civil PARTIES: Maroubra Auto Refinishers Pty Ltd David Christopher Johnson FILE NUMBER: 1480/04 PLACE OF HEARING: Downing Centre DATE OF DECISION: 10/07/2004 MAGISTRATE: CATCHWORDS: Vehcile - Damage in Accident - Dispute in relation to reasonableness of repairs LEGISLATION CITED: Trade Practices Act 1976 s 52 s 82 Maintenance and Champerty Abolition Act 1993 s 6 Allstate Life Insurance Co & Ors v Australia & New Zealand Banking Group Ltd & Ors (Allstate) Poulton v The Commonwealth (1953) 89 CLR Giles V Thompson (1994) 1 AC First State City Corporation Ltd v Downsview Nominees Ltd (1989) 3 NZCR National Mutual Property Services Australia Pty Ltd v Citibank (1995) CASES CITED: Trendtex Trading Corporation v Credit Suisse (1982) AC 295 Monk V ANZ Banking Group 34 NSWLR Smith & Ors v Roach & Ors [2004] NSW CA 233 Magic Menue Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 Quach v Huntof Pty Ltd [2000] NSW SC 932 Tosich Constructions Pty Ltd v William Felton Co Pty Ltd (1998) 28 ACSR 228 REPRESENTATION: ORDERS: I find the plaintiff has no standing to bring the action relying on the Deed. The interlocutory decisions relating to minor areas in dispute as to the cost of the repairs cannot stand and it is not necessary to determine the remaining issue of the application of a goods and services tax to the repair bill. JUDGMENT 1. The plaintiff in its statement of claim seeks an amount of $30,913.16, the cost of repairs on a vehicle belonging to Wen-Shui Kuo. The vehicle was damaged in an accident on 24 February 2003. It was admitted that the defendant, Mr Johnson, was responsible for the motor vehicle accident. A document entitled "Deed of Agreement to Repair and Assign Right to Recover Repair Costs form Negligent Party" (the Deed) was signed by Wen-Shui Kuo and the plaintiff on 25 February 2003 when the vehicle was taken for repairs to the plaintiff's workshop. The amount of $30,913.16 was assessed as the cost of repairs. The expertise of the assessor was not challenged. Approximately $5,000 is in dispute in relation to the reasonableness of the repairs. 2. The defendant's defence raised an issue as to the plaintiff's locus standi or right to sue relying on the Deed. Both parties requested that I determine the issue as a preliminary point and I agreed. As a matter of convenience, some minor points on the reasonableness of the repairs were dealt with prior to the determination of the preliminary issue. The matter had been listed before the Court on a prior occasion and not reached, the witnesses were again at Court (although not called as, by agreement their statements were relied upon) and, the parties acknowledged that should the defendant succeed on the preliminary issue, the interlocutory decisions could and would not stand. Should the defendant not succeed, all issues, except one GST issue, would be finalised. 3. The Deed is a standard document used by the plaintiff in its business. There are a large number of matters listed in the Local Court, 56 at North Sydney and approximately 15 in the Downing Centre in which the plaintiff is a party. All matters rely on the standard document. For this reason both parties wished the preliminary issue of the plaintiff's standing determined. It is my understanding that an insurer stands behind the defendant. 4. The defendant first submits that a bare cause of action in negligence has been assigned under the Deed. On a reading of the terms of the Deed, he states, that a right to sue for unliquidated damages in negligence and not a debt has been assigned. 5. The defendant's second submission is that the agreement between the plaintiff and the customer involves maintenance and is champertous. As such it contrary to public policy and void. 6. The plaintiff submits that it holds an assignment of a debt as set out in the schedules to the Deed. The Deed, it states, provides that the customer has instructed the repairer to commence work on the motor vehicle and a commercial contract has arisen to the benefit of the plaintiff. The customer, it states, has then assigned his rights to recover the cost of the repair set out in the schedules to the Deed, a quantified sum of $30,913.16. The plaintiff claims it has a commercial interest in the assignment set out in the Deed. The commercial interest, in the subject matter of the assignment the plaintiff submits, is sufficient for its validity. The Deed 7. Without setting out the whole of the Deed, a copy of which I attach to this decision, the operative parts are: "NOW THIS DEED WITNESS 1 In consideration of the Repairer repairing the Motor Vehicle, and relinquishing and releasing the customer from the cost of the repair to the Repairer, the Customer assigns to the Repairer all its rights under the law to recover the cost of the repair from the negligent driver and/or owner of the Third Party Vehicle. POWER OF ATTORNEY 8. The Customer irrevocably appoints the Repairer as the attorney of the Customer in the name of the Customer to: a Demand, use for, receive and give effect to a discharge with respect of the repairs; b Conduct any legal proceedings in relation to recovery of the costs, including proceedings on appeal as effectively as the Customer could or might; c For any purpose from time to time appoint any substitute or attorney; d The Repairer shall indemnify the Customer against all costs and expenses incurred in connection with anything done by the repairer as attorney of the Customer pursuant to Clause 4. 9. Details of the accident, the parties involved, their car registration and the cost of the repairs are set out in a Schedule to the Deed. The cost of repairs at $30,913.16 is referred to. 10. Notice of the assignment was given to the defendant in writing on 25 February 2003 and a letter of demand sent in April 2003. The Law relating to the assignment of a chose in action 11. Allstate Life Insurance Co & Ors –v- Australia & New Zealand Banking Group Ltd & ors (Allstate) 1994 FCA set out the law in relation to the assignment of causes in action as follows: "It is settled law in Australia that a right to litigate a claim in tort is incapable of assignment at law or in equality" (see Poulton –v- The Commonwealth (1953) 89CLR at 602 ( Poulton )). Allstate referred to the development of in the law in England and Australia, in the context of assignment of contractual causes (Giles –v- Thompson (1994)(1) AC (Giles)) and, to the development in the law in New Zealand in First State City Corporation Ltd –v- Downsview Nominees Ltd (1989) 3NZCR 710 (First State). Beaumont J said that Gault J in First State was of the opinion "in the context of the assignment of debentures, that the modern law with respect to maintenance should permit assignment of claims in tort as well as in contract where the tort claims relate to property. Gault J drew a distinction (at 757) between situations where property is being protected on the one hand and where, on the other the situation is one of the personal advantage of the individual. In my view, even if I were free to depart from the High Court's statement of the position in Poulton so as to follow the opinion expressed by Gault J, it is clear beyond argument that no question arises here of protection of property; and that, rather, this is a case of an assignment of a claim for unliquidated damages for deceit, or something analogous to such a claim, for the benefit of the individual applicants." 12. In National Mutual Property Services Australia Pty Ltd –v- Citibank ((1995) unreported Federal Court of Australia (National Mutual) the question of impermissible assignments of bare causes of action was also considered. The plaintiff in that case had taken assignment of the rights investors who had entered negative gearing packages with the bank. Much of the discussion considered the assignment of torts and claims under s52 and s82 of the Trade Practices Act 1976 which are analogous to claims in tort, as well recent developments in the law of assignment. 13. Lindgren J in National Mutual stated that Trendtex Trading Corporation –v- Credit Suisse (1982) AC295 (Trendtex), marked a new point of departure, at least in relation to the assignment of causes of action of a non-tortious kind. In Trendtex the Court said: "But it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance….. The court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance". 14. The case has been followed in Australia: Re Timothy's Pty Ltd and the Companies Act [1981] 2 NSWLR 706 (Needham J) ("Re Timothy's") Re Daley; Ex parte National Australia Bank Ltd (1992) 37 FCR 390 (Heerey J) ("Daley") at 394-395; Commonwealth of Australia –v- Ling (1993) 44 FCR 397 (Beaumont J) at 432. 15. In Monk –v- ANZ Banking Group 34NSWLR 148 (Monk), which considered Poulton, First City and Trendtex, Cohen J said: The defendant submitted that Poulton v The Commonwealth is still good law and that it has not been effected by what was said by the House of Lords in the Trendtex case. As I noted earlier, the statement in Poulton's case relating to assignments of causes of action in tort was one of a general principle and there had been no issue involving a claimed commercial interest in the alleged debt which gave rise to the cause of action. I agree that there seems no logic in making a distinction between a cause of action in tort and one in contract if the basis of the claim is a commercial one. If there is an interest such as was referred to in Trendtex it seems to be of little significance as to whether the label to the cause of action is contract or on the same facts it is a claim in tort. What is significant in the view of the House of Lords in Trendtex is that the assignment is only valid either if there has been an assignment of a property right and the cause of action is ancillary to it or if the assignee had a genuine commercial interest in taking the assignment and enforcing it for his own benefit." 16. In Monk the issue for decision was "whether a right of action for the tort of conversation was capable of assignment to the plaintiff either at law or equity and if so, whether the assignment was effective. Seven cheques to the value of $145,291 had been stolen. The cheques were made out to Coutts Morgan Pty Ltd (Coutts) crossed and marked not negotiable. They were deposited in an ANZ Bank and the proceeds collected. It was said that the bank converted the cheques or in the alternative the bank had and received the proceeds for the use of Coutts and by deed of assignment dated Oct 1993 Coutts assigned to him all choses in action it may have had against the bank in respect of the cheques. 17. In February 1993 the ANZ Bank had obtained judgment against Mr Monk who in turn wished to obtain judgment against the bank in relation to the cheques for the purpose of a set off in bankruptcy proceedings instigated by ANZ. 18. The assignment was not found to relate to any property right or interest nor was it an assignment where the assignee had other commercial interest in the assignment. The interest was personal. In the cases which had applied the Trendtex test, the commercial interest had to go beyond a mere personal interest in profiting from the outcome of the proceeding and required an interest by the assignee in the assignor or its business affairs or activities which the assignment may in some way protect. 19. In First City, Gault J held valid an assignment by a debenture holder if its right of action in tort to an assignee of the debenture. His Honour said the actions in tort were ancillary to the assignment of the debenture itself and the actions in tort were subsidiary matters, assigned with the debenture so that the assignee could protect the property it had received. 20. In National Mutual, Lindgren J also said: In my view the causes of action in the present case do not satisfy the Trendtex test. They were not ancillary to a proprietary right or interest which is being assigned. The question whether the National Mutual companies have a genuine commercial interest in taking the assignments and enforcing the causes of action for their own benefit is interesting. Confronted with say 146 (or 156) claims against them, it may be seen to have been in their commercial interest for them to settle with the Claimants, thereby avoiding adverse publicity, and to pursue parties such as Citibank, LKFM and Kelly, said to be subject to a coordinate liability with them. By reference to three matters, however, I do not think that the "genuine commercial interest" limb of the Trendtex test is satisfied. First, the genuine commercial interest referred to in Trendtex is not a nebulous notion of the general commercial advantage of the assignee but something more specific and limited. In particular, it does not embrace an interest arising from an arrangement voluntarily entered into by the assignee of which the impugned assignment is an essential part, like the arrangement in the present case. Rather, the expression refers to a commercial interest which exists already or by reason of other matters, and which receives ancillary support from the assignment. "5. (1) Where damage is suffered by any person as a result of a rort (whether a crime or not) – (a)….(b)….. (c) any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought." Under the assignments, the National Mutual companies would not need to prove their own liability, but more importantly, subject to any claim by Citibank under the LR(MP) Act they would be entitled as of right to indemnity. While it is readily understandable that the National Mutual companies might have wished to be assured of this if they were to pay the Claimants' claims in full, one need only consider a hypothetical "other tort-feasor" which, pursuant to para 5(1)(c) might be held liable to contribute to the extent of say only 10%, to appreciate that the kind of commercial interest relied on by the National Mutual companies may not be the kind of "genuine commercial interest" contemplated by their Lordships in Trendtex. Although not seeking by the assignments, to make a profit by recovering from Citibank more than the amounts they have paid to the Claimants, they are seeking to ensure that they recover the whole of those amounts irrespective of whether Citibank should be held liable to contribute at all or, if so, in what proportions." The first question – Is The Assignment valid? 21. The plaintiff requests the Court to distinguish the comment in Poulton that the right to litigate a claim in tort is incapable of assignment as obiter and as being a broad statement of principle rather than one that is completely binding at first instance. It refers to Monk and National Mutual, and the view that there may be little logic in making a distinction between a cause of action in tort and one in contract if the basis of the claim is a commercial one. 22. Monk, provides examples of factual situations where a genuine commercial interest may be found. For instance it was held that there was such an interest where the assignee was already a substantial creditor of the assignor with a right to enforce the debt (Trendtex, Re Timothy's) or where the assignee was a debenture holder with an interest in protecting the value of its security (First City) (see Monk p153)). 23. The plaintiff claims that through the Deed, which provides instruction for the repair work and assignment of a right to recover the cost of the repairs, a genuine commercial interest in this tortious action has arisen because it is "linked" to the rights of the customer (see page 16 transcript). The "link", formed between a customer and a repair company who have entered a Deed for repair work and assignment of the right to pursue the money for that work, is not sufficient, in my view, to establish the genuine commercial interest required by the law. A genuine commercial interest is an interest which goes beyond a more personal interest in profiting from the outcome of the proceedings and requires that the assignee have an interest in the assignor or its business affairs or activities which the assignment may in some way protect. 24. The parties to this assignment are strangers to each other and the commercial interest referred to in the cases is one that already exists. In the circumstances of this case does the assignment not protect any property interest held by the assignor in which the assignee had an interest. The assignor had his rights in an action for damages in negligence and this assignment does no more than transfer those rights to the plaintiff. 25. I am therefore not satisfied that, even if I were free to depart from Poulton, the plaintiff company has a genuine commercial interest in taking the assignment of, and enforcing for its benefit, the cause of action of the assignor. The Law on Maintenance and Champerty 26. Maintenance" is assistance or encouragement by a person who has neither an interest in the litigation nor any other motive recognized as justifying the interference with a party to the litigation and "champerty" is a particular form of maintenance, namely maintenance of an action in consideration of a promise to give the maintainer a share of proceeds or subject matter of the action. Halsbury's Law of Australia, Volume 6, cited by Lindgren J in the Tosich Constructions Pty Ltd (1997) 143ACR and see also Quach –v- Huntof Pty Ltd [2000] NSW SC 932 at p4 (Quach)). 27. The history of the law of maintenance and champerty is a long one. It refers to the abuse by officials in medieval times of assigning doubtful or fraudulent claims to royal officials or nobles or wealthy persons who could be expected to receive a sympathetic hearing in Court. The conditions which led to the emergence of maintenance and champerty mainly related to disputes over land, disappeared with the arrival of an independent judiciary and the subsequent procedural reforms in the civil justice system. Statutes, creating the offences of maintenance and champerty and torts of maintenance and champerty as well as a parallel common law, developed. While circumstances had changed the offences remained in the statute books for another century (see Quach). 28. In 1993 in New South Wales the offence of maintenance, including champerty was abolished by the Maintenance and Champerty Abolition Act 1993 (the Abolition Act). Section 6 of the Abolition Act provides: "This Act does not affect any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal, whether the contract was made before, or is made after, the commencement of the Act". 29. In Smits & Ors –v- Roach & Ors [2004] NSW CA 233 (Smits), an appeal concerned with challenges to a solicitor's retainer agreement, it was noted that despite amendments such as the Abolition Act in NSW, policy considerations which gave rise to the offence and tort of maintenance had not necessarily lost all significance. A passage from Magic Menu Systems Pty Ltd –v- AFA Facilitation Pty Ltd (1997) 72 FCR 261, referred to in Smits, states: "The ability of the Courts to treat agreements for maintenance as contrary to public policy, and therefore illegal, remains unaffected by the statutory provisions: see Trendtex Trading Corporation v Credit Suisse [1980] 1 QB 629 at 653; McFarlane v EE Caledonia (No 2) (1995) 1 WLR 366 at 370; Roux v Australian Broadcasting Commission (1992) 2 VR 577 at 605; Giles v Thompson [1944] 1 AC 142. The giving of financial assistance to a litigant by a non-party will not however conclude the question as to whether it is unlawful on this ground. Questions of public policy with which the Courts will be concerned, as Byrne J observed in Roux v ABC at 605, are those which have regard to litigation and its funding in the contemporary world". The second question - Is the assignment champertous, contrary to public policy and illegal? 30. An agreement must be looked at as a whole to determine whether it is contrary to public policy. The following cases provide some clarification in this regard. 31. Quach was concerned with an appeal against the striking out of a defence said to disclose no reasonable defence to an action by a plaintiffs suing for the cost of car hire following a motor vehicle accident. An agreement between a car hire company, Thrifty and Option Claim, who supported the litigation, was found to be champertous, as no genuine commercial interest was protected by the litigation. The only interest arose from Option Claims agreement with Thrifty and related to the "loading" of the car hire invoices by Thrifty. Thrifty agreed to accept a lesser amount than that stated in the invoice and Option Claim was permitted to keep the difference.. However, as the plaintiff's cause of action was in negligence the champertous agreement provided no defence to that action. The Court said if on an examination of the champertous agreement the real cost of the car hire was disclosed, this may affect the amount in judgment but not the plaintiff's right to sue for negligence. 32. In Giles –v- Thompson [1944], AC14 (Giles) the plaintiff reached agreement with a hire car company, for the hire of a car. Payment for the hire car was to be made from damages recovered. The agreements were found not to be champertous nor contrary to public policy nor illegal. The car hire companies had a legitimate interest in supporting the motorists' actions as a means of recovering their hiring charges which they were entitled to as a result of hiring out vehicles; a transaction separate and independent of the litigation. The company made its profits from hiring, not from litigation (see also discussion in Quach p6). The agreements in Giles were not champertous as they did not pose any danger to the administration of justice or to the rights of motorists. 33. The test set out in Giles to determine whether or not a transaction is champertous is as follows: "It is first necessary to consider whether the transaction bore the marks of unlawful champerty and then inquire whether it is validated by the existence of a legitimate interest in the person supporting the litigation distinct from the benefit he sought to derive from it." 34. Again I make reference to comments in National Mutual where Lindgren J said: Thirdly, it may well be that without the making of the payments by the National Mutual companies to the Claimants, they or most of them would not have sued because of the relative modesty of the individual amounts at stake. In the light of this, in paying out all claims in full and taking assignments, the National Mutual companies might be seen to have behaved commendably. But the fact remains that their conduct is, on the above hypothesis, directed to the encouragement of litigation the proceeds of which will go to themselves, where otherwise there may have been no litigation at all. Thus, there are present the twin evils of maintenance and champerty at which the rule against the assignment of bare causes of action is directed; see, for example, Trendtex, at 702-703 (Lord Roskill); Monk, at 151B. (The Maintenance and Champerty Abolition Act 1993 (NSW) which commenced on 12 May 1995 does not affect any rule of law relating to maintenance or champerty as to cases in which contracts, whether made before or after the commencement, are to be treated as contrary to public policy or as otherwise illegal: s6.) It was, of course, always open to the National Mutual companies to meet the claims in full and to seek contribution or indemnity from Citibank without taking assignments." 35. It is clear that, in recent times the Courts have taken a more liberal attitude to what constitutes an interest in the litigation or other motive recognised as justifying maintenance of litigation by a stranger to it so that the provision of legal assistance by trade organisations, trade unions and employers or where the maintainer has a "genuine commercial interest" in the outcome of the litigation are no longer regarded as offending the rules against maintenance of other persons' litigation. It appears that there is a further exception in relation to bankruptcy and company administration cases, e.g. Re Tosich Constructions Pty Limited, Re William Felton Co Pty Ltd (1998) 28 ACSR 228 at 232. (see Quach). 36. The plaintiff makes its money from the repair of motor vehicles. It seeks the cost of the repairs in this case. The plaintiff, in my view has not demonstrated the existence of a legitimate interest in the litigation beyond the Deed which assigns, as stated, an unliquidated sum in an action for damages in negligence. 37. The benefit the plaintiff will receive under the Deed can not be classified as a legitimate interest sufficient to validate the Deed. It is the plaintiff's motive and justification for the action. 38. The plaintiff's conduct in taking to itself under the Deed a bare cause of action (in this case and in the numerous other matters before the Court also relying on the standard Deed) could be classified as directed to the encouragement of litigation where there may have been no litigation at all. "Thus, there are present the twin evils of maintenance and champerty at which the rule against the assignment of bare causes of action is directed". (see National Mutual). 39. For the reasons outlined above I find the plaintiff has no standing to bring the action relying on the Deed. The interlocutory decisions relating to minor areas in dispute as to the cost of the repairs cannot stand and it is not necessary for me to determine the remaining issue of the application of a goods and services tax to the repair bill. 40. I will hear the defendant in relation to final orders sought and both parties as to costs. M QUINN Magistrate 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.