New South Wales Supreme Court CITATION : Quach v Huntof Pty Limited [2000] NSWSC 932 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S) : SC 12528/99 HEARING DATE(S) : 3 April 2000 JUDGMENT DATE : 5 October 2000 Kien Nam Quach (Plaintiff) PARTIES : Huntof Pty Limited (First Defendant) Andrew Weston (Second Defendant) JUDGMENT OF : Dunford J LOWER COURT Local Court JURISDICTION : LOWER COURT 160875/97 FILE NUMBER(S) : LOWER COURT Mrs G Madgwick LCM JUDICIAL OFFICER : COUNSEL : A Ogborne (Plaintiff) C Birch SC (Defendant) SOLICITORS : Thorneycroft Appleton (Plaintiff) Robertson Saxton Primrose Dunn (Defendants) CATCHWORDS : CONTRACTS - maintenance and champerty - hire of motor vehicles - champertous agreement - no defence to action by motorist against negligent driver of other vehicle involved in accident LEGISLATION CITED : Justices Act 1902, Part 5 Local Court (Civil Claims) Rules 1988, Pt 8 r 3 Re Tosich Constructions Pty Limited (1997) 143 ALR 18 Giles v Thompson [1993] 3 All ER 321 Martell v Consett Iron Co Limited [1955] Ch 363 Stevens v Keogh (1946) 72 CLR 1 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 CASES CITED : Elborough v Ayres (1870) LR 10 Eq 367 Skelton v Baxter [1916] 2 KB 321 Wild v Simpson [1919] 2 KB 544 Kroeker v Harkema Express Lines Limited (1973) 42 DLR (3D) 350 Magic Menu Systems v AFA Facilitation Ltd (1997) 72 FCR 261 Roux v Australian Broadcating Commission [1992] 2 VR 577 Re William Felton Co Pty Ltd (1998) 28 ACSR 228 DECISION : Refer to para 30 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DUNFORD J Thursday, 5 OCTOBER 2000 12528/99 KIEN NAM QUACH v HUNTOF PTY LIMITED & anor JUDGMENT 1 HIS HONOUR: This is an appeal by way of stated case pursuant to Part 5 of the Justices Act 1902, as it stood prior to the Justices Legislation Amendment (Appeals) Act 1998, from the determination of Mrs G Madgwick LCM in the Local Court at the Downing Centre, Sydney on 3 December 1998, in which she ordered that paragraph 4 of the Amended Notice of Grounds of Defence in an action brought by the plaintiff, Kien Nam Quach against the defendants, Huntof Pty Limited and Andrew Weston, be struck out on the ground that such paragraph disclosed no reasonable defence to the action. 2 By his Statement of Claim the plaintiff alleged that he was the owner of a motor vehicle which he was driving on 11 December 1996 when as a result of a vehicle owned by the first defendant and being negligently driven by the second defendant, collided with a third vehicle, the impact of which caused the third vehicle to come into collision with and damage the plaintiff's vehicle. It was further alleged that as a consequence the plaintiff suffered loss and damage particularised as being the cost of renting an alternative vehicle from Nationwide Self Drive Pty Ltd ("Nationwide") whilst the plaintiff's vehicle was being repaired and assessed, and particulars were given specifying the claim as $3,635.30, together with interest and costs. By their Amended Grounds of Defence, the defendants did not admit the collision or the defendants' negligence and denied the plaintiff suffered loss or damage. 3 Paragraph 4 of such Amended Defence was as follows: "In further answer to the whole of the Statement of Liquidated Claim, the Defendant says that the proceedings are being maintained by Option Claim Pty Limited contrary to law and/or public policy. PARTICULARS Option Claim Pty Limited ("OC") promoted the scheme whereby: (a) OC has entered into an arrangement with Thrifty Car Rental ("TCR") pursuant to which: TCR provides rental vehicles to customers of OC; TCR purports to charge and invoices hire rates for such rentals at rates higher than market rates; TCR raises these invoices in the full knowledge and expectation that it will only be paid by OC (or an associated entity) a percentage being less than the full value of the said invoices. (b) The Plaintiff was enticed by OC, or an agent acting on its behalf, to hire the vehicle the subject of these proceedings upon a misrepresentation that the Plaintiff would be at no risk in respect of the said hire, and/or such hire would be at no cost to him. (c) OC, purportedly acting on behalf of the Plaintiff, has pursued the recovery of the full face value of the TCR agreement/invoice knowing that only a portion of it will be paid to TCR. (d) OC will retain for its own purposes the difference between what it recovers and what is paid to TCR. (e) The Plaintiff has not been made aware of these facts and circumstances." In paragraph 5 the defendants allege that the plaintiff failed to mitigate his loss and the particulars thereof include a claim that the rate of hire was excessive and unreasonable. 4 At the same time there were for hearing before the same magistrate, similar applications in 6 other proceedings and all applications were heard together, Counsel for the plaintiff and for the defendants being the same in each case. In some of the cases the equivalent of paragraph 4 of the Defence was in different terms, but was to the same effect. The learned magistrate did not deliver separate judgments in respect of the other applications but made similar orders in each of them. The hearing in the Local Court was based entirely on the form of the Grounds of Defence, no oral evidence was admitted and the actual agreements on which the pleadings were based were not tendered so that their precise terms were not in evidence. 5 In her judgment, her Worship held that even if she were to assume that the agreements were proved and were illegal as being contracts of maintenance and/or champerty, such allegations did not constitute a defence to the action as the plaintiff, in order to prove his case, did not have to rely on any of the alleged agreements, but only on the negligence of the defendants in causing the collision; and that accordingly the defence of maintenance and/or champerty did not disclose any good defence to the action and that the relevant paragraph should be struck out. The Stated Case seeks the determination of the question whether such determination was erroneous in point of law? 6 Part 8, r 3 of the Local Court (Civil Claims) Rules 1988 is similar to SCR Pt 15, r 26, and is as follows: "(1) Where a relevant document - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the document; (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings; or (c) is otherwise an abuse of the process of the court, the court may at any stage of the proceedings, on terms, order that the whole or any part of the document be struck out." 7 The defendants claim that the cars provided to the plaintiff while his own car was being repaired were provided by Thrifty Car Rental ("Thrifty") or Nationwide, and that by virtue of some agreement, the details of which are not clear, Option Claim Pty Ltd ("Option Claim") has taken over and is maintaining the proceedings on the part of the plaintiff, and in return for doing so, Option Claim is to receive a proportion of the proceeds of the litigation, being the difference between the amount invoiced by Thrifty to Option Claim (which is the amount claimed) and the lesser amount which Thrifty has agreed to accept from Option Claim. There is also an allegation of a "misrepresentation" by Option Claim to the plaintiff that the latter would be at no risk in respect of the said hire and/or that such hire would be at no cost to him, but in the absence of the agreements being put into evidence it is not clear whether the plaintiff is liable to pay Option Claim or Thrifty the moneys recovered, whether such moneys have already been assigned, or whether the plaintiff is liable for the hire of the car at all if the action against the defendants is unsuccessful. However, for the purposes of the present application I can only deal with it as the magistrate did, that is on the basis of what is alleged in the pleading. 8 The defendants' claim that the arrangement between the plaintiff and Option Claim and/or Thrifty was an arrangement that involved maintenance and was also champertous, that such arrangements involving maintenance or champerty are contrary to public policy and void, and that therefore: (a) the champertous nature of the agreement prevents the plaintiff bringing a claim for the rental charges, (b) alternatively, that because of the champertous nature of the agreement, the proceedings should be dismissed or stayed, or (c) alternatively, that the plaintiff's claim should be dismissed because in the light of the arrangement whereby Thrifty was to receive a sum less than the invoiced amount, the invoice is not a proper reflection of the plaintiff's loss. 9 "Maintenance" is assistance or encouragement by a person who has neither an interest in the litigation nor any other motive recognised 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 the proceeds or subject matter of the action: Re Tosich Constructions Pty Limited (1997) 143 ALR 18 at 24, per Lindgren J citing Halsbury's Laws of Australia vol 6 para [110-7135]. 10 In Giles v Thompson [1993] 3 All ER 321 to which case I will refer to in more detail later, Steyn LJ at 328 said: "From modern idiom maintenance is the support of litigation by a stranger without just cause. Champerty is an aggravated form of maintenance. The distinguishing feature of champerty is the support of litigation by a stranger in return for a share of the proceeds." After referring to the judgment of Danckwerts J in Martell v Consett Iron Co Limited [1955] Ch 363 and an article, " The History of Maintenance and Champerty " by Professor Winfield in (1919) 35 LQR 50, his Lordship went on: ". . . It seems that one of the abuses which afflicted the administration of justice (in medieval times) was the practice of assigning doubtful or fraudulent claims to royal officials, nobles or other persons of wealth and influence, who could in those times be expected to receive a very sympathetic hearing in the court proceedings. The agreement often was that the assignee would maintain the action at his own expense and share the proceeds of a favourable outcome with the assignor. Often these disputes involved a claim to the possession of land and the subsequent sharing of land if the action was successful. Two factors contributed to the growth of these abuses. First, detachment and disinterestedness was not the hallmark of the medieval judiciary. There was in truth no independent judiciary. Secondly, the civil justice system was not yet developed, and it was not capable of exposing abuses of legal procedure and giving effective redress. In these conditions a patchwork of statutes created the offences of maintenance and champerty as well as the torts of maintenance and champerty. And there was apparently a parallel common law development in respect of maintenance and champerty. Gradually the conditions which led to the emergence of maintenance and champerty disappeared . . . By the beginning of the nineteenth century England had an independent judiciary . . . And after the great procedural reforms of the nineteenth century there was an effective civil justice system. Nevertheless the offences and torts of maintenance and champerty lingered on in atrophied form for more than a century after any public interest in maintaining them had disappeared." 11 Since then the offences and torts of maintenance and champerty have been abolished in England and in a number of the Australian states. In New South Wales, the relevant statute is the Maintenance and Champerty Abolition Act 1993 No. 88. However, s 6 provides that the Act does not affect any rule of law as to 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 after the commencement of the Act. 12 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: Stevens v Keogh (1946) 72 CLR 1, Trendtex Trading Corporation v Credit Suisse [1982] AC 679, Magic Menu Systems v AFA Facilitation Ltd (1997) 72 FCR 261 at 267, Roux v Australian Broadcasting Commission [1992] 2 VR 577 at 607, Martell v Consett Iron Co Limited supra, 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. 13 In Giles v Thompson [1993] 3 All ER 321 CA, [1994] 1 AC 142 HL, the plaintiff in each of 3 motor vehicle accidents entered into an agreement with a car hire company for the hire of a replacement car whilst the plaintiff's car was off the road, the agreement providing that, although the plaintiff was liable under the agreement for the car hire charges, the car hire company would be reimbursed out of the damages recovered by the plaintiff for loss of the use of his vehicle, and until then the plaintiff had the use of the hired car on credit, and was under no obligation to pay the hire charges; legal assistance was also provided under the agreement on the same basis. Potential plaintiffs were only accepted by the car hire companies for car hire under the schemes if the accident was not considered to be his or her fault, there were reasonably good prospects of establishing liability against the third party, and the third party was insured. 14 The insurance companies standing behind the nominal defendants denied the recoverability of the car hire charges on the grounds that the agreements between the plaintiffs and the car hire companies were champertous and the plaintiffs had not in fact suffered any loss because they had in effect been provided with replacement vehicles by the car hire companies free of charge. In the Court of Appeal the agreements were held to be not champertous nor contrary to public policy nor illegal, but that even if such agreements were illegal that would not constitute a defence to the actions. It was also held that the agreements did not provide for free hire but that each of the plaintiffs had suffered loss even though the hiring charges were not payable until the plaintiffs' actions were successful. 15 In two of the cases, appeals were taken to the House of Lords which except on a minor point relating to interest, dismissed the appeals holding that the agreements were not champertous, and their Lordships found it unnecessary therefore to consider whether such agreements would have constituted a defence if the agreements had been champertous. They also agreed with the Court of Appeal that the plaintiffs had suffered a compensable loss. 16 Lord Mustill, with whom the other Lords agreed, (at 156) pointed out that to determine whether a particular agreement was champertous or unlawful it was necessary to examine the particular agreement, endeavour to understand it and see how it fared in the context of the modern law of champerty. 17 After summarising the terms of the two agreements the subject of the appeals, his Lordship stated (at 159) that the first issue was whether the agreements, or either of them, were champertous and hence unlawful, noting that it was conceded that in the absence of a champertous element, maintenance alone would not be sufficient to provide the defendant with a defence to an action by the motorist, whatever might be the problem as regards a claim brought by the motorist against the company or vice versa. 18 As to the law of champerty, his Lordship (at 163) accepted that it was necessary first to consider whether the transaction bore the marks of unlawful champerty and then inquire whether it was validated by the existence of a legitimate interest in the person supporting the litigation distinct from the benefit he sought to derive from it. For this purpose it was necessary to look at the agreement as a whole and consider whether in its terms it is contrary to public policy. He could find nothing in the agreements which posed any danger to the administration of justice or to the rights of the motorists and observed that 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 the vehicles; a transaction separate and independent of the litigation. As he said (at 165), "The company makes its profits from hiring, not from the litigation." Accordingly the agreements in that case were not champertous nor unlawful. He therefore found it unnecessary to consider whether if it had been unlawful the effect would have been to deprive the motorists of any recovery for loss of use, whether based on the agreement or on a reasonable rate of hire. 19 His Lordship then agreed with the Court of Appeal that the plaintiffs had suffered recoverable loss but in one of the cases (Devlin v Baslington) held (disagreeing with the Court of Appeal) that the motorist was not entitled to interest because, although he incurred a genuine liability for the hire charges day by day, it was not a liability capable of immediate enforcement by the hire company and the plaintiff was not kept out of any money whilst the claim was being assessed and litigated. 20 In my view this case is distinguishable from the present. Similarly to the car hire companies in Giles v Thompson, Thrifty provides cars to motorists who are without their own vehicle whilst the same are being repaired although the hiring charges are apparently not payable until the conclusion of the litigation, and it can therefore fairly be said that Thrifty makes its money out of the hiring of motor cars. 21 Option Claim however is in a very different position, it does not provide any cars for hire, but it interferes in and maintains the litigation by the plaintiff. In addition to that, it does so in return for a share of the proceeds of the litigation and such right to share in the proceeds arises from the agreement or series of agreements that it makes with the motorist and with Thrifty. Unlike Thrifty, which has a genuine commercial interest to protect (its right to payment for the hire of the cars it provides), Option Claim (and/or Nationwide) has no such genuine commercial interest, its only interest in the litigation arising from the agreement it has with Thrifty to the effect that Thrifty will "load" the invoices and accept a lesser amount, thereby permitting Option Claim to keep the difference. 22 Option Claim makes its profit not from the hiring out of any of its vehicles but solely from the proceeds of the litigation; its right to a share of the proceeds does not arise from any separate service or benefit it provides, but solely from the agreement alleged to be champertous. 23 In these circumstances I consider that the agreement is champertous and also contrary to public policy because it creates out of the litigation a right for Option Claim to share in the proceeds where none existed before, and an attempt is made to exaggerate or augment such proceeds at the expense of the defendant by loading the invoice so that it is not the genuine cost of hiring the vehicles. Although a more detailed examination of the terms of the agreement or agreements may be necessary to form a firm conclusion thereon, I am satisfied that the nature of the agreements as pleaded are champertous, contrary to public policy and illegal. 24 But even if the agreement between the plaintiff and Option Claim was champertous and accordingly illegal, that provides no defence to the plaintiff's action. This was so held by the Court of Appeal in Giles v Thompson, and in doing so that Court followed a line of authority extending back to Elborough v Ayres (1870) LR 10 Eq 367, Skelton v Baxter [1916] 2 KB 321, Wild v Simpson [1919] 2 KB 544 at 563, Martell v Consett Iron Co Limited at 428-9. As Steyn LJ pointed out at [1993] 3 All ER 337 the champertous agreements formed no part of the plaintiff's cause of action but were merely part of the evidence on which the plaintiffs relied to prove the amount of the car hire charges. This line of authority has been followed in Australia: Roux v Australian Broadcasting Commission at 608. It has also been followed in Canada: Kroeker v Harkema Express Lines Limited (1973) 42 DLR (3D) 350. 25 In the present case the plaintiff's cause of action is in negligence and all that he is required to prove is that the collision was due to the negligence of the second defendant, that it resulted in damage to his vehicle and part of his damage is the cost of hiring another vehicle whilst his vehicle was being repaired. 26 The plaintiff has only one cause of action in respect of the damage to his vehicle which includes the cost of repairing the vehicle, the cost of hiring another vehicle whilst it is being repaired and any other consequential losses. The fact that because of "knock-for-knock" agreements between insurance companies, the plaintiff only wishes to sue for hiring charges does not affect his right to do so and the apparently champertous agreement does not afford the defendants a defence to the plaintiff's action. 27 Alternatively the defendants claim that the champertous agreement between the plaintiff and Option Claim entitle them to a stay of the action; but again the authorities are against them: Martell v Consett Iron Co Ltd at 328 (Ch D), 421 (CA), Roux v Australian Broadcasting Commission at 608-9. 28 Finally the defendants claim that the action should be dismissed because the invoiced amount (and hence the amount claimed in the particulars) is not a proper reflection of the plaintiff's loss. That may be so, but it would not afford a defence to the action, although it may affect the amount of the judgment. The measure of the plaintiff's right to recover is the reasonable cost of hiring another vehicle, not the cost invoiced by Thrifty to Option Claim. If the agreement between Option Claim and Thrifty is put in evidence it will disclose the "real" cost of hiring another vehicle (i.e. the amount which Thrifty is prepared to accept), but this may not be a price available on the open market to persons such as the plaintiff; or alternatively the defendants may be able to show that the plaintiff could have hired another vehicle on reasonable terms from another insurer for a lesser cost than that charged him by Option Claim. It may well be that at the end of the day, in the light of all the evidence the amount recovered on behalf of the plaintiff will be such that after Thrifty receives what it has agreed to accept from Option Claim there will be nothing left for the latter company; but that is a matter for another day. 29 For these reasons I am satisfied that the magistrate was correct in striking out paragraph 4 of the Defence and the Stated Case should be answered accordingly. 30 I order that the question raised in the Stated Case be answered, "No" and that the matter be remitted to the Local Court to be further dealt with accordingly to law. I order the defendants to pay the plaintiff's costs. ---------------- Last Modified: 10/06/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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