Comit Farm Produce Pty Ltd v Macks
[2005] FMCA 65
•2 February 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COMIT FARM PRODUCE PTY LTD v MACKS | [2005] FMCA 65 |
| BANKRUPTCY – Preference payments – joinder of parties – amendments to application. |
| Bankruptcy Act 1966, ss.122 & 139ZS Partnership Act Federal Magistrates Court Rules 2001, rr.7.01 & 11 |
| Image Color (SA) (In liquidation) v Curtis [2000] SASC 316 |
| Applicant: | COMIT FARM PRODUCE PTY LTD |
| Respondent: | PETER IVAN MACKS AS TRUSTEE OF THE BANKRUPT ESTATE OF EFSTRATIOS VALAMIOS & CONSTANTINA VALAMIOS |
| File Number: | ADG 291 of 2003 |
| Judgment of: | Lindsay FM |
| Hearing dates: | 7 & 8 December 2004 |
| Date of Last Submission: | 8 December 2004 |
| Delivered at: | Adelaide |
| Delivered on: | 2 February 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr Dalchin |
| Solicitors for the Applicant: | Mr Minicozzi |
| Counsel for the Respondent: | Mr Marsh |
| Solicitors for the Respondent: | Fisher Jeffries |
ORDERS
The application seeking leave to amend the application dated 19 December 2003 to add George Valamios and Chris Valamios as respondents is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADG 291 of 2003
| COMIT FARM PRODUCE PTY LTD |
Applicant
And
| PETER MACKS AS TRUSTEE OF THE BANKRUPT ESTATE OF EFSTRATIOS VALAMIOS & CONSTANTINA VALAMIOS |
Respondent
REASONS FOR JUDGMENT
This is an application by the applicant for leave to amend the application filed on 19 December 2003. The amendments sought relate to the addition of two persons, namely George Valamios and Chris Valamios as respondents and relief against those additional respondents.
The matter is heard concurrently with an identical application in proceedings numbered ADG 290 of 2003 in which the applicant is J. Collins Transport Pty Ltd.
The matter is listed for trial on 1 March 2005.
The application was supported by an affidavit of the applicant’s solicitor sworn on 14 October 2004. I also had regard to other material filed on behalf of the applicant and especially the affidavit of the applicant’s solicitor sworn on 9 March 2004 with its various annexures.
I heard submissions from Counsel for each of the parties on 8 December 2004 when I reserved my judgment in relation to the application.
The present respondent is the Trustee of the estate of each of the parents of the proposed respondents. They became bankrupt on 21 July 2003 and 15 September 2003 respectively.
The bankrupts are referred to hereinafter as the “the parents”. The proposed respondents are referred to hereinafter as “the sons” unless they are referred to individually.
The parties have been litigating in proceedings in the District Court and in the Supreme Court (and also in the Magistrates Court, though such proceedings are not significant for the purposes of this application).
The applicant instituted proceedings in the District Court of South Australia against the parents on 30 January 2002. The claim was for monies owing by the parents in respect of their operation of a business known as V & P Produce. The applicant provided goods to V & P Produce. The claim was for an amount in excess of $1.8 million. The applicant relied in the District Court proceedings upon a Guarantee given by the parents and the sons.
The District Court proceedings were compromised by the entry into a Deed by the applicant on the one part and the parents and the sons on the other part. The Deed provided for a schedule of payments to the applicant. Relevantly, between 14 November 2002 and 13 June 2003 payments totalling in excess of $589,000.00 were made to the applicant.
The respondent alleges that the payments were a transfer of property by the parents amounting to a preference contrary to s.122 of the Bankrupty Act 1966.
On 26 November 2003 the respondent issued a s.139ZS Notice seeking to recover the preference payment from the applicant.
The proceedings in this Court commenced when the applicant applied to set aside the Notice on the date referred to above. The respondent has filed a cross-claim in these proceedings alleging the preference payments.
There are also Supreme Court proceedings extant. In that action the applicant seeks orders including declaratory orders that the sons are liable pursuant to the Deed and the Guarantee to indemnity the applicant in respect of any monies the applicant has to disgorge on account of the alleged preference payments.
The payments the subject of the preference claim, fall into two categories. The first involves a period when payments were made by cheque drawn on an account in the name of V & P Produce for which the signatories were the parents and George Valamios. The second is in respect of a period when cheques were drawn on an account in the name of Valamios Produce Pty Ltd. The sons controlled that company.
No issue arises as to the applicant’s receipt of the relevant payments. The issue is whether any of the payments amounted to a transfer of property by the parents. The case for the applicant is essentially that the payments made were in discharge of a liability incurred by the parents and the sons in partnership. The applicant says that in any event the payments made by the company controlled by the sons do not amount to a transfer of property by the parents.
In their defence to both the District Court proceedings (which were compromised) and to the Supreme Court proceedings, the sons allege various defences and estoppels including alleged unconscionable behaviour in relation to both the Guarantee and the Deed.
The applicant pursues the joinder of the sons in the case of the application so as to seek an indemnity should the claim for preference payments be successful by the respondent. It is said by the application that the Court will need to determine the extent to which the payments were a transfer of property to them. It is also contended that if the payments were made by a partnership comprising the parents and one or more of the sons, then by operation of the Partnership Act the partnership was dissolved when each of the parents became bankrupt and that pursuant to that Act the assets of the partnership were then to be utilised to pay partnership debts of which the applicant was one. It is said that such a payment cannot amount to a preference because the respondent will be unable to establish that each of the partners was insolvent or that the joint estate of the partners was insufficient to meet partnership debts.
It is contended by the applicant that the joinder and consequent amendments will enable the Court to make binding findings of fact upon all parties in relation to the issue of whose property was used to make the payments. It is also contended that the determination of that issue in these proceedings will eliminate the risk of inconsistent findings in either or both the District Court and Supreme Court proceedings.
Part 11 of the Federal Magistrates Court Rules 2001 regulates the addition of parties to a proceeding. The amendments pursued to the Application and the Defence to Cross-Claim are sought in the context of the addition of the sons as parties.
Rule 11.02 requires the leave of the Court for the joinder of a party after the first return date.
Rule 11.01 in fact provides that a person whose participation is necessary for the Court to complete and finally determine all matters in dispute must be included as a party.
Rule 7.01 gives the Court power to allow an amendment at any stage of the proceedings.
I approached the determination of this Application on the basis that the amendments follow on the joinder of the parties. As to whether amendments are pursued and should be allowed absent the joinder of the sons will be determined in the light of the judgment on the joinder issue.
These proceedings are proceedings under the Bankrupty Act. The dispute is about an alleged series of preference payments. That is the judicial controversy. It is said that only by the joinder of the sons can that judicial controversy be properly determined.
But is that so?
The inquiry at the heart of the dispute is that which relates to the ownership of the monies used to make the payments to the applicants during the relevant periods. Each of the sons is capable of giving evidence on that topic and nothing has been put to suggest that they cannot be compelled to attend and give evidence pursuant to subpoena ad testificandum. Documentary evidence relating to the accounts operated by the bankrupts and by the sons can be brought to Court and presumably some of the same have already been brought before the Court pursuant to that process.
What is required is that at the end of the evidence the Court is able to determine the source of the payments and the related issues of the nature of the partnership relationship between the bankrupts and the sons or either of them. Findings will need to be made presumably as to the terms on which the partnership was conducted and the interest of each of the partners in partnership assets. What is at stake is whether the trustee is entitled to recover from the applicant the monies paid to it during the relevant periods. If at the end of that exercise the Court is satisfied that the payments during the relevant periods were made by the bankrupts in partnership with the sons or either of them, then the findings of the Court as to the way in which the partnership was conducted and as to the ownership of partnership assets will determine whether the payments were a transfer of property of the bankrupts. If the Court is not so satisfied then the preference claim will fail.
It is not apparent to me that for the Court to make these necessary findings the sons need to be joined as parties as distinct from the need for them to give evidence and produce documents.
The joinder of the parties will facilitate a broadening of the judicial controversy rather than facilitate the proper determination of the judicial controversy already before the Court. That is so for the following reasons.
The joinder of the sons and in particular the relief foreshadowed as being sought against them for an indemnity pursuant to the Deed will doubtless give rise to the sons raising the same defences as they did in the Supreme Court and District Court proceedings. This will involve a determination of all of the issues they raise as to the various circumstances which are alleged to give rise to estoppel. The broadening of the dispute in this way cannot be said to be necessary to determine the preference issue. It is a dispute that is collateral or consequential to that dispute, but the Court does not need to determine it in order to determine the judicial controversy before it.
The determination of the status and nature of any partnerships that existed between bankrupts and the sons will clearly be an important part of the responsibility of the Court in determining the dispute before it. If the payments are found to be made from the property of the bankrupts and the preference claim is successful then it is clear that the issue of the son’s liability to indemnify the applicant will need to be determined. But it can be determined in the Court in which that dispute is already being agitated.
The resolution of that dispute is not a pre-condition to a determination of the controversy before this Court. In the exercise of my discretion as to the joinder of the parties some assistance is provided by the decision of the Chief Justice of the Supreme Court of South Australia in the case of Image Color (SA) (In liquidation) v Curtis [2000] SASC 316. That case involving the issue of a Third Party Notice conveniently summarises the considerations commonly relevant to the determination of such an application. First, the Court will look to the impact of the joinder upon the efficient conduct of the proceedings between the already existing parties. Secondly, the Court will bear in mind the need to, if at all possible, avoid the risk of inconsistent findings in different proceedings and, thirdly, the Court will look for some explanation for the failure to name the parties at the outset of the proceedings.
The latter matter does not seem to me to be of any great significance in the context of this case. These are proceedings involving relatively complicated transactions and the enforceability of separate instruments of guarantee and indemnity and it is not surprising that some time may have elapsed before the alleged necessity to join the sons was considered by the applicant. So the alleged delay is not a matter which causes me any concern in this case.
There would clearly be an impact upon the proceedings already listed for trial on 1 March 2005 between the existing parties if the sons were joined. An adjournment of the trial would be inevitable. Further pleadings would be required, but such an impact will only rarely be determinative if the essential nature of the exercise in question is borne in mind. I return to the language of the relevant Rule, namely Rule 11.01. The Rule is mandatory in its terms. If the Court was of the view that the participation of the sons or either of them was necessary for the Court to completely and finally determine all matters in dispute, then the sons would need to be joined and that would be so whether or not there was a significant impact upon the conduct of the proceedings between the then existing parties. The need for the efficient determination of the proceedings must not take precedence over the need for the determination of the dispute to be a final one.
I have read carefully the material filed and listened attentively, I hope, to the submissions of the applicant, but the difficulty that the applicant has not overcome, in my view, is that it has not been demonstrated that the joinder of the sons is necessary to determine the preference dispute. The determination of that dispute will not finally determine all matters in dispute between the applicant and the sons, but that is the function of the Supreme Court and District Court proceedings and the findings of this Court will provide the necessary determination of fact on the issue as to whether a need for indemnity arises.
I would dismiss the Application as it relates to the addition of George Valamios and Chris Valamios as respondents.
This is an order that I make in respect of the interlocutory Applications filed on 15 October 2004 in these proceedings and also in the proceedings in which J. Collins Transport Pty Ltd is applicant and Peter Ivan Macks respondent, being proceedings numbered ADG 290 of 2003.
There are a number of parts of the proposed amendments to the Application and Defence to Cross-Claim which the applicant will still wish to pursue, even though the application for joinder of parties has been refused.
I propose to stand this matter down to enable the parties to confer as to that matter and I will determine any application for amendment sought that cannot be agreed. My indication is allow any amendment necessary to enable all of the arguments adumbrated in the applicant’s submissions to be put before the Court, but I will hear the parties as to this matter if necessary.
I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Lindsay FM
Associate:
Date: 2 February 2005
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