Kapeleris, Theo v Bytenet Pty Ltd

[1997] FCA 857

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - partnership - joinder of parties in a winding up application - joinder as applicants - joinder as respondents - debt owing to partnership a joint debt - position at law and equity of a joint debt - conditions of joinder.

Partnership Act  1892 55 Vic No 12 (NSW) s 39
Federal Court Rules O 6, O 71 r 3(1)

Manzo v 555/255 Pitt Street Pty Limited (1990) 21 NSWLR 1 - considered
Re Sutherland & Partners’ Appeal [1994] STC 387 - applied
Rochester Communications Group Pty Ltd v Adler, Beaumont J, 24 January 1997, unreported - cited
Seal & Edgelow v Kingston [1908] 2 KB 579 - applied

THEO KAPELERIS, CHRISTOPHER JOSEPH MILLEDGE
AND IAN FRANCIS NAPIER                  v

BYTENET PTY LIMITED, BRUCE MICHAEL WOOD
AND DESMOND GARRY LEE

NG 3126 OF 1997

JUDGE:        BEAUMONT J
DATE:          4 AUGUST 1997
PLACE:        SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3126  of   1997

BETWEEN:

THEO KAPELERIS, CHRISTOPHER JOSEPH MILLEDGE
AND IAN FRANCIS NAPIER
APPLICANTS

AND:

BYTENET PTY LIMITED
FIRST RESPONDENT

BRUCE MICHAEL WOOD
SECOND RESPONDENT

DESMOND GARRY LEE
THIRD RESPONDENT

JUDGE:

BEAUMONT J.

DATE:

4 AUGUST 1997

PLACE:

SYDNEY

THE COURT ORDERS THAT:

1. The application be amended by striking out Messrs Wood and Lee as respondents and adding them as applicants, on condition that the existing applicants file an undertaking to indemnify Messrs Wood and Lee for their costs as additional applicants.

2. The existing applicants pay the first respondent’s costs of the proceedings up to 4 July 1997, except for the costs reserved on 16 June 1997 by Einfeld J.

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	NG 3126 of 1997

BETWEEN:

THEO KAPELERIS, CHRISTOPHER JOSEPH MILLEDGE
AND IAN FRANCIS NAPIER
APPLICANTS

AND:

BYTENET PTY LIMITED
FIRST RESPONDENT

BRUCE MICHAEL WOOD
SECOND RESPONDENT

DESMOND GARRY LEE
THIRD RESPONDENT

JUDGE:	BEAUMONT J.
DATE:	4 AUGUST 1997
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(ON THE QUESTION OF THE PROPER PARTIES TO THE PROCEEDINGS)

In these proceedings for the winding up of a company, a question has arisen as to the proper parties to the proceedings.  The background to the question is as follows.

In the principal proceedings, reliance is placed upon a statutory demand served upon Bytenet Pty Limited (“Bytenet”) for the payment of a debt alleged to be due to a firm of accountants.  The firm, consisting of five partners, was dissolved in 1995.  The statutory demand which was served after that dissolution was signed by one member of the firm, Mr Theo Kapeleris.

Originally, only Mr Kapeleris was the applicant in these proceedings.  Subsequently, by way of an amended application, two other partners, Mr Christopher Joseph Milledge and Mr Ian Francis Napier, were joined as additional applicants.  However, both the remaining partners, Mr Bruce Michael Wood and Mr Desmond Garry Lee, who opposed the winding up application, raised the objection of their absence from the proceedings.  Bytenet supported their objection.  The applicant responded on 4 July 1997 by purporting to join Messrs Wood and Lee as additional respondents by means of another amended application.

The debt alleged to be owing is clearly a joint debt.  As Higgins and Fletcher say in “The Law of Partnership in Australia and New Zealand”, 7th edition, (at 307):

“Because a right of action, founded on contract, is vested in the partners jointly, they are all proper parties to the action.”

(See also Dicey, “Parties to an Action”, 1870, at 151.) 

The general position in this area was explained recently by the Court of Appeal in Re Sutherland & Partners’ Appeal [1994] STC 387 at 390-392.  Nicholls VC said (at 390-1):

“But partners do not always have the same interest in challenging an assessment.  What is important to one partner may not matter to another.  Similar divergences of interest, and differences of view about what is the best course for the partnership, can and do arise regarding other aspects of partnership business.  Here, as elsewhere in the law, the courts evolved practical solutions.  In the context of litigation, the courts devised procedures which protect a would-be plaintiff partner by permitting him to go ahead with court proceedings but also protect the partners who do not wish to become embroiled in the proceedings.  The traditional means used to achieve this end was for the minority partner to be permitted to bring the proceedings in the name of the partnership.  Every partner is an agent of the firm, a principle now enshrined in s 5 of the Partnership Act 1890.  But the other partners had to be protected by an adequate indemnity. [emphasis added]

There are many instances of this procedure being followed.  For example, in Whitehead v Hughes (1834) 2 Cr & M 318, Bayley B observed that ‘one of several partners has a clear right to use the names of the other partners’.  If the others object they may apply for an indemnity against the costs to which they might be subjected by the use of their names.  This was approved by Sir Gorrell Barnes P in Seal & Edgelow v Kingston [1908] 2 KB 579 at 582, and by Lord Finlay LC in Rodriguez v Speyer Bros [1919] AC 59 at 69. Those were cases of claims brought by a partnership. The same approach was applied to claims brought against a partnership firm (see Tomlinson v Broadsmith [1896] 1 QB 386 especially per Rigby LJ at 392).

An alternative approach is to treat partners, so far as litigation is concerned, in the same way as other joint contractors.  If one joint contractor is unwilling to join the other in pursuing a claim on the contract, the one may bring proceedings himself so long as he joins the other as an additional defendant in the proceedings.  That procedure is now embodied in RSC Ord 15, r 4(2).  Rule 4(2) was introduced in 1962, but the notes to the rule in the Supreme Court Practice record that this rule embodied the previous law and practice.  In Johnson v Stephens and Carter Ltd [1923] 2 KB 857 at 861, Atkin LJ referred to Whitehead v Hughes and left open the question whether it was still the law that one partner can use his co-partner’s name as plaintiff against his will.”

Nicholls VC went on to observe (at 392):

“[I]n contemplation of law the notice of appeal is given on behalf of all those assessed in the sense, but only in the sense, that the notice effectually triggers an appeal against the joint assessment.  This does not enable the person giving the notice then to conduct the appeal as though he were acting for all the partners.  He has authority only to act and speak for himself, unless his co-partners authorise him to act for them.  If they do not, and if they wish to pursue a different line, they may do so.  But an appeal against the joint assessment having been set in motion, they, along with the partner who gave the notice of appeal, are appellants for the purposes of the Taxes Management Act.  Accordingly, notice of the hearing must be given to them, and their concurrence is needed if the appeal is to be settled or abandoned pursuant to s 54.

This will not give rise to any difficulty when the appeal is heard.  At the hearing of the appeal, the commissioners will hear evidence and submissions from any partner who wishes to attend or be represented, as well as the inspector.  The commissioners will then uphold or vary or discharge the assessment appropriately.  In rare cases when justice so requires, plaintiffs in court proceedings may be separately represented (see Lewis v Daily Telegraph (No 2) [1964] 2 QB 601). The procedure in front of the commissioners admits of similar flexibility in the case of appellants.”

[emphasis added]

I respectfully agree with those observations, which reflect the approach taken in Australian courts.  I would only add that the particular context under consideration in Sutherland was somewhat different from the present case in that the precise issue for determination by the Court of Appeal, turned on the statutory jurisdiction of the General or Special Commissioners, a matter which is not of present concern.  The observations I have cited, however, are of general application so far as concerns the jurisdiction of a court such as this Court.

Reference should be made next to the Rules of Court of this Court which may bear upon the present question. By 0 71 r 3(1) it is provided that 0 71 applies to all proceedings arising under the Corporations Law or under the Australian Securities Commission Law, whether or not expressly referred to in 0 71.  By 0 71 r 3(2), subject to O 71 and to any law of the Commonwealth, the provisions of the other Orders of the Rules of Court apply, so far as is practicable, to proceedings arising under the Corporations Law or under the ASC Law. 

I was referred in argument, in the present connection, to the provisions of 0 6 r (1) as follows:

“Subject to rule 6 an applicant, whether claiming in the same or different capacities, may, in any proceeding, claim relief in respect of more than one cause of action.”

It appears that the applicants had in mind the provisions of 0 6 r 3(1) when they purported to join Messrs Wood and Lee as additional respondents on 4 July 1997. Applying the general observations made in Sutherland and in earlier authority, for instance, Seal & Edgelow v Kingston [1908] 2 KB 579 at 582 and, notwithstanding one aspect of the provisions of 0 6 r 3(1)(b), I think that the appropriate course that should have been followed was to join Messrs Wood and Lee as additional applicants, upon the existing applicants offering to indemnify Messrs Wood and Lee for their costs in the proceedings.

I can see the force of the policy behind that aspect of 0 6 r 3(1)(b), which favours the view that, in appropriate cases, a person, with a joint entitlement to a claim to relief, who does not consent to being joined as an applicant, shall be made a respondent. It may not matter much whether Messrs Wood and Lee are joined as additional respondents or as additional applicants in the present case, but, on balance, I favour the approach that they be joined as applicants. My reason for this conclusion is that this winding up application is a special proceeding, in which the only relief sought is that Bytenet be wound up. There is a risk of undue complexity arising if parties claiming a joint entitlement to such relief are made respondents rather than applicants. By way of analogy, in Rochester Communications Group Pty Ltd v Adler, Beaumont J, 24 January 1997, unreported, I pointed out the undesirability, as a matter of principle, of seeking to add collateral claims to either an oppression suit, or a claim for an order for winding up on the just and equitable ground.  On the whole, I think that, subject to the indemnity as to costs being provided, Messrs Wood and Lee should be joined as additional applicants in the proceedings. 

A number of other matters were argued and I should make specific mention of some of them. 

I was referred to some observations made by Hodgson J in Manzo v 555/255 Pitt Street Pty Limited (1990) 21 NSWLR 1 at 7. His Honour there pointed out that there is a difference between the position at law and equity where a debt is a joint debt. However, his Honour appears to have accepted that, at common law, a payment to a joint creditor will discharge a joint debt. On that basis, it could be argued that it must be open to one joint creditor to demand payment of a joint debt at law, even if the position in equity is more complex. I need not pursue these questions, at this stage at least. I am not, at the moment, dealing with the validity of the statutory demand. That is a matter to be resolved in the principal proceedings. In any event, insofar as the debt alleged to be due to the partnership is concerned, there is no reliance upon any equitable principle that is relevant for present purposes.

A further matter argued, on behalf of Messrs Wood and Lee, was that the existing applicants lacked authority to bind the partnership by instituting the principal proceedings.  As I have already indicated in argument, I do not see the present proceedings as turning upon “authority”, at least not in any abstract sense.  As I have noted, the partnership has been dissolved and is in the course of winding up its own affairs.  It is clear that, as a general rule, on the dissolution of the partnership, each partner is entitled, as against the other partners in the firm, to have the property of the partnership applied in payment of the debts and liabilities of the firm and to have the surplus assets, after such payment, applied in payment of what may be due to the partners respectively, after deducting what may be due to them as partners to the firm: Partnership Act 1892 55 Vic No 12 (NSW) s 39.  It may be, in this connection, that when a deadlock arises as to the way in which the winding up should proceed, in any particular aspect where the exercise of a discretion is involved, that an application could be made to a court of general jurisdiction for the appointment of a receiver to a particular asset, including an asset of the present kind, that is to say, a debt due to the firm. 

I note in this connection that, although the applicants claim that the debt is in an amount well in excess of $200,000, Bytenet admits a debt of about $90,000 only. 

I accept also that there are ways, other than the winding up of a debtor, which are open to a creditor to proceed by way of the getting in of an asset in the form of a debt. 

These are not matters which arise for determination at the present stage, which is concerned only with the appropriateness of the parties to the principal proceedings.

It was further submitted, on behalf of Messrs Wood and Lee, that it should be a condition of their joinder as additional applicants, that the existing applicants also indemnify them against any loss which might be suffered by Messrs Wood and Lee as a result of their joinder.  It was said that, in the event of a winding up order being made, Messrs Wood and Lee would suffer prejudice because, they claim, if the hearing of the winding up proceedings were deferred for about five months or so, an opportunity would then be made available to Bytenet to consummate a negotiation for the disposal of some overseas assets.  The argument runs that the immediate making of a winding up order would frustrate this process, with the consequence that the opportunity to bring the negotiation for the sale of the overseas assets to a successful conclusion, would be lost.  As I understood the further submission made on behalf of Messrs Wood and Lee, it was contended, in effect,  that the existing applicant should provide something analogous to an undertaking as to damages, as a condition of Messrs Wood and Lee being joined as additional applicants. 

As I have already indicated in argument, I have difficulty in accepting that it is either reasonable or appropriate to impose such a condition.  An undertaking as to damages is, of course, appropriate where interlocutory relief, in the form usually of a restraint upon action, is imposed, on an interim basis, pending the determination of a claim for a final restraint.  However, nothing of that kind is sought in this interlocutory application.  All that is sought is that Messrs Wood and Lee, in a nominal fashion, lend their names to the application for winding up, but upon terms that they are indemnified by the existing applicants as to their costs.  It would be disproportionate, in my view, to require the existing applicants to provide what is, in substance, an undertaking as to damages.  I refuse to impose that term. 

One final matter I should mention in the present context, as was pointed out in Sutherland, is that there may be an exceptional case where, upon a person becoming entitled to an interest in the relief sought is joined as an additional applicant, it may be appropriate to permit separate representation of such an additional applicant.  I do not think that this is such an exceptional case.  The position may well be different if Bytenet were not before the Court vigorously resisting the making of the winding-up order.  Given that active role of Bytenet itself, it would, in my view, be superfluous to permit Messrs Wood and Lee, or either of them, to be separately represented as applicants.  The submissions that I might wish to advance will, no doubt, be fully put by Bytenet and Bytenet has the full right to rely upon their evidence. 

I therefore direct that the application be amended by striking out Messrs Wood and Lee as respondents and adding them as applicants, but I make that direction conditional upon the filing by the present applicants of an undertaking in writing to indemnify Messrs Wood and Lee for their costs as additional applicants in the proceedings.

I further order that the existing applicants pay Bytenet's costs of the proceedings up to 4 July 1997, except for the costs reserved on 16 June 1997 by Einfeld J.  I make that order as an appropriate order, for the reasons discussed in the authorities mentioned in the Supreme Court Practice (1997) Vol 1 (UK) at pp 213-214.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont .

Associate:
Dated:  4 August 1997

Counsel for the Applicants:	Mr Janes
Solicitor for the first, second and third applicants:	Birch Partners
Counsel for the first respondent:	Mr Officer QC with Mr Gorrick
Solicitor for the first respondent:	Gerard J Gooden
Counsel for the second and third respondents:	Mr Thompson
Solicitor for the second and third respondents:	Ledlin Partners
Date of Hearing:	1 and 4 August 1997
Date of Judgment:	4 August 1997