Landmark Operations Limited v J Tiver Nominees Pty Ltd - [2009] SASC 118

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
LANDMARK OPERATIONS LIMITED v J TIVER NOMINEES PTY LTD & ORS
[2009] SASC 118
Reasons of Judge Lunn a Master of the Supreme Court
4 May 2009
PROCEDURE
Parties sued in ther individual names and not in the firm name - judgment obtained against all parties in their individual names only - held this was permissible under 87R 36.02.

PROCEDURE - JUDGMENTS AND ORDERS - ENFORCEMENT OF JUDGMENTS AND ORDERS
Execution - held judgment against all defendants in their individual names but not the firm name could be executed against partnership property and not precluded by s 36.01(2) of the Partnership Act.
Execution - held after charging order made under s 8(1) of the Enforcement of Judgments Act 1991 an order could be made under s8(2) of that Act that the property subject to the order be delivered up to the plaintiff except for property which could not be taken if the defendants became bankrupt or where defendants legally or physically were unable to comply with such an order.

LANDMARK OPERATIONS LIMITED v J TIVER NOMINEES PTY LTD & ORS
[2009] SASC 118
Reasons on plaintiff’s application for defendants to deliver up subject matter of charging order.

JUDGE LUNN: In this action the plaintiff has sued six named defendants. The second to sixth defendants had carried on business in partnership under the name of Flagstaff Proprietors (“the Partnership”). The summons merely named the second to sixth defendants but did not describe them as “trading as Flagstaff Proprietors” or the like, although the fact of the Partnership was pleaded in the statement of claim.
On 26 November 2008 Sulan J entered judgment against the second to sixth defendants for $10,857,200 (“the Judgment”), but it is subject to appeal. On 6 April 2009 the second and sixth defendants became bankrupt, but not the third, fourth or fifth defendants. The plaintiff has since continued to seek to enforce the Judgment against these other defendants (“the unbankrupt defendants”). (The first defendant has had no part in the application before me). There is still in excess of $10 million owing on the Judgment.
On 17 February 2009 I had made a charging order under s 8 of the Enforcement of Judgments Act 1991 (“the EJA”) over 57 items of personalty referred to in the Schedule to that order (“the Schedule”). By a notice for directions dated 10 March 2009 (FDN 343) the plaintiff sought orders that the second to sixth defendants deliver up to it, and it be at liberty to sell, the items of property referred to in the Schedule. Since the bankruptcy of the second and sixth defendants the application has only been pursued against the unbankrupt defendants, although they have relied upon an affidavit of the second defendant in opposition to the application. On the hearing of the application it was agreed that I should initially determine whether an order for delivery up should be made for each of the items in the Schedule and leave for further submissions, if such an order was made, directions about how that delivery up should be effected and any orders for sale.
The unbankrupt defendants relied upon the affidavit of the second defendant filed on 19 March 2009 (FDN 347) and that of the fifth defendant sworn on 17 April 2009 (FDN 359). The second defendant was cross-examined on his affidavit. I am able to decide this matter on those parts of his affidavit and his evidence in cross-examination which were not disputed by the plaintiff’s counsel. Thus it is not necessary to go into the matters which were disputed. The plaintiff sought to have the fifth defendant attend for cross-examination on his affidavit, but he did not attend. The only relevant parts of his evidence were certain financial records of the Partnership which were exhibited to his affidavit. I am prepared to received these as a business record under s 45A of the Evidence Act, even though he did not attend for cross-examination. It is unlikely that the use which I make of these records below could have been affected by his cross-examination.
The primary submission of counsel for the unbankrupt defendants was that with minor exceptions all of the property referred to in the Schedule was Partnership property which could not be the subject of the Court’s execution because there was no judgment against the Partnership. He relied on s 23(1) of the Partnership Act 1891 which provides:
(1)After the commencement of this Act a writ of execution will not issue against any partnership property, except on a judgment against the firm.
The argument was that the Judgment was only against the five named partners, but not against the “firm”. There is no authority on the point. Counsel for the unbankrupt defendants referred me to a number of authorities decided before the enactment of the original Partnership Act, but they are of no assistance because they all deal with situations where the judgment creditor did not have a judgment against all of the partners individually, but only some of them.
Section 4 of the Partnership Act provides:
Persons who have entered into partnership ….. with one another are, for the purposes of this Act, called collectively a firm, and the name under which their business is carried on is called the firm-name.
If that definition is inserted into s 23(1), it would make its exception read “except on a judgment against the persons who have entered into partnership with one another”. That is the form of the Judgment in this action.
Counsel for the unbankrupt defendants referred to 87R 36.01(2) which provides:
(2)Any person carrying on business within the jurisdiction in a name or style other than his own name may be sued in such name or style as if it were a firm name; and insofar as the nature of the case will permit, all Rules relating to proceedings against firms shall apply.
87R 5(1) defines “firm” in far wider terms than s 4 of the Partnership Act so that it can encompass any person or persons carrying on business under other than their own name or names whether they are a partnership or not. 6R 36.01(2) is merely permissive. It enables a partnership to be sued in its partnership name without naming the individual partners as the defendants. However, it does not preclude a plaintiff effectively suing a partnership by making each of the individual partners defendants to the action.
Counsel for the unbankrupt defendants referred to a decision of Besanko J in Edwards v Pecaz Pty Ltd (2003) 227 LSJS 11 in respect of similar rules in the Magistrates Court Civil Rules 1992. Besanko J held that it was not proper to name the partners individually as defendants to the action and also to sue them in their firm or business name. The rationale of his decision was that the plaintiff had to choose either to sue the partners individually or to use the special procedure under 87R 36.02 by designating the defendants by their firm name. That case decides that the plaintiff must select one procedure or the other for suing a partnership. It is not authority for the proposition, as was argued by the unbankrupt defendants, that there is no judgment against the firm or partnership if the defendants are not designated by their partnership or firm name.
Accordingly, I hold, subject to any complications arising from the bankruptcies of the second and sixth defendants, that there is a judgment against all of the partners collectively and that the judgment can be enforced against the Partnership property.
The present application is made under Section 8 of the EJA which provides:
(1)A court may, on application by a judgment creditor, charge property of a judgment debtor with a judgment debt or part of a judgment debt.
(2)Where the court makes an order under subsection (1), it may make ancillary or consequential orders -
(a)requiring registration of the charge; or
(b)prohibiting or restricting dealings with the property subject to the charge; or
(c)providing for the sale of the property and the application of the proceeds of sale; or
(d)relating to any other incidental or consequential matters.
Although it does not expressly refer to orders for delivery up of the subject matter of the property which is the subject of the charge, it was not disputed this was within the breadth of subs (2)(d). It was common ground that the Court had a general judicial discretion on whether any such order for delivery up should be made or not. As far as I am aware there is no authority on the point.
Counsel for the unbankrupt defendants referred to subs 7(1) and (2) of the EJA, which provide:
(1)The court may, on application by a judgment creditor, issue a warrant of sale authorising seizure and sale of a judgment debtor’s real or personal property (or both) to satisfy a monetary judgment.
(2)The seizure and sale of personal property that could not be taken in bankruptcy proceedings against the judgment debtor cannot be authorised.
He argued that it was anomalous that s 7(2) precluded the seizure upon a warrant of sale of personal property which could not be taken in bankruptcy whereas there was no such restriction on the seizure and sale of property subject to a charge under s 8(2) of the EJA. I do not agree that it is anomalous. The issue of a warrant under s 7 of the EJA is an administrative act carried out by the Registrar which does not involve the exercise of any discretion on his part. The making of any order under s 8(2) of the Act is a judicial act to be performed by a Judge or Master who can fashion the terms of the order in any way necessary to meet the justice of the situation. I accept that by analogy with s 7(2) the discretionary powers under s 8(2) should not usually extend to the seizure and sale of personal property which could not be taken in bankruptcy proceedings against the judgment debtor. There should not be any difference in what can be recovered depending on whether a sale proceeds under s 7 or by an order under s 8(2)(c). I act on this basis in the orders made below.
Counsel for the unbankrupt defendants also referred to s 5(4) of the EJA relating to orders for the payment of judgment debts by instalments which provides:
(4)In deciding whether to make, vary or confirm an order under this section affecting money of a natural person, the court should have due regard to any evidence placed before it as to –
…..
(b)the necessary living expenses of the judgment debtor and his or her dependants; and
(c)other liabilities of the judgment debtor.
This has no relevance to the present matter as there is no evidence that the orders sought would affect the necessary living expenses of the defendants or that they have any unsecured liabilities other than the Judgment.
As I have held that s 23 of the Partnership Act does not preclude the Judgment being executed against the Partnership property it is of no consequence (subject to any issues arising from the bankruptcy of the second and sixth defendants) whether the property in the Schedule is Partnership property or the property of individual unbankrupt defendants. Therefore, I need not go into the issue of what is, and is not, Partnership property.
There is evidence that many of the items of property in the Schedule are subject to securities held by other persons. There is also a possibility that the trustee in bankruptcy of the second and sixth defendants may make some claim to some of these items if the trustee disputes that they are Partnership property. Whether the trustee in bankruptcy is entitled to any such property is a matter within the exclusive jurisdiction of a Federal Court: Civil Procedure South Australia Vol 1[6R 34.50.12]. Insofar as any order for delivery up is made for any property it is likely that notice will need to be given to the persons holding the securities and to the trustees in bankruptcy of the second and sixth defendants for them to have liberty to intervene and be heard on what further orders should be made. Where secured creditors have allowed property over which they have security to remain in the possession of the defendants this Court can order under s 8(2) of the EJA that such property be delivered up to the plaintiff or on its behalf. If any secured creditor then makes a valid claim to possession of such property, this Court will need to consider whether it should direct that possession of it be given to that secured creditor.
As stated above, I do not intend to make orders for delivery up where the property in question could not be taken in the bankruptcy of the defendants. This raises issues under s 116(2) of the Commonwealth Bankruptcy Act 1966 which provides:
(2) Subsection (1) does not extend to the following property:
…..
(c)The bankrupt’s property that is for use by the bankrupt in earning income by personal exertion and:
(i)does not have a total value greater than the limit prescribed by the Regulations (which is $3,250); or
…..
(iii)is identified by an order made by the Court on an application by the bankrupt.
(ca)Property used by the bankrupt primarily used as a means of transport, being property whose aggregate value does not exceed the amount prescribed by the regulations (ie $6,500 which is the value of the vehicles less the sum owing under finance).
…..
The defendants claimed that items 1, 21, 24, 25, 29, 31, 41, 42, 45, 50 and 52 in the Schedule were property which is for use in earning income by personal exertion. Based on the evidence of the second defendant I accept this contention for each of these items. It is unclear to me whether the limit of $3,250 can be claimed by each of the personal defendants or by only the second, fourth and fifth defendants or only once by all defendants. The exemption can apparently only apply insofar as the particular item of property was for use by the bankrupt in respect of whom it is claimed. There is no evidence that the third or sixth defendants used any of this property to earn money by their own personal exertion. No submissions were addressed on the point and I will hear further argument on it.
The only evidence of the value of these items was the depreciated value for them shown in the depreciation schedule for the Partnership as at 30 June 2006. In the absence of any other evidence on the point I accept those written down values as being their values for the purpose of applying s 116(2)(c)(i) of the Bankruptcy Act. Insofar as the total value of these items exceeds the amount allowed by s 116(2)(c)(i) I will consider allowing the defendants to elect which items they will claim within the exemption. (There may be a difficulty in this course of action if the trustee in bankruptcy of the second and sixth defendants takes a different view of the entitlements of those defendants under s 116(2)(c)(i) of the Bankruptcy Act, and it then may be a matter for a Federal Court to decide). (By contrast with the relevant Regulation under subs 116(2)(c)(a) it would appear that any value of such tools is not to be reduced by any sum owing under finance).
No submission was made on behalf of the unbankrupt defendants that any greater amount should be allowed under subs 116(2)(c) by virtue of a special order under its subpara (iii) and no evidence was put forward apparently on that topic.
Items 31 and 36 in the Schedule are motor vehicles to which subs 116(2)(ca) could apply. Again I treat the value of these vehicles as that shown on the depreciation schedule as at 30 June 2006. The Schedule and the depreciation schedule only apparently refer to two Toyota vehicles, but the second defendant in his affidavit said there were three. The total value given for the Toyota vehicles in the depreciation schedule is only $6,023 which would mean that they come within the exemption. (On the basis that I am only considering two Toyota vehicles I need not go into the question of whether the reduction under the Regulation for the sum owing under finance is confined to finance used to acquire the vehicles or whether it can extend to security given over the vehicles, as is alleged here, to secure an apparently unrelated debt).
The unbankrupt defendants have recently brought an application (FDN 360) seeking to stay the Judgment. That is to be heard by a Justice. Counsel for the unbankrupt defendants submitted that I should not decide FDN 343 until FDN 360 had been determined. As the defendants had previously unsuccessfully applied for such a stay I am not prepared to delay this decision for that reason. However, if FDN 360 is close to determination at the time further orders are to be made on FDN 343, the unbankrupt defendants may renew their application on this ground.
An order for delivery up is not to be made unless there is proper evidence before the Court that the person against whom the order is made is both physically and legally able to comply with the order and to deliver the item of property as directed by the Court. On the evidence, the defendants are not in a position to deliver up the items in the Schedule numbers 2, 3, 6, 7, 8, 12, part of 13, 14, 15, 16, 17, 18, 19, 20, 23, 26, 27, 28, 32, 33, 38, 39, 40, 43, 44, 48, 51, 54, 55 and 56. Insofar as the property is question is on the first defendant’s land which is now in the possession of the plaintiff it is not appropriate that the defendants should enter that land for the purpose of retrieving this property to deliver it up to the plaintiff.
In the course of submissions the issue was not addressed of whether any order for delivery up should be made against the second and sixth defendants, who are now bankrupt, insofar as they or their trustee in bankruptcy are in joint possession of any of the items of property with the unbankrupt defendants. If the plaintiff seeks such an order, I will hear submissions on the point. Otherwise the delivery up order will be made only against the third, fourth and fifth defendants.
I will hear the parties on what further orders should now be made in the light of these reasons.
ADDENDUM
When FDN 343 initially came before the Court, counsel for the defendants intimated that part of their opposition would be a submission that s 8 of the EJA was invalid under s 109 of the Commonwealth Constitution for being inconsistent with the Commonwealth Bankruptcy Act 1966. On 26 March 2009 the defendants sent s 78B notices to the Commonwealth and State Attorneys-General giving notice of the Constitutional point they intended to take. (All the Attorneys-General either replied that they would not be seeking to be heard on the point or ignored the notices). The nature of the point to be taken changed somewhat after the second and sixth defendants became bankrupt on 6 April 2009, but no further s 78B notices were given.
It was agreed between counsel that the Constitutional point should be argued as a preliminary issue on 9 April 2009. At the conclusion of the hearing on that day I intimated, without giving any reasons, that I did not consider there was any s 109 inconsistency point which would bar the plaintiff from pursuing FDN 343. I now briefly give my reasons for that conclusion.
The s 109 inconsistency point was stated in the s 78B notices to be:
Section 116(2)(c) of the Bankruptcy Act 1966 (C’th) (“the Act”) excludes from the divisible property of a bankrupt:
(c)the bankrupt’s property that is for use by the bankrupt in earning income by personal exertion and:
…..
(iii)is identified by an order made by the Court on an application by the bankrupt.
Section 122(1) of that Act enables the trustee in bankruptcy to set aside certain transfers of property which occur in the relation back period and which confer a preference on a creditor of the bankrupt.
…..
The defendants say that the application sought by the plaintiff to obtain the orders which it seeks pursuant to s 8(2)(c) of that Act is invalid under s 109 of the Constitution in that such an order is inconsistent with both ss 116(2)(c)(iii) and 122(1) of the Act.
Section 116(2)(c)(iii) confers on a court, which exercises jurisdiction in bankruptcy, the power to make an order which can exclude from the divisible property of the bankrupt tools of trade. That provision confers on a bankrupt the right to make an application in respect of particular tools of trade before such a court, and if the court, in the exercise of its discretion, identifies a tool as coming within the meaning thereof in that subsection, then the bankrupt has a right to keep that tool of trade beyond the reach of his or her creditors. If s 8(2)(c) of the Enforcement Act permits a court to sell tools of trade and apply the proceeds of sale to the payment of the judgment creditor’s debt then that would:
1 effectively take away a right conferred by s 116(2)(c)(iii) of the Act and would thus be inconsistent with the Federal Act, …..; and
2further it would undermine and negate a plank in the legislative scheme which is established by the Act …..
An order made under s 8(2)(c) of that Act in which property of the judgment debtor is sold to a third party involves the transfer of property from the judgment debtor to the purchaser but it is not a transfer which is, to use the language of s 122(1) of the Act, “by a person who is insolvent”. That transfer is made under an order of the Court, and insofar as that transfer is done by anyone it is done by the Court, not by the insolvent judgment debtor. Such a transfer therefore would not come within the terms of s 122(1) of the Act and therefore could not be set aside by the trustee in bankruptcy. That would also give rise to an inconsistency in that it would undermine and negate a central plank in the scheme established by the Act …..

The provisions of the Bankruptcy Act would only apply in respect of the unbankrupt defendants if they were insolvent and so liable to have their estates sequestrated. There is no evidence that they are insolvent, or likely to be so in the near future. Under s 109 the point cannot arise until such a factual determination is made: Commonwealth v Davis Samuel Pty Ltd (No 4) (2008) 221 FLR 151.
S 118 of the Bankruptcy Act makes the charge void upon the bankruptcy of the judgment debtor. In any event, paragraph 4 of the charging Order provides that it does not operate once the judgment debtor becomes bankrupt. S 118(1) of the Bankruptcy Act would require the plaintiff to disgorge anything which it had obtained by virtue of the charge.
The interests of the bankrupt defendants in the partnership property is only a chose in action and not a proprietary interest in the assets of the partnership: Commissioner of Taxation v Everett (1980) 143 CLR 440. There was no suggestion that the bankrupt partners have made any application to a Federal Court for any order under s 116(2)(c)(iii) for any order relating to their tools of trade.