Nedlands P/L (in Liq) & Heywood-Smith v Chisholm No. Scgrg-96-844 Judgment No. S7

[1999] SASC 7

NEDLANDS PTY LTD (IN LIQUIDATION) & HEYWOOD-SMITH v CHISHOLM

[1999] SASC 7

Miscellaneous Appeal

1 WICKS J                  This is an appeal by the defendant in the action against an order of a Master of the Supreme Court refusing an application that the Official Trustee in Bankruptcy as trustee of the estate of Gary Milton Killington deceased be joined as a defendant in the action.
2 The learned Master delivered brief reasons for his decision to dismiss the application, the text of which is as follows:
"The proceedings in this matter were issued on 12 April 1996.  There have been significant delays in this matter as a result of various interlocutory applications and appeal.  The deft has recently changed solicitors.  At a PTC held on 6 August 1998 I determined that the matter should proceed to trial and listed it for a Listing Conference on 25 August 1998.  By an application ... filed on 18 August 1998 the deft seeks to have the Official Trustee in Bankruptcy of the Estate of Gary Milton Killington joined as a deft to these proceedings.  Dr Baxter who appears for the deft acknowledges that the effect of granting such an order would be to cause delay but argues that this is a commercial matter and that any prejudice to the pltf could be met with orders as to interest and costs in due course.  He argues on the basis of the High Court decision in State of Queensland against HL Holdings that it is in the interest of justice to make the orders sought.  In my view, the effect of making such an order is likely to result in a further significant delay and indeed requiring the pltf to amend its pleadings to meet the convenience of the deft.  In all of the circumstances of this case, I do not consider that it is appropriate to make the orders sought.  It is possible for the deft to bring further proceedings to obtain recovery from the estate of Killington.  Again, I appreciate that this may to some extent lead to duplication, but in my view the circumstances of this case call for the matter to proceed on the pleadings as they currently stand."

3 At all material times the defendant, Mr Chisholm, was a director of Nedlands.  Also, at all material times Mr G M Killington was governing director of the company.  Mr Killington was made bankrupt by order of the Federal Court on 30 September 1992 and the Official Trustee in Bankruptcy became trustee of his estate.  Mr Killington has since died.
4 In the Statement of Claim, Nedlands seeks a declaration that the defendant was in breach of his duty as a fiduciary and in breach of s232 of the Corporations Law and claims consequential relief. In argument, it was suggested that in addition to the above relief, Nedlands, as plaintiff in the action, sought damages for negligence. I have carefully perused the statement of claim and can find nothing in it which would support such a claim.
5 The application originally before the learned Master sought joinder of the Official Trustee as a defendant in the proceedings.  In the course of argument before me it was conceded by the defendant that his claim against the Official Trustee could be prosecuted quite satisfactorily by means of third party proceedings.  The solicitors for the defendant have since produced a draft third party statement of claim in which the text of the relief claimed is as follows:

1. An indemnity at law or in equity for any and all relief ordered against the defendant in these proceedings;

1. An indemnity or contribution pursuant to sections 25 and 26 of the Wrongs Act (South Australia) for any and all relief ordered against the defendant in these proceedings; and

1. Contribution and/or indemnity on the basis that Gary Milton Killington committed an equitable fraud on the defendant in relation to the matters forming the subject of the within proceedings.

6 I note that in argument, counsel for the defendant referred to a claim based upon Cherry v Boultbee (1839) 4 My & Cr 442 and a further claim being a variation of the Cherry v Boultbee claim. In the latter case, reliance was placed upon Re Thellusson, ex parte Abdy (1919) 2 KB 735. Neither of these matters was referred to in the draft third party statement of claim submitted after the completion of argument in this matter. I must assume therefore that these matters are either not being pursued or are matters which I need not consider further.
7 In order for a party to bring proceedings against the trustee of a bankrupt estate, it may be necessary for leave to be obtained under subs58(3) of the Bankruptcy Act 1966. The subsection is in the following terms:
"Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

(a)     ...

(b)     except with the leave of the Court [the Federal Court] and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding"

8 Leave was obtained from the Federal Court in this matter on 20 November 1998, the terms of the Court’s order being as follows:
"THE COURT ORDERS THAT:

1. To the extent that such leave is necessary by reason of the provisions of s 58(3) of the Bankruptcy Act 1966 (Cth), leave is granted to Philip Anthony Chisholm to maintain his present appeal in Supreme Court of South Australia Action No 844 of 1996 for the purpose of seeking an order joining the Official Trustee in Bankruptcy as Trustee of the bankrupt estate of Gary Milton Killington as a party in the said Supreme Court proceedings, but only in so far as such appeal seeks the joinder of the Trustee in respect of the proposed claims by Philip Anthony Chisholm against the Trustee:

(a)     that Philip Anthony Chisholm is entitled to indemnity or contribution at common law or in equity from the bankrupt estate of Gary Milton Killington in respect of any liability of Philip Anthony Chisholm to the plaintiffs or either of them in the said Supreme Court proceedings ("the indemnity claim"), and

(b)     that Philip Anthony Chisholm is entitled to indemnity or contribution from the bankrupt estate of Gary Milton Killington under ss 25 or 26 of the Wrongs Act 1936 (SA) in respect of any liability of Philip Anthony Chisholm to the plaintiffs or either of them in the said Supreme Court proceedings ("the Wrongs Act claim").

1. In the event that the Supreme Court orders or permits the Trustee to be joined as a party in the said Supreme Court proceedings, leave is granted to Philip Anthony Chisholm to institute and maintain the proposed claims against the Trustee in the said Supreme Court proceedings only in respect of the indemnity claim and the Wrongs Act claim.

1. The leave hereby granted is subject to the term that, in the event that in the said Supreme Court proceedings (including any appeals) the Court should give any judgment or make any orders that the Trustee as trustee of the bankrupt estate of Gary Milton Killington is liable to Philip Anthony Chisholm, Philip Anthony Chisholm will not take any step or steps to enforce any such judgment or order other than by seeking to prove the same in the bankrupt estate of Gary Milton Killington, except with the prior leave of a court having jurisdiction under s 58(3) of the Bankruptcy Act 1966 (Cth) to otherwise order."

9 The effect of this order was to permit the defendant to pursue claims for indemnity and contribution of the kind referred to in the order against the Official Trustee as the trustee of the bankrupt estate of Gary Milton Killington deceased without any impediment created by subs58(3) of the Bankruptcy Act. In order to protect the scheme for the orderly distribution of the bankrupt estate amongst creditors, the Court imposed a condition on the order and that is that in the event of a judgment being obtained against the Official Trustee, no steps to enforce that judgment would be taken other than by leave of the Court or by seeking to prove the judgment debt in the bankrupt estate.
10 The order of the Federal Court is wide in its terms and should enable the defendant to claim relief as set out in the three numbered paragraphs above.
11 The defendant’s application for joinder is made under SCR27.03 and SCR27.05.  Rule 27.03 provides:
"Where all of the persons who should or could be parties in those proceedings are not joined as parties, any party may apply to the Court for such order as may be just to join any person who is not already a party ..."

12 Rule 27.05, so far as is material provides:
"The Court may upon application, or of its own motion, join any person to the proceedings as a party upon such terms and conditions as the Court may prescribe at any time including ... if:

(a) - (d)     ...

(e)     ... that person ought to be joined as a party, or his presence before the Court is necessary, to ensure all matters in dispute in the proceedings may be effectually determined and adjudicated upon;

(f)     ... there exists between that person and a party to the proceedings a question or issue arising out of, relating to or connected with any relief of remedy sought in the proceedings, which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the proceedings."

13 These rules are widely drawn and consequently many of the older authorities on the subject of joinder no longer have application. While the rules do enable a defendant to apply for the joinder of a person as a co-defendant, such a joinder should not be embarked upon lightly where the plaintiff does not consent. As a general rule, the plaintiff should be allowed to select his defendant and should not have a defendant foisted on him without his consent: Atid Navigation v Fairplay Towage (1955) 1 All ER 698. Where that does happen, however, it is generally the practice of the Court to make the order subject to conditions designed to ensure that the plaintiff is not in any way prejudiced: See generally Re Multi-Tech Services Pty Ltd (In Liquidation) (1982) 30 SASR 218 where Jacobs J imposed a number of conditions on an order for joinder of an additional defendant. This case is to be contrasted with J N Taylor Holdings Ltd v Bond (1993) 59 SASR 432 which was a case where the application for joinder of an additional defendant was made by a plaintiff.
14 The purpose of joinder in the case presently before the Court is to create a res judicata between co-defendants. The conditions under which the doctrine should be applied were stated by Wigram V-C in Cottingham v Earl of Shrewsbury (1843) 3 Hare 627 at p638, 67 ER 530 as follows:
"If a Plaintiff cannot get at his right without trying and deciding a case between Co-defendants, the Court will try and decide that case, and the Co-defendants will be bound.  But, if relief given to the Plaintiff does not require or involve a decision of any case between co-defendant; the Co-defendants will not be bound as between each other by any proceeding which may be necessary only to the decree the Plaintiff obtains."

15 In Munni Bibi v Tirloki (1931) LR Ind App 158, the Privy Council held the following statement to be the rule in cases where it is sought to apply the rules of res judicata as between co-defendants.  Their Lordships said at p165:
"In such a case, therefore, three conditions are requisite: (1) There must be a conflict of interest between the defendants concerned; (2) it must be necessary to decide this conflict in order to give the plaintiff the relief he claims; and (3) the question between the defendants must have been finally decided."

See generally J N Taylor Holdings Ltd v Bond (supra) per King CJ at p441.  In that case King CJ pointed out that the existence of an actual lis, in the sense of the proceedings between the defendants concerned, was not one of the requisites.
16 In the present case, the second of the above principles is not present.  The doctrine of res judicata would have no application and no good purpose would be served by joining the Official Trustee as a co-defendant.
17 I would dismiss the appeal.
18 There are additional matters on which I would dismiss the appeal as a matter of discretion.  The question of joinder of the Official Trustee, while convenient in some respects, is not crucial to the defendant’s case against the Official Trustee.  The claims made could be pursued in separate proceedings or made the subject of a contested proof of debt.  In this matter, the trial is set for 1 March 1999 and it is now too late to join a party where pleadings are possibly in contemplation and where there is very little time to prepare a case, file pleadings and have the benefit of discovery.  Also, as indicated in the course of the hearing, the Official Trustee may need to consult with creditors as to what course of action it should take.  It would be unreasonable to expect it to consult with creditors and be prepared to participate in the action in the limited time available.
19 This matter has had a long history of delay. It is as follows:
"Proceedings commenced   12/4/96
Amended Statement of Claim      12/6/96
Defence    2/7/96
Amended Defence     24/9/96
Pre-Trial Conference 24/2/98
Pre-Trial Conference 5/5/98
Further Amended Defence  19/6/98
Pre-Trial Conference 28/7/98
Order that matter proceed to Trial        6/8/98
Second Further Amended Defence       10/8/98
Listing Conference     25/8/98
Application for leave to join additional defendant  17/8/98
Order of Master on application    21/8/98
Notice of Appeal re joinder         31/8/98
Order of Federal Court re leave under s58(3) of
Bankruptcy Act to continue proceedings 20/8/98
Argument on appeal re joinder     22/12/98
Judgment on appeal     13/1/99
Trial date set   1/3/99"

20 In my opinion it would be unreasonable to delay the case further, particularly having regard to the fact that other avenues are open to the defendant.
21 In the circumstances I would dismiss the appeal.