Paphitis Nominees P/L v Quality Food World P/L - [2017] SADC 144

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application)
PAPHITIS NOMINEES P/L v QUALITY FOOD WORLD P/L
[2017] SADC 144
Ruling of His Honour Judge Chivell
22 December 2017
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS
Application by plaintiff company to join a plaintiff, to amend the Statement of Claim and for other orders. Application likely to cause adjournment of trial. Application made after plaintiff certified readiness for trial. Whether special circumstances.

BANKRUPTCY - PROCEDURE AND EVIDENCE - PARTIES
Standing to sue - proposed plaintiff an undischarged bankrupt at relevant times. No assignment of entitlement to sue by trustee in bankruptcy.
Held: Application dismissed.
District Court Civil Rules 2006 r 58(1), r 74(1), r 120A(4) ; Bankruptcy Act 1966 (Cth) s 58(1), s 116; Aon Risk Services Australia Ltd v Australian National University (2009) 258 ALR 14; Channel Seven Adelaide Pty Ltd v Manock [2010] SASCFC 59; PPG Development Pty Ltd v Capitanio (2016) 126 SASR 307; Johnston v Aldridge [2017] SADC 70; Willoughby v Clayton Utz (2005) 193 FLR 373; Badcock v PricewaterhouseCoopers & Anor [2006] SASC 346; Pope v Harris Orchard [2010] SASC 354, referred to.

PAPHITIS NOMINEES P/L v QUALITY FOOD WORLD P/L
[2017] SADC 144

This is an application to join a second plaintiff, Mr Peter Paphitis, to the action, to file an amended Statement of Claim, and for consequential orders. The application is made pursuant to DCR 74. DCR 74(1) states:
The Court may, on application or on its own initiative, order that a person who is not a party to the action be joined as a party if satisfied that—
(a)the person has an interest in the subject matter of the action or in a question of law or fact involved in the action; or
(b)the Court may require the person's cooperation in order to enforce a judgment; or
(c)the person has a right to joinder as a party under an Act or rule; or
(d)the person should be joined as a party to ensure that all matters in dispute in the action are determined; or
(e)the person should be joined as a party in order to enable determination of a related dispute and thus avoid multiplicity of proceedings.
The action is fundamentally for breach of contract. The plaintiff company contends that it and the defendant company entered into a contract for the distribution of the defendant’s food products in South Australia and the Northern Territory. The plaintiff claims that it is entitled to money earned by it during 2013 pursuant to the contract. Mr Paphitis was involved in the negotiations which led to the alleged contract. His relationship with the plaintiff company, whether as an agent, an employee or otherwise, is one of the contested issues in the litigation.
The Summons and Statement of Claim were filed on 2 January 2014. The First Defence was filed on 10 February 2014. It is true that, as Mr Doyle, counsel for the defendant, submitted, the action has had a ‘tortuous history’ since then. There have been many amendments to the pleadings of both parties. A Fifth Statement of Claim was filed by the plaintiff on 19 April 2016. A Fourth Defence was filed on 30 May 2016.
At a directions hearing before Master Blumberg on 17 June 2016, a number of issues were discussed. Mr Mark Gowans, solicitor for the defendant, deposes in his affidavit sworn 13 December 2017 (FDN 50), that the issues discussed included:
4.1the withdrawal of admissions, particularly in relation to the identity of the Plaintiff and the need for an application subject to the Plaintiff's position;
4.2. the possibility of the Plaintiff filing another Statement of Claim with two Plaintiffs; and
4.3. the impact of Mr Paphitis' status as an undischarged bankrupt.
The directions hearing was adjourned to 5 August 2016. There were multiple adjournments after that. There was an unsuccessful mediation, which was finalised on 5 June 2017.
On 5 September 2017, the defendant sought permission to withdraw the admissions made in the Fourth Defence that:
·the plaintiff is Paphitis Nominees Pty Ltd;
·the plaintiff and defendant entered into discussions and negotiations in connection with the defendant’s business operations in South Australia; and
·Mr Peter Paphitis was an employee of Paphitis Nominees and acted as an agent on its behalf with full authority.
The application was not opposed by the plaintiff. Master Blumberg granted permission to withdraw those admissions. His Honour referred the matter to a listing conference. In addition, he ordered:
6. In the circumstances, pursuant to rules 116 and 117, I direct the listings officer, subject to the power of adjournment, to refrain from listing this action for trial unless all parties have executed a certificate of readiness (which will contain a statement as to the duration of the trial) and that that certificate has been filed prior to the listing conference or any adjourned listing conference.
7. The parties have permission to strike from Form 24 the content of paragraphs 12 and 13 of the certificate of readiness.
A Certificate of Readiness was executed by solicitors for both parties on 19 September 2017. Included in the certificate is the usual paragraph 14:
All interlocutory processes are completed and the action is in all respects ready for trial.
On that day, the action was listed for trial on 12 February 2018 at 10 a.m. The estimated length of the trial was three days. This seems a gross underestimation. Counsel informed me that seven volumes of documents have been disclosed. The index to tender books is yet to be prepared.
The Application
DCR 120A(4) states:
A party is required to review the adequacy of its pleadings before an order is made that the action be listed for trial and thereafter a party will not be permitted to amend the pleading – particularly if the amendment would cause a postponement or adjournment of the trial – unless the Court is satisfied that special circumstances exist justifying permission in the interests of justice.
It is therefore incumbent on the plaintiff to show that ‘special circumstances exist justifying permission in the interests of justice’. This is clearly mandatory under the rule. The phrase ‘particularly if the amendment would cause a postponement or adjournment of the trial’ would appear to qualify the degree of ‘specialness’ or exceptionality called for, although this is not entirely clear. It seems to require that the strictness of the test for ‘special circumstances’ should increase according to the degree of prejudice which might result from granting permission.
The time to trial is already short. The festive season intervenes. The granting of permission will change the factual issues in the trial to a considerable extent. In my view, the parties are already stretched to achieve preparedness for trial. Granting permission will make an adjournment inevitable. The plaintiff must therefore show that particularly special circumstances exist which would justify granting permission.
The only circumstances adverted to by the plaintiff are in the affidavit of James Neate sworn on 21 November 2017, at paragraph 3:
Following that issue being put into contest and on Counsel’s advice, Peter Paphitis now seeks leave to be joined as second Plaintiff in this action.
The principles to be applied have been the subject of much judicial analysis since Aon Risk Services Australia Ltd v Australian National University[1] was decided by the High Court. Locally, the principles were applied in Channel Seven Adelaide Pty Ltd v Manock[2] and PPG Development Pty Ltd v Capitanio.[3] In this Court they were applied by Slattery DCJ in Johnston v Aldridge.[4] Mr Doyle has summarised the principles. His summary was accepted by Mr Ross‑Smith, counsel for the plaintiff. They are:
[1] (2009) 258 ALR 14.
[2] [2010] SASCFC 59.
[3] (2016) 126 SASR 307.
[4] [2017] SADC 70.
•    The nature and importance of the proposed amendment, including the extent to which it raises new issues of fact or law.
•    The merits of the proposed amendment, at least in the sense that the proposed amendment is arguable or tenable.
•    The stage of the litigation at which the application to amend is made, and the likely impact upon, or disruption to, the progress of the proceedings (and in particular the trial).
•    The explanation for the application to amend and its timing, and the fact and extent of any undue delay in this regard.
•    Whether the party has had a sufficient opportunity to plead their case earlier.
•    The time, cost and inconvenience associated with any delay or disruption of the proceedings.
•    The uncertainty and strain of litigation on the parties and their witnesses as a result of any disruption or delay likely to be occasioned by the amendment.
•    The impact of any delay and disruption upon judicial and court resources, and the access of other litigants to those public resources.
•    The impact upon the public’s confidence in the just and efficient administration of justice.
The defendant has identified three grounds for opposing the grant of permission. I will deal with them in order.
Delay
Mr Doyle submitted that the application has been delayed since June 2016, when the withdrawal of the defendant’s admissions was first ‘on the table’. This is true, but I accept Mr Ross-Smith’s submission that the withdrawal was only permitted by Master Blumberg in September 2017. Mr Doyle’s submission might have carried more weight if his client had applied for permission to withdraw in September 2016 rather than awaiting the outcome of the mediation in June 2017.
The more serious problem for the plaintiff is that the amendments were not sought prior to the filing of the Certificate of Readiness for trial. As noted above, the fact that the application was not made until after the filing of the certificate places a much heavier onus on the plaintiff to justify the grant of permission.
Mr Paphitis’ Bankruptcy
Mr Paphitis became bankrupt on his own petition on 13 June 2013.[5] This is about halfway through the period in which the plaintiff’s claims are said to have arisen.
[5] Third Affidavit of Mark James Gowans sworn 13/12/17, Exhibit MJG2.
The effect of Mr Paphitis’ bankruptcy is dictated by s 58(1) of the Bankruptcy Act 1966 (Cth), which provides:
(a) the property of the bankrupt, not being after‑acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after‑acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.
Section 116 of the Act also provides:
(1) Subject to this Act:
(a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and
(b) the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; and
…
is property divisible amongst the creditors of the bankrupt.
In Willoughby v Clayton Utz,[6] Master Newnes of the Supreme Court of Western Australia held:
Section 58(1)(a) of the Act provides that at the date of bankruptcy all of the property of the bankrupt vests forthwith in the Official Trustee and s 58(1)(b) provides that any after-acquired property vests in the Official Trustee as soon as it is acquired by, or devolves on, the bankrupt. Accordingly, upon the accrual of the causes of action in November 1993 they vested in the Official Trustee pursuant to s 58(1)(b) of the Act. They remained vested in the Official Trustee even after the plaintiffs' discharge from bankruptcy: Bride v Peat Marwick Mitchell [1989] WAR 383 per Malcolm CJ at 393; Daemar v Industrial Commission (NSW) (No 2) (1990) 22 NSWLR 178 (CA).
It follows that when the action was commenced by the bankrupt plaintiffs against the defendant on 22 December 1998, the causes of action were vested in the Official Trustee and the bankrupt plaintiffs had no standing to bring the action: Bride v Peat Marwick Mitchell; Bride v The Australian Bank (unreported, Supreme Court of Western Australia, Library No 960565, 25 September 1996); Daemar v Industrial Commission (NSW) (No 2).
[6] (2005) 193 FLR 373.
This exposition of the law was adopted with approval by Debelle J in Badcock v PricewaterhouseCoopers & Anor.[7] Debelle J wrote:[8]
When the appellant became a bankrupt, the property then held by him vested in the trustee in bankruptcy of his estate. In addition, any property acquired by the appellant thereafter also vested in Mr Ambrose as trustee in bankruptcy. That is the effect of s 58 of the Bankruptcy Act.
The word “property” is defined by s 5 of the Bankruptcy Act and includes “real or personal property of every description”. Personal property includes the right to institute legal proceedings or continue them: re Nguyen; ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320 at 325. The consequence is that any right which the appellant has to institute proceedings is property and is vested in Mr Ambrose as the trustee in bankruptcy of the appellant’s bankrupt estate. Unless Mr Ambrose assigns the cause of action to the appellant, the appellant is not entitled to institute or pursue legal proceedings. If the appellant has instituted proceedings without such an assignment, those proceedings are a nullity and should be dismissed: Willoughby v Clayton Utz (2005) 193 FLR 373 at [29].
It follows that, because of the effect of s 58 of the Bankruptcy Act and because Mr Ambrose has not assigned to him the entitlement to institute or pursue legal proceedings, the appellant has no entitlement to commence the action in the District Court. The proceedings instituted by the appellant were, therefore, void and a nullity. The appellant is not able to prosecute the action.
[7] [2006] SASC 346.
[8] At [10]-[12].
Mr Doyle submitted that there had been no assignment of the trustee’s rights to pursue this action to the plaintiff.
In a letter to the trustee, Mr Gregg Johnson, dated 29 July 2016,[9] the plaintiff’s solicitor asked:
Nevertheless, we note that Mr Paphitis maintains that the Company was also the contracting party and so the correct plaintiff. Notwithstanding that, can you please advise what you consider your role might be in the proceedings, or any interest you have in the outcome of the proceedings either in circumstances where the company continues as the plaintiff alone or alternatively that you are joined as a co-plaintiff in the action in your capacity as Trustee of the Bankrupt Estate.
It is our intention that such information would be put to the solicitors for the defendant as confirmation of your view of these matters.
[9] Third Affidavit of Mark James Gowans sworn 13/12/17, Exhibit MJG3.
That letter did not seek an assignment of the right to sue in this matter. It merely sought the trustee’s view of a proposal to add him as a plaintiff. Mr Johnson’s reply was as follows:
I refer to my appointment as Trustee of the above named Estate and to your letter dated 29 July 2016.
Having reviewed your letter I advise that any involvement by me in this matter will be limited to any amounts owing to Mr Paphitis as at the date of his bankruptcy, that being 13 June 2012, and any claim against Mr Paphitis' income during the term of the bankruptcy. In making this assessment I am entitled to use the provisions of Section 139Y of the Bankrupt Act, 1966 and deem the income of Paphitis Nominees Ply Ltd to be assessable income of Mr Paphitis. It should be noted that Mr Paphitis was discharged from his bankruptcy on 14 June 2016 however this does not affect my ability to reassess any income received during the term of the bankruptcy.
Mr Ross-Smith submitted that the trustee’s letter constituted a ‘consent’ to the plaintiff pursuing this claim. He conceded that ‘it doesn’t comply comfortably with the formalities for an assignment,’ but he submitted that it was a communication of his attitude that ‘his only interest is in any income derived from the prosecution of the claim.’
Mr Ross-Smith submitted that I should not be distracted by a requirement for formality. He pointed out that the trustee was not interested in formalities. That may be so, but it cannot be said that the trustee has assigned his right to pursue a claim on behalf of Mr Paphitis’ creditors in some informal way. He has not been asked to do that. He was merely asked for his view in relation to a different subject, namely joining him in the action.
A further factor is the (possibly hearsay) evidence that the trustee has verbally advised Mr Gowans that the ‘cause of action … has not been assigned by him to Mr Paphitis; nor has he provided his consent to Mr Paphitis in relation to the orders sought in the relevant application’.[10]
[10] Third Affidavit of Mark James Gowans sworn 13/12/17, [7].
This is to be contrasted with the position in Willoughby,[11] when an assignment was granted by deed and for valuable consideration. The issue in that case was whether the assignment had any retrospective effect. The master held it did not.[12]
[11] Supra.
[12] See [26] of the master’s judgment.
There having been no assignment, the right to pursue Mr Paphitis’ purported claim remains vested in the trustee. That being so, Mr Paphitis has no standing to bring the proceedings. This is not a ‘formality’. It is a question of law. Any proceedings he might institute, whether by being joined as a plaintiff or by separate action, would be ‘void and a nullity’, to use Debelle J’s words.
For that reason alone, the plaintiff’s application must be dismissed.
The Proposed Pleadings
Mr Doyle also submitted that the application should be refused because the proposed pleadings offend the Rules as to inconsistent allegations of fact. Without going to detail, it is true that the proposed amendments repeatedly conflate concepts of agency and employment with claims by both plaintiffs as principals. They are not pleaded in the alternative, as is required by DCR 98(7).
Mr Ross-Smith responds simply that if the pleadings are deficient, they can be fixed. However, as Mr Doyle responded, even if that were so, it would take further time to do so, and make an adjournment of the trial more likely.
Permission should not be granted when the proposed amendments do not comply with the pleading rules.[13] It would inevitably lead to further interlocutory dispute.
[13] Pope v Harris Orchard [2010] SASC 354 at [24]; Johnston v Aldridge [2017] SADC 70.
For that additional reason, permission should be refused.
Conclusion
The plaintiff’s application is dismissed. I will hear the parties as to any further orders.