Verge & Anor v Devere Holdings Pty Ltd & Ors (No.2)
[2008] FMCA 743
•6 June 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| VERGE & ANOR v DEVERE HOLDINGS PTY LTD & ORS (No.2) | [2008] FMCA 743 |
| BANKRUPTCY − Transfer of property at alleged undervalue. PRACTICE & PROCEDURE − Precedent − judicial comity between Federal Court and Federal Magistrates Court. PRACTICE & PROCEDURE − Application for decision on separate question − whether truly a separate question − principles governing consideration of separate question. |
| Bankruptcy Act 1966 (Cth) ss.30(3), 120(1) Corporations Act 2001 (Cth) ss.175, 1072E Federal Magistrates Act 1999 (Cth) ss.3(2), 14, 42 Federal Magistrates Court Rules 2001 (Cth) rr.1.03, 15.08, 17.01, 17.02 and 17.03 Federal Court Rules (Cth), O.29 rr.1 and 2 Trade Practices Act 1974 (Cth) ss.52, 82, 87 |
| Carlo Nobili Sp.A Rubinetterie v Militarie Nominees Pty Ltd [2004] WASC 47 CBS Productions Pty Ltd v O’Neill [1985] 1 NSWLR 601 Constantinidis v Hatton [2006] FMCA 860 |
| Applicants: | EVAN ROBERT VERGE & GEORGE AUBREY LOPEZ |
| First Respondent: | DEVERE HOLDINGS PTY LTD |
| Second Respondent: | PACKHAM PTY LTD |
| Third Respondent: | CASTLEWORLD PTY LTD |
| File Number: | PEG 64 of 2007 |
| Judgment of: | Lucev FM |
| Hearing dates: | 9 & 30 May 2008 |
| Date of Last Submission: | 30 May 2008 |
| Delivered at: | Perth |
| Delivered on: | 6 June 2008 |
REPRESENTATION
| Counsel for the Applicants: | Ms P E Cahill |
| Solicitors for the Applicants: | Jackson McDonald |
| Counsel for the First and Second Respondents: | Mr D H Solomon and Mr C S Williams |
| Solicitors for the First and Second Respondents: | Solomon Brothers |
| Counsel for the Third Respondent: | Mr G Flynn |
| Solicitors for the Third Respondent: | Hotchkin Hanly |
ORDERS
That the Application in the Case by the Third Respondent dated 4 April 2008 for determination of a separate question be dismissed.
That in so far as the First and Second Respondents Submissions in Relation to the Application in the Case by the Third Respondent dated 4 April 2008 constitutes an Application in the Case for determination of the five separate questions therein set out, that it be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 64 of 2007
| EVAN ROBERT VERGE & GEORGE AUBREY LOPEZ |
Applicants
And
| DEVERE HOLDINGS PTY LTD |
First Respondent
| PACKHAM PTY LTD |
Second Respondent
| CASTLEWORLD PTY LTD |
Third Respondent
REASONS FOR JUDGMENT
Application in a case
By Application in the Case made on 4 April 2008 the Third Respondent relevantly seeks orders as follows:
“
1. All issues between the Applicant and the First and Second Respondents arising in the within proceedings:
(a) be tried as a preliminary issue separately from the issues between the Applicants and the Third Respondent; and
(b) any trial of issues between the Applicant and the Third Respondent occur after the trial and final determination of the issues between the Applicants and the First Respondent.
2.For the purpose of Rule 17.03 of the Rules, the question to be determined is: is the transfer by the Andonys of their one undivided third share of the Dongara Land void against the Applicants pursuant to section 120(1) of the Act, as claimed in paragraph 20 alternatively paragraph 33(a) of the Amended Application.
3.Any application to amend the defence of the Third Respondent be made pursuant to directions made after the trial and final determination of the issues between the Applicants and the First Respondent.”
The First and Second Respondents support of the Third Respondent’s Application in the Case, and in their submissions submit that there are five separate questions to be determined as preliminary issues, as follows:
“The first question is the question formulated in paragraph 2 of the Third Respondent’s Application;
the second question to be determined is: is the transfer of Mr Andony’s interests in the Joint Shareholding void as against the applicants pursuant to s.120(1) of the Act?
the third question to be determined is: are the applicants entitled to an order pursuant to ss.175 and 1072E of the Corporations Act 2001 for the correction of the first respondent’s register of members and the registration of the Applicants as the holder of Mrs Andony’s interests in the Joint Shareholding?
the fourth question to be determined is: is the transfer of Mrs Andony’s interest in the Joint Shareholding void against the applicants pursuant to s.120(1) of the Act; and
the fifth question to be determined is: are the applicants entitled to an order pursuant to ss.175 and 1072E of the Corporations Act 2001 for the correction of the First Respondent’s register of members and the registration of the Applicants as the holder of a share in the first respondent as pleaded in paragraph 12(c) of the statement of claim?”[1]
[1] As set out at paragraphs 28.1-28.5 of the First and Second Respondents’ Submissions in Relation to an Application in a Case filed by each of the Applicants, the First and Second Respondents and the Third Respondent, filed on 18 April 2008.
The Applicants oppose any orders for separate questions to be determined as a preliminary issue.
Because the separate question in the Third Respondent’s Application in the Case is adopted by and therefore the same as the first separate question in the First and Second Respondent’s Application in the Case the Court will deal with the matter on the basis of that question initially, and then turn to the First and Second Respondent’s four other separate questions if it is necessary to do so.
Substantive application
The Application was commenced on 12 April 2007 by way of an application and affidavit, but the matter is now proceeding on pleadings with the Applicants having filed an Amended Application and a Statement of Claim on 11 October 2007. The First and Second Respondents initially filed a Response, and on 28 May 2008 filed an Amended Defence. The Third Respondent was joined to the proceedings on 5 September 2007, and on 23 May 2008 filed an Amended Defence.
The Application is one in which, relevantly in relation to the separate question of the Third Respondent, the Applicants allege that:
a)in April 2001 there was a transfer of the interests in land[2] of Mr and Mrs Andony,[3] namely an undivided one-third share in the Dongara Land, to the First Respondent at undervalue. The Applicants allege that under s.120(1) of the Bankruptcy Act, 1966 (Cth)[4] that that transfer is void against the Applicants as the trustees of the Bankrupts’ estates; and
b)that the Bankrupts’ interests in the Dongara Land as at the date of their bankruptcies, being 28 May 2004 for the Female Bankrupt and 3 June 2004 for the Male Bankrupt, vested in the Applicants as at those dates,
and seek declarations accordingly.
[2] “Dongara Land.”
[3] Collectively “Bankrupts”, individually “Male Bankrupt” and “Female Bankrupt” respectively.
[4] “Bankruptcy Act”.
The Applicants’ Statement of Claim alleges that on 3 July 2007 the Third Respondent became the registered proprietor of the whole of the Dongara Land.
The relief sought against the Third Respondent is an order that the Third Respondent do sign all and any documents reasonably necessary to transfer the Bankrupts’ interests in the Dongara Land to the Applicants.
Determination of a separate question - relevant rules, precedent and comity
Rules 17.01 – 17.03 of the Federal Magistrates Court Rules 2001 (Cth) [5] provide as follows:
[5] “FMC Rules”.
“17.01 Definition
In this Part:
question includes a question or issue in a proceeding, whether of fact or law, or partly of fact and partly of law, and whether raised in a document, by agreement of the parties or otherwise.
17.02 Order for decision
The Court may make an order for the decision by the Court of a question separately from another question at any time in a proceeding.
17.03 Separate question
A separate question must:
(a) set out the question or questions to be decided; and
(b) be divided into paragraphs numbered consecutively.”
The Third Respondent and the Applicants agree that the relevant principles in relation to the disposition of the matter are those applied by the Federal Court in relation to O.29 r.2 of the Federal Court Rules which provides as follows:
“The Court may make orders for:
a) the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings; and
b) the statement of a case and the question for decision.”
Order 29 r.1 of the Federal Court Rules defines “question” in very similar terms to r.17.01 of the FMC Rules.[6] The First and Second Respondents take a slightly different approach suggesting that the correct approach as to the exercise of this Court’s discretion when determining an application for the trial of a preliminary issue is summarised in the judgment of the Supreme Court of Western Australia in Carlo Nobili Sp.A Rubinetterie v Militarie Nominees Pty Ltd.[7]
[6] Order 29 r.1 of the Federal Court Rules provides that “question includes any question or issue in any proceeding, whether of fact or law partly of fact and partly of law, and whether raised by pleadings, agreement of parties or otherwise.”
[7] [2004] WASC 47 (“Carlo Nobili”).
Given:
a)that rule 17.02 of the FMC Rules and the definition of “question” in r.17.01 of the FMC Rules are very similar to O.29 r.2 and the definition of “question” in O.29. r.1 of the Federal Court Rules;
b)that the Federal Court and this Court share concurrent jurisdiction in bankruptcy;[8]
c)that because this Court is bound by decisions of the Federal Court on appeal from this Court, and because the Federal Court is a court superior to this Court in the hierarchy of Australian federal courts;[9] and
d)further and alternatively to (c), having regard to the necessity for judicial comity between federal courts,[10]
this Court ought to adopt the approach of the Federal Court in relation to O.29 r.2 of the Federal Court Rules when considering applications under r.17.02 of the FMC Rules, subject to what is said below concerning the effect of ss.3, 14 and 42 of the Federal Magistrates Act 1999 (Cth)[11] and r.1.03 of the FMC Rules. Nevertheless, some assistance may be obtained from decisions of State Supreme Courts when determining similar applications to that presently before this Court.
[8] Save for the ability of the Federal Court to hear jury trials in bankruptcy: s.30(3), Bankruptcy Act, 1966 (Cth).
[9] Minister for Immigration and Multicultural and Indigenous Affairs v SZANS [2005] FCAFC 41 SZANS at paras. 35-39 per Weinberg, Jacobson and Lander JJ (“SZANS”); Lee & Ors v Minister for Immigration & Anor [2006] FMCA 480 at para. 28 per Driver FM; Macquarie Leasing Pty Ltd v Malek [2006] FMCA 769 at para. 23 per McInnis FM. For a discussion of the place of this Court in the hierarchy of Australian federal courts see Skipworth v State of Western Australia & Ors (No.2) [2008] FMCA 544 at paras. 35-38 per Lucev FM.
[10] Minister for Immigration and Multicultural and Indigenous Affairs [2005] FCAFC 41 SZANS at para. 38 per Weinberg, Jacobson and Lander JJ; See v Granich & Associates [2008] FMCA 27 at paras.16-18 per Lucev FM.
[11] “FM Act”.
Applicable principles – determination of a separate question
Counsel for the Third Respondent observed that there “appears to be a bit of a dearth of authority” in this Court as to the applicable principles for determination of a separate question.[12] Whilst this Court has periodically determined separate questions[13] it does not however appear to have comprehensively set out the applicable principles for determination of a separate question by this Court.
[12] Transcript, 9 May 2008, page 9.
[13] See, for example, Pascoe v Boensch & Anor (No. 2) [2007] FMCA 1409; D.C.T. v Willis [2007] FMCA 579; Constantinidis v Hatton [2006] FMCA 860.
Fortunately, the principles governing whether an order for determination of a separate question ought to be made have been conveniently and succinctly summarised in the Federal Court’s judgment in Reading Australia Pty Ltd v Australian Mutual Provident Society & Anor[14] as follows:
[14] (1999) 217 ALR 495; [1999] FCA 718 (“Reading Australia”).
“(a) the term "question" in O 29 r 1 includes any question or issue of fact or law in a proceeding. The distinction in the rule between an "issue" and a "question" is the distinction between that which, when resolved, will result in an adjudication in favour of one party or the other, being an "issue", and less decisive matters of dispute being "questions" (Landsal Pty Ltd (in liq) v REI Building Society (1993) 41 FCR 421 at 425;113 ALR 643 at 647);
(b) a question can be the subject of an order for a separate decision under O 29 r 2 even though a decision on such a question will not determine any of the parties' rights (Landsal Pty Ltd (in liq) v REI Building Society at FCR 425; ALR 647);
(c) however, the judicial determination of a question under O 29 r 2 must involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties (Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334; 161 ALR 399; [1999] HCA 9 at [45]);
(d) where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined (Jacobson v Ross [1995] 1 VR 337 at 341, referring to Nissan v Attorney-General; [1970] AC 179 at 242-3; [1969] 1 All ER 629 at 663-4 per Lord Pearson; Bass v Perpetual Trustee at [53]);
(e) care must be taken in utilising the procedure provided for in O 29 r 1 to avoid the determination of issues not "ripe" for separate and preliminary determination. An issue may not be "ripe" for separate and preliminary determination in this sense where it is simply one of two or more alternative ways in which an applicant frames its case and determination of the issue would leave significant other issues unresolved (CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 per Kirby P at 606);
(f) factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may:
(i) contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or
(ii) contribute to the settlement of the litigation (CBS Productions Pty Ltd v O'Neill per Kirby P at 607);
(g) factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may -
(i) give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial (GMB Research & Development Pty Ltd v The Commonwealth [1997] FCA 934);
(ii) result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding (GMB Research & Development Pty Ltd v The Commonwealth; Arnold v Attorney-General (Vic) (unreported, Fed C of A, Sundberg J, Nos VG 629-37 of 2995, 8 September 1995, BC 9502745) This factor will be of particular significance if the court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or
(iii) prolong rather than shorten the litigation (GMB Research & Development Pty Ltd v The Commonwealth).[15]
[15] Reading Australia ALR at 498-499 per Branson J; FCA at para. 8 per Branson J. Note the use of “litigation”, not just “hearing”, implying a consideration of the totality of the proceedings, including any appeal, and see also Tallglen Pty Ltd & Anor v Pay TV Holdings & Ors (1996) 22 ACSR 130 at 141-142 per Giles CJ in Comm (“Tallglen”).
In Reading Australia the Federal Court concluded that the making of an order is ultimately to be determined by whether it is just and convenient to do so.[16]
[16] Reading Australia ALR at 499 per Branson J; FCA at para. 9 per Branson J.
In Reading Australia the Federal Court dismissed an application for separate determination of questions of liability and damages. The Federal Court’s reasons for dismissing the application included the following:
a)the case was one where the parties had not reached agreement as to the facts and there remained important factual disputes between the parties on the issues of liability and damages required determination;[17]
b)there was “a real risk…of overlapping evidence being called on the hearing of the preliminary question and, should liability be established, at the later hearing concerning damages” with “at least one significant witness, and possibly more, whose credit may be in issue, … [possibly having] to be called at both stages of the hearing of the proceedings”;[18]
c)that relief was sought in part by way of declarations which were a form of discretionary relief in respect of which a court will ordinarily wish to be able to consider all relevant matters before determining whether any particular declaration should be made;[19]
d)relief was sought under ss.82 and 87 of the Trade Practices Act, 1974 (Cth)[20] whereby the questions as to whether a person had suffered loss or damage, or was likely to suffer, loss or damage were not necessarily able to be wholly separated;[21]
e)the almost certain result that witnesses who had given evidence on the hearing of the preliminary question would be required to give evidence again at a later stage of the proceedings, their credit already having been assessed for the purposes of determining the preliminary issue, and which was likely to “cause embarrassment, and possibly found an application for the judge who determined the preliminary question to disqualify himself or herself from continuing to hear the matter”;[22] and
f)no party suggested, and the Federal Court saw no reason to conclude, that preliminary determination of any of any question of liability would be likely to lead to a settlement of the proceeding as a whole.[23]
[17] Reading Australia ALR at 499 per Branson J; FCA at para. 10 per Branson J.
[18] Reading Australia ALR at 500 per Branson J; FCA at para. 10 per Branson J.
[19] Reading Australia ALR at 500 per Branson J; FCA at para. 11 per Branson J.
[20] “TP Act”.
[21] Reading Australia ALR at 500 per Branson J; FCA at para. 12 per Branson J.
[22] Reading Australia ALR at 500 per Branson J; FCA at para. 13 per Branson J.
[23] Reading Australia ALR at 500 per Branson J; FCA at para. 14 per Branson J.
In Orison Pty Ltd v Strategic Minerals Corporation NL & Ors[24] the Federal Court upheld an application for determination of a separate question as a preliminary issue. It did so in circumstances where:
a)there was an agreed statement of facts before the court;[25]
b)the agreed statement of facts gave rise to a narrow point to be determined as a preliminary issue, namely, whether the alleged conduct was conduct in “trade or commerce” for the purposes of s.52 of the TP Act;[26]
c)the preliminary issue was able to be dealt with “within the space of a day”;[27] and
d)the motion for a separate trial of the question was not opposed.[28]
[24] (1987) 77 ALR 141 (“Orison”).
[25] Orison at 150 per French J.
[26] Orison at 149-150 per French J.
[27] Orison at 150 per French J.
[28] Orison at 149 per French J.
In Robe River Mining Co Pty Ltd v The Commissioner of Taxation[29] the Federal Court again allowed an application for the hearing of a separate question as a preliminary issue in circumstances where there was “a preliminary issue which, subject to proper formulation, could lead to considerable saving in time and expense.”[30] In that case it was common ground that argument on the preliminary issue would take no more than two days, but that a full hearing of the matter could occupy up to two weeks.[31]
[29] Unreported, Federal Court of Australia, No. 498 of 1988, 21 April 1988, French J (“Robe River Mining”).
[30] Robe River Mining at page 5 per French J.
[31] Robe River Mining at page 3 per French J.
In TVW Enterprises Limited v Duffy[32] the Federal Court “albeit with some reservations”[33] granted an application for the hearing of a separate question. In so doing the Federal Court observed that:
a)the decision as to the hearing of a separate question was ultimately one for the court to determine, “though naturally it will have regard to the attitude of the parties”;[34]
b)in the circumstances of that case “there was consensus that the procedure might render a substantive hearing unnecessary”;[35]
c)it was “a relevant consideration to weigh the time likely to be taken in the hearing of a preliminary issue and the availability of hearing dates for that purpose against the time and expense of a substantive hearing and the length of time likely to elapse before such a hearing will take place.”[36]
[32] Unreported, Federal Court of Australia, WAG 11 of 1985, 28 March 1985, Toohey J (“TVW Enterprises”).
[33] TVW Enterprises at page 5 per Toohey J.
[34] TVW Enterprises at page 4 per Toohey J.
[35] TVW Enterprises at page 4 per Toohey J.
[36] TVW Enterprises at pages 4-5 per Toohey J.
In addition to the general principles consideration must be given to provisions of the FM Act and FMC Rules.
Section 3(2) of the FM Act provides as follows:
“The other objects of this Act are:
(a)to enable the Federal Magistrates Court to operate as informally as possible in the exercise of judicial power; and
(b)to enable the Federal Magistrates Court to use streamlined procedures; and
(c)to encourage the use of a range of appropriate dispute resolution processes.”
Section 42 of the FM Act provides as follows:
“In proceedings before it, the Federal Magistrates Court must proceed without undue formality and must endeavour to ensure that the proceedings are not protracted.”
Rule 1.03 of the FMC Rules provides as follows:
“(1)The object of these Rules is to assist the just, efficient and economical resolution of proceedings.
(2)In accordance with the objects of the Act, the Rules aim to help the Federal Magistrates Court:
· to operate as informally as possible
· to use streamlined processes
· to encourage the use of appropriate dispute resolution procedures.
(3)The Court will apply the Rules in accordance with their objects.
(4)To assist the Court, the parties must:
· avoid undue delay, expense and technicality
· consider options for primary dispute resolution as early as possible.
(5)If appropriate, the Court will help to implement primary dispute resolution.”
In Goodall v Nationwide News[37] the Court summarised the operation of ss.3 and 42 of the FM Act and r.1.03 of the FMC Rules as follows:
“Reading together the objects of the FM Act in s.3, the mode of operation in s.42, and having regard to the objects of the FMC Rules in r.1.03, it is apparent that the Court is intended to operate in a manner:
(a) as informal as possible in the exercise of judicial power;
(b) which is not protracted in its proceedings;
(c)which resolves proceedings justly, efficiently and economically;
[37] [2007] FMCA 218 (“Goodall”).
(d) uses streamlined procedures; and
(e) avoids undue delay, expense and technicality.”[38]
[38] Goodall at para. 21 per Lucev FM. Applied recently in Mansell v Centrelink [2008] FMCA 127 at paras. 33-35 per Lucev FM; Fazio v Centrelink [2008] FMCA 594 at paras. 4-5 per Lucev FM.
Section 14 of the FM Act provides as follows:
“In every matter before the Federal Magistrates Court, the Federal Magistrates Court must grant, either:
(a) absolutely; or
(b)on such terms and conditions as the Federal Magistrates Court thinks just;
all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him or her in the matter, so that, as far as possible:
(c)all matters in controversy between the parties may be completely and finally determined; and
(d)all multiplicity of proceedings concerning any of those matters may be avoided.”
Section 14 of the FM Act commands the Court to grant all proper relief, within jurisdiction and power, and to which parties are entitled, without the need for other court proceedings or a multiplicity of proceedings in this Court. The rationale for this is that:
“Justice is best served if, as far as possible, a party can obtain all the orders or relief he or she seeks in one proceeding, whether the claims are at law or in equity.”[39]
[39] DA Hassall and M Steele (Eds), Federal Magistrates Guidebook (Sydney: Thomson Law Book Co, 2000) at para. 5.510.
In Crosthwaite v National Jet Systems Pty Ltd (No.2)[40] the Court observed that:
In determining the issue, the Court has to have regard in particular to the Federal Magistrates Act 1999 (Cth) and the FederalMagistrates Court Rules 2001 (Cth). Section 14 of the FM Act provides that the Court is to determine all matters in controversy completely and finally and ensure that there is no multiplicity of proceedings. The Court also has to have regard to s.42 of the FM Act which provides that proceedings should not be unduly protracted.
In the circumstances of this case there is a certain tension between those provisions and a difficult balance between the requirement to do justice, to hear all the matters in controversy to finality, and not to be unduly protracted.[41]
[40] [2007] FMCA 1773 (“Crosthwaite (No. 2)”).
[41] Crosthwaite (No. 2) at paras. 12-13 per Lucev FM.
Similar tensions exist in part in this case and are addressed below.
Application of the principles to this case
Nature of the hearing and of the question sought to be determined
The separate question sought to be asked and determined by the Third Respondent is, in reality, a major and substantial issue in the litigation between the First and Second Respondents, and in respect of which relief is sought by reason of s.120(1) of the Bankruptcy Act.
The question sought to be determined is not in the nature of a conventional preliminary issue. What the question seeks to have determined is the totality of the right arising under s.120(1) of the Bankruptcy Act to have the transfer of the Dongara Land declared void determined in one hearing. Then if that question is not answered in a certain way (that is favourably to the First and Second Respondents), there would be a hearing of the Applicant’s case against the Third Respondent. In reality the effect would be a splitting of the hearing, not a hearing of a separate question.
The nature of the question and the resultant hearing if the Third Respondent’s Application in the Case were to be successful does not sit comfortably with the ordinary conception of a separate question. Ordinarily (but not always), such questions are heard on the basis of:
a)agreed statements of fact;
b)a narrow point to be determined; and
c)a hearing able to be conducted within a short time (or a short time relative to the total length if the hearing of the separate question were not to be dealt with).
Orison[42] is a typical example of a case in respect of which the determination of a separate question is entirely appropriate. Robe River Mining is also an example of a case where argument on the separate question, taking no more than two days, and which might ultimately be dispositive of a full hearing occupying up to two weeks, thereby saving as much as 80 per cent of possible court time for the hearing, is entirely appropriate.[43]
[42] See para. 17 above.
[43] See para. 18 above.
The Court also notes that this is not a conventional separate question in the sense that:
a)there is no agreement on the facts between the parties; and
b)not just important, but primary factual issues between the Applicants and the First and Second Respondents must be determined before the separate question can be determined.[44] Indeed, the orders sought by the Third Respondent seek that “[a]ll issues” between the Applicants and First and Second Respondents be determined before the case against the Third Respondent is to be heard.[45]
[44] Reading Australia ALR at 499 per Branson J; FCA at para. 10 per Branson J.
[45] See proposed order 1 set out at para. 1 above.
The Court must consider the length of a hearing if the separate question is not to be determined, and measure that against the time which will elapse if the separate question is heard and determined adversely to the First and Second Respondents, thus requiring a further hearing involving the Third Respondent.[46]
[46] TVW Enterprises at pages 4-5 per Toohey J
If the Court were to hear the separate question, and find for the Applicants, that finding would (on an optimistic view of remaining interlocutory steps, listing for hearing and time for delivery of a reserved judgment) be unlikely to be determined before February or March 2009. In the meantime, the proceedings against the Third Respondent would be halted. Assuming no appeal by the First and Second Respondents giving rise to an application to stay further proceedings against the Third Respondent, it would then be necessary for any further interlocutory steps to be taken in relation to the proceedings between the Applicant and the Third Respondent, for the matter to be listed for hearing, heard and determined. Again, at the most optimistic, that would not be likely to result in a judgment until at least six months from the time of the judgment and orders in respect of the First and Second Respondents, so say, August or September 2009. In any event, on the most optimistic view, there is likely to be at least a six month delay between any judgment against the First and Second Respondents (if that were to be the position) and any judgment involving the Third Respondent. The likelihood is that it is more likely to be a period of up to 12 months between those judgments.
That position is to be contrasted with the position if the proceedings are heard together against each of the First and Second Respondents and the Third Respondent. In that event, there would be no delay in judgment involving the Third Respondent, irrespective of the outcome of the proceedings between the Applicant and the First and Second Respondents.
Overall in relation to the nature of the hearing, the length of hearing and the availability and timing of hearing dates,[47] the matter can be distilled thus - is it better to have:
a)a single hearing, probably between four to seven days in length, and resulting in a determination some time within the next nine to 12 months; or
b)two separate hearings, one of probably around three to five days involving the First and Second Respondents to be determined in about nine to 12 months and a second hearing of probably around two to three days, involving the Third Respondent which would not be determined within 15 months and possibly as long as 24 months.
[47] TVW Enterprises at pages 4-5 per Toohey J.
In considering this issue the Court is cognisant that there is no dispute that if the separate question is determined in favour of the First and Second Respondents the case against the Third Respondent does not arise, and the relief sought against the Third respondent cannot be granted. That is a powerful factor in favour of the separate question being heard. It is a factor which the Court has weighed in considering these matters.
On balance, the Court is of the view that in relation to these issues justice and convenience are better served by one hearing sooner rather than two separate hearings, one sooner and one later, the latter course being one which might prolong rather than shorten the litigation.[48]
[48] Reading Australia ALR at 499 per Branson J; FCA at para. 8(g)(iii) per Branson J; TVW Enterprises at pages 4-5 per Toohey J.
Provisions of the FM Act and FMC Rules
In relation to the considerations as to the operation of this Court as summarised in Goodall the Court considers that the issue of informality does not arise in relation to this question.
The Court is intended to operate in a manner not protracted in its proceedings. Proceedings are protracted if they are lengthened, caused to last longer, or prolonged.[49] The hearing of the separate question will not contract or shorten the overall time for determination of these proceedings. If the proceedings proceed against all three Respondents they are likely to be determined in the next nine to 12 months. If the proceedings proceed first against the First and Second Respondents, and then if necessary against the Third Respondent, they are likely to be determined as against the Third Respondent in 15 to 24 months. Thus, the alternative possible effect of the hearing of the separate question will be to protract the proceedings. That is not consistent with the objects of the FM Act and FMC Rules. For similar reasons, it is not a streamlined procedure. If the case proceeds without the hearing of a separate question the proceedings will require one and not possibly two sets of interlocutory processes, one and not possibly two hearings, and one and not possibly two judgments. Thus, the determination of the separate question, if resolved in favour of the Applicant, has the effect not of streamlining proceedings, but of duplicating proceedings, particularly by way of duplicating interlocutory processes, requiring a further hearing and a further judgment. That possibility is contrary to the objects of the FM Act and FMC Rules, and s.14 of the FM Act requiring the Court to avoid multiplicity of proceedings.
[49] See definition of “protract” in The Shorter Oxford English Dictionary on Historical Principles (Oxford: Oxford University Press, 1973) (3rd Edition), page 1694.
The determination of a separate question would not necessarily resolve proceedings justly, efficiently or economically, or avoid expense. In this respect the Third Respondent argues that if the separate question were to be determined in favour of the First and Second Respondents it will be unnecessary for the Third Respondent to incur any of the expense involved in a hearing of the claims against the Third Respondent. There is no dispute about that fact. However, the reverse is also true: if the Applicant were to be successful against the First and Second Respondents in relation to the separate question then it would be put to the expense of a second substantial hearing, with all of the inefficiencies and lack of economy entailed in preparing for a second hearing of matters which might have been disposed of in one hearing. The Court recognises that if there were to be only one hearing (that is that the separate question not be determined) then the Third Respondent might be engaged in proceedings in which it is ultimately unnecessary for the Court to consider the case against it. The Court recognises that there are elements of injustice, inefficiency and lack of economy and undue expense entailed in such an outcome. It entails some of the tensions that the Court observed in Crosthwaite (No. 2): the difficult balance between the requirement to do justice, to hear all the matters in controversy to finality, and not to be unduly protracted.[50] However, it is not an outcome necessarily unusual in multi-party proceedings. Further, it is an outcome which can be cured, at least to a reasonable extent, by an award of costs.
[50] Crosthwaite (No. 2) at paras. 12-13 per Lucev FM.
Overall, the Court considers that the objects of the FMC Act and FMC Rules would be better met by a single hearing dealing with all of the issues, rather than determination of a separate question and the consequent possibility, dependent upon the outcome of the consideration of the separate question, of a further hearing.
Evidence – Witnesses and Experts
It is apparent that the evidence of Giacomo Fazio[51] will deal generally with:
a)the purchase by and transfer of the Dongara Land to the First Respondent at an alleged undervalue in or about 2001; and
b)the sale by the First Respondent of the Dongara Land to the Third Respondent, and associated negotiations and transactions, during the period of 2005 to 2007, including:
i)whether the sale was in good faith; and
ii)the nature and amount of the consideration for the sale, and in particular whether it was at market value.
[51] “Fazio”.
Even if, as was pressed by the First and Second Respondents and the Third Respondents, the issues are different and considerably apart in time, they are not wholly unrelated issues because:
a)they both relate to the same land, and the value of that land (albeit at different times/dates); and
b)they involve the actions of Fazio in relation to the purchase and later sale of that same land, and in respect of which relief is sought by the Applicants in relation to both transactions.
The above issues, insofar as they relate to Fazio will require the Court, more than likely, to make findings in relation to credibility. That would result in a principal witness, having given evidence on the hearing of the separate question, being possibly required to give evidence again at a later stage of the proceedings, in circumstances where the Court may have been required to form a view as to credibility for the purpose of determining the separate question. That has the potential to cause embarrassment, and possibly found disqualification applications in relation to the Federal Magistrate who determines the preliminary question.[52]
[52] Reading Australia ALR at 499-500 per Branson J; FCA at paras. 10 and 13 per Branson J.
If the separate question were to be heard and determined in favour of the Applicants, it is possible that a disqualification application might be made against the Federal Magistrate determining the separate question in relation to any subsequent proceedings against the Third Respondent, by reason of credibility findings which might have to be made in relation to Fazio. There is no pre-determination here: the matter is approached on the basis that it might be necessary to make findings, not that credibility findings will be made. Given the amount of time that would by then have been invested in the matter by a Federal Magistrate dealing with and hearing the preliminary question, it would be a considerable waste of judicial resources and time for another Federal Magistrate to have to become involved in the proceedings and become familiar with them. In the Court’s view that is contrary to the objects of the FM Act and FMC Rules requiring streamlined procedures and the avoidance of undue delay and expense.
It is no answer to say, as the Third Respondent argued, that courts often have to make findings as to the credibility of a witness or witnesses at various stages of proceedings, or in different proceedings, particularly, for example, in proceedings involving large corporate collapses. It does happen, but it ought to be avoided if it at all possible, and if it is just and convenient to do so.
It is preferable that if there is a common and principal witness (such as Fazio) in a proceeding, that that witness be heard once in respect of all issues in contention, with the witness’ credibility assessed only once. If that practice is adopted it precludes the possibility of a later disqualification application and the possible protraction of the proceedings by reason of such an application, and the possible necessity for another Federal Magistrate to become involved and familiar with the proceedings.
There was considerable argument in relation to the question of expert evidence in relation to these proceedings. Between the parties there is a dispute as to how the Dongara Land ought to be valued. In particular, the Third Respondent says that any valuation will be a complex valuation because:
a)the interest to be valued is an undivided one third share;
b)there are significant infrastructure development costs in relation to the land, including some unusual costs relating to possible realignment of a major highway, and
c)the Third Respondent’s agreement with the First Respondent has some unusual features, including, for example, a commitment, with a view to settling other litigation, to deliver at the direction of the First Respondent 14 unencumbered beachside lots which gives rise to significant difficulties in relation to the valuation of the Third Respondent’s interests in the Dongara Land.[53]
[53] See Transcript, 9 May 2008, at pages 11-13 where Counsel for the Third Respondent helpfully explains the nature of the Third Respondent’s dealings with the Dongara Land and the perceived valuation problems.
It appears to be the case that there will be argument not only as to the actual valuation of the Dongara Land, but as to the appropriate valuation methodology and whether different valuation methodologies might be required at different times in relation to different transactions.
If the Third Respondent’s application for determination of a separate question were to be successful it would appear that the Applicants’ expert valuer, at least, may be required to give evidence twice.
The development complexities of a presently rural beachside property near major regional and sub-regional urban centres are not to be underestimated, and in circumstances where there is likely to be a dispute between experts as to:
a)the value of the Dongara Land;
b)the value of the Dongara Land as at various relevant dates; and
c)the methodology to be adopted in valuing the Dongara Land,
the Court considers that it would be more prudent for the experts to give their evidence in one hearing, and possibly for that evidence to be taken together, after all of the factual evidence has been led, so that the range of factual assumptions possibly open on the evidence can be put to them.[54] The Court would at least then have the advantage of possibly hearing each parties’ experts in relation to all questions arising from the possible differences in view as to the appropriate valuation and valuation methodology.[55] If such a course were to be adopted by the Court it ought to preclude the prospect, graphically described in Wall, of “experts [giving evidence and being]…like ships passing in the night without knowledge of each other, proceeding on varying factual assumptions, and in some instances, without being directly engaged to respond to a contrary view expressed by other experts.”[56]
[54] See the comments in Wall v Cooper [2008] WASCA 53 at paras. 6-8 per Martin CJ (“Wall”).
[55] As to the Court’s capacity to have expert evidence put before it in this way see r.15.08 of the FMC Rules.
[56] Wall at para. 6 per Martin CJ. The analogy of ships passing in the night probably has its modern origins in Longfellow’s Tales of a Wayside Inn (Part 3: The Theologian’s Tale: Elizabeth), (1874):
The Court considers that:
a)the possibility that witnesses (particularly Fazio and the Applicants’ valuer) might have to give evidence twice in the proceedings;
b)the possibility that credibility issues might arise with respect to Fazio (and possibly other witnesses); and
c)the desirability of having all of the valuation evidence concerning the Dongara Land heard in the one hearing, and, possibly as discussed above, together,
are matters which weigh against the hearing of the separate question, and in favour of a single hearing of the proceedings.
Settlement
The Third Respondent also suggests that the determination of the separate question may lead to a settlement of the issues between the Applicant and the Third Respondent. The Third Respondent says it does not wish to litigate for no apparent purpose, and to incur the cost and expense of involvement in the proceedings between the Applicant and First and Second Respondents. The Third Respondent says that its application in relation to the determination of a separate question does not mean that it is not prepared to participate in mediation in the meantime.[57] The Third Respondent’s also says, through Counsel, that it intends to be involved in any proceedings between the Applicants and First and Second Respondents “as solicitor”.[58]
[57] Transcript, 9 May 2008, pages 14-15.
[58] Transcript, 9 May 2008, page 15.
The Third Respondent’s indications that it will:
a)participate in mediation involving the Applicant and the First and Second Respondents; and
b)be involved in any proceedings between the Applicant and First and Second Respondents as solicitor,
detract from the force of its argument that the separate question ought to be determined, and that that course is more likely to lead to a settlement of the issues. Involvement in mediation and the separate question proceedings (even if the latter is a watching brief) will entail the Third Respondent having to deal with all of the issues (otherwise there would no purpose in being involved in the mediation, or the separate question proceedings even on a watching brief basis) and entail significant expense. That might have the effect of removing much of the motivation for a settlement if the separate question is determined in a way which results in further proceedings involving the Third Respondent.
Finally, the determination of a separate question is ordinarily directed to a narrow point, the resolution of which “would be likely to lead to a settlement of the proceeding as a whole.”[59] What is proposed in these proceedings by the Third Respondent is that the Court embark on what will, in any event, be a significant hearing over a number of days involving the Applicants and the First and Second Respondents, dealing with “[a]ll issues”[60] between the Applicants and the First and Second Respondents, and which, dependent upon its resolution, might (not will) encourage the Third Respondent to settle with the Applicants.
[59] Reading Australia ALR at 500 per Branson J; FCA at para. 14 per Branson J.
[60] See proposed order 1 as set out in para. 1 above.
The Court considers that the prospects of settlement arising from the hearing of the separate question are not sufficient to warrant the separate question being heard.
Length of the litigation
For reasons set out above,[61] the hearing of separate questions in this matter will:
a)not result in a shortening of the length of hearing by a sufficient amount to warrant hearing of the separate question; and
b)has the possible effect, if the separate question is answered in favour of the Applicants, of lengthening, significantly, the overall time for determination of the litigation.
[61] See especially paras. 35 and 41 above.
This consideration does not favour the hearing of the separate question.
First and Second Respondent’s Separate Questions
The separate questions posed by the First and Second Respondents are not the subject of an application in proper form before the Court. Further, when the matter came on for argument on 9 May 2008, the First and Second Respondents did not expressly put argument in support of the separate questions which their submissions set out. Indeed, the First and Second Respondents contented themselves with supporting the submissions of the Third Respondent in support of its separate question.[62]
[62] Transcript, 9 May 2008, pages 16-17 and 28-31.
There is therefore strictly no application by the First and Second Respondents for the determination of separate questions to be dealt with by the Court. However, insofar as the First and Second Respondents’ submissions constitute an application in the case for determination of the five separate questions therein set out the Court can briefly indicate its views on those questions.
In relation to the first question it is the same separate question that the Third Respondent seeks to have the Court hear. The comments set out above[63] apply equally to the First and Second Respondents’ first separate question.
[63] See paras. 29 to 60 above.
In relation to the First and Second Respondents’ second to fifth separate questions those questions relate to the Applicants seeking relief by way of declarations that the transfer of the Bankrupts’ interests in shareholdings in the First Respondent be declared void, and that the Applicants be entitled to an order under ss.175 and 1072E of the Corporations Act, 2001 (Cth) for correction of the First Respondent’s register of members and the registration of the Applicants as the holder of the bankrupts’ interests in the shareholding in the First Respondent.
The First and Second Respondents third and fifth separate questions only arise if the Court holds that the transfer of the Bankrupts’ interests in the shareholding are void as against the Applicants under s.120(1) of the Bankruptcy Act. Thus, the factual content relevant to the second and fourth separate questions posed by the First and Second Respondents would need to be determined before the third and fifth separate questions could be answered.
Resolution of the second and fourth separate questions put by the First and Second Respondents would give rise to significant contested factual issues, in much the same way as the Third Respondent’s separate question would with respect to the transfer of the Dongara Land. Resolution of those significant contested factual issues would occupy significant amounts of Court time. Again, there would be issues of overlap in relation to evidence, particularly the evidence of Fazio. Further if the second and fourth questions were answered in favour of the Applicants a hearing in respect of the issues related to the Third Respondent would still be required. As with the Third Respondent’s separate question the resolution of the First and Second Respondents’ separate questions does not significantly, and possibly not at all, shorten the litigation, but rather gives rise to the prospect that the time for overall determination of the litigation will be increased in the same manner, and for the same reasons essentially, as are set out above.[64]
[64] See paras. 35, 37, 41 and 59 above.
In the circumstances, the above reasons are sufficient for the Court to determine that the second to fifth separate questions of the First and Second Respondents ought not be heard by the Court.
Conclusion
The Court considers that the separate questions proposed to be determined in this case are not suitable questions for determination under the r.17.02 procedure, which, as many of the cases point out, is to be exercised carefully.[65]
[65] Reading Australia ALR at 498 per Branson J; FCA at para. 8(e) per Branson J (“care must be taken in utilising the procedure”); Tallglen at 141 per Giles CJ in Comm (“carefully considered”); CBS Productions Pty Ltd v O’Neill [1985] 1 NSWLR 601 at 606 per Kirby P (“care must…be taken”).
Having considered all of the matters referred to in these Reasons for Judgment the Court does not consider it appropriate to hear and determine the proposed separate questions, nor that to do so would be just and convenient.
It follows therefore that:
a)the Third Respondent’s Application in the Case for the determination of a separate question as a preliminary issue; and
b)in so far as the First and Second Respondents Submissions in Relation to the Third Respondent’s Application in the Case constitute an Application in the Case for determination of the five separate questions therein set out,
that those applications must be dismissed.
The Court will hear the parties as to costs.
I certify that the preceding seventy-one (71) paragraphs are a true copy of the reasons for judgment of Lucev FM
Acting Associate: S. Gough
Date: 6 June 2008
“Ships that pass in the night, and speak each other in passing;
Only a signal shown and a distant voice in the darkness;
So on the ocean of life we pass and speak one another,
Only a look and a voice; then darkness again and a silence.”
See R. Allen, Allen’s Dictionary of English Phrases (London: Penguin Books Ltd, 2006), page 652.
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