FEDERAL COURT OF AUSTRALIA PRACTICE & PROCEDURE -— parties — whether assignor of equitable interest is a necessary party to a proceeding by the assignee to enforce that interest — if assignor is a dissolved company must it be reinstated and joined as a party — whether it is sufficient to join Australian Securities and Investments Commission as-a party Corporations Law: ss 574(4), 576(1), 578, Banque Internationale de Commerce de Petrograd v Goukassow [1923] 2 KB 682 mentioned Chief Commissioner of Stamp Duties v Buckle (1998) 72 ALJR 243 mentioned Cockburn v Thompson (1809) 33 ER 1005 mentioned Durham Brothers v Robertson [1898] 1 QB 765 mentioned Fulham v McCarthy (1848) 9 ER 937 mentioned Hewett v Court (1982-1983) 149 CLR 639 mentioned In re Harrison [1891] 2 Ch 349 mentioned Kendall v Hamilton (1879) 4 App.Cas. 504 mentioned Knight v Knight (1734) 24 ER 1088 mentioned Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 mentioned Powell v Wright (1844) 49 ER 1137 mentioned R.W.G. Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 mentioned Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84 mentioned Roberts v Holland [1893] 1 QB 665 mentioned Robinson v Geisel [1894] 2 QB 685 mentioned Russian and English Bank v Baring Bros & Co Ltd [1936] AC 405 mentioned Seventeenth Canute Pty Ltd v Bradley Air Conditioning Pty Ltd (in liq) (1986) 11 ACLR 193 mentioned Simmons v Liberal Opinion Ltd [1911] 1 KB 966 mentioned Taylor v Sanders [1937] VLR 62 discussed United Service Insurance Co Ltd v Lang 35 SR (NSW) 487 mentioned Wallworth v Holt (1840-1841) 41 ER 238 mentioned Werderman v Societe Generale d'Electricite (1880) 19 ChD 246 mentioned Wilson Sons &Co Ltd v Balcarres Brook Steamship Co Ltd [1893] 1 QB 422 mentioned. HOLLI MANAGED INVESTMENTS PTY LTD v AUSTRALIAN SECURITIES COMMISSION and NAJEE PTY LTD VG 3198 of 1998 FINKELSTEIN J MELBOURNE 2 OCTOBER 1998 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3198 of 1998 BETWEEN: HOLLI MANAGED INVESTMENTS PTY LTD Applicant AND: AUSTRALIAN SECURITIES COMMISSION and NAJEE PTY LTD Respondents JUDGE: FINKELSTEIN J DATE OF ORDER: 2 OCTOBER 1998 WHERE MADE: MELBOURNE THE COURT ORDERS: 1. That pursuant to Order 29 rule 2 of the Federal Court Rules there be decided separately the following question of law: "Does the applicant, as the assignee of the debenture charge granted by Imam Nominees Pty Ltd to the Australia & New Zealand Banking Group Ltd dated 6 February 1980, have the right to bring and maintain proceedings against the second respondent as the trustee of the N Imam Family Trust to enforce the right of indemnity that Imam Nominees Pty Ltd had as trustee of the N Imam Family Trust over the assets of that trust without the need to reinstate Imam Nominees Pty Ltd to the register?" 2. That the question reserved be answered: " Yes". 3. That the applicant pay the second respondent's costs of and incidental to this application insofar as those costs relate to the determination of the question reserved. Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3198 of 1998 BETWEEN: HOLLI MANAGED INVESTMENTS PTY LTD Applicant AND: AUSTRALIAN SECURITIES COMMISSION and NAJEE PTY LTD Respondents JUDGE: FINKELSTEIN J DATE OF ORDER: 2 OCTOBER 1998 WHERE MADE: MELBOURNE REASONS FOR JUDGMENT HIS HONOUR: This application raises a short and interesting but largely dry point of law concerning the proper parties to a proposed action. The matter arises in the following way. Imam Nominees Pty Ltd (Imam Nominees) was the trustee of the N. Imam Family Trust (the trust). In its capacity as trustee of the trust, Imam Nominees borrowed in excess of $10 million from the Australia and New Zealand Banking Group Limited (ANZ). The repayment of the loan was secured by a charge on all of the property, business and undertaking of Imam Nominees. Imam Nominees defaulted in its obligations to ANZ and the bank appointed a receiver to take possession of the company's assets. The receiver realised those assets that could be discovered and paid the net proceeds of sale to ANZ. This left a balance of approximately $7.5 million owing to the bank. ANZ then applied for an order that Imam Nominees be wound up in insolvency. The winding-up order was made on 26 July 1993. In the meantime Imam Nominees had been replaced as trustee of the trust by Najee Pty Ltd (Najee). On 8 May 1995 ANZ assigned to the applicant, Holli Managed Investments Pty Ltd (Holli), the balance of the debt that was due to it by Imam Nominees (the amount of the debt was then said to be $12,640,012.42) together with all of ANZ's interest under the charge. The -2- liquidator was given notice of the assignments. According to his accounts the liquidator realised an amount of $61,394.66 upon the sale of the assets of Imam Nominees. After deducting the costs and expenses of the liquidation, the liquidator had available $30 000 to be distributed amongst the creditors of Imam Nominees. Holli was the only creditor of the company and the liquidator paid this amount to Holli by making the payment at its direction. The liquidator then filed his final accounts on 3 June 1996 and on 8 November 1996 the Australian Securities Commission (ASC) cancelled the registration of Imam Nominees, apparently pursuant to s 574(1) of the Corporations Law, whereupon the company was dissolved. Holli now applies under s 574(3) to reinstate the registration of Imam Nominees. That sub- section empowers the court to order the reinstatement of a company whose registration has been cancelled 'if satisfied that the company was, at the time of the cancellation, carrying on business or in operation or otherwise satisfied that it is just that the registration of the company be reinstated": as a consequence of amendments to the Corporations Law that came into effect on 1 July 1998 see now s 601AH(2). Two reasons are put forward as to why the order should be made. The first is based upon the following propositions none of which are challenged for the purposes of this application. When Imam Nominees incurred its debt to ANZ it was entitled to be indemnified out of the assets of the trust in respect of that debt: R.W.G. Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 at 394-395. That entitlement constitutes a proprietary interest in the property of the trust: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; Chief Commissioner of Stamp Duties v Buckle (1998) 72 ALJR 243 at 252. The right of indemnity was included in the property that was charged to ANZ pursuant to the charge granted by Imam Nominees and formed part of the property that was assigned to Holli. Holli believes that the trust still holds assets in respect of which the right of indemnity can be exercised. It proposes to commence an action to enforce the indemnity presumably by seeking an order for the sale of the trust assets with a direction that the proceeds of sale be applied in satisfaction of the indemnity: see Hewett v Court (1982-1983) 149 CLR 639 at -3- 663. Holli says that in such an action it will be necessary to join Imam Nominees as a party and this is the first reason why it is said that the company should be reinstated. The second reason why the order is sought is that if Imam Nominees is reinstated Holli will be able to appoint a receiver who will have power to inquire whether, among other things, it is appropriate to commence the proceeding. The second respondent, the new trustee of the trust, opposes the making of the order. It puts forward a number of grounds of opposition one of which is that the reinstatement is not being pursued for the reasons stated by Holli. It says that the principal reason why the order is sought is that Holli wishes to take advantage of the accumulated tax losses of the trust. At a preliminary hearing I raised the question whether it was truly necessary for Holli to join Imam Nominees as a party to the proceeding it proposes to bring against Najee, in its capacity as trustee of the trust, to enforce the indemnity that originally vested in Imam Nominees. The parties then requested, pursuant to O 29 r 2 of the Federal Court Rules, that this issue be determined as a preliminary question. The form of the question was not agreed. Holli proposed the following question: "It is necessary or desirable that the applicant, as the assignee of the debenture charge granted by Imam Nominees Pty Ltd to the Australia and New Zealand Banking Group Ltd dated 6 February 1980, seek to reinstate the registration of Imam Nominees Pty Ltd prior to bringing and maintaining proceedings against Najee Pty Ltd as the trustee of the N Imam Family Trust to enforce the right of indemnity that Imam Nominees Pty Ltd had as trustee of the N Imam Family Trust over the assets of that trust?" Najee suggested that the question should be: "Does the applicant, as the assignee of the debenture charge granted by Imam Nominees Pty Ltd to the Australia & New Zealand Banking Group Ltd dated 6 February 1980, have the right to bring and maintain proceedings against Najee Pty Ltd as the trustee of the N Imam Family Trust to enforce the right of indemnity that Imam Nominees Pty Ltd had as trustee of the N Imam Family Trust over the assets of that trust without the need to reinstate Imam Nominees Pty Ltd to the register?" The two formulations of the question differ in this respect. The question posed by Najee asks whether it is necessary to join Imam Nominees as a party to the proposed proceeding whereas Holli asks whether it is either necessary or desirable to do so. In my view the only question that requires determination at this time is whether Imam Nominees must be joined as a party to the proposed proceeding. It is either a necessary party or it is not. Whether it is -4- "desirable" for it to be a party is not a relevant issue. Accordingly, the question that I will determine is that proffered by Najee. The right that Holli seeks to enforce is a right conferred by equity. In determining who were proper parties to a suit courts of equity proceeded on the basis that they would "do complete justice and not by halves" (Knight v Knight (1734) 24 ER 1088 at 1089 that is by settling the rights of all persons interested in the subject of the suit. Hence there developed "the strict rule ... that all persons materially interested in the subject of the suit, however numerous, ought to be parties": Cockburn v Thompson (1809) 33 ER 1005 at 1007; Redesdale on Pleadings (1827) at 164; Daniell's Chancery Practice (1914) (8th ed) vol 1 at 147. Strict adherence to the rule was in many cases difficult and often caused injustice. In Wallworth v Holt (1840-1841) 41 ER 238 at 244 Lord Cottenham said: "[A]s I have said upon other occasions, I think it the duty of this court to adapt its practice and course of proceeding to the existing state of society, and not by too strict an adherence to forms and rules established under different circumstances to decline to administer justice, and to enforce rights for which there is no other remedy. This has always been the principle of this court, though not at all times sufficiently attended to." See.also Powell v Wright (1844) 49 ER 1137 at 1139-1140 per Lord Langdale. Accordingly, it became the practice of courts of equity to recognise certain exceptions to the general rule. One exception was the acceptance in cases where the law had furnished a representative of the interest in question that it would be sufficient if the representative was the party. For example, an executor or administrator was permitted to represent the personal ° estate, a bankrupt could be represented by his assignors and the Attorney-General was permitted to represent the public interest. Courts of equity also permitted a suit to be instituted or defended by a plaintiff or defendant on behalf of himself and others. In Cockburn v Thompson, supra, at 1007 Lord Eldon explained: "The strict rule is, that all persons, materially interested in the subject of the suit, however numerous, ought to be parties, that there may be a complete Decree between all parties, having material interests: but that, being a general rule, established for the convenient administration of justice, must not be adhered to in cases to which, consistently with practical convenience, it is incapable of application. -5- In the familiar cases of creditors, suing on behalf of themselves and all others, what an infinite number of valuable interests may be bound, in a sense not absolutely; as, where the Court for convenience dispenses with the presence of parties, the principle leads it by future arrangement to find out the means of giving them an opportunity in some shape of coming in." The court also relaxed the rule to enable the person entitled to the first indefeasible estate of inheritance to represent all persons entitled to subsequent estates and, in the case where there was no person in existence entitled to an estate of inheritance, it was sufficient for the existing life tenants to be made the only parties. In addition, an assignee pendente lite was not required to be made a party because he was bound by the proceedings. Sometimes the court accepted an undertaking by a party on the record that an absent person would be bound by a decree as for example where a beneficiary, who was a party, undertook that his trustee would be bound. Further, a person who would merely be a formal party, or whose interest was very small, or who was absent from the jurisdiction, or who would suffer no damage because of his absence, was not required to be joined: see generally F. Calvert "A Treatise upon the Law Respecting Parties to Suits in Equity" (1847) (2nd ed) esp chs 2 to 5; see also Daniel's Chancery Practice at 147ff; see also Grant's Chancery Practice (1845) (Sth ed) vol 1, ch 15. As regards an equitable assignee of an equitable interest in property, as in this case, the principles regulating the parties to a proceeding were not in doubt... When there was an absolute assignment of the equitable interest the assignee alone was regarded by a court of equity as having an interest in the property and hence was the only proper plaintiff: Fulham v McCarthy (1848) 9 ER 937 at 943-944; Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84 at 95; Calvert at 316. But where the assignor retained any interest in the property he was required to be made a party to the action. So, in Durham Brothers v Robertson [1898] 1 QB 765 at 769-770 Chitty LJ said in relation to an equitable assignment of a chose in action: "As is well known, an ordinary debt or chose in action before the Judicature Act was not assignable so as to pass the right of action at law, but it was assignable so as to pass the right to sue in equity. In his suit in equity the assignee of a debt, even where the assignment was absolute on the face of it, had to make his assignor, the original creditor, party in order primarily to bind him and prevent his suing at law, and also to allow him to dispute the assignment if he thought fit. This was a fortiori the case where the assignment was by way of security, or by way of charge only, because the assignor had a right to redeem. Further, the assignee could not give a valid -6- discharge for the debt to the original debtor unless expressly empowered to do so. The original debtor, whether he admitted the debt or not, was not concerned with the state of the accounts between the assignor and the assignee where the debt was assigned by way of security; and the rule was that where he did not dispute the debt he should have his costs of suit out of the debt: he was regarded in the light of a stakeholder." In proceedings in equity a failure to bring all proper parties before the court was fatal; the action would stand dismissed. The Judicature Act 1873 (UK) abolished pleas in abatement by giving the court large powers as to the joinder of parties; see Werderman v Societe Generale d'Electricite (1880) 19 ChD 246; in the Federal Court see O 6 r 8. These powers did not alter the principles with regard to proper parties and a defendant who wished to have all proper parties before the court could apply for their joinder or insist that the plaintiff make such an application: Kendall v Hamilton (1879) 4 App.Cas. 504 at 516; Wilson Sons &Co Lid v Balcarres Brook Steamship Co Ltd [1893] 1 QB 422 at 427. However, if no point was taken concerning absent parties, or if it was not taken in a timely fashion, the court could proceed to judgment: Jn re Harrison [1891] 2 Ch 349. And in all cases it seems that the court retained a discretion not to require joinder if to do so would cause injustice; Wilson v Balcarres, supra, at 427; Roberts v Holland [1893] 1 QB 665; Robinson v Geisel [1894] 2 QB 685. According to these principles in the action which Holli proposes to commence against Najee it would ordinarily be necessary for Holli to join Imam Nominees as a party. However, Imam Nominees has been dissolved and the effect of that dissolution is that the company no longer exists (United Service Insurance Co Ltd v Lang 35 SR (NSW) 487: see now s 601AD(1)) and a non existent person cannot sue (Banque Internationale de Commerce de Petrograd v Goukassow [1923] 2 KB 682 at 691) and it cannot be made a defendant to an action (Simmons v Liberal Opinion Ltd [1911] 1 KB 966). Does this mean that Holli must reinstate Imam Nominees so that it can be joined as a party in order to maintain its proposed suit? In my view that question should be answered negatively for the reasons that follow. Upon dissolution "the estate and interest in the property, at law or in equity, of the company or its liquidator at the time when the company was dissolved, together with all claims, rights and remedies that the company or its liquidator then had in respect of the property vests by -7- force of this section in the [Australian Securities] Commission": s 576(1); see. now s 601AD(2). Thus the property constituted by the right of indemnity vested in the ASC (now known as the Australian Securities and Investments Commission (ASIC); see s 5(1) of the Australian Securities Commission Act 1989 (Cth) as amended by the Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 (Cth)) subject to the rights affecting that property by reason of the charge granted to ANZ: see s 578 and now s 601AE(3). I do not doubt that in the proposed action Holli would be required to join ASIC as a party. In law ASIC has the right to redeem the charge and it may, and I only mention this as a possibility, wish to challenge the existence or the amount of the debit or security claimed by Holli: see s 576(1) and now s 601AD(4). Thus it must be made a party in order that its interest may be bound: compare Interstate Investment Company Ltd v Mobbs (1929) 45 WN (NSW) 176. However, I do not accede to the proposition that it is not sufficient that ASIC be made a party but that Imam Nominees must be reinstated and made a party in lieu of ASIC. For all relevant purposes, both at law and in equity, ASIC now stands in the shoes of Imam Nominees. Its interest is coincident in all respects with that of Imam Nominees before it was dissolved. Provided ASIC is a party all persons materially interested in the subject of the proposed suit will be before the court. That is to say, while Imam Nominees remains a dissolved company, no person other than the proposed plaintiff, the trustee who will represent the interests of the beneficiaries of the trust and ASIC has any interest in the right of indemnity. If in the future Imam Nominees is reinstated for one reason or another and property presently vested in ASIC is transmitted to it (see s 574(4) and now s 601AH(5)) its interest in the right of indemnity will be affected by any order that the court makes. There being no other basis for the contention that Imam Nominees is a necessary party that must be reinstated for the purpose of being joined in the proposed suit the question: "Does the applicant, as the assignee of the debenture charge granted by Imam Nominees Pty Ltd to the Australia & New Zealand Banking Group Ltd dated 6 February 1980, have the right to bring and maintain proceedings against Najee Pty Ltd as the trustee of the N Imam Family Trust to enforce the right of indemnity that Imam Nominees Pty Ltd had as trustee of the N Imam Family Trust over the assets of that trust without the need to reinstate Imam Nominees Pty Ltd to the register?" will be answered: "Yes". I have strictly confined these reasons to the question raised. Thus I have not considered other -8- issues which might bear upon the utility of the application to reinstate Imam Nominees such as whether the extinguishment of the liabilities of Imam Nominees upon its dissolution (see Russian and English Bank v Baring Bros & Co Ltd [1936] AC 405 at 427) has also extinguished the right of indemnity (a point left open by the Full Court in Taylor v Sanders [1937] VLR 62). Nor have I considered whether Holli, which had apparently filed a proof of debt in respect of the assigned debt, had thereby waived the security conferred by the charge and had become an unsecured creditor of Imam Nominees (see e.g. Seventeenth Canute Pty Ltd v Bradley Air Conditioning Pty Lid (in liq) (1986) 11 ACLR 193). I mention these matters lest it be thought that they have been overlooked. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein 'Associate: : 7 Dated: 2 October 1998 Counsel for the Applicant: Dr IJ Hardingham QC Mr IG Waller Solicitor for the Applicant: Clayton Utz Counsel for the First Respondent No appearance Solicitor for the First Counsel Litigation Respondent Australian Securities and Investments Commission Counsel for the Second Mr JE Middleton QC Respondent: Mr N Lucarelli Solicitor for the Second Gadens Lawyers Respondent: Date of Hearing: 18 September 1998 Date of Judgment: 2 October 1998