IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 8024 of 1997 BETWEEN: MIDORI INTERNATIONAL PTY LIMITED First Applicant MONA PROJECTS PTY LIMITED Second Applicant K J MITCHELL HOLDINGS PTY LIMITED Third Applicant KEITH JAMES MITCHELL Fourth Applicant AND: MAXWELL WILLIAM PRENTICE (trustee of the property of raymond alan mitchell, a bankrupt) respondent JUDGE: SACKVILLE J DATE: 15 December 1998 PLACE: SYDNEY REASONS FOR JUDGMENT On 3 July 1999, the respondent (the "Trustee") filed a motion seeking leave to file a cross-claim in the proceedings in terms of a draft attached to the motion. The Trustee was appointed trustee of the estate of Raymond Alan Mitchell (the "bankrupt") on 23 August 1996. A hearing of the Trustee's application took place on 16 November 1998. At that time, I suggested that some issues raised by the draft cross-claim could appropriately be heard together with the applicants' claims, but that other claims might best be dealt with separately. I further noted that, in the absence of pleadings it was difficult to identify clearly the issues requiring determination. The upshot of the hearing held on the 6 November 1998 was that the motion was stood over until today, and that directions were made for the filing of pleadings in the proceedings. The Trustee was also directed to file a further version of the draft cross-claim prior to today's hearing. The Trustee has now filed two proposed cross-claims. The first seeks relief against five named proposed cross-respondents. These are Midori International Pty Limited ("Midori") (the first applicant), Peter Tsu, GRT Berglund, Barry Davies and the bankrupt. The second proposed cross-claim seeks orders against Mona Projects Pty Limited ("Mona"), which at one stage was an applicant in these proceedings, but whose claim was dismissed in April 1998. The proposed second cross-claim pleads a case for the recovery of approximately $2.8 million from Mona. The principal proceedings were commenced on 1 September 1997. The applicants (at that stage numbering four) sought various forms of relief. These included orders for the return of a number of items seized by the Trustee on 23 June 1997, in the course of the execution of a warrant issued under s 130 of the Bankruptcy Act 1966 (Cth). Subsequently, apparently without resistance from the applicants, the items were sold at auction and realised gross proceeds in the order of $481,000. The position at the commencement of today's hearing was that three applicants remained as parties to the proceedings, the claim by Mona having been dismissed. The remaining applicants, are as these: · Midori, which apparently engaged the services of the bankrupt as a consultant; · K J Mitchell (Holdings) Pty Ltd ("KJM"); and · K J Mitchell, the bankrupt's brother. Mr Monteith, who appeared for KJM and K J Mitchell today, now seeks leave to discontinue the proceedings on behalf of KJM. If this application is granted, only Midori and K J Mitchell will remain as applicants. Midori, in compliance with the direction for pleadings, has filed a statement of claim in support of its claim for damages in conversion against the Trustee. K J Mitchell likewise has filed a statement of claim in support of his claim against the Trustee for damages for conversion. Each statement of claim relates to a distinct group of chattels. Midori pleads that it acquired chattels identified in its statement of claim by reason of a deed dated 31 January 1994, made between it and the bankrupt. K J Mitchell pleads that he obtained title to the chattels identified in his statement by way of purchase or gift. Both Midori and K J Mitchell allege that the Trustee converted the relevant chattels by seizing them on 23 June 1997. On 21 April 1998, the Trustee foreshadowed his intention to seek leave to file a cross-claim. Since then, the Trustee has been responsible for repeated failures to comply with timetables set by the Court, a state of affairs I have previously described as "lamentable". I see no reason to resile from that description. Be that as it may, the Trustee's current poposed cross-claims plead claims for relief with greater particularity than the version of the cross-claim annexed to his notice of motion. The first proposed cross-claim, inter alia, impugns Midori's title to the chattels it claims were converted by the Trustee. The Trustee alleges that the deed of 31 January 1994 was wholly ineffective as against itself for a variety of reasons it is unnecessary to enumerate. The first proposed cross-claim also seeks to make out a case that, at all relevant times, the shares in Midori were held by the shareholders on trust for the bankrupt. It would seem that there will be no particular difficulty facing the Trustee in effecting service in Australia on Midori, Mr Tsu and Mr Berglund. There may be some difficulty in serving Mr Davies, who appears to be resident in the United Kingdom. Mr Davies has been advised of the intention to join him as a cross-respondent, but thus far has not sought to appear in the proceedings. The reason that the Trustee wishes to join Mr Davies as a party to the first proposed cross-claim, as Mr Johnson explained, is that the evidence suggests that (despite the Trustee's claims), one share in Midori may have been held on trust for Mr Davies. Assuming the Trustee's claim is successful, he wishes to obtain orders binding on Mr Davies. The second proposed cross-claim is pleaded in a straightforward manner. In substance, it alleges that the bankrupt paid, or caused to be paid, by way of loan advance or deposit to Midori, sums totalling approximately $2.8 million. It is alleged that these monies were the property of the bankrupt, and had vested in the Trustee. Other evidence adduced at the hearing of the Trustee's motion, however, suggests that the Trustee's claim may give rise to complex questions, depending on what defences, if any, are relied upon by Midori. As I have indicated, there was some discussion at the hearing on 16 November 1998 as to whether the proposed cross-claims should be heard together with the applicants' claims in conversion. The view I expressed at that time, and to which I adhere, is that those issues that are closely related to the applicants' claims should be dealt with together, unless there is some particular reason why they should be heard separately. The first proposed cross-claim seems to me to raise issues that are inextricably interlinked with the claims pleaded by Midori and by K.J. Mitchell. It therefore seems to me appropriate that the Trustee be granted leave to file the proposed first cross-claim. It is, of course, true that this will involve the joinder of three parties who are not presently involved in the litigation, namely Mr Tsu, Mr Berglund, and Mr Davies. Nonetheless, it seems clear enough, having regard to the issues that have been raised on the pleadings, that all three are proper parties to the Trustee's claim for relief. At this stage, it is not necessary to determine whether the first proposed cross-claim will actually be heard together with the applicants' claim in conversion. However, that would seem to be the most likely course. The second proposed cross-claim raises issues that are not as closely linked to the applicants' claims as pleaded by them. I think the appropriate course is to grant leave to the Trustee to file the second proposed cross-claim, joining Mona as a cross-respondent. That leave, however, should not be taken to imply that the second proposed cross-claim will necessarily be heard at the same time as the rest of the proceedings. Whether that turns out to be the case or not will depend inter alia, upon the issues raised by the defence and the extent to which a hearing of the second proposed cross-claim would add materially to the hearing time. The following orders should be made: (1) Grant leave to the Trustee to amend the notice of motion filed on 3 July 1998 to seek leave to file cross-claims in terms of the first proposed cross-claim and second proposed cross-claim initialled by me and placed with the papers. (2) Grant leave to the Trustee to file the first proposed cross-claim, including the pleading, in the form initialled by me and dated and placed with the papers. (3) Grant leave to the Trustee to file the second proposed cross-claim, including the pleading, in the form initialled by me and dated and placed with the papers. (4) Grant leave, to the extent that it is required, to the Trustee to file a defence to the first applicant's statement of claim. (5) Grant leave, to the extent that leave is required, to the Trustee to file a defence to the fourth applicant's statement of claim. (6) Without prejudice to the question of costs, grant leave to the third applicant to discontinue all the claims brought by it in the proceedings and, in connection therewith, grant leave to the third applicant to file a notice of discontinuance in Court. Costs I shall now deal with the question of costs in relation to the Trustee's motion. Mr Newlinds and Mr Monteith, on behalf of Midori and K.J. Mitchell respectively, seek costs of the motion and any costs thrown away by the orders made today. Mr Johnson, on behalf of the Trustee, says that at least some of the costs of the motion ought to be costs in the cause. He does, however, acknowledge that there have been delays and other procedural difficulties associated with the conduct of the motion and that these can be laid at the door of the Trustee. In my view, having regard to the delays and procedural difficulties attributable to the Trustee and having regard to the change in the Trustee's position so far as the pleadings are concerned, the appropriate course is that the Trustee should pay the costs of Midori and of K.J. Mitchell in connection with the motion filed on 3 July 1998, as amended today. I direct that these costs include the costs of today and of the hearing of 16 November 1998. I also direct that the Trustee pay the costs of Midori and K.J. Mitchell thrown away by reason of the orders made today. I now turn to the costs of the third applicant's application for leave to discontinue the proceedings. The usual course is that an applicant discontinuing the proceedings pays the costs of the respondent. However, it is necessary to take into account costs orders already made in the proceedings. On 5 September 1997, Lehane J ordered that the applicants (including the third applicant) pay certain of the Trustee's costs relating to an unsuccessful claim for interlocutory relief. Subsequently, certain costs orders were made in favour of the third applicant against the Trustee. The Trustee should retain the benefit of Lehane J's costs order of 5 September 1997. Bearing in mind the unfortunate procedural history of the case (for which the Trustee must bear primary responsibility) and the fact that the involvement of the third applicant in the proceedings has not significantly added to the costs, I think that, as between the third applicant and the Trustee, the appropriate orders are as follows: (7) Vacate any costs orders made against the Trustee in favour of the third applicant. (8) Subject to the costs order made by Lehane J on 5 September 1997, order the third applicant and the Trustee to pay its or his own costs of the proceedings. Further Conduct of the Proceedings In relation to the further conduct of the proceedings, I make the following orders: 9) Direct Midori and K J Mitchell to file their replies, if any, on or before 29 January 1999. 10) Direct Midori to file its defence to the first cross-claim on or before 29 January 1999. 11) Adjourn the proceedings to 11 February 1999 for further directions. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville Associate: Dated: 15 December 1998 Counsel for the First Applicant: Mr C R Newlinds Solicitor for the First Applicant: Kemp Strang Counsel for the Third and Fourth Applicants: Mr R B Monteith Solicitor for the Third and Fourth Applicants Harris Hyde Page Counsel for the Respondent: Mr G Johnson Solicitor for the Respondent: Sally Nash & Co. Date of Hearing: 15 December 1998 Date of Judgment: 15 December 1998