FEDERAL COURT OF AUSTRALIA Prentice v Cummins [2002] FCA 1165 BANKRUPTCY – application to amend pleadings in case brought by trustee in bankruptcy against third party to seek relief against bankrupt – whether application should be granted. Bankruptcy Act 1966 (Cth), ss 77, 81, 255(2) Corporations Act 2001 (Cth), s 1072C Corporations Law, s 1091A Financial Services Reform Act 2001 (Cth), s 3, Sched 1 Federal Court Rules ("FCR"), O 6 r 9 Prentice v Cummins [2002] FCA 1140, referred to. News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, cited. MAXWELL WILLIAM PRENTICE & ANOR (together the Trustees of the property of John Daniel Cummins, a Bankrupt) v JOHN DANIEL CUMMINS & ORS N 7481 of 2001 SACKVILLE J SYDNEY 19 SEPTEMBER 2002 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7481 OF 2001 BETWEEN: MAXWELL WILLIAM PRENTICE FIRST APPLICANT MARK JULIAN ROBINSON SECOND APPLICANT (together the Trustees of the Property of John Daniel Cummins, a Bankrupt) AND: JOHN DANIEL CUMMINS FIRST RESPONDENT MARY ELIZABETH CUMMINS SECOND RESPONDENT AYMCOPIC PTY LIMITED THIRD RESPONDENT HOSPITALITY HIRE PTY LIMITED FOURTH RESPONDENT JUDGE: SACKVILLE J DATE OF ORDER: 19 SEPTEMBER 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion filed by the applicants on 13 September 2002 ("the motion to amend") be dismissed. 2. Pursuant to Federal Court Rules, O 6 r 9, the first respondent cease to be a party to the proceedings. 3. The applicants pay the second, third and fourth respondents' costs of the motion filed by the second, third and fourth respondents on 9 September 2002. 4. The applicants pay the second, third and fourth respondents' costs of the motion to amend. 5. The applicants pay the costs incurred in the proceedings by the first respondent on and after 13 September 2002. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7481 OF 2001 BETWEEN: MAXWELL WILLIAM PRENTICE FIRST APPLICANT MARK JULIAN ROBINSON SECOND APPLICANT (together the Trustees of the Property of John Daniel Cummins, a Bankrupt) AND: JOHN DANIEL CUMMINS FIRST RESPONDENT MARY ELIZABETH CUMMINS SECOND RESPONDENT AYMCOPIC PTY LIMITED THIRD RESPONDENT HOSPITALITY HIRE PTY LIMITED FOURTH RESPONDENT JUDGE: SACKVILLE J DATE: 19 SEPTEMBER 2002 PLACE: SYDNEY REASONS FOR JUDGMENT 1 In a judgment delivered on 13 September 2002, I stood over the motion by the second to fourth respondents ("the Cummins parties") seeking an order that the first respondent ("the Bankrupt") cease to be a party to the proceedings: Prentice v Cummins [2002] FCA 1140 (the "first judgment"). I indicated in the judgment that, but for one matter raised by Mr Coles, senior counsel for the applicants ("the Trustees"), I would have granted the relief sought by the Cummins parties in the motion. I expressed the view that the Bankrupt should cease to be a party because, on the existing pleadings, he had been "unnecessarily joined" to the proceedings, within the meaning of Federal Court Rules ("FCR") O 6 r 9. 2 The matter to which I referred was that Mr Coles foreshadowed an application to amend the current pleadings in order to seek an order against the Bankrupt himself. I stood the motion over against the possibility that the foreshadowed application might be successful. If the pleadings were amended in the manner foreshadowed by Mr Coles, I thought it appropriate that the Trustees should have the opportunity to argue, if so advised, that the additional order sought by the Trustees would affect the rights of the Bankrupt in the sense discussed by the Full Court in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, at 524-525. If such an argument were made and succeeded, the result would be that the Bankrupt would be a necessary party to the proceedings and should therefore remain a party. 3 Following delivery of the first judgment, the Trustees filed a motion seeking leave to further amend the pleadings to add the following claim in the prayer for relief: "(10A)an order that Mr Cummins execute all documents and do all necessary things to assist the Trustee to procure the registration of the Shareholding in Hospitality Hire [Pty Ltd] in the name of the Trustee". 4 The Trustees' motion was the subject of brief argument shortly after the trial commenced. At that time, I dismissed the motion and also made formal orders granting the Cummins parties the relief sought in their motion. These are my reasons for adopting that course. 5 The Trustees' argument assumed that the Bankrupt may be required to execute documents in order to assist the Trustees to procure registration of the share in Hospitality Hire Pty Ltd ("Hospitality") of which the Bankrupt is presently registered as proprietor. Of course the question of registration of the Trustees as proprietors of the share only arises if I ultimately find that the Bankrupt held the beneficial interest in the share immediately prior to his bankruptcy; if he held the share in trust for the second respondent (Mrs Cummins), as the Cummins parties contend, the Trustees are not entitled to become registered as the proprietors of the share. 6 Accepting for the moment the assumption underlying the Trustees' argument, it must be remembered that s 77 of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act") imposes a number of duties upon a bankrupt, unless excused by the trustee or prevented by illness or other sufficient cause. The bankrupt is required, relevantly, to: "(e) execute such instruments and generally do all such acts and things in relation to his or her property and its realization as are required by this Act or by the trustee or as are ordered by the Court upon the application of the trustee; …; and (g) aid to the utmost of his or her power in the administration of his or her estate." If the registration of the Trustees as proprietors of the share in Hospitality depends upon the Bankrupt executing any documents, s 77(e), either alone or in combination with s 77(g), obliges the Bankrupt to do so. Relief of the kind identified in the Trustees' motion is simply unnecessary to ensure that the Trustees obtain registration as proprietors of the share. An order in the form of proposed par 10A would impose duties on the Bankrupt co-extensive with those to which he would be subject in any event. 7 In any event, it is difficult to see why the Trustees require the assistance of the Bankrupt to procure registration as proprietors of the share in Hospitality (assuming that the Trustees ultimately make out their case). Section 1072C of the Corporations Act 2001 (Cth) ("Corporations Act") gives a trustee in bankruptcy the same rights to transfer a share vested in the trustee and to require a person to give a consent in connection with registering a transfer of the share as the bankrupt would have if he or she were not a bankrupt: s 1072(3). Moreover, a person or body whose consent or approval is required for a transfer of the share must not unreasonably withhold such consent or approval, notwithstanding anything to the contrary in the company's constitution: s 1072(5), (7), (9). (Section 1072C was introduced into the Corporations Act by the Financial Services Reform Act 2001 (Cth), s 3, Sched 1. However, it is in substantially the same form as earlier legislation: Corporations Law, s 1091A; Corporations Act, s 1091A (prior to the 2001 amendments). 8 In my view, the amendment to the pleadings proposed by the Trustees adds nothing to the case as presently pleaded. In particular, relief in the form of the proposed par 10A would add nothing to the Bankrupt's obligations under s 77 of the Bankruptcy Act. Nor is such relief necessary to ensure that the Trustees obtain registration as proprietors of the share presently registered in the Bankrupt's name. If the Trustees make out their case they will be able to invoke s 1072C of the Corporations Act (or one of its predecessors). 9 Mr Brereton SC, who appeared with Mr Ashhurst for the Cummins parties, invited me to find that the proposed amendment should be refused on the ground that it was advanced for a collateral purpose and was therefore an abuse of process. He identified the collateral purpose as being to provide the foundation for the tender, pursuant to s 255(2) of the Bankruptcy Act, of a portion of the transcript of the Bankrupt's examination conducted under s 81 of the Act. I think that there is considerable force in Mr Brereton's submission. Given that the relief referred to in the proposed amendment, if granted, would not add to the duties imposed on the Bankrupt by statute (as Mr Coles accepted was the case), it is difficult to see what purpose would be served by the amendment other than to open the way to the Trustees invoking s 225(2) of the Bankruptcy Act to tender the transcript of the s 81 examination. 10 It is not, however, necessary to make a finding that the application to amend constitutes an abuse of process. It is enough to say that the proposed amendment would add nothing to the Trustees' claim to be beneficially entitled to the share in Hospitality and to obtain registration as proprietors of the share. In these circumstances, there is no point to the amendment and the Trustees' application to amend should be refused. 11 For these reasons, I dismissed the Trustees' motion to further amend the pleadings. I further ordered that the Trustees should pay the Cummins parties' costs of the motion. 12 In order to finalise the Cummins parties' motion, I ordered that the Bankrupt cease to be a party to the proceedings. The Trustees were ordered to pay the Cummins parties' costs of that motion. 13 In addition, I ordered the Trustees to pay the Bankrupt's costs of the proceedings incurred on and after 13 September 2002. I took the view that the Bankrupt would not have remained a party to the proceedings after that date had the Trustees not foreshadowed their intention to apply to amend the pleadings. That application was ultimately unsuccessful. 14 I should note by way of postscript that I was referred in argument at the trial, on another issue, to Weise v Wardle (1874) 19 LR Eq 171. In that case Jessel MR held that a bankrupt is not a proper party to a suit instituted by the trustee in bankruptcy to set aside a conveyance allegedly made by the bankrupt with intent to delay or defeat his or her creditors. Jessel MR said this (at 172-173): "The real ground of demurrer is that the bankrupt ought not be a party to the suit. The charge is that the bankrupt has conveyed away part of his property so as to defeat or delay his creditors. Now, in respect of that property, he has no interest, nor is he under any personal liability; why, then, is he made a Defendant? It is said that he has been party to a fraud, and that he may be made a Defendant for the purposes of obtaining discovery and payment of costs. Now it is true there is a rule that a mere agent may in certain cases be made a party to a suit, but that rule has been disapproved of by eminent Judges in several cases…. I consider that the practice as it now exists applies only to cases in which the Defendant is an agent (under which term is included the case of his being an attorney or solicitor) or an arbitrator; this Defendant is neither, and the demurrer therefore must be allowed…". This decision would seem to reinforce the conclusion that the Bankrupt had been "unnecessarily joined" to the proceedings, although more recent decisions suggest that the observations of Jessel MR do not necessarily apply in all cases in which a bankrupt is joined to proceedings brought to recover property in the interests of creditors. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice SACKVILLE. Associate: Dated: 19 September 2002 Counsel for the Applicants: Mr B Coles QC with Mr C Newlinds Solicitor for the Applicants: Clayton Utz Solicitor for the 1st Respondent Mr N Eddy appeared on behalf of Eddy & Moloney Counsel for the 2nd to 4th Respondents: Mr P L G Brereton SC with Mr M Ashhurst Solicitors for the 2nd to 4th Respondent: Russell & Company Date of Hearing: 17 September 2002 Date of Judgment: 19 September 2002