Turner v Rothmore Farms Pty Ltd (in liq) [2003] FCA 710

FEDERAL COURT OF AUSTRALIA Turner v Rothmore Farms Pty Ltd (in liq) [2003] FCA 710 TENNYSON TURNER v ROTHMORE FARMS PTY LTD (in liq) S 278 OF 2002 SELWAY J 16 JULY 2003 ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY S 278 OF 2002

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN: TENNYSON TURNER

APPELLANT

AND: ROTHMORE FARMS PTY LTD (in liq)

RESPONDENT

JUDGE: SELWAY J

DATE OF ORDER: 16 JULY 2003

WHERE MADE: ADELAIDE

THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the costs of the respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY S 278 OF 2002

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN: TENNYSON TURNER

APPELLANT

AND: ROTHMORE FARMS PTY LTD (in liq)

RESPONDENT

JUDGE: SELWAY J

DATE: 16 JULY 2003

PLACE: ADELAIDE

REASONS FOR JUDGMENT 1 This is an appeal pursuant to s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth) from a sequestration order made by the Federal Magistrates Court on 6 December 2002. The appellant says that the learned Federal Magistrate erred in making that order. He says that the learned Federal Magistrate should not have made a sequestration order until the Supreme Court of South Australia has finally determined the extent (if any) of the appellant's indebtedness to the respondent. 2 Pursuant to s 25(1A) of the Federal Court of Australia Act 1976 (Cth) the Chief Justice on 7 February 2003, directed that this appeal be heard by a single judge of this Court. 3 In order to understand the issues raised on this appeal it is necessary to set out the factual background in some detail. 4 The respondent was the trustee of the Jill Cooper Family Trust ('the Trust'). In that capacity it operated a farming and engineering business on a property at or near Moonta in South Australia. In that capacity it entered into various loan agreements with various banks. The banks sought to recover under those loan agreements from the respondent. The respondent defaulted and was placed in liquidation. The liquidator, on behalf of the respondent, sought to enforce against the assets of the Trust the indemnity to which the respondent was entitled as trustee. 5 In the interim three separate transactions had been conducted by those with apparent power to do so under the terms of the Trust. First, the respondent had been replaced as trustee by another company, Belgravia Pty Ltd. Subsequently, the Trust was effectively 'wound up' and all of the assets vested in one of the family members. Thirdly, an agreement was made between that family member and the appellant whereby the appellant agreed to sell and the family member agreed to purchase some opal for an amount in cash and the (former) assets of the Trust. It was argued by the appellant and by the former beneficiaries of the Trust that the effect of these transactions was that the relevant assets were no longer available to meet the indemnity owed by the Trust to the respondent. 6 These issues were considered by Mansfield J in Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745. His Honour held that the purpose of each of the three transactions was to put the assets of the Trust beyond the reach of the respondent so that its creditors, namely the banks, could not preclude or prevent the Trust from continuing to trade by seizing the assets. In particular, in relation to the third transaction which directly involved the appellant, his Honour found that the transaction 'was not a genuine transaction at all'. In consequence, Mansfield J found that the respondent under its indemnity was entitled to trace the assets of the Trust, including the proceeds from the agricultural and engineering businesses, into the hands of the appellant. However, he also found that the appellant was entitled to be repaid the sums which he had expended in carrying on the business of the Trust. Consequently, Mansfield J made a number of orders. The effect of them was that the respondent was entitled to an indemnity out of the assets of the Trust to the extent of its current indebtedness to the relevant banks, and that for that purpose and to that extent the respondent had an equitable charge or lien over the relevant assets. 7 It is plain from the terms of the orders he made that Mansfield J determined from the evidence he had heard that the assets would be insufficient to meet the amount of the indemnity. For example, if the value of the assets would have exceeded the amount of the indemnity then provision would need to have been made as to the entitlements to the surplus. Provision would also need to be made to reduce rateably the sums repayable by the respondent to the appellant. It was unnecessary to do so because the assets would be insufficient. As Mansfield J said in his reasons: 'It is clear enough, from my findings as to the value of the assets transferred pursuant to the third transaction, that the interest of Rothmore Farms in those assets will exceed their realisable value. There will be no residual equity left for Tennyson Turner. I have therefore concluded that he is entitled to the full amount for those four items: cp Kemtron (above at 580).'