FEDERAL COURT OF AUSTRALIA In the matter of Kenneth Stanley Kitt, Marjorie Ann Kitt & Brendan Kenneth Kitt; Official Trustee in Bankruptcy as Trustee of the Bankrupt Estates of Kenneth Stanley Kitt, Majorie Ann Kitt & Brendan Kenneth Kitt [2005] FCA 1564 BANKRUPTCY – proof of debt – joint and separate estates – judgment debt against partnership – joint or several liability – debtors jointly liable Bankruptcy Act 1966 ss 110, 134(4) Partnership Act 1891 (SA) s 9 Lindley & Banks on Partnership, 13-02 (18th ed, 2002) Kendall v Hamilton (1879) 4 App Cas 504 cited Corney v Brien (1951) 84 CLR 343 cited Commonwealth v Precision Pools Pty Ltd (1994) 53 FCR 183 cited Militz v Bowering-Wood [1954] SASR 175 cited OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATES OF KENNETH STANLEY KITT, MARJORIE ANN KITT & BRENDAN KENNETH KITT No SAD 126 of 2005 FINN J ADELAIDE 4 NOVEMBER 2005 IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 126 OF 2005 IN THE MATTER OF KENNETH STANLEY KITT, MARJORIE ANN KITT & BRENDAN KENNETH KITT OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATES OF KENNETH STANLEY KITT, MARJORIE ANN KITT & BRENDAN KENNETH KITT APPLICANT JUDGE: FINN J DATE OF ORDER: 4 NOVEMBER 2005 WHERE MADE: ADELAIDE THE COURT DIRECTS THAT: 1. The proof of debt of Barry Pickett Pty Ltd is initially to be lodged in the triple estate of Kenneth Stanley Kitt, Marjorie Ann Kitt and Brendan Kenneth Kitt. 2. The costs of the application be borne on a pro rata basis by all of the estates except the joint estate of K S Kitt and M A Kitt. 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 SAD 126 OF 2005 IN THE MATTER OF KENNETH STANLEY KITT, MARJORIE ANN KITT & BRENDAN KENNETH KITT OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATES OF KENNETH STANLEY KITT, MARJORIE ANN KITT & BRENDAN KENNETH KITT APPLICANT JUDGE: FINN J DATE: 4 NOVEMBER 2005 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 In this matter the Official Trustee in Bankruptcy seeks directions of the Court under s 134(4) of the Bankruptcy Act 1966 ("the Bankruptcy Act") concerning the manner in which several proofs of debt should be dealt with in the bankruptcies of Kenneth Stanley ("KS") Kitt, Marjorie Anne ("MA") Kitt and Brendan Kenneth ("BK") Kitt. 2 All three bankrupts carried on businesses in partnership under several registered business names. The first such partnership, carried on under the name of "Oberon Plant Hire" ("OPH") began in 1989 and involved hiring out heavy duty machinery. Though it disposed of its equipment in the early 1990's, it did not cease trading at that time and there is some evidence (emanating from the Australian Taxation Office in 2001) to suggest that the Kitts continued to use the OPH name at least until early 1999. They retained registration of the OPH business name until at least 2001. 3 A second business, carried on under the name of "OPH Transport" was begun in late 1993 and involved trucking and transport operations. It carried on operations as a partnership of the three bankrupts until at least May 2000 when B K Kitt moved to Mount Gambier and commenced a business on his own account trading under the name "OPH Mt Gambier". The business of OPH Transport continued to be carried on by K S Kitt and M A Kitt until October 2001. 4 All three of the bankrupts filed their own petitions on 16 November 2001 and the Official Trustee became the trustee in bankruptcy of each of them. In consequence of there having been several partnerships involving the family members, the Official Trustee has necessarily to administer both joint and separate estates. These are five in number. The first is the triple estate of K S, M A and B K Kitt; the second, the joint estate of K S and M A Kitt; and the remaining three, the separate estates of each of the three bankrupts. The amounts in these estates vary from $85,509 (the joint estate) to $0.00 in one of the personal estates. The triple estate has $21,143. 5 Save in respect of two creditors, the Official Trustee has been able to allocate particular creditors to particular estates in which it is proposed to admit their proofs of debt to rank in the first instance. Though the application in this matter sought directions in respect of the proof of both of the above creditors, directions only in the case of one is now sought, there being significant factual uncertainties in the case of the other. THE BARRY PICKETT PTY LTD PROOFS OF DEBT 6 Barry Pickett Pty Ltd ("BP") lodged two proofs of debt arising from the same judgment debt, one in the separate estate of B K Kitt and the other in the joint estate of K S Kitt and M A Kitt. The judgment in the sum of $92,203.15 was obtained in the District Court of New South Wales in proceedings brought by BP against B K, K S and M A Kitt ("the Kitts") as partners "trading as Oberon Plant Hire". The claim itself was for fuels "supplied by the Plaintiff to the Defendants at the Defendants' request …" which remained unpaid as at 4 February 2000. 7 Though the available material evidencing the true character of the debt is sparse indeed, it appears to have had its genesis in an application made to BP by B K Kitt to open a credit account in his own name but for the use of the Kitts trading as OPH. This application seems to have been approved. BP was (inter alia) a wholesale supplier of fuels. Apparently fuels were supplied to the Kitts and the account was maintained as a running account in respect of purchases of fuel from time to time. 8 There is nothing in the material before me to suggest that the credit agreement and the various contracts for sale and purchase of fuels were other than contracts entered into by the Kitts as partners. BP did not provide the Official Trustee with direct evidence of this. It had in the interim sold its wholesale fuel business (though not the debts owing to it) and the location of the records concerning customer accounts was apparently unknown. Nonetheless, BP through its lawyers has acknowledged in correspondence with the Official Trustee that it supplied fuel to all three Kitts as partners and that it had one contract with the partners. I would note in passing that BP provided no evidence that one or all of the partners had agreed to be jointly and severally liable for fuel supplied to the partnership from time to time. 9 The claim made by BP in the District Court also acknowledged that BP's appreciation of the true character of the dealings it had with the Kitts was as I have described above. In these circumstances I am satisfied that the debts so incurred arose out of contracts binding on all partners. 10 The curiosity of the matter is that the partnership on whose behalf the initial credit account was made was purportedly OPH, not OPH Transport. The credit application is undated. Again though the evidence is sparse, it is clear that BP was contracting with the Kitts as partners in respect of the business they were carrying on and that that business was the trucking and transport one by whatever trading name called. 11 It is also clear on the evidence, that the debt incurred by the partners was incurred before B K Kitt resigned from the partnership around May 2000. APPLICABLE PRINCIPLES 12 It is orthodox partnership law that, save in circumstances where a partner so acts as to render himself or herself separately or severally liable on a contract with the partnership, a contract which is binding on the firm is binding on all the partners jointly and on none of them severally: Kendall v Hamilton (1879) 4 App Cas 504; Partnership Act 1891 (SA) s 9; and see Lindley & Banks on Partnership, 13-02 (18th ed, 2002). 13 When BP sued the Kitts it sued and obtained judgment on that joint obligation which itself merged in the new obligation created by the judgment: on merger see e.g. Corney v Brien (1951) 84 CLR 343 at 353; Commonwealth v Precision Pools Pty Ltd (1994) 53 FCR 183 at 191-2. The obligation so created by the judgment, though new, was not different in its incidents from the liability sued upon to judgment: cf Militz v Bowering-Wood [1954] SASR 175 at 179. The pre-existing obligation was joint. Correspondingly, the obligation created by the judgment was joint. I emphasise this for this reason. BP in lodging its proofs of debt has proceeded on the premise that the Kitts' liabilities to it are joint and several. 14 Section 110 of the Bankruptcy Act deals with the application of the estates of joint debtors and is decisive of the directions I should give. It provides: "110(1) [Joint debts and separate debts] In the case of joint debtors, whether partners or not, the joint estate shall be applied in the first instance in payment of their joint debts, and the separate estate of each joint debtor shall be applied in the first instance in payment of his or her separate debts. 110(2) [Procedure where surplus] If there is a surplus in the case of any of the separate estates, it shall be dealt with as part of the joint estate and if there is a surplus in the case of the joint estate, it shall be dealt with as part of the respective separate estates in proportion to the right and interest of each joint debtor in the joint estate." CONCLUSION 15 In the absence of any evidence at all indicating that BP's fuel contracts resulted in the Kitts being jointly and severally liable to BP as distinct from only jointly liable, the conclusion is inevitable that the ordinary contractual rule applies and that the Kitts are jointly liable to BP. In consequence, s 110(1) requires that BP's proof of debt is initially to be lodged in the triple estate of the bankrupts. I will direct accordingly. 16 It is unnecessary that I express any view on the various other possibilities raised by the Official Trustee which are premised upon the liabilities of the Kitts being other than joint. I decline to do so notwithstanding the request of the Official Trustee to the contrary. Any view I expressed would be of an advisory character and it would not have the benefit of being informed by a contradictor. The present application has been heard ex parte. 17 The matter to be emphasised about the conclusion at which I have arrived, is that it has been virtually preordained by an absence of evidence that could properly lead to a different conclusion. 18 I will order that the costs of this application be borne on a pro rata basis by all of the estates except the joint estate of K S Kitt and M A Kitt. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn . Associate: Dated: 4 November 2005 Counsel for the Applicant: Mr G Gretsas Solicitor for the Applicant: Gretsas & Associates Date of Submissions: 12 August 2005 Date of Judgment: 4 November 2005