FEDERAL COURT OF AUSTRALIA Jahani (liquidator) v Alfabs Mining Equipment Pty Ltd, in the matter of Delta Coal Mining Pty Limited (in liq) [2020] FCA 752 File number: NSD 577 of 2020 Judge: STEWART J Date of judgment: 27 May 2020 Catchwords: PRACTICE AND PROCEDURE – application for joinder under r 9.05 of the Federal Court Rules 2011 (Cth) to bring unfair preference proceedings against multiple unrelated defendants – whether joinder necessary in order to enable determination of a related dispute and avoid multiplicity of proceedings – where common issues exist in relation to all the proposed defendants – possibility of inconsistent findings being made if proceedings were not joined – efficient use of judicial resources Legislation: Corporations Act 2001 (Cth) ss 553C, 588FF Federal Court Rules 2011 (Cth) rr 1.32, 1.34, 9.02, 9.05, 9.06 Cases cited: Dean-Wilcocks v Air Transit International Pty Ltd [2002] NSWSC 525; 55 NSWLR 64 Dudley (Liquidator) v RHG Construction Fitout & Maintenance Pty Ltd [2019] FCA 1355 Lord v Agreserves Australia Ltd [2006] FCA 598 Date of hearing: 27 May 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 21 Counsel for the Plaintiffs: M Rose Solicitor for the Plaintiffs: McCullough Robertson ORDERS NSD 577 of 2020 IN THE MATTER OF DELTA COAL MINING PTY LIMITED (IN LIQUIDATION) ACN 114 283 706, DELTA MINING PTY LTD (IN LIQUIDATION) ACN 056 692 883, SBD SERVICES PTY LTD (IN LIQUIDATION) ACN 124 019 816 AND DELTA SBD LTD (IN LIQUIDATION) ACN 127 894 893 BETWEEN: SAID JAHANI AND JOHN MCINERNEY AS JOINT AND SEVERAL LIQUIDATORS OF DELTA COAL MINING PTY LTD (IN LIQ) First Plaintiff SAID JAHANI AND JOHN MCINERNEY AS JOINT AND SEVERAL LIQUIDATORS OF DELTA MINING PTY LTD (IN LIQ) ACN 056 692 883 Second Plaintiff SAID JAHANI AND JOHN MCINERNEY AS JOINT AND SEVERAL LIQUIDATORS OF SBD SERVICES PTY LTD (IN LIQ) ACN 124 019 816 (and another named in the Schedule) Third Plaintiff AND: ALFABS MINING EQUIPMENT PTY LTD ACN 099 383 650 First Defendant AMPCONTROL (QLD) PTY LTD ACN 001 335 842 Second Defendant BRANDWORX PTY LTD ACN 168 637 250 (and others named in the Schedule) Third Defendant JUDGE: STEWART J DATE OF ORDER: 27 MAY 2020 THE COURT ORDERS THAT: 1. Pursuant to r 9.05 of the Federal Court Rules 2011 (Cth), the plaintiffs have leave nunc pro tunc to join each of the parties listed in the Schedule as defendants in this proceeding. 2. Costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from the transcript) STEWART J: 1 By originating process that comes before me on an urgent basis, as duty judge, the plaintiffs seek interlocutory orders for leave to join 28 parties to these proceedings, as defendants, pursuant to rr 1.32 and 9.05 of the Federal Court Rules 2011 (Cth). Alternatively, the plaintiffs seek that the requirements of r 9.02 of the Rules be waived pursuant to r 1.34 of those Rules. 2 Since the originating application already cites the defendants in respect of whom leave is sought, they are, in effect, already defendants to the proceeding. Recognising that, Mr Rose, who appears before me for the plaintiffs, seeks that leave to join the defendants be granted nunc pro tunc. 3 Messrs Jahani and McInerney bring these proceedings in their capacities as liquidators of each of the following companies: Delta Coal Mining Pty Ltd, Delta Mining Pty Ltd, Delta SBD Ltd and SBD Services Pty Ltd, which I will refer to as the companies. The substantive proceeding to which the proposed defendants are sought to be joined is a proceeding brought pursuant to s 588FF of the Corporations Act 2001 (Cth) for the recovery of unfair preferences. 4 The relevant statutory limitation period to bring those claims expires on 30 May 2020, being three years from the date on which Messrs Jahani and McInerney were appointed as administrators of the company: see s 588FF(3)(a)(i) of the Act. Since 30 May is only days away, the application must be dealt with urgently. Mr Jahani, in his affidavit, has explained why this application was not brought at an earlier time, particularly with reference to what has been done in the intervening period of time. I am satisfied with the adequacy of that explanation and that the matter is properly dealt with today. 5 The plaintiffs rely on two affidavits of Mr Jahani, each affirmed on 25 May 2020. Messrs Jahani and McInerney were appointed as administrators of the companies on 31 May 2017 (the relation-back day). On 18 August 2017, each of the companies was wound up in a creditors' voluntary winding up with Messrs Jahani and McInerney appointed as the liquidators. Mr Jahani explains the following relationships, as at the date of his and Mr McInerney's appointment: (1) Delta SBD wholly owned Delta Mining and SBD Services; (2) Delta Mining wholly owned Delta Coal Mining; (3) Delta Coal Mining was part of the Delta SBD Group; (4) Delta Mining was part of the Delta SBD Group; (5) The Delta SBD Group was in the business of providing labour and equipment hire services; (6) The Delta SBD Group was consolidated for financial reporting purposes; and (7) Movements of cash across the Delta SBD Group from time to time were recorded as intercompany loans. 6 The companies' principal activity was the provision of labour and equipment hire to mine owners in Queensland and New South Wales for the extraction of black coal. Other mining services provided by the companies included whole mining management and operations and other specialist underground mining services. 7 The companies were party to a deed of cross guarantee entered into on 3 May 2011 in order to take the benefit of ASIC class order 98/1418, as amended. The effect of that deed is that each of the companies jointly and severally agreed with each of its creditors that each entity subject to the deed would guarantee to each creditor payment of any debt due to the creditor from any group entity, upon, inter alia, a creditors' voluntary winding up of the relevant company, as those terms are defined in the deed. 8 Mr Jahani goes on to explain that the books and records of the company indicate that during the six months ending on 31 May 2017 (the relation-back period), the companies made payments to each of the proposed defendants in respect of: (1) unsecured amounts owing to them for goods or services supplied by those creditors; (2) various unsecured taxation liabilities; or (3) rental payments under a lease agreement in respect of certain property in Queensland, each of which the liquidators believe constitute unfair preference payments made during the relation-back period. 9 Those payments are detailed in the exhibits to Mr Jahani's affidavit. 10 Mr Jahani also deposes that as a result of his and Mr McInerney's statutory investigations, they believe that each of the companies was insolvent from at least 1 December 2016. Mr Jahani also considers that by receiving the benefit of the relevant payments, each of the proposed defendants has received more than they would receive by way of a dividend in the liquidation of the companies if the relevant payments were set aside and the relevant proposed defendant was to prove its debt as an unsecured creditor in the winding up of the companies. 11 The need for this application arises because, absent an order permitting joinder, it is possible that a single proceeding commenced against each of the proposed defendants would later be held to be improperly constituted. In Dudley (Liquidator) v RHG Construction Fitout & Maintenance Pty Ltd [2019] FCA 1355, the plaintiff liquidators commenced a proceeding for the recovery of alleged preferential payments against 17 defendants by way of a single originating process under r 2.2 of the Federal Court (Corporations) Rules 2000 (Cth). That proceeding was, as Jackson J said at [2]: … proceedings of the kind that is sometimes called a 'mother proceeding' (Dean-Wilcocks v Air Transit International Pty Ltd [2002] NSWSC 525, (2002) 55 NSWLR 64 at [14], Martin Bruce Jones as Liquidator of Forge Group Ltd (Receivers and Managers Appointed) (In Liquidation) v Sun Engineering Qld Pty Ltd [2017] WASC 195 at [62]) or a 'mothership proceeding' (Re Bias Boating Pty Ltd [2017] NSWSC 1524 at [18]). That is, they are unfair preference claims in respect of the same insolvent company (or group of companies) that have been commenced against multiple defendants in relation to separate payments made by the company to each defendant. 12 The issue in that case was whether the commencement of that proceeding against all defendants in one cause was authorised without more, by the rules, and in particular, r 9.02. Jackson J concluded, at [26], that: … r 9.02 did not authorise the liquidators to commence a single set of proceedings in this court against multiple defendants where the alleged preferential payments, and the agreements or arrangements with the company under which they were made, were unique to each separate defendant. 13 It is in this context that the plaintiffs' application arises. The plaintiffs require the Court's leave to commence a single proceeding against the multiple defendants. The Court's power to grant that leave arises under r 9.05 of the Rules. That rule is relevantly in the following terms: 9.05 Joinder of parties by Court order (1) A party may apply to the Court for an order that a person be joined as a party to the proceeding if the person: … (b) is a person: … (iii) who should be joined as a party in order to enable determination of a related dispute and, as a result, avoid multiplicity of proceedings. 14 In the absence of that leave being granted, the plaintiffs would be required to commence 28 separate proceedings with one defendant to each of them. For the reasons which follow, I am satisfied that the proposed defendants ought to be joined in one proceeding as they are each persons who should be joined to enable determination of a related dispute and to avoid a multiplicity of proceedings. 15 In that regard, Austin J in Dean-Wilcocks at [33] observed that: Where there is a single plaintiff but many defendants, the concern is rather different [from when there are many plaintiffs] … although the general objectives of fairness and practicability remain [I would add that the objective of judicial efficiency is equally salient]. Each defendant will be required to answer a case individually pleaded against it by the plaintiff, but the pleaded case against each defendant will contain assertions made against all defendants. It is not unfair to a defendant that the plaintiff makes identical or similar allegations against others. The fact that the plaintiff does so by joining more than one defendant to a single proceeding does not itself create unfairness. Disadvantage to a defendant, and the possibility of unfairness, may arise if, for example: • the making out of the case against one defendant in some way hampers another defendant from adequately making out its defence; or • the joinder of multiple defendants leads to cost or delay to a defendant materially greater than would have occurred if the cases had been brought separately; or • a defendant is forced to defend its case in an inconveniently located court; or • a defendant is forced to defend its case in the Supreme Court [in this case the Federal Court] whereas if the case had been brought separately against a defendant it would or might have been brought in a lower court at less cost to the defendant. 16 At [35], his Honour identified some special features of unfair preference proceedings, which may, in particular, justify the granting of leave, even though leave might not be granted in similarly constituted proceedings with a different subject matter (with some interpolations by me): First, since unfair preference proceedings arise under the Corporations Act (Cth), it is appropriate that any applications concerning them, and their case management, be allocated to the Corporations List [that was in the Supreme Court, whereas in this Court similar considerations apply with regard to case management of cases such as this] ... Secondly, the issue at stake in unfair preference proceedings is whether the liquidator of a failed company should recover assets for the benefit of unsecured creditors as a whole. The adoption of a procedure that is speedy, inexpensive and efficient from the point of view of liquidators should facilitate the commencement and maintenance of proceedings in cases where there appear to be reasonable prospects of success. That would be an important outcome in terms of public policy and the interests of the commercial community as a whole. Thirdly, a central ingredient of unfair preference proceedings is the establishment of the insolvency of the company at the relevant time: s 588FC. In the case of a company of any significant size, that question should where practicable be determined by [a superior Court]. By granting leave to the liquidator to maintain a single proceeding in this Court [case managed within the docket system], the Court can bring the matter to a point where the question of insolvency has been determined [as well as any other common issues] or it emerges from the defences that insolvency is not in issue ... 17 Thereafter, if appropriate, any particular defendant who is able to contend that the further conduct of the case on a joint basis is prejudicial to them, can apply under r 9.06 of the Rules for a separation out from the case and for subsequent issues to be determined separately. 18 In particular, there is a reasonable prospect that common issues to all the claims in this case will be the insolvency of the companies as well as possibly the availability of set-off under s 553C of the Act because of some conflicting authority on that question. The defendants are then likely to seek to raise defences unique to them, but those can be dealt with, as I have said, on a case management basis or by separating out the cases at a later stage. Mr Jahani deposes that based on his experience as a liquidator, the commencement of separate proceedings against any or all of the proposed defendants would add significant costs to the pursuit of unfair preference claims against them. That stands to reason. 19 Further, and whilst Mr Jahani does not expect that each of the proposed defendants would contest the issue of insolvency, if there were proceedings were against each of them separately the consideration of insolvency alone, leaving aside other issues, would require the allocation of significant judicial resources. This may, as Mr Jahani points out, also lead to the risk of inconsistent findings in relation to the same ultimate subject matter. That is a particularly significant matter in my consideration. It would be a poor day for the administration of justice if 28 separate cases each had to deal with the same factual question or questions, and potentially arrive at conflicting conclusions. Not only would that be an enormous waste of judicial resources, but it would also bring the system into disrepute. 20 I am satisfied that leave under r 9.05 can be granted nunc pro tunc: Lord v Agreserves Australia Ltd [2006] FCA 598 at [7] per Jacobson J. 21 For those reasons I am satisfied that the plaintiffs should have the orders that they seek. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart. Associate: Dated: 2 June 2020 SCHEDULE OF PARTIES NSD 577 of 2020 Plaintiffs Fourth Plaintiff: SAID JAHANI AND JOHN MCINERNEY AS JOINT AND SEVERAL LIQUIDATORS OF DELTA SBD LTD (IN LIQ) ACN 127 894 893 Defendants Fourth Defendant: COAL MINES INSURANCE PTY LTD ACN 000 011 727 Fifth Defendant: COASTWIDE ENGINEERING PTY LTD ACN 002 244 680 Sixth Defendant: COUGAR MINING GROUP PTY LTD ACN 142 713 951 Seventh Defendant: HS COMPANY PTY LIMITED ACN 099 707 856 TRADING AS CRAM FLUID POWER Eighth Defendant: ERNST & YOUNG ABN 75 288 172 749 Ninth Defendant: FUCHS LUBRICANTS (AUSTRALASIA) PTY LTD ACN 005 681 916 Tenth Defendant: JENNMAR AUSTRALIA PTY LTD ACN 078 584 531 Eleventh Defendant: MARATHON TYRES PTY LTD ACN 082 184 923 Twelfth Defendant: MINES RESCUE PTY LIMITED ACN 099 078 261 Thirteenth Defendant: CHIEF COMMISSIONER OF STATE REVENUE Fourteenth Defendant: PARK PTY LTD ACN 093 014 129 TRADING AS PARK FUELS Fifteenth Defendant: SGS HYDRAULICS PTY LTD ACN 104 018 564 Sixteenth Defendant: QUARRY MINING & CONSTRUCTION EQUIPMENT PTY LTD ABN 13 002 572 303 Seventeenth Defendant: WARATAH ENGINEERING PTY LTD ACN 614 565 829 Eighteenth Defendant: TOILLA PTY LTD ACN 010 755 030 Nineteenth Defendant: VLI CONVEYORS PTY LIMITED ACN 001 989 895 Twentieth Defendant: VLI DIESEL PTY LIMITED ACN 060 444 162 Twenty First Defendant: WESTRAC PTY LTD ACN 009 342 572 Twenty Second Defendant: BJ'S WORKWEAR PTY LIMITED ACN 124 755 157 Twenty Third Defendant: FENNER DUNLOP AUSTRALIA PTY LTD 080 570 574 Twenty Fourth Defendant: FLS PUMPS PTY LIMITED ACN 163 759 082 Twenty Fifth Defendant: HOGANS HEAVY HAULAGE PTY LTD ACN 095 141 487 Twenty Sixth Defendant: PPK GROUP LIMITED ACN 003 964 181 Twenty Seventh Defendant: T & G KELLY'S COURIERS PTY LIMITED ACN 100 359 313 Twenty Eighth Defendant: VEOLIA ENVIRONMENTAL SERVICES (AUSTRALIA) PTY LTD ACN 051 316 584