Federal Court of Australia Paine, in the matter of Advanced Fuel Tanks Pty Ltd (in liq) v Turner [2022] FCA 425 File number: VID 200 of 2021 Judgment of: O'BRYAN J Date of judgment: 22 April 2022 Catchwords: PRACTICE AND PROCEDURE – application by liquidator to join insurers to proceeding pursuant to r 9.05 of the Federal Court Rules (Cth) – whether appropriate to make order for joinder – whether justiciable controversy between liquidator and insurer – contingent consequences of s 117 of the Bankruptcy Act 1966 (Cth) – orders made joining insurers to the proceeding Legislation: Bankruptcy Act 1966 (Cth) s 117 Corporations Act 2001 (Cth) ss 588G, 588M Federal Court Rules 2011 (Cth) r 9.05 Cases cited: CGU Insurance Limited v Blakeley and Ors (2016) 259 CLR 339 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 17 Date of last submissions: 21 April 2022 Date of hearing: Determined on the papers Solicitor for the Plaintiffs: Matthews Folbigg Pty Ltd Solicitor for the First and Third Defendants: The first and third defendants were self-represented Solicitor for the Second Defendant: Moray & Agnew ORDERS VID 200 of 2021 IN THE MATTER OF ADVANCED FUEL TANKS PTY LTD (IN LIQ) BETWEEN: DARRIN EDWARD PAINE AS LIQUIDATOR OF ADVANCED FUEL TANKS PTY LTD (IN LIQUIDATION) ACN 603 199 426 First Plaintiff ADVANCED FUEL TANKS PTY LTD (IN LIQUIDATION) ACN 603 199 426 Second Plaintiff AND: ANTHONY DOUGLAS TURNER First Defendant GRANT ANDREW SLATER Second Defendant KEITH EDWARD TANN Third Defendant order made by: O'BRYAN J DATE OF ORDER: 22 April 2022 THE COURT ORDERS THAT: 1. Pursuant to r 9.05 of the Federal Court Rules 2011 (Cth), the following entities be joined as defendants to these proceedings: (a) Hardy (Underwriting Agencies) Limited [Company Number 01264271]; (b) Liberty Managing Agency Limited [Company Number 03003606]; (c) Arch Underwriting at Lloyd's Limited [Company Number 06645822]; and (d) Asta Managing Agency Ltd [Company Number 01918744] acting for and on behalf of Everest Syndicate 2786. 2. The plaintiffs have leave to file and serve the amended originating process and a second amended statement of claim in the form annexed to the affidavit of Jeffrey Brown sworn 25 March 2022. 3. The defendants are to file their defence to the second amended statement of claim by 27 May 2022. 4. The proceeding be listed for case management at 9.00 am on Thursday 16 June 2022. 5. Liberty to apply. 6. Costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT O'BRYAN J: Introduction 1 The first plaintiff, Mr Darrin Paine (the Liquidator), was appointed as the liquidator of the second plaintiff, Advanced Fuel Tanks Pty Ltd (In Liquidation) (the Company) on 17 October 2016. 2 Each of the first, second and third defendants (the Directors) was a director of the Company at relevant times. 3 The plaintiffs allege that the Directors contravened s 588G of the Corporations Act 2001 (Cth) (Corporations Act) by failing to prevent the Company from incurring debts when it was insolvent. The Liquidator seeks declarations that the Company was insolvent on and from 31 March 2016, and that during the periods of their respective appointments, the Directors contravened s 588G in respect of each debt incurred by the Company. The Liquidator also seeks relief in the form of payments from each of the Directors as debts due to the Company pursuant to s 588M of the Corporations Act. 4 The Directors have filed defences denying that the Company was insolvent during the various periods of their respective appointments. 5 By an interlocutory application filed on 25 March 2022, the plaintiffs seek orders that the following parties (the Insurers) be joined as defendants to the proceeding pursuant to r 9.05 of the Federal Court Rules 2011 (Cth) (Rules): (a) Hardy (Underwriting Agencies) Limited [Company Number 01264271]; (b) Liberty Managing Agency Limited [Company Number 03003606]; (c) Arch Underwriting at Lloyd's Limited [Company Number 06645822]; and (d) Asta Managing Agency Ltd [Company Number 01918744] acting for and on behalf of Everest Syndicate 2786. 6 In support of their application, the plaintiffs rely on three affidavits of Mr Jeffery Brown, solicitor for the plaintiffs, the first sworn 25 March 2022 and the second and third both sworn 8 April 2022. The plaintiffs also filed written submissions dated 8 April 2022. 7 The first and third respondents, who are unrepresented, filed written submissions also dated 8 April 2022. Those submissions were not responsive to the plaintiffs' interlocutory application and can be put to one side. 8 The plaintiffs also seek leave to file and serve an amended originating process and a second amended statement of claim in the form annexed to Mr Brown's affidavit of 25 March 2022. 9 The evidence establishes that the interlocutory application was served on the solicitors for the Insurers, Barry.Nilsson.Lawyers and that: (a) the first defendant neither consents to nor opposes the relief sought in the interlocutory application; (b) the second defendant consents to the relief sought in the interlocutory application; (c) the third defendant neither consents to nor opposes the relief sought in the interlocutory application; and (d) the Insurers neither consent to nor oppose the relief sought in the interlocutory application. 10 For the reasons that follow, I consider it appropriate to make the orders sought. The application 11 The evidence on this application indicates that, during the period 28 February 2016 to 28 February 2017, the Company had in place a "Management Liability Insurance Policy" which provided management liability cover for the Directors (the Insurance Policy) in certain stated circumstances. The Directors' involvement in this proceeding was funded by the Insurers under the Insurance Policy until approximately late November 2021. The Insurers have now declined cover for the Directors under the Insurance Policy. 12 On the evidence in this application, the Directors have no personal capacity to make payment of the substantial amounts claimed against them in these proceedings and would become bankrupt if the plaintiffs are successful in the claims made against them. 13 The plaintiffs apply to join the Insurers to the proceeding pursuant to r 9.05(1) of the Rules, which provides as follows: (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: (a) ought to have been joined as a party to the proceeding; or (b) is a person: (i) whose cooperation might be required to enforce a judgment; or (ii) whose joinder is necessary to ensure that each issue in dispute in the proceeding is able to be heard and finally determined; or (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 The plaintiffs seek to join the Insurers to the proceeding so that a claim might be brought against them to enforce the Insurance Policies. The plaintiffs' claim against the Insurers is based upon the contingent legal consequences created by s 117 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) which provides as follows: 117 Policies of insurance against liabilities to third parties (1) Where: (a) a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and (b) a liability against which he or she is or was so insured has been incurred (whether before or after he or she became a bankrupt); (c) the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred. (2) Subsection (1) does not limit the rights of the third party in respect of any balance due to him or her after the payment referred to in that subsection has been made. (3) This section applies notwithstanding any agreement to the contrary, whether entered into before or after the commencement of this Act. 15 The effect of s 117 is that, if: (a) the plaintiffs are successful in their claims against the Directors and the Directors become liable for payment of loss and damage to the Company under s 588M of the Corporations Act; (b) the Directors become bankrupt; and (c) the plaintiffs establish that the Insurers are liable to indemnify the Directors in respect of their liability to the Company, the Company would have a right to the proceeds of the Insurance Policy in respect of the Directors' liability to the Company under s 588M of the Corporations Act. 16 In CGU Insurance Limited v Blakeley and Ors (2016) 259 CLR 339, the High Court determined that the interest upon which the Liquidator's proposed claim for relief is based (under s 117 of the Bankruptcy Act) and the Insurers' denial of liability under the Insurance Policy are sufficient to constitute a justiciable controversy between the Liquidator and the Insurer involving a question arising under a law of the Commonwealth. Accordingly, the Federal Court has jurisdiction in respect of the Liquidator's proposed claim for relief. 17 In the circumstances, I am satisfied that is appropriate to make an order joining the Insurers as the Insurers are persons who should be joined as parties in order to enable determination of a related dispute and, as a result, avoid multiplicity of proceedings (as per r 9.05(1)(b)(iii) of the Rules). I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan. Associate: Dated: 22 April 2022