Federal Court of Australia L'Aqua Property Investments Pty Ltd v PCS Finance Pty Ltd [2024] FCA 440 File number: QUD 209 of 2021 Judgment of: DERRINGTON J Date of judgment: 16 April 2024 Date of publication of reasons: 29 April 2024 Catchwords: PRACTICE AND PROCEDURE – application for substitution of party under r 9.09 of the Federal Court Rules 2011 (Cth) – where application was not brought by a "party or person" contemplated in r 9.09(2) – power to make an order for substitution – substitution order made Legislation: Federal Court Rules 2011 (Cth) Cases cited: CC/Devas (Mauritius) Ltd v Republic of India (No 2) [2023] FCA 527 LexisNexis, Practice and Procedure High Court and Federal Court of Australia (online) Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 17 Date of hearing: 16 April 2024 Counsel for the Plaintiffs: Mr G Lubofsky Solicitor for the Plaintiffs: Hall & Wilcox Counsel for the Defendants: Mr D Williams Solicitor for the Defendants: Mills Oakley ORDERS QUD 209 of 2021 BETWEEN: L'AQUA PROPERTY INVESTMENTS PTY LTD (ACN 127 812 042) First Plaintiff DEBRA MAREE LUCAS Second Plaintiff AND: PCS FINANCE PTY LTD (ACN 103 322 498) First Defendant STEPHEN WILLIAM BURTON Second Defendant AIMEE DEBORAH BENDALL Third Defendant order made by: DERRINGTON J DATE OF ORDER: 16 APRIL 2024 THE COURT ORDERS THAT: Joinder 1. Pursuant to r 9.09 of the Federal Court Rules 2011 (Cth), the second defendant, Stephen William Burton, be substituted with Aydin Burton in his capacity as executor of the deceased estate of Stephen William Burton. 2. Subject to any further order of the Court to the contrary, to the extent that the asset position of the estate of Stephen William Burton is insufficient to indemnify Aydin Burton in his capacity as executor, Aydin Burton will not be personally liable for: (a) any damages or monetary award awarded in the proceeding in favour of the plaintiffs; or (b) any adverse costs order made in favour of the plaintiffs arising from the determination of the matter. 3. The court header for this proceeding be amended to reflect Order 1 above. Further evidence 4. The time for compliance with Order 2 of the Orders made on 27 March 2024, by which the plaintiffs are to file and serve any further lay or expert evidence, be extended to 4:00 pm AEST on 18 June 2024. Mediation 5. A further mediation be held by no later than 31 July 2024. Other 6. The costs of the hearing on 16 April 2024 be each party's costs in the cause. 7. The parties have liberty to apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DERRINGTON J: 1 This is an application made by the plaintiffs, L'Aqua Property Investments Pty Ltd and Ms Debra Maree Lucas. They seek an order pursuant to r 9.09(2) of the Federal Court Rules 2011 (Cth) (the Rules) that the second defendant in the proceedings, Mr Stephen William Burton, be substituted with the sole executor of his deceased estate, Mr Aydin Burton. That order was opposed by the defendants, and Mr Aydin Burton who was also represented by counsel for the defendants. The application itself was slightly unusual, though the Court was assisted by careful submissions made by counsel for both sides. Rule 9.09 of the Rules 2 Rule 9.09 of the Rules provides as follows: 9.09 Death, bankruptcy, or transmission of interest (1) If a party dies, or becomes bankrupt, during a proceeding but a cause of action in the proceeding survives, the proceeding is not dismissed only because of the party's death or bankruptcy. (2) If the interest or liability of a party passes to another person during a proceeding, by assignment, transmission, devolution or by any other means, the party or the person may apply to the Court for an order for the joinder of the person as a party or for the removal of the party. (3) If a person is joined as a party under this rule, the start date of the proceeding for the person is the date on which the order is made. Note: The Court may make an order for the future conduct of the proceeding. 3 Rule 9.09(2) permits not only the making of an order for joinder and removal of a party, but also provides for the making of an order for the substitution of a party: CC/Devas (Mauritius) Ltd v Republic of India (No 2) [2023] FCA 527 [13]; see also rr 9.10 – 9.11 of the Rules. 4 Mr Williams, counsel for the defendants, submitted that the application brought by the plaintiffs does not fall within the terms of r 9.09(2) because neither of the plaintiffs can properly be described as "the party" or "the person" contemplated to make an application under subrule (2). On a natural reading of the words, he is correct in that observation. The party or the person contemplated by r 9.09(2) would, in this case, be Mr Stephen William Burton (being the party whose interest or liability has passed to another) or any executors or administrators of his deceased estate (being the person to whom Mr Stephen William Burton's interest or liability has passed). However, this creates some uncertainty where the representatives of a deceased person are unwilling to make an application for substitution. Prima facie, the Rules do not clearly provide for an applicant or plaintiff to seek to substitute another party for a person who is on the other side of the record. 5 Interestingly, the commentary to r 9.09 contained in LexisNexis, Practice and Procedure High Court and Federal Court of Australia (online) states that an application under that rule can be made by either party to the proceedings. It says: If a sole respondent dies and the cause of action survives, the applicant may obtain an order to continue the proceedings against the respondent's executor or administrator, or the executor or administrator may apply … Where respondents are jointly liable and one dies, liability continues in the survivors. Where the respondents are jointly and severally liable the proceedings may be continued against the survivor or against them and the representative of the deceased: Ellis v Wadeson [1899] 1 QB 714. In light of the wording of the rule, however, this commentary seems to be overly facilitative. 6 In any event, by reason of r 1.35 of the Rules, this Court has power to make any order that is inconsistent with the Rules and, by reason of r 1.34, it also has general power to dispense with compliance with any of the rules. It is appropriate to do so in this case, there being apparent uncertainty as to how a party might seek to have substituted a deceased party on the other side of the record. Some clarity in the Rules might be required. Consideration 7 This application was brought on relatively quickly after the plaintiffs became aware that Mr Stephen William Burton had died. 8 The evidence now before the Court shows that, of the four named executives of the estate, three have resigned or renounced their executorship and only Mr Aydin Burton remains. For that reason, the plaintiffs seek his joinder as a defendant in his capacity as the sole representative of Mr Stephen William Burton, to allow the matter to proceed against his deceased estate. 9 It was said that the application ought not be allowed for three reasons. First, because there has not yet been a grant of probate. Secondly, because the estate is apparently insolvent, such that any recoveries against it by the plaintiffs would be unlikely and thereby render substitution futile. Thirdly, it was said that it would be unreasonable to substitute Mr Aydin Burton in his capacity as executor in circumstances where he did not have a strong personal financial position, and did not appear to have any connection to the dispute. 10 In terms of the financial standing of the estate, the evidence in that respect was somewhat thin, although there is no real criticism of that given the manner in which the application came on. 11 A letter of 4 March 2024 from the firm Small Myers Hughes, which appears to act for the executors in relation to the administration of the deceased estate, suggests that the estate is not solvent, having assets of $3,378.92 and liabilities of $198,142.42. The letter purports to list the assets of the estate, though it does not list the shareholding in the company, Professional Corporate Services (Aust) Pty Ltd, which the evidence before this Court disclosed was held by Mr Stephen William Burton. That company holds shares in a large number of other companies, including one called As One Partners Pty Ltd, which itself owns shares in a number of other companies. There was very little evidence about the business of those other companies, save that their names suggest they are involved in property management. Whatever may be the consequence of that, the evidence in the present proceedings shows that the substance of the proceedings concerns valuable property management rights and the like. There is more than a hint that the estate of Mr Burton may have more valuable assets than has been suggested. 12 Whilst the value of the assets of the estate is unclear and on one view the estate may be insolvent, on another view, it may have substantially more assets than the letter from Small Myers Hughes suggests. If the estate is in fact insolvent, Mr Aydin Burton may well have sought to appoint a trustee in bankruptcy for the estate, but that has not been done to date and there is no sufficient indication that it is intended or that it is appropriate. That is the unfortunate state of the evidence. In those circumstances, the issue raised by the defendants about the alleged insolvency of the estate does not tend to ameliorate against making the orders sought by the plaintiffs. 13 The next issue was that Mr Aydin Burton is a person of limited means. Though the evidence about that is scant, it can be accepted as true and Mr Williams' instructions on that matter can also be accepted. That gives rise to the difficulty that joining Mr Aydin Burton as a defendant in these proceedings, albeit in his representative capacity, potentially exposes him to the cost of the litigation, as well as adverse cost orders. That is, of course, a matter that tends to dissuade the Court that he ought to be substituted as a party. 14 Mr Williams further suggested that it is a matter for the plaintiffs to seek to appoint other entities that might stand instead of Mr Stephen William Burton. He suggested that they could seek to appoint a public trustee or some other entity. That should be rejected and there was no sufficient explanation of how that might be achieved. 15 In the circumstances, it is preferable to accept the plaintiffs' submission that Mr Aydin Burton ought be joined as the executor of the estate of Stephen William Burton and in lieu of Mr Stephen William Burton, but only in his capacity as the executor of the estate. The order appointing Mr Aydin Burton as a defendant in his capacity as an executor should carry with it the proviso that he not be liable for the costs of the proceedings, otherwise than in his capacity as executor, unless the Court orders to the contrary. Although it is not possible to constrain the way in which the Court might exercise its discretion, in general terms it is unlikely to be exercised unless Mr Aydin Burton was to act unreasonably in the conduct of the litigation. In that respect, the Court is aware of his personal financial constraints and of the alleged impecuniosity of the estate of Stephen William Burton. In these circumstances it may necessarily be that the involvement in the litigation will be minimal. It may be that Mr Aydin Burton's case will simply rely on the defences advanced by the other respondents. 16 In the circumstances, and on the basis indicated above, I am prepared to make the order sought by the plaintiffs that Mr Aydin Burton be substituted, in his capacity as executor of the deceased estate of Stephen William Burton, as the second defendant in the proceedings. 17 Further, notwithstanding the view that Mr Aydin Burton being personally exposed to costs is not a significant risk, it is appropriate to make the following additional order which was suggested by Mr Williams: Subject to any further order of the Court to the contrary, to the extent that the asset position of the estate of Stephen William Burton is insufficient to indemnify Aydin Burton in his capacity as executor, Aydin Burton will not be personally liable for: (a) any damages or monetary award awarded in the proceeding in favour of the plaintiffs; or (b) any adverse costs order made in favour of the plaintiffs arising from the determination of the matter. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. Associate: Dated: 29 April 2024