Re Michael John Fuller; Hugh Jenner Wily as trustee of the estate of Michael John Fuller & Anor v Laima Fuller & Ors [1998] FCA 949 (10 August 1998)

Last Updated: 12 August 1998

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - whether discretion to permit amendment of statement of claim to plead causes of action additional to, or different from, those originally pleaded should be exercised - claim that if the new counts were the subject of new proceedings there would not be grounds for an order under Order 8 Rule 1 Federal Court Rules that such originating process be permitted to be served outside the jurisdiction - whether a conservative construction should be given to Order 8 Rule 1(l) - whether action by trustee in bankruptcy alleging that trustee of bare trust for bankrupt a proceeding covering the effect or enforcement of the Bankruptcy Act.

Federal Court Rules - Order 8 Rule 1(l)

Beck v Value Capital Ltd (No 2) [1975] 1 WLR 6 - referred to

Tycoon Holdings Ltd v Trencor Jetco Inc [1992] FCA 25; (1992) 34 FCR 31 - cited

Re Balhorn; Ex parte Balhorn and Official Trustee (1981) 39 ALR 223 - cited

RE: MICHAEL JOHN FULLER

SB 699 of 1993

HILL J

SYDNEY

10 AUGUST 1998

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SB 699 of 1993

Re: BETWEEN:	MICHAEL JOHN FULLER A Bankrupt hugh jenner wily as Trustee of the Estate of michael john fuller First Applicant m j fuller services pty limited (in Liquidation) Second Applicant
AND:	laima ann fuller First Respondent daiva cecelia fuller and joana maria fuller Second Respondents lynn wilkinson and nora wilkinson Third Respondents st helier trust company limited Fourth Respondents michael john fuller Fifth Respondent
JUDGE:	HILL J
DATE OF ORDER:	10 AUGUST 1998
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Leave be granted to file the further amended statement of claim dated 31 July 1998 marked Exhibit 1 insofar as it relates to the Fourth Respondent.

2. The First Applicant pay the costs of the Fourth Respondent of the hearing of the motion to strike out hearing up until lunchtime on 31 July 1998. Otherwise no order as to costs.

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	SB 699 of 1993

re: BETWEEN:	MICHAEL JOHN FULLER A Bankrupt hugh jenner wily as Trustee of the Estate of michael john fuller First Applicant m j fuller services pty limited (in Liquidation) Second Applicant
AND:	laima ann fuller First Respondent daiva cecelia fuller and joana maria fuller Second Respondents lynn wilkinson and nora wilkinson Third Respondents st helier trust company limited Fourth Respondents michael john fuller Fifth Respondent
JUDGE:	HILL J
DATE OF ORDER:	10 AUGUST 1998
WHERE MADE:	SYDNEY

REASONS FOR JUDGMENT

Before the Court for hearing over almost three days, from 29 to 31 July 1998 were a number of motions brought by various Respondents to the present proceedings. By these motions the Respondents sought to strike out the application and statement of claim so far as it concerned them respectively. Objection was taken to the claims on pleading grounds and particularly it was submitted that the pleadings as drafted did not disclose a cause of action so far as each Respondent was concerned.

In discussions between the bench and counsel for the Applicants it was conceded that the pleadings required amendment and over the space of almost three days various amended drafts were attempted, criticised by the respondents and ultimately discarded, at least in part. It is no longer the subject of dispute that the final draft statement of claim did disclose a cause of action against the relevant Respondents. I say relevant Respondents because in respect of the claim brought by the Second Applicant against the Second Respondents it has been agreed that this should more appropriately be cross vested to, and heard by, the Supreme Court of South Australia and accordingly I made orders to this effect.

All relevant Respondents submitted that the Court should not, as a matter of discretion, permit the pleadings to be amended. Reliance was placed both upon the course of numerous attempted amendments to the pleadings, as well as alleged non compliance with directions on the part of the First Applicant. However, it was conceded, except in the case of the Fourth Respondent, that subject to an appropriate costs order in their favour, there was no real prejudice in permitting the pleadings to be amended and the matter to proceed to trial.

The Fourth Respondent, however, is in a different position to the other respondents. It is a company incorporated and resident outside the jurisdiction. It submits that the Court should not permit amendment of the statement of claim so far as it concerns the Fourth Respondent on the basis that had the pleadings been in the form now the subject of an application to amend (with the exception of one count not presently relevant) the Court would not have permitted the proceedings reflected in the remaining counts to have been served outside the jurisdiction in accordance with Order 8 Rule 1 of the Federal Court Rules.

The Fourth Respondent argues and it is not seriously in dispute that while the Court has, pursuant to Order 13, Rule 1 of the Federal Court Rules a discretion to permit the amendment of a statement of claim to plead causes of action additional to, or different from, those originally pleaded it should not, as a matter of discretion, do so if new counts are added, which, if the subject of a new proceeding commenced by a fresh originating process would not found an order under Order 8 Rule 1 that such originating process be permitted to be served outside the jurisdiction.

In Beck v Value Capital Ltd (No 2) [1975] 1 WLR 6 Goulding J expressed agreement with the proposition, which was common ground in that case, that if a cause of action was not within the scope of the relevant rule of court permitting service outside the jurisdiction it could not be introduced by way of amendment of a writ previously served outside the jurisdiction under that Rule. Indeed his Lordship went, perhaps, further by saying at 15:

"It is enough to say that the discretion to allow an amendment under RSC Order 20, will not be exercised if an injustice to the opposite party will result, and that it is in general unjust to amend a writ served under RSC Order 11, by adding something which the court would probably have refused to sanction under RSC Ord 11."

For present purposes there is no difference between the Federal Court Rules and those to which his Lordship referred.

Order 8 Rule 1 sets out the circumstances under which originating process may be served outside the Commonwealth. It lists a series of criteria which "the proceeding" must satisfy before service may be permitted. The use of the singular "the proceeding" in the context is somewhat clumsy. The application of those criteria, despite the use of the words "the proceeding", however, is not to be interpreted as meaning the proceeding looked at as a whole, but rather as requiring, where more than one cause of action is pleaded, that each cause of action is to be regarded as a separate proceeding which must satisfy the relevant criteria before service may be ordered of the originating process, so far as it relates to that cause of action: Tycoon Holdings Ltd v Trencor Jetco Inc [1992] FCA 25; (1992) 34 FCR 31 at 34-5 per Wilcox J.

Among the criteria listed in the Rule are the following:

"(l) where the proceeding concerns the construction, effect or enforcement of an Act or a regulation or other instrument having or purporting to have effect under an Act;"

It is not suggested that any other criterion could be relevant to any of the proposed new causes of action pleaded.

To understand whether the criteria listed in paragraph (l) apply it is necessary to describe briefly the substance of the fresh causes of action pleaded.

The first, is that contained in paragraphs 10 to 20 of the proposed draft statement of claim which, for identification, has been marked Exhibit 1. Mr Fuller, the Fifth Respondent, is a bankrupt. A sequestration order was made against him on 20 May, 1993. Mr Wily, the First Applicant, is the trustee of his bankrupt estate. It is alleged that in or about October 1986, Mr Fuller agreed with the Fourth Respondent ("St Helier") that St Helier would hold money upon a bare trust for Mr Fuller. The sum of US$1 million was subsequently paid to be held upon the terms of that bare trust. It is then alleged that St Helier in 1986 purported to lend the sum of A$410,000 out of this sum to itself as trustee of a trust called "the Mutley Trust" without authority and in breach of trust with the consequence that Mr Fuller was entitled to bring an action against St Helier for breach of trust, which right of action accrued in the bankruptcy to Mr Wily as trustee of the bankrupt estate and in the result St Helier was obliged to pay the sum of A$410,000 to Mr Wily.

The second cause of action is that referred to in paragraphs 21 to 26 of the proposed draft statement of claim. It relies upon the constitution of the same bare trust and the same loan of A$410,000, but proceeds to alleged that on 15 September 1989 St Helier purported to waive repayment of the loan which it had purported to make to itself as trustee of "the Mutley Trust". The waiver, it is said was made without consideration so that the loan remained the property of the bare trust and thus of Mr Fuller, and became vested in Mr Wily upon the making of a sequestration order against Mr Fuller.

The third relevant cause of action is pleaded in paragraphs 36 to 45 of the proposed draft statement of claim. It too relies upon the constitution of the same bare trust but alleges that the purported loan by St Helier as trustee of this trust to itself as trustee of "the Mutley Trust" was ineffective on the basis that a contract of loan by a person to himself, albeit in another capacity is of no effect. In consequence it is said that the monies remained an asset of the bare trust until, in breach of that trust, St Helier paid in November 1986 the sum of A$410,000 to a third party. The right of action which Mr Fuller had in respect of that breach of trust vested, it is alleged, in Mr Wily upon the making of a sequestration order with the result that Mr Wily is entitled to relief against St Helier (and to have restoration of the funds).

It can be seen that in the first and third example given above a breach of trust is involved with the consequence that a right of action for the breach vested in Mr Wily. In the second example the cause of action is for recovery by Mr Wily of monies held in trust for Mr Fuller which vested in Mr Wily on the bankruptcy of Mr Fuller.

Counsel for the Fourth Respondent submitted that paragraph (l) of Order 8 Rule 1 had in none of these circumstances any relevance. First it was said that the proceedings were not concerned with the vesting of property under the Bankruptcy Act 1966 (Cth), a matter which would fall within paragraph (l) but rather with the question whether there was any asset which was, as at the time of the sequestration order property of Mr Fuller. Second it is said that a construction should be given to paragraph (l) consistent with Commonwealth power in respect of which jurisdiction was conferred upon the Court. So it was said that in truth the matters at issue in the proceedings concerned whether there existed a chose of action (which thereafter on the bankruptcy vested in Mr Wily); the question of whether the existence of the relevant chose in action was in each case a matter of rights existing at common law or in equity and thus the question was one of State, rather than Commonwealth power.

Then, it was said, that paragraph (l) should be given a conservative construction for it arose in the context of the Court's jurisdiction being extended so as to reach out to enforce rights against person neither domiciled nor resident in Australia.

Finally it was said, as a matter of ordinary construction in any event, that the proceedings neither concerned enforcement of, nor the effect of, the Bankruptcy Act 1976 .

With respect, none of these arguments can be accepted. It is true that the Bankruptcy Act does not deal specifically with the obligation of a trustee of monies held for the bankrupt to pay to the Trustee in Bankruptcy after a sequestration order has been made, monies so held in trust or damages for breach of a trust. Nor does it specifically deal with the ability of the Trustee in Bankruptcy to force the trustee of a bare trust to recover monies paid out in breach of trust. But to separate such matters from the vesting of property of the bankrupt in the trustee in bankruptcy is to create a narrow and arbitrary distinction which is not merited.

Under the Bankruptcy Act all items included within the expression "property of the bankrupt" vest on the making of a sequestration order in the Trustee in Bankruptcy: s 58(1). For present purposes choses in action of the kind here relevant are property of the bankrupt which vest in the Trustee: s 116(1). The bankrupt is obliged to give information to the Trustee and aid the realisation of the bankrupt estate: s 77. The Trustee is bound to take possession of all property of the bankrupt (at least that which is capable of manual delivery): s 129(1) and any person having possession or power or monies owing to the bankrupt is obliged to pay such monies over to the trustee: s129(4). While there may be circumstances where the Trustee in Bankruptcy may disclaim onerous property, it is generally correct to say that the Trustee in Bankruptcy is bound to collect, realise and distribute the property of the bankrupt which vests in him or her, even after discharge: Re Balhorn; Ex parte Balhorn and Official Trustee (1981) 39 ALR 223.

The Parliament is given under the Constitution power to make laws with respect to bankruptcy: s 51(xvii). The judicial power of the Commonwealth is vested in this Court by force of s 18 of the Federal Court of Australia Act (Cth). It is, at least generally speaking, vested only in respect of Federal matters, but subject, at least to accrued or pendant jurisdiction. Jurisdiction in bankruptcy is conferred upon this Court by s 27 of the Bankruptcy Act. The powers conferred upon the Court are dealt with expressly in s 30 of that Act. The Court is to decide all questions, whether of law or of fact in any case of bankruptcy: s 30(1)(a). There can be no doubt that the Parliament of the Commonwealth may legislate to confer jurisdiction upon this Court to decide not only whether property clearly in existence and admitted to exist vests in the Trustee in bankruptcy but also whether there exists property (such as a chose in action) which by force of Statute vests in the Trustee in Bankruptcy.

So, the Court may decide whether there has been a breach of trust which gives rise to a cause of action in the bankrupt which on bankruptcy vests in the Trustee in Bankruptcy as well, if the matter is in controversy, as whether that chose in action, if admitted to exist, in fact vested in the trustee. The segregation out of the issue of the existence of a chose in action, albeit that matters of equity and thus non federal law may be involved, from the issue of vesting would, to say the least, be artificial. The Rules should thus not be given the narrow construction which the Fourth Respondent submits.

A consequence, or effect, of the Bankruptcy Act is that any chose in action of the kind here in issue, which exists, vests in the Trustee in Bankruptcy. Likewise, the enforcement of the bankruptcy law, enshrined both explicitly and implicitly in the Bankruptcy Act and the scheme which it envisages requires where a breach of trust is alleged which vests on the bankruptcy in the Trustee, the Trustee bringing proceedings to enforce that chose in action. Such proceedings are either properly characterised as proceedings concerning the enforcement of the Bankruptcy Act or the effect of that Act. Thus, each of the alternative causes of action which I have described falls within Order 8 Rule 1(l) of the Federal Court Rules, with the consequence that no injustice would be done to the Fourth Respondent if amendment is permitted to raise for the first time these causes of action.

While it is true that Order 8 Rule 1 is concerned to extend the jurisdiction of the Court to claims against non residents of Australia and should not, unless the language requires, be given a construction which extends the jurisdiction beyond that which the comity of nations accepts, or requires, the construction which the Applicant advances of the Rule, so as to encompass the causes of action presently pleaded does not transgress any rule of international comity. Indeed it would be remarkable that the Trustee in bankruptcy would be foreclosed in the country of residence of the bankrupt from gathering in assets, albeit situated abroad, which being property of the bankrupt vest in the Trustee under the guise that such proceedings fall outside Order 8 Rule 1.

As already indicated, a cost order against the Trustee in bankruptcy provides sufficient compensation for any prejudice which the Fourth Respondent may have suffered, both in respect of some delays and in the hearing of the present motions. Such prejudice must be weighed against the prejudice to the Applicants as well as the public interest in ensuring that all matters of controversy in issue between parties are resolved in the one proceeding.

For these reasons I announced at the end of the hearing that I would permit amendment of the statement of claim, not only in respect of other Respondents but in respect also of the causes of action alleged against the Fourth Respondent. At the time of making that announcement I indicated that I would as soon as possible publish my reasons for so doing. This judgment fulfils that indication.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill

Associate:

Dated: August 1998

Counsel for the Applicants:	Mr G Palmer QC, with Mr J Chippindall
Solicitor for the Applicants:	M D Nikolaidis & Co
Counsel for the Second Respondents:	Mr S Lane
Solicitor for the Second Respondents:	Lempriere Abbott McLeod
Counsel for the Third Respondents:	Mr C J Caldicott
Solicitor for the Third Respondents:	Caldicott & Co
Counsel for the Fourth Respondent:	Mr B O'Brien
Solicitor for the Fourth Respondent:	Finlaysons
Mr M Fuller appeared in person and on behalf of the First Respondent
Dates of Hearing:	29, 30 and 31 July 1998
Date of Judgment:	10 August 1998