FEDERAL COURT OF AUSTRALIA

Prentice v Cummins (No. 4) [2002] FCA 1215

PRACTICE & PROCEDURE – application by respondents to put no case submission without electing whether or not to call evidence – respondents not alleged to have engaged in fraud.

Bankruptcy Act 1966 (Cth), ss 77, 81, 121(1)

Bankruptcy Legislation Amendment Act 1996 (Cth), Sch 1, [208]

Trade Practices Act 1974 (Cth)

Prentice v Cummins (No 1) [2002] FCA 1140, cited.

Prentice v Cummins (No 2) [2002] FCA 1165, cited.

Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344, cited.

Protean Holdings (Ltd) (Receivers and Managers Appointed) v American Home Assurance Co (1985) VR 187, applied.

Rasomen Pty Ltd v Shell Company of Australia Ltd (1997) 75 FCR 216, applied.

The Union Bank of Australia Ltd v Puddy [1949] VLR 242, cited.

Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1, cited.

Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557, cited.

MAXWELL WILLIAM PRENTICE & ANOR (together the Trustees of the property of John Daniel Cummins, a Bankrupt) v MARY ELIZABETH CUMMINS & ORS

N 7481 of 2001

SACKVILLE J

SYDNEY

2 OCTOBER 2002

PROCEDURAL RULING ON NO CASE SUBMISSION

the procedural course

1                     The nature of these proceedings and the reasons for the removal of the Bankrupt as a party appear in two earlier judgments: Prentice v Cummins (No 1) [2002] FCA 1140; Prentice v Cummins (No 2) [2002] FCA 1165.

2                     On the second day of the trial, at the conclusion of the case in chief for the applicants (“the Trustees”), Mr Brereton SC, who appeared with Mr Ashhurst for the respondents, informed the Court that he wished to make what is usually referred to as a no case submission in relation to several of the issues raised by the pleadings.  In particular, he foreshadowed that he wished to submit that the respondents had no case to answer in relation to the Trustees’ claims that

(i)                  the Bankrupt had transferred a share of the matrimonial home beneficially owned by him to the second respondent (“Mrs Cummins”) in August 1987 for the purpose of preventing the property from becoming divisible among his creditors;

(ii)                the Bankrupt had transferred 6,000 shares in Counsel’s Chambers Limited to Aymcopic Pty Ltd (“Aymcopic”), the trustee of the Cummins Family Trust, for the purpose of preventing those shares becoming divisible among his creditors; and

(iii)               the Bankrupt had transferred various sums of money to Mrs Cummins without consideration, for the purpose of preventing the funds becoming divisible among his creditors or, alternatively, at an undervalue.

3                     Mr Brereton accepted that the Trustees had adduced evidence capable of satisfying me, as the trier of fact, that other pleaded claims had been made out.  In particular, he accepted that such evidence had been adduced in connection with the Trustees’ claims that the Bankrupt was beneficially entitled, at the date of the bankruptcy, to one of the two issued shares in the third respondent, Hospitality Hire Pty Ltd, and that certain advances had been made to Mrs Cummins for no consideration.  Mr Brereton indicated that he did not wish to make a no case submission in respect of those claims.

4                     Mr Brereton proposed at the hearing that I should first address the question of whether the respondents should be permitted to advance the foreshadowed no case submissions only if they elected not to call evidence.  He invited me to follow the course taken by me in Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344.  In substance, this involved the respondents putting their arguments as to why they should not be required to make an election, in the course of which they would outline the nature of the no case submissions they intended to make.  The Trustees would then put their arguments on the election question and I would make a ruling as to whether the respondents should be permitted to make the no case submissions only if they elected not to call evidence.

5                     Mr Coles QC, who appeared with Mr Newlinds for the Trustees, initially protested that the foreshadowed no case application had taken him by surprise.  Without resiling from his protest, he nonetheless ultimately did not dissent from the course proposed by Mr Brereton.

6                     Mr Brereton then put the respondents’ contention that they should be permitted to make no case submissions without having to elect not to call evidence.  Mr Coles advanced arguments to the contrary.  I think it fair to say that the argument did not advert specifically to the question of whether, if the respondents were permitted to advance no case submissions only if they elected to call no evidence, that election would prevent them calling evidence on any issue in the proceedings or whether they would be prevented from calling evidence only on those issues covered by the no case submissions.

7                     At the conclusion of the argument, I said that I had formed a clear view that

“the general rule of practice ought to apply in this case.  That is to say…a decision will not be given on a no case submission unless the moving party elects to give no evidence”.

I stated that I would reduce my reasons for reaching this conclusion to writing.  I give those reasons later in this judgment.

8                     After I had given my ruling, Mr Brereton asked for time to consider his position.  The following exchange then took place:

“MR BRERETON:      Your Honour, the respondents will call no evidence on the issues concerning Hunters Hill [the matrimonial home] and Aymcopic [the trustee of the Cummins Family Trust], and in respect of the monetary transfers the respondents will call no evidence, save as to the cause of action pleaded in the last three paragraphs of the further amended statement of claim.

HIS HONOUR:           How is this going to work?  You wish to call some evidence in relation to the last three paragraphs pleaded in relation to the money claim?

MR BRERETON:         Yes, your Honour.

HIS HONOUR:           You wish to call some evidence in relation to---

MR BRERETON:         Hospitality Hire.

HIS HONOUR:           Hospitality.  If, for example, the evidence is from Mrs Cummins, what if Mr Coles says I want to ask her some questions about Hunters Hill?

MR BRERETON:         Well, that’s why your Honour needs to deal with the question as to whether there’s a case to answer first…”.

It will be seen from this exchange that Mr Brereton assumed that it was open to the respondents to make an election limited to the issues in respect of which the no case submissions were to be adduced.  In other words, he assumed that the respondents could make no case submissions on the issues he had identified, yet reserve their right to adduce evidence on the issues in respect of which he concedes that the Trustees had made out a prima facie case.

9                     Debate then ensued as to whether the course proposed by Mr Brereton was appropriate.  That debate had not concluded by the luncheon adjournment on the second day of the trial.

10                  Upon resuming after the adjournment, Mr Coles announced that the Trustees consented to my hearing the respondents’ application “in the manner foreshadowed”.  I then pointed out that there might be a reason why this was not the appropriate course, namely that the respondents’ election not to call evidence might apply to all issues in the proceeding, including those in respect of which the respondents did not intend to make a no case submission.  I indicated, nonetheless, that if the parties consented to the trial following the course proposed by Mr Brereton, I would not be disposed to stand in their way.

11                  In consenting to this course, counsel understood (as they later made clear) that I would deliver judgment on the respondents’ no case submissions before proceeding to the hearing of the remaining issues in the case.  This has the undesirable consequence that it will become necessary to adjourn the hearing until after judgment is delivered on the no case submissions.  I must confess that had I appreciated at the outset that this would be the consequence of the respondents being permitted to make no case submissions, I would have been very reluctant to entertain them.  However, the parties having consented to the proposed course, I consider that I should follow it.

reasoning on the election issue

12                  As Mr Brereton acknowledged, there is a general rule of practice that a party should not be permitted to make a no case submission unless he or she elects not to call evidence: Protean Holdings (Ltd) (Receivers and Managers Appointed) v American Home Assurance Co (1985) VR 187, at 238, per Tadgell J (with whom Fullagar J agreed); Rasomen Pty Ltd v Shell Company of Australia Ltd (1997) 75 FCR 216, at 223, per curiam.  The Court, however, retains a discretion as to whether to depart from the general rule.  In deciding which course to follow:

“the Judge will be guided by the nature of the case, the stage it has reached, the particular issues involved and the evidence that has been given.  The imposition of a requirement that the moving party make an election before the Judge entertains the submission, or before he rules on it, will depend on the just and convenient disposition of the litigation.”

Protean v American Home Assurance, at 238; Rasomen v Shell, at 223.  In this respect “caseflow management” principles are relevant, but the ultimate aim is the attainment of justice: Rasoman v Shell, at 224.

13                  Mr Brereton submitted that there were a number of reasons justifying a departure from the general rule of practice.

• First, the case was one in which fraud, in the sense of defrauding creditors, was an essential element of the Trustees’ claim.  It would be wrong (so it was argued) to suggest that the respondents should have to call evidence and submit to cross-examination before sufficient evidence of fraud is adduced to establish a prima facie case. This is especially so where the fraud alleged is that of a third party (the Bankrupt), in circumstances where the Trustees could have called him as a witness in their case.
• The no case submission could be addressed without assessing the credit of any witness.
• All respondents joined in the submission.
• Permitting the respondents to make the no case submissions “might well” save Court time and costs.  In oral argument, Mr Brereton estimated that perhaps a day might be saved.
• Although the respondents had not flagged their intention to make no case submissions in advance of the hearing, it had been evident from early in the hearing that the sufficiency of the Trustees’ evidence was to be challenged.  The Trustees were therefore not entitled to claim that they had been put at a disadvantage by the respondents’ intentions.

14                  As I noted in ACCC v Amcor, at 358, the authorities recognise that a departure from the general rule of practice is often justified where fraud is alleged against the moving party.  The statement of Fullagar J in The Union Bank of Australia Ltd v Puddy [1949] VLR 242, at 246, has frequently been cited.  His Honour said that where fraud is alleged

“it may often be wrong to suggest that a party should submit himself to cross-examination before it is seen that there is really some evidence against him.”

See also Protean v American Home Assurances, at 215, per Young CJ; at 236, per Tadgell J; Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1, at 9, per Finkelstein J.

15                  The case pleaded by the Trustees alleges that the Bankrupt, in August 1987, transferred substantial assets to Mrs Cummins and to Aymcopic to prevent those assets from becoming divisible among his creditors or to hinder or delay the process of making the assets available for division among his creditors.  Similar allegations are made in relation to certain transfers of money said to have been made by the Bankrupt to Mrs Cummins during the period 1992 to 1999.

16                  The pleaded allegations reflect the language of s 121(1) of the Bankruptcy Act 1966 (Cth) which is headed “Transfers to defeat creditors”.  Section 121(1) provides as follows:

“A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

(a)               the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and

(b)               the transferor’s main purpose in making the transfer was:

(i)                  to prevent the transferred property from becoming divisible among the transferor’s creditors; or

(ii)                to hinder or delay the process of making property available for division among the transferor’s creditors”.

This provision was inserted by the Bankruptcy Legislation Amendment Act 1996 (Cth), Sch 1, [208], and commenced on 16 December 1996.  The previous s 121 was headed “Fraudulent dispositions”.  It provided that a disposition of property “with intent to defraud creditors”, was subject to certain exceptions, void as against the trustee in bankruptcy. (A brief history of s 121 in its previous form is given by Kirby J in his dissenting judgment in Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557, at 587-589.)  The parties were in agreement that, although most of the relevant transactions occurred before 1996, it is s 121(1) in its current form that governs this case.

17                  It will be seen that s 121(1) in its present form concerns transfers where the transferor’s main purpose is to prevent the transferred property from becoming divisible among creditors or to hinder or delay the process of making property available for division among the transferor’s creditors.  Unlike its predecessor, s 121 does not require proof of intent to defraud.

18                  Nonetheless, I am prepared to assume that the pleadings in the present case, although not expressly alleging an intent to defraud, can be regarded as making allegations “analogous to a fraud case”: ACCC v Amcor, at 358.  Even so, I do not think that this is a significant factor supporting the respondents’ contention that they should be able to make no case submissions without electing not to call evidence.

19                  All the cases which have held that an allegation of fraud may justify a departure from the general rule of practice have involved an allegation of fraud against the party wishing to make the no case submission.  In ACCC v Amcor, for example, breaches of the Trade Practices Act 1974 (Cth) were alleged against each respondent.  In Compaq v Merry, it was alleged that the respondents had engaged in a “scam” to defraud Compaq: see at 9.  In Protean v American Home Assurance, an insurer defended a claim under a policy on the ground that the plaintiff, the insured, had engaged in arson and “gross fraud”: see at 236, per Tadgell J.

20                  The rationale for courts being readier to permit no case submissions in cases where fraud is alleged is that a defendant or respondent should not be required to give evidence and thereby submit to cross examination before (in the words of Fullagar J in Union Bank v Puddy) “it is seen that there is really some evidence against him [or her]”.  In the present case this rationale does not apply.  No allegation of fraud or impropriety is made against any of the respondents.  The only allegation of what might be described as impropriety is made against the Bankrupt.  He is not a party to the proceedings, having supported the motion by the present respondents that he should cease to be a party: see Prentice v Cummins (No 1).  It is difficult to see why the fact that allegations of improper conduct are made against the Bankrupt should be regarded as a significant factor supporting the respondents’ application to advance no case submissions without being put to their election.

21                  There are other reasons why a departure from the general rule of practice is difficult to justify in the present case.  In particular, any savings of court time are likely to be insubstantial.  Mr Brereton said that if he were permitted to make the no case submission the case might be shortened by a day.  He seems to have assumed, in making that estimate, that the respondents would be permitted to adduce evidence on the issues in respect of which they do not advance no case submissions.  On that assumption, the estimate that a day would be saved would seem to be optimistic.  (Indeed, as events have turned out, the estimate has proved to be singularly optimistic.)

22                  Furthermore, although Mr Brereton represents all respondents, this case is different from the usual one in which all respondents join in a no case submission.  The respondents wish to make no case submissions only in relation to some of the issues arising in the case.  On any view, some issues will remain and (on the approach taken by the respondents) will be the subject of further evidence.  In short, even if the no case submissions succeed, the case will not be at an end.

23                  I do not think that the fact that the Trustees have statutory powers to compel the production of documents or to conduct examinations of the Bankrupt and “examinable persons” (Bankruptcy Act, ss 77, 81) provides a reason to accede to the respondents’ application.  The principles relating to the no case submissions are founded on the need to promote the orderly and just conduct of trials.  Whether or not one of the parties has investigative powers conferred by statute would seem to have little relevance to the kinds of considerations that bear on whether another party should be permitted to make a no case submission without having to elect to call no evidence.

24                  I should add that, although I have concluded that the respondents should be required to elect, I have not been influenced by the fact that the Bankrupt’s conduct has attracted public attention.  As I understood Mr Coles, he submitted that the notoriety of the case should be taken into account because of the public interest in a full exploration of the Bankrupt’s affairs.  Doubtless there is a public interest in the proper investigation of the affairs of all bankrupts.  But any investigation must be carried out in accordance with the law and any dispute that arises in connection with the administration of the bankrupt estate must be resolved in accordance with proper principle.  The notoriety or otherwise of the case is irrelevant.

25                  Finally, I note that but for the agreement of the parties to which I have referred, a question would have arisen as to whether the respondents, as the price for being permitted to put no case submissions, would have been required to elect to adduce no evidence at all or merely to elect to adduce no evidence on the issues to which the no case submissions relate.  In view of the Trustees’ consent to the course proposed by the respondents, I need not address that question.

26                  It was for these reasons that I ruled that the respondents could advance no case submissions on the issues identified by Mr Brereton only if they elected to all no evidence.

Associate:

Dated:              2 October 2002