Federal Court of Australia
Bettles as trustee of the bankrupt estate of Bruce v Bruce [2021] FCA 1248
ORDERS
JASON WALTER BETTLES AS TRUSTEE OF THE BANKRUPT ESTATE OF DOUGLAS GRAHAM BRUCE Applicant | ||
AND: | Respondent |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to r 1.32 of the Federal Court Rules 2011 (Rules), the applicant have leave to withdraw the admission pleaded at paragraph 3(c) of the Reply filed 22 July 2020.
2. Pursuant to r 9.05(1) of the Rules, John Burleigh Bruce and Robert Charles Bruce be joined as respondent parties to this proceeding.
3. By a date to be fixed, the applicant be granted leave pursuant to r 16.53 of the Rules to file and serve a Further Amended Statement of Claim.
4. By a date to be fixed, the applicant be granted leave pursuant to r 8.21 of the Rules to file and serve an amended Originating Application to reflect the relief sought in the Further Amended Statement of Claim, and the joinder at paragraph 2 of these Orders.
5. The costs of the respondent of and incidental to this interlocutory application be paid by the applicant, such costs to be taxed if not otherwise agreed.
6. By 4.00 pm on 22 October 2021 the parties liaise and provide draft case management orders for consideration by Justice Collier.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
COLLIER J:
1 This matter has a somewhat lengthy procedural history. It was transferred to the Federal Court of Australia by the Supreme Court of Queensland on 22 May 2020, following proceedings originally commenced in the District Court of Queensland being transferred to the Supreme Court by consent.
2 Before me now is an interlocutory application filed by the applicant, Mr Jason Walter Bettles (the applicant) as trustee of the bankrupt estate of Mr Douglas Graham Bruce (the Bankrupt) on 15 September 2020. The respondent to the application, Mr Simon Douglas Graham Bruce (the respondent), is the son of the Bankrupt. In his interlocutory application, the applicant seeks the following interlocutory orders:
1. Pursuant to rule 9.05(1) Federal Court Rules 2011 (Rules), that Mr John Burleigh Bruce and Robert Charles Bruce be joined as respondent parties to this proceeding.
2. Pursuant to rule 16.53 of the Rules, that the Applicant be granted leave to file a further amended statement of claim.
3. Pursuant to rule 8.21 of the Rules, the Applicant be granted leave to amend the claim by filing an amended originating application to reflect the relief sought in the further amended statement of claim and the joinder at paragraph 1 (if granted).
4. Pursuant to rule 5.04 of the Rules, directions be made for:
a. the filing of a defence to the further amended statement of claim by the respondent;
b. the filing of a defence to the further amended statement of claim by Mr John Burleigh Bruce and Robert Charles Bruce (if the joinder at paragraph 1 is granted);
c. the filing of replies to the defences at 1. and/or b.;
d. the filing of any further affidavits of evidence to be relied on by applicant at trial;
e. the filing of any affidavits of evidence to be relied on by respondent at trial; and
f. the filing of any affidavits of evidence to be relied on by Mr John Burleigh Bruce and Robert Charles Bruce at trial (if the joinder in paragraph 1 is granted).
5. Pursuant to rule 16.53 of the Rules, the Applicant, in complying with the direction at paragraph 4c. herein, be granted leave to amend its reply to the further amended defence so as to withdraw the admissions pleaded at paragraph 3(c) and plead denials in lieu thereof.
6. Such further orders or directions the Court considers appropriate.
3 The respondent seeks an order that the application be dismissed, with costs.
Background
Background to the proceeding
4 The substantive proceeding to this application arises out of dealings involving three generations of the Bruce family, and a related discretionary trust named “JA Bruce Family Trust” (the Trust), of which Tarawa Consolidated Pty Ltd was the trustee (Tarawa). Mr John Alwyn Bruce (the Deceased) was the father of the Bankrupt and grandfather to the respondent. Including the Bankrupt, the Deceased had at least two other sons, Mr John Bruce and Mr Robert Bruce (whom the applicant now seeks joined to the present proceedings).
5 The Bankrupt was a director of a company called “Blue Water Jets Australia Pty Ltd” (Blue Water Jets), which entered liquidation on 23 March 2012.
6 On 27 October 2013, the Deceased passed away.
7 On 25 November 2013, the liquidator of Blue Water Jets demanded the sum of $252,500 from the Bankrupt (who was not bankrupt at the time) under threat of commencing proceedings against him.
8 The Deceased left a will dated 16 October 2010 (the Will). Probate of the Will was granted on 5 March 2014.
9 The Deceased’s estate relevantly consisted of approximately $10,000 cash and real property located in Waverton, New South Wales (the Waverton Property). At the Deceased’s date of death, the Waverton Property had a fair market value of at least $1.075 million.
10 The Bankrupt, Mr John Bruce and Mr Robert Bruce were appointed as executors of the Will. Importantly, pursuant to s 44(1) of the Probate and Administration act 1898 (NSW), title to the personal assets of the Deceased’s estate passed to them as executors.
11 Clauses 7 and 8 of the Will relevantly provided:
7. I declare that my son the said Douglas Graham Bruce [the Bankrupt] may, within six (6) months from the date of my death, purchase from my estate [the Waverton Unit] for the sum four hundred and fifty thousand dollars ($450,000.00) PROVIDED THAT in the event that my said son should not wish to purchase my said property THEN such property will form part of the residue of my estate.
8. I GIVE DEVISE AND BEQUEATH the rest and residue of my estate to such of my sons the said JOHN BURLEIGH BRUCE, DOUGLAS GRAHAM BRUCE and ROBERT CHARLES BRUCE as survive me in equal shares as tenants-in-common.
12 The Bankrupt did not elect to purchase the Waverton Property within six months from the date of the Deceased’s death (Disposal of Right).
13 In early September 2014, the Waverton Property was transferred to the respondent. The circumstances in which the transfer took place are contentious. In his Further Amended Defence, filed on 8 July 2020, the respondent contended at paragraph 9(c) that “in or about November 2013 or, alternatively, by no later than March 2014”:
(a) the Bankrupt disclaimed any interest as a beneficiary in the Will (the Disclaimer); and
(b) Mr John Bruce and Mr Robert Bruce, being the remaining residuary beneficiaries of the deceased estate, agreed that the executors of the estate should transfer the Waverton Property to the respondent (the Transfer Agreement).
14 By his Reply to the Further Amended Defence, filed on 22 July 2020, the applicant “[a]dmits the facts of [the Disclaimer and the Transfer Agreement], but disputes any denial of the truth of the matters pleaded in paragraph 9 of the Statement of Claim because the [Disclaimer and the Transfer Agreement] are entirely consistent with the Statement of Claim”.
15 Shortly after transfer of the Waverton Property, the remainder of the Deceased’s estate was administered by the executors, the assets of the residue having been determined upon the issuing of a final account from the solicitors of the estate.
16 On 19 November 2014, the liquidator of Blue Water Jets commenced proceedings in the District Court of Queensland against the Bankrupt and the respondent.
17 On 17 August 2015, judgment was entered in favour of the liquidator against the Bankrupt for the sum of $294,650.00 and the respondent for the sum of $33,783.66.
18 On 19 August 2015, Tawara, as trustee of the Trust, caused previously unpaid distributions owed to the Bankrupt and his wife to be paid to:
(a) the respondent, in the sum of $34,000; and
(b) Tarawa, in the sum of $32,382.28.
19 Between 25 and 29 October 2015, the Bankrupt caused a further $265,000 owed to him by the Trust to be paid to third parties.
20 In June 2015, after undertaking approximately $50,000 worth of renovations on the Waverton Property, including the installation of a new bathroom and ensuite, and the installation of a large hot water system, the respondent sold the Waverton Property for $1.62 million.
21 On 17 June 2016, the Bankrupt filed a debtor’s petition, and the applicant was appointed as trustee of his estate.
History of the substantive proceeding
22 Before turning to the interlocutory application at hand, it is useful to consider the history of the substantive proceeding. Helpfully this history is summarised by the respondent in his submissions:
32. By letter dated 15 May 2017, the Trustee wrote to the Respondent, and noted that:
(a) Douglas Bruce (described by the Trustee as "the bankrupt") had not elected to purchase the Waverton Unit, and was one of the Executors;
(b) the Waverton Unit had been transferred to the Respondent in September 2014;
(c) a distribution was made to the "residue beneficiaries" of the Deceased Estate, "whereby the bankrupt received $1391"; and
(d) the Waverton unit was sold in June 2015 for $1,620,000.
33. The Trustee then stated that he:
(a) considered the transfer included property of the bankrupt, who was then insolvent, and no consideration was given for that the transfer; and
(b) demanded $449,166 from the Respondent, being one third of the alleged value of the Waverton Unit, valued at $1,347,000 (being the difference between $1,075,000 and the sale price of $1,620,000).
34. In response, the Respondent's solicitors stated, by letter dated 22 November 2017, that:
(a) Douglas Bruce did not have a proprietary interest in the residue of the Deceased Estate because early in its administration he refused any and all interest in "the Will" and thereby became disentitled to a beneficial interest in the residue;
(b) Douglas Bruce received $1,391.60 from the residue of the Deceased Estate, but the payment was made by the estate's solicitors to finalise the estate without Douglas Bruce's knowledge and he had no recollection of receiving such payment;
(c) even if the Disclaimer had been ineffective, Douglas Bruce would not have received one third of the sale proceeds of the Waverton Unit because at the date of transfer there were outstanding duties of administration which bore upon the residue;
(d) on about 3 November 2014 the Respondent had borrowed $820,000, being 80% of a valuation of the Waverton Unit conducted by the Commonwealth Bank (which valued the unit at $1,025,000);
(e) while occupying the Waverton Unit, the Respondent expended a significant sum upon improvements and as such was entitled to be reimbursed;
(f) in addition, the Respondent was owed $154,153 by Douglas Bruce.
35. In response, by letter dated 6 December 2017, the Trustee asserted that:
(a) the bankrupt's right to due administration of the Deceased Estate vested in the Trustee and was "property" as defined in s.5 of the Bankruptcy Act; and
(b) the expected fruits of that chose in action was a one third interest in the Waverton Unit.
36. The Trustee then went on:
In the premises, nothing turns on whether or not any disclaimer occurred. In any event that assertion is incomplete. The bankrupt did more than merely disclaim; he joined with the other 2 beneficiaries and signing the transfer documents. …
Rather than debate the issue of whether or not the bankrupt subjectively knew that he had received this amount [of $1,391.60], the fact that a check in any amount on account of residue is capable of being drawn proves that all of the specific beneficiaries were paid their pecuniary legacies and all of the estate's creditors, if any, were paid.
…
In the premises I deny that the bankruptcy trustee lacks a cause of action; to the contrary the cause of action against your client is self-evident.
Proceedings are with counsel at present for settling. We anticipate filing very soon.
37. The proceeding was commenced on 15 March 2018, by Claim and Statement of Claim filed in the District Court at Southport. In the Statement of Claim, the Trustee made claims under ss.120 and 121 of the Bankruptcy Act, and made express reference to:
(a) the Will and the Executors (including the bankrupt);
(b) the Waverton Unit allegedly becoming part of the residue of the Deceased Estate (as to which the bankrupt was entitled to one third);
(c) the transfer of the Waverton Unit to the Respondent (the Transfer);
(d) the Trustee's asserted value of the Waverton Unit upon the Transfer, and the Trustee's claim for one third of that value;
(e) the bankrupt's receipt of $1,391.60 from the residue of the Deceased Estate; and
(f) the letter of demand dated 15 May 2017 issued by the Trustee (noted above).
38. The Respondent filed a Defence on 14 May 2018, which included the following matters that had been set out in the Respondent's solicitors' letter dated 22 November 2018:
(a) the bankrupt had made the Disclaimer by March 2014;
(b) John and Robert Bruce, as the residuary beneficiaries of the Deceased Estate, agreed that the Executors should transfer the Waverton Unit to the Respondent;
39. By his Reply filed on 18 May 2018, the Trustee admitted that the bankrupt had made the Disclaimer, and that John and Robert Bruce, as the remaining residuary beneficiaries, had agreed that the Executors should transfer the Waverton Unit to the Respondent.
40. Disclosure was undertaken by the parties in May 2018.
41. The Trustee delivered an Amended Statement of Claim on 19 December 2018, which added amendments to the Trustee's assertion as to the passing of the bankrupt's alleged right to due administration of the Deceased Estate to the Trustee on 17 June 2016.
42. An Amended Defence was filed on 18 January 2019, in which the Disclaimer was repeated in two additional paragraphs in the pleading; 88 and 8D.
43. Without filing a Reply to the Amended Defence, in June 2019 the Trustee filed an application to dispense with the Respondent's signature on a request for trial date. Orders were made on 13 June 2019 dismissing the application, after the request for trial date was signed by the Respondent's lawyers.
44. On 9 September 2019, the trustee filed a Notice to Admit Facts, which was answered by the Respondent.
45. On 13 January 2020 the Respondent filed a supplementary list of documents.
46. On 28 January 2020, an order for directions was made by Judge Kent QC, including that:
(a) the Trustee file a Reply to the Amended Defence;
(b) evidence in chief at the trial be given by affidavit;
(c) affidavits and submissions be delivered by 13 March 2020,
and the matters proceed upon a trial for one day on 16 March 2020.
47. On 29 January 2020, the Trustee filed a Reply to the Amended Defence.
48. No attempt was made to withdraw the Trustee's admission of the Disclaimer, in the Reply or as part of Judge Kent QC's directions.
49. The Trustee subsequently filed an affidavit of evidence in chief on 10 February 2020, which exhibited (inter alia) the letter of demand dated 15 May 2017 noted above.
50. On 16 March 2020, an order was made by Judge Muir adjourning the trial. The proceeding was subsequently removed to the Supreme Court and ordered to be transferred to this Court. The reason for the removal and transfer was concern as to whether the District Court had jurisdiction to entertain the proceeding, a concern wellfounded.
51. Following transfer of the proceeding to this Court, a directions hearing took place on 8 July 2020, at which time directions were made:
(a) setting the proceeding down for trial for one day on 16 September 2020;
(b) permitting the Respondent to file and serve a Further Amended Defence;
(c) for the filing of:
(i) a Reply to the Further Amended Defence;
(ii) a Statement of Agreed Facts and Issues for Determination;
(iii) submissions for trial by the parties.
52. Again, no attempt was made by the Trustee to withdraw his admission of the Disclaimer.
53. In accordance with the directions made on 8 July 2020:
(a) the Respondent filed a Further Amended Defence;
(b) on 22 July 2020 the Trustee filed a Reply in response (leaving the admission of the Disclaimer intact);
(c) the parties agreed upon and filed a Statement of Agreed Facts and Issues for Determination, the agreed facts including that Douglas Bruce had made the Disclaimer by March 2014; and
(d) the Trustee filed his trial submissions on 26 August 2020.
(Footnotes omitted).
23 The applicant submitted that his case as currently pleaded fails to:
(a) include Mr John Bruce and Mr Robert Bruce as parties, both of whom were involved in the transfer of the Waverton Property to the respondent;
(b) expressly address the Disclaimer as ineffective at law;
(c) address:
(i) the Bankrupt’s failure to exercise his option to purchase the Waverton Property within six months of the Deceased’s passing;
(ii) the Disclaimer if it did occur; and
(iii) the transfer of the Waverton Property to the respondent
as an “alienation of property, made … with intent to defraud creditors” pursuant to s 37A of the Conveyancing Act 1919 (NSW) (Conveyancing Act); and
(d) address the executors’ failure to administer the Deceased’s estate in accordance with their executors’ duties pursuant to the will.
24 Accordingly, the applicant filed this interlocutory application seeking to:
(a) join Mr John Bruce and Mr Robert Bruce as respondent parties;
(b) withdraw the admission made in his Reply to the Further Amended Defence; and
(c) further amend his Amended Statement of Claim (and Originating Application) to include new claims (including the joinder and withdrawal of admission).
submissions
25 In support of this interlocutory application, the applicant submitted, inter alia, that:
In circumstances where no trial date is presently allocated, it is unclear whether the joinder, amendments and/or withdrawal will materially delay the trial of this matter. However, with appropriate directions that would seem unlikely.
Mr John Bruce and Mr Robert Bruce have plainly been involved in the matter. Given the nature of their involvement, it would be surprising had they now forgotten relevant facts.
The admission of the Disclaimer was made erroneously by former Counsel without instructions to do so. The admission is contrary to the evidence and ought to properly be the subject of a denial. This is confirmed by the confused pleading traversing the Disclaimer by the applicant’s Reply to the Further Amended Defence.
The admission of the Disclaimer was not recognised by the applicant’s former solicitors who had carriage of the matter. The error was identified only recently by the applicant’s new solicitor, Mr William Fitzgerald, who assumed conduct of the matter.
If the applicant is not granted leave to further amend his Amended Statement of Claim to include the new claims insofar as they concern the respondent, rights referable to those claims will be lost to the applicant.
While the applicant could commence separate proceedings to pursue new claims, this potentially would give rise to a multiplicity of proceedings and the possibility of different findings in different proceedings.
The applicant, as trustee for the bankrupt estate, is performing an important role for the benefit of the public and creditors.
The respondent has received a windfall by participation in a scheme that has denied creditors a return. He does not, therefore, have clean hands.
Costs spent to date are sunk. The respondent has the benefit of a costs order from the adjournment and his rights in respect of costs thrown away by the proposed withdrawal and amendments. As to future costs, it is not obvious that the respondent’s costs will be materially more than they will be if the interlocutory application is dismissed.
26 Relevantly, the respondent submits that any amendment to the Originating Application, and whether leave is granted to join Mr John Bruce and Mr Robert Bruce as parties, will turn on whether leave is granted to deliver the applicant’s proposed Further Amended Statement of Claim.
27 In his written submissions, the respondent addressed the proposed Further Amended Statement of Claim in three parts.
28 First, in objecting to the withdrawal of the Disclaimer, the respondent submitted, inter alia, that:
The admission of the Disclaimer was made after the matter had been canvassed in pre-litigation correspondence. Accordingly, the respondent has prepared his case on the basis of the Disclaimer, and has prepared to give evidence on that basis.
The respondent has felt, and continues to feel, enormous stress and inconvenience from this proceeding.
Prior to this interlocutory application, the applicant viewed the Disclaimer as unimportant. Importantly, the applicant does not now assert that without the amendment, the applicant cannot proceed or succeed.
The applicant’s delay in bring this application is egregious, given that:
(a) the applicant rejected the Disclaimer as important in correspondence prior to commencing the main proceeding;
(b) the respondent has maintained the Disclaimer throughout the proceeding;
(c) until 8 September 2020, the applicant expressly and deliberately admitted the Disclaimer in his Reply, the Statement of Agreed Facts and in his trial submissions; and
(d) the applicant’s delay has caused the loss of a second date for trial.
Significant costs will be associated with withdrawing admission of the Disclaimer, including the need for new pleadings, further discovery, and further evidence and submissions. Further, the trial will increase in duration from one day to four days, much of which will be focussed on the administration of the Deceased’s estate and the executors’ duties, which do not concern the respondent.
The explanation offered for the delay in bringing the interlocutory application to amend is proffered by way of objectionable evidence.
The delay in bringing the interlocutory application is such that Mr Robert Bruce no longer recalls the details of the administration of the Deceased’s estate, which was finalised more than six years ago.
If leave is granted to the applicant to further amend his Amended Statement of Claim, detriment will be caused to other litigants in the Court as it could lead to the vacation of trial dates which could otherwise have been given to other litigants.
There is a potential loss in public confidence in the legal system if the Court is seen as acceding to applications made without adequate explanation or justification, as is the case in this interlocutory application.
29 Second, in objecting to the amendments relating to s 37A of the Conveyancing Act, the respondent submitted, inter alia, that the claims made by the applicant under s 37A have no genuine prospects of success because relevant acts were attributed solely to the Bankrupt, and no relevant knowledge on the part of Mr John Bruce and Mr Robert Bruce is pleaded.
30 Third, in objecting to the amendments relating to claims for maladministration of the Deceased’s estate, the respondent submitted, inter alia, that relevant limitation periods apply, particularly in relation to claims against Mr John Bruce and Mr Robert Bruce, and further that claims of maladministration have no genuine prospects of success.
further submissions at the Interlocutory hearing
31 In oral submissions at the interlocutory hearing on 3 February 2021, Counsel for the respondent made reference to the decision of Brady v Stapleton (1952) 88 CLR 322; [1952] HCA 62 (Brady v Stapleton), which was not included in the respondent’s outline.
32 Materially in Brady v Stapleton, prior to his bankruptcy a bankrupt disposed of assets to a related company (Company A), which in turn sold the assets to bona fide third parties for value. The trustee in bankruptcy sought orders including that Company A pay the trustee a sum of money equivalent to the money realised on the sale of the assets, on the basis that the trustee was entitled to a declaration that the alienations by the bankrupt of the assets were void as against him. The judge at first instance found that the proceeds of sale of the assets to the bona fide third parties could not be identified. At 333 Dixon CJ and Fullagar J observed:
The protection given by 13 Eliz. 1, c. 5, [the Statute of Elizabeth] to bona fide purchasers for value extends both to the immediate assignee of the fraudulent debtor and to assignees of that assignee. And a fraudulent assignment by a debtor is not held void where the effect of so holding would be to defeat either a purchaser for value without notice from the fraudulent debtor or a purchaser for value without notice from an assignee of the debtor, whether that assignee were himself a purchaser for value without notice or not….
…
The truth seems to be that, although the statute uses, and most emphatically uses, the word "void", the courts have always treated a fraudulent assignment as effective unless and until a creditor or creditors intervene by levying execution or taking legal proceedings….
33 Their Honours subsequently said at 334:
… if the position created by the statute is that which is indicated in those cases, one can find no basis for a personal liability on the part of the company in the present case. It is only on the footing that the company sold something to which it had no title or that the sale was otherwise wrongful when made, that a personal liability on the part of the company could be based. But the company, when it sold the assets in question, sold something to which it had a title, albeit a defeasible title. The sale was not wrongful when made. If the company was selling something to which it had no title, it might well be that the trustee in bankruptcy could claim to stand in the shoes of the true owner, the bankrupt, and maintain money had and received. But this is not the position. The company had a title, though a defeasible title. The defeasance has, in the event, taken place, but it cannot relate back so as to make a sale by the company wrongful and impose a personal liability on the company.
34 Their Honours concluded that the primary judge in that case was right in refusing to declare that the assignments to Company A of the property in question were void, and in refusing to make any consequential order.
35 In light of this, Counsel for the respondents submitted the following:
Section 37A of the Conveyancing Act reflects the terms of the Statute of Elizabeth, in that the relevant title is defeasible but nonetheless exists.
The purchaser of the Waverton Property in June 2015 was plainly a bona fide third party purchaser for value.
“Voidable”, in the context of s 37A of the Conveyancing Act, is not “void”.
There is no avoiding the transfer of the Waverton Property to the June 2015 purchaser under the Statute of Elizabeth provision.
The applicant’s claim under s 37A of the Conveyancing Act cannot withstand challenge on a summary basis.
36 At the request of the applicant I ordered the applicant to file and serve submissions relevant to points of law explained in Brady v Stapleton. The applicant filed these submissions on 10 February 2021.
37 In his submissions, the applicant adopted as correct, and incorporated by reference, the consideration of the effect and scope of application of Brady v Stapleton given by Besanko, Farrell and O’Callaghan JJ in Zreika v Royal [2019] FCAFC 82. Relevantly their Honours observed:
106. With respect to the first group of orders, Brady v Stapleton stands for the proposition that if there is a purchaser in good faith without notice who acquires property from an assignee of the fraudulent debtor (who is not himself or herself a bona fide purchaser for value without notice), then the only remedy for the defrauded creditors against the assignee is a tracing remedy. There is no personal remedy which the defrauded creditors may seek against the assignee, even if the assignee is aware of the fraudulent debtor’s intention to defraud creditors. In order to trace, the defrauded creditors must be able to identify the proceeds of sale in the assignee’s hands.
38 In light of the principles as found in Brady, the applicant conceded that the personal relief he sought in the form of damages or equitable compensation for breach of trust against the respondent, Mr John Bruce and Mr Robert Bruce, and damages for breach of duty against Mr John Bruce and Mr Robert Bruce, was not available. Accordingly, the applicant abandons these points of relief.
39 However, insofar as the applicant seeks the joinder of Mr John Bruce and Mr Robert Bruce, the applicant submitted that the balance of the substantive relief sought (declarations as to invalidity of the impugned transactions and declarations of constructive trust, consequent upon the said declaration of invalidity) are not personal remedies.
40 The applicant accepted, therefore, that the declarations as to invalidity as formulated in the proposed Further Amended Statement of Claim ought be recast prior to filing, to be in terms similar to those made by Clyne J at first instance in Brady v Stapleton (at [6] therein) and the declarations of constructive trust replaced with claims for tracing (reflecting the Bankrupt’s 1/3 interest in the Waverton Property). The applicant acknowledged accordingly that necessary revisions would need to be made to the proposed Further Amended Statement of Claim to demonstrate an entitlement to that relief.
41 As to the tracing, the applicant submitted that, whether funds were in fact received from the respondent (or anyone else) on the transfer to him or upon his on sale of the Waverton Property, and whether those funds could be identified, is a matter for a defence and discovery.
42 The respondent filed submissions in reply on 17 February 2021. In summary, the respondent submitted that:
As noted by the Full Court of the Federal Court at [106] in Zreika, in order to trace, creditors must be able to identify the proceeds of sale in the assignee’s hands. Accordingly, were the applicant to proceed on a cause of tracing, it would involve making and proving specific allegations as to the continued existence of proceeds of sale in the respondent’s hands. This would require further disclosure, further evidence on the part of the applicant, and responsive evidence from the respondent.
If the Court grants leave, by the time the applicant has delivered a viable Further Amended Statement of Claim and further interlocutory steps are undertaken to ready the proceeding for trial, the likelihood of the trial proceeding, and judgment delivered, prior to late 2022, seems doubtful.
Consideration
Joinder of Mr John Bruce and Mr Robert Bruce as respondents
43 The applicant has applied for Mr John Bruce and Mr Robert Bruce to be joined pursuant to r 9.05(1) of the Federal Court Rules 2011 (Cth) (Federal Court Rules), which provides:
(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.
44 On balance, I consider that it is appropriate for Mr John Bruce and Mr Robert Bruce to be joined as respondents to the proceedings, in circumstances where:
Mr John Bruce and Mr Robert Bruce were joint executors of the estate of the Deceased with the Bankrupt at the time of the alleged Disclaimer;
following the reduction of the Bankrupt’s interest in the residuary of the deceased estate from one third to nil following the alleged Disclaimer, prima facie the interest of Mr John Bruce and Mr Robert Bruce in the deceased estate increased;
the applicant seeks to press claims against Mr John Bruce and Mr Robert Bruce in relation to their role in the transfer of the Waverton Property to the respondent; and
I am not satisfied at this stage that the authority of Brady v Stapleton would be a complete answer to any claims by the applicant against Mr John Bruce and Mr Robert Bruce.
Withdrawal of admission
45 While the applicant seeks to more broadly amend the pleadings, the parties have specifically identified as important the withdrawal of an admission concerning the Disclaimer, made by the applicant in the Reply as currently filed.
46 Relevantly, at para 9 of the Amended Statement of Claim the applicant pleaded:
9. On a date and time that the Plaintiff is unable to particularise until after disclosure in these proceedings, the bankrupt’s two brothers voted, apparently in the absence of the bankrupt, to allow the Waverton property to pass to the Defendant subject to the Defendant meeting all duty payable and transfer expenses (“the “vote””).
47 In the Further Amended Defence filed 8 July 2020 the respondent relevantly pleaded:
9. As to paragraph 9 of the Amended Statement of Claim:
…
(c) in or about November 2013 or, alternatively, by not later than March 2014:
(i) the bankrupt disclaimed any interest as a beneficiary under Mr J A Bruce’s will and in Mr J A Bruce’s deceased estate;
(ii) Mr John Burleigh Bruce and Mr Robert Charles Bruce, being the remaining residuary beneficiaries of the deceased estate of Mr J A Bruce, agreed that the executors of the estate of Mr J A Bruce should transfer the Waverton property to the Respondent Defendant;
(iii) Tarawa, as trustee of the JA Bruce Family Trust, agreed to meet:
(A) the liability for the pecuniary legacies specified in the will of Mr J A Bruce; and
(B) all funeral expenses and liabilities, and other administrative expenses, of the deceased estate of J A Bruce.
48 In the Reply filed 22 July 2020 the applicant relevantly pleaded:
3. As to paragraphs 7, 9 and 11(a) of the Defence, the Applicant:
…
…
(c) Admits the facts of paragraph 9(c)(i)&(ii), but disputes any denial of the truth of the matters pleaded in paragraph 9 of the Statement of Claim because the facts pleaded in paragraph 9(c)(i)&(ii) are entirely consistent with the Statement of Claim.
49 Rule 1.32 of the Federal Court Rules empowers the Court to make any order that the Court considers appropriate in the interests of justice. In the context of an application to withdraw an admission, the equivalent provision in the Uniform Civil Procedure Rules 1999 (Qld) was examined by Bradley J in Davies v Davies (No 1) [2019] QSC 293 as follows:
[45] The court has a broad power to make “any order or direction about the conduct of a proceeding it considers appropriate” that may be engaged to grant leave to withdraw an admission. The interests of justice are paramount in determining whether an order or direction should be made. The broad power is to be applied with the objective of “avoiding undue delay, expense and technicality” and facilitating “the just and expeditious resolution of the real issues ... at a minimum of expense.” The court’s inherent power to control and supervise proceedings extends to granting such leave where that is an “appropriate action to prevent injustice”.
[46] A party seeking leave to withdraw an admission should identify the reason for the withdrawal, explain how the admission came to be made, and identify any prejudice that may be caused if the application is refused. The stage of the proceeding, the prospects of the party succeeding on the issue if the admission is withdrawn, any prejudice to other parties if the admission is withdrawn, and any other matter affecting the administration of justice should be considered to determine how the interests of justice may be served, consistently with the express objective of the rules. All of these matters may inform the exercise of the discretion under r 367 or the court’s inherent power.
(Footnotes omitted).
50 Similarly in Patten v Motor Traders’ Association of New South Wales [2018] NSWSC 392 Lonergan J observed:
18. The Court has a broad discretion to weigh up all relevant matters to decide whether to grant leave to withdraw an admission. The overarching requirement is to ensure that there is a fair trial: SLE Worldwide v WGB [2005] NSWSC 816 at [16] and [56]. As set out in the often quoted passage from Drabsch v Switzerland General Insurance Co Ltd (Supreme Court (NSW), Santow J, 16 October 1996, unrep).
(1) The question is one for the reviewing judge to consider in the context of each particular matter, with the general guideline being that the person seeking on a review to withdraw a concession made should provide some good reason why the judge should disturb what was previously common ground or conceded.
(2) It will usually be appropriate to grant leave to withdraw an admission where it is shown that the admission is contrary to the actual facts.
(3) Leave may also be appropriate where circumstances show that the admission was made inadvertently or without due consideration of material matters.
(4) Irrespective of whether the admission has or has not been formally made, leave may be refused if the other party has changed its position in reliance upon the admission.
19. Another often quoted summary of the relevant factors to consider is that of Debelle J in Centrestate Exports Pty Ltd v Amarantos Shipping Co Ltd [2005] SASC 158 at [32] which refers to the overriding consideration being the interests of justice, examining the circumstances in which the admission was made, whether the admission was made deliberately or inadvertently, the reason given for the application to withdraw, the detriment or prejudice which might be caused to the other party and the stage that the proceedings have reached.
51 The nature of disclaimer of a testamentary gift has been explained in such cases as Townson v Tickell (1819) 3 B. & Ald. 31 where Abbott CJ observed (at 36, 37):
The law certainly is not so absurd as to force a man to take an estate against his will. Prima facie, every estate, whether given by will or otherwise, is supposed to be beneficial to the party to whom it is so given. Of that, however, he is the best judge, and if it turn out that the party to whom the gift is made does not consider it beneficial, the law will certainly, by some mode or other, allow him to renounce or refuse the gift.
52 See also In re Stratton’s Disclaimer, Stratton v Inland Revenue Commissioners [1958] Ch 42, In re Paradise Motor Co Ltd [1968] 1 WLR 1125, JW Broomhead (Vic) Pty Ltd v JW Broomhead Pty Ltd (1985) VR 891 at 934, and core principles outlined in GE Dal Pont Law of Succession (3rd edition) (LexisNexis 2021) at 7.42-7.46.
53 On balance, and notwithstanding the potential delays in the progress of the proceeding towards trial, I consider that the applicant ought be allowed to withdraw the relevant admission.
54 First, the effect of a disclaimer, or otherwise, by the Bankrupt in relation to the Waverton Property, is an issue of potential relevance in the context of the primary proceedings, where the interest of the trustee in bankruptcy in respect of the Waverton Property is in contention. It is not for the Court at this stage to form any views concerning the efficacy or otherwise of the Disclaimer, or the merits of the applicant’s case against the respondent (or prospectively Mr John Bruce and Mr Robert Bruce).
55 Second, the applicant submitted, in substance, that the admission in the Reply of the Disclaimer was an error on the part of previous Counsel, and in fact contrary to the evidence before the Court. Evidence to this effect was given by Mr William Fitzgerald, the lawyer for the trustee.
56 The applicant trustee in bankruptcy has obligations, and exercises powers, in the nature of a statutory trust, in accordance with the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) and related subordinate legislation. The trustee discharges a public duty imposed by the Bankruptcy Act, to be performed conformably with the trustee’s obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors’ claims and any possible surplus for the bankrupt: Adsett v Berlouis (1992) 37 FCR 201; [1992] FCA 368 at 208, Young v Thomson (formerly trustee of the property of Young) (2017) 253 FCR 191; [2017] FCAFC 140 at [112]. In my view the serious nature of this duty is a relevant consideration in assessing the exercise of the Court’s discretion to permit the trustee to plead a case it claims more accurately reflects its position.
57 Further, to the extent that the respondent submitted that the evidence of Mr Fitzgerald was objectionable, I note that this evidence was tendered in support of an interlocutory application. Evidence at an interlocutory level may be acceptable notwithstanding that it is sketchy and would be inadequate at the final hearing: Victorian Egg Marketing Board v Parkwood Eggs Pty Ltd (1978) 33 FLR 294; [1978] FCA 27, Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2016] FCA 1225 at [13]. For the purposes of the present interlocutory proceedings, I am prepared to accept Mr Fitzgerald’s evidence in respect of the reason the applicant seeks to withdraw the admission.
58 Third, although the respondent submitted that he would be prejudiced by the withdrawal of the admission, including by reference to the present stage of the proceedings, the hearing has already been adjourned (namely on 11 September 2020) with costs awarded against the applicant. Other than the preparation of material for this litigation, there is no evidence that the respondent has otherwise changed his position referable to the admission of the Disclaimer by the applicant.
59 On such evidence as is before me, the award to the respondent of his costs thrown away by the withdrawal of the admission would appear to be adequate compensation for any prejudice suffered by the respondent referable to trial costs wasted.
60 The present case is not one where the applicant has sought to withdraw an admission after the trial has actually commenced. To that extent, it is not analogous with, for example, Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 where a plaintiff applied for adjournment of a trial after the relevant trial had commenced to enable it to amend its statement of claim.
61 Finally, the interests of justice, including that the trial be fair to all parties, appear to support an order permitting the applicant to withdraw an admission it contends was incorrectly made.
62 In conclusion I note that the applicant’s admission of the Disclaimer was made in his Reply to the respondent’s Further Amended Defence as currently filed. In circumstances where the applicant has sought leave to further amend his Amended Statement of Claim and Originating Application, I anticipate that the respondent may in turn need to further amend his Further Amended Defence. As matters presently stand, I do not consider it would be utile for me to specifically grant leave to the applicant to deny the Disclaimer – the withdrawal of the admission, and leave to amend the pleadings (to which I will shortly turn) in my view allows the applicant to do so.
63 The appropriate way forward is to grant leave to the applicant to withdraw the admission pleaded in his Reply filed 22 July 2020.
Further amendments of Amended Statement of Claim and Originating Application
64 The applicant seeks leave to file a Further Amended Statement of Claim pursuant to r 16.53 of the Federal Court Rules. He also seeks leave to file an Amended Originating Application pursuant to r 8.21 of the Federal Court Rules to reflect the relief sought in the Further Amended Statement of Claim and the joinder of Mr John Bruce and Mr Robert Bruce as respondent parties.
65 The proposed Further Amended Statement of Claim was annexed as exhibit “WF-1” to the affidavit of Mr Fitzgerald affirmed 19 November 2020. I have already outlined the submissions of the applicant concerning the effect of legal principles articulated in Brady v Stapleton, and their relevance to the claims the applicant seeks to make following amendment of the pleadings.
66 Rule 16.53 of the Federal Court Rules provides that, unless r 16.51 applies, a party must apply for the leave of the Court to amend a pleading. The rule was discussed by the Full Court in Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2. In particular the Court observed:
122. Whilst the power to grant, or refuse, an application to amend the originating application and to further amend the amended statement of claim under rr 8.21(1) and 16.53 of the Federal Court Rules 2011 (Cth) respectively is discretionary, some care is called for, as the plurality in Aon pointed out at [89], in characterising this as a very wide discretion. The discretion is not at large. … [T]he objectives in s 37M of the Federal Court of Australia Act 1976 (Cth) are to be sought in the exercise of the powers given by r 8.21(1) to amend the originating applications and by r 16.53 to further amend the statements of claim.
67 Their Honours in Tamaya noted with approval the following comments by Gleeson J (as her Honour then was) at first instance (Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098) in relation to amending pleadings:
127. The principles articulated by the High Court in Aon apply to matters in this Court: Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; (2010) 187 FCR 261 (“Cement Australia”) at [43]. Relevant matters the Court is to consider include:
(1) The nature and importance of the amendment to the party applying for it: Aon at [102];
(2) The extent of the delay and the costs associated with the amendment: Aon at [102];
(3) The prejudice that might be assumed to follow from the amendment, and that which is shown: Aon at [5], [100] and [102];
(4) The explanation for any delay in applying for that leave: Aon at [108]; and
(5) The parties’ choices to date in the litigation and the consequences of those choices: Aon at [112] and Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75 (“Luck”) at [44];
(6) The detriment to other litigants in the Court: Aon at [93], [95] and [114] and Luck at [44]; and
(7) Potential loss of public confidence in the legal system which can arise where a court is seen to accede to applications made without adequate explanation or justification: Aon at [5], [24] and [30].
128. The weight to be given to the considerations identified in Aon, individually and in combination, and the outcome of the balancing process, may vary depending on the facts in the individual case: Cement Australia at [51].
68 Similar considerations were recently identified by Besanko J in Roberts-Smith v Fairfax Media Publications Pty Ltd (No 5) [2020] FCA 1067 at [15]-[23].
69 Rule 8.21 provides:
Amendment generally
(1) An applicant may apply to the Court for leave to amend an originating application for any reason, including:
(a) to correct a defect or error that would otherwise prevent the Court from determining the real questions raised by the proceeding; or
(b) to avoid the multiplicity of proceedings; or
(c) to correct a mistake in the name of a party to the proceeding; or
(d) to correct the identity of a party to the proceeding; or
(e) to change the capacity in which the party is suing in the proceeding, if the changed capacity is one that the party had when the proceeding started, or has acquired since that time; or
(f) to substitute a person for a party to the proceeding; or
(g) to add or substitute a new claim for relief, or a new foundation in law for a claim for relief, that arises:
(i) out of the same facts or substantially the same facts as those already pleaded to support an existing claim for relief by the applicant; or
(ii) in whole or in part, out of facts or matters that have occurred or arisen since the start of the proceeding.
Note: For paragraph (1)(b) and the avoidance of multiplicity of proceedings, see section 22 of the Act.
(2) An applicant may apply to the Court for leave to amend an originating application in accordance with paragraph (1)(c), (d), (e) or subparagraph (g)(i) even if the application is made after the end of any relevant period of limitation applying at the date the proceeding was started.
(3) However, an applicant must not apply to amend an originating application in accordance with subparagraph (1)(g)(ii) after the time within which any statute that limits the time within which a proceeding may be started has expired.
Note 1: Applicant, claim and originating application are defined in the Dictionary.
Note 2: For the Court's power to make rules amending a document, see section 59(2B) of the Act.
Note 3: Rule 9.05 deals with joinder of parties by court order.
70 In relation to the joinder of respondent parties and the withdrawal of the relevant admission, I have already noted the importance of proposed amendments to the Amended Statement of Claim, the appropriateness of a costs order in favour of the respondent for costs otherwise thrown away, and the absence of other apparent prejudice to the respondent from amendment to the pleadings.
71 The delay in seeking the amendments by the applicant was explained by the applicant as referable to identification by its new solicitor of the need for amendment, including the mistaken admission of the Disclaimer. While not in my view a particularly compelling explanation, it is nonetheless plausible and, as I have already observed, supported by evidence of the applicant’s lawyer.
72 I have noted the present stage of this litigation, and that, given the trial was adjourned in 2020, amendments to the pleadings would not result in detriment to other litigants in the Court by disruption of the trial dates. I have also noted the apparent appropriateness of joining Mr John Bruce and Mr Robert Bruce as respondents to the proceedings, referable to the administration of the deceased estate and events relating to the Waverton Property.
73 Following the exchange of submissions by the parties concerning Brady v Stapleton, and the concession by the applicant of the need for “revision” of the draft Further Amended Statement of Claim annexed to the affidavit of Mr Fitzgerald, that document is now of limited assistance. Certainly it would not be appropriate to order the applicant to file a document in the form of that annexure.
74 However, given the joinder of new respondents and the withdrawal of the relevant admission, there is a clear basis for further amendment of the Amended Statement of Claim and of the relief claimed in the Originating Application.
75 The applicant has explained, in his submissions and by reference to the exhibit annexed to Mr Fitzgerald’s affidavit, the nature of the amendments he proposes to make to his pleadings. Notwithstanding the applicant’s concession concerning the application of principles in Brady v Stapleton, the nature of the claims he proposes to press are tolerably clear. In my view the appropriate way forward is to grant the applicant leave to file a Further Amended Statement of Claim.
76 The applicant should also be granted leave to amend his Originating Application pursuant to r 8.21 of the Federal Court Rules to include new claims for relief. Again, however, costs of the respondent thrown away by this amendment will be at the feet of the applicant.
77 The respondent submitted that, in the event that the Court were minded to permit amendment of the Originating Application to enable fresh claims to be pleaded, the Federal Court Rules are not intended to apply in a manner that would deny a limitation defence: Ethicon Sarl v Gill (2018) 264 FCR 394; [2018] FCAFC 137 at [47]. Accordingly, the respondent submitted that any leave ought be granted only on the basis that the amendments take effect from the date of the order granting leave to amend.
78 Rule 9.05 of the Federal Court Rules relevantly provides:
(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
79 In Ethicon Sarl the Full Court observed:
47. Be that as it may, the point of principle raised by the respondents has substance for two reasons. The first is that it is somewhat an overgeneralisation to say that the “usual position” is that an amendment of a statement of claim takes effect from the commencement of the proceeding. As Perram J explained in Voxson Pty Ltd v Telstra Corporation Limited (No 7) [2017] FCA 267; 343 ALR 681, the former rules provided that a respondent should not generally lose its right to a successful limitation defence where an amendment arose out of facts which were not substantially the same by making provision for an “otherwise order”: see former O 13, r 3A. Notwithstanding the new rules were not intended to operate differently, there is no analogue under the current rules to the former O 13, r 3A. Although it is undoubtedly the case in ordinary inter partes litigation, that amendments often take effect from the commencement of the proceeding, this is in circumstances where the amendment is to add a claim between existing parties that arises out of the same or substantially the same facts. This flexibility operates as an amelioration of the rule of practice established by Weldon v Neal (1887) 19 QBD 394. As the case law has developed, to the extent that there is a usual position, it is as explained by Brereton J in Street & 7 v Luna Park Sydney Pty Ltd [2006] NSWSC 230 at [46] to [47]:
It is true that ordinarily “an amendment, duly made, takes effect, not from the date the amendment is made, but from the date of the original document which it amends” [Baldry v Jackson [1976] 2 NSWLR 415, 419 (Samuels JA)]. Since Baldry v Jackson, there has been considerable judicial discussion of this “relation-back” doctrine, in the context of limitation periods … Generally, these cases have dealt with the relation-back doctrine in the context of two categories of amendments: those which would add a new defendant after the applicable limitation period against that defendant had expired, and those which would introduce a new cause of action after the limitation period for its commencement had expired.
As to the first, it is clear that the relation-back principle does not apply to an amendment which adds a party: where a party is added, proceedings against it are commenced only at the date of its joinder, so that the relation-back doctrine does not deprive a party joined after expiry of a limitation period of its limitation defence…
80 Insofar as I can ascertain, the principles explained by the Full Court in Ethicon Sarl are not disputed by the applicant. Accordingly :
To the extent that the applicant seeks to amend the Originating Application in respect of the relief sought against the present respondent, r 8.21(2) appears to contemplate amendments even if the application is made after the end of any relevant period of limitation applying at the date the proceeding was started.
However in respect of the joinder of Mr John Bruce and Mr Robert Bruce as respondent parties, the combination of r 9.05(3) and principles explained by the Full Court in Ethicon Sarl limit the relief available against them by reference to limitation periods otherwise applicable.
81 In my view the legal principles are clear, and require no further qualification in the orders.
Conclusion
82 On 11 September 2020 when the hearing was adjourned, I ordered that the applicant pay the costs of the respondent thrown away by reason of the adjournment, such costs to be taxed if not otherwise agreed. However, this order only concerned costs relating to the adjournment of the hearing. Now, well into the litigation, the applicant has sought amendments to his originating process, the joinder of parties and the withdrawal of an admission. Inevitably the respondent will need to not only review his own defence in light of amended pleadings of the applicant, but also evidence filed.
83 In my view, notwithstanding that the applicant has been successful in respect of the interlocutory application, the costs of the respondent of and incidental to the interlocutory application should be borne by the applicant.
84 I will direct that the parties provide draft timetabling orders to progress the matter.
I certify that the preceding eighty-four (84) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Collier. |
Associate: