IAI AUSTRALIA II PTY LTD -v- CONNEMARA HOLDINGS PTY LTD [2011] WASC 340 (6 December 2011)

(1) the Lessor validly terminated the lease on 12 October 2011, alternatively 10 November 2011;

(2) thereupon the Lessor has been entitled to exclusive possession;

(3) the Lessee has had no rights to the emblements (crops) since the termination; and

(4) a declaration that all crops harvested since the termination date belong to the Lessor.

The Lessor also seeks orders for vacant possession of the Land and an injunction restraining the Lessee from harvesting the crop.

4 The Lessee has granted a fixed and floating charge to the National Australia Bank Ltd (the Bank). By cl 1.4, there is a fixed charge over all of the present and future rights and interests of the Lessee in any leases. By cl 1.5, there is a floating charge over all other property of the Lessee. Clause 1.6 sets out circumstances in which the floating charge crystallises. It is neither necessary nor appropriate to determine, for the purpose of this application, whether the floating part of the charge has crystallised.

5 As I have said, in this action the Lessor claims an entitlement to possession of the property.

6 In correspondence with the Lessor's solicitors, the Bank has, by its solicitors, asserted, in effect, that its charge applies to the Lessee's interest in the lease, and that the charged property includes the crop and any realisations of the crop.

7 Counsel for the Lessor submits that the Bank has not articulated a convincing basis for its assertions. In my view, given the terms of the charge to which I have referred, it cannot be said that the Bank's assertions are so plainly untenable that its claimed entitlements can be dismissed for the purposes of joinder.

8 The test to be applied in considering whether joinder of a party is necessary is well settled. A person must be added as a party if any order which might be made in the proceedings would directly affect that person's rights against or liabilities to a party to the action. That test involves matters of degree and judgment, having regard to the practical realities of the case and the nature and value of the rights and liabilities of the third party which might be directly affected: News Ltd v Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410, 525; Homestyle Pty Ltd v City of Belmont [1999] WASCA 59 [30] [31]; Tiao v Lai [No 2] [2010] WASCA 189 [109] [111].

9 Where orders sought by a plaintiff establish or recognise a proprietary interest in land, chattels or a monetary fund, all persons who have or claim an interest in the subject matter are necessary parties. That is because an order in favour of the claimant will, to a corresponding extent, be detrimental to others who claim an interest: News Ltd v Australian Rugby Football League (524 525); John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 [132].

10 In my view, that reasoning applies by analogy in this case. Here, the Bank claims an interest in the lease. The Lessor claims the lease has been terminated. Acceptance of the Lessor's claim is liable to defeat, or directly affect, the Bank's claimed interest as chargee of the Lessee's interest in the lease.

11 Consequently, I reject the Lessor's submission that the question of joinder of the Bank need not be determined, or is not appropriately determined, until after the court has determined the issue of validity of termination of the lease. In my view, the Bank has a relevant interest in whether the lease has been terminated. The Bank should be a party to the action and should be bound by the court's determination of that issue.

12 At the hearing of this application, counsel appeared for the Bank but did not seek to advance any submissions. The Bank is aware of the proceedings and has not applied to be joined. That is by no means determinative: John Alexander's Clubs [140].

13 The Lessee also applies for an order joining various persons and companies as third defendants. Those proposed parties are guarantors of the Lessee's liability to the Bank under a deed referred to as the Deed of Forbearance. The Lessee submits that those parties should be joined because determination of the competing entitlements to the crop will significantly affect the extent of the guarantors' liability to the Bank. If, as the Lessee contends, it is entitled to the proceeds of the crop, those proceeds will be paid to the Bank in reduction of the Lessee's liability to the Bank. If, on the other hand, the Lessor succeeds, no such reduction would occur.

14 In my view, those matters are insufficient to warrant the joinder of the proposed third defendants as defendants in this action. No doubt those matters give the guarantors a substantial commercial interest in the outcome of the dispute between the Lessor and the Lessee. That is not sufficient. In my view, the proposed guarantors' rights against, or liabilities to, any party to the action will not be directly affected by any order that might be made in the action.

15 For these reasons, I would order that the National Australia Bank be joined as a second defendant to the action, and otherwise dismiss the application.

16 I will hear from the parties in relation to costs.