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[2001] QSC 341
Supreme Court of Queensland
2001-09-20
Holmes, J
Original judgment source is linked above.
Application for joinder as defendant to application for declaration of trust and vesting orders - whether proposed defendant's presence "necessary" under Uniform Civil Procedure Rule 69(1)(b)(i) - whether "desirable, just and convenient" under Uniform Civil Procedure Rule 69(1)(b)(ii) - whether proper contradictor to application for declaration exists.
Re McKenzie [1974] Qd R 171
Vandervell Trustees Ltd v White [1971] AC 912
Pegang Mining Co Ltd v Choong Sam [1969] UKPC 16; [1969] 2 MLJ 52
[1996] FCA 870; (1996) 64 FCR 410 524-525
Pullen v Abalcheck Pty Ltd (1990) 20 NSWLR 732
Homestyle Pty Ltd v City of Belmont [1999] WASCA 59
Interchase Corporation Ltd (in liq) v FAI Insurance Co Ltd [2000] 2 Qd R 301
Russian Commercial & Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 cited in Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564.
CE Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liquidation) [1997] 2 VR 256
Boral Resources Pty Ltd v Robak Engineering & Construction Pty Ltd [1999] VSCA 66; [1999] 2 VR 507
Sanders Lead Inc v Entores Ltd (1984) 1 WLR 452
Gurtner v Circuit [1968] 2 QB 587
[1] The applicant bank lent money to Merlin Pacific Developments Pty Ltd to finance a property development. One of the guarantors for the loan was the second respondent, Konrad Lin. Among other matters in a fixed fee facility and guarantee agreement signed by him, he covenanted not to dispose of any interest in a property at 62 Wynnum Road, Norman Park, and not to allow his total net worth to fall below $5 million. His parents, the first respondents, have brought an action claiming a declaration that he holds the Norman Park property on trust - as an express trust, a constructive trust, or a resulting trust - for them, and a vesting order under s 82 of the Trusts Act 1973. The applicant bank seeks to be joined as second defendant to the action, claiming that its presence before the court is necessary, or, alternatively that it is:
"desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding".[1]
[2] The borrower under the fixed fee facility and guarantee agreement, Merlin Pacific Developments Pty Ltd was registered on 16 June 1998. Its only director at the relevant time was the second respondent, Konrad Lin. Twenty-five of its 100 ordinary shares were beneficially owned by Pao Lin Investments Co. Pty Ltd. That company had three directors: the first respondents and the second respondent. Its shares were beneficially owned by the first respondents. Prior to execution of the guarantee of the borrowing, Konrad Lin provided a statement of assets and liabilities in which he listed as part of the real estate owned by him the Norman Park property. Although he claimed in that document to have assets totalling in value $23,502,000, Mr Wiltshire, solicitor for the applicant, has expressed in his affidavit the applicant's concern that without the Norman Park property the second respondent's net worth may be below $5 million. The second respondent has not put in any affidavit material and has declined to provide to the applicant any further information as to his net worth and assets and liabilities.
[3] The fixed fee facility and guarantee agreement was dated 7 July 1999, and an initial advance of some $3.23 million was made under it. Variations to the facility agreement were entered in February and September 2000. Their net effect was that the principal, by then an amount of some $8.59 million, was to be repaid on 31 October 2000. However, Merlin Pacific Developments Pty Ltd defaulted, and although some of the apartments which form part of the development were sold by the applicant bank as mortgagee in possession, the amount currently owing is almost $9.6 million.
[4] On 31 January 2001 the applicant bank filed and issued a claim in the amount of $8.59 million against Konrad Lin, the second respondent. The statement of claim pleads the original agreement and variations, Konrad Lin's guarantee, the failure in repayment of principal, and Konrad Lin's failure, after demand, to pay the principal outstanding. The second respondent filed a defence and counter-claim alleging various false representations by employees of the applicant as to the likely risk and profitability of the project, including a representation that his personal exposure would be limited to $500,000. By his counter-claim he seeks damages for negligence and damages under the Trade Practices Act 1974. In its reply the applicant bank denies the alleged representations, and alleges that the second respondent had independent financial advice.
[5] In a letter of 2 March 2001 the second respondent's solicitors advised the applicant's solicitors that he did not dispute his parents' claim that he held the Norman Park property as trustee for them and had no beneficial interest in it. On 14 May 2001 the solicitors for the applicant replied, rejecting the contention that the property was held on trust. On 18 May 2001 the first respondents lodged a caveat over the property on the grounds that it was held "on trust, being a constructive or a resulting trust". The first respondents' then solicitors advised the applicant's solicitors of the lodgment of the caveat, asserting that their clients had only recently become aware of the fixed fee facility and guarantee agreement, and had not consented to its execution by the second respondent.
[6] On 17 August 2001 the first respondents issued their claim against the second respondent seeking the relief already mentioned. In their statement of claim the first respondents allege that negotiations for the purchase of the Norman Park property were carried out by the male first respondent, who also gave their solicitor instructions for the preparation and alteration of a contract. The contract was signed by the second respondent and initialled by him when changed, although he was, at completion, only 17 years and 8 months of age. It is pleaded by way of explanation that the first respondents are of Taiwanese descent and it is common in Taiwanese culture for property to be held by a relative rather than by the true owner. Stamp duty and the purchase price were, however, paid from the first respondents' funds. They continued to meet all outgoings on the property, held the title deeds and occupied the property with their family, including the second respondent.. It is specifically pleaded that the purchase monies and stamp duty were not provided to the defendant so that he could acquire the property as a gift. The second respondent has not entered any defence.
[7] For the applicant, it was contended that the first respondents' application for a declaration required a proper contradictor, since the second respondent would not take that part. The vesting of the property away from Konrad Lin had the potential to negate the worth of his covenants to the applicant bank. It had an interest in contesting the issue of whether the presumption of advancement should hold. There was also available to the applicant an argument that any equity on the part of the first respondents ought to be postponed to the bank's position. Alternatively, it was suggested, the first respondents were estopped as against the bank from claiming the property. They had not taken any step to record their interest on the registered title of the land and had in effect, permitted the second respondent to hold himself out as legal and beneficial owner. The real controversy existed as between the bank and the first respondents rather than the first respondents and the second respondent.
"the courts have always recognised that persons interested are or may be indirectly prejudiced by a declaration made by the court in
their absence, and that, except in very special circumstances, all persons interested should be made parties...."
to support its argument that it should be joined as a defendant.
[9] For the first respondents, it was said that the court should not assume an interest on the part of the applicant which would make it a necessary and proper party. It held no security over, nor equity in, the property. Unlike the successful objectors to the development approval in Re McKenzie, it could point to no right. Since no relief was sought against it, and no dispute with it raised by the first respondents, its presence could not be said to be necessary. As to what was "desirable, just and convenient", the appropriate way for the applicant to establish whatever interest it claimed to have was to proceed against the first respondents. It was suggested that it could do so by amending its statement of claim against the second respondent to proceed also against the first respondents. The two proceedings (the first respondents' claim for a declaration and a vesting order, and the applicant's amended proceedings against all respondents) could be heard together so that all issues were dealt with at once.
[10] The second respondent raised the practical difficulty of, as a co-defendant, resisting the bank's position, and argued that the better course was for the applicant to claim against the second respondent in respect of the covenants, joining the first respondents in that action.
[11] It is as well to set out in full the provisions of r 69(1)(b) of the Uniform Civil Procedure Rules:
"69 (1) The court may at any stage of a proceeding order that -
(b) any of the following persons be included as a party -
(i) a person whose presence before the court is necessary to enable the court to adjudicate effectually and completely on all matters in dispute in the proceeding;
(ii) a person whose presence before the court would be desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding."
[12] It is immediately apparent that the bases for joinder have been expanded from those available under the Rule's predecessor, O 3 r 11 of the Supreme Court Rules, which provided for the addition of:
"the names of any persons who ought to have been joined, or whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter".
[13] There is a parallel to be drawn with the addition to the English Rules of Court of O 15 r 6(2)(b)(ii), which permits joinder where there is an issue between a party and another person "which in the opinion of the court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter". The sub-rule was introduced following the decision in Vandervell Trustees v White[4]. In that case, the House of Lords had concluded that the existing Rule, couched in terms of a person whose presence was "necessary", was not sufficiently wide to permit an interpretation of it as allowing addition of a party where it was just or convenient to do so[5]. A similar alteration was made to the Victorian Rules of Procedure in Civil Proceedings in 1987[6]. It is to be noted however, that both the English and Victorian Rules speak of determining a question between the person to be joined and another party "as well as between the parties to the proceeding". Rule 69(1)(b)(ii), in contrast, is directed to effectual and complete adjudication "on all matters in dispute connected with the proceeding".
Is the applicant's presence "necessary" for the purposes of subrule 69(1)(b)(i)?
[14] In Pegang Mining Co Ltd v Choong Sam[7] Lord Diplock formulated the following test to determine whether a person's presence was "necessary" so as to meet a Rule in the language of Subrule 69(1)(b)(i):
"Will the [person's] rights in against all liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action?"
This was preferable, it was said, to an approach which turned on whether a party had a "legal" as opposed to a "commercial" interest. That test was applied by the Full Court of the Federal Court in News Ltd v Australian Rugby Football League Ltd[8] in respect of the relevant Federal Court Rule, O6, r 8(1)(b), which is in similar terms to r 69(1)(b)(i).
[15] In the present case, the first respondents point out that the applicant has no proprietary or equitable interest in the subject property. All it possesses are negative pledges in the form of the covenants in the fixed fee facility and guarantee agreement.[9] An injunction may, however, be available to restrain a threatened breach of a negative pledge[10]. It is arguable therefore, that a right of the applicant against the second respondent - that is to say its right to enjoin the second respondent from disposing of the property - will be directly affected by a declaration that the property is held in trust for the first respondents and, of course, a vesting order.
[16] There are some similarities between these circumstances and the factual situation before the Full Court of the Supreme Court of Western Australia in Homestyle Pty Ltd v City of Belmont [11]. In that case, the applicant was an unsuccessful tenderer to the respondent council, which decided instead to award the tender to another, unregistered, builder conditional upon it becoming registered. The council then sought declarations to the effect that it was entitled to accept the unregistered builder's tender. The applicant applied to be joined as a party to that proceeding, and appealed against the refusal of joinder. It argued that if the court had held that no contract existed between the council and the accepted tenderer, it would have been entitled to seek an injunction restraining the council from entering into such a contract until fairness in the tendering process was accorded. It also asserted that it wish to argue in the existing proceedings that the contract between the council and the accepted tenderer was void or voidable because of the failure to accord fairness to other tenderers.
[17] The Full Court concluded that the applicant was affected directly by the result of the application for declarations and was entitled to be joined as a defendant. Templeman J, with whom the other members of the court agreed, went on to say that it was, in any event, undesirable to have excluded the applicant from the proceedings "when it was the only party who had a genuine interest in arguing that there was no contract" between the council and the unregistered builder. On similar reasoning, the applicant's rights here are affected to the extent that it would lose its capacity to seek an injunction against the second respondent in respect of the covenant against disposition of the property.
[18] However, the applicant, no doubt correctly, points out that the decision in Interchase Corporation Ltd (in liq) v FAI Insurance Co Ltd[12] remains an authoritative exposition of r 69(1)(b)(i). That case, like many others, was one in which a plaintiff sought to join an insurer in order to obtain a declaration as to its obligation to indemnify an existing defendant. The joinder granted by the judge at first instance was set aside because it served "no useful purpose", without a conclusion being reached by the Court of Appeal as to whether it was "necessary". That was because a determination of the issues on the application for a declaration could not prevent the insurer from re-litigating them as against the other insured. "The rights of the co-defendants inter se will not be determined"[13]. There was no prospect of "useful `foreseeable consequences for the parties'"[14].
[19] In the present case, a determination that the property was held on trust for the first respondents would, if the applicant were a defendant, bind it so as, one assumes, to prevent it from executing it against the property, and a vesting order would clearly put the property beyond reach. The applicant would not, however, be prevented from asserting in any proceedings against the second respondent that he remained the beneficial owner of the property, for what that was worth. The contrary result, a finding that no trust exists, would clearly not bring an end to any issue as between the applicant and the second respondent as to ownership of the property and the covenants respecting it. So far as the purpose of the rule is to prevent a multiplicity of proceedings, it is to be doubted that joinder would have that effect.
[20] However, the circumstances of the present case are different from those in Interchase Corporation Ltd in a significant way. Here there exists already an application for a declaration. The joinder of the applicant as party can serve a useful purpose, by providing "a proper contradictor, that is to say, someone presently existing who has a true interest to oppose the declaration sought"[15]. In the absence of any real issue between the first and second respondents, and without such a contradictor it seems to me distinctly possible that the court might decline to allow the application to proceed[16].
[21] Mr Keane QC, on behalf of the first respondents, argued, with some force, that it could not be the case that "any unsecured creditor could turn up and seek to intervene in this action". Certainly there must be considerable reluctance on the part of the court to permit such intervention. A case in point is Sanders Lead Inc. v Entores Ltd[17]. In that case, Metal Traders Ltd obtained a Mareva injunction over funds placed into a special account by Entores, the defendant in the action, on account of Sanders Lead International. The funds had been deposited by Entores in response to a suit by Sanders Lead Co. Inc. which asserted Entores owed it the price of a consignment of lead. Entores had placed the funds into the account because it claimed that the transaction had in fact been with Sanders Lead International. Metal Traders sought to be joined as defendant in the proceedings between Sanders Lead Co. Inc. and Entores on the ground that as a creditor of Sanders Lead International it had a financial interest in the outcome of the action. Should Sanders Lead Co. Inc. succeed in establishing that the debt was owed to it, the funds would flow to it.
[22] It is to be noted that the court there was considering the English "desirable, just and convenient" sub-rule, which applied to joinder where a question was capable of being determined between a party and the person to be joined. It concluded that any issues involving Metal Traders had nothing to do with the subject matter of the action in question, so that there existed no issue which would be determined between a party and it. The court continued on the question of discretion:
"If an alleged creditor who has obtained a Mareva injunction could ever be permitted to intervene in an action where his interest in the outcome relates solely to the fate of his injunction, this could only be so in the most exceptional circumstances. Such exceptional circumstances might exist where there is an allegation of collusion between the parties to the action in order to defeat the injunction"[18].
[23] A less stringent view as to the appropriateness of joinder where there was the likelihood that no effective resistance to an action would be made, was expressed in Gurtner v Circuit[19]. There, a personal injuries action was liable to affect the pecuniary interests of the third party insurer; but because the defendant was not able to be located the action was unlikely to be defended. The court recognised the insurer's commercial interest "in seeing that all proper defences in that action as respects liability are raised and that all relevant material which tends to reduce the quantum of damages recoverable is adduced to the court".[20]
There was a risk in general in such an action that judgment might be obtained by default
"either collusively ... or because the defendant is unaware of the action or through impecuniosity or for some other reason is not concerned to resist it; and the damages may be assessed upon such evidence as the plaintiff chooses to tender without being subject to cross-examination" .[21]
The insurer's presence before the court was, in the interests of natural justice, necessary so that all matters in dispute could be "effectually and completely determined and adjudicated upon".
[24] In similar vein, Needham J in Great Eastern Cleaning Services Pty Ltd[22] permitted the joinder of the Deputy Commissioner of Taxation on an application to have the name of a company restored to the register. No other person had an interest in putting forward matters relevant to the exercise of the court's discretion, and it was a case where the Commissioner's ability to proceed with an action already commenced against the applicant was likely to be affected. Accordingly, his joinder was "necessary to ensure that all matters in dispute in the proceedings may be effectually and completely determined and adjudicated upon"[23].
[25] Further support for that approach is to be found in the statement by the Western Australian Full Court in Homestyle Pty Ltd v City of Belmont[24] to the effect that it was undesirable to have excluded the proposed defendant from the proceedings "when it was the only party who had a genuine interest in arguing that there was no contract".
[26] In the present case, although the circumstances might not go so far as to indicate collusion in the sense of contriving an allegation of beneficial ownership, there must be a real question about the timing of the application for a declaration as designed to defeat either execution against, or reliance on the second respondents' covenant as to, the property. Although it can be accepted that a creditor without an equitable or proprietary interest could not ordinarily expect to be permitted to intervene in such an application, in circumstances where there is no resistance to the application and its timing raises questions as to its purpose, the case falls outside the ordinary.
[27] I do not think it is to the point to say that were the applicant to launch a proceeding against the first respondents, to be heard together with the claim for a declaration and vesting order, the difficulty of the absence of a proper contradictor would be overcome. The issue, for the purposes of r 69(1)(b)(i), is whether in respect of the proceeding in question the applicant's presence is "necessary to enable the court to adjudicate effectually and completely on all matters in dispute". Given the effect of any order on the applicant's ability to obtain injunctive relief in respect of the property, and the need for a proper contradictor, the applicant's presence is necessary.
[28] The fact that the plaintiff does not wish to proceed against the applicant may be a relevant consideration on the exercise of the discretion to join, but it is by no means conclusive: Boral Resources Pty Ltd v Robak Engineering & Construction Pty Ltd[25]. In my view, the discretion under Rule 69(1)(b)(i) is appropriately exercised by permitting joinder of the applicant.
Is the applicant's presence "desirable, just and convenient" under Rule 69(1)(b)(ii)?
[29] If I am wrong in that conclusion, I would in any event, consider the applicant's presence "desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding". Those matters which I have discussed as giving rise to the necessity for the applicant's presence apply similarly to make it desirable. Equally, it is just, having regard to its interest in preserving its capacity to seek an injunction, the need for a proper contradictor, and the circumstances in which the application for declaration and vesting order is sought, that the applicant being a party. It is true that the issues might be ventilated in another way, that is to say by the applicants bringing an action against the first respondent and joining it with their claim, but that is only one consideration. In any event, the applicant should not, in my view, be required to identify and formulate a cause of action against the first respondents before being permitted to put its case against the making of the declaration and vesting order. It may wish to proceed, as Mr Bain QC submitted, on a purely negative case. It seems to me that that can conveniently and justly be done in the existing proceedings by the first respondent.
[30] I will order, therefore, that the applicant be included as second defendant in claim S7421 of 2001.
[1] Uniform Civil Procedure Rules, r 69(1)(b)(ii).
[2] [1942] AC 332 at 345.
[3] [1974] Qd R 171 at 175.
[7] [1969] UKPC 16; [1969] 2 MLJ 52 at56.
[8] [1996] FCA 870; (1996) 64 FCR 410 524-525.
[9] See Pullen v Abalcheck Pty Ltd (1990) 20 NSWLR 732; NSW Aboriginal Land Council v Ralchester Pty Ltd [2001] NSWSC 479.
[10] Pullen v Abalcheck Pty Ltd supra at p 735.
[15] Viscount Dunedin in Russian Commercial & Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at p 448 cited in Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 at 596 per Brennan J.
[16] See for such a case CE Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liquidation) [1997] 2 VR 256 at 260.
[24] [1993] WASCA 59 at page 7.
Macquarie Bank Limited
Fu-Shun Lin and Ors [2001] QSC 341
(1996) 64 FCR 410
(1990) 20 NSWLR 732
(1992) 175 CLR 564