Robson (trustee of bankrupt estate of Musgrave) v WJM Investments Pty Ltd, in the matter of WJM Investments Pty Ltd

Federal Court of Australia|2018-12-18|Before: Griffiths J

Within 14 days hereof, the plaintiff file an interlocutory application seeking an order under r 30.01 of the Federal Court Rules 2011 (Cth) that a separate question be heard and determined.
Whether or not the plaintiff is entitled to the relief sought in [47] of the statement of claim shall not be determined as a separate question.
The proceedings be listed for a further case management hearing on Tuesday, 5 February 2019.
Costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GRIFFITHS J: 1 The Court is asked to determine whether this is an appropriate case in which to make an order under r 30.01 of the Federal Court Rules 2011 (Cth) (2011 FCRs) for the Court to determine a separate question. 2 To date, no interlocutory application has been filed on the separate question issue. To avoid further delay in resolving the issue, the Court will order that the plaintiff file such an application within 14 days hereof. The interlocutory application will then formally be dismissed. 3 For the reasons that follow, there will be no separate question heard and determined as sought by the parties.

Summary of background matters 4 The background facts are relatively complex. They may be summarised as follows. 5 As will shortly emerge, the dispute between the parties relates to the share register of the first defendant (WJM). On 18 December 1968 WJM was incorporated. Its register presently records that Mark Musgrave (a bankrupt) and his estranged sister (who is the second defendant, Mrs Cale) each owns 50 percent of WJM's issued share capital. Mrs Cale and her husband (the third defendant, Mr Cale) are the sole directors of WJM. 6 WJM was incorporated as the investment vehicle for the late Wallace Musgrave, who is the father of Mark Musgrave and Mrs Cale. He passed away on 4 September 2016. 7 On 22 October 2013, Mark Musgrave entered into a loan agreement (Loan Agreement) with his cousin, the fourth defendant (Christopher Musgrave). Mark Musgrave's liability under the Loan Agreement was secured by a charge (Charge) granted by Mark Musgrave over his shares in WJM. The Charge was registered on the PPS Register on 24 October 2013, under the provisions of the Personal Property Securities Act 2009 (Cth) (PPS Act). 8 On 13 June 2014, Mark Musgrave filed a petition against himself in accordance with s 55 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). The plaintiff was appointed as his trustee in bankruptcy. In accordance with s 58 of the Bankruptcy Act, Mark Musgrave's property became the property of the trustee. 9 On 8 July 2014, the trustee issued a report to creditors which recorded that the trustee believed that the liabilities of Mark Musgrave, including the secured debt owed to Christopher Musgrave, totalled approximately $138,500 and that his only asset was his shareholding in WJM. Christopher Musgrave alleges that, because of the interest provisions of the Loan Agreement, he is now owed substantially more than the sum disclosed in the trustee's report. 10 Since 4 September 2016, Mr and Mrs Cale have caused WJM to sell all of its shareholding and four of its five properties, for approximately $2.75m. WJM has not declared any dividend. The only property retained by WJM is that located at an address in Bondi. 11 By an originating process dated 6 September 2018 and a statement of claim dated 2 November 2018, the plaintiff claims certain relief which is directed towards liquidating Mark Musgrave's shareholding in WJM so that his creditors can be repaid. The relief sought is by way of buy-back orders under s 233 of the Corporations Act 2001 (Cth) (Corporations Act) and, alternatively, winding up orders under ss 233 and/or 461 of the Corporations Act. 12 As a preliminary step to that relief, the plaintiff also seeks an order that WJM's share register be corrected to record that the trustee is a member of WJM and holds the shares of Mark Musgrave. The plaintiff says that there is an argument that he must first secure the relief sought in [47] of the statement of claim in order for him to have standing to obtain relief under ss 233 or 461 of the Corporations Act. 13 It is desirable to set out [47] of the statement of claim: 47. The Trustee seeks an order pursuant to section 175 of the Corporations Act and/or the Court's equitable jurisdiction that the register of members maintained by WJM be corrected to record that the Trustee is a member of WJM holding the Bankrupt's Shares. 14 In [51] of the statement of claim, the relief sought includes "an order that, to the extent that it required to do so in order to seek the relief sought in paragraphs 48, 49 and 50 above, the Court first determine the trustee's application for the relief sought in paragraph 47 above".

The parties' submissions summarised 15 The Court made orders on 10 December 2018, requiring the parties to file and serve written outline of submissions as to why they consider it is appropriate for the Court to hear and determine a separate question. This occurred.

(a) Plaintiff's submissions 16 The plaintiff submitted that the following matters supported the hearing and determination of a separate question. 17 The relief sought in [47] of the statement of claim is markedly different from the relief sought in [48] to [50] of the statement of claim. The former is directed solely towards providing standing for the plaintiff to seek the latter. The determination of [47] will narrow the issues for trial. Once determined, the only issue at trial will be whether there has been oppression and whether the Court ought to order WJM and/or Mrs Cale to buy the relevant shares or wind up WJM. 18 The plaintiff believes that a resolution of this issue will contribute to the likelihood of the proceedings being resolved, especially in circumstances where WJM appears to hold significant sums of cash as a consequence of the sale of its listed shares and four of its five properties. 19 The plaintiff does not believe that there will be any "significant contested factual issues". As the plaintiff understands the defendants' argument, they wish to contend that, as a matter of law, the effect of the Loan Agreement and the Charge was that Mark Musgrave was no longer entitled to be registered as a member of WJM and that the plaintiff, as trustee, is in the same position. 20 The plaintiff does not believe that there is any "significant overlap" between the evidence relevant to the order sought in [47] of the statement of claim and the buyback and liquidator orders sought in [48] to [50] of the statement of claim.

(b) Defendants' submissions 21 The first, second and third defendants identified the following proposed separate question, which they said was taken from [47] of the statement of claim: Is the plaintiff (as trustee in bankruptcy) entitled to be enrolled as a shareholder in WJM Investments Pty Ltd, where a third party lender (the 4th defendant) holds a Deed of Charge of the shares of the former bankrupt as security for a loan of $100,000.00 to the former bankrupt which was registered on the PPS Register prior to the bankruptcy and which Deed entitles the chargee to possession of the share script of the former bankrupt in the company until the charge is satisfied in full? 22 These defendants submitted that it was their understanding that if this question was answered in the negative, this would likely end the proceeding, whereas an affirmative answer "would certainly result in mediation but, unless that mediation were to be successful, would not bring the litigation to an end. Indeed the converse is very much the case". 23 These defendants also acknowledge that there was a possibility of an appeal from any decision on the separate question and that the "question arising under the proposed separate question is not without very real difficulties". 24 These defendants concluded their submissions by saying that "it is worth a try", while acknowledging the admonition in Tepko Pty Limited v Water Board [2001] HCA 19; 206 CLR 1 (Tepko) (see [29] below). 25 The fourth defendant belatedly filed submissions on the issue. He candidly acknowledged that the parties had not yet been able to agree on the formulation of a question, or an agreed statements of facts upon which the question might be determined. The fourth defendant also identified what he described as "an impediment to a consensus being reached on an agreed or assumed set of facts for the determination of the issue". The impediment relates to the plaintiff's pleading in [9] of his statement of claim in respect of the Charge over the shares in WJM and that the terms of the Charge are set out in the document which is registered on the PPS register. Although the fourth defendant admitted those allegations (save as to the amount), he drew attention to the defence of the first to third defendants which claimed that, under the terms of the general security agreement, the shares can only go to the plaintiff with the agreement of both Mark Musgrave and himself (i.e., the cousin). Thus, there is a wider set of facts which need to be considered in determining whether the plaintiff's construction is correct, including whether Mark Musgrave (who is not a party to the proceeding) agrees to the plaintiff being named a shareholder. 26 For these reasons, the fourth defendant contended that, at least at this stage, there was no separate question which had been identified which was appropriate for resolution by way of a separate question.

Consideration and determination of the request 27 As might be expected, the parties were generally agreed on the relevant principles, which are well settled. They are outlined in cases such as Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718; 240 FCR 276; James Rainsford v State of Victoria [2005] FCAFC 163; 144 FCR 279; Save The Ridge Inc v Commonwealth [2005] FCAFC 203; 147 FCR 97 (Save the Ridge Inc); Fair Work Ombudsman v Foot & Thai Massage Pty Ltd [2018] FCA 1584; Tepko; and, more recently, in Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) [2018] FCA 1984 (Westpac Banking). 28 Rule 30.01 of the 2011 FCRs provides: Application for separate trials (1) A party may apply to the Court for an order that a question arising in the proceeding be heard separately from any other questions. (2) The application must be made before a date is fixed for trial of the proceeding. Note 1 The Court may order that a party state a case and the question for decision. Note 2 The Court will give any directions that are necessary for the hearing of the separate question. 29 It is well to remember that the trial process is designed so that all issues of fact and law in a proceeding are normally decided together. Cases such as Save The Ridge Inc remind us that although provision exists for the separate determination of questions, that procedure can be fraught with difficulties and should be adopted with caution. A matter may appropriately be determined as a separate question if it involves a central issue in contention between the parties and its resolution will either obviate the necessity of litigation altogether, or substantially narrow the field of controversy. Ultimately, the Court must determine what is just and convenient in the particular circumstances of the case. Case management considerations will necessarily be prominent. It is also important, not to lose sight of the admonition of Kirby and Callinan JJ in Tepko at [168]-[170], where their Honours said that the procedure "should, in our opinion, only be embarked on when their utility, economy and fairness to the parties are beyond question" (emphasis added). 30 For the following reasons, I am not persuaded at this stage that it is appropriate in this case to proceed by way of a separate question. 31 First, the parties did not agree the terms of a separate question. The plaintiff seems simply to rely upon the wording of [47] of the statement of claim. That pleading does not sufficiently disclose any question which might appropriately be considered for separate determination. It simply describes the relief sought by the plaintiff. 32 The terms of the separate question proposed by the first, second and third defendants are more clear but these parties are far from confident that the determination of that question is appropriate, as is evident from their submissions. 33 Secondly, there is no consensus that determination of the separate question would substantially narrow the field of controversy or resolve the proceedings entirely. The plaintiff considers that a resolution of the issue raised by [47] of the statement of claim will contribute to the likelihood of the proceedings being resolved, whereas the first, second and third defendants are more guarded. They say that if their proposed question is answered in the negative, this would likely end the proceedings. However, if the answer is in the affirmative, they say that this would "certainly result in mediation", and that this would not bring the litigation to an end unless the mediation was successful. Of course the outcome of any such mediation is entirely speculative at the moment. 34 Thirdly, the first, second and third defendants draw attention to the possibility of an appeal from a decision on the separate question. They also candidly acknowledge that the "question arising under the proposed separate question is not without very real difficulties". I agree. 35 Fourthly, I reject the submission of the first, second and third defendants that the Court should determine the appropriateness of using the procedure under r 30.01 on the basis that "it is worth a try". Such an approach is not supported by the authorities. Indeed, it is contrary to them. In particular, it is inconsistent with the soundly based admonition in Tepko that the procedure should only be employed when its appropriateness is "beyond question" (see also Westpac Banking at [7] per Perram J). 36 Fifthly, and perhaps most importantly of all, I accept the submissions of the fourth defendant that, having regard to the defence of the first, second and third defendants in response to [9] of the statement of claim, there is a wider set of facts which would have to be considered in order to determine a separate question relating to [47] of the statement of claim. A particular difficulty lies in the fact that it is unknown whether Mark Musgrave, who is not a party to the proceeding, agrees to the plaintiff being named as a shareholder. As matters stand at present, there is an insufficient factual basis upon which the proposed separate question could meaningfully be heard and determined. I am unpersuaded that it is an appropriate procedure in this case.

Conclusion 37 For these reasons, I decline to order the determination of a separate question. Orders will be made to facilitate the case management of the substantive proceeding. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.

SCHEDULE OF PARTIES NSD 1639 of 2018 Defendants Fourth Defendant: CHRISTOPHER MUSGRAVE

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