MALCOLM FIELD as Trustee for THE BANKRUPT ESTATE OF JEFFREY MICHAEL CULLOTON -v- FAIRLANDS FARM PTY LTD as Trustee for THE JM & CK CULLOTON FAMILY TRUST [2022] WADC 21 (31 March 2022)

Last Updated: 7 April 2022

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION : PERTH

CITATION : MALCOLM FIELD as Trustee for THE BANKRUPT ESTATE OF JEFFREY MICHAEL CULLOTON -v- FAIRLANDS FARM PTY LTD as Trustee for THE JM & CK CULLOTON FAMILY TRUST [2022] WADC 21

CORAM : DEPUTY REGISTRAR HEWITT

HEARD : 23 FEBRUARY 2022

DELIVERED : 31 MARCH 2022

FILE NO/S : CIV 1255 of 2020

BETWEEN : MALCOLM FIELD as Trustee for THE BANKRUPT ESTATE OF JEFFREY MICHAEL CULLOTON

Plaintiff

AND

FAIRLANDS FARM PTY LTD as Trustee for THE JM & CK CULLOTON FAMILY TRUST

Defendant

THE TRUSTEE OF THE MICHAEL PUDNEY FAMILY TRUST t/as KENSINGTON TAX AND ACCOUNTING SERVICES

Third Party

Practice and procedure - Action dismissed pursuant to r 44G of the District Court Rules - Applications by plaintiff for its costs and payment of third party costs by plaintiff and by third party for its costs against the defendant - Turns on its own facts

Legislation:

Nil

Result:

Plaintiff to pay defendant's costs
Defendant to pay third party's costs

Representation:

Counsel:

Plaintiff	:	Ms C C Spencer
Defendant	:	Mr D J Garnsworthy
Third Party	:	Mr D M McKenna

Solicitors:

Plaintiff	:	Tottle Partners
Defendant	:	Aherns Lawyers
Third Party	:	Mills Oakley (Perth)

Case(s) referred to in decision(s):

Nil

DEPUTY REGISTRAR HEWITT:

1. This action was commenced by the plaintiff acting as the trustee of the bankrupt estate of Jeffrey Michael Culloton on 7 April 2020. The basis of the claim was that the bankrupt was a partner in a partnership and the accounts of the partnership revealed that it had loaned a sum of money to the defendant. The purpose of the action was to recover the amount of the bankrupt's share of that asset.
2. An immediate problem is apparent which apparently did not receive any attention and that is that upon the bankruptcy of a partner, the partnership is automatically dissolved. Notwithstanding that problem, the plaintiff soldiered on filing a statement of claim on 20 May 2020 to which a defence was filed on 11 June 2020. In the meantime, the defendant filed a third party notice. That notice was directed towards an accounting firm which had prepared the partnership accounts. The allegation was that the amount which was shown as a loan was in fact a gift and should have been so recorded. The action against the third party was for an indemnity as to the costs of the action. That brought into play another problem, namely, that the third party notice was pointless.
3. In the event that the action between the plaintiff and the defendant resulted in the advance, if I might call it that, being held to be a loan, then the accounts were correct. If in fact the court held that the advance was a gift, then presumably the defendant would have won its action against the plaintiff and be entitled to its costs in so doing. I am unable to understand how any advantage could be achieved by the defendant commencing the third party proceedings.
4. In any event, notwithstanding the problems which I have mentioned, the case lurched on. Eventually, the case was placed on the inactive cases list and, ultimately, dismissed. That dismissal has spawned the following applications:
   1. An application by the defendant that the plaintiff pay its costs of the action to be taxed and do also pay the third party's costs of the action to be taxed.
   2. Additionally, the third party has applied for an order that the defendant pay its costs.
5. An additional matter is the fact that the plaintiff brought an application in the Supreme Court seeking that the partnership be dissolved and that application was granted.
6. The plaintiff's explanation for allowing the case to become inactive and ultimately leading to a dismissal was that upon the dissolution of the partnership and the appointment of a receiver, the plaintiff considered it prudent to wait and see if that receiver would take over the present action and pursue the defendant. That did not happen and, as a consequence, the plaintiff allowed the action to be dismissed.
7. In summary, therefore, the plaintiff issued a writ seeking to recover a share of a partnership which, as a matter of law, had been dissolved by the bankruptcy of Mr Culloton. That action was bound to incur problems and did incur problems which the plaintiff was unable to resolve notwithstanding his application to the Supreme Court and the appointment of a receiver to the partnership.
8. Overshadowing all these matters is the fact that the liability of the defendant to the partnership was in dispute and the issue as to whether the advance was a loan or a gift remains unresolved.
9. This is a case where, as between the plaintiff and the defendant, there is no winner or loser because the issue of whether or not the advance was a loan has never been adjudicated. It is, however, clear that the action commenced by the plaintiff was unlikely to ever be resolved unless the partnership was dissolved, a receiver appointed and that receiver then willing to intervene in the action. It is not the law that upon a dismissal of the kind as exists here, that there is an automatic entitlement by a defendant for costs against the plaintiff but nonetheless, in this case, it appears to me that the action commenced by the plaintiff had fundamental problems and should not have been undertaken unless and until the partnership was dissolved and the receiver made a determination that the advance was in fact a loan and that Mr Culloton, as a former partner, was entitled to a share of the loan monies. Effectively, the plaintiff abandoned the action presumably realising that the obstacles would be difficult to overcome.
10. As between the plaintiff and the defendant therefore, the defendant was forced to defend an action which, in my view, was prematurely brought and unlikely to yield any dividend in the administration of the bankruptcy of the defendant. I think it appropriate in such circumstances that the plaintiff should bear the costs of the defendant. It is contended by the plaintiff that the defendant ramped matters up causing costs to be greater than they otherwise might have been but I do not accept that argument. The defendant was being sued, it was entitled to defend itself, and was not obliged to adopt a passive position when facing this writ with its obvious problems. The defendant may have forced the issue but it was entitled to do so and I see no criticism of it in the way it conducted itself during the course of the action insofar as the original writ is concerned. I therefore consider that the plaintiff should pay the defendant its costs of the action to be taxed.
11. The defendant also seeks an order that the plaintiff should pay the costs of the third party. As I have earlier commented, I regard the third party proceedings as completely pointless and very unlikely to yield any outcome of benefit to the defendant. To reiterate, in the action between the plaintiff and the defendant, it would be found either that there was a loan or that there was not a loan. In the event of the first finding, the third party proceeding would inevitably fail and, in the event of the latter, the most probable outcome would be that the plaintiff would pay the defendant's costs since the defendant would have successfully defended the action on the ground that no loan existed.
12. My analysis therefore is that the third party was forced to defend itself against a third party proceeding which was entirely pointless and, as a consequence, my view is that the defendant should be liable to the third party for its costs in defending the third party proceeding.
    

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.

FN
Associate

9 MARCH 2022