In Jahani v Alfabs Mining Equipment Pty Ltd, in the matter of Delta Coal Mining Pty Limited (in liquidation)  FCA 752, Stewart J considered the process for a liquidator to join multiple unrelated defendants to one set of ‘mothership’ unfair preference recovery proceedings in the Federal Court.
This decision confirms the approach to be taken for mothership proceedings in the Federal Court, and continues the trend of courts developing and applying a nationally consistent approach to mothership actions.
Single actions by liquidators against multiple unrelated defendants for claims such as unfair preference recovery claims are known as ‘mothership’ proceedings or actions.
The key benefit of mothership proceedings is that they are almost always more efficient for liquidators to run, both in terms of time and money, given the common issues which will arise across the claims such as the date of insolvency. They also avoid the risk of inconsistent judgments which can arise where multiple courts or judges are called upon to adjudicate on the same issue in different proceedings.
The main impediment to mothership proceedings is that in most courts, plaintiffs can only sue multiple defendants as of right where the claims against those defendants arise from a single set of transactions or facts. In the case of unrelated unfair preference recipients, the claims against those parties will typically arise from different contracts and involve different fact scenarios
The solution has been for liquidators to apply for leave to join multiple defendants to the mothership proceedings even though the claims do not arise from a single set of transactions or facts.
The different State Supreme Courts and the Federal Court all have different procedural rules about how this type of joinder application should be made, but there appears to be a growing consensus that it would be useful for the courts to develop and apply a nationally consistent approach to this issue.
The liquidators of Delta Coal Mining Pty Ltd (in liquidation), Delta Mining Pty Ltd (in liquidation), Delta SBD Ltd (in liquidation) and SBD Services Pty Ltd (in liquidation) (Companies) brought an urgent interlocutory application for orders to join 28 parties as defendants to an unfair preference recovery action (Proceeding).
The relevant background is as follows:
The decision that triggered the Application was the judgment of Jackson J in Dudley (Liquidator) v RHG Construction Fitout & Maintenance Pty Ltd  FCA 1355. In that case, Jackson J confirmed that for the purposes of claims in the Federal Court, liquidators could not commence mothership proceedings as of right against multiple defendants where the alleged preference payments and related arrangements were unique to each separate defendant, and liquidators would first have to seek leave under Rule 9.05 of the Rules of the Federal Court.
In considering the Application by the liquidators of the Companies, Stewart J noted the following:
Importantly, Stewart J also adopted (and added to) a number of observations from the leading decision of Austin J in the NSW Supreme Court in Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64, in particular that:
Having regard to these matters, Stewart J was satisfied that the proposed defendants should be joined to the Proceeding (and that such orders may be made nunc pro tunc) on the basis that:
The decision in Delta Coal serves as a reminder to practitioners that there is a growing body of cases in support of the use of ‘mothership proceedings’ by liquidators for recovery actions, particularly in the context of large and complex liquidations.
However, practitioners should be mindful that the ability to commence proceedings against multiple defendants does not exist as of right and should carefully consider whether leave would be granted in a particular case and ensure that the rules of the relevant court are followed, or risk that any mothership proceeding is held to have been improperly constituted.