CONSIDERATION OF APPLICATION
There are two questions which arise for decision under s 58(3)(b). The first is whether the leave of the Court is required in relation to the proposed proceedings, and if so, the second is whether in all the circumstances, that leave ought be given.
I agree with Hill J in Re McMaster; Ex parte McMaster (1991) 33 FCR 70 that the words "in respect of" should be given a wide meaning: Tarea Management (North Shore) Pty Ltd (In liq) v Glass (1991) 28 FCR 93 at 100, so as to give effect to the policy underlying s 58(3). That policy, as his Honour noted at 72, is well expressed by Gibbs J in Storey v Lane (1981) 147 CLR 549 at 557:
"to assist in ensuring that the assets of the insolvent debtor are distributed in the interests of creditors generally, to prevent one creditor obtaining an undue advantage over the others, and to prevent the scheme of the Bankruptcy Act from being defeated".
Reference should also be made to the decision of the Full Court in Fraser v Commissioner of Taxation (1996) 69 FCR 99, at 112-115 per Beaumont J, with whom Black CJ and Tamberlin J agreed.
The ambit of s 82 of the Act is also a wide one. In Ex parte Llynvi Coal & Iron Co; Re Hide (1871) 7 LR Ch App 28 at 31 James LJ noted in relation to an equivalent provision that:
"Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be a freed man Ð freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets."
Hill J in McMaster, at 72-73, said in a passage quoted with approval in Fraser at 112:
"The modern bankruptcy law serves three purposes. The first is to ensure that the assets of the bankrupt are distributed rateably among creditors. The second, which is interrelated with the first, is to ensure that one creditor does not obtain an undue advantage over other creditors. The third is to bring about the discharge of the debtor from future liability for his existing debts, so that the debtor may start afresh"
In the case of the indemnity claim and the Wrongs Act claim, I am not persuaded that s 82(2) applies so as to exclude those claims from debts provable in the bankruptcy of Mr Killington, notwithstanding the reference by Mr Chisholm to Cornelius v Barewa Oil & Mining (NL) (In liq) [1982] WAR 311, and to Duke Group Ltd (in liq) v Pilmer (1998) 27 ACSR 1 at 382-382. I do not have the benefit of a detailed proposed statement of claim. The transactions giving rise to those two proposed claims occurred before Mr KillingtonÕs bankruptcy. I have not heard full argument as to whether the two claims are in truth demands for unliquidated damages arising otherwise than by breach of trust.
However, granting leave to institute those two claims against the Trustee in the terms to which I have referred above, and in which Mr Chisholm acquiesces, would not subvert the objective of the Act. The assets of Mr Killington would still be distributed rateably among his creditors, and Mr Chisholm would not obtain an undue advantage over other creditors. The ultimate discharge of Mr Killington is now, in a practical sense, unrealisable, as he was not discharged from bankruptcy before his death. He did not, I am told, file his statement of affairs at any time prior to his death. Consequently, he and his estate do not benefit from any automatic discharge from bankruptcy: s 149(4) of the Act. There are sound reasons why the resolution of those two claims is better determined in the Supreme Court proceedings than by the proof of debt process under the Act, at least to the extent of a determination being made as to their validity and as to their quantum. The resolution of the issues in the Supreme Court proceedings provides a suitable alternative forum to the proof of debt procedure under the Act to determine whether such claims should succeed. The facts in issue, and their legal significance, arise in any event in the Supreme Court proceedings in the pleadings between Nedlands and Mr Chisholm. A comprehensive and contested trial provides a suitable vehicle for the determination of those issues. It will obviate the possible need for there to be two separate proceedings, with not all parties being entitled to participate. In a general sense, there is no suggestion that the bankrupt estate of Mr Killington will suffer financially if the leave is given.
In accordance with the approach of the Court in Allanson, rather than proceed to decide whether those two claims give rise to a debt or debts provable in Mr KillingtonÕs bankruptcy, I propose to grant leave to proceed in respect of those claims to the extent that such leave is necessary. That leave will include leave to maintain the current appeal in the Supreme Court proceedings for that purpose. It is, of course, entirely for that Court whether, on that appeal, any order is made joining the Trustee as a party to the Supreme Court proceedings in respect of either or both of those claims. I note that counsel for Nedlands, who I permitted to intervene to make brief submissions, concluded that as a matter of law both the indemnity claim and the Wrongs Act claim are not sustainable. I have not addressed those contentions in giving the leave which I propose to give. Such considerations may well be relevant in the Supreme Court proceedings on the topic of whether, on the appeal, the Trustee should be added as a party.
As expressed in argument, neither the Cherry v Boultbee defence nor the statutory defences involve Mr Chisholm seeking any orders against the Trustee. It was said that it was sought to
join the Trustee so that he may be bound by the findings made in relation to those defences. If the Trustee is joined in the Supreme Court proceedings, in the light of the leave that is proposed in relation to the indemnity claim and the Wrongs Act claim, that consequence will follow. If the Trustee is not joined in the Supreme Court proceedings in respect of those claims, I would not give leave under s 58(3) to join him in respect of the Cherry v Boultbee defence or in relation to the statutory defences. The purpose of the proposed joinder, when no relief against him is sought in respect of those matters, is not likely to serve the purposes of the Act. In particular, where the purposes of each of those defences is to disentitle Nedlands to any judgment against Mr Chisholm, or to reduce significantly the amount of any judgment to which Nedlands might be entitled against Mr Chisholm, the consequence will be that the monies potentially available through Nedlands to the creditors or contributories of Nedlands will be reduced. There is the potential for Mr Chisholm to achieve indirectly the consequence that his position qua the other creditors of Nedlands may be preferred. If that result be available to him as a matter of law in relation to Nedlands by reason of the Cherry v Boultbee defence or the statutory defences, so be it. But I do not see any reason why the Court should facilitate that prospect in a way which might subvert the purpose of the Act in treating all creditors of the bankrupt estate of Mr Killington equally. For example, if he is permitted to pursue the indemnity claim, and he succeeds in that claim, then, subject to any issue then requiring to be determined that the judgment in his favour is a provable debt in the bankruptcy, he will be able to prove in the bankruptcy along with any other creditors and be treated equally with them. At that point, any issue as to whether the judgment represents a provable claim in the bankruptcy will be much more readily determined because the true legal foundation for it and the facts giving rise to it will have been determined in the Supreme Court proceedings.
As noted above, it is not necessary for me to form any view as to the strength of otherwise of the Cherry v Boultbee defence, or of the statutory defences. There were submissions put that each of those defences was misconceived, or was doomed to fail. Those defences have presently been pleaded in the defence in the Supreme Court proceedings. Those contentions will be decided in those proceedings.
Finally, there is the non-distribution claim. It is discrete from the current issues in the Supreme Court proceedings. Because Mr Killington was not eligible for automatic discharge from bankruptcy, s 116(1)(a) of the Act continues to apply, so that after acquired or devolved property vests in the Trustee. If Nedlands succeeds in its claim against Mr Chisholm, in the winding up of Nedlands, Mr KillingtonÕs bankrupt estate as a shareholder in Nedlands becomes entitled to his interest in Nedlands: s 529 of the Law, and as I am told that the winding up of Nedlands was voluntary under Pt s 5 of the Law, to the distribution ultimately made: s 501 of the Law.
I do not see how the liquidator of Nedlands can do otherwise than comply with the law. In my view, Thellusson could not produce a contrary result, even if otherwise it stood for the proposition contended for. I am not to be taken as accepting that it does. I have not considered that question. Indeed, the result which I suspect Mr Chisholm wishes to achieve may be achieved within the existing statutory framework. For example, if he is permitted by the Supreme Court to pursue the indemnity claim in the Supreme Court proceedings and he succeeds in that claim, and assuming that the judgment against the Trustee is a provable debt in the bankrupt estate of Mr Killington, the flow of funds would be: Mr Chisholm pays Nedlands the amount of its judgment, Nedlands after paying the proper costs of its liquidation pays its creditors, if any, and then distributes the balance then remaining to its shareholders, including to the Trustee; the Trustee then considers the proofs of debt lodged (there is no reason to expect that any judgment in respect of a provable debt would not be accepted, but in any event there are procedures to resolve such issues), and applies the available funds pro rata first amongst the creditors. On the assumptions made, those creditors would include Mr Chisholm by reason of any judgment on the indemnity claim.
I do not give leave to pursue the non-distribution claim in the Supreme Court proceedings, or in any other proceedings. In my judgment, it is a claim which, if successful, would not serve the purposes of the Act as it is directed at cutting off a potential flow of funds to the Trustee to the advantage of one putative creditor, rather than ensuring that the assets of Mr KillingtonÕs bankrupt estate are distributed rateably among the creditors. Mr Chisholm, in a practical sense, is seeking to obtain an advantage over other creditors. The nature of the matter sought to be argued by Mr Chisholm under this claim does have some factual relationship to the matters presently the subject of the Supreme Court proceedings, but the issue goes beyond those matters. Given the result which is sought to be achieved, I do not consider it appropriate to give the leave sought in respect of the non-distribution claim.
I grant leave to Mr Chisholm under s 58(3) of the Act to maintain the present appeal in the Supreme Court proceedings so as to seek an order joining the Trustee as a party in the Supreme Court proceedings, but only in so far as such appeal seeks joinder of the Trustee in respect of the indemnity claim or the Wrongs Act claim. In the event that the Supreme Court then permits the Trustee to be joined as a party in the Supreme Court proceedings, I further grant leave to Mr Chisholm to institute and maintain his proposed claims against the Trustee in the Supreme Court proceedings again only in respect of the indemnity claim and the Wrongs Act claim. The leave so granted is subject to the term that, in the event that in the Supreme Court proceedings (including any appeals) the Court should give judgment or make orders that the Trustee as trustee of the bankrupt estate of Mr Killington is liable to Mr Chisholm, Mr Chisholm will not have any step or steps to enforce such judgment or order other than by seeking to prove in the bankrupt estate of Mr Killington, without the prior leave of a court having jurisdiction under s 58(3) of the Act.
CROSS VESTING
The parties agreed that questions raised on the application before the Court gave rise to a "special federal matter" as defined in s 3(1) of the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth), so that the Supreme Court could not entertain the issues in the absence of an order under s 6(3): s 6(1) of that Act:
Section 3(1) of that Act defines "special federal matter" to mean:
"(a) a matter arising under Part IV of the Trade Practices Act 1974 (other than under section 45D, 45DA, 45DB, 45E or 45EA);
(aa) a matter arising under the Competition Code (as defined in section 150A of the Trade Practices Act 1974);
...
(b) a matter involving the determination of questions of law on appeal from a decision of, or of questions of law referred to stated by, a tribunal or other body established by an Act or a person holding office under an Act, not being a matter for determination in an appeal or a reference or case stated to the Supreme Court of a State or Territory under a law of the Commonwealth that specifically provides for such an appeal, reference or case stated to such a court;
(c) a matter arising under the Administrative Decisions (Judicial Review) Act 1977;
(d) a matter arising under section 32 of the National Crime Authority Act 1984; or
(e) a matter that is within the original jurisdiction of the Federal Court by virtue of section 39B of the Judiciary Act 1903,
being a matter in respect of which the Supreme Court of a State or Territory would not, apart from this Act, have jurisdiction;"
Section 39B(1A) of the Judiciary Act 1903 (Cth) provides:
"(1A) The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter:
(a) in which the Commonwealth is seeking an injunction or a declaration; or
(b) arising under the Constitution, or involving its interpretation; or
(c) arising under any laws made by the Parliament.Ó
That subsection was inserted by the Law and Justice Legislation Amendment Act 1997 (Cth) s 3, Sch 11.
It was by virtue of s 39B(1A)(c) that the parties took the view that the present issue which arose under the Bankruptcy Act 1966 (Cth) was within the original jurisdiction of this Court, under subpar (e) of the definition of "special federal matter" in the Jurisdiction of courts (Cross Vesting) Act 1987, and so was one which the Supreme Court should not entertain.
It is important to note the concluding words of that definition, namely that a matter will only be a "special federal matter" if the Supreme Court does not, apart from that Act, have jurisdiction with respect to it.
Section 39(2) of the Judiciary Act 1903 provides for the courts of the States (and Territories: s 3A) to be invested with certain federal jurisdiction as follows:
"(2) The several Courts of the States shall within the limits of their several jurisdictions, whether such limits are as to locality, subject-matter or otherwise, be invested with federal jurisdiction in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it, except as provided in section 38, and subject to the following conditions and restrictions:-
(a) A decision of a Court of a State, whether in original or in appellate jurisdiction, shall not be subject to appeal to Her Majesty in Council, whether by special leave or otherwise.
(b) (Repealed)
(c) The High Court may grant special leave to appeal to the High Court from any decision of any Court or Judge of a State notwithstanding that the law of the State may prohibit any appeal from such Court or Judge.
(d) The federal jurisdiction of a Court of summary jurisdiction of a State shall not be judicially exercised except by a Stipendiary or Police or Special Magistrate or some Magistrate of the State who is specially authorized by the Governor-General to exercise such jurisdiction or an arbitrator on whom the jurisdiction, or part of the jurisdiction, of that Court is conferred by a prescribed law of the State, within the limits of the jurisdiction so conferred."
Section 38 of the Judiciary Act 1903 does not preserve exclusive jurisdiction in the High Court in respect of an issue such as the one presently before the Court.
It would seem, therefore, that the Supreme Court may have jurisdiction to entertain the questions which arise in this proceeding in the circumstances, as jurisdiction had already been granted to it under s 39(2) of the Judiciary Act 1903. It is unnecessary to do other than to note the point, as it may arise in subsequent proceedings.
I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.