Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), s6(1), s6(3).

Bankruptcy Act 1966 (Cth), s27(1), s73(4).

Judiciary Act 1903 (Cth) s39B(1A)(c)

Aerolineas Argentinas & Ors v Federal Airports Corporation (1993) 118 ALR 635

Birmingham and District Land Co v London and North Western Railway Co [1888] 40 Ch D 268

Re Cascais Pty Ltd, unreported; SCt of NSW (Needham J) 31 May 1982

Chippendale Printing Co Pty Ltd v Commissioner of Taxation (1996) 62 FCR 347

Cummings v Claremont Petroleum (1995-6) 185 CLR 124

Re F (A Bankrupt) [1968] NZLR 518

Re Ferguson; ex parte Elders Trustee [1945] HCA 38; 14 ABC 1

Hughes v Metropolitan Railway Co (1877) 2 App Cas 439

Re Judiciary and Navigation Acts [1921] HCA 20; (1921) 29 CLR 257

Kelso v McCullough, unreported; SCt of NSW (Young J) 24 October 1994

Mt Gibson Manager Pty Ltd v Deputy Commissioner of Taxation [1997] 1457 FCA (18 December 1997)

Moor v Anglo Italian Bank [1879] 10 Ch D 681

NEC Information Systems Australia v Lockhart, unreported; SCt of NSW (Brownie J) 13 July 1990

Official Trustee in Bankruptcy v Edwards, unreported, SCt of NSW (Simos) J 5 December 1997

Otto Australia Pty Ltd v Commissioner of Taxation (1991) 28 FCR 477

Re Pawson [1917] 2 KB 527

R v Commonwealth Court of Conciliation and Arbitration; ex parte Barrett [1945] HCA 50; (1945) 70 CLR 141

Seventeenth Canute Pty Ltd v Bradley Air-Conditioning Pty Ltd [1987] 1 Qd

United States Surgical Corporation v Hospital Products International Pty Ltd (1981) 55 ALJR 120

Yeomans v Williams (1865) LR 1 Eq 184

On Wednesday 21 October 1998, I directed that this action be transferred to the Federal Court under the provisions of the Jurisdiction of Courts (Cross-Vesting) Act 1987 ("the CVA (Cth)"). I had earlier ruled that this was a "special federal matter" under the provisions of the CVA (Cth).

I indicated during the course of the hearing that I would provide reasons as to why I had reached the conclusion that this was a "special federal matter" and as to why I had also concluded that the matter should be transferred to the Federal Court. These are those reasons.

The first issue that required resolution was whether the matter was a "special federal matter" as defined in the CVA (Cth).

A special federal matter is defined in the CVA (Cth):

(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."

It is to be noted that on 12 October 1998, counsel for the plaintiffs in written submissions and confirmed in oral submissions, conceded that the matter was a "special federal matter" within that definition but this concession was withdrawn the following day and as a consequence the issue was argued out.

Senior counsel for the first defendant contended that the matter was a "special federal matter" because it was one coming within the provisions of s39B(1A)(c) of the Judiciary Act 1903 ("the Judiciary Act") which provides that the original jurisdiction of the Federal Court includes jurisdiction in any matter: "arising under any laws made by the Parliament".

For the purposes of the issue falling for consideration "matter" within that section, means the justiciable controversy or dispute: see Felton v Mulligan & Anor [1971] HCA 39; (1971) 124 CLR 367 per Barwick CJ with whom McTiernan, Windeyer and Walsh JJ agreed at 374:

"The critical question in the case is whether the defence did involve the exercise of federal jurisdiction by the Supreme Court. It would do so if the matter before the Supreme Court became or involved by reason of the defence raised to the applicant's claim either wholly or partly a matter arising under a law made by the Parliament, in this case the Matrimonial Causes Act: see Constitution s76(ii) and Judiciary Act s 39(2). Further the matter arising under a law of the Parliament will have arisen if the suit could have been disposed of by deciding the matter whether or not the suit was so disposed of: cf Nelungaloo Pty Ltd v The Commonwealth [1952] HCA 11; (1952) 85 CLR 545; The Commonwealth v Bank of New South Wales [1949] HCA 47; (1949) 79 CLR 497. It is of course not enough that a law made by the Parliament must be construed in the course of the decision of the case. There must be a matter arising under a law of the Parliament. The contrast between the language of s76(i) and 76(ii) (of the Federal Constitution) is relevant in this connexion. The point at which interpretation of the federal statute, prima facie an apparently incidental consideration, may give rise to a matter arising under the statute is not readily expressed in universally valid terms. But the distinction between the two situations must be maintained."

Similarly, in Re The Honourable Murray Wilcox a Judge of the Federal Court of Australia ex parte Venture Industries Pty Ltd, Harry Kioussis and Penny Kioussis Federal Court No 393/96 Victorian District Registry, Black CJ, Cooper and Merkel JJ said at para 88:

"In our view the matters we have outlined lead to the conclusion that a manifest object of the cross-vesting legislative scheme as enacted by the Commonwealth in 1987 was for the Trade Practices Act and the Cross-Vesting Act to provide separate, albeit overlapping, but additional sources:

(a) for the conferral and investment of federal jurisdiction on the Supreme Court;

(b) of power to transfer matters or proceedings in respect of matters arising under Commonwealth legislation to or from those courts (as the case may be)."

In Phillip Morris Inc & Anor v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, Mason J at 512:

"So much, then, for the claim that the defendant's narrow view of 'matter' has the support of authority. Once it is accepted, as it must be, that there is no special magic in the scope of those matters which involve the interpretation of the Constitution, the lesson to be learned from the authorities is that the Court having jurisdiction to determine a matter falling within ss75 and 76 giving rise to the exercise of federal jurisdiction has jurisdiction to decide an attached non-severable claim. ...

In the ultimate analysis the validity of this interpretation rests on the proposition that 'matters' in ss75 and 76 has the broad content ascribed to it at the turn of the century by those who are familiar with the course of events which led to the adoption of the Constitution."

I would finally point out on this issue that s27 of the Bankruptcy Act vests exclusive jurisdiction in the Federal Court. That section provides:

(1) The Federal Court has jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than the jurisdiction of the High Court under section 75 of the Constitution."

With those principles in mind, it is necessary to turn to the pleadings as they ultimately evolved at the hearing of this matter.

The first thing to note about the plaintiffs' statement of claim as amended by the minute of proposed amended statement of claim dated 13 October 1998 is that the plaintiffs plead that the first and second plaintiffs were declared bankrupt on 2 June 1992. The statement of claim also pleads that in or about September 1993 the first and second plaintiffs proposed to their trustee in bankruptcy, one "Lyford", that they enter into a composition with all of their respective creditors (other than the first and second mortgagees of certain land) in accordance with the provisions of s73(4) of the Bankruptcy Act 1966 ("the Bankruptcy Act") in terms of which creditors were to accept, in each estate, the sum of $22,500 in full and complete satisfaction of all claims.

The statement of claim pleads a creditors' meeting of 3 November 1993 at which certain resolutions were passed, resulting, the plaintiffs contend, in their bankruptcies being annulled.

The plaintiffs plead that the indebtedness which they had to the first defendant was by those special resolutions and by reason of equity, extinguished.

There are other pleadings in the statement of claim which is an extensive document and essentially, counsel for the plaintiffs would seek to characterise the plaintiffs' claim as equitable estoppel as against the first defendant. That pleading is to be found in para 21A of the statement of claim.

It is unnecessary to refer to the statement of claim further as the passages already identified reveal the extent to which federal matters are involved in this action.

In the amended defence of the first defendant dated 13 October 1998, the first defendant in paras 6, 7 and 8 of the defence specifically plead the effect of the Bankruptcy Act and the special resolutions as part of the defence. In addition, in para 9, the first defendant pleads:

"9(a) at all material times during the term of the bankruptcies of the first plaintiff and the second plaintiff their respective property, including any choses in action did vest in the trustee in bankruptcy alone and neither the first plaintiff nor the second plaintiff had any capacity, right or entitlement to enter into a binding and effective composition with the first defendant in equity or under the common law as alleged or at all;

(b) further or alternatively the Bankruptcy Act 1966 ("Act") does provide an exclusive code as to the circumstances and conditions under which a bankrupt can enter into a binding and effective composition with his or her creditors and there are no common law or equitable rights that can be enforced independently of the terms of the Act. Such common law and equitable rights are excluded as a matter of the proper construction of the Act by necessary implication."

Again without descending into the details of the matter, the Full Court heard an interlocutory appeal from a decision of Heenan J seeking to have jurisdictional matters determined as a preliminary issue. In Magenta Nominees Pty Ltd v Pridmore & Ors, unreported; SCt of WA; Library No 980594; 08 October 1998, Malcolm CJ at 7 described the case as "pregnant" with a special federal matter. In my opinion, the pleadings in this case clearly indicate that such a conclusion was inevitable.

In my opinion it is sufficient to dispose of this matter to refer to the pleading raised by the first defendant that the Bankruptcy Act constitutes an exclusive code so as to exclude the principles of equity from the plaintiffs' claim to identify a central matter fundamentally within the jurisdiction of, and appropriately to be determined by, the Federal Court.

The second decision in relation to which reasons were to be provided was the decision to transfer the matter to the Federal Court under the provisions of s6(1) of the CVA (Cth).

Section 6 of the CVA( Cth) provides:

(a) a matter for determination in a proceeding that is pending in the Supreme Court of a State or Territory is a special Federal matter; and

(b) the Court does not make an order under subsection (3) in respect of the matter;

the Court must transfer the proceeding in accordance with this section to the Federal Court or to a court mentioned in paragraph 2(b)."

For present purposes, it is not in issue that the appropriate court to which the transfer must be made is the Federal Court.

Section 6(3) of the CVA (Cth) provides:

"(3) The Supreme Court may order that the proceeding be determined by that court if it is satisfied that there are special reasons for doing so in the particular circumstances of the proceeding other than reasons relevant to the convenience of the parties."

There are other procedural provisions contained within s6 of the CVA (Cth) but those provisions have been complied with. It is to be noted that neither the State nor the Federal Attorneys General sought to make submissions on this issue after notices were sent to each of them.

The second issue for determination in this matter was whether there were "special reasons" for not transferring the matter to the Federal Court other than reasons relevant to the convenience of the parties as provided in s6(3) of the CVA (Cth).

In dealing with this aspect of the application, it is important to note that the mortgages that the first defendant held in relation to the various lands of the plaintiffs were third mortgages. The plaintiffs allege that the two prior mortgagees subsumed their entire equity in the properties concerned. The plaintiffs allege that the third defendant accepted the compositions referred to earlier in these reasons because the third mortgages were valueless.

Following their release from bankruptcy, the plaintiffs contend that they discharged the first and second mortgages in the belief that the third mortgage had also been discharged in the course of the bankruptcy. No discharge, however, was ever registered in relation to the third mortgages. It is said that as a consequence, the third mortgages held by the first defendant became first mortgages and as a consequence the balance of moneys owing to the first defendant, which is a substantial sum of money, is thereby secured by first mortgage. The first defendant pleads that it did not release its security in the bankruptcy and was not involved in the composition to the extent of any secured debt. That is very much a matter of controversy for determination when the action is resolved.

It is because of the vulnerable position in which the plaintiffs now find themselves that the matter was admitted into the Expedited List in this Court and hearing dates were urgently provided. That background is important when considering the implications of the CVA (Cth) and the issue as to whether there were "special reasons" other than reasons relevant to the convenience of the parties for the matter to remain for hearing in the Supreme Court.

Counsel for the plaintiffs argued that there were special reasons why this matter should remain in the Supreme Court.

The reference in s6(3) of the CVA (Cth) which expressly provides for "special reasons" to be demonstrated before the matter can be retained in the Supreme Court were inserted in that section by The Law and Justice Legislation Amendment Act (No 3) 1992 (Cth) with effect from 11 December1993. Counsel were unable to refer to any decision on this section following the amendment but the explanatory memorandum circulated by the Attorney General, the Honourable Michael Duffy MP when dealing with The Law and Justice Legislation Amendment Bill (No 3) of 1992 is instructive. That explanatory memorandum provides (at 14):

"Section 6 of the Jurisdiction of Courts (Cross-Vesting) Act currently provides that a State or Territory Supreme Court shall transfer a proceeding in which a special federal matter arises to the Federal Court unless the Supreme Court is satisfied that it is both not appropriate that the proceedings be transferred and that it is appropriate that the proceedings be heard by the Supreme Court. In addition, the Commonwealth Attorney-General is to be notified of the proceedings. The Attorney General can require the transfer of the proceedings. The Schedule will repeal the existing section and make a number of amendments to the above procedure.

New subsections 6(1) and (3) will require the State or Territory Supreme Court to transfer proceedings involving special federal matters unless the Court is satisfied that there are special reasons for the Court to hear the matter in the particular circumstances of the case. The convenience of the parties will not be a reason justifying the non-transfer of proceedings."

Under the provisions of the CVA (Cth) before the amendment effected by No 3 of 1992, there was no requirement for "special reasons ... other than reasons relevant to the convenience of the parties".

The provision as it was before the amendment provided that:

"6(2) The Supreme Court of a State or Territory shall not make an order under subsection (1) that the court determine a proceeding unless it appears to the Supreme Court that, by reason of the particular circumstances of the case:

(a) it is not appropriate that the proceeding be transferred to the Federal Court; and

(b) it is appropriate that the Supreme Court determine the proceeding."

The contrast between the old section and the amended section is readily apparent.

The earlier section was considered by the Supreme Court of New South Wales in Metroplaza Pty Ltd v Girvan NSW Pty Ltd (In Liq) & Ors (1991) 24 NSWLR 718 by Rogers CJ at 722:

"Presumably the first reason for the requirement in section 6 is the special expertise that the Federal Court has in relation to such matters. In the immediate field of concern, with all due respect, it seems to me that there is no special expertise residing in the Federal Court in relation to the application of section 45(2) [Trade Practices Act 1974 - Cth]. It is true that questions of what is the 'market', and the notion of 'lessening of competition' are not the daily fare of State courts but they are not questions regularly arising in the Federal Court either. Secondly, no doubt it is desirable that special federal matters, being of particular concern to the Commonwealth, should be decided in the Federal Court. The present dispute rather than being a matter of particular concern to the Commonwealth, is of particular concern to New South Wales."

Rogers CJ in that judgment went on to point out that the issue which was said to be the special federal matter was only one of four matters to be resolved in that case.

In contrast, in my opinion, in this case, as can be seen from the summary of the pleadings to which I have referred earlier, the central thrust of the action will turn upon the effect of the plaintiffs' bankruptcies and the conducts of the plaintiffs whilst bankrupt. The issues raised by the defence will also centrally involve considerations of the Bankruptcy Act and the extent, if any, to which equity is permitted to intrude into those provisions. Quite unlike the matters in Metroplaza, therefore, the whole thrust of this case is likely to turn upon considerations of the Bankruptcy Act.

In Bankinvest AG v Seabrook (1988) 14 NSWLR 711, Kirby J had occasion to consider the cross-vesting scheme generally and said at 716:

"... the plain purpose of the legislation ... is to provide a regime for the assignment of litigation to the most appropriate jurisdiction in Australia."

"The cross-vesting legislation in effect brings together the eight State and Territory Supreme Courts, the Federal Court and the Family Court into an organisational relationship. Very broadly speaking, the legislation now operative throughout Australia achieves two objectives: first it enables any one of these courts to exercise the jurisdiction of, and to apply the law that would be applied by, any one of the other nine; secondly it enables any one of those courts in which proceedings are commenced to transfer them to any one of the other nine."

Those cases were, of course, as I have said, decided before the amendment to s6 of the CVA (Cth) and before the inclusion of the expression "special reasons ... other than reasons relevant to the convenience of the parties".

In this case an interesting issue arose as to whether the Expedited List rules contained in O4A and O4B of the Rules of the Supreme Court can be taken into account as being matters not "relevant solely to the convenience of the parties".

When I made the orders transferring this matter to the Federal Court on 21 October 1998, I indicated in brief reasons delivered on that day:

"... in my opinion matters such as the interests of justice can be taken into account as being matters not relevant solely to the convenience of the parties."

In Expedited List matters, it is of great concern to this Court that the parties should have their disputes resolved as expeditiously as possible. That is not merely a matter of "convenience", but in the interests of justice. A significant factor for consideration in this case was that trial dates had been provided by the Supreme Court for the hearing of this action. Unfortunately, the procedural matters that ensued, and which required resolution, meant that those dates had to be vacated in any event as circumstances transpired.

As I indicated in the brief reasons published on 21 October 1998 expedition can also be sought in the Federal Court so that the loss of expedition in the Supreme Court is not of itself a special reason: see Westpoint Corporation Pty Ltd v Coles Supermarkets Australia Pty Ltd (1996) 71 FCR 584 per Nicholson J at 596.

In my view of the circumstances surrounding this case, even under s6 of the CVA (Cth) prior to the amendment, it was an appropriate case for transfer to the Federal Court. The position is strengthened by reason of the amendment and the need for the demonstration of "special reasons". Whilst I accept that matters relating to the Expedited List and the provisions of O4A and 4B of the Rules of the Supreme Court are properly matters to be taken into account in determining whether or not special reasons exist, it is my view that on any basis this matter was a case that was appropriate for transfer to the Federal Court. It will not be in every case that Expedited List matters are held to be "other than reasons relevant to the convenience of the parties" but in this case, in my view, even taking into account the interests of justice and bearing in mind the other matters to which I have referred, this case should be heard by the Federal Court pursuant to the present statutory regime.

For these reasons the matter was remitted to the Federal Court where no doubt the matter will be heard expeditiously.