Green v Official Trustee in Bankruptcy, in the matter of Schneller

REASONS FOR JUDGMENT 1 Before the Court is an application by Mr Richard Green, a creditor of Jennifer Schneller, a bankrupt, for leave under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) ("the Act") to continue proceedings commenced by Mr Green in the Equity Division of the Supreme Court of New South Wales. 2 The background to the Supreme Court proceedings is set out in a chronology that has been put before the Court by Mr Green's solicitor. It should be noted that nothing said about that chronology in any way constitutes a finding of fact by me of any matter referred to in the chronology. 3 It seems that proceedings were commenced in the Supreme Court of New South Wales in June 1994 by Mr Green against Mrs Schneller claiming damages for defamation. Those proceedings had not been heard in March 1998 when Mr and Mrs Schneller signed consent orders in the Local Court at Manly under the provisions of the Family Law Act 1975 (Cth) pursuant to which Mrs Schneller was ordered to transfer her half interest in the matrimonial home at Northwood to Mr Schneller. The Supreme Court defamation action was heard in February 1999 and resulted in judgment being given in Mr Green's favour against Mrs Schneller on 19 June 2000. 4 On 29 June 2001 Mr Green commenced the proceedings in the Equity Division of the Supreme Court which are numbered 3331 of 2001. An amended summons filed in those proceedings shows that Mr Green claimed a declaration that the transfer of Mrs Schneller's half interest in the Northwood property was voidable and also that the husband hold a one half interest in the property upon trust for Mrs Schneller. The proceedings sought in addition an order that Mr Schneller transfer the one half share in the property to his wife as tenants in common and an order for rectification. An order was also sought that following a judgment in favour of Mr Green the proceedings be adjourned to enable him to apply to the Local Court at Manly to set aside the consent orders made on or about 23 March 1998. Finally, clause 5 of the summons provides as follows: "In the alternative to Order 4 above, an order that the property be sold at public auction at a time specified by the Court and the proceeds of sale divided equally between the First and Second Defendants [Mrs and Mr Schneller] and an order that the First Defendant's share of the proceedings (sic) be forthwith applied in satisfaction or partial satisfaction of the Plaintiff's judgments against the First Defendant and for the costs of these proceedings." 5 It seems an application was made to the Supreme Court in its Equity Division in October of this year that that court grant leave pursuant to s 58(3)(b) of the Act to continue the proceedings. The matter came before Barrett J who held that the Supreme Court had no jurisdiction to grant leave to proceed and dismissed the notice of motion. It is as a consequence of that judgment that Mr Green now comes to this Court. 6 The Official Trustee, who became trustee of the estate of the bankrupt upon her filing her own petition, neither consents to nor opposes the grant of leave. The Trustee submits that if leave is granted it should be granted subject to conditions of the kind imposed by Gyles J in a similar matter, Kattirtzis v Zaravinos; In the matter of Zaravinos (N7381/01). 7 I have been referred to a number of cases including In the Estate of Killington; Ex parte Chisholm v Official Trustee in Bankruptcy of the Estate of Killington [1998] FCA 1474 (20 November 1998), a decision of Mansfield J, Scott v Bagshaw (2000) 99 FCR 573, a decision of a Full Court of this Court comprising Drummond, R D Nicholson and Katz JJ, and a decision of a Full Court of this Court comprising the Chief Justice, Beaumont and Tamberlin JJ in Fraser v Commissioner of Taxation (1996) 69 FCR 99. 8 There is little doubt that this Court has jurisdiction to grant leave to Mr Green to continue the proceedings in the Equity Division of the Supreme Court. The sorts of issues considered in Fraser as to whether proceedings under the Family Law Act 1975 (Cth) are proceedings of the kind referred to in s 58(3)(b) of the Act do not arise in the present case. Rather, it seems to me clear that the proceedings which Mr Green has commenced are, on any view, proceedings against the property of the bankrupt. They are, indeed, proceedings brought under s 37A of the Conveyancing Act 1919 (NSW) to recover the property of the bankrupt. The only issue is whether the present is an appropriate case for the Court's discretion to be exercised. 9 In cases such as the present there is a concern where proceedings are brought in a court by a creditor that a successful end to those proceedings be that any property that is sought to be recovered is held ultimately for the Trustee in Bankruptcy for the benefit of creditors generally. This is in accordance with the policy which clearly underlies the Act and which I discussed in Re McMaster; Ex parte McMaster (1991) 33 FCR 70, a judgment approved by the Full Court in Fraser. In that case I said at 72-3: "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 particular circumstances of that case I refused to grant leave in connection with proceedings contemplated by the bankrupt's wife and to be taken in the Family Court of Australia. But the facts in that case are quite different from those that presently arise. 10 The concern I have in the present case is largely directed at the order sought in clause 5 of the Supreme Court summons. While obviously there would be no objection in principle to the Supreme Court making an order for sale of the relevant property, assuming that Mr Green is successful, clearly the property, if indeed an asset of the bankrupt, vested in the Trustee in Bankruptcy pursuant to the provisions of s 58 of the Act. Before such an order was made it would be necessary for the Trustee to become a party. Further, it would be appropriate that any proceeds of sale be paid to the Trustee rather than applied as presently contemplated in clause 5. This concern is obviated by Mr Green, through his counsel, offering an undertaking to the Court, in addition to other undertakings I will refer to in a moment, that he not seek to pursue an order that in the event of sale of the property the proceeds be forthwith applied in satisfaction or partial satisfaction of the plaintiff's judgments against the first defendant and for the costs of the proceedings but, rather, if required by the Trustee, will join with the Trustee in seeking an amendment to the orders sought to the effect that the first defendant's share of proceeds be paid to the Trustee. 11 I would accordingly, subject to the giving of an undertaking in the form already noted and upon the giving of the further undertakings set out below, make the following order: