Lynette Susan Montgomery v Jason Porter

The Federal Court Proceedings

1. However, on 23 September 2021, Mr Docherty filed an application in the Federal Court of Australia ("Federal Court Proceedings"). The question raised in the Federal Court Proceedings, namely whether the two properties have revested in Mr Docherty, was not an issue considered during the hearing of the cross-vesting application before Ward CJ in Eq. The success of Mr Docherty's argument will turn upon when he was discharged from bankruptcy: Docherty v Porter, in the matter of Docherty (Bankrupt) [2021] FCA 1227 ("Docherty v Porter") at [9].
2. The trustees in bankruptcy moved in the Federal Court for orders cross-vesting the matter to this Court. That application came before Perram J on 8 October and his Honour made orders that day transferring the Federal Court Proceedings to this Court, subject to this Court's views on how the two matters should be managed (Order 2). His Honour published written reasons on 11 October.
3. While the parties were in agreement that the Supreme Court has jurisdiction to entertain the suit and this was a position supported by Truthful Endeavour Pty Ltd v Condon (Trustee), in the matter of Rayhill (Bankrupt) [2015] FCAFC 70; 233 FCR 174 ("Truthful Endeavour") by which Perram J was bound, his Honour indicated that he disagreed and was of the view that the Full Court decision to be erroneous: [16]. He nevertheless proceeded on the basis that this Court does have jurisdiction.
4. His Honour was of the view that on the amendment of s.27 of the Bankruptcy Act in 1996, s.4(1) of the Cross-vesting Act was impliedly repealed insofar as it would otherwise have conferred jurisdiction "in bankruptcy" on State Supreme Courts: [29]. Although the Cross-vesting Act post-dates the Bankruptcy Act, the exclusive jurisdiction in s.27 post-dates the Cross-vesting Act: [32]. Additionally, an alternative interpretation ignores the principle of construction that an enactment works an implied repeal of an earlier enactment with which it is inconsistent: [33] citing Goodwin v Phillips (1908) 7 CLR 1 at 7 per Griffiths CJ, 10 per Barton J.
5. His Honour distinguished between jurisdiction in bankruptcy and jurisdiction under the Bankruptcy Act, commenting (at [38]) that: …because s 39(2) of the Judiciary Act continues to confer on State courts jurisdiction in matters under the Bankruptcy Act, s 4(1) of the Cross-vesting Act is in truth a provision that does not operate upon federal bankruptcy jurisdiction. To the extent that it would confer jurisdiction 'in bankruptcy' it has been repealed by the 1996 Amendment; to the extent it would confer jurisdiction under the Bankruptcy Act there is no occasion for it to do so because that is achieved by s 39(2) of the Judiciary Act insofar as it is not jurisdiction in bankruptcy. Section 4(1) of the Cross-vesting Act is irrelevant to that outcome.
6. In constitutional jurisprudence a "matter" is a single justiciable controversy not an individual proceeding: [40] citing Palmer v Ayres [2017] HCA 5; 259 CLR 478 at [26] per Kiefel CJ, Keane, Nettle and Gordon JJ. In a case where the Federal Court has exclusive jurisdiction to determine an aspect of the matter, it also has accrued jurisdiction to determine the non-federal aspects, provided the federal aspect is at least a substantial one: [42] citing Fencott v Muller (1983) 152 CLR 570 at 609 per Mason, Murphy, Brennan and Deane JJ. Justice Perram therefore commented (at [43]) that: Thus, in a case where such a matter is split between this Court and a State Supreme Court, the consequence is that both courts have jurisdiction to proceed, this Court possessing jurisdiction to determine the whole of the dispute and the Supreme Court the jurisdiction to determine the dispute shorn of its federal aspects: Stack at 297 per Mason, Brennan and Deane JJ. Because it is obviously undesirable that both courts should set about determining largely the same issues, a choice must be made as to which is the appropriate forum: Stack at 297; Re Wakim; Ex Parte McNally at [218] per Kirby J. Normally, in such a case, that will be this Court.
7. His Honour accepted that upon its arrival in the Supreme Court the proceeding would be a "special federal matter" (per s.6 of the Cross-vesting Act). This was for numerous reasons. The Federal Court has jurisdiction from s.27 of the Bankruptcy Act and s.39B(1A)(c) of the Judiciary Act 1903 (Cth). By reason of this latter Act, the matter would answer the definition in clause (e) of a "special federal matter" in s.3 of the ­Cross-vesting Act. Further, on arrival at the Supreme Court, the court would only have jurisdiction by reason of s.4(1) of the Cross-vesting Act (including through accrued jurisdiction which also relies upon that act): [50].
8. Therefore, Perram J noted that this Court would be required to consider the implication of s.6 of the Cross-vesting Act and identify any "special reasons" beyond the convenience of the parties why the matter should remain before it: [52]. Against the possibility of the matter being endlessly transferred back and forth between the two courts, Perram J concluded that it was unlikely the proceedings would be transferred back to it: [52].

Federal Court Proceedings were transferred

1. The proceedings in the Federal Court were then transferred to this court. On 12 October I conducted a directions hearing by which time the parties had reviewed their views and jointly sought a transfer back to the Federal Court. Having considered Perram J's decision and the submissions of the parties, I formed the view that orders in accordance with the submissions should be made. Recent information that Mr Docherty's medical condition had stabilised also meant that the reason for expedition in this Court related to his health was no longer a relevant consideration. Apart from transferring the proceedings to Perram J, I also vacated the hearing dates in this Court that were to commence on 26 October.

Legal principles

1. Section 6 of the Cross-vesting Act provides: 6 Special federal matters: general rules (1) If: (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 a court mentioned in paragraph (2)(b). Note: This section has effect subject to section 6A (Special federal matters: Commonwealth authorities or officers acting under the laws of States). (1A) However, the court must only transfer so much of the proceeding as is, in the opinion of the court, within the jurisdiction (including the accrued jurisdiction) of the Federal Court, or the court mentioned in paragraph (2)(b), as the case may be. (2) If the court orders that a proceeding or part of a proceeding be transferred, the proceeding or part of the proceeding must be transferred: (a) if the matter for determination in the proceeding is a matter mentioned in paragraph (a), (b), (c) or (e) of the definition of special federal matter in subsection 3(1) - to the Federal Court; or (b) if the matter for determination in the proceeding is a matter mentioned in paragraph (ab) of that definition - to whichever of the Federal Circuit and Family Court of Australia (Division 1), the Family Court of Western Australia or the Supreme Court of the Northern Territory, in the opinion of the court, is appropriate in the circumstances. (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. (4) Before making an order under subsection (3), the court must be satisfied that: (a) a written notice specifying the nature of the special federal matter has been given to the Attorney‑General of the Commonwealth and the Attorney‑General of the State or Territory where the proceeding is pending; and (b) a reasonable time has elapsed since the giving of the notice for the Attorneys‑General to consider whether submissions to the court should be made in relation to the proceeding. … (6) In considering whether there are special reasons for the purposes of subsection (3), the court must: (a) have regard to the general rule that special federal matters should be heard by the Federal Court or a court mentioned in paragraph (2)(b), whichever is appropriate in the particular case; and (b) take into account any submission made in relation to the proceeding by an Attorney‑General mentioned in subsection (4). …
2. A "special federal matter" is defined in s.3(1)(e) of the Cross-vesting Act to mean: (a) a matter arising under Part IV of the Competition and Consumer Act 2010 (other than under section 45D, 45DA, 45DB, 45E or 45EA); or (aa) a matter arising under the Competition Code (as defined in section 150A of the Competition and Consumer Act 2010) of the Australian Capital Territory or the Northern Territory; or (ab) a matter arising under section 60G of the Family Law Act 1975 in a court other than the Family Court of Western Australia or the Supreme Court of the Northern Territory; or (b) a matter involving the determination of questions of law on appeal from a decision of, or of questions of law referred or 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; or (c) a matter arising under the Administrative Decisions (Judicial Review) Act 1977; 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.
3. Therefore, under s.6(1) of the Cross-vesting Act, if a matter for determination in a proceeding in this Court is a "special federal matter", and the Court does not make an order under s.6(3) that the proceedings be determined in the Supreme Court, the Court must transfer the proceedings to the Federal Court.
4. Section 6(3) allows the Supreme Court to order that a proceeding be determined by it if it is satisfied there are special reasons for doing so in the circumstances of those proceedings, other than reasons relevant to the convenience of the parties. In considering whether there are special reasons, the Court must have regard to the general rule that special federal matters should be heard by the Federal Court and take into account any submissions by the Attorney-General: s.6(6).
5. Special reasons do not require unique or extraordinary circumstances to exist, rather there must be some matter which is unusual or uncommon in character or degree and which differs from the ordinary or usual: James & Ors v James (No. 2) [2019] NSWSC 116 at [98] ("James v James (No. 2)"); Henry v Hancock [2016] NSWSC 71 at [60] cited in Sallway and Newman in their capacity as liquidators of MB Australia Pty Ltd (In Liquidation) v Citadel Group Properties Pty Ltd [2021] NSWSC 709 at [18].
6. Convenience of the parties, while not excluded from the Court's consideration, is not a determinative factor in concluding whether there are special reasons that justify the proceedings being heard in the Supreme Court: James v James (No. 2) at [97] cited in Jiu Niu Investments Pty Ltd v Wang [2019] NSWSC 1697 at [27].
7. As was recognised by her Honour Ward CJ in Eq in Montgomery v Porter (at [60] and [65]), issues of costs and delay can amount to special reasons and are not matters purely of convenience to the parties.

Ms Montgomery's submissions

1. Ms Montgomery outlined the background to the dispute which gave rise to the four "special federal matters" within the meaning of s.3(1) of the Cross-vesting Act which arise in the Federal Court Proceedings. On 29 June 2011, Mr Docherty filed and presented his debtor's petition in bankruptcy, accompanied by his signed statement of affairs which disclosed both the Llandilo Property and the Kingswood Property, to the Official Receiver. The petition was accepted on 2 August 2011. It was argued that the revesting time for the properties disclosed in the statement of affairs, absent any valid extension was the beginning of 29 July 2020, or in the alternative the beginning of 2 August 2020, pursuant to s.129AA(3) Bankruptcy Act. On 20 May 2019 the Trustees gave notices in writing to Mr Docherty purporting to be pursuant to s.129AA(4) of the Bankruptcy Act in respect of the Llandilo Property and the Kingswood Property, purporting to notify him that each of the said properties would continue to vest in them until 3 August 2023 ("Extension Notices").
2. Ms Montgomery submitted that each of the notices was invalid in that the time specified therein as the time that the Llandilo and Kingswood properties would continue to vest in the cross-claimant, namely 3 August 2023, was a time which was more than three years after the then current revesting time, namely the beginning of 29 July 2020, or alternatively the beginning of 2 August 2020. By reason of the invalidity of the notices, the two properties became vested in Mr Docherty on 29 July 2020, or alternatively on 2 August 2020, pursuant to s.129AA(2) Bankruptcy Act and thereupon ceased to be subject to s.127 Bankruptcy Act. Therefore, the Trustees have no interest in either the Llandilo Property or the Kingswood Property.
3. The four special federal matters were therefore said to be: 1. The proper construction of s.149(4) of the Bankruptcy Act as to the precise date of discharge of Mr Docherty from his bankruptcy, by reference to s.36(1) Acts Interpretation Act 1901 (Cth); 2. The proper construction of s.129AA(4) of the Bankruptcy Act in relation to the validity or otherwise of the Extension Notices; 3. Whether s.33(1)(b) and/or s.306 of the Bankruptcy Act is applicable so as to permit amendment nunc pro tunc of the Extension Notices by substituting the date 29 July 2023 for that of 3 August 2023 stated therein; 4. If the answer to (c) is no, whether the Llandilo Property and the Kingswood Property have revested back in Mr Docherty pursuant to s.129AA(2) of the Bankruptcy Act.
4. Ms Montgomery submitted that unless an order is made upon a successful application by a party under s.6(3) of the Cross-vesting Act that the proceedings, including the Federal Court matter recently transferred to it, should remain in this Court, the Court must transfer the proceedings, including the cross-vested Federal Court proceedings, to the Federal Court.
5. Ms Montgomery argued that there were therefore two alternatives open to the Court. In the first scenario only the four special federal matters (being in substance the whole Federal Court Proceeding) could be transferred back to the Federal Court. In that event, it was proposed that the Supreme Court proceeding be adjourned to a time in 2022 to await the outcome of the Federal Court hearing. If Mr Docherty is successful in the Federal Court Proceeding, then what would remain to be determined in this Court as between the plaintiff and first defendants/cross-claimants would be vastly reduced in scope. Further, it is presumed that the issues as between Ms Montgomery and Mr Docherty would be capable of quick resolution.
6. The second alternative proposed was to transfer the whole of the Supreme Court proceeding to the Federal Court, on the basis that the present claims in this Court are themselves "special federal matters". This would entail revoking the Order made by Ward CJ in Eq on 6 November 2019, and a separate application being made in the Federal Court to have the above four special matters determined first as a separate question.

Submissions on behalf of the trustees in bankruptcy

1. The trustees agreed that the four matters identified by Ms Montgomery as "special federal matters" in the Federal Court Proceedings are indeed special federal matters. They argued that consideration need also be given to the whole of the proceedings and the changes brought about by Mr Docherty's application.
2. The two major changes were identified as being firstly that Mr Docherty now takes an active part in the proceedings asserting title to the properties, whereas previously he seemed content for Ms Montgomery to have them if successful. He has not yet filed a defence to her claim or the cross- claim, or the trustees' cross-claim. Secondly, and more importantly, there are additional "special federal matters" to which Counsel does not advert. They are those identified by Ward CJ in Eq at [19] of her judgment of 6 November 2019, and additional matters raised in the trustees' cross-claim filed on 27 March 2020 which were not before her Honour when the cross-vesting application was determined. The Trustees submitted that when those further matters are taken into account it is apparent that the Trustees' initial position on the cross-vesting application in 2019 and opposed by Ms Montgomery (that the proceedings be transferred) is now the appropriate course.
3. The trustees identified numerous paragraphs of their cross claim that would be unaffected by any defect in the s.129AA Notices which are the subject of the Federal Court Proceedings. In addition, the trustees noted that should the Court find that the Extension Notices are otherwise wrong, ss.33(1)(b) and 306 Bankruptcy Act provide for rectification of errors or otherwise a defence against invalidity. Each provides that contextual evidence might form a basis for either amending a document (s.33(10(b)) or ignoring a defect (s.306). In neither instance is there a case directly on point. In those circumstances the context and consequences of the errors become relevant and evidence of those matters may be taken into account. It may be anticipated that much of the evidence currently before this Court will be of relevance.
4. Therefore, it was submitted that the appropriate approach is to transfer the whole proceeding to the Federal Court. If the case for hearing certain aspects of the proceedings separately is compelling then a judge of that Court will no doubt find that prospect irresistible.

Submissions on behalf of Mr Docherty

1. Mr Docherty, who had not been an active participant in the Supreme Court proceedings to date, supported that the proceedings should be transferred to the Federal Court. This was primarily because the proceedings involve a number of difficult and to some extent novel questions in respect of key provisions of the Bankruptcy Act in respect of which there is not established precedent. The Federal Court possesses special expertise in the construction of that act, given the exclusive jurisdiction which is vested in it concurrently with the Federal Circuit Court under s.27.
2. Mr Docherty characterised the matter slightly differently from that of Ms Montgomery and the trustees in that he says that the term "special federal matter" describes the whole "matter" which was before the Federal Court, rather than separate issues or questions. He otherwise agreed that the matters identified arise under the Bankruptcy Act and involve its construction and application.
3. Mr Docherty highlighted that Ward CJ in Eq found (at [23] of Montgomery v Porter) that the Supreme Court proceedings, even before the cross-claim was filed by the Trustees, were a "special federal matter" on the basis that the proceeding engaged the jurisdiction in bankruptcy within the meaning of s.27 of the Bankruptcy Act.
4. The filing of the cross-claim has introduced a further set of issues of complexity under the Bankruptcy Act which would in themselves be sufficient to constitute the proceedings as a special federal matter. It is possible that had the cross-claim been filed when Ward CJ in Eq gave judgment that the content of it may have tipped the balance in favour of the Trustees' application to have the proceedings cross-vested to the Federal Court.
5. As a result of Perram J's order of 8 October, there was said to now be a need for the court which determines the matter to engage in significant additional construction of the Bankruptcy Act given the relief sought by Mr Docherty. It was submitted that the more natural forum for the determination of both sets of proceedings, given the numerous complex questions of construction under the Bankruptcy Act, would be the Federal Court.
6. Finally, given that at [52] of his judgment, Perram J referred to the "potential infinite regress" of the matter being transferred endlessly between two courts, it was submitted that where all parties support the transfer, the "circuit breaker" may be constituted by an order of this Court to transfer the matter back to the Federal Court. Once there no party, having supported the transfer, could be heard to complain.

Consideration

1. I would agree with the characterisation by Ms Montgomery (as agreed to by the trustees) of the four issues relating to the Bankruptcy Act as being special federal matters within the meaning of s.3(1) of the Cross-vesting Act. While Mr Docherty disagreed as to the characterisation of these issues as separate "matters", preferring to describe the whole proceeding before the Federal Court as a "special federal matter", he nonetheless agreed that these questions under the Bankruptcy Act arose for consideration. There was therefore no issue that a special federal matter exists in these proceedings.
2. Application was made before me to transfer both sets of proceedings to the Federal Court under s.6(1) of the Cross-vesting Act. There is no discretion to be exercised where a special federal matter exists in the absence of an order under s.6(3). Further, I am of the view that transferring the proceedings to the Federal Court is appropriate in the circumstances, especially given there was a joint application made on behalf of each of the interested parties, to transfer both sets of proceedings to the Federal Court. I made orders to do so accordingly.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 October 2021