Mclean (Trustee) v Kurene, in the matter of Kurene

BETWEEN: Neil Stewart Mclean as Trustee of the Bankrupt Estate of Faimafili Elenise Luafalealo Kurene Applicant

AND: Faimafili Elenise Luafalealo Kurene Respondent

TO: The High Court of New Zealand RE: Federal Court of Australia proceedings VID1086/2019 WHEREAS:

1. On 11 August 2016, a sequestration order was made by a Registrar of the Federal Circuit Court of Australia against Ms Faimafili Elenise Luafalealo Kurene (Ms Kurene), and on 16 September 2017 Mr Neil Stewart Mclean (the Trustee) was appointed as trustee in bankruptcy of her estate.
2. Ms Kurene is a resident of New Zealand.
3. Under Australian law and pursuant to sections 58(1) and 116 of the Bankruptcy Act 1966 (Cth) (the Act) if a person becomes bankrupt in Australia their real and personal property vests in their trustee who is authorised to sell that property and distribute the proceeds of sale amongst the bankrupt's creditors.
4. From information given to the Trustee and following his investigations, the Trustee has determined that Ms Kurene holds a fee simple interest as a tenant in common as to a two-thirds interest in a property located in New Zealand, described in certificate of title WN8C/2 and situated at 52 Rugby Street, Awapuni, Palmerston North 4112, New Zealand (the Property).
5. In an application to this court, the Trustee gave evidence that the debts owing to the creditors of the bankrupt estate of Ms Kurene total approximately AUD 70,000.
6. Pursuant to the provisions of the Act a trustee is authorised to take possession of the assets of a bankrupt, subject to certain limited exclusions, and to realise those assets, by sale or otherwise, for the benefit of the creditors in the bankrupt estate. A reference to assets includes all real estate property, cash at bank, shares in companies, a beneficially vested interest in a trust and any income derived from those assets, located both within Australia and outside of Australia's external territories.
7. It has been represented to this court that it is necessary for the purposes of justice and the due administration in bankruptcy of the estate of the bankrupt under and in accordance with the bankruptcy laws of the Commonwealth of Australia, that the Property should be made available to the Trustee in his capacity as trustee of Ms Kurene's bankrupt estate, so that it may be dealt with by him under the Act for the purpose of realising it for the benefit of the creditors of the estate.
8. Pursuant to section 27 of the Act, the Federal Court of Australia has jurisdiction in bankruptcy, and under section 29 of the Act this court can request a court outside Australia that has jurisdiction in bankruptcy to assist it in any matter of bankruptcy.
9. On 7 October 2019, the Trustee applied to this court for an order that a letter of request be issued under section 29 of the Act to the High Court of New Zealand, to assist in the realising of the Property for the benefit of the creditors of the bankrupt. Request for Assistance
10. This court requests, for the reasons given above and for the assistance of this court in the matter of the estate of the bankrupt, that the High Court of New Zealand: (a) vest in the Trustee the property real and personal of Ms Kurene in New Zealand and the possession and control thereof, with liberty to sell and lease the same and receive the proceeds of such sale or leasing and with authority to take such steps and do such acts and things as may be necessary for those purposes; and (b) grant such orders on application by the Trustee as may be necessary and proper for the purpose of implementing the request in paragraph (a) above and ancillary thereto.

DATE: FEDERAL COURT OF AUSTRALIA DISTRICT REGISTRY OF VICTORIA

O'CALLAGHAN J: 1 The applicant, Mr Mclean (the Trustee), is the trustee of the bankrupt estate of Ms Faimafili Kurene (the respondent). 2 He applies for an order, pursuant to s 29(4) of the Bankruptcy Act 1966 (Cth) (the Act), that the court issue a letter of request to the High Court of New Zealand (the High Court) requesting it to act in aid of and be auxiliary to this court in relation to the bankruptcy. 3 A sequestration order was made by a Registrar of the Federal Circuit Court of Australia against the respondent on 11 August 2016 and on that date Mr Mathew Terence Gollant was appointed as trustee in bankruptcy of her estate. On 16 September 2017, Mr Mclean was appointed trustee in bankruptcy in place of Mr Gollant. 4 Pursuant to s 58(1) of the Act, the real and personal property of the respondent thus vested in the Trustee. 5 The Trustee's investigations have identified a property in New Zealand, being 52 Rugby Street, Awapuni, Palmerston North (the Property), in which the respondent has a two-thirds interest. 6 Section 29(4) of the Act provides as follows: The Court may request a court of an external Territory, or of a country other than Australia, that has jurisdiction in bankruptcy to act in aid of and be auxiliary to it in any matter of bankruptcy. 7 The aid being sought is: (1) aid in vesting in the Trustee all of the respondent's divisible property situated in New Zealand, including the Property; (2) assisting the Trustee to obtain possession and control of the respondent's divisible property in New Zealand; and (3) assisting the Trustee to sell and realise the respondent's divisible property for the benefit of creditors. 8 The Trustee relies on: (1) affidavits of Neil Stewart Mclean sworn on 7 October 2019 and 17 March 2020; and (2) an affidavit of Paul Hatch sworn on 22 November 2019. 9 The deponents gave evidence to this effect: (1) creditors have made claims for debts totalling approximately $69,624.86 to $70,232.08; (2) the Trustee's investigations reveal that the respondent has a two-thirds interest in the Property; (3) the Trustee has been unsuccessfully seeking the cooperation of the respondent to realise the Property for the benefit of creditors since 19 March 2018; and (4) the respondent was personally served with this application on 15 November 2019 in accordance with s 9 of the Trans-Tasman Proceedings Act 2010 (Cth). 10 As French J held in Re Clunies-Ross; Ex parte Totterdell (1987) 82 ALR 475 at 473, three issues arise on applications such as this, namely: (1) Does this court have the power to issue the letter of request? (2) Does the recipient court have the power to act upon the letter of request? (3) As a matter of discretion should the letter of request be issued? 11 The power to issue a letter of request is conditioned on the court and the recipient court having jurisdiction in bankruptcy: see, eg, Warner (Trustee), in the matter of Barnes and Barnes [2018] FCA 1784 at [19]. 12 Section 27 of the Act confers upon this court jurisdiction in bankruptcy. Under s 30 of the Act, this court has power to make such orders as it considers necessary for the purposes of carrying out or giving effect to the Act. 13 The recipient court is the High Court of New Zealand and its jurisdiction in bankruptcy is recorded in the Insolvency Act 2006 (NZ) (NZ Insolvency Act): see Official Assignee in Bankruptcy of the Property of Hanna, in the matter of Hanna v Hanna [2018] FCA 156 at [52]. Section 411 of the NZ Insolvency Act, (read together with s 3 which defines "court" as the High Court and "Judge" as a Judge of the High Court) confers on a Judge of the High Court all the powers and jurisdiction given under that Act. 14 It follows that both this court and the High Court of New Zealand have jurisdiction in bankruptcy and that this court may exercise the power conferred by s 29(4) of the Act to request aid from the High Court of New Zealand. 15 The power of the High Court to act upon such a request is contained in s 8 of the Insolvency (Cross-Border) Act 2006 (NZ) (NZ CBI Act), which states: (1) This section applies to a person referred to in article 1(1) of Schedule 1. (2) If a court of a country other than New Zealand has jurisdiction in an insolvency proceeding and makes an order requesting the aid of the High Court in relation to the insolvency proceeding of a person to whom this section applies, the High Court may, if it thinks fit, act in aid of and be auxiliary to that court in relation to that insolvency proceeding. (3) In acting in aid of and being auxiliary to a court in accordance with subsection (2), the High Court may exercise the powers that it could exercise in respect of the matter if it had arisen within its own jurisdiction. 16 Section 8 imposes two relevant requirements that must be met before the High Court could, if it thought fit, act on a letter of request issued by this court. 17 First, s 8(2) requires that the request for aid be made "in relation to [an] insolvency proceeding". Section 4 of the NZ CBI Act defines "insolvency proceeding" as follows: ... a collective judicial or administrative proceeding, including an interim proceeding, pursuant to a law relating to insolvency (whether personal or corporate) in which the assets and affairs of a debtor are subject to control or supervision by a judicial or other authority competent to control or supervise that proceeding, for the purpose of reorganisation or liquidation. 18 The present proceeding (the proceeding in relation to which aid would be sought) meets that description. The first requirement is therefore met. 19 Second, s 8(2) requires the proceeding in relation to which aid is sought to be a "proceeding of a person to whom this section applies". 20 Section 8(1) specifies that "a person to whom this section applies" means "a person referred to in article 1(1) of Schedule 1". Article 1(1) of Sch 1 to the NZ CBI Act relevantly provides as follows: … this Schedule applies where: (a) assistance is sought in New Zealand by a foreign court or a foreign representative in connection with a foreign proceeding … 21 One of the persons that Art 1(1) refers to is a "foreign representative". The second requirement in s 8 will therefore be met where the proceeding in relation to which aid is sought is a proceeding "of" a "foreign representative": see Kelly, in the matter of Halifax Investment Services Pty Ltd (in liq) (No 5) [2019] FCA 1341 at [66]-[69]. 22 The present proceeding is a proceeding "of" the Trustee, because the Trustee brought the proceeding: see Kelly, in the matter of Halifax Investment Services Pty Ltd (in liq) (No 5) [2019] FCA 1341 at [72]. 23 Further, the Trustee is a "foreign representative", because that term is defined to include "a person … authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor's assets or affairs or to act as a representative of the foreign proceeding": Sch 1, Art 2(d). 24 For these reasons, the second requirement is also met. 25 Accordingly, if issued with a letter of request, the High Court of New Zealand would have the power, if it thought fit, to act in aid of and be auxiliary to this court in relation to this proceeding. 26 The power of the court to make a request for aid of a court of an external territory or another country under s 29(4) of the Act is discretionary. As Lockhart J explained in Re Ayres; Ex parte Evans (1981) 34 ALR 582 at 589-591: The object of s 29 is to enable all courts having jurisdiction under the Act, the courts of prescribed countries (including the United Kingdom, New Zealand and Canada) and the courts of other countries having jurisdiction in bankruptcy to act in aid of and be auxiliary to each other in bankruptcy matters. The section 'does not create any new rights, but only creates new remedies for enforcing existing rights' per Griffith CJ who delivered the judgment of the High Court in Hall v Woolf (1908) 7 CLR 207 at 212. His Honour was speaking of s 118 of the Bankruptcy Act 1883 … but what he said applies also to s 29 of the Act. 27 The discretion is to be "exercised with regard to considerations of utility and comity": Re Clunies-Ross; Ex parte Totterdell (1987) 82 ALR 475 at 486. 28 The respondent's grounds for opposing the application were contained in her notice of grounds of opposition dated 18 February 2020, and in two affidavits that she swore dated 18 February 2020 and 24 March 2020. The Trustee's written submissions accurately summarised the substance of those grounds as follows: (1) she did not owe the debt claimed by the petitioning creditor in the bankruptcy proceedings at the date of bankruptcy and the sequestration order should not have been made; (2) by operation of the principle that courts do not enforce foreign revenue law, and her assertion that the only debt of her bankrupt estate is a tax liability, the letter of request should not be issued; and (3) there are no divisible assets available to creditors as the Property identified by the Trustee is an asset that the Respondent holds on trust. 29 The Trustee submits that the grounds provided by the respondent are misconceived for the following reasons: (1) Ground - the sequestration order should not have been made: (a) The Deputy Commissioner of Taxation (DCT) filed the creditor's petition on 8 January 2016 and the respondent was an active participant in the proceedings up to when the sequestration order was made on 11 August 2016. (b) The DCT's proof of debt relates to outstanding tax liabilities in relation to a running balance account deficit after credit from the respondent's income tax account is applied. (c) The respondent has delayed raising any dispute about the DCT's debt, has not made any claims for credit from the DCT and has not taken any steps to set aside the judgment. (d) The respondent did not raise any dispute about the DCT's debt and disclosed the tax liability in her Statement of Affairs. (e) The respondent has had since before 8 January 2016 (ie when the creditor's petition was filed) to dispute the DCT's debt and it is manifestly unfair to the Trustee for the respondent to now seek to look behind the judgment some three and a half years after the date of her bankruptcy. In any event, the respondent's assertion about her true debt position vis-à-vis the DCT is incorrect. (2) Ground - the aid request would be seeking aid of a foreign court to enforce a revenue law: (a) The DCT's debt is not the only debt in the respondent's bankrupt estate. By the respondent's own disclosure, her bankrupt estate has seven other creditors of which only two are joint debts. (b) The Trustee has received proofs of debt from two other creditors who are not revenue authorities, and neither proof relates to a joint debt. (c) Re Ayres; Ex parte Evans (1981) 34 ALR 582 establishes that the correct characterisation of a letter of request is aid in the administration of a bankruptcy. The presence of a revenue authority as one of the creditors does not preclude aid being rendered. (3) Ground - the Property identified by the Trustee is an asset of the Respondent held on trust: (a) The evidence available to the Trustee does not show the Property as being trust property. (b) No evidence has been provided to the Trustee to support the respondent's assertion that the Property is trust property. (c) The question before this court is whether to exercise its discretion to issue a letter of request. Whether the Trustee can ultimately realise the Property identified in his investigation is a question to be adjudicated by the High Court of New Zealand in accordance with the relevant property laws of New Zealand. 30 I accept each of those submissions. 31 In those circumstances, it is appropriate for this court to issue a letter of request to the High Court of New Zealand to act in aid of and be auxiliary to this court in the administration of the bankrupt estate of the respondent in the form of Annexure A. The wording of the request for assistance is in a form different to that proffered by the Trustee's solicitors, because the proffered order was not consistent with the usual wording (compare, by way of example only, Re Clunies-Ross; Ex parte Totterdell (1987) 82 ALR 475). Orders will be made accordingly. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan.