Mercator Property Consultants Pty Ltd v Christmas Island Resort Pty Ltd

Introduction 1 In December 1998 a Judge of this Court made an order winding up Christmas Island Resort Pty Ltd ("CIR"). The person appointed as liquidator of the company had earlier, in July 1998, been appointed by his Honour as receiver and manager of the assets of the company. The recent decision of the High Court in Re Wakim; Ex parte McNally (1999) 163 ALR 270 mandates the conclusion that this Court lacked jurisdiction to entertain the applications for the appointment of the receiver and manager and for the winding up order as its purported jurisdiction was invested in it under State laws held, in that decision, to be invalid. 2 The company now moves in each of the proceedings for an order to stay them for want of jurisdiction. This order is sought to attract the application of the Federal Courts (State Jurisdiction) Act 1999 (WA) under which proceedings stayed on that ground can be treated as proceedings in the State Supreme Court. There are also provisions of the State Act under which judgments of this Court which are "ineffective" for want of jurisdiction can take effect as judgments of the State court. 3 The former directors of the company resist the motion asserting that this Court lacks jurisdiction to make a stay order. The case raises the issue of the nature and source of the Court's jurisdiction to consider jurisdictional questions and the powers appurtenant to that jurisdiction.

Factual History 4 On 3 July 1998 an application was filed pursuant to Order 71 r 5(1) seeking the appointment of a receiver and manager over the property of CIR. The application was brought by Mercator Property Consultants Pty Ltd ("Mercator") which holds ten per cent of the issued share capital of CIR. The other ninety per cent was held by the first-named second respondent, Robby Sumampow. The second respondents were directors of CIR. 5 On 29 July 1998, Nicholson J made orders, including an order for the appointment of Mr Jeffrey Herbert as receiver and manager of the property of CIR until further order. Ancillary orders as to his powers were made and an order that the directors of CIR would cease to hold office with effect from the date of the order subject to the preservation of their rights to appeal to the Full Court of the Federal Court in the name of CIR. 6 The application for the appointment of the receiver was brought pursuant to s 57 of the Federal Court of Australia Act 1976 subs (1), which provides: "The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do." In making the order his Honour found that CIR's major asset, namely its casino licence, was in danger of being cancelled or revoked, a danger which had increased as a result of certain notifications from the relevant Commonwealth minister. There was an arguable case of a strong possibility that the affairs of CIR were being conducted for the benefit of Mr Sumampow as major shareholder and not for the benefit of the company as a whole. It also was the case that on 31 July 1998 Sumampow was due to settle with Mercator on the sale of Mercator shares in CIR and that should settlement not proceed on that date, Mercator would retain as security the benefit of the shares. The appointment of a receiver would therefore be a step appropriate to retain the value in the shareholding for the benefit of Mercator. The evidence also disclosed unpaid creditors in excess of $2 million, including unpaid wages to staff. 7 On 7 October 1998, Nicholson J made an order giving the receiver and manager authority to realise certain of the assets of CIR to meet his costs and expenses and the present and anticipated liability of CIR for Mercator's costs incurred in relation to the proceedings. The receiver and manager was also given leave to seek or consent to appointment as provisional liquidator, liquidator or administrator of CIR or administrator of a Deed of Company Arrangement of CIR. 8 On 20 October 1998, Nicholson J issued a Mareva injunction against Mr Sumampow in respect of shares in CIR and debt owed by CIR. On 3 June 1999 an order was made that the receiver and manager's remuneration, costs and expenses be determined in the sum of $397,200.11 and that it be paid out of the assets of the company. 9 On 18 August 1999, CIR filed a motion seeking an order that the proceedings, in which the receiver and manager was appointed, be stayed for want of jurisdiction. This motion was filed in the wake of the decision of the High Court in Re Wakim: Ex parte McNally (1999) 163 ALR 270. By an amended motion filed on 27 August 1999 the orders sought were: "2. A declaration that the Federal Court of Australia has jurisdiction in respect of the subject matter of this action. 3. Alternatively, an order that these proceedings be stayed for want of jurisdiction." 10 Cognate proceedings, WG3031 of 1998, were instituted by an application filed on 14 October 1998 claiming an order that CIR be wound up pursuant to ss 459A and 459P(1)(a) of the Corporations Law. Other orders were sought that Mr Herbert have leave, pursuant to s 532(2) of the Corporations Law, to be appointed as liquidator of the company and that he be appointed liquidator for the purposes of the winding up. Ancillary orders were also sought. The grounds of the application were that CIR had a working capital deficiency and many creditors whose debts were due and owing and that it lacked the capacity to pay those creditors. 11 On 20 October 1998 an order was made that Mr Herbert have leave to be appointed as provisional liquidator of the company until the making of a winding up order or until further order. Ancillary orders were also made. On 8 December 1998, Nicholson J made the following orders: "1. Christmas Island Resort Pty Ltd (Receiver and Manager Appointed) (Provisional Liquidator Appointed) ("the Company") be wound up pursuant to section 459A and 459P(1)(a) of the Corporations Law. 2. Jeffrey Laurence Herbert ("Herbert") have leave pursuant to section 532(2) of the Corporations Law to be appointed as liquidator of the Company. 3. Herbert of PPB Ashton Read, Level 6, 225 St George's Terrace, Perth, an official liquidator, be appointed liquidator for the purposes of the said winding up. 4. The bank at which the liquidator is to open a trust account is the St George's Terrace Perth branch of Challenge Bank in the said State. 5. The respondent pay the costs of this application." 12 Christmas Island Resort Pty Ltd (Receiver and Manager appointed) was named as both applicant and respondent in the proceedings. An order was made determining the provisional liquidator's remuneration on 3 June 1999 in the sum of $90,828.50. On 18 August 1999, Christmas Island Resort Pty Ltd (Receiver and Manager Appointed) filed a motion seeking an order that the proceedings be stayed for want of jurisdiction. That motion was amended to a motion seeking, in the alternative: "1. A declaration that the Federal Court of Australia has jurisdiction in respect of the subject matter of this action. 2. Alternatively, an order that these proceedings be stayed for want of jurisdiction." The motions in both matters came on for hearing on 3 November 1999. 13 At the outset Mr Martin QC for CIR conceded, that notwithstanding the first order sought in each of the motions, there was no proper basis upon which he could now contend that the Court retained jurisdiction in these proceedings. The contention, originally advanced in written submissions filed in this Court, was that the Court had jurisdiction in the matter. This argument rested on the proposition that in making the orders it did with respect to CIR it was exercising jurisdiction under the Corporations Act 1989 (Cth) and the Corporations Law of the Australian Capital Territory which was said to apply to Christmas Island territory by operation of s 7 of the Christmas Island Act 1958. That section provides: "7. On and after 1 July 1992, the laws in force in the Territory from time to time are: (a) Acts as in force from time to time in or in relation to the Territory on and after that day; and (b) Ordinances made on or after that day as in force from time to time; and (c) laws as in force in the Territory in accordance with section 8; and (d) Western Australian laws as in force in the Territory in accordance with section 8A." 14 It was originally contended that the Corporations Act 1989 (Cth) with the Corporations Law of the Australian Capital Territory, which appears as a schedule to the former Act, applied to the Territory by virtue of s 7. Even in the written submissions it was somewhat difficult to follow this argument. In the end, however, it was accepted that the winding up order could not be characterised as having been made under the Corporations Law of the Australia Capital Territory. CIR, not having been registered under ACT law, was not amenable to winding up under that law. CIR was in fact registered in Western Australia. 15 I accept that in the light of the decision in Re Wakim the jurisdiction which this Court purported to exercise in the winding up proceedings and in relation to the appointment of the receiver and manager was jurisdiction purportedly derived from a law of the State of Western Australia and that the law, in that respect, is not valid. Although the appointment of the receiver and manager was, on the face of it, made pursuant to a provision of the Federal Court of Australia Act that was an exercise of power in aid of the purported cross-vested jurisdiction. 16 The order now sought in each of the motions claims a stay of proceedings on the ground of want of jurisdiction. The order is intended to enable CIR to invoke the application of the Federal Courts (State Jurisdiction) Act 1999. Section 11 of that Act provides, in the material parts: "11(1) In this section - . . . "relevant order" means - (a) an order of a Commonwealth court, whether made before or after the commencement of this section, dismissing, striking out or staying a proceeding relating to a State matter or a State family law matter for want of jurisdiction; (b) a declaration by a Commonwealth court, whether made before or after the commencement of this section, that it has no jurisdiction to hear and determine a proceeding relating to a State matter or a State family law matter; or (c) any other decision or determination by a Commonwealth court, whether made before or after the commencement of this section, that it has no jurisdiction to hear and determine a proceeding relating to a State matter or a State family law matter. (2) A person who was a party to a proceeding relating to a State matter in which a relevant order is made may apply to the Supreme Court for an order that the proceeding be treated as a proceeding in the Supreme Court and the Supreme Court may make such an order. . . . (4) If a court makes an order under subsection (2) or (3), the proceeding, despite the relevant order - (a) becomes, and must be recorded by that court as, a proceeding in that court; and (b) for the purposes of any limitation law and for all other purposes, is deemed to have been brought in that court on the day on which the proceeding was first recorded as a proceeding in the Commonwealth court." Subsections (3) and (5), which relate to family law matters, are not material for present purposes. 17 The orders sought were opposed by Mr Grieve QC on behalf of the directors. Mr Grieve submitted that, in light of the decision in Re Wakim, the Court had no power to appoint Mr Herbert as receiver and manager or as provisional liquidator or as liquidator. These propositions were unexceptionable. Mr Grieve went on, however, to contend that the Court lacked jurisdiction to stay the proceedings. He contended, inter alia, that the Corporations Law (WA) dealt with the issue of stay of a winding up order and that was a matter to be addressed in the Supreme Court of Western Australia. This Court, it was submitted, lacked jurisdiction to deal with the matter further and should do nothing. 18 I do not accept Mr Grieve's submission. As Katz J has recently observed: "…every Australian court must have at least a limited jurisdiction in every proceeding in which its jurisdiction is purportedly invoked, namely a jurisdiction to determine whether it has the jurisdiction which has been purportedly invoked." - Khatri v Price [1999] FCA 1289 I have no doubt that what his Honour said in that case was correct. There is, of course, a question about the source of jurisdiction which must be addressed. As Sir Hayden Starke said of the High Court, so it may be said of any Chapter III court: "To the Constitution and the laws made under the Constitution it owes its existence and all its powers, and whatever jurisdiction is not found there either expressly or by necessary implication does not exist." - R v Bevan Ex parte Elias (1942) 66 CLR 452 at 464 19 Recently, in Re Colina: Ex parte Torney [1999] HCA 57 the High Court considered the powers of the Family Court of Australia to deal with contempt and referred in particular to s 35 of the Family Law Act which said of the Family Court that it had "the same power to punish contempts of its power and authority as is possessed by the High Court in respect of contempts of the High Court". A power in the same terms is conferred on the Federal Court by s 31(1) of the Federal Court Act. The power of the High Court with respect to contempt is in turn defined by s 24 of the Judiciary Act 1903 which states that the High Court shall have the same power to punish contempts of its power and authority as was possessed at the commencement of that statute by the Supreme Court of Judicature in England. Gleeson CJ and Gummow J said of these provisions, at p 6 of their joint judgment: "They set out particular powers of this Court and the Family Court and should read as declaratory of an attribute of the judicial power of the Commonwealth which is vested in those Courts by s 71 of the Constitution. The acts constituting the alleged contempts…are not offences against any law of the Commonwealth. That which renders such acts (if proved) liable to punishment has its source in Ch III of the Constitution. The power to deal summarily with contempts is, to use Isaacs J's phrase "inherent" and is "a power of self-protection or a power incidental to the function of superintending the administration of justice." Their Honours referred to Porter v The King; Ex parte Yee (1926) 37 CLR 432 at 443 and R v Fletcher; Ex parte Kisch (1935) 52 CLR 248 at 257. McHugh J said, at p 16: "If s 35 of the Family Law Act or s 24 of the Judiciary Act had not been enacted, it is not open to doubt that the Family Court and this Court would have jurisdiction to punish a contempt of their proceedings. That jurisdiction would have arisen as a necessary incident of their creation as courts exercising the judicial power of the Commonwealth. But because the jurisdiction would arise by necessary implication, the grant of jurisdiction would be limited by the need for it." Hayne J, at 47-48, agreed with Gleeson CJ and Gummow J on this point. 20 By analogy in my opinion this Court has such jurisdiction and power as is necessary to deal with the question whether it has jurisdiction in a case in which its jurisdiction is invoked. And whether it is in the exercise of an implied incidental power deriving from the Constitution or its statutory power under s 23 of the Federal Court of Australia Act, the Court may order a stay of proceedings where it has determined that it lacks jurisdiction. 21 An alternative analysis would have regard to s 19 of the Federal Court of Australia Act which provides that the Court has such original jurisdiction as is vested in it by laws made by the Parliament. By analogous reasoning it may be said that there is an implied statutory jurisdiction to consider whether the Court has jurisdiction in a particular case and power to make an order staying or otherwise disposing of proceedings where jurisdiction is found not to exist, such power being either implied as an incident of the implied statutory jurisdiction or deriving directly from s 23.