Morris Finance Ltd v Brown

Consideration

As this Court reiterated in Eberstaller v Poulos (2014) 87 NSWLR 394; [2014] NSWCA 211 at [20], it is critical to determine at the outset whether a court whose jurisdiction is sought to be invoked in fact has jurisdiction.
In a case materially indistinguishable from the present, Boensch v Pascoe [2016] NSWCA 191, Leeming JA determined that this Court did not have jurisdiction in a matter arising under the Bankruptcy Act by reason of s 7(5) of the Jurisdiction of Courts (Cross-vesting) Act. I agree with his Honour's reasons for so concluding. As will become apparent, there is no material difference between a case where s 58 of the Bankruptcy Act provides the basis for a claim (for example to support a caveat) and where it provides the basis for a defence or immunity to a claim against a trustee in bankruptcy.
It should be accepted that a matter "arising under an Act" in s 7(5) of the Jurisdiction of Courts (Cross-vesting) Act should be construed in the same way as the same term appearing in s 76(ii) of the Constitution: Felton v Mulligan; Bramco Electronics Pty Ltd v ATF Mining Electrics Proprietary Ltd at [5] per Meagher JA.
Where a party seeks to bring an appeal from a decision of a single judge of the Supreme Court of a State or Territory where the litigation involves the federal statutes identified in the Schedule to the Jurisdiction of Courts (Cross-vesting) Act (which includes the Bankruptcy Act) it is essential to bear in mind the provisions of s 7(5) of the Jurisdiction of Courts (Cross-vesting) Act. That provision presupposes that an appeal may contain a number of matters for determination. If it appears that the "only matters for determination" are matters which do not arise under an Act in the Schedule an appeal from a decision of a single judge lies to the relevant State or Territory appellate court.
However, where it appears that "a matter for determination" in an appeal is a matter arising under an Act specified in the Schedule then the prohibition in s 7(5) applies. The applicant in such a case is prohibited from instituting an appeal other than in an appropriate Federal court. A State or Territory court is prohibited from determining an appeal, should the appeal be instituted in a non-Federal court in contravention of the first prohibition. In the seminal authority concerning the interpretation of s 76(ii) of the Constitution, Latham CJ in R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 said at 154: Paragraph (ii) is limited to matters arising under federal statutes, and does not extend to matters involving the interpretation of such statutes if they do not arise thereunder ... the inquiry to be made is not whether the determination of the matter involves the interpretation of a federal law. The relevant inquiry is whether the matter arises under the law.
In Felton v Mulligan each of the members of the Court addressed the differences in language between a "matter...involving its interpretation" in s 76(i) and "matter...arising under…" in s 76(ii) of the Constitution. Barwick CJ (part of the majority in that case), at 374, explained: 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.
In CGU Insurance Limited v Blakeley [2016] HCA 2 at [29] the High Court per French CJ, Kiefel, Bell and Keane JJ elaborated on the statement of Latham CJ in R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett about the words "arising under" in s 76(ii) of the Constitution: [28] By virtue of s 76(ii) of the Constitution the matters in respect of which jurisdiction may be conferred upon the High Court include "any matter ... arising under any laws made by the Parliament". In addition to the general jurisdiction conferred by s 39(2) of the Judiciary Act, s 1337B of the Act invests the Supreme Courts of the States with jurisdiction "with respect to civil matters arising under the Corporations legislation." The term "civil matter" is defined in s 9 of the Act as "a matter other than a criminal matter." The term "criminal matter" is not defined. The use of the constitutional term "matter" in the statutory investing of Supreme Courts with general and specific federal jurisdiction directs attention to the frequently quoted observation of Latham CJ in R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett: "a matter may properly be said to arise under a Federal law if the right or duty in question in the matter owes its existence to Federal law or depends upon Federal law for its enforcement, whether or not the determination of the controversy involves the interpretation (or validity) of the law." [29] It is a particular application of that general statement to say that a matter will arise under a federal law if it involves a claim at common law or equity or under a law of a State where the claim is "in respect of a right or property which is the creation of federal law". If the source of a defence to a claim at common law or equity or under a law of a State is a law of the Commonwealth, then on that account also the matter may be said to arise under federal law. The existence of such a claim in a proceeding will meet the subject matter condition necessary to enliven the federal jurisdiction invested in a court of a State pursuant to s 77(iii) of the Constitution, read with s 76(ii)…
The three cases relied upon by the applicant by way of analogy are each distinguishable.
In Meriton Apartments Pty Ltd v Industrial Court of New South Wales the Full Court of the Federal Court was addressing the jurisdiction of the Full Bench of the Industrial Court of NSW to decide the application of s 60 of the Bankruptcy Act to proceedings commenced before it. That question turned on the meaning of the "jurisdiction in bankruptcy" conferred exclusively upon federal courts by s 27 of the Bankruptcy Act. "Bankruptcy" was defined in s 5 of the Bankruptcy Act as follows: Bankruptcy, in relation to jurisdiction or proceedings, means any jurisdiction or proceedings under or by virtue of this Act.
Branson J made the point at [2] that the Full Court in Meriton was exercising the original jurisdiction of the Federal Court. Although the Full Bench of the Industrial Court was exercising appellate jurisdiction from a decision of Marks J, the question of the application of the Jurisdiction of Courts (Cross-vesting) Act was not raised.
Greenwood J held, at [117]: … when a State court determines whether a proceeding can properly be commenced or maintained before it or whether the plaintiff has standing to engage the jurisdiction of the Court, by reason of any impediment going to the operation or application of a provision of the Bankruptcy Act, such an application is not one under or by virtue of the Bankruptcy Act. The Commission in Court Session was not exercising a jurisdiction in bankruptcy by determining the motions before it brought by Meriton and Owners.
Despite the reliance by the applicant in the present case on this passage, it is clear that Greenwood J was there addressing the jurisdiction question posed by s 27 of the Bankruptcy Act and the composite phrase "under or by virtue of the Bankruptcy Act." That this was the issue in Meriton is made clear in the judgment of Perram J who found at [172] that: There is no precise overlap between jurisdiction exercised in respect of matters "arising under" the Bankruptcy Act 1966 (Cth) and the exercise of jurisdiction "in bankruptcy", although in practice there may tend to be some degree of coincidence between the two concepts.
In the present case the question posed by s 27 of the Bankruptcy Act did not arise as there was no challenge to the exercise by the primary judge of jurisdiction to deal with the questions arising under ss 58(3) and 58(5) of the Bankruptcy Act. The question sought to be agitated on the present appeal is not the same as the question of whether the underlying proceeding could properly be maintained or commenced in the Supreme Court. Although Meriton concerned an appellate court, the decision only addressed the latter question.
I agree with Perram J in Meriton Apartments that there is no precise overlap between jurisdiction exercised in respect of matter "arising under" the Bankruptcy Act and the exercise of jurisdiction "in bankruptcy", although in practice there may tend to be some degree of coincidence between the two concepts. Although dissenting on the outcome, I do not regard this statement as inconsistent with anything decided in that case. The proposition identified by Perram J has been referred to with approval in a leading text: Leeming M J, Authority to Decide, (2012, The Federation Press) at 166.
The second case relied upon by the applicant, Moss v Eaglestone, simply did not address s 7(5) of the Jurisdiction of Courts (Cross-vesting) Act. In that case Allsop P noted, at [2]: This Court has jurisdiction to hear the matter. It is not the exercise of "jurisdiction in bankruptcy" for the purposes of s 27(1) of the Act: Meriton Apartments Pty Limited v Industrial Court of New South Wales [2008] FCAFC 172; 171 FCR 380. No objection was taken to the standing of the appellant to bring the appeal.
The third case relied upon by the applicant was Jakimowicz v Jacks. The appellant, Ms Jakimowicz entered into a property arrangement with Mr Jacks. Ultimately, Mr Jacks sued Ms Jakimowicz in the County Court of Victoria for breach of trust. Ms Jakimowicz objected to Mr Jacks' standing to bring the claim, as it was alleged that Mr Jacks had become bankrupt and his rights as pleaded had vested in his trustee in bankruptcy. Ms Jakimowicz was unsuccessful and appealed. The Victorian Court of Appeal's attention was not drawn to s 7(5) of the Jurisdiction of Courts (Cross-vesting) Act.
The Court held: [38] In our view, both the County Court and this Court have jurisdiction to determine whether or not Mr Jacks has standing to bring his claim for compensation for breach of Ms Jakimowicz's duties as trustee. Standing is a threshold issue. That is so even where, as here, it is determined at trial rather than at an interlocutory stage. Courts must be in a position to determine whether parties before them have standing to bring any claim. Were it not so, courts would not be able to control their own processes and the proceedings before them. In this regard, if a plaintiff does not have standing in a State court because the property in question has vested in the trustee in bankruptcy, then the proceeding is liable to be dismissed or at least stayed. In such situations, a court is simply giving effect to the provisions of the Act when considering the question of standing. As was pointed out by Branson J in the Federal Court in Meriton Apartments, there is no difficulty with that. [39] The alternative would be that all questions of the standing of undischarged bankrupts and third parties to a bankruptcy to pursue claims commenced in State courts would have to be determined by the Federal Court or the Federal Circuit Court. That would fly in the face of courts controlling their own proceedings. It would involve an impermissible interference by those federal courts which do not have jurisdiction over, nor a supervisory role in respect of, State courts.
The Court concluded that the position would be different if, as in the present case, it was claimed that the property the subject of the dispute had vested in the trustee who was a party to the litigation and thus an issue would be one affecting the divisible property of the bankrupt estate under s 116 of the Bankruptcy Act. The Victorian Court of Appeal held that in that circumstance, "the question is not just one of standing": [40]. That is not, of course, to state a test in place of the statutory test in s 7(5), which the Court did not address.
The Court continued at [41]: Consequently, while it is necessary in determining the sole issue of standing to consider whether the property is divisible property and has vested in the trustee in bankruptcy, all that a court is doing in that situation is applying the Act. It is not determining for or against the title of the trustee to the property, as it must of necessity do if the trustee is a party and makes a claim to the property or if the trustee claims the right to bring the action instead of the bankrupt. Where the trustee makes no claim to the property and does not claim that the cause of action has vested, a court is not exercising jurisdiction in bankruptcy. (italics added)
Accordingly, Jakimowicz v Jacks is distinguishable by reason of the fact that the attention of the Court was not drawn to s 7(5) of the Jurisdiction of Courts (Cross-vesting) Act and the fact that the trustee, Mr Free, is a party to the present proceeding and makes a claim to the land the subject matter of the proceeding.
Returning then to the present case, the correct approach to s 7(5) is that identified by Leeming JA in Boensch v Pascoe at [18] ‑ [20]. The question whether a matter for determination in an appeal is a matter arising under the Bankruptcy Act turns on the nature of the appellant's claims in that appeal.
The challenge to the dispositive reasoning of the primary judge set out at [16] above means that there is in the present case a matter for determination in the appeal which is a matter arising under the Bankruptcy Act because the source of the trustee in bankruptcy's defence to the applicant's claim at common law or in equity is a law of the Commonwealth: s 58(3) of the Bankruptcy Act. Unless and until the requirements of that section are met, the applicant cannot succeed in its claim. According to CGU Insurance Limited v Blakeley, on that account the matter arises under federal law.
Further, the applicant's assertion to be entitled to proceed with its claim is based upon s 58(5) of the Bankruptcy Act. This would have the effect, if such an order were made against the Trustee, Mr Free, of permitting the applicant to exercise a property interest over the land which Mr Free claims is vested in him as trustee. This would affect the divisible property of the bankrupt estate. Accordingly, this is a case where the questions on this appeal arise under the Bankruptcy Act. This is not a case where the Bankruptcy Act is merely "working in the background".
By reason of s 7(5) of the Jurisdiction of Courts (Cross-vesting) Act, this Court does not have jurisdiction to deal with this appeal.

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