Porteous v Donnelly

BETWEEN: MAX CHRISTOPHER DONNELLY, THE TRUSTEE OF THE ESTATE OF THE LATE GEORGE HANCOCK, A BANKRUPT

JOHANNA LACSON NOMINEES PTY LIMITED (ACN 009 446 673)

Introduction 1 On 14 March 2003 Rosemarie Porteous and entities associated with her, Belle Rosa Holdings Pty Ltd and Johanna Lacson Nominees Pty Ltd (together the 'Porteous interests') filed notices of motion in each of proceedings N 7789 of 1999, N 8132 of 1999 and N 7891 of 2000 (collectively the 'bankruptcy proceedings'). The respondents on one or other of the notices of motion are Mr Max Donnelly, the trustee of the estate of the late Langley George Hancock and Mr George Caddy. 2 Subsequently I gave Hancock Prospecting Pty Ltd ('HPPL') and the Hancock Family Memorial Foundation Limited ('HFMF') leave to be heard in relation to the notices of motion. In these reasons I will refer to the Porteous interests, the applicants on the notices of motion, as the 'applicants' and, except where necessary to distinguish between their submissions, I will refer collectively to the parties opposing the orders sought in the notices of motion including HPPL and HFMF, as the 'respondents'. 3 Each notice of motion seeks orders that: '1. Pursuant to section 5(5) of the Jurisdiction of Courts (Cross-Vesting) Act (Cth) 1987 this proceeding be transferred to the Supreme Court of Western Australia; 2. Costs be in the cause; 3. Such further or other orders that the Court thinks fit.'

Background 4 The proceedings sought to be transferred can be described collectively as the 'bankruptcy proceedings'. Briefly they are all manifestations of a continuing dispute between the Porteous interests and interests associated with Mrs Gina Rinehart (the 'Rinehart interests'). Mrs Porteous was married to the late Mr Hancock from 1985 until his death on 27 March 1992. On 8 April 1999 a judge of this Court ordered that the estate of Mr Hancock be administered under Part XI of the Bankruptcy Act 1966 (Cth) ('Bankruptcy Act') and that Mr Max Donnelly be appointed as trustee of Mr Hancock's estate. It is alleged that during the marriage Mr Hancock made gifts to Mrs Porteous, which she (or the Porteous interests) used to acquire certain property. Since the death of Mr Hancock those gifts have, inter alia, been the subject of legal proceedings in this Court and in the Western Australian Supreme Court. The Porteous interests dispute the assertion that Mr Hancock was insolvent at the date of his death. In reliance on the Bankruptcy Act, the Rinehart interests seek to recover gifts made to the Porteous interests. 5 The applicants say that the bankruptcy proceedings traverse identical forensic terrain and deal with the same issues as proceedings presently before the Supreme Court of Western Australia, namely CIV 2121 of 1992, referred to as the 'deed action', and CIV 1716 of 1996, referred to as the 'conspiracy action', collectively the 'WA proceedings'. Briefly, the deed action involves the determination of the validity of a deed executed by Mr Lang Hancock shortly before his death in March 1992 while the conspiracy action is a claim for damages and equitable compensation for breach of fiduciary duty.

Legislative background 6 The preamble to the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) ('Cross-vesting Act') refers to the 'inconvenience and expense which has occasionally been caused to litigants by jurisdictional limitations in federal, State and Territory courts.' It states the aims of the legislation as follows: '(a) to establish a system of cross-vesting of jurisdiction between those courts, without detracting from the existing jurisdiction of any court;

(b) to structure the system in such a way as to ensure as far as practicable that proceedings concerning matters which, apart from this Act and any law of a State relating to cross-vesting of jurisdiction, would be entirely or substantially within the jurisdiction (other than any accrued jurisdiction) of the Federal Court or the Family Court or the jurisdiction of a Supreme Court of a State or Territory are instituted and determined in that court, whilst providing for the determination by one court of federal and State matters in appropriate cases; and

(c) if a proceeding is instituted in a court that is not the appropriate court, to provide a system under which the proceeding will be transferred to the appropriate court.'

7 Although each notice of motion referred to s 5(5) of the Cross-vesting Act, the relevant provision is actually s 5(4) which provides: 'Where:

(a) a proceeding (in this subsection referred to as the "relevant proceeding") is pending in the Federal Court or the Family Court (in this subsection referred to as the "first court"); and

(i) the relevant proceedings arises out of, or is related to, another proceeding pending in the Supreme Court of a State or Territory and it is more appropriate that the relevant proceeding be determined by that Supreme Court;

(A) whether, in the opinion of the first court, the relevant proceeding or a substantial part of it would have been incapable of being instituted in that court, apart from this Act and any law of the Australian Capital Territory or the Northern Territory relating to cross‑vesting of jurisdiction; and

(B) whether, in the opinion of the first court, the relevant proceeding or a substantial part of it would have been capable of being instituted in the Supreme Court of a State or Territory, apart from this Act and any law of a State or Territory relating to cross‑vesting of jurisdiction; and

(C) the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State or Territory referred to in sub‑subparagraph (B) and not within the jurisdiction of the first court apart from this Act and any law of the Australian Capital Territory or the Northern Territory relating to cross‑vesting of jurisdiction; and

it is more appropriate that the relevant proceeding be determined by that Supreme Court.'

8 There are additional relevant considerations. Section 5(9) of the Cross-vesting Act provides that nothing in s 5 confers a jurisdiction on a court that it does not already have. Similarly, special consideration must also be given to whether any of the bankruptcy proceedings involves a 'special federal matter' as that term is defined in s 3(1) of the Cross-vesting Act.

Whether determination by the Supreme Court of Western Australia is more appropriate 9 The deed action and the conspiracy action involve matters for determination which may have a bearing on the solvency of Mr Hancock at the time of his death, namely the validity of the deed referred to in [5] above. For present purposes I am satisfied that the bankruptcy proceedings are related to the proceedings presently before the Supreme Court of Western Australia as required under s 5(4)(b)(i) of the Cross-vesting Act. Being satisfied that the bankruptcy proceedings are related to proceedings before the Supreme Court of Western Australia I must now determine whether 'it is more appropriate' that they be determined by that court, having regard to the matters set out at s 5(4)(b)(ii) of the Cross-vesting Act. 10 Sections 4(b)(ii)(A) and (B) of the Cross-vesting Act direct that in considering an application to cross-vest a proceeding this Court should have regard to whether the proceeding was capable or incapable of institution in either this Court or the relevant State or Territory Supreme Court. The applications in two of the bankruptcy proceedings, namely N 8132 of 1999 and N 7891 of 2000, are brought under s 120 and Part XI of the Bankruptcy Act. The application in N 7789 of 1999 is brought under s 139ZS of that Act. Section 27(1) of the Bankruptcy Act provides that: 'The Federal Court and the Federal Magistrates Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than the jurisdiction of the High Court under section 75 of the Constitution.' (emphasis added) 11 Prior to 1999, s 27(1) of the Bankruptcy Act vested jurisdiction in bankruptcy in this Court and in the Supreme Courts of the States and Territories. The Bankruptcy Legislation Amendment Act 1996 (Cth) ('Amendment Act 1996') replaced that section with the present s 27(1) with its grant of exclusive jurisdiction. The Federal Magistrates (Consequential Amendments) Act 1999 (Cth) extended the exclusive jurisdiction to the Federal Magistrates Court. The extent of this exclusive jurisdiction has been considered by Barrett J in Green v Schneller (2001) 189 ALR 464. Referring to the decision of Austin J in Sutherland v Brien (1999) 149 FLR 321, Barrett J noted, at 469, that: 'Austin J decided that s 27(1) did not vest in the courts to which it refers exclusive jurisdiction in respect of every question turning upon the interpretation and application of the Bankruptcy Act. That must be so. When persons become bankrupt, it is necessary for courts to determine all kinds of questions about the consequences. Many of those questions will depend for their answers on the provisions of the Bankruptcy Act. One class of such questions relates to the nature of the rights of persons to property. Austin J held that nothing in the Bankruptcy Act precludes the exercise in such cases of the well established jurisdiction of courts other than those mentioned in s 27(1) "to determine and declare rights to property and make orders as to its destination". But that undoubted general jurisdiction will yield to any aspect of the jurisdiction for determination and declaration of such rights of property which the Bankruptcy Act itself places in the hands of s 27(1) Courts.'

The approach of Austin and Barrett JJ is supported by paragraphs 81 and 82 of the explanatory memorandum to the Amendment Act 1996. 12 In Scott v Bagshaw (2000) 99 FCR 573, to which Barrett J also referred, the Full Federal Court at 577 referred to s 31(1)(f) as elucidating what falls within 'bankruptcy' in s 27(1). That paragraph provides: 'In exercising jurisdiction under this Act, the Court shall hear and determine the following matters in open Court: … (f) applications to declare for or against the title of the trustee to any property.' The bankruptcy proceedings all involve issues of this nature and therefore, they fall within the exclusive jurisdiction of the Federal Court. It follows that apart from the Cross-vesting Act, the Supreme Court of Western Australia would have no jurisdiction in such matters. The bankruptcy proceedings were properly instituted in this Court and, in the absence of relevant cross-vesting legislation, could not have been instituted in the Supreme Court of Western Australia. 13 Section 5(4)(b)(ii)(C) of the Cross-vesting Act directs this Court to have regard to whether the bankruptcy proceedings give rise to any questions as to the application, interpretation or validity of a law of Western Australia that is not within the jurisdiction of this Court, apart from by operation of the Cross-vesting Act. They do not. This Court has accrued jurisdiction to determine the whole of the controversy between the parties including non-federal claims provided that the non-federal claims arise under the same substratum of facts and are not severable and distinct; Moorgate Tobacco Company Limited v Philip Morris Limited (1980) 145 CLR 457; Fencott v Muller (1983) 152 CLR 570.

The interests of justice 14 Having considered the requirements to which the Court must have regard pursuant to ss 5 (4)(b)(ii)(A), (B) and (C), it remains only to consider whether for any other reason it is the 'interests of justice' to cross-vest the proceedings; s 4(b)(ii)(D). There are two limbs to the applicants' arguments in support of cross-vesting. The first is that there will be an 'immense saving of court time as a result of common factual matters being resolved in the one court'. The second is that it would avoid any potential for the Supreme Court of Western Australia and this Court to make conflicting factual findings on the central issue common to the bankruptcy proceedings and the WA proceedings, namely the solvency of Mr Hancock upon his death.

15 In opposing cross-vesting the respondents submit that: (a) cross-vesting would cause a disproportionate increase in costs and inconvenience to those parties to the WA proceedings who are not involved in the bankruptcy proceedings and to the trustee who is not involved in the WA proceedings; (b) there is presently no order that the two proceedings that comprise the WA proceedings be heard together and there is no guarantee that if the bankruptcy proceedings were cross-vested they would be heard with either or both of proceedings that comprise the WA proceedings; (c) transfer of the bankruptcy proceedings to the Supreme Court of Western Australia would inevitably delay the resolution of those proceedings; (d) there is no likelihood that the issues in the WA proceedings will be heard and determined by two courts and thus give rise to inconsistent findings and in any event the doctrine of issue estoppel operates to cure any such difficulty; (e) the Federal Court has an exclusive jurisdiction in bankruptcy; (f) even if the WA proceedings are resolved in favour of the Porteous interests it will not affect the status of Mr Hancock's solvency at the time of his death or the outcome of the bankruptcy proceedings; and (g) the cross vesting application has been brought at a time when the bankruptcy proceedings are almost ready for hearing.

16 The solvency of Mr Hancock at the time of his death is clearly a relevant issue in the bankruptcy proceedings. Mr Hancock would have been solvent at the time of his death if, and only if, he was able to pay all his own debts as and when they became due and payable; s 5(2) Bankruptcy Act. It is the deed action that is most closely related to the question of Mr Hancock's solvency at the relevant time although there is a cogent argument that the outcome of the deed action would not affect the issue. Although in assessing Mr Hancock's solvency consideration would not be limited to his cash resources it would be necessary to consider the resources that he could realise within 'a relatively short time'; Sandell v Porter (1966) 115 CLR 666 at 670. As the trustee has pointed out, the deed action was commenced on 8 September 1992 and to date remains unresolved. The pleadings in that action have not yet closed. In short, there seems to be little real prospect of the prompt resolution of the deed action. The conspiracy action was commenced on 9 July 1996. The pleadings in that action have not yet closed and there is apparently an unresolved dispute in relation to an application filed by the Porteous interests in December 2002 seeking to amend the originating process. 17 It may be that the cross-vesting of the bankruptcy proceedings to the Supreme Court of Western Australia would save time and reduce expense by having factual matters determined in one court. Cross-vesting would also prevent the possible re-agitation in the Supreme Court of Western Australia of matters heard before this Court, thereby avoiding any difficulties associated with any inconsistent findings. However, it is clear that the WA proceedings involve complex litigation and there is no guarantee that, if transferred, the bankruptcy proceedings would be heard with those proceedings. That is a matter solely within the discretion of the Western Australian Supreme Court and I do not presume to anticipate the orders of that court. What is clear, however is that were all the proceedings to be heard together it would burden entities not party to the bankruptcy proceedings with the issues relevant thereto as well as entangling the trustee in very complex and time consuming proceedings predominately irrelevant to the bankruptcy issues. That may be a reason for the Supreme Court of Western Australia to hear them separately in which case the supposed value of cross-vesting would disappear. 18 I am of the view than any inconvenience and expense occasioned by the hearing of similar evidence in this Court and the Supreme Court of Western Australia would be less than the inconvenience and expense occasioned by cross-vesting the bankruptcy proceedings. The issues in the bankruptcy proceedings are discrete from many of those in the WA proceedings and the bankruptcy proceedings are at a relatively advanced stage. The WA proceedings have made little progress and nothing that has been put before me suggests that progress is now imminent. It would not be in the interests of justice to cross-vest the bankruptcy proceedings to the Supreme Court of Western Australia, where there is no indication as to when they will be heard, nor any indication that they will eventually be heard with either of the WA proceedings. 19 Although the Porteous interests have expressed concern about issue-estoppel arising from decisions of this Court, it must be remembered that this doctrine will affect only parties to the bankruptcy proceedings. The doctrine was neatly summarised by Dixon J (as he then was) in Blair v Curran (1939) 62 CLR 464 at 531-2: 'A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. … In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decision or order… the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous… But matters of law and fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion.' 20 In light of my findings that it would not otherwise be in the interests of justice to cross-vest the bankruptcy proceedings I am not convinced that the spectre of inconsistent findings by this Court and by the Supreme Court of Western Australia is sufficient to justify cross-vesting the proceedings on that basis.

special federal matter 21 I have decided on the basis of s 5(4) of the Cross-vesting Act that the matters should not be cross-vested without regard to the issue of whether a matter arising under the Bankruptcy Act is a 'special federal matter'. The parties however have made submissions on this point and it is appropriate that I address them. Section 6 of the Cross-vesting Act deals with special federal matters. It provides that if a matter pending in the Supreme Court of a State or Territory is a 'special federal matter' then it must be transferred, relevantly, to the Federal Court unless the Supreme Court orders that there are special reasons for keeping it in the Supreme Court, other than the convenience of the parties. Although the section is directed to the Supreme Court, the fact that there must be special reasons for that Court to keep such a special federal matter would seem to be relevant to the question of transfer of special federal matters from this Court; see generally NEC Information Systems Australia Pty Ltd v Iveson (1992) 36 FCR 258. Not surprisingly, the applicants submit that the bankruptcy proceedings do not raise special federal matters. 22 Section 3(1) of the Cross-vesting Act defines 'special federal matter' as meaning, inter alia: '(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' (emphasis added)

In so far as is relevant, s 39B of the Judiciary Act 1903 (Cth) ('Judiciary Act'), states: 'The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter: … (c) arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter.' 23 The bankruptcy proceedings all raise issues arising under the Bankruptcy Act; in fact that legislation is central in each proceeding; see [10] above. Under s 39B(1A)(c) therefore, the bankruptcy proceedings are within the original jurisdiction of this Court. For reasons explained in [10]-[12] above the bankruptcy proceedings fall within the exclusive jurisdiction of the Federal Court and, apart from the Cross-vesting Act, the Supreme Court of Western Australia would have no jurisdiction with respect to them. 24 The applicants submitted that this Court's jurisdiction in these proceedings does not arise under s 39B of the Judiciary Act for, if that section were to be repealed, the Court would still have bankruptcy jurisdiction by virtue of s 27(1) of the Bankruptcy Act. Section 27(1) provides that the jurisdiction is to be concurrent with the Federal Magistrates Court and exclusive of all other courts except the High Court. I do not accept that submission. The section, it seems to me, says more about the absence of jurisdiction in other courts than it does about the grant of jurisdiction to this Court. It assumes the jurisdiction of this Court as one would expect since that jurisdiction can be traced to s 39B. 25 If it were necessary for me to decide the issue I would be inclined to hold that the bankruptcy proceedings raise special federal matters and the Court should have regard to that fact in considering whether to make a cross-vesting order. It is not, however, necessary for me to decide the issue and I expressly do not do so. In taking this position I am conscious of the obiter dicta comments of Mansfield J on the issue at pages 13 to 16 of his reasons for judgment in In the Estate of Killington, Gary Milton Ex Parte Chisholm, Philip Anthony v The Official Trustee of the Estate of Killington, Gary Milton [1998] FCA 1474. 26 In summary, having regard to the criteria under ss 5(4)(b)(ii)(A) to (D) and the general intention of the Cross-vesting Act, as evinced by the preamble and Explanatory Memorandum,I do not accept that it is more appropriate that the bankruptcy proceedings be determined by the Supreme Court of Western Australia. Indeed, I am of the view that to cross-vest these proceedings would only serve to delay their progress and increase the inconvenience and expense associated with them. Accordingly the applications to cross-vest each of proceedings N 7789 of 1999, N 8132 of 1999 and N 7891 of 2000 to the Supreme Court of Western Australia are dismissed with costs. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Associate: Dated: 29 July 2003 Counsel for the Applicants (N 7789 of 1999) and Respondents (N 8132 of 1999 and N 7891 of 2000): Mr J W K Burnside QC with Mr B F Quinn

Solicitor for the Applicants (N 7789 of 1999) and Respondents (N 8132 of 1999 and N 7891 of 2000): Slater & Gordon

Counsel for the Respondents (N 7789 of 1999) and Applicant (N 8132 of 1999 and N 7891 of 2000): Mr B A Coles with Mr C R C Newlinds

Solicitor for the Respondent: Kemp Strang

Counsel for Hancock Prospecting Pty Ltd and the Hancock Family Memorial Foundation Limited: Mr S Owen-Conway with Mr M Garrett

Solicitor for Hancock Prospecting Pty Ltd and the Hancock Family Memorial Foundation Limited: Freehills

Date of Hearing: 10 April 2003

Date of Judgment: 29 July 2003