Royles v Shalhoub

Category: Procedural rulings

Parties: Sheila Pyper Royles (First Plaintiff)
Joseph Michael Johnson (Second Plaintiff)
Maria Shalhoub (First Defendant)
Nicholas Shalhoub (Second Defendant)
Susan Shalhoub (Third Defendant)

Representation: Counsel:
G Ng SC (Plaintiffs)
M Bradford (Second Defendant)
A Smorchevsky (Third Defendant)
Solicitors:
Shaw Reynolds Lawyers (Plaintiffs)
Pigott Stinson (Second Defendant)
Oliveri Lawyers (Third Defendant)

File Number(s): 2024/00470244

Publication restriction: N/A

JUDGMENT

Introduction

1. These reasons for judgment address the question raised by the Court with the parties on 1 October 2026 as to whether this proceeding is a “special federal matter” as defined in the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (the Commonwealth Cross-Vesting Act). If so, this Court is required by s 6 of that Act to transfer the proceeding to the Federal Court of Australia unless this Court makes an order under s 6(3) for the proceeding to be determined by this Court on the grounds that it is satisfied that there are special reasons for doing so in the particular circumstances of this proceeding other than reasons relevant to the convenience of the parties.

2. For the reasons that follow, I have determined that this proceeding is a special federal matter and I am not satisfied that there are special reasons that would support an order under s 6(3) of the Commonwealth Cross-Vesting Act for the proceeding to be determined by this Court. The proceeding must therefore be transferred to the Federal Court of Australia. I have considered all of the parties’ written and oral submissions before arriving at that decision. I have not found it necessary to refer to the substance of all of those submissions in order to explain the reasons for my decision.

Background to the present proceeding

3. This proceeding arises out of proceeding 2018/335720 in this Court in which Maria Shalhoub claimed that Sheila Royles and Michael Johnson had caused damage to property at 8 Helena Street, Randwick (the 2018 proceeding). Maria Shalhoub was the registered proprietor of that property. Sheila Royles and Michael Johnson were the registered proprietors of property at 6 Helena Street, Randwick.

4. This Court dismissed the 2018 proceeding with costs on 29 September 2020. On 10 May 2021, Sheila Royles and Michael Johnson filed an application for the assessment of the costs awarded in their favour. On 3 September 2021, while those costs were in the process of being assessed, Maria Shalhoub transferred to her daughter Susan Shalhoub the property at 8 Helena Street, Randwick. On the same date, Maria Shalhoub transferred to her son Nicholas Shalhoub a property at 25 Rainbow Street, Kingsford.

5. The costs payable by Maria Shalhoub to Sheila Royles and Michael Johnson in the 2018 proceeding were assessed in the sum of $371,607 on 4 May 2022, which was increased to $452,007 on 23 January 2023 following a review initiated by Sheila Royles and Michael Johnson. Maria Shalhoub’s application for leave to appeal to the District Court against the decision of the review panel was dismissed with costs on 13 December 2023. Maria Shalhoub was ordered to pay Sheila Royles’ and Michael Johnson’s costs of the application for leave to appeal to the District Court.

6. Maria Shalhoub has not paid any of the costs referred to above.

7. On 1 March 2024, Sheila Royles and Michael Johnson were notified by the Australian Financial Security Authority that Maria Shalhoub had become bankrupt and that Frank Lo Pilato of RSM Australia Partners had been appointed as her trustee in bankruptcy.

8. On 25 June 2024, solicitors engaged by Sheila Royles and Michael Johnson wrote to the trustee in bankruptcy to ascertain his position concerning their proposed proceeding against Maria Shalhoub under s 37A of the Conveyancing Act 1919 (NSW) and a proposed application to the Federal Court of Australia under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) for leave to commence that proposed proceeding.

9. On 2 August 2024, the solicitors for the trustee in bankruptcy replied that he did not oppose the proposed application for leave to proceed, subject to certain conditions, including that he be kept informed of the s 37A proceedings and be consulted in relation to any proposed settlement.

10. On 4 September 2024, Sheila Royles and Michael Johnson commenced proceedings in the Federal Court of Australia seeking leave pursuant to s 58(3)(b) of the Bankruptcy Act to commence the proceedings against Maria Shalhoub by filing a statement of claim seeking:

11. declarations pursuant to s 37A of the Conveyancing Act that the transfers made by Maria Shalhoub in her capacity as trustee of the Shalhoub Family Trust of the 25 Rainbow Street property to Nicholas Shalhoub and the 8 Helena Street property to Susan Shalhoub on 3 September 2021 were void (prayers 1 and 2);

12. an order requiring Nicholas Shalhoub and Susan Shalhoub to transfer the 25 Rainbow Street property and the 8 Helena Street property (respectively) back to Maria Shalhoub as trustee for the Shalhoub Family Trust, to be held on the same terms as the Shalhoub Family Trust (prayer 3);

13. an order requiring an account of the Shalhoub Family Trust with a view to determining the extent to which Maria Shalhoub was, immediately prior to 3 September 2021, entitled to be indemnified from the assets of the Shalhoub Family Trust in respect of debts and liabilities incurred by her in connection with the 2018 proceeding and the District Court proceeding arising out of the costs assessment in the 2018 proceeding, including any costs awarded in favour of Sheila Royles and Michael Johnson (prayer 4); and

14. an order appointing a receiver to the property of the Shalhoub Family Trust with power to sell the trust assets for the purpose of meeting any liabilities incurred by Maria Shalhoub as trustee of the Shalhoub Family Trust to the extent that she is entitled to be indemnified in respect of those liabilities.

15. In support of those proposed claims for relief, the proposed statement of claim pleaded that the property of the Shalhoub Family Trust included the 25 Rainbow Street and 8 Helena Street properties, that Maria Shalhoub held the 8 Helena Street property as trustee of that trust at the time she commenced the 2018 proceeding in relation to that property, that she commenced and prosecuted the 2018 proceeding in her capacity as trustee of that trust and was therefore entitled to be indemnified out of the property of the trust for her costs of the 2018 proceeding including any costs that she was liable to pay to Sheila Royles and Michael Johnson and that her right of indemnity was secured by a lien over the assets of the trust. The proposed statement of claim further pleaded that Maria Shalhoub held the 25 Rainbow Street and 8 Helena Street properties in her capacity as trustee of the Shalhoub Family Trust at the time she transferred them to her son and daughter on 3 September 2021, and that having regard to the terms of the Deed of Settlement establishing that trust, she was under no obligation to make those transfers. After pleading facts concerning Maria Shalhoub’s liability to Sheila Royles and Michael Johnson for the costs of the 2018 proceeding, the proposed statement of claim pleaded that the transfers were made in order to place the 25 Rainbow Street and 8 Helena Street properties beyond the reach of Sheila Royles and Michael Johnson to the extent that they might be subrogated to the lien securing Maria Shalhoub’s right of indemnity, and therefore involved an alienation of property made with intent to defraud creditors of Maria Shalhoub as trustee of the Shalhoub Family Trust.

16. Maria Shalhoub’s trustee in bankruptcy was the respondent to the application made by Sheila Royles and Michael Johnson for leave to commence the proposed proceedings pursuant so s 58(3)(b) of the Bankruptcy Act. The submissions made to the Federal Court of Australia on behalf of Sheila Royles and Michael Johnson stated that the trustee in bankruptcy did not oppose the grant of leave, and stated:

“It remains then to address the basis on which the Respondent does not oppose the grant of leave. Through his solicitors, the Respondent has requested that:

(a) should the Applicants succeed in the Proposed Proceedings, there be no orders made regarding the Trust or the properties (save for the declarations concerning the voidness of the transfers) without the express written consent of the Respondent, so that he can have an opportunity to consider the impact of any such orders;

(b) he be kept informed on a regular basis of the progress of the proceedings; and

(c) he be consulted prior to any settlement of the Proposed Proceedings.

The Applicants are content for these matters to be the subject of conditions upon a grant of leave under s 58(3)(b). Alternatively, another course might be to require as a condition of a grant of leave that the Respondent be joined as a party to the Proposed Proceedings, on the basis that he is not to play an active role, but so that he may be heard on the final relief sought in those proceedings and be a party to any settlement discussions.”

13. On 4 December 2024, a Judicial Registrar of the Federal Court granted leave to Sheila Royles and Michael Johnson to commence the proposed proceedings pursuant to s 58(3)(b) of the Bankruptcy Act, subject to the following undertakings recorded by the Federal Court:

“The Applicants give an undertaking to the Respondent that they will:

a. prior to any settlement of the NSWSC Proceeding, consult the Respondent and afford him a reasonable opportunity to participate in any settlement of that proceeding;

b. at an appropriate juncture during the NSWSC Proceeding, request that the judge hearing the matter, before he or she might make any orders in the Applicants’ favour (except for granting relief in the form of prayers 1-3 of the Proposed SoC), indicate to the Applicants the terms of the orders that the judge intends to make and adjourn the matter for an appropriate time to enable the Applicants to inform the Respondent, and for the Respondent to consider the proposed orders and discuss them with the Applicants and/or seek leave to be heard in the NSWSC Proceeding; and

c. keep the Respondent otherwise reasonably informed of the progress of the NSWSC Proceeding for its duration.”

14. Paragraph (b) of the undertaking noted by the Federal Court is inconsistent with the position of the trustee in bankruptcy as conveyed to the Federal Court by the submissions referred to at [12] above, in that paragraph (b) of the undertaking does not contemplate the trustee in bankruptcy having an opportunity to be heard before the making of any order in terms of prayer 3 of the proposed statement of claim for the transfer of the 25 Rainbow Street and 8 Helena Street properties back to Maria Shalhoub as trustee of the Shalhoub Family Trust. The evidence presently before this Court does not explain the reasons for that discrepancy.

The present proceeding

15. On 18 December 2024, Sheila Royles and Michael Johnson (the plaintiffs) commenced the present proceeding in this Court against Maria Shalhoub (the first defendant), Nicholas Shalhoub (the second defendant), and Susan Shalhoub (the third defendant).

16. By an Amended Statement of Claim filed on 7 October 2025, the plaintiffs amended their pleaded case substantially so that the case pleaded in the proposed statement of claim presented to the Federal Court of Australia in support of their application for leave under s 58(3)(b) of the Bankruptcy Act is now an alternative case.

17. The plaintiffs’ primary case pleaded in the Amended Statement of Claim is that the first defendant’s title to the 25 Rainbow Street and 8 Helena Street properties was not held on trust for any other person at any relevant time. The plaintiffs plead that the Deed of Settlement in respect of the Shalhoub Family Trust dated 15 February 1999 and a declaration of trust made by resolution of the first defendant and her husband (who has since died) on 17 March 1999, purportedly in their capacity as trustees of the Shalhoub Family Trust, would, if valid and effective, create a trust of the 25 Rainbow Street property and the 8 Helena Street property on the terms of the Deed of Settlement. However, the plaintiffs plead that the Deed of Settlement and the 17 March 1999 minutes are of no effect because they have not been stamped, no arrangements have been made for the payment of duty, the Court could not be satisfied that any undertaking proffered by the second and third defendants under r 31.13(2) of the Uniform Civil Procedure Rules 2005 (NSW) would facilitate the assessment and payment of duty, and the Deed of Settlement and the minutes recording the 17 March 1999 resolution are therefore not admissible in evidence and are not available for use in law or equity for any purpose by reason of s 304 of the Duties Act 1997 (NSW). [1] The plaintiffs plead that, having regard to the first defendant’s liability to pay their costs of the 2018 proceeding which was in the process of being quantified by assessment at the time of the transfers of the 25 Rainbow Street property to the second defendant and the 8 Helena Street property to the third defendant on 3 September 2021, those transfers made for the stated consideration of $1.00 were made with intent to defraud creditors of the first defendant and are therefore voidable pursuant to s 37A of the Conveyancing Act.

18. Alternatively, the plaintiffs plead that if the Deed of Settlement and the 17 March 1999 minutes are valid, effective, and available for use in law or equity (contrary to their primary case), then the first defendant held the 25 Rainbow Street and 8 Helena Street properties from the date of commencement of the 2018 proceeding until 3 September 2021 as trustee of the Shalhoub Family Trust on the terms of the Deed of Settlement, and the first defendant commenced and prosecuted the 2018 proceeding in respect of the 8 Helena Street property in her capacity as trustee of the Shalhoub Family Trust and is entitled to be indemnified out of the assets of the Shalhoub Family Trust for her costs of the 2018 proceeding and for the costs that she was ordered to pay to the plaintiffs in the 2018 proceeding, such right of indemnity being secured by an equitable lien over the assets of the Shalhoub Family Trust. The plaintiffs plead that the first defendant’s right of indemnity and equitable lien survived the transfer of the 25 Rainbow Street and 8 Helena Street properties to the second and third defendants (respectively), and that the first defendant’s equitable lien has priority over any interests of the second and third defendants in those properties. The plaintiffs plead that, in circumstances where the first defendant has not paid to them any of the costs that she was ordered to pay in the 2018 proceeding, they are subrogated to her right of indemnity and equitable lien. Alternatively, if the transfer of the 25 Rainbow Street and 8 Helena Street properties to the second and third defendants (respectively) had the effect of extinguishing the first defendant’s right of indemnity and equitable lien, those transfers were made in order to place those properties beyond the reach of the plaintiffs to the extent that they might be subrogated to the equitable lien, and the transfers are voidable under s 37A of the Conveyancing Act for that reason.

19. In respect of their primary case, the plaintiffs claim in prayers 1 and 2 of the Amended Statement of Claim declarations pursuant to s 37A that each transfer is void, and in prayer 2A an order requiring the second and third defendants to transfer the properties to the first defendant’s trustee in bankruptcy. The object of the plaintiffs’ primary case is plainly to have the two properties transferred to the trustee in bankruptcy so as to be available for distribution among creditors of the first defendant, including the plaintiffs.

20. In respect of their alternative case, the plaintiffs claim in prayer 2B of the Amended Statement of Claim a declaration that they are subrogated to the first defendant’s right of indemnity as trustee of the Shalhoub Family Trust (or any other trust on which she held the properties pursuant to the resolutions passed on 17 March 1999) and to any equitable lien supporting or securing that right of indemnity.

21. In the further alternative, the plaintiffs claim in prayers 2C, 4 and 5 of the Amended Statement of Claim declarations pursuant to s 37A that the transfers of the 25 Rainbow Street and 8 Helena Street properties made by the first defendant in her capacity as trustee of the Shalhoub Family Trust (or other trust) to the second and third defendants (respectively) are void, orders requiring the second and third defendants to transfer those properties to the first defendant as trustee of the Shalhoub Family Trust (or other trust), orders requiring an account of the Shalhoub Family Trust (or other trust) to determine the extent to which the first defendant was entitled to be indemnified from the assets of such trust in respect of debts and liabilities incurred by her in respect of the 2018 proceeding, and an order appointing a receiver to the property of the trust with power to sell the assets of the trust for the purpose of meeting such liabilities of the first defendant to the extent that she is entitled to be indemnified in respect of those liabilities.

22. In their Defence to the Amended Statement of Claim filed on 31 October 2025, the second and third defendants plead that the Deed of Settlement was void but that the 25 Rainbow Street and 8 Helena Street properties were held on trust for the second and third defendants (respectively) pursuant to a declaration of trust made by the resolution passed on 17 March 1999, and that the said declaration of trust is valid. They plead that the properties were transferred to them on 3 September 2021 in circumstances where they were each entitled to call for the transfer of the property held for their benefit on the terms of the declaration of trust. They admit that they knew that the first defendant had been ordered to pay the plaintiffs’ costs of the 2018 proceeding, but deny that the first defendant prosecuted the 2018 proceeding in her capacity as trustee of the trust and plead that her liability for the plaintiffs’ costs was incurred in her personal capacity. They deny that the properties were transferred to them with intent to defraud creditors and deny that the transfers are voidable pursuant to s 37A of the Conveyancing Act. The second and third defendants further plead that the first defendant has no right of indemnity out of the trust assets under the terms of the declaration of trust because she commenced and prosecuted the 2018 proceeding without having obtained judicial advice and without their consent in circumstances where they were not aware of the declaration of trust at the time.

23. By notice of motion filed on 1 October 2026, the second defendant has sought leave to amend his Defence. If leave is granted, the second defendant will defend the proceedings on the basis that the first defendant held the 25 Rainbow Street property on trust for him at all relevant times pursuant to the Deed of Settlement, which the second defendant now wishes to plead was valid and effective when made and in respect of which he says he is prepared to give the usual undertaking in accordance with r 31.13(2) of the Uniform Civil Procedure Rules for the purpose of s 304 of the Duties Act. The second defendant wishes to plead that he was entitled to have the 25 Rainbow Street property transferred to him on 3 September 2021 in accordance with the terms of the Deed of Settlement, and maintains his denial that the transfer was made with the intention to defraud creditors of the first defendant. The proposed Amended Defence of the second defendant also maintains the contention that the first defendant has no right of indemnity out of the trust assets. The second defendant wishes to plead that he was not aware at the time of the 2018 proceeding that the 25 Rainbow Street and 8 Helena Street properties were held on trust for himself and the third defendant (respectively), that he did not give consent to the first defendant’s unreasonable conduct in commencing and prosecuting the 2018 proceeding without first obtaining judicial advice that she was justified in doing so, and that the costs which the first defendant incurred in the 2018 proceeding were not authorised by the terms of the trusts as set out in the Deed of Settlement. The second defendant wishes to plead that, absent her bankruptcy, the first defendant would not be entitled to have recourse to the 25 Rainbow Street or 8 Helena Street properties to reimburse herself or to pay costs payable to the plaintiffs in respect of the 2018 proceeding or, alternatively, any such right of recourse and proprietary right would have been limited to the 8 Helena Street property that was the subject of the 2018 proceeding. The second defendant wishes to deny on those grounds that the first defendant has any equitable proprietary right in respect of the 25 Rainbow Street property to which the plaintiffs are entitled to be subrogated.

24. The plaintiffs oppose the second defendant’s application for leave to amend. It is necessary to determine whether this proceeding is a special federal matter before determining the second defendant’s amendment application and his application to adjourn the final hearing of the matter which is presently listed for 16-18 November 2026 on medical grounds. If the matter is a special federal matter and is required to be transferred to the Federal Court, the amendment application and the timing of the final hearing will be for the Federal Court to determine.

25. The first defendant has not filed a notice of appearance or defence or taken any other step in this proceeding.

26. The first defendant’s trustee in bankruptcy is not a party to this proceeding.

Is the proceeding a special federal matter?

27. Section 3(1)(e) of the Commonwealth Cross-Vesting Act defines a “special federal matter” as “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”. If a matter is a “special federal matter”, s 6 of that Act obliges this Court to transfer the proceedings to the Federal Court unless this Court makes an order under s 6(3) that the proceeding be determined by this Court on the grounds that 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. [2]

28. The definition of a special federal matter in s 3(1)(e) involves two limbs: first, whether the matter is within the original jurisdiction of the Federal Court by virtue of s 39B of the Judiciary Act 1903 (Cth) and, if so, whether this Court only has jurisdiction in respect of that matter by reason of the Commonwealth Cross-Vesting Act. [3]

29. As to the first limb, a matter “arising under” the Bankruptcy Act 1966 (Cth) is within the original jurisdiction of the Federal Court by virtue of s 39B(1A)(c) of the Judiciary Act.

30. As to the second limb, s 39(2) of the Judiciary Act confers federal jurisdiction on the several courts of the States, which includes jurisdiction to determine matters “arising under” the Bankruptcy Act. However, s 27 of the Bankruptcy Act confers on the Federal Court and the Federal Circuit and Family Court of Australia (Division 2) concurrent “jurisdiction in bankruptcy” exclusive of the jurisdiction of all other courts, subject to exceptions that are not presently relevant. Section 5 of the Bankruptcy Act provides that “bankruptcy, in relation to jurisdiction or proceedings, means any jurisdiction or proceedings under or by virtue of this Act”. The effect of s 27 of the Bankruptcy Act is to exclude “jurisdiction in bankruptcy” from State courts and it is now well settled that a matter involving the exercise of “jurisdiction in bankruptcy” is a matter in respect of which this Court would not have jurisdiction apart from s 4(1) of the Commonwealth Cross-Vesting Act. [4]

31. Relevantly for present purposes, a matter will arise under the Bankruptcy Act, and therefore satisfy the first limb of the definition of “special federal matter” within s 3(1)(e) of the Commonwealth Cross-Vesting Act, if it is a justiciable controversy as to what property vests in the trustee in bankruptcy by the operation of s 58(1) of the Bankruptcy Act and what is or is not divisible amongst the bankrupt’s creditors under s 116 of that Act. That is because, even if the resolution of the parties’ claims is to be reached only through an examination of equitable doctrine, the claimed rights in question owe their existence to federal law. That is assessed by reference to the substance of the subject matter of the dispute, and not by reference to whether the parties’ claims are articulated by reference to federal law. [5]

32. A matter engages “jurisdiction in bankruptcy” within the meaning of s 27 of the Bankruptcy Act, satisfying the second limb of the definition of “special federal matter”, if, relevantly, it involves a claim for an order or declaration the substantive effect of which would be to declare for or against the title of the trustee in bankruptcy to any property. [6] Indeed, as the plaintiffs submitted, matters engaging “jurisdiction in bankruptcy” are a subset of matters arising under the Bankruptcy Act. [7]

33. Matters engaging “jurisdiction in bankruptcy” are to be distinguished from matters that merely involve the recognition of the binding legal effect of the Bankruptcy Act, such as matters in which the court recognises the effect of provisions of the Bankruptcy Act on the status of proceedings before the court [8] or recognises the effect of provisions of the Bankruptcy Act on the application of other legislation that is relevant to the determination of the parties’ claims or defences. [9] Such matters do not involve an exercise of “jurisdiction in bankruptcy”, and so are not “special federal matters”.

34. The plaintiffs submitted that their primary claim asserts rights under s 37A of the Conveyancing Act in respect of two properties that have not vested in the first defendant’s trustee in bankruptcy pursuant to s 58(1)(a) of the Bankruptcy Act because the first defendant transferred the properties to the second and third defendants before she was made bankrupt. The plaintiffs submitted that those rights asserted by them do not depend on or owe their existence to federal law, and that their claims do not require a declaration for or against the title of the trustee in bankruptcy. The plaintiffs submitted that their claims concern the validity of the pre-bankruptcy transfers of property to the second and third defendants, rather than the extent of property vested in the trustee in bankruptcy and divisible amongst creditors. I accept those submissions insofar as they concern the claims for relief in prayers 1 and 2 of the Amended Statement of Claim – being claims for declarations pursuant to s 37A of the Conveyancing Act that the transfers of the properties to the second and third defendant are void.

35. The plaintiffs made inconsistent submissions in relation to their claims for relief in respect of their claim for relief in prayer 2A in the Amended Statement of Claim for an order requiring the second and third defendants to transfer the properties to the first defendant’s trustee in bankruptcy. As explained above, that claim is part of their primary case.

36. On the one hand, the plaintiffs submitted that their claim for an order that the second and third defendants transfer the properties to the first defendant’s trustee in bankruptcy merely recognises the legal effect of s 58(1)(b) of the Bankruptcy Act, which will cause the properties to vest in the trustee in bankruptcy as after-acquired property if those transfers are set aside pursuant to s 37A of the Conveyancing Act.

37. On the other hand, the plaintiffs submitted that an order in terms of prayer 2A, if made, will not determine whether the properties are divisible amongst the first defendant’s creditors pursuant to s 116 of the Bankruptcy Act.

38. The inconsistency between the two submissions lies in the definition of “after-acquired property” in s 58(6) of the Bankruptcy Act. As senior counsel for the plaintiffs identified, that definition requires that property that is acquired by, or devolves on, the bankrupt on or after the date of bankruptcy be divisible amongst the creditors of the bankrupt in order to be “after-acquired property” that vests in the trustee in bankruptcy pursuant to s 58(1)(b) at the time it is acquired by or devolves on the bankrupt. That directs attention to s 116 of the Bankruptcy Act, which makes provision for the property that is (s 116(1)) and is not (s 116(2)) divisible amongst creditors of the bankrupt. Thus, before making an order in terms of prayer 2A requiring the second and third defendants to transfer the properties to the first defendant’s trustee in bankruptcy, the Court would need to be satisfied that 25 Rainbow Street and 8 Helena Street are divisible amongst the first defendant’s creditors pursuant to s 116 of the Bankruptcy Act, such that they fall within the definition of “after-acquired property” and vest in the first defendant’s trustee in bankruptcy pursuant to s 58(1)(b) immediately upon the Court declaring that the transfers of those properties to the second and third defendants (respectively) were void pursuant to s 37A of the Conveyancing Act. Contrary to the plaintiffs’ submissions, such a determination would go beyond merely recognising the legal effect of provisions of the Bankruptcy Act because it would require this Court to apply s 58(1)(b) and s 116 of the Bankruptcy Act to the facts of this case in order to determine whether the properties are, or are not, vested in the trustee in bankruptcy. The plaintiffs’ claim for an order in terms of prayer 2A owes its existence to those provisions of the Bankruptcy Act, and an order in terms of prayer 2A, if made, would have the effect of declaring for the title of the first defendant’s trustee in bankruptcy in respect of 25 Rainbow Street and 8 Helena Street. As the third defendant submitted, this proceeding is therefore a matter that arises under the Bankruptcy Act and that engages “jurisdiction in bankruptcy”. It follows that this proceeding is a special federal matter which must be transferred to the Federal Court of Australia pursuant to s 6 of the Commonwealth Cross-Vesting Act, subject to s 6(3) of that Act which I address below. The second defendant’s proposed amendments, if leave to amend is granted, do not affect that conclusion. As the third defendant submitted, if the matter is transferred to the Federal Court, that Court will have jurisdiction in respect of the whole of the justiciable controversy between the parties.

39. In my opinion, the proceeding is not deprived of its character as a special federal matter merely because the plaintiffs have chosen not to join the first defendant’s trustee in bankruptcy as a party to the proceeding. In Jakimowicz v Jacks, the Court of Appeal of the Supreme Court of Victoria expressed the view that the identities of the parties to the proceeding is not an irrelevant consideration in determining whether “jurisdiction in bankruptcy” is engaged by the proceeding. [10] Warren CJ, Tate and Ferguson JJA stated (at [19]):

“… Of course, the making of an order that property belongs to a bankrupt will adversely affect the title of trustees in bankruptcy if they are parties to the litigation. We do not think that Scott v Bagshaw is authority for any broader proposition. The position is less clear when the trustee is not a party. As will be seen from other authorities … it has been held that trustees who are not parties to the litigation will not be bound by a decision to the effect that title to property vests in a bankrupt.”

40. It is relevant in the present case that the first defendant’s trustee in bankruptcy has not been joined as a party to the proceeding. It is also relevant that the trustee is a necessary party to the proceeding because proposed order 2A will directly affect the trustee’s rights vis-à-vis the first, second and third defendants to treat the 25 Rainbow Street and 8 Helena Street properties as property of the first defendant that is divisible amongst her creditors in accordance with s 116 of the Bankruptcy Act. Neither the fact that the trustee in bankruptcy is aware of this proceeding and has been kept informed of its progress, nor the plaintiffs’ undertakings to the trustee in bankruptcy noted by the Federal Court in granting leave to the plaintiffs to commence this proceeding pursuant to s 58(3)(b) of the Bankruptcy Act, removes the need for the trustee in bankruptcy to be joined as a party to this proceeding. [11] In determining whether this proceeding is a special federal matter, it is appropriate in my opinion for this Court to proceed on the basis that the plaintiffs will either belatedly discharge their obligation to join the trustee in bankruptcy as a party to the proceeding, or that the court hearing the proceeding will do so of its own motion before the commencement of the final hearing. In relation to issues as fundamental as jurisdiction and compliance with s 6 of the Commonwealth Cross-Vesting Act, a plaintiff’s failure to join a necessary party to the proceeding should not be determinative. [12]

41. After I raised with senior counsel for the plaintiffs the substance of the issues referred to at [38] above during the course of the hearing of the special federal matter question on 12 October 2026, senior counsel for the plaintiffs made an informal application for leave to amend prayer 2A of the Amended Statement of Claim by substituting that prayer with a claim for an order that the second and third defendants transfer the 25 Rainbow Street and 8 Helena Street properties to the first defendant rather than to her trustee in bankruptcy, apparently on the basis that this would remove from the scope of these proceedings the question whether those properties are divisible amongst the first defendant’s creditors pursuant to s 116 of the Bankruptcy Act such that they fall within the definition of “after-acquired property” and vest in the first defendant’s trustee in bankruptcy pursuant to s 58(1)(b) immediately upon the Court declaring that the transfers of those properties to the second and third defendants (respectively) were void pursuant to s 37A of the Conveyancing Act. The proposed amended prayer 2A is in the same terms as the order that the plaintiffs informed the Federal Court they would not seek or obtain without the prior express written consent of the first defendant’s trustee in bankruptcy, so that he could have an opportunity to “consider the impact” of any such order: see [12] above. I asked senior counsel for the plaintiffs about the likelihood of the first defendant’s trustee in bankruptcy wishing to be heard about any claim for an order that the properties be transferred back to the first defendant, given that any such transfer ordered on the plaintiffs’ primary case would be a transfer to the first defendant in her personal capacity and not in her capacity as trustee of any trust. Senior counsel for the plaintiffs replied to the effect that, if the trustee in bankruptcy sought to be heard, he would need to be informed that any question as to whether the properties vested in him as after-acquired properties was outside the scope of this proceeding, and would need to be the subject of a further proceeding if there was any dispute about it.

42. The proposed amendment to prayer 2A of the plaintiffs’ Amended Statement of Claim would not facilitate the just, quick and cheap resolution of the real issues in the proceedings because it would remove from the issues to be determined by the Court the question whether, if the plaintiffs’ primary claim is upheld, the 25 Rainbow Street and 8 Helena Street properties are divisible amongst the first defendant’s creditors, including to the plaintiffs to whom the first defendant is indebted in respect of the costs of the 2018 proceeding. It would result in the Court not determining the real question raised by the plaintiffs’ primary claim, and there is a real risk that it would result in a multiplicity of proceedings in order for the plaintiffs to achieve the object of their primary claim: see [19] above. It would be contrary to the overriding purpose in s 56 of the Civil Procedure Act 2005 (NSW) and contrary to the dictates of justice to which the Court is required to have regard under s 58 of that Act to grant leave to the plaintiffs to make an amendment having those consequences. It would therefore be contrary to s 64 of the Civil Procedure Act 2005 (NSW) to grant leave to amend prayer 2A, and leave is refused.

43. Having regard to my conclusion that this proceeding is a special federal matter because the plaintiffs primary claim arises under the Bankruptcy Act and engages “jurisdiction in bankruptcy”, it is not necessary to address the parties’ submissions about whether the proceeding is a special federal matter by reference to the plaintiffs’ alternative claim.

Are there special reasons for the Court to order that the proceeding be determined in this Court?

44. The plaintiffs submitted that, if the Court determined that the proceeding is a special federal matter, there are special reasons for the proceeding to be determined by this Court. The plaintiffs asked the Court to adjourn the proceeding to allow time for the plaintiffs to serve on the Commonwealth and New South Wales Attorneys-General written notices under s 6(4) of the Commonwealth Cross-Vesting Act so that the Court would have power to make an order under s 6(3) of that Act.

45. The proposed adjournment would be futile because, for the reasons that follow, I am not satisfied that there are special reasons for the proceeding to be determined in this Court other than reasons relevant to the convenience of the parties. It follows that the discretion to make an order under s 6(3) is not enlivened. In those circumstances, as senior counsel for the plaintiffs properly acknowledged, the Court is not obliged to allow time for notices to and receipt of submissions from the Attorneys-General. [13]

46. In considering whether there are special reasons under s 6(3) of the Commonwealth Cross-Vesting Act, this Court is required by s 6(6)(a) of that Act to have regard to the general rule that special federal matters should be heard in the Federal Court of Australia.

47. As the plaintiffs submitted, it is not necessary that the circumstances of a proceeding be unique or extraordinary in order for there to be special reasons within the meaning of s 6(3). Circumstances will be special in the requisite sense if they are unusual, uncommon or exceptional in character, quality or degree, if they differ from the ordinary or usual, or if they are particular or individual. Circumstances that pertain to the convenience of the parties are not excluded from consideration, provided that the parties’ convenience is not the determinative factor. For example, circumstances that pertain to the convenience of the parties may also be relevant to the administration of justice. [14]

48. The plaintiffs relied on the following circumstances of this proceeding as constituting special reasons for the proceeding to be determined in this Court:

49. the fact that the proceeding is presently listed for final hearing in this Court on 16, 17 and 18 November 2026, and that final hearing will almost certainly be delayed to a later date if the proceeding is transferred to the Federal Court where it must be allocated to a docket judge and preliminary case management must be undertaken;

50. the judge to whom the final hearing has been allocated in this Court is, according to the plaintiffs, “familiar with the facts and the parties”;

51. the plaintiffs’ primary claim is brought under s 37A of the Conveyancing Act and arises factually from costs that the first defendant was ordered by this Court to pay and has failed to pay;

52. those costs were first ordered to be paid in 2020, and the administration of justice requires that the matter be resolved efficiently;

53. the parties have already been put to the expense of preparing for a final hearing which was listed for 20, 21 and 22 July 2026 which was adjourned on the application of the second defendant, and a transfer of the proceeding to the Federal Court at this stage would result in a third instance of the parties incurring costs to prepare for an “imminent hearing”; and

54. according to the plaintiffs, no bankruptcy expertise is required to determine this proceeding.

55. As to (1), any delay in the commencement of the final hearing that results from a transfer of the proceeding to the Federal Court is attributable to the plaintiffs’ failure since at least the date of filing of their Amended Statement of Claim on 7 October 2025 introducing their primary claim for relief and prayer 2A to recognise that the proceeding is a special federal matter, and to apply promptly thereafter for an order transferring the proceeding to the Federal Court of Australia or for an order under s 6(3) of the Commonwealth Cross-Vesting Act that the proceeding be determined in this Court. All of the issues set out in these reasons that are being addressed at the instigation of the Court five weeks prior to the commencement of the final hearing would have been addressed one year earlier if the plaintiffs had paid sufficient attention to the substance of the issues raised by their claim for relief in prayer 2A. It would undoubtedly be convenient to the plaintiffs to avoid any such delay that is the consequence of their own oversight. However, I do not consider that the administration of justice favours avoiding that delay at the price of declining to apply the general rule that special federal matters should be heard in the Federal Court.

56. In considering (1), I have assumed in favour of the plaintiffs that the final hearing would commence in this Court on 16 November 2026 if the matter were not transferred to the Federal Court, notwithstanding the second defendant’s application to adjourn that hearing for medical reasons (which is yet to be determined) and notwithstanding the need for the first defendant’s trustee in bankruptcy to be joined as a party to the proceeding.

57. In acknowledging that the transfer of the proceeding to the Federal Court is likely to delay the commencement of the final hearing to a date beyond 16 November 2026, I do not accept that any such delay will be significant. The administrative step of allocating the matter to a particular docket will not cause delay. No “preliminary case management” will be required as the matter is ready for final hearing subject to the resolution of the second defendant’s application for leave to amendment and the case management issues arising from the second defendant’s medical condition. That application must be determined and those issues must be addressed irrespective of whether the matter remains in this Court or is transferred to the Federal Court. There is no reason to doubt the capacity of the Federal Court to address those issues and list the proceeding for final hearing with such expedition as it considers is warranted in all the circumstances of the case.

58. As to (2), it is not correct that the judge to whom the final hearing has been allocated in this Court is “familiar with the facts and the parties”. I am the judge to whom the final hearing has been allocated. I am familiar with the pleadings, which I have summarised in these reasons. That familiarity is the product of a short time spent reading the pleadings, which are brief. Any other judge would develop the same familiarity in the same short period of time. Trial judges become familiar with the facts during the course of a final hearing when witness testimony and documentary evidence are adduced and witness testimony is tested in cross-examination.

59. As to (3), the fact that this special federal matter has its genesis in unpaid costs orders made by this Court does not detract from its character as a special federal matter to which the general rule that special federal matters should be heard in the Federal Court applies.

60. As to (4), I repeat my observations in relation to (1) above and observe that the delay since 2020 is a result of the time taken by the plaintiffs in initiating the costs assessment process in respect of the 2018 proceeding, the time taken by the parties in pursuing that process to completion (the evidence does not provide a basis for me to form a view about the extent responsibility borne by each of the parties for that process taking two and a half years), the plaintiffs’ delay in commencing this proceeding after the completion of that process in March 2023 (including the six month delay in filing their application for leave to commence this proceeding under s 58(3)(b) of the Bankruptcy Act after learning of the first defendant’s bankruptcy on 1 March 2024), and the time taken by the parties to prepare the proceeding for hearing which appears from my review of the court file to be attributable to the time required in the ordinary course for pleadings, the service of evidence and disclosure, noting that the time required for pleadings was increased as a result of the plaintiffs’ amendments made by their Amended Statement of Claim filed on 7 October 2025. Those pre-trial steps will not need to be repeated in the Federal Court.

61. As to (5), that is a historical feature of this case, the impact of which will neither be exacerbated by the transfer of the proceeding to the Federal Court nor ameliorated if the proceeding is determined in this Court. Given that the parties have already prepared for the final hearing that was vacated on short notice in July 2026, I do not accept that the parties are already at the stage of needing to commence final preparation for the hearing listed to commence on 16 November 2026. The parties will be able to commence that final preparation shortly before the commencement of the final hearing in the Federal Court. The transfer of the proceeding to the Federal Court will not occasion a third round of final preparation for hearing.

62. I do not accept the plaintiffs’ proposition (6) for the reasons explained at [38] above.

63. For those reasons, I do not consider that the matters raised by the plaintiffs, considered as a whole and also having regard to the general rule that special federal matters should be heard in the Federal Court, constitute special reasons under s 6(3) of the Commonwealth Cross-Vesting Act.

Conclusion and orders

58. For all of the foregoing reasons, the orders of the Court are as follows:

59. Order that the plaintiffs’ informal application made orally on 12 October 2026 for leave to amend prayer 2A of their Amended Statement of Claim is dismissed.

60. Order pursuant to s 6(1) of the Jurisdiction of Courts Cross-vesting Act 1987 (Cth) that this proceeding be transferred to the Federal Court of Australia.

61. Order that the parties’ costs of the proceeding in this Court be treated as their costs of the proceeding in the Federal Court of Australia.

**********

Endnotes

See Frugtniet v Mansfield [2026] FCAFC 105 at [52]-[78] (Feutrill, Owens and Wheatley JJ).

Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174; [2015] FCAFC 70 (Truthful Endeavour) at [47]-[48] (Allsop CJ, Katzmann and Gleeson JJ); In the matter of Galtari Pty Ltd (in liq) [2018] NSWSC 917 (Galtari) at [39]-[44] (Gleeson JA).

Huynh v Attorney-General (NSW) (2023) 112 NSWLR 149; [2023] NSWCA 190 (Huynh) at [21] (Bell CJ, Kirk JA and Simpson AJA agreeing).

Truthful Endeavour at [35]-[60] (Allsop CJ, Katzmann and Gleeson JJ); Coshott v Parker (2017) 323 FLR 212; [2017] NSWSC 1098 (Coshott) at [9]-[14], [18]-[20] (Adamson J, as her Honour then was); Galtari at [20]-[38] (Gleeson JA).

Truthful Endeavour at [36], [54]-[60] (Allsop CJ, Katzmann and Gleeson JJ); Mateljan v HTT Huntley Heritage Pty Ltd (2016) 111 ACSR 277; [2016] NSWCA 20 at [26] (Gleeson and Leeming JJA and Emmett AJA).

Bankruptcy Act, s 31(1)(f); Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816 at [17]-[21] (Drummond, R D Nicholson and Katz JJ); Truthful Endeavour at [35] (Allsop CJ, Katzmann and Gleeson JJ); Tonbul Baykal v Terry Van Der Velde as trustee for bankrupt estate of Hakan Tandogan [2017] NSWSC 36 at [11]-[12], [25]-[28] (White J, as his Honour then was); Galtari at [57]-[61] (Gleeson JA).

Truthful Endeavour at [36] (Allsop CJ, Katzmann and Gleeson JJ); Coshott at [20] (Adamson J).

For example, Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380; [2008] FCAFC 172 at [8], [18] (Branson J) and [117] (Greenwood J); Ritchie v Woodward (Executor of the Estate of the late Brian Patrick Woodward) [2016] NSWSC 1715 at [441]-[459] (Emmett AJA); Galtari at [50]-[66] (Gleeson JA).

For example, Preston v Diaspora Holdings Pty Ltd [2019] NSWSC 651 at [41]-[47] (Parker J).

(2016) 306 FLR 51; [2016] VSCA 42.

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [131] (French CJ, Gummow, Hayne, Heydon and Kiefel JJ); Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50 at [51]-[63] and [69] (Leeming JA, Meagher JA and Tobias AJA agreeing) and the authorities there referred to; Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55 at [427]-[429] (Besanko, McKerracher and Beach JJ).

Coshott at [50] (Adamson J).

Whittaker v Australian Retirement Trust Pty Ltd as trustee for Australian Retirement Trust [2025] QSC 221 at [17]-[19] (Henry J).

Montgomery v Porter [2019] NSWSC 1524 (Ward CJ in Eq, as her Honour then was) at [24]-[31] and the authorities there referred to; Huynh at [41]-[44] (Bell CJ, Kirk JA and Simpson AJA agreeing).