Scott v Bagshaw

Effect of Wakim 13 The focus of these defences on matters of State law is explicable on the basis that the proceeding was instituted prior to the decision of the High Court in Wakim. The further amended application was titled as an application under the cross-vesting legislation of New South Wales, South Australia and Victoria and the common law and equity: cf Federal Court Rules ("FCR") O 10A, par 5(1)(a). It was also requisite that the application specify the provision of any Act on which relief was dependent: FCR O 4, par 3(1)(b). It was not specified in the application that the relief sought by the appellant was dependent upon any provision of the Act. That, however, is no barrier to the grant of relief under the Act: FCR O 35, r 1. 14 For the appellant, it is accepted that he is entitled to apply to the Supreme Court of New South Wales for an order that the proceeding below be treated as a proceeding in that court: Federal Courts (State Jurisdiction) Act 1999 (NSW), s 11(2). However, the appeal is brought to this Court on the basis that a re‑hearing of the proceeding in the Supreme Court would not take less than five days, which would weigh in costs significantly in excess of the appellant's likely costs of finalising the matter in this Court. The primary judge has already heard evidence in the matter over five days in February 1998. Effect of s 30 of the Act 15 The case run on behalf of the appellant before the primary judge was that the Court had jurisdiction in the proceeding under subs 30(1) of the Act. That subsection provides: "(1) The Court: (a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter." The primary judge concluded on that submission: " … that submission overlooks the distinction between the jurisdiction of the Court to hear and determine a matter and the power of the Court to grant relief of a particular kind. Section 30 of the Act is not concerned with jurisdiction but with the power available to the Court when it exercises jurisdiction: Morris v Maroudas (1986) 12 FCR 346. Jurisdiction in bankruptcy is conferred on the Court by s 27(1) of the Act." In our view his Honour was undoubtedly correct. In Forshaw v Thompson (1992) 35 FCR 329 at 334-39 Lockhart J, with whom Black CJ and Sweeney J agreed, said: "The source of the court's jurisdiction in bankruptcy is s 27(1), which confers jurisdiction on a number of courts including the Federal Court. The word 'bankruptcy' is defined in s 5(1), in relation to jurisdiction or proceedings, as meaning 'any jurisdiction or proceedings under or by virtue of this Act'. … The powers of the court in exercising its bankruptcy jurisdiction are conferred by numerous sections of the Act…. These specific instances of the conferral of powers upon the court must not obscure the general conferral upon the court by s 27 of 'jurisdiction in bankruptcy'. If a matter answers the description of being 'in bankruptcy' the court may exercise jurisdiction in respect of it; and the width of this jurisdiction is exemplified by the wide definition of the term 'bankruptcy' in s 5(1). … The question of the court's jurisdiction under s 27(1) was considered by a Full Court of this Court (Northrop, Toohey and Spender JJ) in Morris v Maroudas…. I agree with the view expressed by all members of the court that the source of the court's jurisdiction in bankruptcy is to be found in s 27(1), and that sections such as s 30 relate to the powers which are conferred upon the court when it exercises jurisdiction." This reasoning in Forshaw was followed by a Full Court (Northrop, Sheppard and Wilcox JJ) in Farrow Mortgage Services Pty Limited (in liq) v Abeyratne (1993) 47 FCR 208 and a Full Court (Wilcox, Ryan and Cooper JJ) in Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478. It appears that none of those authorities was referred to in the submissions to his Honour on the issue. 16 It is because his Honour was so plainly right as to the effect of s 30 that the two grounds of appeal founded on his Honour's understanding of the section are no longer pressed. Source of jurisdiction 17 We therefore start from the proposition that subs 27(1) is the seminal source of the Court's jurisdiction in bankruptcy. Whether or not that conferral is elaborated by jurisdiction conferred by other sections of the Act is not a matter that arises in this proceeding: Morris v Maroudas at 359 per Toohey J. 18 Subsection 27(1) falls to be understood in its context. In our opinion, par 31(1)(f) elucidates what the drafter of the provision had in mind as falling within "bankruptcy" in subs 27(1) as defined in subs 5(1) of the Act. 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…." His Honour was not taken to this provision in the submissions before him, which, as has been said, contended for jurisdiction based on s 30. It is apparent from the provision that the drafter of it intended that applications having that stated effect would be encompassed within the concept of jurisdiction in "bankruptcy". 19 On the face of the pleadings, the claim is one to realise an equitable charge. The pleadings make no reference of any section of the Act and the matter may be capable of reaching judgment without reference to any such section. 20 However, the undoubted effect of an order being made in the terms sought by the appellant would be that a declaration would be made against the title of the third respondents. Upon the third respondents' becoming trustees, the title to the properties (and subsequently to the money representing part of the properties) became vested in them: subs 58(1) and s 132 of the Act. The consequence of any such order must therefore be that it would have a necessary adverse effect on the title of the third respondents to the extent that it established title in the appellant. That is a matter that falls within the jurisdiction in bankruptcy. 21 We therefore consider that the appellant should succeed on the first ground of the appeal, albeit on a completely different basis than that argued before the primary judge. 22 In reaching this view we have considered the decision of a single judge of the Supreme Court of New South Wales in Sutherland v Brien (1999) 149 FLR 321 and distinguish it on the ground that this is not a case where, in the light of par 31(1)(f) of the Act, it could be held that the proceeding, so far as it is directed to the first and third respondents, was not "under or by virtue of" the Act.

Position of the second respondent 23 There remains the position of the second respondent. In Wakim, at 870 [145], Gummow and Hayne JJ said: "If the 'matter' is to be identified from what the parties allege and how they conduct the proceeding … and if the 'justiciable controversy' refers (in part, at least) to the factual dispute between them, there is no warrant for holding that federal jurisdiction ends as soon as a new party (against whom no federal claim is made) is added." The second respondent is in that position. Jurisdiction in bankruptcy arising in relation to the first respondent, it follows that accrued jurisdiction arises in this Court in relation to the second respondent. Leave for commencement of proceeding 24 During the argument on the appeal, we were informed that the primary judge, with the third respondents standing by, had dismissed a motion for leave to commence the proceeding: par 58(3)(b). That paragraph requires such leave where the proceeding is "in respect of a provable debt". The third respondents' pleading referred to such leave as requisite because the appellant's claim "relates to a debt provable". The oral submissions before the primary judge were confined to whether the pleadings related to a provable debt and did not address whether the proceeding was, as a consequence of the orders sought, "in respect of" a provable debt. The claim by the appellant is a claim by a secured creditor for a secured debt in the first respondent's bankruptcy: s 90 of the Act. 25 In Fraser v Commissioner of Taxation (1996) 69 FCR 99 at 115 Beaumont J, with whom Black CJ and Tamberlin J relevantly agreed, held that an application by the Deputy Commissioner of Taxation pursuant to s 79A of the Family Law Act 1975 (Cth), to set aside certain orders made by consent of the parties to a marriage, was a step towards satisfaction of a debt owing to him individually by one of the parties to the marriage, because it sought to augment the assets available to all creditors proving in the estate, including the Deputy Commissioner. It was therefore "in respect of" that debt within the meaning of par 58(3)(b) of the Act, so that leave was required pursuant to that paragraph. In the grant of leave, Beaumont J accepted that the position of the trustee as dominus litis should be preserved. By parity of reasoning, the orders sought here by the appellant must also be held to be "in respect of" the provable debt, even though the pleadings are not in terms directed to a provable debt. 26 As a result of this appeal being allowed, it is now therefore apparent that the issue of such leave must arise again. The application for leave having been renewed orally at the hearing, an order should now be made granting such leave nunc pro tunc. Costs 27 There are two features of this appeal and its conduct that may reflect in costs. They are the way in which counsel for the appellant addressed the issue of jurisdiction before the primary judge and the conduct of counsel for the third respondents in sitting by while the motion for leave to commence was dismissed by the primary judge. Those features require that an opportunity should be given for submissions on the appropriate way in which the Court should make orders for costs of the hearing of the appeal and of the hearing before the primary judge. Conclusion 28 For the reasons given above, we consider that leave to appeal, if required, should be granted; the appeal should be allowed; the order staying the proceeding in this Court should be set aside; leave to commence the proceeding should be granted nunc pro tunc; the matter should be remitted to the primary judge for determination on the merits; and opportunity should be provided for the parties to file written submissions on the costs of the appeal and the primary hearing on the issue raised in the appeal.

I certify that the preceding twenty‑eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Drummond, R D Nicholson & Katz.

Counsel for the Appellant: Dr C Birch SC

Solicitors for the Appellant: Church & Grace

Counsel for the First Respondent: Mr G A Stevens

Counsel for the Third Respondent: Ms J Oakley; Mr H Woods

Solicitors for the Third Respondent: Camatta Lempens