Scott (Trustee) v Maher, in the matter of bankrupt estate of Maher

Federal Court of Australia|2024-07-30|Before: Neskovcin J

The parties have seven days from the date of this order to submit proposed orders giving effect to these reasons. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 The four respondents were partners in a farming partnership, the Maher Bros Partnership. 2 The Partnership was dissolved after the first respondent, Thomas Maher, was made bankrupt on 16 November 2021. 3 The applicant, Andrew John Scott, was appointed Trustee in bankruptcy of the bankrupt estate of Thomas Maher. 4 The Trustee commenced this proceeding to obtain orders for the sale of numerous parcels of land, registered in the names of the four respondents as tenants in common (Properties), under ss 225 to 232 of the Property Law Act 1958 (Vic). The Trustee also sought ancillary orders regarding the application of the proceeds of sale. 5 The Partnership was operated on and from the Properties. However, cl 15 of the Partnership Deed executed on 6 December 1967 expressly excluded the Properties from being a Partnership asset. 6 The Trustee's claim was resolved by consent of the parties. By consent, on 15 July 2024, the Court made orders that the Properties be divided into four parcels. One parcel was allocated to the Trustee with a power of sale and one parcel was allocated to the fourth respondent, Gerard Maher, with a power of sale. The Trustee and Gerard Maher agreed to transfer the two remaining parcels to the second and third respondents, Anthony Maher and David Maher. 7 On 12 April 2024, Gerard Maher filed an interlocutory application seeking the appointment of a receiver over the assets and undertakings of the Partnership, and any sale proceeds or income, pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth). 8 The application was opposed by Anthony and David Maher. The Trustee and Thomas Maher neither consent to nor oppose the application.

THE APPLICATION 9 In addition to written submissions, Gerard Maher relied on his affidavit sworn on 12 April 2024 in support of the application. 10 Anthony and David Maher opposed the application on the grounds that: (a) the Court does not have jurisdiction to hear the application because it concerns a claim which also arises under a Victorian statute, the subject matter of the Trustee's claim - the Properties - has no part of the application and the Trustee's claim and the application do not constitute a single justiciable controversy; and (b) if it was not dismissed for want of jurisdiction, the application should be stayed to enable the parties to use the dispute resolution mechanism in the Deed, which provides that all disputes arising between the partners, whether during or after the determination of the Partnership, shall be referred to arbitration.

legal principles 11 The principles relevant to the scope of federal jurisdiction were outlined by the Full Court in Rana v Google Inc [2017] FCAFC 156; 254 FCR 1 at [15]-[21] per Allsop CJ, Besanko and White JJ. Although it is lengthy, it bears repeating: [15] The jurisdiction exercised by the Federal Court is always federal jurisdiction: Re Wakim; Ex parte McNally [1999] HCA 27; 198 CLR 511. The content of that jurisdiction exercised by this Court is derived from ss 75 and 76 of the Constitution, and that jurisdiction is defined by laws that are authorised by s 77(i) of the Constitution. Section 19 of the Federal Court of Australia Act provides that the Federal Court "has such original jurisdiction as is vested in it by laws made by the Parliament". Leaving to one side specific conferrals of jurisdiction on the Court by individual Acts of the Commonwealth Parliament, by s 39B(1A)(c) of the Judiciary Act 1903 (Cth), Parliament has conferred upon the Court a general federal civil jurisdiction, being "jurisdiction in any matter … arising under any laws made by the Parliament …". [16] Crucial to the scope and operation of federal jurisdiction, to the question whether a proceeding is within federal jurisdiction and to the question whether a proceeding is within the jurisdiction of this Court, is the concept of a "matter". In Re Wakim, Gummow and Hayne JJ at 198 CLR 585-586 [139]-[140] described a "matter", and the process of its identification, as follows: [139] The central task is to identify the justiciable controversy. In civil proceedings that will ordinarily require close attention to the pleadings (if any) and to the factual basis of each claim. [140] In Fencott it was said that: "in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter." The references to "impression" and "practical judgment" cannot be understood, however, as stating a test that is to be applied. Considerations of impression and practical judgment are relevant because the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete. Necessarily, then, the question will have to be decided on limited information. But the question is not at large. What is a single controversy "depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships". There is but a single matter if different claims arise out of "common transactions and facts" or "a common substratum of facts", notwithstanding that the facts upon which the claims depend "do not wholly coincide". So, too, there is but one matter where different claims are so related that the determination of one is essential to the determination of the other, as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose or necessitate its determination. Conversely, claims which are "completely disparate", "completely separate and distinct" or "distinct and unrelated" are not part of the same matter. (citations omitted and emphasis added) [17] The "matter" is the justiciable controversy between the parties arising out of the substratum of facts and claims representing, or amounting to, the dispute or controversy between or amongst the parties. Where federal and non-federal claims comprise the same justiciable controversy, a court exercising federal jurisdiction will have jurisdiction to resolve the entire matter in the exercise of its federal jurisdiction. The non-federal part of the matter is sometimes referred to as "accrued jurisdiction" (as distinct from the associated jurisdiction provided for under s 32 of the Federal Court of Australia Act). It is better understood and expressed, however, as being part of the one matter. References to "accrued jurisdiction" need to be treated with caution or, indeed, to be avoided: see Rizeq v Western Australia [2017] HCA 23; 91 ALJR 707 at [55] per Bell, Gageler, Keane, Nettle and Gordon JJ. (It should also be noted at this point that no issue concerning s 79 of the Judiciary Act arises in this case.) [18] A matter will "arise under" a law of the Parliament in a number of ways. These include cases where a cause of action is created by a Commonwealth statute; where a Commonwealth statute is relied upon as establishing a right to be vindicated; where a Commonwealth statute is the source of a defence that is asserted; where the subject matter of the controversy owes its existence to Commonwealth legislation - that is where the claim is in respect of or over a right which owes its existence to federal law; where it is necessary to decide whether a right or duty based on a Commonwealth statute exists even where that has not been pleaded by the parties, or where a federal issue is raised on the pleadings but it is unnecessary to decide: see generally R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett [1945] HCA 50; 70 CLR 141 at 154; Felton v Mulligan [1971] HCA 39; 124 CLR 367 at 374, 388, 403; Moorgate Tobacco Co Ltd v Philip Morris Ltd [1980] HCA 32; 145 CLR 457 at 476; LNC Industries Ltd v BMW (Aust) Ltd [1983] HCA 31; 151 CLR 575 at 581-582; Re McJannet; Ex parte Australian Workers' Union of Employees, Queensland [1997] HCA 40; 189 CLR 654 at 656-657; CGU Insurance Ltd v Blakeley [2016] HCA 2; 327 ALR 564; Australian Solar Mesh Sales Pty Ltd v Anderson [2000] FCA 864; 101 FCR 1 at 7-8. A matter may also exist prior to the commencement of formal proceedings and be federal in character at that point: Hooper v Kirella Pty Ltd [1999] FCA 1584; 96 FCR 1 at 13-16 [45]-[55]. There is a difference, however, between a matter "arising under" a law of the Parliament and a matter that merely involves the interpretation of a federal law (and which will not on its own attract federal jurisdiction): see Felton 124 CLR at 374, 408-409, 416. [19] The Court (French CJ, Kiefel, Bell and Keane JJ) said the following in CGU 327 ALR at 573 [30]-[31] in discussing federal jurisdiction: [30] The justiciability requirement encompassed in the concept of "matter" appears in the description of that term by the majority in Fencott v Muller as "a justiciable controversy, identifiable independently of the proceedings which are brought for its determination and encompassing all claims made within the scope of the controversy". It has an evaluative element as also appears from the majority judgment in Fencott: What is and what is not part of the one controversy depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships. The scope of a controversy which constitutes a matter is not ascertained merely by reference to the proceedings which a party may institute, but may be illuminated by the conduct of those proceedings and especially by the pleadings in which the issues in controversy are defined and the claims for relief are set out. The evaluative element is illustrated by, but not confined to, the delineation of the so called "accrued jurisdiction" to entertain non-federal claims in federal jurisdiction, by their Honours' observation that it is: a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter. [31] The existence of jurisdiction is anterior to the existence of the power to grant particular relief. As Gleeson CJ and McHugh J said in MIMIA v B: In a legal context the primary meaning of jurisdiction is 'authority to decide'. It is to be distinguished from the powers that a court may use in the exercise of its jurisdiction. (footnotes omitted) The distinction has been made frequently in this court. (citations omitted) [20] Once a matter is within federal jurisdiction, the entire matter is within federal jurisdiction: Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; 204 CLR 559 at 571 [7] per Gleeson CJ, Gaudron and Gummow JJ. There is never any concurrent exercise of federal and State jurisdiction: Felton 124 CLR 367 at 412-413; Moorgate 145 CLR at 471. [21] Generally, non-colourable assertion of a federal issue is enough to attract federal jurisdiction: Felton 124 CLR at 374 per Barwick CJ; Moorgate 145 CLR at 476; Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation [1987] FCA 686; 18 FCR 212 at 219; Parisienne Basket Shoes Pty Ltd v Whyte [1938] HCA 7; 59 CLR 369 at 389-391 per Dixon J. Upon the existence of federal jurisdiction, the matter remains within federal jurisdiction regardless of how the federal issue or issues within it are ultimately resolved: Moorgate 145 CLR at 476. It remains federal even if the federal claim is struck out: Unilan Holdings Pty Ltd v Kerin [1993] FCA 605; 44 FCR 481 at 481-482. Nor does dismissal of the federal claim mean that a court exercising federal jurisdiction somehow loses jurisdiction over the balance of the matter: Burgundy Royale 18 FCR at 219; Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; 104 FCR 564 at 597 [85] per French J. The same is true if the federal claim is effectively abandoned: see Moorgate 145 CLR 457. Indeed, a matter remains in federal jurisdiction even if a party is added and no federal claim is made against that party, provided it is all part of the same matter, the same controversy: Re Wakim 198 CLR at 587 [145] per Gummow and Hayne JJ. The position is summarised in Macteldir Pty Ltd v Dimovski [2005] FCA 1528; 226 ALR 773 at 784 [36] as follows: It is a fundamental tenet of federal jurisdiction that once a federal claim is made, even a bad one, and even one that is abandoned, or struck out, the whole matter in which that claim is made is, and remains, federal jurisdiction … (citations omitted)

Jurisdiction 12 The Trustee commenced this proceeding seeking orders for the sale of the Properties under ss 225 to 232 of the Property Law Act and ancillary orders regarding the application of the proceeds of sale. The Court is conferred with jurisdiction in bankruptcy proceedings by s 27 of the Bankruptcy Act 1966 (Cth). The Trustee relied on ss 30, 78 and 129 of the Bankruptcy Act to seek orders for the possession and sale of the Properties. This proceeding is within federal jurisdiction, and within the jurisdiction of this Court, because it involves a "matter" arising under federal law. Federal law is also the source of the Trustee's title which enabled him to commence proceedings in this Court: Turner v Gorkowski [2014] VSCA 248; 46 VR 609 at [33], [41] (Neave and Santamaria JJA). 13 Anthony and David Maher acknowledge that the Trustee's claim, and this proceeding, are within the jurisdiction of the Court. However, they submitted that the application relies on the Court's power to appoint a receiver under s 57 of the Federal Court Act, which confers a power but not jurisdiction. They submitted that the application depends on the prior existence of the Partnership and power to deal with partnership property, which is conferred by a Victorian statute, being the Property Law Act, and does not constitute a federal claim. They submitted further that the application and the Trustee's claim do not constitute a single justiciable controversy and, therefore, the Court does not have jurisdiction with respect to the application. 14 The Partnership was a farming partnership that was operated on and from the Properties. However, as noted, the Properties were not Partnership assets. The Properties are registered in the names of Thomas, Andrew, David and Gerard Maher as tenants in common. 15 The Partnership was dissolved by the bankruptcy of Thomas Maher: s 37 of the Partnership Act 1958 (Vic). However, the Partnership had become dysfunctional before the dissolution due to irreconcilable differences between the partners. 16 The Trustee commenced this proceeding because agreement could not be reached in relation to the realisation of Thomas Maher's interest in the Properties. The Trustee had also requested the remaining partners to wind up the Partnership, however, they did not take such steps. 17 In the Trustee's claim, the Trustee had foreshadowed the potential need for the Trustee to make an application to appoint a receiver to realise the assets of the Partnership because of the difficulty he had had in obtaining any response and information from Anthony and David Maher in respect of the Partnership and the Properties. Gerard Maher did not wait for the Trustee to do so. Gerard Maher brought the application and has stated that he has attempted to wind up the Partnership for several decades, without success. 18 Crucial to the scope and operation of federal jurisdiction, to the question whether a proceeding is within federal jurisdiction and to the question whether a proceeding is within the jurisdiction of this Court, is the concept of a "matter". There is but a single matter if different claims arise out of common transactions and facts or a common substratum of facts: Rana at [16], citing Re Wakim; Ex parte McNally [1999] HCA 27; 198 CLR 511 at [139]-[140]. 19 In my view, the application and the Trustee's claim arise out of a common substratum of facts concerning the dissolution of the Partnership and dispute about the sale of the Properties and realisation of the assets of the Partnership. The Partnership was dissolved upon Thomas Maher's bankruptcy, the Properties are no longer required for the Partnership and the partners have irreconcilable differences. This proceeding was necessitated by the parties' inability to reach agreement in relation to the realisation of the bankrupt's interest in the Properties. The Trustee also contemplated that it would be necessary to seek to appoint a receiver to realise the assets of the Partnership because of the difficulty he was having in obtaining information from two of the remaining partners. Rather than wait for the Trustee to do so, Gerard Maher brought the application himself. 20 Andrew and David Maher opposed the Trustee's claim on the basis that the registered interests in the Properties did not reflect the true beneficial interests because they had been solely responsible for the upkeep and payment of costs associated with the Properties. Further, they alleged that Thomas and Gerard Maher had received financial benefits from the farming operations conducted by Andrew and David Maher on the Properties. Accordingly, it was likely the operations and distributions of the Partnership would have become an issue in the determination of the Trustee's claim, had it not been resolved. 21 In my view, the application and the Trustee's claim are therefore part of a single justiciable controversy and the Court has jurisdiction in respect of the application. The resolution of the Trustee's claim does not alter that conclusion. Once a matter is within federal jurisdiction, the entire matter is within federal jurisdiction: Rana at [20]. Upon the existence of federal jurisdiction, the matter remains within federal jurisdiction regardless of how the federal issue or issues within it are ultimately resolved: Rana at [21].

Partnership 22 Having found that the Court has jurisdiction to determine Gerard Maher's application, the question is whether the Court considers it just or convenient to exercise its power under s 57 of the Federal Court Act to appoint a receiver to the assets and undertakings of the Partnership to realise the assets. 23 Section 57(1) of the Federal Court Act provides: The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. 24 In Ruhe (Trustee), in the matter of Babuc (Bankrupt) v Babuc [2021] FCA 1205 the partnership was dissolved upon the bankruptcy of the bankrupt partner. The solvent partner was unwilling to wind up the partnership. The Court had to consider whether to permit the trustee of the bankrupt partner to wind up the partnership, when the general rule is that the solvent partner is the proper person to conduct the winding up. Ultimately, Justice Moshinsky appointed the trustee in bankruptcy as receiver and manager to wind up the partnership. His Honour outlined the principles (at [13]) and applied them to the case (at [16]) as follows: [13] The Court will permit a trustee of a bankrupt partner to wind up a partnership where a solvent partner is unable or unwilling to administer the winding up of a partnership: see Re Wilson; Ex parte Official Receiver; Hancock (1936) 9 ABC 192; Re Parker; Ex parte Official Receiver (1950) 15 ABC 177; Re Penning; Ex parte State Bank of South Australia (1989) 23 FCR 588 (Re Penning) at 605-606 per von Doussa J. In Re Penning, von Doussa J stated at 605-606: Next, the application seeks an order that Mrs Penning's trustee be appointed receiver of the partnership to collect, get in and receive the "debts" - this should read "assets" - of the partnership and to ascertain the liabilities. This Court, exercising jurisdiction in bankruptcy, has power to make such an order: Re Wilson; Ex parte Official Receiver; Hancock (1936) 9 ABC 192; Re Parker; Ex parte Official Receiver (1950) 15 ABC 177. … Mr Penning however argues that he is still a solvent partner, and is entitled to have the carriage of the winding up; and he objects to the appointment of a receiver. As a general rule where the partnership is dissolved by the bankruptcy of one partner, the solvent partner is the proper person to conduct the winding up: Re Parker; Ex parte Official Receiver (supra). In N Lindley, Law of Partnership (15th ed, 1984), pp 837-838 it is said that the power of the solvent partners to wind up the affairs of the partnership arises from the confidence which was originally placed in them by the bankrupt, and which is continued to be placed in them by the court so long as there is no reason to the contrary. Where the court considers there is reason which requires a departure from the general rule, the court has power to appoint a non-partner to be receiver. … (Emphasis added.) … [16] I turn now to the other orders sought by the Trustee. As a result of the bankruptcy, and in the absence of any evidence of any agreement to the contrary, the Partnership has been dissolved pursuant to s 37 of the Partnership Act. It is appropriate in the circumstances to make an order that the business and affairs of the Partnership be wound up. On the basis of the facts and matters set out above, I infer that Mr Babuc is unable or unwilling to administer the winding up of the Partnership. In these circumstances, I consider it appropriate to appoint the Trustee as receiver and manager of the Partnership to realise the assets of the Partnership, discharge the liabilities of the Partnership, and distribute any surplus. It is convenient in the circumstances for the role to be performed by the Trustee, and she is willing and able to perform this role. 25 In this case, the Partnership was dissolved upon the bankruptcy of Thomas Maher. The Properties have now been allocated into four parcels and divided amongst the partners. The Partnership as originally constituted no longer exists and there are irreconcilable differences between the partners. Even before the dissolution, Andrew and David Maher were the only partners actively involved in farming. However, criminal charges for animal cruelty prevent them from having anything to do with livestock for a further year or so. Gerard Maher states that he has been seeking to wind up the Partnership for several decades without success. 26 As in Ruhe, this is a case where it is appropriate to appoint a receiver over the assets and undertakings of the Partnership to realise its assets because the Partnership has been dissolved and the irreconcilable differences between the former partners will likely hinder or prevent the orderly winding up of the Partnership: Moloney v Piachniarski [2004] WASC 240; 51 ACSR 564 at [35]-[41]; Wimpole Properties Pty Ltd v Beloti Pty Ltd [2011] VSC 7 at [23]; In the matter of Lorebray Pty Ltd (No 2) [2024] NSWSC 105, [6]. 27 Andrew and David Maher submitted that the application should be refused because it was unsupported by an undertaking as to damages. They did not explain why an undertaking was required. As I have found that it is appropriate to appoint a receiver, I would not require Gerard Maher to provide an undertaking as to damages. 28 Andrew and David Maher further submitted that the Court should stay the application to enable the parties to use the dispute resolution mechanism in the Deed, which provides that all disputes arising between the partners, whether during or after the determination of the Partnership, shall be referred to arbitration. However, they did not articulate the "dispute" or "disputes" which should be submitted to arbitration. In any event, I am not satisfied that arbitration is appropriate for resolving disputes in a case such as this where the Partnership has already dissolved and the lack of cooperation and irreconcilable differences between the partners would likely hinder the efficient conduct of any arbitration.

cONCLUSION 29 For the above reasons, I consider it is just and convenient to appoint a receiver to the assets and undertakings of the Partnership. The parties have requested an opportunity to confer in relation to the orders. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Neskovcin.

SCHEDULE OF PARTIES VID 214 of 2023 Respondents Fourth Respondent: GERARD HARDS MAHER

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