Bankruptcy Act 1966 (Cth), ss.5(1), 27(1), and 58(3)(a)(b)

Property Law Act 1969 (WA), s.89(1)

Allanson v Midland Credit Limited & Another (1977) 30 FLR 108

British South Africa Co v Companhia de Mocambique [1893] AC 602

Couzens v Negri [1981] VicRp 78; [1981] VR 824

Deschamps v Miller (1908) 1 Ch 856

Fraser v Commissioner of Taxation & Another [1996] FCA 1701; (1996) 69 FCR 99

Fulton Lane Building Services v Marchesi [2000] FMCA 10

Hall v Warner [2006] FCA 852

Loftus v Clarke (No 1) [2003] FMCA 66

Kattirtzis v Zaravinos [2001] FCA 1158

Macquarie Bank Limited v Bardetta (2005) 3 ABC (NS) 190; [2005] FCA 507

Oceanic Sun Line Special Shipping Co Inc v Fay [1988] HCA 32; (1998) 165 CLR 197

Pucar & Others v Grubb [2004] FMCA 42

Re Doyle; ex parte Brien v Doyle [1993] FCA 77; (1993) 41 FCR 40

Re Killington; Ex parte Chisholm v The Official Trustee (unreported, Federal Court of Australia, Mansfield J, 20 November 1998)

Re Rose; Ex parte Devaban Pty Ltd & Others v Rose (unreported, Federal Court of Australia, Hill J, 7 October 1994)

Re Schneller; Ex parte Green v Official Trustee in Bankruptcy [2001] FCA 1644

Re Sharp; Ex parte Tietyens Investments Pty Ltd (unreported, Federal Court of Australia, Weinberg J, 26 October 1998)

Re Veghelyi; Smith & Ors v Official Trustee in Bankruptcy [1993] FCA 491; (1993) 45 FCR 413

Singh v Singh [2006] WASC 182

Simonsen v Legge [2005] FMCA 191

Sturdy Components Pty Ltd v Trustee of the Bankrupt Estate of Sturt [2000] FCA 884

Voth v Mandura Flour Mills Ltd [1990] HCA 55; (1990) 171 CLR 538

M Murray, Keay's Insolvency. Personal and Corporate Law and Practice (5th Ed) (Sydney: Law Book Company, 2005)

(1) That under s.58(3)(b) of the Bankruptcy Act the applicant have leave:

(a) nunc pro tunc, to commence, and take such steps as have already been taken in proceeding CIV 1264/2006 in the Supreme Court of Western Australia ("Supreme Court proceedings");

(b) to take any fresh steps in the Supreme Court proceedings, on the following conditions:

(i)

that the applicant will seek an amendment of the Statement of Claim filed in the Supreme Court proceedings so as to delete the claim for an order that the net proceeds of sale be applied in satisfaction or partial satisfaction of amounts due and owing from Man Mahan Singh to Sardul Singh;

(ii)

that the applicant will not take any further steps in the Supreme Court proceedings without giving 7 days notice to the Official Trustee in Bankruptcy;

(iii)

that the applicant will not oppose the Official Trustee in Bankruptcy being joined in the Supreme Court proceedings at any time;

(iv)

that the applicant will hold the property the subject of the Supreme Court proceedings or any monies received in the Supreme Court proceedings for the Official Trustee in Bankruptcy on behalf of the bankrupt estate of Man Mahan Singh;

(v)

that the applicant will notify the Official Trustee in Bankruptcy of any settlement proposed to be entered into in respect of the Supreme Court proceedings and not enter into any settlement unless consented to by the Official Trustee in Bankruptcy; and

(vi)

that the applicant will pay the costs, if any, of any involvement of the Official Trustee in Bankruptcy in the Supreme Court proceedings.

(2) That the second respondent pay the applicant's costs, if not agreed, to be taxed under the Federal Court Rules, 0.62.

1. Sardul Singh and Man Mahan Singh are brothers. In September 2003 Man Mahan Singh transferred property in Malaysia to his wife and daughter. On 14 February 2006 Man Mahan Singh declared himself bankrupt. On or about 22 March 2006, Sardul Singh commenced proceedings by filing a Writ of Summons in the Supreme Court of Western Australia[1] against Man Mahan Singh alleging that Man Mahan Singh's transfer of the Malaysian property was intended to defraud Man Mahan Singh's creditors and seeking a declaration to that effect. Sardul Singh also seeks orders that the Malaysian property be sold. Sardul Singh commenced the Supreme Court proceedings without the necessary leave of a court having jurisdiction in bankruptcy.[2] He now seeks that leave from this Court.

2. The Official Trustee in Bankruptcy is a respondent to this application. He has advised the Court that he will abide by the Court's orders.

a) whether the Court can now grant leave with retrospective effect;[3]

b) whether leave should be granted; and

c) if leave is granted whether it should be granted on conditions.

4. Sardul Singh commenced the Supreme Court proceedings on or about 22 March 2006.[4] It appears that Sardul Singh commenced the Supreme Court proceedings with knowledge of Man Mahan Singh's bankruptcy.[5]

5. After commencement of the Supreme Court proceedings fresh steps were taken in them. On 19 May 2006 Sardul Singh obtained an injunction from the Supreme Court restraining Man Mahan Singh's wife and daughter, who are also defendants in the Supreme Court proceedings, from "encumbering, selling or otherwise disposing of any rights or interest" in the Malaysian property.[6] When this fresh step was taken Sardul Singh's solicitors were aware of Man Mahan Singh's bankruptcy. On 18 May 2006 Sardul Singh's solicitors had written to the Official Trustee in Bankruptcy advising of the injunction application in the Supreme Court proceedings against "the bankrupt's wife and daughter, to whom the [Malaysian] property" was transferred, and inquiring as to whether the Official Trustee in Bankruptcy intended to be joined as a party, to which he responded negatively.[7]

6. The question arises as to whether this Court has power to order leave with retrospective effect where the applicant has commenced or taken fresh steps in the Supreme Court proceedings "in respect of a provable debt".[8] There was no issue raised in this application as to whether the Supreme Court proceedings are in respect of a provable debt, and both parties proceeded as if that were the case. The Court will do likewise.[9]

7. The authors of Australian Bankruptcy Law and Practice say that:

"The court has power to grant an order "nunc pro tunc" (now for then) under this subsection, giving leave to commence and continue an action where proceedings have already been commenced against the bankrupt without knowledge of the bankruptcy."[10]

8. It might be inferred from the above quote that the Court only has power to grant leave where the proceedings were commenced and continued without knowledge of the bankruptcy.

9. The author of Keay's Insolvency says:

"If a creditor does commence proceedings against a bankrupt after the onset of bankruptcy and without obtaining the leave of the court, the proceedings are unlawful: Re Spratt (1986) 10 FCR 544. Notwithstanding this, a court has the power to subsequently grant leave so that, in effect, leave applies retrospectively from the date of the commencement of the action: Re Veghelyi (1993) 45 FCR 413. If leave to proceed is granted, a court may limit it to obtaining, but not enforcing, judgment."[11]

10. Although not entirely clear, it might be inferred from the above quote that leave can be granted where the proceedings were commenced or continued without leave but with knowledge of the bankruptcy.

11. On a plain reading s.58(3)(b) of the Bankruptcy Act simply prohibits the commencement or continuation of proceedings without leave, and does not address whether retrospective leave will not be granted if the proceedings were commenced or continued with or without knowledge of the bankruptcy. Section 58(3)(b) seems to leave the question of whether leave is granted entirely to the discretion of the Court.

12. Veghelyi is cited by both the above quoted authors. In Veghelyi the applicants for leave did not know that the bankrupt had become a bankrupt on 3 April 1991 until February 1992, and in the interim, on 9 August 1991, they had commenced proceedings in the District Court of New South Wales. The Federal Court found that there was power to make a retrospective order in circumstances where proceedings had been commenced in ignorance of the bankruptcy, ignorance of the bankruptcy being the factual position then before the Federal Court. The Federal Court said that to do otherwise would require any action commenced to be discontinued, with any costs penalty, and a fresh action to be commenced. That was a result the Federal Court considered "wasteful and undesirable", and not consistent with Parliament's intention.[12] Veghelyi therefore did not deal with proceedings commenced or continued with knowledge of the bankruptcy. Most of the cases which the Federal Court and this Court have decided have involved normal applications for leave to commence proceedings, or to continue (or take fresh steps in) proceedings either with knowledge of the bankruptcy, or applications to regularise the position where in ignorance of the bankruptcy the proceedings have been commenced or continued.[13] None of the cases relate to circumstances where, with knowledge of the bankruptcy, the proceedings have been commenced or continued without first seeking leave under s.58(3)(b) of the Bankruptcy Act.[14] In this case, the proceedings appear to have been commenced in the latter circumstances, and were certainly continued in those circumstances when an injunction was sought against Man Mahan Singh's wife and daughter.

13. It is important to note that in none of the above cases is there any indication that leave will not be granted if proceedings are commenced or continued without leave but with knowledge of the bankruptcy. Furthermore, there do not appear to be any reported cases where leave has not been granted because proceedings are commenced or continued without leave but with knowledge of the bankruptcy.

14. In Re Rose; Ex parte Devaban Pty Ltd & Others v Rose[15] an application for leave to commence proceedings against Mr Rose was brought in circumstances where the proceedings sought to be commenced were proceedings which had begun some months earlier and in respect of which Mr Rose was purportedly joined as a party. At the time of the joinder Mr Rose was an undischarged bankrupt, and, leave under s.58(3)(b) of the Bankruptcy Act had not been granted. The Federal Court said:

"The obvious policy behind section 58(3) of the Act was that any proceedings in force at the time of that bankruptcy should be stayed and no further proceedings should be commenced so far as they relate to the period prior to bankruptcy unless the Court gives leave.

...the Act does contemplate that the Court will, in an appropriate case, grant leave."[16]

15. Rose simply says that in an appropriate case a court may grant leave. In Rose nothing was said about retrospective granting of leave. So too in Sturdy Components where the Federal Court simply observed that it had power to make a retrospective order where a proceeding has already been "launched" or continued before the application for leave was made.[17]

16. In Re Killington; Ex parte Chisholm v The Official Trustee[18] Mr Chisholm had applied to join the Official Trustee as a defendant, an application which was refused. Mr Chisholm appealed. The appeal was heard, but was adjourned during argument because the issue arose as to whether s.58(3) of the Bankruptcy Act impeded the proposed joinder of the Official Trustee.[19] It is clear that the appeal was commenced with knowledge of the bankruptcy but without leave under s.58(3)(b). Leave was granted, on conditions, for the appeal to be maintained. The Federal Court found that granting leave would not subvert the scheme of the Bankruptcy Act or the policy underlying s.58(3) of the Bankruptcy Act.[20]

17. Having regard to the plain meaning of s.58(3)(b) of the Bankruptcy Act, and the decisions in Rose, Killington and Sturdy Components this Court considers that there is no impediment to it exercising discretion to grant leave in a case where proceedings have been commenced without leave but with knowledge of the bankruptcy, provided that the Court in its discretion otherwise considers it appropriate to grant leave.

18. In Hall v Warner the Federal Court succinctly set out the circumstances in which the Federal Court or this Court may grant leave under s.58(3) of the Bankruptcy Act, namely:

"... if it considers that the issues would be better and more comprehensively dealt with by a contested trial of the action in the Supreme Court than would be the case if the applicants were required to lodge a proof of debt in respect of the bankrupt estate."[21]

19. To grant leave does not require the Court to consider the merits of the issues raised.[22] Rather, it requires the Court to determine whether the issues are complex, and able to be resolved more thoroughly and expeditiously in the proceedings in respect of which leave is sought, than under the proof of debt procedure.[23] In making that determination the Court may consider whether there are multiple claims arising in the proceedings, and whether they all ought to be resolved at once.[24] Further, if, in the court in which proceedings for which leave is sought, there are other interrelated proceedings ongoing, this Court considers that to be a relevant consideration.

20. The Court considers that a number of complex issues arise in the Supreme Court proceedings, including but not limited to the following:

a) whether the Supreme Court can exercise jurisdiction in respect of title to foreign property under the Mocambique Rule,[25] and the application of exceptions to that Rule relating to trusts, contracts and fiduciary relationships;[26]

b) whether Man Mahan Singh, and more particularly his wife and daughter, can be ordered by the Supreme Court to sign papers transferring the Malaysian property;[27]

c) whether Western Australia is the appropriate forum for resolution of the issues;[28]

d) the object and reach of s.89(1) of the Property Law Act, 1969 (WA) which deals with alienation of property with intent to defraud creditors; and

e) the actual extent of rights and interests in the Malaysian property held by various persons; including the validity of a trust and whether the relevant trust deed is or is not a forgery.

21. In circumstances where in the Supreme Court proceedings a Writ of Summons has issued, an injunction has been granted, and a Notice of Motion seeking to dismiss the Writ of Summons has been filed, seemingly gone before a Master of the Supreme Court and a Minute of Proposed Amended Notice of Motion has been filed and seemingly adjourned,[29] this Court considers it more appropriate for the complex issues to be comprehensively dealt with by the Supreme Court rather than by way of the proof of debt procedure.[30] Furthermore, the Supreme Court is already dealing with somewhat inter-related proceedings involving Sardul Singh as plaintiff and Man Mahan Singh as defendant, where not dissimilar issues to some of those set out at para 20 have arisen.[31] That merely reinforces the conclusion already reached that the Supreme Court proceedings for which leave is sought are better dealt with by the Supreme Court. The Court notes that although referred to in argument the issue of enforcement of any orders made in the Supreme Court proceedings does not presently need to be considered.[32]

22. The issue arises as to whether leave ought to be granted on conditions. In a number of cases leave has been granted on conditions.[33]

23. Sardul Singh has provided undertakings as follows:

a) that he will seek an amendment of the Statement of Claim filed in the Supreme Court proceedings so as to delete the claim for an order that the net proceeds of sale be applied in satisfaction or partial satisfaction of amounts due and owing from Man Mahan Singh to Sardul Singh;

b) that he will not take any further steps in the Supreme Court proceedings without giving 7 days notice to the Official Trustee in Bankruptcy;

c) that he will not oppose the Official Trustee in Bankruptcy being joined in the Supreme Court proceedings at any time;

d) that he will hold the property the subject of the Supreme Court proceedings or any monies received in the Supreme Court proceedings for the Official Trustee in Bankruptcy on behalf of the bankrupt estate of Man Mahan Singh; and

e) that he will notify the Official Trustee in Bankruptcy of any settlement proposed to be entered into in respect of the Supreme Court proceedings and not enter into any settlement unless consented to by the Official Trustee in Bankruptcy.

24. The Court considers the undertakings to be appropriate. They have the effect of ensuring that the Official Trustee in Bankruptcy is apprised of the progress and steps to be taken in the Supreme Court proceedings, and that if Sardul Singh is successful in the Supreme Court proceedings, that the proceeds of the litigation will be held for the benefit of the Official Trustee in Bankruptcy on behalf of the estate of the bankrupt Man Mahan Singh. That is consistent with the scheme of the Bankruptcy Act.[34] Further, the Court considers that leave ought to be conditional upon Sardul Singh paying the costs, if any, of any involvement of the Official Trustee in Bankruptcy in the Supreme Court proceedings.

25. The Supreme Court proceedings are sufficiently complex, and sufficiently progressed in the Supreme Court, to warrant leave being granted for those proceedings to be commenced and continued, rather than being dealt with under the proof of debt procedure. The leave to commence and continue will be retrospective. The leave will be conditional upon the undertakings and additional costs conditions as set out in paras 23 and 24 above.

26. There will therefore be orders that leave be granted under s.58(3)(b) of the Bankruptcy Act on the conditions set out above.

27. The second respondent must pay the applicant's costs which, if not agreed, are to be taxed under Federal Court Rules 0.62.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Lucev FM

[2] Bankruptcy Act, 1966 (Cth), s.58(3)(b) ("Bankruptcy Act"). For the purposes of s.58(3)(b) "the Court" means "a Court having jurisdiction in bankruptcy": Bankruptcy Act, s.5(1). Because s.27(1) of the Bankruptcy Act gives exclusive jurisdiction in bankruptcy matters to the Federal Court of Australia and to this Court the better view seems to be that State courts lack jurisdiction to grant leave to proceed under s.58(3)(b): see Australian Bankruptcy Law and Practice, (5th Ed) at 58.3.70 ("Australian Bankruptcy Law and Practice").

[3] A "now for then" order, traditionally a "nunc pro tunc" order.

[4] Exhibit A1, Affidavit of Carlose, sworn 28 June 2006, annexure EC1 ("Carlose's 28 June 2006 Affidavit").

[5] Exhibit A2, Affidavit of Carlose, sworn 28 August 2006, para 2 ("Carlose's 28 August 2006 Affidavit").

[6] Carlose's 28 August 2006 Affidavit, annexure EC1.

[7] Carlose's 28 August 2006 Affidavit, annexure EC2.

[8] Bankruptcy Act, s.58(3)(b).

[9] Re Veghelyi; Smith & Ors v Official Trustee in Bankruptcy [1993] FCA 491; (1993) 45 FCR 413 at 415 per Sweeney J ("Veghelyi").

[10] Australian Bankruptcy Law and Practice, at 58.3.45 (emphasis added), citing Veghelyi at 417 per Sweeney J; Re Sharp; Ex parte Tietyens Investments Pty Ltd (unreported, Federal Court of Australia, Weinberg J, 26 October 1998) ("Tietyens Investments"); Sturdy Components Pty Ltd v Trustee of the Bankrupt Estate of Sturt [2000] FCA 884 at para 3 per Burchett J ("Sturdy Components"); Hall v Warner [2006] FCA 852 at para 9 per Cowdroy J; Kattirtzis v Zaravinos [2001] FCA 1158 ("Kattirtzis").

[11] M Murray, Keay's Insolvency. Personal and Corporate Law and Practice (5th Ed) (Sydney: Law Book Company, 2005) at 83-84.

[13] See for example Tietyens Investments; Sturdy Components; Allanson v Midland Credit Limited & Another (1977) 30 FLR 108 ("Allanson"); Fraser v Commissioner of Taxation & Another [1996] FCA 1701; (1996) 69 FCR 99 ("Fraser"); Macquarie Bank Limited v Bardetta (2005) 3 ABC (NS) 190; [2005] FCA 507 ("Bardetta"); Hall v Warner; Fulton Lane Building Services v Marchesi [2000] FMCA 10; Loftus v Clarke (No 1) [2003] FMCA 66; Pucar & Others v Grubb [2004] FMCA 42; Simonsen v Legge [2005] FMCA 191.

[14] In one case, an appeal from a first instance decision of a single judge was seemingly instituted with knowledge of the bankruptcy: see para 16 below.

[15] Unreported Federal Court of Australia, Hill J, 7 October 1994 ("Rose").

[17] Sturdy Components at para 3 per Burchett J.

[18] Unreported, Federal Court of Australia, Mansfield J, 20 November 1998 ("Killington").

[19] Killington at 3-4 per Mansfield J.

[20] Killington at 9 per Mansfield J.

[21] Hall v Warner at para 7 per Cowdroy J (see also para 8 where the complexity of the issues, the several claims and the desirability of resolving all issues at once were noted). At para 7 Cowdroy J cited Allanson at 114 per Bowen CJ, Riley and Dean JJ; and Bardetta, ABC(NS) at 198-199 per Conti J; FCA at paras 19-21 per Conti J.

[22] Killington at 11 per Mansfield J.

[23] Hall v Warner at para 8 per Cowdroy J.

[24] Hall v Warner at para 8 per Cowdroy J.

[25] British South Africa Co v Companhia de Mocambique [1893] AC 602.

[26] See for example Deschamps v Miller (1908) 1 Ch 856 at 863 per Parker J; Couzens v Negri [1981] VicRp 78; [1981] VR 824.

[27] A proposition which must be doubtful in respect of third parties (that is, persons other than the bankrupt), but which need not be decided here: Re Doyle; ex parte Brien v Doyle [1993] FCA 77; (1993) 41 FCR 40 at 47 per Burchett J.

[28] Voth v Mandura Flour Mills Ltd [1990] HCA 55; (1990) 171 CLR 538; Oceanic Sun Line Special Shipping co Inc v Fay [1988] HCA 32; (1998) 165 CLR 197.

[29] Exhibit A3, Affidavit of Sardul Singh sworn 20 November 2006, para 8 and annexure SS4.

[30] Allanson at 114 per Bowen CJ, Riley and Deane JJ.

[31] proceedings numbered CIV 1677/2004: and see Singh v Singh [2006] WASC 182, especially at paras 38, 41-42, 63-65, 70-74, 84-87, and 92-94 per Simmonds J.

[32] Bankruptcy Act, s.58(3)(a): Fraser at 111-112 per Beaumont J.

[33] See for example Killington; Kattirtzis; Re Schneller; Ex parte Green v Official Trustee in Bankruptcy [2001] FCA 1644 ("Green").