Singh v Official Trustee in Bankruptcy & Anor [2008] FMCA 521

1. There are two applications before the Court.
2. The first application is an application in the case under r.16.05(2)(a) of the Federal Magistrate Court Rules, 2001 (Cth) by the Applicant to set aside orders made on 7 March 2008 by the Court dismissing the application and awarding costs to the Second Respondent.
3. The Second Respondent opposes the set aside application.
4. The second application is an application by the Applicant under s.58(3)(b) of the Bankruptcy Act, 1966 (Cth).[2]
5. The Applicant seeks leave to continue proceedings in an action in the Supreme Court of Western Australia, number CIV1009/2005[3] against the Second Respondent.
6. The Second Respondent opposes the application for leave.
7. The First Respondent, the Official Trustee in Bankruptcy, filed a Notice to Abide advising the Court that the Official Trustee will not be represented at hearing but will abide by whatever judgment the Court makes.

1. The Supreme Court Proceeding was commenced in January 2005.
2. In the Supreme Court Proceeding the Applicant (as Plaintiff in those proceedings) seeks declarations that the Second Respondent's transfer of:
   1. a half share in his family home;
   2. a share in a company carrying on a restaurant business,

are fraudulent alienations under s.89 of the Property Law Act 1969 (WA), plus other consequential orders.

1. The Second Respondent is Second Defendant in the Supreme Court Proceeding.
2. The Supreme Court Proceeding was commenced with knowledge of the Second Respondent's bankruptcy, but without the necessary leave of a court having jurisdiction in bankruptcy.[4] Because section 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). [5]

1. The issues which arise in this case are:
   1. whether the orders made by the Court on 7 March 20008 ought to be set aside;
   2. if the orders are to be set aside:
      1. whether the Court can now grant leave with retrospective effect;[6]
      2. whether the proceedings are in respect of a provable debt; and
      3. whether leave should be granted, which itself gives rises to other issues, namely:
         1. whether the issues in the proceedings are complex;
         2. whether the issues are able to be resolved more thoroughly and expeditiously in the proceedings sought to be commenced or continued than would be the case under the proof of debt process in respect of the bankrupt's estate;
         3. whether there are a multiplicity of claims and whether they ought all be resolved in one proceeding; and
         4. whether conditions ought to attach to any grant of leave.[7]

1. The second application, the application for leave under s.58(3)(b), originally came before the Court for hearing on 7 March 2008. The Applicant did not appear, and the Court made orders as follows:
   • 1. The application be dismissed pursuant to rule 13.03A(c) of the Federal Magistrates Courts Rules 2001.

2. The Applicant shall pay the Second Respondent's costs in the sum of $200.

1. The Applicant seeks to set aside the orders made by this Court on

7 March 2008. 2. Those orders were entered on 10 March 2008. 3. The application to set aside those orders was filed on 12 March 2008. An affidavit of the Applicant's solicitor was filed in support. The relevant parts of the affidavit are as follows: * 2. On 7 March 2008, the above application for leave to continue action no. CIV 1009/05 against the Second Respondent was dismissed[.] I did not appear at the hearing. The default occurred because, at the relevant time, I had noted the hearing date in the file but had inadvertently omitted to insert the date in my diary. * 3. I have also had personal problems looking after and caring for a daughter who is suffering from [the matters set out]. She is under my sole care and on constant medication. At times she suffers from relapses and requires my urgent and undivided attention. I believe the material time when the date for the hearing was fixed was one of [those] and the cause for the above inadvertent omission. * 4. I have perused the relevant documents and considered the facts and law and verily believe that there are merits in the substantive Application for leave. 4. Perhaps surprisingly, the Second Respondent did not cross examine on that affidavit. In the circumstances, the Court is left with an unchallenged version of events as to the reason for the non-appearance of the Applicant at the hearing on 7 March 2008. Although there might be perceived to be some inconsistency between the nature of the inadvertent omission in paragraph 2 and what is said to be the cause for the inadvertent omission in paragraph 3, and even in the absence of supporting documentation as to the diary omission and medical condition of the daughter, the contents of paragraphs 2 and 3 of the Applicant's solicitor's affidavit are not inherently incredible, unreliable or unsafe such as to warrant them being disregarded by the Court. 5. The basis on which this Court might set aside orders previously made are:

1. that there is an adequate reason for the non-appearance; 2. that there is no delay in making the application to set aside;

1. whether the party in whose favour orders have been made would be prejudiced by a new hearing in any respect which could not be adequately compensated by a suitable award of costs or the giving of security; and

1. that there is an arguable case on the merits of the substantive application.[8]
2. In this case the inadvertent omission to insert the date in the diary by the Applicant's solicitor may or may not constitute an adequate reason for the non-appearance. Certainly it is the case that, ordinarily, a party ought not to be disadvantaged by the negligent or careless conduct of legal representatives.[9] In this case, it is unnecessary for the Court to further consider the inadvertent omission, because the solicitor's role as a carer for his daughter does provide an adequate explanation for the non-appearance. In the face of unchallenged evidence as to his role as the sole carer of his daughter who suffers from the medical conditions set out in the affidavit, the Court is prepared to find that there was an adequate reason for the non-appearance, in any event.
3. There was no delay by the Applicant. The orders were entered on 10 March 2008 and would have been sent to the parties (as is the practice of this Court) on the same day. Whether the Applicant received them on 11 or 12 March 2008 is immaterial. For practical purposes there is no relevant delay.
4. In relation to prejudice the Second Respondent has had orders made in his favour.
5. Any prejudice arising from the setting aside of the orders might be overcome by an appropriate costs order. In that regard, the Court notes that the Second Respondent has already had a costs order made in his favour in relation to the hearing on 7 March 2008. In the circumstances, it is not appropriate to set that costs order aside, the Second Respondent having incurred costs on that day in circumstances where there was no appearance by the Applicant.
6. The Court also considers that in determining whether to set aside the orders of 7 March 2008 the question of prejudice must also be weighed in terms of the objects and policy underlying the Bankruptcy Act, particularly that of ensuring that a bankrupt's assets are available for distribution amongst creditors.[10] In this case, policy considerations favour the setting aside of the order dismissing the application.
7. In relation to an arguable case on the merits, for reasons that appear below, the Court is satisfied that there is an arguable case on the merits.
8. In all circumstances, there will be an order to set aside the order made on 7 March 2008 dismissing the application, but not the costs order made on 7 March 2008 in favour of the Second Respondent.

1. In Singh, following an extensive consideration of the relevant law[11] which it is unnecessary to repeat here, this Court found that there was no impediment to it exercising discretion to grant leave in a case where proceedings had been commenced without leave but with knowledge of the bankruptcy, provided that the Court in its discretion otherwise considered it appropriate to grant leave.[12]
2. For the reasons set out in Singh this Court considers that there is no impediment to it exercising discretion to grant leave in this case, provided the Court otherwise considers it appropriate to grant leave in the exercise of its discretion.

1. The words "in respect of" in s.58(3)(b) are to be construed widely.[13] There may be an indirect nexus between the proceeding in respect of which leave is sought and the provable debt.[14] Thus:
   1. proceedings to set aside Family Court consent orders entered into by fraud to alienate property have been held to be proceedings in respect of a provable debt;[15]
   2. a claim for avoidance of a transfer of property by a bankrupt in circumstances said to have made it a fraudulent disposition have been held to be proceedings in respect of a provable debt.[16]
2. In this case where declarations that the Second Respondent's transfer of a half share in his family home and a share in a company carrying on a restaurant business are fraudulent alienations under s.89 of the Property Law Act 1969 (WA), and which, if successful, will likely have the effect of making that property available as part of the pool of bankrupt Second Respondent's assets, the proceedings are proceedings in respect of a provable debt.

1. 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)(b) 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."[17]
2. To grant leave does not require the Court to consider the merits of the issues raised.[18] 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.[19] In making the determination the Court may consider whether there are multiple claims arising in the proceedings, and whether they all ought to be resolved at once.[20] 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.
3. The Court considers the Supreme Court Proceeding for which leave is sought is better dealt with by the Supreme Court because:

1. 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 is in issue; 2. the Supreme Court Proceeding has commenced and advanced in the Supreme Court; and

1. the Supreme Court is already dealing with inter-related proceedings involving the Applicant as plaintiff and the Second Respondent as defendant, where not dissimilar issues to, and issues inextricably intertwined with, some of those set out above have arisen. [21]

1. The issue arises as to whether leave ought to be granted on conditions. In a number of cases leave has been granted on conditions.[22]
2. Through Counsel, the Applicant has offered appropriate undertakings as follows:

1. that he will not take any further steps in the Supreme Court Proceeding without giving 7 days notice to the Official Trustee in Bankruptcy; 2. that he will not oppose the Official Trustee in Bankruptcy being joined in the Supreme Court Proceeding at any time;

1. that he will hold any property or any monies received in the Supreme Court Proceeding for the Official Trustee in Bankruptcy on behalf of the bankrupt estate of the Second Respondent; and

1. that he will notify the Official Trustee in Bankruptcy of any settlement proposed to be entered into in respect of the Supreme Court Proceeding and not enter into any settlement unless consented to by the Official Trustee in Bankruptcy.
2. 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 Proceeding, and that if the Applicant is successful in the Supreme Court Proceeding, 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, the Second Respondent. That is consistent with the scheme of the Bankruptcy Act.[23] Further, the Court considers that leave ought to be conditional upon the Applicant paying the costs, if any, of any involvement of the Official Trustee in Bankruptcy in the Supreme Court Proceeding, and the Applicant was also prepared to enter into an undertaking to that effect.

1. The application to set aside the orders of 7 March 2008 will be granted in respect of the order dismissing the application only.
2. The Supreme Court Proceeding is sufficiently complex, sufficiently progressed in the Supreme Court, and sufficiently inter-related to other proceedings involving the Applicant and Second Respondent, to warrant leave being granted for the Supreme Court Proceeding 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 paragraphs 35 and 36 above.
3. There will therefore be orders that leave be granted under s.58(3)(b) of the Bankruptcy Act on the conditions set out above.
4. The Court will hear the parties as to the costs of both applications.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Lucev FM

[1] The "Judgment Debt". It is unnecessary for the purposes of these Reasons for Judgment to set out the detail of the Judgment Debt.

[2] "Bankruptcy Act."

[4] Under s.58(3)(b) of the Bankruptcy Act "the Court" means "a Court having jurisdiction in bankruptcy": Bankruptcy Act, s.5(1).

[5] See Australian Bankruptcy Law & Practice, (5th Edition) at 58.3.70 ("Australian Bankruptcy Law & Practice").

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

[7] Singh v Official Trustee in Bankruptcy & Anor [2007] FMCA 1367; (2007) 214 FLR 84 at 89 per Lucev FM; [2007] FMCA 1367 at paras 18 and 19 ("Singh"); Kobylinski & Anor v Walker [2008] FMCA 89 at para 3 per Lucev FM.

[8] SZCTQ v Minister for Immigration [2005] FMCA 252 at paras 10-12 per Barnes FM; Trazblend v Simon Mathews Aviation & Anor (No 2) [2007] FMCA 373 at paras 15-20 per Raphael FM; Crimson SRL & Anor v Claudia Shoes Pty Ltd & Ors (No 6) [2008] FMCA 108 at paras 13-15 per Riley FM ("Crimson SRL").

[9] Crimson SRL at paras 20-21 per Riley FM and cases there cited.

[10] Fraser v Commissioner of Taxation & Anor (1996) 99 FCR 99 at 114 per Beaumont J ("Fraser").

[11] Singh FLR at 86-88 per Lucev FM; FMCA at paras 7-16 per Lucev FM

[12] Singh FLR at 88 per Lucev FM; FMCA at para 17 per Lucev FM

[13] Fraser at 112-114 per Beaumont J.

[14] Fraser at 113-114 per Beaumont J.

[16] Green v Schneller & Anor (2001) 164 FLR 82; [2001] NSWSC 897.

[17] Hall v Warner [2006] FCA 852 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) ("Hall"). At para 7 Cowdroy J cited Allanson v Midland Credit Limited & Another (1977) 30 FLR 108 at 114 per Bowen CJ, Riley and Deane JJ ("Allanson"); and Macquarie Bank Limited v Bardetta (2005) 3 ABC (NS) 190 at 198-199 per Conti J; [2005] FCA 507 at paras 19-21 per Conti J ("Bardetta").

[18] Re Killington; Ex parte Chisholm v The Official Trustee (unreported, Federal Court of Australia, Mansfield J, 20 November 1998) at 11 per Mansfield J ("Killington").

[21] See the various proceedings referred to in Singh: 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.