Scott v Bagshaw [2000] FCA 816

FEDERAL COURT OF AUSTRALIA

Scott v Bagshaw [2000] FCA 816 BANKRUPTCY – jurisdiction – appeal – proceeding seeking to establish equitable charge on property – declaration sought that property charged in favour of party other than trustees of bankrupt – second respondent party not a bankrupt – whether proceeding arises in bankruptcy – whether leave to commence nunc pro tunc necessary. JURISDICTION – appeal – proceeding seeking to establish equitable charge on property – claim not referrable to Bankruptcy Act – declaration sought that property charged in favour of party other than trustees of bankrupt – second respondent party not a bankrupt – whether proceeding arises in bankruptcy – whether leave to commence nunc pro tunc necessary. Bankruptcy Act 1966 (Cth), ss 5, 27, 30, 58(1), 58(3)(b), 82, 90, 132 Real Property Act 1900 (NSW) Conveyancing Act 1919 (NSW) Property Law Act 1958 (Vic) Transfer of Land Act 1958 (Vic) Real Property Act 1886 (SA) Law of Property Act 1936 (SA) Limitation Act 1969 (NSW), s 14 Limitation of Actions Act 1936 (SA), s 35 Limitation of Actions Act 1958 (Vic), s 5 Federal Courts (State Jurisdiction) Act 1999 (NSW), s 11(2) Federal Court Rules, O 4 r 3(1), O 10A r 5(1)(a), O 35 r 1. Re Wakim; Ex parte McNally (1999) 73 ALJR 839 applied Forshaw v Thompson (1992) 35 FCR 329 applied Farrow Mortgage Services Pty Limited (in liq) v Abeyratne (1993) 47 FCR 208 referred to Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478 referred to Morris v Maroudas (1986) 12 FCR 346 referred to Sutherland v Brien (1999) 149 FLR 321 distinguished Fraser v Commissioner of Taxation (1996) 69 FCR 99 applied JOHN JOSEPH SCOTT V LEITH GORDON BAGSHAW, JUDITH HAMPTON BAGSHAW AND PHILLIP GREGORY JEFFERSON & JAY ARSCOTT STEVENSON AS TRUSTEES OF THE BANKRUPT ESTATE OF LEITH GORDON BAGSHAW NG 684 OF 1994

DRUMMOND, R D NICHOLSON & KATZ JJ 19 JUNE 2000 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 684 OF 1994

BETWEEN: JOHN JOSEPH SCOTT

APPELLANT

AND: LEITH GORDON BAGSHAW

FIRST RESPONDENT

JUDITH HAMPTON BAGSHAW

SECOND RESPONDENT

PHILLIP GREGORY JEFFERSON & JAY ARSCOTT STEVENSON AS TRUSTEES OF THE BANKRUPT ESTATE OF LEITH GORDON BAGSHAW

THIRD RESPONDENT

JUDGES: DRUMMOND, R D NICHOLSON & KATZ JJ

DATE OF ORDER: 19 JUNE 2000

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. Leave to appeal, if required, be granted. 2. The appeal be allowed. 3. The order made on 26 November 1999 be set aside. 4. Leave to commence the proceeding be granted nunc pro tunc. 5. The application be remitted to the primary judge for determination on the merits. 6. Costs be reserved for written submissions on behalf of the appellant within seven days, with a further seven days to the respondents and a right of reply within three days. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 684 OF 1994

BETWEEN: JOHN JOSEPH SCOTT

APPELLANT

AND: LEITH GORDON BAGSHAW

FIRST RESPONDENT

JUDITH HAMPTON BAGSHAW

SECOND RESPONDENT

PHILLIP GREGORY JEFFERSON & JAY ARSCOTT STEVENSON AS TRUSTEES OF THE BANKRUPT ESTATE OF LEITH GORDON BAGSHAW

THIRD RESPONDENT

JUDGES: DRUMMOND, R D NICHOLSON & KATZ JJ

DATE: 19 JUNE 2000

PLACE: SYDNEY

REASONS FOR JUDGMENT OF THE COURT 1 This is in form an application for leave to appeal from an order that a proceeding be stayed for want of jurisdiction. However, on the hearing of the application for leave, the parties also argued in full the merits of the proposed appeal, on the understanding that, if the Court were minded to grant leave to appeal, it could then proceed immediately to give judgment on the appeal. Since, as will appear below, we have decided to grant to the applicant leave to appeal, we will proceed in these reasons as if the application before us had instead been an appeal. 2 The principal ground supporting the appeal contends that there was error of law in the order staying the proceeding below and that the Federal Court does have jurisdiction to hear and determine that proceeding. Two further grounds of appeal, based on s 30 of the Bankruptcy Act 1966 (Cth) ("the Act"), fell away for reasons which will appear. 3 The first respondent supported the submissions of the appellant on the appeal. For the second respondent, counsel submitted that, following the decision of the High Court of Australia in Re Wakim; Ex parte McNally (1999) 73 ALJR 839, this Court had no jurisdiction in relation to her. We take this as a submission directed to the Court's primary jurisdiction, because counsel stated that she made no submissions on the issue of this Court's accrued jurisdiction in relation to the second respondent. For the third respondent, the appeal was opposed, although it was conceded that there was no discretionary reason for the Court's jurisdiction not to be exercised if the position in law was that that jurisdiction existed. Nature of the proceeding below 4 The appellant is the trustee of a family trust. The first respondent is a bankrupt. The second respondent, who is not a bankrupt, is the wife of the first respondent. The third respondents are the trustees in bankruptcy of the first respondent, appointed pursuant to the provisions of the Act on 3 August 1993. 5 The proceeding below was commenced on 11 October 1994. The orders sought in the further amended application dated 15 August 1995 were: first, a declaration that each of three properties is charged in favour of the appellant with the payment of all moneys due under a loan agreement described in the statement of claim; and, secondly, the appointment of a receiver to each of the properties to effect their sale and for payment of the proceeds, less costs and expenses, to the appellant to the extent of indebtedness under the loan agreement, with the balance to the second and third respondents according to their respective entitlements. 6 The three properties described were respectively at: Terrigal, New South Wales; Mildura, Victoria; and Para Wirra, South Australia ("the properties"). The registered proprietors of the New South Wales and Victorian properties were the first and second respondents together; the registered proprietor of the South Australian property was the first respondent alone. A further property in New South Wales was sold in 1988 and was not the subject of the claim as amended. 7 The amended statement of claim alleged that, on or about 31 December 1985, the first and second respondents agreed with the appellant to borrow $375,399.21 at interest. It was further claimed that the first and second respondents charged their interests in the properties with the payment of principal and interest ("the loan moneys"). Part performance of the agreement to grant the charge was pleaded. Among the acts of part performance relied upon were the lodgment of caveats on behalf of the appellant against the titles to each of the properties and a written memorandum of the alleged agreement. In reliance on the agreement and alleged part performance, it was claimed that an equitable charge was created against the properties in favour of the appellant. 8 The amended statement of claim also pleaded that, in approximately July 1987, the land at Para Wirra, South Australia was sub-divided and a claim was asserted in relation to the land referred to in the certificates of title substituted as a consequence. It is common ground that the land has since been sold and the proceeds are held in trust pending the outcome of this proceeding. A claim is now therefore asserted in relation to that fund. 9 The amended statement of claim relied on a failure to repay the loan moneys and on an entitlement to the appointment of a receiver pursuant to the equitable charge. 10 The defences for the first and second respondents generally denied the matters alleged in the appellant's statement of claim, including the agreement, the lodgment of caveats and advance of the moneys claimed in total. 11 For the third respondents, it was pleaded in their defence that the appellant had no entitlement to any interest as mortgagee in Torrens title land, no power of sale in respect of it nor any power to appoint a receiver in respect of the properties in consequence of the provisions of the Real Property Act 1900 (NSW), the Conveyancing Act 1919 (NSW), the Property Law Act 1958 (Vic), the Transfer of Land Act 1958 (Vic),the Real Property Act 1886 (SA) and the Law of Property Act 1936 (SA). Alternatively, it was pleaded that the appellant's claims were precluded by the provisions of s 14 of the Limitation Act 1969 (NSW), s 35 of the Limitation of Actions Act 1936 (SA) and s 5 of the Limitation of Actions Act 1958 (Vic). 12 It was further pleaded in the defence of the third respondents that the appellant's claim related to a debt provable within s 82 of the Act, so that it had not been competent for the appellant to commence the proceeding without leave: par 58(3)(b) of the Act.

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.

Associate: Dated: 19 June 2000

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 Second Respondent: Ms E A Cohen

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

Solicitors for the Third Respondent: Camatta Lempens

Date of Hearing: 29 May 2000

Date of Judgment: 19 June 2000