FEDERAL COURT OF AUSTRALIA Scott v Bagshaw [1999] FCA 1653 COURTS AND JUDICIAL SYSTEM – claim under State cross-vesting laws to enforce charge against trustees of bankrupt estate – whether claim in bankruptcy – proceeding stayed for want of jurisdiction. Bankruptcy Act, 1966, ss 27(1), 31 (1)(b). Baral v Official Trustee in Bankruptcy (1999) 161 ALR 273 considered Re Heiner; Ex parte the Public Curator [1925] SRQ 140 considered Morris v Maroudas (1986) 12 FCR 346 applied Re Summerhayes; Ex parte The Official Assignee (1890) 1 BC(NSW) 24 considered Sutherland v Brien [1999] NSWSC 155 considered Whitbread v Whitbread (1967) 10 FLR 120 considered JOHN JOSEPH SCOTT V LEITH GORDON BAGSHAW & ORS NG 684 of 1994 Whitlam J Sydney 26 November 1999 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 684 OF 1994 BETWEEN: JOHN JOSEPH SCOTT APPLICANT AND: LEITH GORDON BAGSHAW FIRST RESPONDENT JUDITH HAMPTON BAGSHAW SECOND RESPONDENT PHILLIP GREGORY JEFFERSON and JAY ARSCOTT STEVENSON as Trustees of the Bankrupt Estate of Leith Gordon Bagshaw THIRD RESPONDENTS JUDGE: WHITLAM J DATE OF ORDER: 26 NOVEMBER 1999 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The proceeding is stayed for want of jurisdiction. 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 APPLICANT AND: LEITH GORDON BAGSHAW FIRST RESPONDENT JUDITH HAMPTON BAGSHAW SECOND RESPONDENT PHILLIP GREGORY JEFFERSON and JAY ARSCOTT STEVENSON as Trustees of the Bankrupt Estate of Leith Gordon Bagshaw THIRD RESPONDENTS JUDGE: WHITLAM J DATE: 26 NOVEMBER 1999 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The initiating process in this proceeding expressly invoked the jurisdiction conferred on the Court by the cross-vesting laws of New South Wales, Victoria and South Australia. That source of jurisdiction is no longer available in this Court: Re Wakim; Ex parte McNally (1999) 73 ALJR 839. The question now arises whether the Court has jurisdiction to hear and determine this proceeding. 2 The nature of the proceeding may be gathered from the pleadings supplemented by the evidence given at the earlier hearing before me. The further amended application claims (1) a declaration that each of three specified properties is charged with payment of moneys due to the applicant under a loan agreement, and (2) orders for the sale of the properties and the appointment of a receiver. The first respondent and his wife, the second respondent, are the registered proprietors of two of the properties which are located in New South Wales and Victoria. The first respondent was the registered proprietor of the other property which is located in South Australia. The first respondent is a bankrupt and the trustees of his bankrupt estate are the third respondents. In fact, the South Australian property has been sold, and the applicant also claims a charge over the proceeds of sale which are held in a discrete account. The applicant alleges that moneys advanced by him pursuant to the loan agreement have not been repaid. None of the respondents admit the making of any loans by the applicant or that any moneys are outstanding so as to be secured by the alleged charge. 3 Counsel for the applicant submits that the Court has jurisdiction to deal with this matter under s 30(1) of the Bankruptcy Act 1966 ("the Act"). He seeks leave to file a second further amended application showing such a basis for the Court's jurisdiction. The first respondent accepts that the pleadings could be amended to reflect a "claim" pursuant to s 58(5) of the Act, under which the Court will have jurisdiction. On the other hand, counsel for the third respondents submits that this proceeding is not brought "under or by virtue of this Act" according to the definition of "bankruptcy" in relation to jurisdiction in s 5(1) of the Act and that, however unfortunate it may be in the circumstances of this case, the Court does not have jurisdiction to hear or determine it. Section 30(1) of the Act provides: "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." 4 Particular reliance is placed by counsel for the applicant upon the breadth of the relief that may be granted under par (b) of s 30(1). However, in my view, 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 powers 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. 5 Section 58 of the Act deals with the vesting of property upon bankruptcy, and subs (5) provides: "Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security." The expression "secured creditor" is defined by s 5(1) of the Act to include a person holding a charge on property of a debtor as security for a debt due to him or her from the debtor. 6 Counsel for the applicant submits that in order to have a receiver appointed his client must demonstrate that his rights are those of a secured creditor dealing with security pursuant to s 58(5) of the Act. In this way, it is said, the Court, will determine whether or not to grant the relief sought "for the purposes of carrying out or giving effect to this Act" as contemplated by par (b) of s 30(1). 7 I am unable to accept this submission about the effect of s 58(5). That provision could not state more plainly that s 58 does not trench upon any relevant right of the secured creditor. In this case the appointment of a receiver is a remedy that depends upon the existence of equitable jurisdiction: Re Crompton & Co Ltd [1914] 1 CL 954 at 967. A court determining this matter may have to consider the effect of the Act's provisions, but this does not necessarily involve the exercise of bankruptcy jurisdiction: see, for example Baral v Official Trustee in Bankruptcy (1999) 161 ALR 273 per Lehane J at 281 and Sutherland v Brien [1999] NSWSC 155 per Austin J at paragraphs 5-12. 8 The applicant's claims do not depend at all upon the first respondent's bankruptcy. Nor, in substance, does the defence of the third respondents rely upon the Act. (There is a reference in paragraph 7 of that defence to proof of debt in a bankruptcy by a secured creditor. However, that topic is entirely irrelevant.) Apparently accepting that his client's claims could be pursued in the "ordinary jurisdiction" of the Supreme Court of the three states concerned, counsel for the applicant submits that the determination of those claims nonetheless involves the exercise of bankruptcy jurisdiction. In support of such a characterization of the judicial power involved in the present case, he cites two statements dealing with the practice obtaining in the Supreme Courts in New South Wales and Queensland under the superseded colonial legislation. 9 In Re Summerhayes; Ex parte The Official Assignee (1890) 1 BC(NSW) 24 Manning J, sitting as Judge in Bankruptcy, said (at 26): "In my opinion, all matters brought either by or against the official assignees ought to be dealt with in this Court." 10 In Re Heiner; Ex parte the Public Curator [1925] SRQ 140 Macnaughton J said (at 149): "There has been a consistent practice in Queensland that all claims by or against the trustees in insolvency should be heard on motion in the insolvency jurisdiction in the Supreme Court." 11 However, neither of these cases was concerned with a claim like the present one. They involved actions by, respectively, the official assignee and the trustee of an insolvent estate, which the applicable legislation specifically permitted to be heard in the special bankruptcy or insolvency jurisdiction. In Summerhayes the claim clearly fell within s 130(4) of the Bankruptcy Act 1887 (NSW), and in Heiner the Insolvency Court's jurisdiction to entertain the claim was not in dispute. The sweeping statements relied upon by counsel for the applicant must be viewed in the context of the exercise by a Supreme Court Judge of the discretion whether or not to entertain a claim in the special jurisdiction. These cases give no guidance as to whether, in the instant case, the applicant has a federal claim under the Act. 12 A more recent authority relied on by counsel for the applicant is Whitbread v Whitbread (1967) 10 FLR 120, where the New South Wales Court of Appeal held that a wife's claim to enforce a trust against the official receiver of her husband's bankrupt estate was not a matrimonial cause within the meaning of the Matrimonial Causes Act 1959. In that case Wallace P observed (at 122) that such a claim was a question for determination by the Bankruptcy Court under the Bankruptcy Act 1924-1965. I find nothing surprising in that statement, but do not see how it assists counsel for the applicant. After all, s 116 (2) (a) of the Act provides that property held by a bankrupt in trust for another person is not property divisible among creditors, and s 31(1) (f) of the Act expressly provides for the Court to hear and determine applications to declare for or against the title of the trustee to any property. The current claim to realize an equitable charge is entirely different. 13 For the above reasons I have come to the conclusion that, contrary to the submissions on behalf of the applicant and the first respondent, the Court has no jurisdiction to hear and determine the proceeding. I think that the appropriate order is to stay the proceeding for want of jurisdiction. An application can then be made for the matter to be dealt with in an appropriate Supreme Court. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam. Associate: Dated: 26 November 1999 C J Birch of counsel, instructed by Church & Grace, appeared for the applicant The first respondent appeared in person. There was no appearance for the second respondent. Janet Oakley of counsel, instructed by Camatta Lampens, appeared for the third respondents. Date of hearing: 13 September 1999 Date of judgment: 26 November 1999