Re Brett Walker Truman v Natwest Investments Australia Pty Limited [1990] FCA 33 (14 February 1990)

FEDERAL COURT OF AUSTRALIA

Re: BRETT WALKER TRUMAN
And: NATWEST INVESTMENTS AUSTRALIA PTY. LIMITED
No. P710 of 1989
FED No. 118
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Gummow J.(1)

CATCHWORDS

Practice and Procedure - cross-vesting legislation - creditor's petition pending in Federal Court - proceedings between debtor and creditor in State Supreme Court - transfer of those proceedings to Federal Court by order of State Supreme Court made by consent - subsequent proposed amendment of those proceedings to include alleged contravention of s. 52 of the Trade Practices Act 1974 - consideration by Federal Court of circumstances in which the order for transfer was made - operation of the "cross- vesting" legislation considered.

Bankruptcy Act 1966

Trade Practices Act 1974

Jurisdiction of Courts (Cross-Vesting) Act 1987

Jurisdiction of Courts (Cross-Vesting) Act 1987 (N.S.W.)

The Constitution

Grace Bros. Pty. Ltd. v Magistrates, Local Courts of New South Wales (1988) 84 ALR 492

Australian Trade Commission v Film Funding and Management Pty. Ltd. [1989] FCA 188; (1989) 87 ALR 49

Re Tracey; Ex parte Ryan [1989] HCA 12; (1989) 63 ALJR 250

Street v Queensland Bar Association [1989] HCA 53; (1989) 63 ALJR 715

Port MacDonnell Professional Fishermen's Association Inc. v South Australia [1989] HCA 49; (1989) 63 ALJR 671

Plowman v Palmer [1914] HCA 41; (1914) 18 CLR 339

Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571

Department of Industrial Relations v Forrest (Full Court of the Federal Court, 2/2/90, per Lockhart, Hill JJ, pp 22-24 of print)

Thomson Australian Holdings Pty. Ltd. v Trade Practices Commission [1981] HCA 48; (1981) 148 CLR 150

HEARING

SYDNEY
14:2:1990

Counsel and Solicitors M.R. Aldridge Esq.
for the Creditor: instructed by Messrs.

Tress Cocks and Maddox.

Solicitor for the Debtor: Mr. D.C.V. Morgan of
Messrs. Alfred J. Morgan and Son

ORDER

1. The creditor's petition stand over for further
directions consequent upon the institution of other
proceedings in this Court between the debtor and
the creditor.
2. Costs reserved.

Note: Settlement and entry of orders is dealt with by Order 124 of the Bankruptcy Rules.

DECISION

The creditor's petition was presented to this Court on 10 April 1989 and amended on 24 July 1989 pursuant to an order made on that day. The act of bankruptcy upon which reliance is placed is failure to comply with a bankruptcy notice issued 30 September 1988. The bankruptcy notice was based upon what was stated to be a final judgment obtained by the creditor against the debtor in the Supreme Court of New South Wales on 24 June 1988 for a sum of $1,488,382.40.

2. By his Amended Notice of Intention to Oppose Petition, filed 19 October 1989, the debtor relies on the following grounds:

(i) a counter-claim, set-off or cross demand
equal to or exceeding the sum specified in
the bankruptcy notice, being a
counter-claim, set-off or cross demand that
he could not have set up in the Supreme
Court action,
(ii) an alleged miscarriage of justice in the
obtaining of the judgment in the Supreme
Court such that this Court should go behind
the judgment and
(iii) failure by the creditor, as a secured
creditor, to comply with the provisions of
sub-s. 44 (2) or sub-s. 44 (3) of the
Bankruptcy Act 1966 ("the Bankruptcy Act").

3. On 7 November 1989, by consent, the petition was adjourned until 6 February 1990.

4. In the meantime, there arrived at the New South Wales District Registry of this Court a letter dated 5 February 1990 and signed on behalf of the Principal Registrar of the Supreme Court of New South Wales. It stated that pursuant to an order made on 14 December 1989, the Supreme Court matter No. 4419/89 between Brett Walker Truman (the debtor) and Natwest Investments Australia Pty. Limited (the creditor) had been transferred to this Court. The Supreme Court file came under cover of the letter.

5. The question arose, when the petition came before me on 6 February 1990, as to what was to be done with the future conduct of proceedings between the creditor and debtor. These reasons serve to explain what was done on 6 February 1990.

6. It is necessary first to have some regard to the background to the litigation involving the debtor and the creditor. The history is set out in the affidavit of Mr. Mocha, the Credit Collections Manager of the creditor, filed in this Court on 6 November 1989.

7. It appears that in December 1985 the creditor advanced to Thanes Pty. Limited ("Thanes") the equivalent in Swiss Francs of A$1.5m. The advance was secured, inter alia, by the personal guarantee of the debtor, and a registered first mortgage by Thanes over a property in the Northern Territory used as a caravan park. Mr. Mocha states that after default by the debtor, the creditor commenced proceedings in the Supreme Court of New South Wales, Commercial Division, No. 28126 of 1988, seeking recovery of $1,966,622.30 together with interest from the debtor, pursuant to his guarantee. An order for the winding-up of Thanes was made by the Supreme Court of the Northern Territory on 12 July 1988. On 17 May 1989, the creditor appointed agents to sell the caravan park property. At auction on 17 August 1989, the property was passed in, the last bid being $525,000. The creditor maintains that it has never appointed a receiver of any kind to the caravan park property, but that it is continuing in its efforts to find a purchaser.

8. On 24 June 1988, in the Supreme Court proceedings, a Judge sitting in the Commercial Division ordered that the debtor pay the creditor the sum of $1,488,382.40, the judgment to take effect on that day. As is apparent from the Minute of Judgment and Orders of the Supreme Court, this sum was the amount of the principal debt, and the issue as to interest was stood apart for a separate hearing. Further, execution of the judgment was stayed for 21 days to allow to the debtor the opportunity (should he wish to take it) of moving to vary the judgment if he could show some serious question to be tried concerning the quantum of the principal debt. The creditor has not pursued its claim for interest because, as Mr. Mocha deposes, the judgment in respect of the principal sum far exceeds the assets of the debtor.

9. In the proceedings in the Commercial Division, the debtor had put on a cross-claim in which, inter alia, he had alleged against the creditor that certain representations had been made which amounted to misleading or deceptive conduct within the meaning of s. 52 of the Trade Practices Act 1974 ("the Trade Practices Act"). On 5 May 1988, the Chief Judge of that Division had ordered that the debtor file and serve within three weeks of that date the evidence upon which he proposed to rely in support of a cross-claim. What followed was the successful application for the summary judgment as to the principal. In the result, the allegations in the cross-claim concerning contravention of s. 52 of the Trade Practices Act remain on foot in the Supreme Court proceedings. The alleged representations concerned the alleged expertise of a certain adviser in the field of foreign exchange and foreign currency loans. The alleged contraventions of the Trade Practices Act, which now have been foreshadowed in proceedings in this Court, are concerned with other matters.

10. It is the judgment dated 24 June 1988 in the Supreme Court proceedings, No. 28126 of 1988, which, as will appear, the debtor seeks to have this Court go behind in the present bankruptcy proceedings.

11. There has been a second set of proceedings in the Supreme Court of New South Wales, these being in the Equity Division. By Statement of Claim filed 29 September 1989 in matter No. 4419 of 1989, the debtor alleges that in December 1986 the creditor appointed an agent as receiver and manager of the caravan park property, and that the agent of the creditor "as Receiver and Manager became a Trustee of the property". Various delinquencies are then alleged and stated to have been committed in breach of the alleged trust. It is said that if the property had been properly maintained it would have had a value of $3m, whereas on 17 August 1989 it was passed in at auction for $525,000. It is then alleged the creditor was aware that any diminution in the value of the caravan park property would result in an increase in the liability of the debtor under his guarantee such that the creditor owed the debtor a duty of care to ensure proper maintenance of the caravan park. The debtor alleges a breach of that duty with resultant loss and damage, being the diminution in the value of the property. The debtor claims a declaration that the creditor is in breach of that trust, damages and costs.

12. On 3 November 1989, the creditor filed a Notice of Motion in the Equity Division proceedings seeking relief including the following:

"1. These proceedings be transferred to the
Federal Court of Australia.
2. The Statement of Claim be struck out."

13. On 14 December 1989, Mr. Unsworth, solicitor for the creditor, swore an affidavit in the Equity Division proceedings, apparently in aid of that Motion. Reference was made in para. 11 to the presentation of the creditor's petition to this Court on 10 April 1989, and in para. 13 to the filing by the debtor of a notice of his intention to oppose the petition. Paragraphs 17 and 18 are as follows:

"17. On 13 December 1989, I was informed by the
List Clerk of the Equity Division of the
Supreme Court and believe that these
proceedings would be heard not earlier than
two and one quarter years from the date on
which they are placed in the General List.
18. On 13 December 1989, I was informed by a
Deputy Registrar of the Federal Court and do
believe that if these proceedings were
transferred to the Federal Court they would
in the ordinary course be heard in
substantially less than twelve months."

14. On 14 December 1989, a Judge sitting in the Equity Division, by consent, ordered that the Equity Division proceedings be transferred to this Court, and that costs of the motion of 3 November 1989 be costs in the proceedings. What followed was the letter of 5 February 1990 to which I have already referred.

15. It is not apparent on the face of the order of the Supreme Court of New South Wales that it was made by consent. But it is apparent from the notes of his Honour's Associate that this was so. These notes form part of the file delivered to this Court. The order does not indicate upon what basis it was made. I was told by counsel in this Court that the "cross-vesting legislation" was relied upon. That is to mark out the beginning rather than the end of the inquiry. The affidavit sworn 14 December 1989 of Mr. Unsworth, to which I have referred, sheds no clear light on the matter. It would appear that reliance was placed upon either or both sub-s. 5 (1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 ("the Commonwealth Act") and the Jurisdiction of Courts (Cross-Vesting) Act 1987 (N.S.W.) ("the State Act").

16. Sub-section 5 (1) of the Commonwealth Act is as follows:

"5 (1) Where -
(a) a proceeding (in this sub-section
referred to as the 'relevant
proceeding') is pending in the
Supreme Court of a State or Territory
(in this sub-section referred to as
the 'first court'); and
(b) it appears to the first court that -
(i) the relevant proceeding arises
out of, or is related to,
another proceeding pending in
the Federal Court or the
Family Court and it is more
appropriate that the relevant
proceeding be determined by
the Federal Court or the
Family Court;
(ii) having regard to -
(A) whether, in the opinion
of the first court, apart
from this Act and any law
of a State relating to
cross-vesting of juris-
diction and apart from
any accrued jurisdiction
of the Federal Court or
the Family Court, the
relevant proceeding or a
substantial part of the
relevant proceeding would
have been incapable of
being instituted in the
first court and capable
of being instituted in
the Federal Court or the
Family Court;
(B) the extent to which, in
the opinion of the first
court, the matters for
determination in the
relevant proceeding are
matters arising under or
involving questions as to
the application, inter-
pretation or validity of
a law of the Commonwealth
and not within the juris-
diction of the first
court apart from this Act
and any law of a State
relating to cross-vesting
of jurisdiction; and
(C) the interests of justice,
it is more appropriate that
the relevant proceeding be
determined by the Federal
Court or the Family Court, as
the case may be; or
(iii) it is otherwise in the
interests of justice that the
relevant proceeding be
determined by the Federal
Court or the Family Court,
the first court shall transfer the
relevant proceeding to the Federal
Court or the Family Court, as the
case may be."

17. The State Act is in terms not materially different. It will be apparent that for an order for transfer to be made at least one of three circumstances must appear to the "first court". These are spelled out in sub-paras. (i), (ii) and (iii) of para. 5 (1) (b).

18. As the proceedings in the Equity Division stood on 14 December 1989, it appears that no federal question was involved. The result would be that these proceedings were a "State matter" in which the Supreme Court of New South Wales had jurisdiction otherwise than by reason of the law of the Commonwealth, within the meaning of sub-s. 3 (1) of the State Act. Sub-section 4 (1) of the State Act provides that this Court "has and may exercise original and appellate jurisdiction with respect to State matters".

19. Sub-section 9 (2) of the Commonwealth Act provides that this Court "may . . . exercise jurisdiction (whether original or appellate) (which is) conferred on (it) by a . . . law of a State relating to cross-vesting of jurisdiction"; this Court may "hear and determine a proceeding transferred to (it) under such a provision". Sub-section 4 (3) of the Commonwealth Act relevantly provides:

"4 (3) Where a proceeding is transferred to
the Federal Court . . . that court
has, by virtue of this sub-section,
jurisdiction with respect to so many
of the matters for determination in
the proceeding as that court would
not have apart from this sub-section."

The source of jurisdiction thus appears to be sub-s. 4 (3) as s. 9 does not itself appear to confer any jurisdiction; see Griffith Q.C., Rose, Gageler, "Choice of Law In Cross-vested Jurisdiction: A Reply to Kelly and Crawford" (1988) 62 ALJ 698 at 700.

20. I have expressed elsewhere my views as to some of the difficulties to which these provisions, in their application in this Court to "State matters", give rise: Grace Bros. Pty. Ltd. v Magistrates, Local Courts of New South Wales (1988) 84 ALR 492 at 498-499; see also Australian Trade Commission v Film Funding and Management Pty. Ltd. [1989] FCA 188; (1989) 87 ALR 49 at 50-55. The importance of maintaining the integrity of Chapter III of the Constitution has since been stressed by Deane J. in Re Tracey; Ex parte Ryan [1989] HCA 12; (1989) 63 ALJR 250 at 273-274; see also his Honour's remarks in Street v Queensland Bar Association [1989] HCA 53; (1989) 63 ALJR 715 at 737.

21. The recent decision of the High Court of Australia in Port MacDonnell Professional Fishermen's Association Inc. v South Australia [1989] HCA 49; (1989) 63 ALJR 671 at 683-684, suggests an issue as to whether in their application to this Court, sub-s. 4 (3) and sub-s. 9 (2) of the Commonwealth Act may be supported by a combination of sub-s. 51 (xxxviii), sub-s. 76 (ii) and sub-s. 77 (i) of the Constitution. The point is discussed by Mr. Justice Malcolm Lee in his Paper (delivered 29 November 1989 to the Law Society of Western Australia), "Cross-vesting of Jurisdiction Between Federal and State Courts - An Overview of the Legislation" at pp 39-42. That of course would produce the result that it was the Commonwealth Act alone which conferred jurisdiction on this Court, conformably with Chapter III of the Constitution. But in order to reach that conclusion, attention would be necessary to sub-s. 9 (1) of the Commonwealth Act. This provides:

"Nothing in this or any other Act is
intended to override or limit the
operation of a provision of a law of a
State relating to cross-vesting of
jurisdiction."

As I have noted, sub-s. 4 (1) of the State Act, of its own force, purports to provide that this Court "has and may exercise" jurisdiction with respect to "State matters".

22. The present proceedings raise difficulties of their own. In a case such as the present, it is what Isaacs J. called "a condition of jurisdiction", being the jurisdiction conferred on this Court by sub-s. 4 (3) of the Commonwealth Act, that there has been an order for transfer of the relevant proceeding by the State Supreme Court pursuant to sub-s. 5 (1) of the Commonwealth Act; cf. Plowman v Palmer [1914] HCA 41; (1914) 18 CLR 339 at 348-349. It is incumbent upon the State Supreme Court (putting aside the particular provision made in s. 6 for "special federal matters") to transfer the relevant proceeding if any one of the three circumstances spelled out in para. 5 (1) (b) "appear" to that Court. The section states that in such a case, the Supreme Court "shall transfer the relevant proceeding". Further, no appeal lies from that decision: s. 13.

23. But if the issue arises, it must be for this Court to determine whether the conditions of its jurisdiction have been satisfied. It is not a question of investigating in collateral proceedings an order made by another superior court of record; cf. Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571. The order of the first court is essential to found the jurisdiction of the second; cf. Department of Industrial Relations v Forrest (Full Court of the Federal Court, 2/2/90, per Lockhart, Hill JJ, pp 22-24 of print). The matter becomes critical where the order for transfer was made by consent and there is no indication on its face (or in supporting reasons) as to which of the three criteria in para. 5 (1) (b) appeared to the Supreme Court to have been made out, thereby obliging it to make the order for transfer.

24. As the litigation in Thomson Australian Holdings Pty. Ltd. v Trade Practices Commission [1981] HCA 48; (1981) 148 CLR 150 at 163-164 illustrates, there can be no general principle that when an order is consented to by all parties, the court ought to make it. Where there is a condition precedent to the exercise of the jurisdiction in question and the legislature has committed to the court the responsibility to determine whether orders should be made, consent of the parties would not, one should have thought, be sufficient.

25. The present proceedings have attained added complexity from what was said to this Court by counsel on 6 February 1990. It appears that the debtor wishes to amend the Statement of Claim in the transferred Equity Division proceedings, to introduce allegations of contravention by the creditor of Part V of the Trade Practices Act. These allegations will not, it appears, duplicate those already made in the Commercial Division proceedings. They will be concerned with the caravan site. If that step were taken, then federal jurisdiction and the concurrent jurisdiction of this Court indubitably would be attracted pursuant to s. 86 of the Trade Practices Act. Thus, the "transferred" proceedings would cease to be a "State matter" in the sense of the State Act. The general law claims first made in the Equity Division proceedings, in this Court, would be pendent to the Trade Practices claims.

26. What then is best to be done to avoid any uncertainties attending the "transfer" made to this Court, in the light of what has been foreshadowed?

27. On 6 February 1990, I indicated that today I would entertain an application for such leave and directions as were appropriate for the institution in this Court of the Trade Practices proceedings (and pendent claims) and the taking of such steps as were necessary to ascertain the degree of inter-relation between those proceedings and the present bankruptcy proceedings. I say this having regard to the alleged counter-claim, set-off or cross-demand to which I have earlier referred.

28. At this stage, there should be no order made as to costs.