Campbell v Metway Leasing Ltd [2002] FCAFC 394 (5 December 2002)

Last Updated: 5 December 2002

FEDERAL COURT OF AUSTRALIA

Campbell v Metway Leasing Ltd [2002] FCAFC 394

CONSTITUTIONAL LAW - constitutional validity of subs 60(2), (3) and (4) Bankruptcy Act 1966 (Cth) - whether Commonwealth legislation purporting to effect an automatic stay and abandonment of proceedings in a state Supreme Court effects an impermissible interference with the functions of the Supreme Court by removing from that court the power to control its own process and procedures - whether subs 60(2), (3) and (4) infringe the implied immunity of state instrumentalities by attempting to interfere with a function of government and impair the state courts' capacity to function

BANKRUPTCY - whether on bankruptcy appellants had standing to prosecute appeals from a money judgment against them

Constitution, subs 51(xiii), (xvii)

Bankruptcy Act 1966 (Cth), subs 60(2), (3) and (4), s 149

Contracts Review Act 1984 (NSW)

Judiciary Act 1903 (Cth), s 78B

Bankruptcy Legislation Amendment Act 1996 (Cth)

International Arbitration Act 1974 (Cth), s 7

Commonwealth of Australia Constitution Act 1900 (Cth), s 5

Insolvency Act 1841 (NSW), s 33

Bankruptcy Act 1887 (NSW), s 10(6)

Bankruptcy Act 1898 (NSW), s 10(7)

Insolvency Statute 1865 (Vic), s 39

Cummings v Claremont Petroleum NL [1996] HCA 19; (1995-1996) 185 CLR 124, followed

Cox v Journeaux and Ors [No 2] [1935] HCA 48; (1935) 52 CLR 713, referred to

Melbourne Corporation v The Commonwealth [1947] HCA 26; (1947) 74 CLR 31, considered

Koowarta v Bjelke-Petersen [1982] HCA 27; (1982) 153 CLR 168, referred to

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) 1998 90 FCR 1, cited

Re Australian Education; Ex parte Victoria [1994] HCA 26; (1994-1995) 184 CLR 188, cited

Engineers' Case (Amalgamated Society of Engineers v Adelaide Steamship Co. Ltd) [1920] HCA 54; (1920) 28 CLR 129, cited

Federal Commissioner of Taxation v Official Liquidator of EO Farley Ltd (1940)

[1940] HCA 13; 63 CLR 278, referred to

Le Mesurier v Connor [1929] HCA 41; (1929) 42 CLR 481, referred to

The Queen v Davison [1954] HCA 46; (1954) 90 CLR 353, referred to

Storey v Lane [1981] HCA 47; (1981) 147 CLR 549, cited

Grain Pool of Western Australia v The Commonwealth [2000] HCA 14; (2000) 202 CLR 479, cited

Heath v Tang (1993) 1 WLR 1421, cited

KEITH MALCOLM CAMPBELL AND LOIS AUDREY CAMPBELL v METWAY LEASING LIMITED

No N 1383 of 2001

SPENDER, R.D. NICHOLSON, NORTH JJ

SYDNEY

5 DECEMBER 2002

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 1383 OF 2001

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	KEITH MALCOLM CAMPBELL FIRST APPELLANT LOIS AUDREY CAMPBELL SECOND APPELLANT
AND:	METWAY LEASING LIMITED RESPONDENT
JUDGES:	SPENDER, R.D. NICHOLSON, NORTH JJ
DATE OF ORDER:	5 DECEMBER 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellants pay the respondent's costs of the appeal, to be taxed if not agreed.

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	N 1383 OF 2001

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	KEITH MALCOLM CAMPBELL FIRST APPELLANT LOIS AUDREY CAMPBELL SECOND APPELLANT
AND:	METWAY LEASING LIMITED RESPONDENT

JUDGES:	SPENDER, R.D. NICHOLSON, NORTH JJ
DATE:	5 DECEMBER 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT:

1 In these proceedings, Keith Malcolm Campbell ("the first appellant") and Lois Audrey Campbell ("the second appellant") seek to challenge the constitutional validity of subs 60(2), (3) and (4) of the Bankruptcy Act 1966 (Cth) ("the Act"). The substance of the contention on behalf of the appellants is that Commonwealth legislation purporting to effect an automatic stay and, in the circumstances then applying, the abandonment of proceedings in a state Supreme Court effects an impermissible interference with the functions of the Supreme Court, as it removes from that court the power to control its own process and procedures.

2 The subsections of the Act sought to be impugned relevantly provide as follows:

"60(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.

60(3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.

60(4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:

(a) any personal injury or wrong done to the bankrupt, his or her spouse or a member of his or her family; or

(b) the death of his or her spouse or of a member of his or her family."

3 Subsection 60(5) provides:

"In this section, `action' means any civil proceeding, whether at law or in equity."

The institution of an appeal by a defendant against a judgment in favour of a plaintiff is the commencing of a proceeding: Cummings v Claremont Petroleum NL [1996] HCA 19; (1995-1996) 185 CLR 124 at 130.

4 The issues in these proceedings come before the Court in the following way.

5 Each appellant was, at all material times, a director of Arnoya Holdings Pty Ltd ("Arnoya") and Baystan Pty Limited ("Baystan"). Arnoya was ordered to be wound up on 10 March 1997, and Baystan is now a deregistered company. Arnoya, Baystan and each of the appellants were parties to Supreme Court proceedings which comprised two matters: proceedings No 16194 of 1991 and proceedings No 12042 of 1994.

6 In proceedings No 16194 of 1991 the respondent, Metway Leasing Limited ("Metway"), sought possession of certain properties at 17 Jindabyne Avenue, Baulkham Hills and 213 Prince Street, Grafton in the State of New South Wales, by reason of non-payment by Arnoya of moneys owed to Metway, repayment of which was secured to Metway by certain mortgages it held over those properties. In these proceedings, the first appellant by a cross claim sought certain declarations, injunctions and damages including loss of profits against Metway, and the second appellant by a cross claim sought relief from the said mortgages by virtue of the provisions of the Contracts Review Act 1984 (NSW). In proceedings No 12042 of 1994 Metway, by statement of claim, sought payment from the appellants of a debt of $104,569.16. The first appellant by a cross claim sought certain declarations, injunctions and damages against Metway, and the second appellant by a cross claim sought certain declarations and orders for rectification against Metway.

7 The proceedings 16194 of 1991 and 12042 of 1994 began before his Honour, the then Acting Justice Barr, on 22 August 1994. On a date prior to 26 April 1995, the property at 213 Prince Street, Grafton was sold.

8 On 26 April 1995, Barr AJ delivered his reasons for judgment in those proceedings, and on 16 June 1995 made orders which included, in proceedings 16194 of 1991, that Metway be given possession of the Baulkham Hills property, that each cross claim be dismissed, that Metway have its costs and that a stay of execution be granted conditionally for twenty-eight days. In proceedings 12042 of 1994, his Honour ordered that the defendants (including the two appellants) pay to Metway the sum of $104,569.16 and dismissed each cross claim, gave Metway its costs and ordered that a stay of execution be granted conditionally for twenty-eight days.

9 On 23 June 1995, the appellants and Arnoya filed a notice of appeal No CA 40397 of 1995 in both proceedings, whereby the appellants and Arnoya appealed from "the whole of the decision" of Barr AJ. On 4 July 1995, by notice of motion filed in the New South Wales Court of Appeal in the proceedings CA 40397 of 1995, the appellants and Arnoya applied for an order that the stay of execution of the orders granted on 16 June 1995 be continued until further order. The motion was heard by Justice Sheller of the New South Wales Court of Appeal, and was dismissed. A second application to the New South Wales Court of Appeal for a stay of execution of the orders of Barr AJ was made on 18 September 1995. That application was heard by Justice Priestley of the New South Wales Court of Appeal and dismissed.

10 On 6 June 1996 the Federal Court, by Justice Hill, made a sequestration order pursuant to the Act against the estate of the first appellant. The Official Trustee in Bankruptcy ("the Official Trustee") became Trustee of the first appellant's estate. On 4 April 1997 the Federal Court, by Registrar Quinn, made a sequestration order against the estate of the second appellant. The Official Trustee became the Trustee of the second appellant's estate.

11 On or about 26 August 1997, Metway served notice in writing upon the Official Trustee of the first and second appellants' appeal to the Court of Appeal, and requested the Official Trustee to elect whether to prosecute or discontinue that appeal. The Official Trustee made no such election within the time prescribed by subs 60(3) of the Act, or at all. Metway submits that the consequence is that the Official Trustee was deemed to have abandoned that appeal.

12 The appeal proceedings CA 40397 of 1995 was heard on 19 April 1999. Only the appellants appeared, the first appellant appearing in person and the second appellant appearing by counsel. Written submissions and supplementary written submissions prepared for the first and second appellants had been provided to the court and to Metway prior to the hearing on 19 April 1999.

13 On 19 April 1999, the New South Wales Court of Appeal dismissed the appeal. On 23 July 1999 the first appellant was automatically discharged from his bankruptcy pursuant to s 149 the Act, and on 29 April 2000 the second appellant was automatically discharged from her bankruptcy pursuant to s 149 of the Act.

14 On 25 February 2000, in the Sydney office of the Registry of the High Court of Australia in proceedings S21 of 2000, the appellants caused a writ of summons to be issued to Metway, wherein the present appellants sought amongst other things:

"2. A declaration that the provisions of sections 60(2), (3) and (4) of the Bankruptcy Act 1966 (Cth) (the "Act") insofar as they purport to cause a stay and an abandonment of proceedings before the New South Wales Supreme Court are beyond the legislative power of the Commonwealth and are invalid.

3. Alternatively, a declaration that the provisions of sections 60(2), (3) and (4) of the Act do not apply to proceedings before the Supreme Court of New South Wales.

4. A declaration that the provisions of sections 60(2), (3) and (4) of the Act, insofar as they purport to prevent this Court from entertaining a summons seeking declarations such as those set out in prayers 1, 2 and 3 above are beyond the legislative power of the Commonwealth and are invalid.

5. Alternatively, a declaration that the provisions of sections 60(2), (3) and (4) of the Act do not apply to proceedings brought before this Court.

6. An order that proceedings numbered S72 of 1999 be consolidated in these proceedings.

7. In the alternative, if it be held that the provisions of sections 60(2), (3) and (4) of the Act apply to proceedings before the New South Wales Supreme Court, then a declaration that the judgment of the New South Wales Court of Appeal, dated 19 April 1999, in proceedings numbered CA 40397/95 is a nullity."

15 The reference to proceedings S72 of 1999 is a reference to an application to the High Court for special leave to appeal by Arnoya and the appellants. At the hearing of that application for special leave, which was heard by Gaudron and Hayne JJ on 11 February 2000, there was no appearance on behalf of Arnoya, which had been dissolved as a company by that time, and senior counsel on behalf of the present appellants indicated that an application would be made in the original jurisdiction of the High Court challenging the constitutional validity of subs 60 (2), (3) and (4) of the Act. It was pointed out that the primary ground relied upon by Metway in opposing the application for special leave was that neither applicant for special leave had standing because they were bankrupt. The application for special leave was stood over on the undertaking by the appellants to commence the foreshadowed proceedings in the original jurisdiction of the court within fourteen days. The writ of summons and the original statement of claim in these proceedings were filed on 25 February 2000.

16 On 7 November 2000 Gummow J in the High Court noted that pleadings in S21 of 2000 had closed, and ordered:

"Pursuant to section 44 of the Judiciary Act that further proceedings in the action No S21 of 2000 be remitted to the Federal Court of Australia New South Wales District Registry ...

... costs of the action to date in this Court be costs in the Federal Court."

The transferred proceedings became No N 1295 of 2000 in the Federal Court, and were heard by Katz J on 18 June 2001.

17 On 13 September 2001, Katz J ordered that the application be dismissed and the present appellants pay the respondent's costs of the proceeding. On 3 October 2001 the present appellants filed a notice of appeal from the judgment of Katz J. The grounds of the appeal are:

"2. His Honor was in error in failing to find that S60(2) of the Bankrupcy Act 1966 [Cth] impermissibly interfered with a States Court exercising judicial power.

3. That S60(2) of the Bankrupcy Act 1966 [Cth] insofar as it effectively precluded an appeal to a State Court of Appeal against a judgment of a State Court which relevantly grounded the `Bankrupcy' relied on by the respondent to obtain an Order for Sequestration is invalid in that it purports to affect or alter the State Court in the organisation through which its juristiction and powers are exercised.

4. That His Honour erred in failing to find that S60(2) of the Bankrupcy Act 1966 [Cth] constituted impermissible legisitive interference by the Commonwealth Parliament with the exercising of the judicial powers of the State of New South Wales.

5. That His Honor erred in failing to find that S60(3) of the Bankrupcy Act 1966 [Cth] constituted an impermissible legislative interference by the Commonwealth Parliament with the exercise of the State Judicial Powers.

6. His Honor erred in failing to find that S60(3) of the Bankrupcy Act 1966 [Cth] was an impermissible legislative fetter by the Commonwealth Parliament upon the ability of the appellant to prosecute an application to the High Court of Australia for Special Leave to Appeal from a decision of the New South Wales Court of Appeal."

18 Metway filed a Notice of Contention asserting two grounds on which the judgment of Katz J should be affirmed, other than those on which his Honour relied. The only ground on which it is now pursued is the second, namely:

"2. His Honour should also have held that:

(i) to the extent to which the relevant appeals were not appeals against a money judgment, they came within the definition of property within the meaning of Bankruptcy Act 1966 Section 5(1) and hence vested in the Trustee in Bankruptcy on bankruptcy; and

(ii) to the extent to which they were appeals against a money judgment, on bankruptcy the Appellants had no interest in the appeals

AND consequently the Appellants had no standing to prosecute the appeals."

19 The Attorneys-General of the Commonwealth and the States were notified of the challenge to the Constitutional validity of subs 60(2), (3) and (4) of the Act, as required by s 78B of the Judiciary Act 1903 (Cth). Only the Attorney-General of the Commonwealth intervened in these proceedings pursuant to that notification.

20 In the judgment in the Court of Appeal on 19 April 1999, Sheller JA examined the nature of the claims in the primary proceedings before Barr AJ and concluded that the action was not one in respect of "any personal injury or wrong done to the bankrupt" within subs 60(4) of the Act, referring to the test of Sir Owen Dixon in Cox v Journeaux and Ors [No 2] [1935] HCA 48; (1935) 52 CLR 713 at 721. Sheller JA said at par 21:

"I am quite satisfied that s60 of the Bankruptcy Act applies to this appeal. Accordingly, it seems to me that at this point of time, the Court can only proceed on the basis that Mr and Mrs Campbell's appeals have been abandoned."

At par 23 his Honour noted that:

"... Mr and Mrs Campbell have abandoned all the grounds of appeal set out in the various notices and amended notices of appeal that have been filed on their behalf up to this point of time. If the appeal is to proceed it would be on the basis of an application to further amend, to add a ground based upon the trial Judge, Barr AJ's alleged apprehended bias."

His Honour said at par 25:

"It is to be observed that apparently no point of bias or apprehended bias was taken before the trial Judge and apparently what is now relied upon is not to be found in the transcript."

And at pars 26 and 27:

"However all that may be, as I have said, the situation is that as at this point of time, before this Court, the appeals are to be taken as having been abandoned. That being the case, it does not seem to me to be appropriate to grant the adjournment which Mr Campbell seeks. I should observe in passing that Mr Smark of counsel on behalf of Mrs Campbell did not make any application for an adjournment.

Accordingly, in my opinion, the application for adjournment should be refused."

21 Powell and Beazley JJA agreed. Counsel for Metway then moved that the appeals be dismissed. At par 31, Sheller JA said:

"In the circumstances, Mr Skinner for the respondent now asks that the appeals be dismissed. In the light of the reasons I have given and the effect of s60 of the Bankruptcy Act that seems to me to be the appropriate order that the Court should now make."

Again, Powell and Beazley JJA agreed. The court did not make any order as to costs.

22 The short contention on behalf of the appellants is that subs 60(2) and (3) of the Act, as in force at the dates each appellant was declared bankrupt and at the time of the hearing of their appeals in the Court of Appeal, were invalid insofar as they purported first to stay proceedings brought in a state court arising from an appeal as of right in a state court, whether the court is exercising state or federal jurisdiction and, secondly, on the failure of the Trustee to elect within the time allowed by subs 60(3), to give rise to an abandonment of such proceedings. (Inconsequential amendments were made to subs 60(2), (3) and (4) by Act No. 44 of 1996, the Bankruptcy Legislation Amendment Act 1996 (Cth), which amendments came into effect on 16 December 1996.)

23 The grounds on which the appellants rely for the invalidity is that the said subsections infringe the implied immunity of state instrumentalities; and that the said subsections are an impermissible interference with the judicial power of a state court.

24 At the core of the appellants' submission that subs 60(2) and (3) "infringe the implied immunity of state instrumentalities" is that the Supreme Court of New South Wales' practice and procedure is a function of government, and is such a function that is excluded from the operation of federal law. It was said that nothing in s 51(xvii) of the Constitution vests in the Commonwealth Parliament legislative power of sufficient amplitude enabling it to stay a state court's proceedings simply by the occurrence of an objective event defined in the legislation, such as where, as here, when a person becomes a bankrupt. It was submitted that the state courts' practice and procedure was a function excluded from the operation of federal law in the same way that State banking was excluded from the operation of federal law, as held in Melbourne Corporation v The Commonwealth [1947] HCA 26; (1947) 74 CLR 31 at 78 per Dixon J.

25 However, the analogy with State banking is not apposite in the present case. The constitutional power of the Commonwealth in 51(xiii) of the Constitution excludes "State banking" from the head of constitutional power of the Commonwealth with respect to "banking". In Melbourne Corporation, Dixon J said at 78:

"The prima-facie rule is that a power to legislate with respect to a given subject enables the Parliament to make laws which, upon that subject, affect the operations of the States and their agencies."

26 Because of the exception of State banking from the ambit of Commonwealth power in respect of banking in 51(xiii), there was a qualification on the capacity in the Commonwealth in the area of banking.

27 In support of their primary submission, reference was made on behalf of the appellants to the observation by Mason J, as he then was, in Koowarta v Bjelke-Petersen [1982] HCA 27; (1982) 153 CLR 168 at 225-226 that:

"... the Commonwealth cannot legislate so as to discriminate against the States or inhibit or impair their continued existence or their capacity to function."

28 It was submitted on behalf of the appellants that subs 60 (2) and (3) effects an impairment of the state courts' capacity to function. It was said that the impairment or inhibition flowing from subs 60(2) of the Act is its unilateral effect of staying existing proceedings brought in a state court, without regard to such court's inherent capacity to exercise independently its traditional and often-exercised powers to stay proceedings in accordance with well-established principles, or of its own motion. The inhibition or impairment flowing from subs 60(3) of the Act is said to arise because the deemed abandonment of proceedings by that party is independent of any determination by the court of whether such is so as a matter of fact and, further, because abandonment occurs by virtue of an action or inaction by the Trustee, who is not accountable to the state court for his action or inaction.

29 The contention that the relevant subsections are invalid as an impermissible interference with the independence of the state judicial power is supported, it was submitted, by the fact that there was no discretion conferred on a state court to impose conditions on the stay of proceedings before it by reason of subs 60(2) of the Act, nor any power accorded to a state court to qualify or revise the deemed abandonment of proceedings by reason of subs 60(3) of the Act. It was therefore said that the provisions operate beyond what is a permissible interference with the judicial power of the state courts.

30 Some support for this position was sought to be derived from the observations of Beaumont J in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1. There, on the question of whether s 7 of the International Arbitration Act 1974 (Cth) was an impermissible interference with the judicial process, Beaumont J said at 5:

"Although the answer is not easily reached because questions of degree are involved, in my opinion, s 7 is, on balance, valid: such interference with the judicial process as does occur is kept within permissible limits. This is achieved by the reservation to the Court of a power to impose appropriate conditions upon the grant of a stay. Absent the Court's power to impose conditions, there would, in my view, have been considerable force in the argument that s 7 was invalid."

31 However, Emmett J, with whom Branson J agreed, upheld the validity of s 7 without any reference to, or reliance on, the reservation to the Federal Court of a power to impose appropriate conditions on the grant of a stay. The basis for his Honour's conclusion appears from his observations at 13:

"... s 7 of the International Arbitration Act ... is a provision which operates on all Australian courts and not simply on federal courts. If the legislation is effective, it is based on the foreign affairs power. No attack was made on the constitutional basis for the legislation.

Section 7(2), while it is expressed to impose a duty on the relevant court, does no more than create an entitlement for the parties to an arbitration agreement. ... Where a statute confers an entitlement on one party as against another party, a court having jurisdiction in relation to such an entitlement would be bound to exercise that jurisdiction, whether or not the statute is framed in terms which purport to impose a duty on the court or in terms which purport to create an entitlement in one of the parties. In other words, s 7 does not purport to direct the manner and outcome of the exercise by the Federal Court of its jurisdiction. The section merely lays down a general rule under which a party to an arbitration agreement is entitled to have that arbitration agreement given effect by the relevant court."

32 The claim on behalf of the appellants is that subs 60(2) and (3) attack the essential function of state government, namely the necessity for the operation of judicial power to be independent of Commonwealth interference. It is not permissible, it is submitted, for federal law to direct how actions in state courts will be disposed of, which is what subs 60(2) and (3) are claimed to do. It is accepted that federal law may operate in personam on a Trustee but not on the Court or on its procedures so as to interfere with the exercise of judicial power.

33 In Re Australian Education; Ex parte Victoria [1994] HCA 26; (1994-1995) 184 CLR 188, the full High Court (Mason CJ, Brennan, Deane, Toohey, Gaudron and McHugh JJ) referred at 228 to:

"... the difficulty which the Court has experienced in formulating with a sufficient degree of precision the implied limitation on the exercise of Commonwealth powers."

34 Their Honours noted at 229:

"It was ... recognised in Re Tracey; Ex parte Ryan [1989] HCA 12; (1989) 166 CLR 518 at 547, per Mason CJ, Wilson and Dawson JJ; at 575, per Brennan and Toohey JJ that State courts are an essential branch of the government of a State and that their continuance by s 106 of the Constitution precludes an exercise of Commonwealth legislative power prohibiting them from exercising their functions."

35 The Victorian Court of Appeal in R v Reid [1999] VSCA 98; [1999] 2 VR 605 said at 614:

"... State courts are an essential branch of the government of the States and the Commonwealth has no legislative power to prohibit them from exercising their functions."

However, the Court of Appeal (Winneke P, Buchanan and Chernov JJA) earlier noted at 614:

"It does not follow that in legislating pursuant to one of the heads of power in s.51 the Commonwealth lacks power to make laws directing the way in which a State court exercises State jurisdiction.

...

... it does not follow that the Commonwealth cannot direct State courts as to the proof of matters within their State jurisdictions if it is within the head of power found in s. 51 or incidental to such a power to do so."

36 There is no suggestion in the present case that the Commonwealth, by s 60 of the Act, attempted to alter the "organisation, structure or nature of a State court" when it made provision for a stay or abandonment of proceedings in a state court which had been commenced by a person who had subsequently become bankrupt.

37 In our view, the short answer to the submissions advanced on behalf of the appellants is to be found in s 5 of the Commonwealth of Australia Constitution Act 1900 (Cth) which commences:

"This Act, and all laws made by the Parliament of the Commonwealth under the Constitution, shall be binding on the courts, judges, and people of every State and of every part of the Commonwealth, notwithstanding anything in the laws of any state; ..."

38 In the Engineers' Case (Amalgamated Society of Engineers v Adelaide Steamship Co. Ltd [1920] HCA 54; (1920) 28 CLR 129) Knox CJ, Isaacs, Rich and Starke JJ said at 153:

"It may be that even if sec. V. of the Act 63 & 64 Vict. c. 12 had not been enacted, the force of sec. 51 of the Constitution itself would have bound the Crown in right of a State so far as any law validly made under it purported to affect the Crown in that right; but, however that may be, it is clear to us that in presence of both sec. V. of the Act and sec. 51 of the Constitution that result must follow. The Commonwealth Constitution as it exists for the time being, dealing expressly with sovereign functions of the Crown in its relation to Commonwealth and to States, necessarily so far binds the Crown, and laws validly made by authority of the Constitution, bind, so far as they purport to do so, the people of every State considered as individuals or as political organisms called States - in other words, bind both Crown and subjects."

39 Higgins J said at 166-167:

"I take sec. 51 of the Constitution as defining subject matters for legislation, and covering sec. V. as defining the persons who are to obey the legislation. Once we find a valid Federal law - say, a law as to trade and commerce with other countries - the Courts and Judges and people of every State must obey it, whatever the State laws may say to the contrary. Organized bodies of persons, such as incorporated companies or municipal corporations or States, are not mentioned: for they always act through `people' - human beings; and these human beings have to obey the valid Federal Act, whatever the State law says."

40 Section 51(xvii) of the Constitution confers power on the Commonwealth Parliament to make laws "with respect to bankruptcy and insolvency". This is a wide power: Federal Commissioner of Taxation v Official Liquidator of EO Farley Ltd [1940] HCA 13; (1940) 63 CLR 278 per Dixon J at 313-4; Le Mesurier v Connor [1929] HCA 41; (1929) 42 CLR 481 per Isaacs J at 508-9; The Queen v Davison [1954] HCA 46; (1954) 90 CLR 353 per Dixon CJ and McTiernan J at 365-6, Fullager J at 375-6 and Kitto J at 382-3; Storey v Lane [1981] HCA 47; (1981) 147 CLR 549 per Gibbs CJ at 556-8 and Aickin J at 563-4.

41 Aickin J said in Storey v Lane at 564:

"Section 60 operates upon the person of the bankrupt in relation to debts which are provable in his bankruptcy and as such lies at or near the heart of the power."

42 In our view, subs 60(2) and (3) of the Act are within the ambit of the legislative power conferred by s 51(xvii). Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ noted in Grain Pool of Western Australia v The Commonwealth [2000] HCA 14; (2000) 202 CLR 479 at 492:

"... if a sufficient connection with the head of power does exist, the justice and wisdom of the law, and the degree to which the means it adopts are necessary or desirable, are matters of legislative choice (Leask v The Commonwealth [1996] HCA 29; (1996) 187 CLR 579 at 602)."

43 In Cummings v Claremont (supra) Brennan CJ, Gaudron and McHugh JJ essayed a "brief conspectus of the Act". Their Honours said at 132:

"The Act follows the pattern of earlier bankruptcy law. Broadly, and not precisely, the effect of bankruptcy is to divest a bankrupt of his property, to vest that property in a trustee and to make it available for the payment of provable debts. The right to commence or take a fresh step in legal proceedings or to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt are, in general, denied to creditors when sequestration is ordered (s 58(3)). The right of the bankrupt to prosecute proceedings that he has commenced is restricted by s 60(2). The bankrupt's concerns as to the administration of his property and the payment of his creditors can be addressed by the Court in the exercise of its supervisory jurisdiction over the conduct of the trustee."

44 In passages which touch directly on the closeness of the connection with the head of power and the provisions of subs 60(2) and (3) of the Act, their Honours earlier had said at 130:

"The term `action' is defined to mean any civil proceeding (s 60(5)). The institution of an appeal by a defendant against a judgment in favour of a plaintiff is the commencing of a proceeding. That follows from the decision of the Full Court of the Supreme Court of New South Wales in Want v Moss (1889) 10 NSWR (L) 274. A verdict had been found for a plaintiff. The defendant moved for a rule nisi to set aside the verdict and his estate was thereafter sequestrated. The motion for a rule nisi was held to be a `proceeding commenced' by the bankrupt that was stayed on his bankruptcy."

Their Honours referred, at 139, to the observations of Hoffmann LJ in Heath v Tang [1993] 1 WLR 1421 at 1425 that, just as a bankrupt might apply to the court for an order compelling the Trustee to lend his name to the bringing of an action, so the bankrupt might:

"apply to the court exercising bankruptcy jurisdiction to direct the trustee to appeal or to allow the bankrupt, on providing suitable security, to use the trustee's name."

Importantly for present purposes, their Honours noted the further observation of Lord Hoffman at 1427:

"The bankruptcy court acts as a screen which both prevents the bankrupt's substance from being wasted in hopeless appeals and protects creditors from vexatious challenges to their claims."

Their Honours concluded at 139:

"The bankruptcy of the appellants leaves them without such an interest in the judgment against them as would support their institution of an appeal in their own names."

45 In our view, provisions which regulate the extent to which litigation may be continued by or against a bankrupt lie at the heart of the bankruptcy power. Providing for the continuance or termination of such litigation is an exercise of the bankruptcy power, and not an interference with courts before whom persons who become bankrupt are parties to litigation.

46 Of course, the meaning of "bankruptcy and insolvency" in s 51(xvii) of the Constitution is not limited to what was comprehended by those words as at Federation. Nonetheless, it is instructive to note that bankruptcy legislation prior to Federation contained provisions similar to those of the current subs 60(2), (3) and (4).

47 Section 33 of the Insolvency Act 1841 (NSW) provided for the stay of actions commenced by a person whose estate was later placed under sequestration until the trustees elected to prosecute or discontinue that action. The time limit provided by that section was six weeks after service of a notice to that effect, and the section exempted from the operation of the stay "any action commenced by him previous to his insolvency for any personal injury or wrong done to himself or to any of his family". Section 10(6) of the Bankruptcy Act 1887 (NSW) was in similar terms, with election by the trustee to be made within four weeks after notice. The Bankruptcy Act 1898 (NSW) contained in s 10(7) provisions to the same effect as those of subs 60(2), (3) and (4), as did s 39 of the Insolvency Statute 1865 (Vic), time for the election by the trustee in that section being six weeks.

48 The provisions in the Bankruptcy Act 1966 (Cth) are substantially the same as those which were an important feature of the bankruptcy legislation of New South Wales and Victoria for many years prior to Federation. It would be a curious consequence if Commonwealth law with respect to the "bankruptcy and insolvency" head of power in s 51(xvii) of the Constitution, which law by s 5 of the Commonwealth of Australia Constitution Act 1900 (Cth) is "binding on the courts, judges, and people of every State ...", was invalid as infringing an implied immunity of state instrumentalities and working an impermissible interference with the judicial power of a state court, on the basis that the law contained provisions which had, in fact, been an integral component of bankruptcy law of both New South Wales and Victoria prior to Federation.

49 Subsections 60(2) and (3) of the Act are not invalid, and the appeal will be dismissed with costs.

50 While it is therefore unnecessary to consider the matter raised in the Notice of Contention, something should be said of it.

51 The notice of contention asserts that the primary judge should have held that the appellants had no standing to prosecute the appeals in the Court of Appeal on 19 April 1999.

52 In the light of the judgment of the majority of the High Court (Brennan CJ, Gaudron and McHugh JJ) in Cummings v Claremont (supra), it is difficult to see how the appellants had standing in respect of those appeals. In Cummings, the actions constituted by the lodging of the appeals commenced after the bankruptcies had occurred. Subsections 60(2) and (3), in terms, apply to actions "commenced by a person who subsequently becomes a bankrupt" and so did not apply to the appeals to the Full Court in Cummings. In the present matter, the action constituted by the lodging of the appeal to the Court of Appeal occurred before the bankruptcies of each of the appellants and therefore, unless invalid, subs 60(2) and (3) apply to that appeal. These differences are not points of material distinction. The High Court held in Cummings that the bankruptcy of the appellants left them without such an interest in the judgment against them as would support their institution of an appeal in their own names. It would follow, it seems to us, that the bankruptcy of the present appellants would leave them without such an interest in the judgment against them as would support the further continuation of an appeal in their own names, which appeal had been lodged prior to their bankruptcies.

53 However, the pleadings in the matter remitted to the Federal Court by the High Court do not raise the question of the standing of the appellants to prosecute the appeals to the Court of Appeal on 19 April 1999. Paragraphs 45 and 46 of the Defence of Metway provide:

"45. In further or alternative answer to the whole of the Statement of Claim, Metway says, as is the fact, that the Plaintiffs and each of them have no locus standi to bring the herein proceedings because their respective bankruptcies left them without such an interest in the aforesaid judgments against them as would support their institution of the herein action in their own names.

46. In further or alternative answer to the whole of the Statement of Claim of the Second Plaintiff, Metway says as is the fact, that any right of action contained in the herein proceedings vested in the said Official Trustee in Bankruptcy as after-acquired property of the second Plaintiff, and as such, the Second Plaintiff has no right to continue to prosecute the same." (Emphasis added)

54 The "herein proceedings" is the claim in the High Court in proceedings S21 of 2000, which sought the relief earlier set out in these reasons.

55 As the primary judge noted at par 31:

"... no question arises in the present matter as to the validity of subss (2) and (3) of s 60 of the Act in relation to the latter two (actual or purported) actions. The question arises only as to the validity of subss (2) and (3) of s 60 of the Act in relation to the Campbells' appeal to the Court of Appeal."

The reference to "latter two (actual or purported) actions" is a reference to the application to the High Court of 17 May 1999 for special leave to appeal, and the remitted action of 25 February 2000, being the proceedings S21 of 2000. Neither such action is an action commenced by a person who was not a bankrupt at the time of commencement of that action but who becomes one during the pendency of the action. Neither of those actions involves any question of the validity of subs (2) and (3) of s 60 of the Act.

56 The question of the standing of the appellants to prosecute the appeal to the Court of Appeal on 19 April 1999 was not, on the pleadings, a live question before the primary judge. It would therefore be wrong to entertain it.

57 For the reasons earlier set out, the appeal from the judgment of Katz J of 28 November 2001 is dismissed. The appellants should pay the costs of the respondent, to be taxed if not agreed.

I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Spender, R.D. Nicholson and North.

Associate:

Dated: 5 December 2002

Counsel for the Appellant:	Mr R. Ellicott, QC, with Mr R. Gye
Solicitor for the Appellant:	The Hargreaves Practice
Counsel for the Respondent:	Mr D.F. Jackson, QC, with Mr M. Skinner
Solicitor for the Respondent:	Lincoln Smith & Company
Counsel for the Cth Attorney-General; intervening:	Mr D. Bennett, QC, with Mr S. Reeves
Solicitor for the Cth Attorney-General; intervening:	Australian Government Solicitor
Date of Hearing:	16 April 2002
Date of Judgment:	5 December 2002