Australian Litigation Fund Pty Ltd v Mearns (No.3)
[2005] FMCA 1870
•25 November 2005
MAGISTRATES COURT OF AUSTRALIA
| AUSTRALIAN LITIGATION FUND PTY LTD v MEARNS (No.3) | [2005] FMCA 1870 |
| BANKRUPTCY – Hearing of creditor’s petition – notice under s.78B of the Judiciary Act 1903 – whether established that the cause involves a matter arising under the Constitution. |
| Constitution, s.51(xxxi) Judiciary Act 1903, s.78B Bankruptcy Act 1966, s.52 |
| Attorney-General (Cth) v Schmidt (1961) 105 CLR 361 Green v Jones [1979] 2 NSWLR 812 Narain v Parnell (1986) 9 FCR 479 Capel Venere v Omega Developments Corporation Pty Ltd [1983] 5 ATPR 44,536 Re an application by the Public Service Association of New South Wales; and Re the Industrial Union of Employees (Commissioned Police Officers Award) (1947) 75 CLR 430 Re Finlayson; Ex parte Finlayson (1997) 72 ALJR 73 |
| Applicant: | AUSTRALIAN LITIGATION FUND PTY LIMITED |
| Respondent: | ROBYN HAYDN MEARNS |
| File Number: | SYG2819 of 2003 |
| Judgment of: | Barnes FM |
| Hearing date: | 25 November 2005 |
| Delivered at: | Sydney |
| Date of order: | 25 November 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr R. Killalea |
| Solicitors for the Applicant: | Nil |
| Counsel for the Respondent: | Mr S. Dawson |
| Solicitors for the Respondent: | Abbott Tout |
ORDERS
That the respondent’s application for an adjournment of the hearing of the creditor’s petition for 28 days is refused.
That the respondent’s application for a declaration that “in the circumstances of this matter the appointment of a trustee in bankruptcy would constitute, as against the opponent, the acquisition of property on other than just terms contra s.51(xxxi) of the Constitution” is dismissed.
That the respondent pay the costs of the applicant in relation to the notice of motion as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG2819 of 2003
| AUSTRALIAN LITIGATION FUND PTY LTD |
Applicant
And
| ROBYN HAYDN MEARNS |
Respondent
REASONS FOR JUDGMENT
On 25 November 2005, the date fixed for the hearing of a creditor's petition seeking a sequestration order against the estate of Robyn Mearns (the respondent), the respondent filed in Court a notice of motion seeking the following orders:
(1) That a declaration be made in the following terms:
In the circumstances of this matter, the appointment of a trustee in bankruptcy would constitute, as against the opponent, the acquisition of property on other than just terms contra s.51(xxxi) of the Constitution.
(2) Leave be granted to appeal from Australian Litigation Fund Pty Ltd v Mearns & Anor [2005] FMCA 1727.
(3) The matter be adjourned for 28 days to allow time for Attorneys-General to consider intervention under s.78B Judiciary Act 1903 and to allow time for Mrs Mearns, time to prepare her case.
(4) Costs.
Such further orders as the Court thinks fit.
An affidavit of 25 November 2005 was filed in support of the notice of motion. Subsequently, the application to allow time for Mrs Mearns to prepare her case was withdrawn. I delivered ex tempore reasons for judgment dismissing the application for leave to appeal from my decision (see Mearns v Australian Litigation Fund Pty Ltd (No.2) [2005] FMCA 1815) on the basis that the appropriate forum in which to seek such leave was the Federal Court. After hearing submissions from each of the parties, I refused the application for an adjournment as sought in proposed order 3 of the notice of motion and dismissed the application for a declaration in the terms sought in proposed order 1 of the notice of motion. As the hearing of the creditor’s petition had been delayed by the hearing of the matters raised in the notice of motion, I indicated that I would publish my reasons for judgment as soon as circumstances permitted me to do so.
Annexed to the affidavit of Mrs Mearns of 25 November 2005 was a copy of a notice which she stated she intended to serve on all Attorneys-General. The notice described the nature of the “matter” said to arise under the Constitution or to involve its interpretation by reference to the background to the hearing of the creditor’s petition, in particular that Willoughby Community Preschool Inc (the Preschool) had filed a statement of claim against Mrs Mearns in the District Court of New South Wales on 27 June 2003 and on 25 August 2003 had entered default judgment in the sum of $431,759.86. On 18 December 2003 the Preschool filed a creditor’s petition in respect of the default judgment. The life of the creditor’s petition was extended by Court order to 17 December 2005. It must lapse by 18 December 2005 by operation of s.52(5) of the Bankruptcy Act 1966 (Cth). On 24 November 2005 Australian Litigation Fund Pty Ltd (ALF) was substituted as the petitioning creditor by order of this Court.
The proposed notice under s.78B stated that Mrs Mearns had an extant application in the District Court to set aside the default judgment. I note that this is in fact the third such application and that two earlier applications were unsuccessful (one after an unsuccessful application for leave to appeal to the New South Wales Court of Appeal). The notice continued that the set aside application was next before the District Court on 3 February 2006 and that if the creditor’s petition was granted on or before 18 December 2005, property in the “set aside” proceedings in the District Court would be vested in a trustee in bankruptcy. The notice stated that there was a constitutional issue arising in this matter as identified in the declaration sought by the respondent/opponent that “in the circumstances of this matter, the appointment of a trustee in bankruptcy would constitute, as against the Opponent, the acquisition of property on other than just terms contra s.51(xxxi) of the Constitution”.
Mr Killalea, for the respondent, contended that as notice had been given to the Court of an issue under s.78B of the Judiciary Act 1903 (Cth), prima face a s.78B notice was before the Court and it was the duty of the Court not to proceed further unless counsel for ALF (the petitioning creditor) was able to put something contrary to the Court.
Section 78B(1) of the Judiciary Act 1903 (Cth) is as follows:
Where a cause pending in a Federal Court including the High Court or in a Court of a State or Territory involves a matter arising under the Constitution or involving its interpretation, it is the duty of the Court not to proceed in the cause unless and until the Court is satisfied that notice of the cause, specifying the nature of the matter has been given to the Attorneys-General of the Commonwealth and of the States, and a reasonable time has elapsed since the giving of the notice for consideration by the Attorneys-General, of the question of intervention in the proceedings or removal of the cause to the High Court.
In support of the contention that s.78B(1) applied counsel for the respondent referred to remarks made by Dixon CJ in Attorney-General (Cth) v Schmidt (1961) 105 CLR 361 at 372 in considering an argument that certain legislative provisions involved an attempted acquisition of property which could only be authorised by a law under s.51(xxxi) of the Constitution and that there was no compliance with the condition of that power that there must be just terms. The part of the judgment of Dixon CJ relied on by Mr Killalea is as follows::
For it cannot have much to do with some of the subject matters of powers upon the very terms in which they are conferred. The other observation is that the principle does not apply except with respect to the ground actually covered by par.(xxxi) of s.51. For example, no one would doubt that, under the power to make laws with respect to bankruptcy, property of the bankruptcy may be sequestrated and property of others which has been left in his order and disposition may be vested in the Official Receiver and that s.51(xxxi) has no bearing on the matter.
It was contended for the respondent that what Dixon CJ said in this case spoke to two things. First, it was said to speak for his Honour's views as to whether or not there was a relevant interaction between the Bankruptcy Act 1966 in relation to creditors' petitions and sequestration and s.51(xxxi) of the Constitution. Secondly, it was said that it spoke for the fact that his Honour "implicitly recognised" that on the face of it there was an issue as to whether or not the Constitution and the Bankruptcy Act 1966 in the relevant regard might be at odds. It was contended that there had been no consideration of this point, particularly in the High Court, although a number of High Court judgments had picked up in a general way the dictum of Dixon CJ and that while it had been adopted as a statement of authority, it was a statement of authority without any argument on the point because no High Court judgment had considered the point.
It was further contended that if Mrs Mearns became bankrupt her property would be vested in the Commonwealth because a trustee in bankruptcy was necessarily an officer of the Court (being a Commonwealth Court) and, as such, the property vested in the trustee would become the property of the Commonwealth. It was acknowledged that Dixon CJ had said no more than that on the face of it the Commonwealth may make rules for the acquisition of property under the Bankruptcy Act 1966 and per se there was nothing inconsistent with the making of such laws at odds with s.51(xxxi) of the Constitution but contended that in the present case it was relevant that the judgment creditor was a substituted judgment creditor who had no relationship with the matters which formed the basis for the debt relied upon and no relationship with the debtor save pursuant to an assignment of debt. It was also said to be relevant that Mrs Mearns was seeking to set aside the default judgment which formed the basis for the bankruptcy notice and act of bankruptcy relied on in the creditor's petition, and that neither the original creditor (the Preschool) or ALF had made any efforts or attempts to have her application to set aside the default judgment set aside. In that context it was said that Mrs Mearns fairly raised the issue of whether her property being vested in a trustee might be done on other than just terms. It was contended that s.52 of the Bankruptcy Act 1966 gave a discretion to the Court to do what was prohibited by the Constitution. On that basis a declaration was sought that to make a sequestration order would be to offend s.51(xxxi) of the Constitution. It was submitted that despite s.52(2), the Bankruptcy Act 1966 could not cover the situation as a matter of law and hence the Court had no discretion as to whether or not a sequestration order should be made if the case was made out that there was an acquisition of property on other than just terms.
Mr Killalea then addressed the Court at some length on what he contended was the unfairness that would be attendant upon any order for sequestration. However he reiterated that, in his view, as the Court had before it a notice of a s.78B issue arising, the Court was now under a duty not to proceed in this matter and that the notice on its face was sufficient for the Court not to proceed. It was contended that the Court should simply accept the s.78B notice for what it was unless ALF raised some reason as to why the Court should not comply with s.78B(1). As counsel for ALF contended, in essence Mrs Mearns’ claim amounts to a contention that there is some invalidity in the Bankruptcy Act 1966, on the basis that, insofar as it allows for the acquisition of property by the making of a sequestration order, it is ultra vires the Constitution and therefore invalid.
However I accept the submissions of counsel for ALF that, consistent with what was stated by Hunt J in Green v Jones [1979] 2 NSWLR 812, if it is claimed that there is a matter arising under the Constitution or involving its interpretation then the respondent must establish that her challenge does involve a matter arising under the Constitution. As Hunt J stated at 817-818:
If the challenge is made, and that challenge involves a matter arising under the Constitution, it does not matter in this Court whether that challenge is likely to succeed or fail, provided, it seems, that the challenge is bona fide or genuinely made. The issue here, however, is whether the challenge, weak or strong, bona fide or otherwise, involves a matter arising under the Constitution. The bona fides of the plaintiff are not relevant to his obligation to establish that matter.
In my opinion, it is not sufficient that the plaintiff bona fide and genuinely believes that his challenge involves a matter arising under the Constitution. He must establish that it does involve such a matter. (At 434)
In Narain v Parnell (1986) 9 FCR 479 Burchett J acknowledged (at 486) in circumstances where it was contended that s.78B of the Judiciary Act 1903 applied and that a reasonable time had to be allowed for the appropriate notices to be given, that in the case before him, to have acceded to counsel's submission would have "completely stultified" the proceedings (which related to a period of seven days only). Similarly in this case to accede to counsel's submission that there should be an adjournment of 28 days would mean that, because the creditor's petition would lapse on 18 December 2005, the proceedings under the creditor's petition would be completely stultified. Nonetheless, as Burchett J recognised in Narain v Parnell, if s.78B operates then it is the duty of the Court to apply it, notwithstanding that the consequences "may seem to reveal it as a draconian provision" (also see Capel Venere v Omega Developments Corporation Pty Ltd [1983] 5 ATPR 44,536 at 44,546 and the discussion of the problems involved in the application of s.78B at 487-488 in Narain v Parnell). However, as in Narain v Parnell, it is not necessary to attempt to resolve problems arising from the application of s.78B because as his Honour stated at 489:
Section 78B only operates when the circumstances it postulates are made to appear to the court; it does not operate simply because a party asserts those circumstances.
Also see Re Finlayson; Ex parte Finlayson (1997) 72 ALJR 73 to the same effect pointing out that it must be established that the challenge does involve a matter arising under the Constitution.
In this case the respondent has asserted but has not established that her challenge involves a matter arising under the Constitution or involving its interpretation. As in Re an application by the Public Service Association of New South Wales; and Re the Industrial Union of Employees (Commissioned Police Officers Award) (1947) 75 CLR 430 at 433 it has not been established that the cause pending in this Court does "really and substantially" involve a matter arising under the Constitution or involving its interpretation. The circumstances s.78B postulates have not been made to appear to the Court.
It is relevant to have regard to what was actually said by Dixon CJ in Attorney-General (Cth) v Schmidt and the context of the remarks referred to by counsel for the respondent. That case concerned the validity of provisions of the Trading with the Enemy Act 1939-1957 (Cth) which provided for vesting in the controller of enemy property of certain moneys, in particular moneys standing to the credit of the High Court Suitors' Fund as a result of payments into court by controllers appointed by the High Court under the Trading with the Enemy Act as applicable during World War II and also a vesting of books and accounts in possession of the High Court relating to businesses in respect of which the Court had appointed controllers. In Schmidt a case had been stated reserving for the opinion of the Full Court of the High Court the question whether ss.13C and 13D of that Act were valid laws of the Commonwealth. Dixon CJ (with whom Fullager, Kitto Taylor and Windeyer JJ agreed) stated that, putting on one side paragraph (xxxi) of s.51 of the Constitution, these provisions lay within the subjects of Commonwealth legislative power.
His Honour then addressed an argument that under such provisions there was an attempted acquisition of property which could only be authorised by law under s.51(xxxi) of the Constitution and that there was no compliance with the condition of that power that there must be just terms. Dixon CJ discussed the operation of s.51(xxxi) of the Constitution and its construction as a limitation upon the legislative power of the Commonwealth to acquire property except on just terms and stated at 371:
The decisions of this Court should that if par. (xxxi) had been absent from the Constitution many of the paragraphs of s.51, either alone or with the aid of par. (xxxix), would have been interpreted as extending to legislation for the acquisition of land or other property for use in carrying out or giving effect to legislation enacted under such powers. The same decisions, however, show that in the presence in s.51 of par. (xxxi) those paragraphs should not be so interpreted but should be read as depending for the acquisition of property for such a purpose upon the legislative power conferred by par. (xxxi) subject, as it is, to the condition that the acquisition must be on just terms.
However it is relevant to have regard to what his Honour then said in leading up to and making the remarks relied upon by counsel for the respondent. It was as follows:
It is hardly necessary to say that when you have, as you do in par (xxxi), an express power, subject to a safeguard, restriction or qualification, to legislate on a particular subject or to a particular effect, it is in accordance with the soundest principles of interpretation to treat that as inconsistent with any construction of other powers conferred in the context which would mean that they included the same subject or produced the same effect and so authorised the same kind of legislation but without a safeguard, restriction or qualification. But two observations must be made. First, it is necessary to take care against an application of this doctrine to the various powers contained in s.51 in a too sweeping and undiscriminating way. For it cannot have much to do with some of the subject matters of power upon the very terms in which they were conferred. The other observation is that the principle does not apply except with respect to the ground actually covered by para. (xxxi) of s.51. For example, no one would doubt that, under the power to make laws with respect to bankruptcy, property of the bankruptcy may be sequestrated and property of others which has been left in his order and disposition may be vested in the Official Receiver and that s.51(xxxi) has no bearing on the matter.
A distinction was drawn by Dixon CJ between such a provision and a law under which a piece of land was acquired for a bankruptcy office. In the latter case, as his Honour pointed out, s.51(xxxi) would govern the legislation and not s.51(xvii). His Honour observed, at 372-373, that it must be borne in mind that s.51(xxxi) "confers a legislative power" and that it is that power only which is subject to the condition that the acquisitions provided for must be on just terms. Importantly that did not mean that property could never pass to or become vested in the Commonwealth or its officers except under a law made in pursuance of s.51(xxxi). Rather, the scope of s.51(xxxi) was limited, and before the restrictions involved in the words “on just terms” applied there must be a law with respect to the acquisition of property “for a purpose” in respect of which Parliament has the power to make laws. This did not affect an acquisition which lay “outside the very general conception expressed by the phrase ‘use and service of the Crown’” (at 373).
It is clear from what Dixon CJ stated that, contrary to the suggestion that he "implicitly recognised" that there was a constitutional issue to be argued, his Honour expressly rejected as an issue that which counsel for the respondent now asserts is a matter arising under the Constitution. Rather, his Honour gave it as an example of what was not a constitutional issue. What Dixon CJ stated demonstrates that it is not appropriate to refer to s.51(xxxi) of the Constitution in a way that governs what legislation is enacted pursuant to other paragraphs of s.51 of the Constitution in the manner which appears to be implicit in the contentions of the respondent.
The submissions about Attorney-General v Schmidt and the particular “unfairness” said to arise in this case do not establish or make it appear that the respondent’s challenge or the cause pending involves a matter arising under the Constitution or involving its interpretation and hence that s.78B(1) operates. The respondent is in effect contending that because the power to make a sequestration order may be exercised in a way that is to achieve an acquisition of property by a trustee (albeit as trustee) where the debtor says the petitioning creditor is not entitled to that sequestration order, that will be an acquisition of property other than on just terms and therefore a constitutional issue is raised. Whether or not a petitioning creditor is entitled to a sequestration order depends on the matters in s.52 of the Bankruptcy Act 1966, but these are not matters which produce the result that it has been demonstrated that there is a matter arising under the Constitution. The fact that the debtor considers that if a sequestration order is made that will be an unjust result does not establish that there is an issue as to whether the sequestration power in the Bankruptcy Act 1966 is ultra vires.
On the material before the Court it has not been established that the cause before the Court involves a matter arising under the Constitution or involving its interpretation. The respondent’s contention that the Court should simply accept the s.78B notice for what it is amounts to a mere assertion that the section operates. For the foregoing reasons, on 25 November 2005 I refused the respondent’s application for an adjournment and consequently for the declaration sought. The motion was dismissed. In these circumstances it is appropriate that the respondent Mrs Mearns as applicant for the motion pay the costs of the petitioning creditor ALF.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 16 December 2005
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