Cant v Magallanes
[2016] VCC 454
•22 April 2016
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for publication |
AT MELBOURNE
COMMERCIAL DIVISION
GENERAL CASES LIST
Case No. CI-15-04715
| ANTHONY ROBERT CANT | Plaintiff |
| v. | |
| EDDIE CASULLA MAGALLANES | Defendant |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 April 2016 | |
DATE OF JUDGMENT: | 22 April 2016 | |
CASE MAY BE CITED AS: | Cant v. Magallanes | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 454 | |
REASONS FOR JUDGMENT
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Catchwords: Practice and procedure – Jurisdiction of the County Court – Claim by a trustee in bankruptcy for declaration that an interest in real property was held on trust by the defendant for the plaintiff and was therefore “divisible property” pursuant to section 58(1) of the Bankruptcy Act 1966 (Cth) – Whether the County Court had jurisdiction to determine the plaintiff’s claim – Whether the Court was exercising “jurisdiction in bankruptcy” – Jahimowicz v Jacks [2016] VSCA 42 and Turner v Gorkowski [2014] VSCA 248 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S.K Morris of Counsel | Kahns Lawyers |
| For the Defendant | Ms G. Coleman of Counsel | Katherine Moorhouse-Perks |
HIS HONOUR:
1The preliminary issue for determination on the plaintiff’s summary judgment application is whether the County Court has jurisdiction to deal with the claim, or whether the dispute must be adjudicated by a court exercising federal jurisdiction.
2Anthony Robert Cant, the plaintiff, was the trustee of the bankrupt estate of Feledia Magallanes, now deceased. The defendant, Eddie Magallanes, was married to the deceased. The dispute concerns the ownership of the home Mr and Mrs Magallanes had lived in since 1988. The deceased and Mr Magallanes were joint owners of the property.
3The deceased became bankrupt on 10 November 2011. Mr Cant was appointed the trustee of her estate. The bankruptcy had the effect of severing the joint tenancy. Mr Cant lodged a caveat with the Office of Titles, but not an application to have the deceased’s half interest transferred into his name. Apparently, the half share was the only disposable property available to meet the claims of the deceased’s creditors.
4The deceased died on 19 December 2012. On 11 August 2014, Mr Magallanes gave notice to Mr Cant that he intended to lodge a survivorship application in relation to the jointly owned property. Mr Cant responded, although his letter did not unequivocally assert then, as he does now, that the joint tenancy had been severed and that Mr Magallanes held the property on trust for Mr Cant as to one half share.
5On 5 September 2014, Mr Magallanes lodged a survivorship application with the Office of Titles and subsequently became registered as the sole proprietor of the property. Mr Cant’s caveat remains on the title.
6On 14 May 2015, Mr Cant commenced a proceeding in the Supreme Court of Victoria. Mr Cant filed an amended statement of claim on 18 September 2015. Subsequently, the proceeding was transferred to the County Court under Part 3 of the Courts (Case Transfer) Act 1991.
7The relief sought by Mr Cant in the amended statement of claim, and by the summary judgment application, includes the following:
a.a declaration that Mr Cant’s half interest in the property is held on trust by Mr Magallanes;
b.an order that Mr Magallanes do all things necessary to transfer Mr Cant’s half interest in the property to him;
c.a declaration pursuant to section 172 of the Property Law Act 1958 that the lodgement of the survivorship application by Mr Magallanes was an alienation of Mr Cant’s interest in the property with intent to defraud creditors, and is void;
d.a declaration pursuant to section 44 of the Transfer of Land Act 1958 that the lodgement of the survivorship application by Mr Magallanes was a fraud by him on Mr Cant and the creditors of the deceased’s bankrupt estate, by depriving them of the benefit of her half interest in the property, and is void.
8Although the summary judgment application sought declaratory relief that, by reason of Mr Magallanes’ fraudulent conduct, the survivorship application was void, no affidavit material on those issues was filed by Mr Cant.
9The summary judgment application was before the Court on two previous occasions. The defences advanced on behalf of Mr Magallanes were as follows:
a.Mr Cant had not established his claims, particularly those based on the alleged fraud of Mr Magallanes;
b.Mr Cant had been given notice of Mr Magallanes’ intention to lodge a survivorship application, without Mr Cant objecting;
c.the Court must determine the appropriate priorities of the legal interest of Mr Magallanes and the equitable interest claimed by Mr Cant;
d.Mr Magallanes had a further equitable claim in respect of the property, by reason of him having paid the municipal rates and most of the mortgage payments over many years.
10On 31 March 2016, Judge McNamara adjourned the further hearing of the summary judgment application to enable the parties to make further submissions as to whether the County Court “has jurisdiction to determine the proceeding in light of the decision of the Court of Appeal in Jakimowicz v Jacks [2016] VSCA 42 [“Jakimowicz”] and the authorities referred to therein”. Until raised by Judge McNamara, the question of jurisdiction had not been considered by the parties.
11The parties have filed written submissions on the jurisdictional issue and addressed oral submissions to the Court. After giving the matter further consideration, I have concluded that the County Court lacks jurisdiction to determine the dispute between the parties and to grant the relief sought by Mr Cant. In my view, Mr Cant makes claims in the proceeding “in bankruptcy” or “arising under” the Bankruptcy Act 1966 (Cth). Pursuant to section 27 of the Bankruptcy Act 1966 and section 39B of the Judiciary Act 1903 (Cth), only an appropriate Federal Court may determine the matters in this proceeding.
12Plaintiff’s counsel, Mr Morris, submitted that the Court should adopt the conclusion of the Court of Appeal in Jakimowicz. He submitted that, as with the case before the Court of Appeal, no question arose in the present case of the Court exercising “jurisdiction in bankruptcy” or determining “any matter…arising under any laws” of the Commonwealth. Instead “in determining the sole issue of standing [the Court needed] to consider whether property [i.e. the deceased’s joint interest] was divisible property and has vested in the trustee in bankruptcy…[in these circumstances] all that a court is doing in that situation is applying the Act” (paragraph 41).
13As the Court of Appeal said, at paragraph 40, of Jakimowicz:
“The position is different when a trustee is a party to the litigation and claims that the property in dispute (which may be the chose in action itself) has vested in the trustee pursuant to s 58 of the Act and is divisible property under s 116. In that situation, the question is not just one of standing. Rather, there is also a question that requires a binding determination as to whether the property has vested in the trustee. In those cases, a court’s finding will necessarily have an effect on the trustee’s title. That was the situation in the following cases:
·Scott v Bagshaw (claim by trustee to real property and proceeds of sale);
·Cordes v Dr Peter Ironside Pty Ltd (claim by bankrupt against trustee for reconveyance of real property);
·Gorkowski (claim against trustee by third party alleging she had an equitable interest in the property); and
·Truthful Endeavour (claim by third party that property held on trust for her by trustee in bankruptcy”.
14Mr Morris submitted that each of the decisions cited by Court of Appeal, and the decision of Jakimowicz itself, could be distinguished from the present case. It is in my view, however, that the principles set out in each of these decisions, if applied to the present case, make it clear that the Court lacks jurisdiction.
15The critical reason for that conclusion, is that by the action, Mr Cant is claiming “that the property in dispute…has vested in [him as] the trustee pursuant to section 58 of the [Bankruptcy] Act and is divisible property under section 116” (Jakimowicz paragraph 40), and he seeks appropriate remedies from the Court.
16By the Amended Statement of Claim, Mr Cant relied upon the following matters:
a.he “was appointed as trustee of the bankrupt estate of [the deceased] on 10 November 2011” (paragraph 1(b));
b.“upon bankruptcy, the [deceased’s] estate in the property vested in the plaintiff pursuant to section 58 (1)(a) of the Bankruptcy Act 1966 and the joint tenancy held by the [deceased] and the defendant was severed” (paragraph 4);
c.“on 18 August 2014 the plaintiff wrote to the defendant informing the defendant that [the deceased’s] interest in the property vested in the plaintiff upon the commencement of the [deceased’s] bankruptcy and that this interest was not extinguished by way of the [deceased’s] death” (paragraph 8);
d.“the defendant knew or ought to have known that to lodge the survivorship application it would cause detriment to the plaintiff and to creditors of the [deceased]” (paragraph 10(d));
e.the survivorship application “was a transaction with the intent to defraud creditors within the meaning of section 172(1) of the Property Law Act 1958 and which has prejudiced the plaintiff and creditors of the bankrupt estate” (paragraph 12(a));
f.the survivorship application “was a fraud, or alternatively, an equitable fraud on the plaintiff and the creditors of the Bankrupt Estate by depriving them of the benefit of the [deceased’s] interest in the Property” (paragraph 12(b));
g.a declaration was sought “that the defendant is a trustee of the plaintiff’s half interest in the Property, pursuant to section 57 of the Trustee Act 1958 and the half interest in the Property vests in the plaintiff pursuant to section 58 of the Trustee Act” (prayer for relief paragraph AB);
h.an order was sought “directing the defendant to do all the things necessary to transfer the plaintiff’s half interest in the Property to the plaintiff and to pay the costs and any duties applicable in respect of the transfer” (prayer for relief paragraph AC);
i.a declaration was sought “pursuant to section 172 of the Property Law Act 1958 that the lodgement on 5 September 2014 of the Survivorship Application by the defendant was an alienation of the plaintiff’s interest in the property…with intent to defraud creditors and is void” (prayer for relief paragraph A);
j.a declaration was sought “pursuant to section 44 of the Transfer of Land Act 1958 that the lodgement on 5 September 2014 of the Survivorship Application by the defendant was a fraud on the plaintiff and the creditors of the Bankrupt estate by depriving them of the benefit of the [deceased’s] interest in the property and is void” (prayer for relief paragraph B);
k.a declaration was sought “that the lodgement on 5 September 2014 of the Survivorship Application by the defendant was an equitable fraud on the plaintiff and the creditors of the Bankrupt estate” (prayer for relief paragraph D).
17As the Court of Appeal noted in Jakimowicz, the claim that had been made in that case was a claim for damages by a bankrupt (Mr Jacks) against Mr Jakimowicz who held a property on trust for Mr Jacks. Mr Jacks alleged that Mr Jakimowicz had breached his obligation as trustee causing loss to Mr Jacks.
18The property was held by the trial judge not to be divisible property pursuant to section 116 of the Bankruptcy Act1966, as it had been “paid for by Mr Jacks from his compensation payment” for an injury sustained at work. Mr Jack’s trustee in bankruptcy made no claim to the property.
19Also in Jakimowicz at paragraph 40, the Court of Appeal set out a brief summary of the nature of the claim in each of the four cases it referred to. Each case was a claim by, or against, a trustee in bankruptcy relating to an interest in property. The summary of the claim in the fourth case referred to, Truthful Endeavour Pty Ltd v Condon [2015] FCAFC 70 (“Truthful Endeavour”) was not entirely accurate, as defendant’s counsel Ms Coleman noted.
20As appears from paragraphs 5 and 8 of the judgment of the Full Court of the Federal Court of Australia in Truthful Endeavour, the appeal in that case concerned a claim by the trustee in bankruptcy against the registered owner of real property for a declaration that, as the bankrupt’s trustee, “he had an equitable lien over the…property in order to secure repayment to him of certain sums paid by [the bankrupt] or on her behalf for the acquisition of the property plus interest or, in the alternative, that the title to the property was held subject to a constructive or resulting trust for him for the same purpose”.
21One of the cases considered by the Full Federal Court in Truthful Endeavour was the decision at first instance by Vickery J in Gorkowski v Turner [2014] VSC 200 (“Gorkowski – first instance”). In that case, the plaintiff Mrs Gorkowski, was the mother of the bankrupt and a registered mortgagee of a property, of which the bankrupt was the registered proprietor. Upon his bankruptcy, the property vested in his trustee in bankruptcy, Mr Turner. Mrs Gorkowski, some years later, “filed proceedings in the Supreme Court [of Victoria] alleging she had a beneficial interest in the…property, arising under a common intention constructive trust”.
22Justice Vickery held that the Supreme Court had jurisdiction to consider the claim as, “although the outcome of the proceeding will affect the property of the Trustee in Bankruptcy, the proceeding does not owe its existence to the Bankruptcy Act in the relevant sense. The issue in question in this proceeding does not owe its existence to any Federal law nor will the outcome depend upon Federal law for its enforcement. No provision of the Bankruptcy Act is relied upon by either the Plaintiff of the Defendant in the pleadings either to found the Plaintiff’s causes of action or to provide a defence to the Defendant, other than paragraph [16] of the defence which pleads that this Court does not have jurisdiction to hear this dispute, founded upon s 27 of the Bankruptcy Act. The proceeding involves the exercise of the Supreme Court’s general jurisdiction to determine equitable property rights between two individuals, one of whom happens to be a bankruptcy trustee”.
23The Full Federal Court in Truth Endeavour at paragraph 57 considered that Vickery J’s reasons “confused a proceeding owing its existence to a federal law, such as where a federal statute creates a cause of action (a quintessential example of a matter arising under a federal law), with a right created by federal law that is in question in, or the subject of, the proceeding”.
24The Full Federal Court said in paragraph 58 that the “essential error…in…the reasons, [is the] reasoning to the effect that that for there to be a matter arising under the Bankruptcy Act, there must be either a proceeding founded on federal law or a dispute about federal law. If there were, there would, of course, be a matter arising under the federal law; but these matters are not the only matters arising under a law of the Parliament… His Honour erroneously equated the ‘issue in question’ with the equitable principles or issues to resolve the dispute. Contrary to his Honour’s conclusions, the rights in issue were not the equitable principles or issues to resolve the dispute, but were Mr Turner’s claim to ownership or Mrs Gorkowski’s claim that the property was not divisible. Both of those rights owed their existence to federal law, in the former case to ss 58(1) and 1116(1) of the Bankruptcy Act and in the latter to s 116(2). That the outcome of a controversy does not depend on federal law for resolution or enforcement is not determinative”.
25Part of this passage was quoted by the Court of Appeal in Jakimowicz at paragraph 33, after noting that the Full Court of the Federal Court “does not seem to have been referred to the appellate decision in Gorkowski” (Turner v Gorkowski [2014] VSCA 248 (“Gorkowski – on appeal”)).
26The Court of Appeal in Gorkowski – on appeal, overturned the decision of Vickery J and found that the Supreme Court did not have jurisdiction to determine the matter. The Court of Appeal quoted with approval passages from the judgment of Merkel J in ASIC v. Landy DFK Securities (2002) 123 FCR 548 (“Landy”). “The question for decision in Landy was whether the Federal Court had jurisdiction to make an order for possession of the property by the liquidators and to grant an injunction restraining the lessee from interfering with the liquidators and court-appointed trustees’ possession of the property” (paragraph 28 of Gorkowski – on appeal).
27In response to a submission that “the relief sought related to ‘an entirely discrete and severable contractual dispute’ between the liquidators, as landlords of the property, and the lessee”, Merkel J held that the “matter ‘arose under a federal enactment’”, because the claim for relief was for a breach of a “contract or trust… in respect of a right or property which is the creation of federal law”. The applicants’ claim for the recovery of possession of the property was not “based upon or limited to the applicants’ role as trustees, rather… as court appointed liquidators”, pursuant to section 601EE of the Corporations Act 2001 and “orders of the Federal Court winding up the Trust made under that law [which constituted] the source of the substantive claims made and rights claimed by the applicants” (quoted in paragraph 30 of Gorkowski – on appeal).
28At paragraphs 32 and 33 of Gorkowski – on appeal, the Court of Appeal said that section 116 of the Bankruptcy Act 1966 was “simply a recognition of the fact that property to which a third party has an equitable or legal title is not available for distribution”. However, the Court of Appeal noted that, “the applicant was necessarily a party to the proceeding because legal title to the property had vested in him by virtue of the sequestration order. Federal law was the source of the trustee’s legal title, in the sense that s 58 provided the basis on which the trustee could get in the applicant’s property and make its value available for distribution among his creditors… [T]he trustee relied upon federal law for the enforcement of his powers. It was the Federal Court that made the sequestration order, and that the Court had continuing power to make orders relating to the discharge of the bankrupt and the administration of the bankruptcy. In that respect the situation of the trustee was similar to the situation of the liquidators in the Landy case”.
29The Court of Appeal in Gorkowski – on appeal “held that the proceeding was ‘a special federal matter’” pursuant to the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth). The Court of Appeal said that it had reached “that conclusion because it was necessary for the trustee in bankruptcy to rely on the sequestration order made under the Bankruptcy Act and the title conferred on him as a consequence of that order, to resist Mrs Gorkowski’s claim. Although his title was not ‘a defence’ to Mrs Gorkowski’s claim, section 58 of the Bankruptcy Act, which vested the property of the bankrupt in him, was the basis on which the proceedings had to be brought against him” (paragraph 41).
30Applying this logic to the present matter, it is clear that, in order to determine the action, it would be necessary for the Court to exercise “jurisdiction in bankruptcy”. In these circumstance, the County Court lacks jurisdiction and the action cannot proceed in this court.
Consequential orders
31Ordinarily, there would be power pursuant to Part 3 of the Courts (Case Transfer) Act1991 for the proceeding to be transferred to the Supreme Court, and thence to the Federal Court pursuant to the Jurisdiction of Courts (Cross Vesting) Act 1987. In this case, however, that course is not open because the proceeding originated in the Supreme Court and was transferred to this Court pursuant to the Courts (Case Transfer) Act 1991. By section 14 of the Act, a further transfer whether to “the original transferor court” on to another court, is not permitted.
32Accordingly, the proceeding must be either stayed or dismissed. In my view, the proceeding should be dismissed as nothing can be done to remedy the lack of jurisdiction. The dismissal of the proceeding in this court would not prevent the commencement of a further action in the appropriate federal court.
33As for the costs of the proceeding, I consider that the costs following the order of Judge McNamara on 31 March 2016 should be borne by the plaintiff, as the lack of jurisdiction was plain from Jakimowicz and the cases referred to in that judgment.
34The costs prior to that order are in a different position. No issue had been raised about the Court’s jurisdiction until Judge Macnamara informed the parties of the matter at the hearing on 31 March 2016. In the circumstances, those costs should be costs in the cause in any further proceedings issued in a federal court. I will reserve liberty to apply in case no such further proceeding are issued or are not prosecuted with due diligence. In that event, the defendant might return to this Court and seek an order for the balance of the costs of this proceeding.
Orders
35I will make the following orders:
1.The proceeding is dismissed as the Court has no jurisdiction to determine the matter.
2.The plaintiff must pay the defendant’s costs of the proceeding incurred after the order of His Honour Judge Macnamara made 31 March 2016, including the costs of the hearing on 18 April 2016 and today, to be assessed on a standard basis by the Costs Court in default of agreement.
3.The costs of the proceeding prior to and including the order of His Honour Judge Macnamara made 31 March 2016 are to be determined as if they were costs in the cause of any proceeding to be hereafter issued in a federal court in relation to the matters in issue in this proceeding.
4. Reserve liberty to the parties to apply, but limited to the order in paragraph 3. In the event that the plaintiff does not issue a proceeding in a federal court or the proceeding is not prosecuted with due diligence, the defendant may make an application for the balance of the costs of the proceeding referred to in paragraph 3.
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Certificate
I certify that these 9 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 22 April 2016.
Dated: 22 April 2016.
Mi-Lin Chen Yi Mei
Associate to His Honour Judge Anderson
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