Coshott v Parker

[2017] NSWSC 1098

Supreme Court

New South Wales

Medium Neutral Citation:	Coshott v Parker [2017] NSWSC 1098
Hearing dates:	15 August 2017
Decision date:	18 August 2017
Jurisdiction:	Common Law
Before:	Adamson J
Decision:	(1) Transfer the proceedings to the Federal Court of Australia pursuant to s 6(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW).  (2) Order the respondents/plaintiffs to pay the applicants’/defendants’ costs of their application for transfer made by amended notice of motion filed on 5 May 2017.
Catchwords:	JURISDICTION – exclusive jurisdiction of Federal Court “in bankruptcy” – whether matters arising under the Bankruptcy Act fell within the Federal Court’s exclusive jurisdiction or could be determined by State Supreme Court in the exercise of its federal jurisdiction – relevance of trustee choosing not to take an active part in claiming alleged debts as assets in the bankrupt estate of discharged bankrupt JURISDICTION – right of set-off under s 86 of the Bankruptcy Act 1966 – HELD fell within jurisdiction “in bankruptcy” because s 86 is a code and constitutes the sole source of the creditor’s right to set off in relation to mutual dealings – special federal matter – transfer to Federal Court required
Legislation Cited:	Bankruptcy Act 1966 (Cth), ss 5, 27, 31, 35, 35A, 58, 60, 86, 116, 134 Constitution, ss 75, 76 Judiciary Act 1903 (Cth), ss 39, 39B, Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), ss 3, 6 Limitation Act 1969 (NSW)
Cases Cited:	Cooper v Moloney (No 5) [2012] SASC 211; (2012) 271 FLR 304 Day & Dent Constructions Pty Ltd (in liquidation) v North Australian Properties Pty Ltd (provisional liquidator appointed) (1982) 150 CLR 85; [1982] HCA 20 Day & Dent Constructions Pty Ltd (in liquidation) v North Australian Properties Pty Ltd (provisional liquidator appointed) (1981) 34 ALR 595 Gorkowski v Turner [2014] VSC 200; (2014) 285 FLR 66 Hiley v Peoples Prudential Assurance Co Ltd (in liq) (1938) 60 CLR 468; [1938] HCA 40 Jakimowicz v Jacks [2016] VSCA 42; (2016) 306 FLR 51 Mateljan v HTT Huntley Heritage Pty Ltd [2016] NSWCA 20; (2016) 111 ACSR 277 Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380; [2008] FCAFC 172 Morris Finance Ltd v Brown [2016] NSWCA 343; (2016) 315 FLR 469 Moss v Eaglestone (2011) 83 NSWLR 476; [2011] NSWCA 404 Re Wakim; Ex Parte McNally (1999) 198 CLR 511; [1999] HCA 27 Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816 Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174; [2015] FCAFC 70
Category:	Principal judgment
Parties:	Ljiljana Coshott and Robert Gilbert Coshott formerly trading as Robert G Coshott & Associates (Respondents/Plaintiffs) Michelle Lena Parker (Applicant/ First Defendant) Christina Marie Collins (Applicant/Second Defendant)
Representation:	Counsel: O Jones (Respondents/Plaintiffs) M Castle (Applicants/First and Second Defendants)   Solicitors: Comino Prassas (Respondents/Plaintiffs) Hicksons Lawyers (Applicants/First and Second Defendants)
File Number(s):	2015/357066

Judgment

Introduction

1. By amended notice of motion filed on 5 May 2017 the defendants (the applicants) applied to have the proceedings transferred to the Federal Court on the basis that they constitute a “special federal matter” within the meaning of s 3 of the Jurisdiction of Courts (Cross-Vesting)Act1987 (Cth). The plaintiffs, Ljiljana and Robert Coshott (the respondents), contend that the proceedings do not constitute a “special federal matter” as the proceedings do not fall within the Federal Court’s exclusive jurisdiction “in bankruptcy” within the meaning of s 27 of the Bankruptcy Act 1966 (Cth).

2. The applicants also seek procedural orders relating to the filing of an amended defence and a notice to produce. The parties accepted that it was appropriate for the question of transfer to be determined first. As I have concluded that I am obliged to transfer the proceedings to the Federal Court it is not necessary to consider these procedural matters.

3. The second plaintiff, Mr Coshott, is an undischarged bankrupt. The hearing of the motion, which was listed on 13 June 2017, was adjourned to 15 August 2017 due to concern that his trustee in bankruptcy was an interested party who ought have notice of the proceedings. On 15 August 2017 Ms Castle, who appeared for the applicants, handed up correspondence which indicated that Mr Prentice, the current trustee, was aware of the proceedings and did not want to take an active part in them. The details of this correspondence will, to the extent relevant, be set out further below.

The proceedings

4. By amended statement of claim filed on 14 February 2017, the respondents, claim:

1. amounts said to be owing to them by Michael Lenin (the deceased) for provision of legal services, for which bills were rendered between 15 June 1992 and 28 December 2006 (the Alleged Debts); and

2. the amount of a costs order made by Bell J in favour of Robert Coshott against the deceased on 21 June 2007 which has not yet been assessed (the Costs Claim).

5. The applicants are the executors of the deceased’s estate. In their defence filed on 22 February 2017, they pleaded a defence under the Limitation Act 1969 (NSW). In addition the applicants make the following allegations by way of defence:

“10.   As to the whole of the Amended Statement of Claim and the claims of the Plaintiffs set out therein, the Defendants say that:

. . .

(e)   further or in the alternative:

(i)    on 7 November 2008, in proceedings number SYG590 of 2008, the Federal Magistrates Court of Australia made a sequestration order against the estate of the second-named Plaintiff;

(ii) on the making of the sequestration order, the Official Trustee became the trustee of the Estate of Robert Gilbert Coshott and the Alleged Debts and Costs Claim vested in the Official Trustee, by virtue of section 58(1) of the Bankruptcy Act 1966 (Cth);

(iii)    on 18 December 2008, John Burke became the trustee of the estate of the bankrupt second-named Plaintiff and the Alleged Debts and Costs Claim vested in him;

(iv)    from 25 February 2013 to 21 March 2013, the Official Trustee was trustee of the Estate of Robert Gilbert Coshott and the Alleged Debts and Costs Claim vested in the Official Trustee;

(v)    on 21 March 2013, Maxwell William Prentice became the trustee of the Estate of Robert Gilbert Coshott and the Alleged Debts and Costs Claim vested in him;

(vi)    the second-named Plaintiff was discharged from bankruptcy on 18 August 2015;

(vii)    upon the second-named Bankrupt's discharge from bankruptcy, the Alleged Debts and any causes of action thereon remained vested in Maxwell Prentice as trustee of the estate of the bankrupt second-named Plaintiff.

(f)   in the premises set out in (e) above, the second-named Plaintiff does not have standing to maintain any action in respect of the Alleged Debts”.

6. In the proposed amended defence (annexed to the present motion), the applicants seek to add the following paragraph by way of defence:

“(h) further, to the extent that the Defendants are found to be liable in any amount to the second-named Plaintiff, the Defendants are entitled to an account and set off under s 86 of the Bankruptcy Act 1966”

7. In the evidence adduced in support of the notice of motion, the applicants have established a factual basis for each of the allegations of fact set out in the defence extracted above. They have also adduced evidence that on 23 June 2011 Mr Burke, Mr Coshott’s then trustee in bankruptcy, accepted an amended proof of debt lodged by the applicants on 15 June 2011 in the amount of $95,594.28. There is no suggestion that any defence alleged is colourable.

Consideration

Relevant legislative provisions

8. I propose to refer to the relevant legislative provisions and explain their significance to the motion before turning to relevant decisions and their application to the present proceeding.

9. Section 6 of the Jurisdiction of Courts (Cross-Vesting) Act provides for the transfer of special federal matters from this Court to the Federal Court. It was common ground that if I were satisfied that a matter in the present proceeding was a “special federal matter”, than it should be transferred. Section 3(e) of the Jurisdiction of Courts (Cross-Vesting) Act defines “special federal matter” as, relevantly, a matter that is within the original jurisdiction of the Federal Court under s 39B of the Judiciary Act 1903 (Cth); “being a matter in respect of which the Supreme Court of a State . . . would not, apart from this Act, have jurisdiction”.

10. Section 39B(1A)(c) of the Judiciary Act provides that the Federal Court has original jurisdiction in any non-criminal matter arising under Commonwealth legislation. As this matter arises under the Bankruptcy Act, it falls within the original jurisdiction of the Federal Court.

11. Section 39(2) of the Judiciary Act relevantly confers federal jurisdiction on State courts, including this Court, in the following terms:

“(2)     The several Courts of the States shall within the limits of their several jurisdictions, whether such limits are as to locality, subject-matter, or otherwise, be invested with federal jurisdiction, in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it. . .”

12. Section 76(ii) of the Constitution relevantly provides that the Commonwealth Parliament may make laws conferring original jurisdiction on the High Court in any matter arising under any Commonwealth legislation. Although the Commonwealth Parliament has not exercised its power under s 76(ii) to confer jurisdiction on the High Court with respect to matters arising under the Bankruptcy Act, the effect of s 39(2) of the Judiciary Act is that such jurisdiction with respect to matters arising under the Bankruptcy Act is conferred on State courts, subject to the limitation contained in s 39(2).

13. The relevant limitation on this Court’s jurisdiction is to be found in s 27 of the Bankruptcy Act which provides that “the Federal Court and the Federal Circuit Court have concurrent jurisdiction in bankruptcy”, which is exclusive of the jurisdiction of all courts other than the jurisdiction of the High Court under s 75 of the Constitution or the jurisdiction of the Family Court under ss 35 or 35A of the Bankruptcy Act. Section 27 is to be read with the definition of bankruptcy in s 5 which provides:

“bankruptcy, in relation to jurisdiction or proceedings, means any jurisdiction or proceedings under or by virtue of this Act.”

14. The effect of s 27(1) of the Bankruptcy Act is that this Court (and other State courts) would not have jurisdiction “in bankruptcy” but for the Jurisdiction of Courts (Cross-Vesting) Act: Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174; [2015] FCAFC 70 (Truthful Endeavour) at [48] (Allsop CJ, Katzmann and Gleeson JJ); and the authorities on “indirect express amendment” referred to by Perram J in Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380; [2008] FCAFC 172 (Meriton) at [172]-[173].

15. Because of the allegations made by the applicants in their defence and proposed amended defence two further provisions of the Bankruptcy Act are relevant to the motion.

16. Section 31(1) of the Bankruptcy Act provides that, in exercising jurisdiction under the Bankruptcy Act, the Court shall hear and determine various specified matters in open Court, including applications to declare for or against the title of the trustee to any property: s 31(1)(f).

17. Section 86 of the Bankruptcy Act provides:

“86    Mutual credit and set-off

(1)  Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy:

(a)  an account shall be taken of what is due from the one party to the other in respect of those mutual dealings;

(b)  the sum due from the one party shall be set off against any sum due from the other party; and

(c)  only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be.

(2)  A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the person who has become a bankrupt or at the time of receiving credit from that person, he or she had notice of an available act of bankruptcy committed by that person.”

Consideration

18. The distinction between the words “matter arising under any laws made by the Parliament” (s 76(ii) of the Constitution, which is picked up in s 39(2) of the Judiciary Act) and the words “in bankruptcy” in s 27 of the Bankruptcy Act is an important one because it differentiates those matters in respect of which the Federal Court has exclusive jurisdiction from those matters where the federal jurisdiction under the Bankruptcy Act can be exercised either by State courts (pursuant to s 39(2) of the Judiciary Act) or by the Federal Court (pursuant to s 39B(1A)(c) of the Judiciary Act). The Parliamentary intention evinced by these provisions is that the Federal Court should have exclusive jurisdiction “in bankruptcy”, meaning “in jurisdiction or proceedings under or by virtue of” the Bankruptcy Act (s 5 of the Bankruptcy Act), but the State courts should still be able to determine matters arising under the Bankruptcy Act other than those falling within the Federal Court’s exclusive jurisdiction: Meriton at [172] (Perram J), cited with approval in Morris Finance Ltd v Brown [2016] NSWCA 343; (2016) 315 FLR 469 by Payne JA at [32] (Basten JA agreeing).

19. There are important practical reasons for the distinction. While the presentation of creditor’s petitions and matters of that nature fall within the exclusive jurisdiction, there is no intention to deprive the State courts of jurisdiction to deal with matters arising when, for example, a party to a proceeding is declared bankrupt unless it would involve jurisdiction “in bankruptcy”.

20. Jurisdiction “in bankruptcy” is a subset of the jurisdiction with respect to matters arising under the Bankruptcy Act. If a proceeding is within the jurisdiction in bankruptcy, the “matter” of which the proceeding is part must be one arising under the Bankruptcy Act: Truthful Endeavour at [37].

The matters identified by the applicants as “special federal matters”

21. The applicants contended that there were three matters for determination in the proceedings which qualified as “special federal matters”, namely:

1. whether the Alleged Debts and Costs Claim vested in the successive trustees in bankruptcy;

2. whether upon discharge from bankruptcy the Alleged Debts and Costs Claim remained vested in the trustee; and

3. whether, if the defendants are found to have any liability to the plaintiffs or either of them, they are entitled to an account and set-off under s 86 of the Bankruptcy Act.

22. As to (1), the applicants rely on the vesting of the Alleged Debts and the Costs Claim as a complete defence in answer to the Statement of Claim: paragraph 10(e)(ii). They contended that the determination of that dispute requires the Court to interpret and apply s 58(1) of the Bankruptcy Act and argued that Mr Coshott’s right to title of the "property" was a condition precedent to his standing to sue. If, as the applicants contended, the Alleged Debts and Costs Claim vested in the trustees, Mr Coshott has no standing to sue.

23. As to (2), the applicants, in their defence, rely on the proposition that, upon discharge of Mr Coshott from bankruptcy, the Alleged Debts and Costs Claim remain vested in the trustee: paragraph 10(e)(vii). In their reply the plaintiffs join issue with that proposition.

24. As to (3), in the proposed amended defence (paragraph 10(h)), the applicants assert their right to a set-off pursuant to s 86 of the Bankruptcy Act and have provided an evidentiary basis for the assertion of that right.

Relevant decisions

25. The parties accepted that there was no binding precedent which determined whether the jurisdiction to decide these proceedings was “in bankruptcy”. They identified as most relevant the following three decisions: Truthful Endeavour; Meriton; and Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816.

26. As Truthful Endeavour considered Meriton and Scott v Bagshaw, I propose to consider what the Full Federal Court said in Truthful Endeavour about those decisions, although the meaning of “in bankruptcy” in s 27 of the Bankruptcy Act did not arise squarely in Truthful Endeavour because the issue in that case was whether the first limb of “special federal matter” (whether the matter was within the jurisdiction of the Federal Court under s 39B of the Judiciary Act) was made out.

Scott v Bagshaw

27. In Scott v Bagshaw, Scott, the trustee of a family trust, sought a declaration that certain properties were charged in his favour with the payment of monies due under a loan agreement. The properties were held in the joint names of Mr Bagshaw, who was bankrupt, and his wife. The third respondent was Mr Bagshaw’s trustee in bankruptcy. The Full Court held that, as the making of an order in the terms sought by the appellant would necessarily adversely affect the title of the trustee in bankruptcy (as a result of the vesting pursuant to s 58 of the Bankruptcy Act), that matter fell within the jurisdiction in bankruptcy within the meaning of s 27(1) of the Bankruptcy Act and also fell within s 31(1)(f) of that Act.

Meriton

28. In Meriton, proceedings were brought in the Federal Court, seeking to quash a finding by the Industrial Court of New South Wales as to whether proceedings brought in that court had been deemed to be abandoned under s 60(2) of the Bankruptcy Act. Section 60(2) provided that proceedings brought by a person who was subsequently made bankrupt were stayed until the trustee elected to prosecute them. Section 60(3) provided that failure to make a timely election led to a deemed abandonment.

29. The Full Federal Court (Branson, Greenwood and Perram JJ) held that the Industrial Court had jurisdiction to make that finding. The correctness of Meriton on that point has been accepted by the Court of Appeal in Moss v Eaglestone (2011) 83 NSWLR 476; [2011] NSWCA 404 at [2] (Allsop P, Campbell and Young JJA agreeing). In considering the jurisdiction of the Industrial Court, their Honours, in separate judgments, addressed the limits of the exclusive jurisdiction “in bankruptcy” which is vested in the Federal Court.

30. Branson J distinguished between s 60(1) of the Bankruptcy Act, which confers power on “the Court” to make certain specified orders “at any time after the presentation of a petition, upon such terms and conditions as it thinks fit”, and ss 60(2) and (3), which provide for certain consequences of a person’s becoming bankrupt during the course of proceedings which he or she has commenced. Her Honour found that only the Federal Court could exercise the power conferred by s 60(1), but that the other subsections of s 60 (including s 60(4) which entitled a bankrupt to continue proceedings for damages for personal injury or for the death of a spouse) were intended to apply generally to litigation commenced by persons who subsequently became bankrupt and could be applied in other courts.

31. Further questions arose in Meriton about the trustee’s power to assign the chose in action back to the bankrupt and the validity of the assignment, which turned on the interpretation of s 134(1)(a) of the Bankruptcy Act, which confers a power on a trustee to “sell all or any part of the property of the bankrupt”. Greenwood and Perram JJ (Branson J dissenting) held that the trustee did not have the power under s 134(1)(a) of the Bankruptcy Act to assign a legal proceeding or chose in action to an undischarged bankrupt. A different majority (Branson and Greenwood JJ, Perram J dissenting) held that the decision of the Industrial Court on this question was not an impermissible exercise of the exclusive bankruptcy jurisdiction conferred by s 27 of the Bankruptcy Act.

28. Branson J found that the Industrial Court was entitled to recognise the effect of the trustee’s assignment of the chose in action (being the right to bring the proceedings) even though the source of the trustee’s right to transfer the right was s 134(1)(a) of the Bankruptcy Act, which empowered the trustee to sell any part of the property of the bankrupt. Her Honour considered that all the Industrial Court was required to do in exercising that jurisdiction was to recognise the effect of the Act and determine the standing of the parties before it: [18].

29. When addressing the parameters of the Federal Court’s exclusive jurisdiction, Greenwood J drew a distinction between the exercise of a court’s jurisdiction that calls into question a provision of the Bankruptcy Act on the one hand and the exercise by that court of a jurisdiction “under or by virtue of” the Bankruptcy Act, on the other: [88].

30. At [86]-[87] Greenwood J referred to the consequences that would flow from a finding that courts could not determine the standing of a plaintiff in proceedings before them where the plaintiff’s standing depended on the Bankruptcy Act and concluded at [117]:

“Thus, when a State court determines whether a proceeding can properly be commenced or maintained before it or whether the plaintiff has standing to engage the jurisdiction of the Court, by reason of any impediment going to the operation or application of a provision of the Bankruptcy Act, such an application is not one under or by virtue of the Bankruptcy Act.”

35. His Honour said further at [114] that the matters listed in s 31 fell within the s 27 exclusive jurisdiction and provided a “clear statutory indication” of the types of matters within that jurisdiction because each proceeding owes its authority to the Bankruptcy Act.

36. The majority (on this point), Branson and Greenwood JJ, held that consideration by the Industrial Court as to whether the trustee’s power under s 134 of the Bankruptcy Act to assign the property of the bankrupt authorised the trustee the right to prosecute the State proceedings to the undischarged bankrupt did not involve it in the impermissible exercise of jurisdiction “in bankruptcy”: Branson J at [18] and Greenwood J at [155]. In dissent, Perram J considered that the question whether a deed of assignment was valid was one which was to be determined “in bankruptcy” for it determined the title of the trustee to the bankrupt’s right of action ([194]). Accordingly, Perram J found that the Industrial Relations Court’s determination of that question “resulted from the impermissible exercise of a non-existent jurisdiction” ([211]).

Truthful Endeavour

37. In Truthful Endeavour the issue was whether the controversies as to what property vests in a trustee by operation of s 58(1) and what property is divisible among creditors under s 116(1) of the Bankruptcy Act fell within the first limb of the definition of “special federal matter” in s 6 of the Jurisdiction of Courts (Cross-Vesting) Act. The issue arose because of a decision of Vickery J in the Victorian Supreme Court, Gorkowski v Turner [2014] VSC 200; (2014) 285 FLR 66, that such issues did not involve a law of the Commonwealth. The Full Federal Court in Truthful Endeavour disapproved of Gorkowski v Turner and decided, consistently with Scott v Bagshaw and Meriton, that such matters were within the exclusive jurisdiction of the Federal Court. As the principal issue in Truthful Endeavour was whether the matter was one “arising under” a Commonwealth law within the meaning of s 39B(1A)(c) of the Judiciary Act, the Court did not need to consider the question of the meaning of “in bankruptcy”, since it appears to have been common ground that if the Court found that the matter arose under the Bankruptcy Act, it would also be “in bankruptcy”. Thus the consideration by the Court in Truthful Endeavour of the phrase was obiter.

38. In Truthful Endeavour the Full Federal Court held that the matter which concerned the beneficial ownership of property claimed by the trustee in bankruptcy by reason of ss 58(1) and 116(1) of the Bankruptcy Act arose under the Bankruptcy Act; was a matter “in bankruptcy” within s 27 of the Bankruptcy Act; and was a “special federal matter” within s 6 of the Jurisdiction of Courts (Cross-Vesting) Act. At [35] the Court said:

“For present purposes, it is unnecessary to discuss the operation of s 27 and the meaning of the phrase ‘in bankruptcy’, beyond referring to two Full Court decisions: Scott v Bagshaw (2000) 99 FCR 573 and Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380. From those decisions, the former in particular, there would appear to be no doubt that an application of the kind referred to in s 31(1)(f) is a proceeding in bankruptcy for the purposes of s 27(1) and the definition of ‘bankruptcy’ in s 5(1).”

39. Although the parties did not refer to the decisions of Mateljan v HTT Huntley Heritage Pty Ltd [2016] NSWCA 20; (2016) 111 ACSR 277 (Mateljan) and Cooper v Moloney (No 5) [2012] SASC 211; (2012) 271 FLR 304, they are nonetheless significant because of the nature of the proceedings and the differences in approach which they reveal.

Mateljan

40. Mr Mateljan applied to be substituted for a company (LEC) as the appellant in proceedings which had already been commenced in the Court of Appeal. Mr Mateljan claimed to be entitled to the benefit of causes of action by reason of an assignment from LEC, which was in liquidation, which was one of three plaintiffs in the Court below. The other two plaintiffs were Mr and Mrs Zdrilic, who were bankrupt. The Court (Gleeson and Leeming JJA and Emmett AJA) dismissed the motion on the basis that it was necessary that the trustee in bankruptcy of Mr and Mrs Zdrilic be given an opportunity to join the proceedings. The Court, without deciding the question of jurisdiction, addressed the operation of s 27 of the Bankruptcy Act in the following terms:

“Special Federal Matter

[24]Further, it is far from clear that this Court should determine the question of whether or not the power to appoint a receiver was properly vested in the Trustee, or, alternatively, was able to be exercised by Mr and Mrs Zdrilic. That question, which is addressed below, may well be within the ‘jurisdiction in bankruptcy’ exclusively vested in the Federal Court and the Federal Circuit Court under s 27 of the Bankruptcy Act 1966 (Cth). The exclusivity of the concurrent jurisdiction in bankruptcy vested in the Federal Court and the Federal Circuit Court by s 27, subject to the operation of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), raises difficult issues.

[25]    There are also practical difficulties because of the apparent breadth of the concept of ‘jurisdiction in bankruptcy’ under the Bankruptcy Act, and the frequency with which disputes arise in State courts concerning claims, including equitable claims, in respect of the property of a bankrupt. As in the present case, the character of the proceedings which may bring it within federal jurisdiction is not always immediately apparent from the nature of the application or the relief sought.

[26] While it is not altogether easy to discern in some cases [footnote cites Meriton], there appears to be a distinction between, on the one hand, exercising jurisdiction under or by virtue of the Bankruptcy Act by simply recognising the effect of the Bankruptcy Act and, on the other, exercising ‘jurisdiction in bankruptcy’. Central to the jurisdiction in bankruptcy is the authority to decide what property is, and what property is not, vested in the trustee in bankruptcy. An application for orders that ‘would have a necessary adverse effect on the title of’ the Trustee is a matter in bankruptcy [footnote cites Scott v Bagshaw].

[27] Although s 27 uses the language of ‘exclusive’ jurisdiction and is an exercise of power under s 77(ii) of the Constitution, that is not the end of the inquiry. Until 1996, jurisdiction had been invested in the Supreme Court, and the problem now confronted by Mr Mateljan would not have arisen. The Supreme Court is invested with federal jurisdiction under s 4(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) in cases where it would not otherwise have jurisdiction. This is significant because under s 6, a special federal matter must be transferred to the Federal Court unless the court is satisfied that there are ‘special reasons’. The foregoing was not the subject of argument (although the question of jurisdiction was raised, briefly, during the course of the hearing). How these provisions work is far from straightforward, and it is neither necessary nor appropriate in these proceedings to determine the question conclusively. However, there is clear authority for the proposition that a matter in bankruptcy is a ‘special federal matter’ within the meaning of s 3(1) of that Act. [footnote cites Truthful Endeavour]”

Cooper v Moloney (No 5)

41. The Victorian Court of Appeal in Jakimowicz v Jacks [2016] VSCA 42; (2016) 306 FLR 51 referred, with apparent approval, to the decision of Blue J in Cooper v Moloney (No 5). Mr Cooper, a bankrupt, sued for debts he claimed were owing to him. The Moloneys contended that Mr Cooper had no standing to bring the claim for the debt because the chose in action vested in his trustee in bankruptcy. The trustee, who was not a party to the proceedings, took the view that the chose in action did not vest in him. At [68]-[70], Blue J said:

“[68]   Mr Cooper's bankruptcy trustee is not a party to the actions. The trustee takes the view that Mr Cooper is entitled to pursue the Debt Action as against the Moloneys (albeit Mr Cooper will be subject to contribution obligations if he receives monies as a result of the action). There is no lis between Mr Cooper and the trustee as to the entitlement to pursue the Debt Action.

. . .

[70] There being no issue between Mr Cooper and the trustee in relation to the entitlement of Mr Cooper to pursue the claims which he does in the actions, no question of jurisdiction under or by virtue of the Bankruptcy Act arises. This Court has jurisdiction to hear and determine the actions, including the question of standing which arises incidentally therein as between Mr Cooper and the Moloneys.”

The present case

The applicants’ allegation that Mr Coshott has no standing with respect to the Alleged Debts and Costs Claim

42. The applicants’ defence includes the allegation that Mr Coshott has no standing with respect to the Alleged Debts and Costs Claim because they vested in his trustee in bankruptcy by virtue of s 58(1)(a) of the Bankruptcy Act. As his bankruptcy concluded with a discharge rather than an annulment, there was no re-vesting of Mr Coshott’s “property”, which, once vested, remains vested in his trustee, Mr Prentice.

43. There is an issue whether the Alleged Debts and Costs Claim constitute an asset of the estate or whether they constitute income. Mr Coshott’s present trustee, Mr Prentice, considers that they constitute income. Mr Prentice’s solicitors, in their letter dated 20 June 2017, said:

“We act for Maxwell William Prentice as Trustee of Robert Gilbert Coshott, a discharged bankrupt. Mr Prentice has no interest in the above Supreme Court claim for the following reasons: -

1. The debts appear to relate to the provision of legal services, Sharpes case would apply, viz: the moneys purportedly owing would be unpaid income and as such, would not be an asset in Robert Coshott's bankrupt estate. See In the matter of theBankrupt Estate of John Lawrence Sharpe; Re Sharpe; Ex Parte Max ChristopherDonnelly [1998] FCA 6.

2. If not, and the debts were classed as assets, they would have been an asset of the profit-sharing partnership between Robert Coshott and Ljiljana Coshott which would have come to an end when Robert Coshott became bankrupt which in turn, would have placed the responsibility to collect the debts on Ljiljana Coshott as the solvent partner and for her to account to our client. Other than a recent letter from Comino Prassas Ljiljana Coshott has not advised that she is intending to collect funds for the bankrupt estate.

3. In addition the Trustee would not wish to be involved in such a matter which would appear on its face to be statute barred.”

44. I note that Mr Prentice did not abandon or renounce such assets of the bankrupt estate as may in fact be assets. Mr Burke, a former trustee in bankruptcy, appears to have taken a different view as to the correct classification of the Alleged Debts and regarded them as assets which vested in him.

45. Mr Jones, who appeared on behalf of the respondents, relied on Meriton (Branson J at [18]; Greenwood J at [117] and Perram J at [208]-[209]) in support of the proposition that a proceeding raising a question of the standing of a party to sue in a non-Federal Court which is to be resolved by reference to the Bankruptcy Act does not involve a matter “in bankruptcy”. Mr Jones also relied on the reasoning of the majority (Branson and Greenwood JJ) in Meriton, who considered that the determination of the validity of a deed of assignment by which the trustee purported to transfer a chose in action to an undischarged bankrupt pursuant to s 134(1)(a) of the Bankruptcy Act did not fall within the exclusive jurisdiction of the Federal Court.

46. Although Meriton concerned a question of standing, it arose in a different context from the present case. In Meriton the question was whether the trustee ought be taken to have abandoned proceedings by reason of the operation of s 60(3) of the Bankruptcy Act. In the present case, the issue is whether the right to sue for the Alleged Debts and the Costs Claim passed to the trustee on Mr Coshott’s bankruptcy and whether it remains vested in the trustee, with the result that Mr Coshott would have no rights in respect of them. Accordingly, I accept the parties’ submissions that Meriton does not determine the present question.

47. The second point raised by Mr Jones has greater force, since in Meriton the trustee’s power to assign the chose in action derived from s 134(1)(a) of the Bankruptcy Act and the validity of the deed of assignment turned on whether s 134(1)(a) ought be construed so as to permit the trustee to sell property to an undischarged bankrupt. Despite these matters, the majority (Branson and Greenwood JJ) in Meriton held that such a determination did not involve jurisdiction “in bankruptcy” and therefore did not fall within the exclusive jurisdiction.

48. There are few points of arguable distinction between the present case and Cooper v Moloney (No 5). In the present case, a former trustee in bankruptcy, Mr Burke, took the view that the Alleged Debts and Costs Claim had vested in him as trustee. Although Mr Prentice regards the Alleged Debts as income rather than assets, his response makes clear that he is not interested in them, even if they are assets, because the causes of action are statute-barred. However, he has not formally renounced them.

49. The distinction between the present case and Meriton is that the issues relating to the Alleged Debts and the Costs Claim arise squarely from the operation of s 58 of the Bankruptcy Act, which vests property of the bankrupt in the trustee. Questions of title to property said to form part of the bankrupt estate are centrally within the jurisdiction “in bankruptcy”, as was decided in Scott v Bagshaw and approved in Truthful Endeavour. It is difficult to draw any principled distinction between ss 58 and 134 of the Bankruptcy Act as far as determining jurisdiction “in bankruptcy” is concerned. However, as the Court of Appeal said in Mateljan the line to be drawn between jurisdiction “in bankruptcy” and a matter arising under the Bankruptcy Act is not easy to draw.

50. The “matter” in these proceedings includes the question whether the Alleged Debts comprised an asset which vested in the trustee upon Mr Coshott’s bankruptcy. Whether or not the trustee or Mr Coshott has title to the choses in action for the Alleged Debts would appear to fall within s 31(1)(f) of the Bankruptcy Act since the applicants’ defence that Mr Coshott has no standing to sue for the Alleged Debts depends on their establishing that the Alleged Debts were property which vested in the trustee, who, accordingly has title to them. That question would seem to fall within the category of cases referred to by the Full Federal Court in Truthful Endeavour at [35] which “no doubt” fell within the exclusive jurisdiction of the Federal Court under s 27 of the Bankruptcy Act. However, in the present case, it is not the trustee who seeks a declaration as to the title to the Alleged Debts, but rather the applicants, as part of their defence. Although the trustee does not seek to participate in the proceeding, he has not renounced any claim to the Alleged Debts or Costs Claim. In a matter as fundamental as jurisdiction it would seem odd if matters such as the identity of the party seeking the determination (the applicants, rather than the trustee); the circumstance that the applicants do not seek a declaration, but merely a finding as part of their defence to the respondents’ claim; or whether the trustee is a party, were determinative. That the trustee was not a party and did not claim an interest was, however, regarded as determinative by Blue J in Cooper (No 5) v Moloney.

51. I consider it to be arguable that the jurisdiction required to determine title to the Alleged Debts and Costs Claim in the present case, “under and by virtue of” s 58 of the Bankruptcy Act, is jurisdiction “in bankruptcy” notwithstanding that the trustee does not seek to be heard on the question. However it is not necessary to decide the question because of the view to which I have come regarding the applicants’ claim for set-off under s 86 of the Bankruptcy Act, which I regard as a proceeding “in bankruptcy”, which requires the transfer of the proceeding to the Federal Court as a “special federal matter”.

The applicant’s claim for set-off under s 86 of the Bankruptcy Act

52. Ms Castle submitted that the only source of the applicants’ right to set-off was s 86 itself, as it was a code: Day & Dent Constructions Pty Ltd (in liquidation) v North Australian Properties Pty Ltd (provisional liquidator appointed) (1981) 34 ALR 595 (Day FFC). She contended that, accordingly, the court would be required to exercise jurisdiction “in bankruptcy” to determine the matter, or controversy, to which that defence gave rise. She sought to distinguish s 86 from s 58 of the Bankruptcy Act and contended that while s 58 required only that the Court recognise the legal effect of the provision, s 86 required the Court to exercise the jurisdiction conferred by that section in determining the existence of mutual debts and taking an account.

53. Mr Jones contended that s 86 of the Bankruptcy Act effectively required little more than a mathematical calculation of what would be deducted from the amount found to be owing to the respondents before judgment was entered. He submitted that s 86 of the Bankruptcy Act itself did not necessarily involve a court at all, since the right of set-off is commonly applied by the trustee in determining what amounts, if any, are payable to creditors upon a distribution.

54. The identification of the “matter” is an important preliminary step. In Re Wakim; Ex Parte McNally (1999) 198 CLR 511; [1999] HCA 27, Gummow and Hayne JJ said at [139]:

“The central task is to identify the justiciable controversy. In civil proceedings that will ordinarily require close attention to the pleadings (if any) and to the factual basis of each claim.”

55. In Day FFC the Full Federal Court held, following Hiley v Peoples Prudential Assurance Co Ltd (in liq) (1938) 60 CLR 468; [1938] HCA 40, that where, after the insolvency of the principal debtor, the surety pays off the principal creditor so that the debt is discharged, the surety may set off the amount paid by him against a claim in respect of a debt due by him to the estate. McGregor J, in the Full Federal Court, described s 86 of the Bankruptcy Act as a “code” in the following terms at 601:

“Having regard to the phrases in s 86 additional to “mutual debts” and the purpose that section was intended to serve, it is, I suggest, intended to be a code. Unquestionably, there must always be mutuality . . .; and at least in some cases, liquidated debts. Thereafter s 86 will cover and define the relationship between bankrupt and debtor or creditor.”

56. To the same effect, Forster J at 599 said that the law concerning cross-claims between a company in liquidation (and a bankrupt) and creditors is to be found exclusively in the provisions of the Bankruptcy Act.

57. An appeal to the High Court was dismissed: Day & Dent Constructions Pty Ltd (in liquidation) v North Australian Properties Pty Ltd (provisional liquidator appointed) (1982) 150 CLR 85; [1982] HCA 20. The effect of s 86 and the underlying policy were considered by Mason J (Stephen and Aickin JJ agreeing) who referred, at 107, to its purpose to protect those who engage in mutual dealings with the bankrupt by relieving a creditor from the necessity of proving in the bankruptcy for the debt owed to him with the likelihood of receiving only a proportion of it, whilst the creditor remains fully liable for the debt owing to the bankrupt.

58. In order to determine whether the applicants have a right of set-off under s 86 of the Bankruptcy Act and to make orders to enforce that right, a court is required to determine whether there are “mutual credits, mutual debts or other mutual dealings” before taking an account. I consider that a court which is required to make that determination and take an account would be exercising jurisdiction “under or by virtue” of the Bankruptcy Act within the meaning of “bankruptcy” in s 5, since the right of set-off under s 86 asserted by the applicants is a right which has been created and conferred solely by the Bankruptcy Act. In these circumstances, I consider that the jurisdiction which is exercised by a court in determining whether the applicants are entitled to a set-off under s 86 is jurisdiction “in bankruptcy” and, by reason of s 27 of the Bankruptcy Act, may therefore only be exercised by the Federal Court. This “matter” is therefore a “special federal matter” which must be transferred to the Federal Court.

59. This conclusion is sufficient to mandate and warrant the transfer of the proceeding to the Federal Court. It was not suggested that I should do other than transfer the whole of the proceedings to the Federal Court.

Orders

60. For the reasons set out above, I make the following orders:

1. Transfer the proceedings to the Federal Court of Australia pursuant to s 6(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW).

2. Order the respondents/plaintiffs to pay the applicants’/defendants’ costs of their application for transfer made by amended notice of motion filed on 5 May 2017.

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Decision last updated: 21 August 2017