Gomez v Carrafa
[2020] VSC 661
•13 October 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
MAJOR TORTS LIST
S ECI 2020 02533
| KALAISELVI GOMEZ | Plaintiff |
| v | |
| MICHAEL CARRAFA | Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Not applicable: written submissions filed on 31 July 2020 and 9 September 2020 |
DATE OF JUDGMENT: | 13 October 2020 |
CASE MAY BE CITED AS: | Gomez v Carrafa |
MEDIUM NEUTRAL CITATION: | [2020] VSC 661 |
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PRACTICE AND PROCEDURE – Whether proceeding is a “special federal matter” within the meaning of s 6(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) – Whether proceeding is a matter arising under the Bankruptcy Act 1966 (Cth) – Whether this Court must order transfer of the proceeding to the Federal Court – Finding that the matter is a special federal matter – Turner v Gorkowski [2014] VSCA 248; Fewin Pty Ltd v Burke (2015) 302 FLR 32 referred to – Whether there are special reasons within the meaning of s 6(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) that the matter be determined by this Court – Finding that there are no special reasons – Computershare Ltd v Perpetual Registrars Ltd (No 3) (2000) 2 VR 666; Telstra Corporation Ltd v CXA Communications Ltd (1998) 146 FLR 481 referred to – Order that proceeding be transferred to the Federal Court.
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HER HONOUR:
Introduction
On 29 July 2020, the Court wrote to the parties to give them the opportunity to make submissions on the question of whether this proceeding should be transferred to the Federal Court of Australia (‘Federal Court’). The plaintiff in this proceeding, Ms Gomez, is a discharged bankrupt. In or around July 2014, the defendant, Mr Carrafa, was appointed as trustee of Ms Gomez’s estate in bankruptcy. Ms Gomez alleges that between 2014 and 2018 Mr Carrafa, among other things, misused his powers as trustee, breached his duty of care as a trustee, and engaged in misleading and deceptive conduct.[1]
[1]Ms Gomez is self-represented. However, her pleadings and submissions demonstrate a good comprehension of legal principles and terminology, such as, for example, the elements of the cause of action of malicious prosecution.
The parties disagree as to whether a transfer should be made. For the reasons which follow, I consider that the proceeding must be transferred to the Federal Court.
Procedural history and the plaintiff’s claims
Before discussing the legal framework which governs the transfer of proceedings between different Australian jurisdictions, it is helpful to set out some of the allegations made in Ms Gomez’s statement of claim.
Ms Gomez’s statement of claim filed on 9 June 2020 claims, in summary, as follows:
(a) Mr Carrafa was appointed as trustee of Ms Gomez’s estate in bankruptcy in July 2014, and remained in that role until August 2017;
(b) between December 2014 and January 2015, Ms Gomez and Mr Carrafa exchanged correspondence with respect to Mr Carrafa’s requests for information about Ms Gomez’s bank accounts and other assets;
(c) on 2 December 2014 Ms Gomez attended a meeting with two of Mr Caraffa’s employees, Mr Adrian Wary and Mr Leon D’Souza, to discuss the information requested by Mr Carrafa;
(d) at the meeting on 2 December 2014, Ms Gomez reached an agreement with Mr Wary and Mr D’Souza to allow Ms Gomez a month to hand over the information requested by Mr Carrafa;
(e) on 4 December 2014, Mr Carrafa wrote to Ms Gomez stating that he was not willing to afford Ms Gomez a month to provide the material and stating that if he did not received the information within a week he would proceeding with legal action against Ms Gomez’s husband;
(f) in 2018, Mr Carrafa reported multiple false criminal allegations against Ms Gomez to the Australian Financial Security Authority (‘AFSA’), relating to transfers of assets to defeat creditors and the making of false declarations (‘allegations’), and instigated an investigation by the State Revenue Office;
(g) on 17 July 2018, AFSA provided to the Director of Public Prosecutions (‘DPP’) a charge sheet and summons in relation to the allegations;
(h) Mr Carrafa failed to disclose, or intentionally concealed, material information to AFSA and the DPP and failed to disclose that Ms Gomez had a proper defence to the allegations;
(i) AFSA and the DPP commenced a proceeding against Ms Gomez in relation to the allegations;
(j) the DPP, following further investigation, withdrew the proceeding against Ms Gomez; and
(k) as a result of Mr Carrafa’s actions, Ms Gomez suffered grievous harm and anguish and incurred costs in attending Court.
Paragraph 2 of Ms Gomez’s statement of claim pleads the following causes of action:
a. Abuse of Process
The defendant has improperly used the power given to him as trustee.
i.He made several unmeritorious claims against the plaintiff causing a criminal process to be issued by the DPP.
ii.He has intention to cause harm to the plaintiff as vendetta for helping to defend another major proceeding the defendant had initiated against the plaintiff’s husband;
iii.Further, he had used his power to initiate investigative proceedings through AFSA and the DPP against the defendant [sic] as a fishing expedition in the hope that the process will uncover any hidden assets of the plaintiff. He had also initiated similar investigative proceedings against the plaintiff with the State Revenue Office by using fraudulent misrepresentation.
iv.The defendant was in possession of evidence that the allegations were false.
v.He had intentionally abused his power with the intention of exploiting the plaintiff’s legal and financial incapacity to bring a cross-action against him.
b. Fraudulent misrepresentation
The defendant has made several false representations of material facts to AFSA and DPP knowing full well that these allegations were false. The defendant knew that AFSA and the DPP will rely on these statements. As a result, AFSA and the DPP initiated criminal proceedings against the plaintiff. The defendant always knew that the plaintiff had proper defence to his allegations.
c. Fraudulent concealment
The defendant failed to disclose material information to AFSA and the DPP. Between December 2014 and Jan 2015, there were numerous correspondence between the plaintiff and the defendant where the plaintiff had offered all documents, figures and information required by the defendant to make a proper assessment required under his duty as trustee. The defendant refused to accept this. Further, the defendant failed to disclose that the plaintiff always had proper defence to the allegations he was making. The defendant intentionally concealed this information that was otherwise unknown to the AFSA and the DPP. The defendant intended to deceive them by concealing this information. AFSA and the DPP acted in reliance on the defendant’s concealment. The plaintiff suffered damages due to this reliance.
d. Malicious prosecution
The defendant had initiated malicious criminal prosecution against the plaintiff:
i.As stated in paragraph (a) above, the criminal prosecution was initiated for purposes other than its intent.
ii.He lacked probably cause to bring this prosecution.
iii.He acted in malice in bringing the prosecution.
iv.As such, the lawsuit was dropped by the DPP in the plaintiff’s favour.
e. Negligence – Failure of duty as trustee
i.The defendant had failed in his duty of care in observing sections 190A(c), (d) and (e) of the Bankruptcy Act 1966; and
ii.The defendant had failed to adhere to section 42-10(1) and (2) of the Insolvency practice rules (bankruptcy) 2016 where trustees are required to act honestly and impartially; and
iii.The defendant had failed to adhere to section 42-15 of the Insolvency practice rules (bankruptcy) 2016 where trustees are required to communicate accurate information to all users of the communication; and
iv.The defendant had failed in his duty as trustee under section 42-30(c) of the Insolvency practice where he was required to clarify any matters in the statement of affairs with the plaintiff during his appointment.
In his defence filed on 31 July 2020, Mr Carrafa stated, among other things, that Ms Gomez’s claims relate to a matter in which the Federal Court has sole and exclusive jurisdiction under s 27 of the Bankruptcy Act 1996 (Cth) (‘Bankruptcy Act’), being the exercise of his powers and duties under the Bankruptcy Act, and therefore this Court does not have jurisdiction to hear and determine Ms Gomez’s claims in this proceeding.
The relevant legislation
Section 6 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) (‘State Act’) provides relevantly:
(1) If:
(a)a matter for determination in a proceeding that is pending in the Supreme Court of a State or Territory is a special federal matter; and
(b)the court does not make an order under subsection (3) in respect of the matter;
the court must transfer the proceeding in accordance with this section to the Federal Court or a court mentioned in paragraph (2)(b).
…
(1A)However, the court must only transfer so much of the proceeding as is, in the opinion of the court, within the jurisdiction (including the accrued jurisdiction) of the Federal Court, or the court mentioned in paragraph (2)(b), as the case may be.
(2)If the court orders that a proceeding or part of a proceeding be transferred, the proceeding or part of the proceeding must be transferred:
(a)if the matter for determination in the proceeding is a matter mentioned in paragraph (a), (b), (c) or (e) of the definition of special federal matter in subsection 3(1)—to the Federal Court; or
(b)if the matter for determination in the proceeding is a matter mentioned in paragraph (ab) of that definition—to whichever of the Family Court, the Family Court of Western Australia or the Supreme Court of the Northern Territory, in the opinion of the court, is appropriate in the circumstances.
(3)The Supreme Court may order that the proceeding be determined by that court if it is satisfied that there are special reasons for doing so in the particular circumstances of the proceeding other than reasons relevant to the convenience of the parties.
(4)Before making an order under subsection (3), the court must be satisfied that –
(a)a written notice specifying the nature of the special federal matter has been given to the Attorney-General of the Commonwealth and the Attorney-General‑ of the State; and
(b)a reasonable time has elapsed since the giving of the notice for the Attorney-General to consider whether submissions to the court should be made in relation to the proceeding.
(5) For the purposes of subsection (4), the court –
(a)may adjourn the proceeding for such time as the court thinks necessary and may make such order as to costs in relation to an adjournment as it thinks fit; and
(b)may direct a party to the proceeding to give notice in accordance with that subsection.
(6)In considering whether there are special reasons for the purposes of subsection 93, the court must—
(a)have regard to the general rule that special federal matters should be heard by the Federal Court or a court mentioned in subsection (2)(b), whichever is appropriate in the particular case; and
(b)take into account any submission made in relation to the proceeding by an Attorney-General mentioned in subsection (4).
Section 3 of the State Act relies on the definition of “special federal matter” in the equivalent Commonwealth legislation, the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (‘Commonwealth Act’). Section 3 of the Commonwealth Act provides the following definition of “special federal matter”:
special federal matter means:
…
(e)a matter that is within the original jurisdiction of the Federal Court by virtue of section 39B of the Judiciary Act 1903;
being a matter in respect of which the Supreme Court of a State or Territory would not, apart from this Act, have jurisdiction.
Section 4(1) of the Commonwealth Act provides as follows:
(1) Where:
(a)the Federal Court or the Family Court has jurisdiction with respect to a civil matter, whether that jurisdiction was or is conferred before or after the commencement of this Act; and
(b)the Supreme Court of a State or Territory would not, apart from this section, have jurisdiction with respect to that matter;
then:
(c)in the case of the Supreme Court of a State (other than the Supreme Court of the Australian Capital Territory and the Supreme Court of the Northern Territory)--that court is invested with federal jurisdiction with respect to that matter; or
(d)in the case of the Supreme Court of a Territory (including the Australian Capital Territory and the Northern Territory)--jurisdiction is conferred on that court with respect to that matter.
In regard to the original jurisdiction of the Federal Court, s 39B(1A) of the Judiciary Act 1903 (Cth) (‘Judiciary Act’) provides as follows:
(1A)The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter:
(ain which the Commonwealth is seeking an injunction or a declaration; or
(b)arising under the Constitution, or involving its interpretation; or
(c)arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter.
Section 27 of the Bankruptcy Act provides as follows:
(1)The Federal Court and the Federal Circuit Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than:
(a)the jurisdiction of the High Court under section 75 of the Constitution; or
(b)the jurisdiction of the Family Court under section 35 or 35A of this Act.
Section 5 of the Bankruptcy Act provides the following definition of “bankruptcy”:
"bankruptcy", in relation to jurisdiction or proceedings, means any jurisdiction or proceedings under or by virtue of this Act.
The parties’ submissions
In his submissions, counsel for Mr Carrafa contended that the statement of claim fails to properly articulate any compensable cause of action. However, to the extent that it is possible to ascertain any grievance from the statement of claim, those grievances relate to the manner in which Mr Carrafa discharged his duties under the Bankruptcy Act.
Counsel for Mr Carrafa submitted that the Bankruptcy Act is directly invoked by Ms Gomez in paragraph 2(e) of the statement of claim, along with the Insolvency Practice Rules (Bankruptcy) 2016 (‘Insolvency Rules’). Counsel for Mr Carrafa submitted that the matter is clearly a “special federal matter” for the purposes of s 6 of the State Act, and in the absence of any application under s 6(3) of the State Act, must be transferred to the Federal Court.
Counsel submitted that “special federal matter” includes a matter within the original jurisdiction of the Federal Court by virtue of s 39B of the Judiciary Act, which confers original jurisdiction on the Federal Court in any matter arising under any laws made by the Parliament. Counsel referred to the decision of the Court of Appeal in Turner v Gorkowski[2] as authority for the proposition that the term “arising under” is broad enough to encompass Ms Gomez’s claims in this proceeding, and therefore this proceeding must be transferred to the Federal Court.
[2][2014] VSCA 248 (‘Turner’).
In her submissions in response, Ms Gomez referred to the decision of Merkel J in Glowtide v Oceanic Life Ltd[3] as authority for the proposition that, when determining whether to transfer a proceeding under the cross-vesting scheme, it is in the interests of justice to avoid fragmentation in the determination of disputes between the same parties in different courts.
[3](1996) 19 ASCR 471.
Ms Gomez submitted that, before making an order transferring the proceeding to the Federal Court, the Court must consider:
(a) if the matter falls within the definition of “special federal matter”;
(b) if there are relevant special reasons under s 6(3); and
(c) most importantly, whether the transferee court is a more appropriate forum.
Ms Gomez submitted that this Court is the more appropriate forum for the determination of this proceeding, as:
(a) the matters raised in paragraphs 2(a) to (d) of the statement of claim form the major part of the proceeding, which are matters which fall within the jurisdiction of this Court;
(b) only paragraph 2(e) of the statement of claim refers to the Bankruptcy Act and the Insolvency Rules, and her claims under this paragraph are secondary issues;
(c) the claims in paragraph 2(e) only arise for consideration if the claims in paragraphs 2(a) to (d) are proven and, if they are not made out, it may not be necessary to deal with the claims in paragraph (e); and
(d) the issues raised in paragraphs 2(a) to (d) are matters within this Court’s jurisdiction and not the jurisdiction of the Federal Court.
Ms Gomez submitted that, simply because Mr Carrafa is a bankruptcy trustee and abused the powers conferred upon him by the Bankruptcy Act, it does not necessarily follow that this proceeding arises under the Bankruptcy Act. Nor will the determination of these issues depend upon federal law for enforcement. Ms Gomez referred to the following passage from the decision of the High Court in Moorgate Tobacco Co Ltd v Phillip Morris:[4]
…The cases establish that federal jurisdiction is attracted if the right or duty based in a federal stature is directly asserted by the plaintiff or defendant, but not if the federal question arises only in some incidental fashion. So too federal jurisdiction is attracted if the court finds it necessary to decide whether or not a right or duty based in federal law exists, even if that matter has not been pleaded by the parties.[5]
[4](1980) 145 CLR 457.
[5]Ibid, 476.
Ms Gomez submitted further that s 4(1) of the Commonwealth Act invests this Court with federal jurisdiction in matters where it would not otherwise have jurisdiction and, therefore, this Court has jurisdiction to determine the matters articulated in paragraph 2(e) of the statement of claim. In the alternative, Ms Gomez submitted that, pursuant to s 6(1) of the Commonwealth Act, this Court must transfer only the parts of the proceeding that fall within the jurisdiction of the Federal Court, being only the claims alleged in paragraph 2(e).
In relation to s 6(3) of the Commonwealth Act, Ms Gomez referred to the decision of Henry J of the New South Wales Supreme Court in Jin Niu Investments Pty Ltd v Wang[6] as authority for the proposition that this Court has a wide discretion in determining if there are special reasons not to transfer the proceeding, and that special reasons does equate to extraordinary or unique circumstances. Ms Gomez submitted that for present purposes, the following matters amount to special reasons:
[6][2019] NSWSC 1697.
(a) this Court has jurisdiction to determine most of the issues in dispute;
(b) the Federal Court does not have the original jurisdiction to determine the issues of malicious conduct and tort;
(c) the most important parts of this proceeding, being the allegations in paragraphs 2(a) to (d) of the statement of claim, do not arise from the provisions of the Bankruptcy Act; and
(d) paragraph 2(e), which does fall under the Bankruptcy Act, will only arise for consideration is the matters in paragraphs 2(a) to (d) are proven.
Discussion
Ms Gomez has conceded in her submissions that the allegations in paragraph 2(e) of the statement of claim fall within the jurisdiction of the Federal Court. The questions that remain for determination are therefore whether:
(a) the allegations in paragraphs 2(a) to (d) of the statement of claim constitute a special federal matter for the purposes of s 6 of the State Act; and
(b) there are any special reasons such that this Court should determine not to transfer the proceeding.
For the reasons which follow, I consider that the whole of this proceeding is a special federal matter for the purposes of s 6 of the State Act.
As a general rule, a proceeding will arise “under or by virtue of” the Bankruptcy Act within the meaning of bankruptcy in s 5 of the Bankruptcy Act and consequently amount to a proceeding “in bankruptcy” for the purposes of s 27 of the Bankruptcy Act where the proceeding:
(a) concerns the exercise of an express statutory power conferred by the Bankruptcy Act;[7] or
(b) involves the exercise of a power or jurisdiction conferred by the Bankruptcy Act.[8]
[7]Green v Schneller (2001) 164 FLR 82 at 87-90 per Barrett J; Westlaw AU Australian Bankruptcy Law and Practice: ‘Bankruptcy Act Annotated’, [27.1.10].
[8]National Australia Bank Ltd v Hunter [2013] NSWSC 71, [36]-[39].
Where the bankruptcy issue is only procedural, or is incidental to the grant or refusal of other relief, the matter will generally not fall within the exclusive jurisdiction conferred by s 27 of the Bankruptcy Act.[9]
[9]Scott v Bagshaw (2000) 99 FCR 573; Westlaw AU, Australian Bankruptcy Law and Practice: ‘Bankruptcy Act Annotated’, [27.1.10].
In Cooper v Moloney (No 5),[10] Blue J summarised the principles concerning the Federal Court’s jurisdiction under s 27, stating as follows:
1.Section 27(1) [of the Act] is the source of the federal courts’ jurisdiction in bankruptcy. Sections 30 and 31 do not confer jurisdiction, although they elucidate what is encompassed as falling within the concept of ‘jurisdiction in bankruptcy.
2.The mere fact that it is necessary in a proceeding to apply or interpret a provision of the Bankruptcy Act does not mean that a court is exercising jurisdiction in bankruptcy within the meaning of ss 5 and 27.
3.The Bankruptcy Act does not deprive State courts of their ordinary jurisdiction in matters arising under the general law as between a bankruptcy trustee and a stranger to the bankruptcy or as between the bankrupt and a stranger to the bankruptcy.
4.Section 27 of the Bankruptcy Act vests exclusive jurisdiction in the federal courts to determine, in proceedings to which a bankrupt and the trustee are parties, the title to property contested between them.
5.State and Territory courts have jurisdiction to determine the standing of a bankrupt as between the bankrupt and a stranger to the bankruptcy. That is so notwithstanding that the determination depends upon the construction of ss 58 and 116 of the Bankruptcy Act.[11]
[10](2012) 271 FLR 304
[11]Ibid [66].
Significantly, the current proceeding does not involve a ‘stranger to the bankruptcy’.
While the merits of Ms Gomez’s claims are a matter to be determined at trial, I note that the allegations made in paragraphs 2(a) to (d) of the statement of claim are effectively different causes of action said to arise from the same grievance: namely, that Mr Carrafa initiated or maintained a criminal proceeding against Ms Gomez by the provision of false information to AFSA and the DPP, and/or the concealment of material information from AFSA and the DPP.
Significantly, the statement of claim confirms that these allegations concern the exercise of Mr Carrafa’s powers and duties as trustee in bankruptcy. Paragraph 2(a) of the statement of claim expressly states “The defendant has improperly used the power given to him as trustee”, to, in effect, initiate and maintain a malicious prosecution.
The leading Victorian authority on the question of what constitutes a ‘special federal matter’ is Turner.[12] In Turner,[13] a sequestration order was made against a bankrupt (‘RJG’) following which the applicant (‘bankruptcy trustee)’ became the registered proprietor of a property in Ashwood. The respondent, RJG’s mother (‘Mrs Gorkowski’) had a registered mortgage over the Ashwood property and commenced a proceeding in this Court alleging she had a beneficial interest in the property arising under a common-intention constructive trust. The bankruptcy trustee brought an application to strike out the statement of claim, relying, among other things, on the ground that the Supreme Court did not have jurisdiction to hear the matter, as it fell within the exclusive jurisdiction of the Federal Court pursuant to s 27 of the Bankruptcy Act.
[12][2014] VSCA 248.
[13]Ibid.
At first instance, Vickery J dismissed the application on the basis, in part, that the proceeding was not a matter “arising under” Bankruptcy Act, and was therefore not within the exclusive jurisdiction of the Federal Court conferred by s 27 of the Bankruptcy Act. As a consequence, Vickery J held that the matter was not a “special federal matter” for the purposes of s 6 of the Commonwealth Act, and this Court had jurisdiction to determine the matter.
The sole ground of the bankruptcy trustee’s appeal to the Court of Appeal was that Vickery J had erred in holding that the matter was not a “special federal matter’ arising under the Bankruptcy Act. The Court of Appeal upheld the appeal, stating as follows:
Although the matter is not without difficulty, we consider that his Honour should have held that the proceeding was a “special federal matter”. We reach 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, s 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. The onus lay on Mrs Gorkowski to establish her interest in the property, which the trustee claims was vested in him. This was not a case where the bankruptcy was simply “lurking in the background” to the proceedings.[14]
[14]Ibid, 621.
In relation to whether the matter arose under the Bankruptcy Act, the Court of Appeal stated:
In this case, the claim was brought in the name of Mrs Gorkowski, who by necessity had to seek relief from the applicant, because the property was vested in him by virtue of s 58 of the Bankruptcy Act. However, this was not a case where she had to rely on federal law as the basis for her claim, because that claim was based on equitable principles. The recognition, under s 116(2) of the Bankruptcy Act, of Mrs Gorkowski’s equitable interest in the property, did not make this a “special federal matter”. Section 116 is simply a recognition of the fact that property to which a third party has an equitable or legal title is not available for distribution.
On the other hand, the applicant was necessarily a party to the proceedings 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. Consistently with the words of Latham J in Barrett, the trustee relied upon federal law for the enforcement of his powers. It was the Federal Court that made the sequestration order, and that court had continuing power to make orders relating to the discharge of the bankrupt and the administration of the bankruptcy.[15]
[15]Ibid.
Accordingly, the mere fact that the title of the relevant property was vested in the bankruptcy trustee by reason of the provisions of the Bankruptcy Act was sufficient for the proceeding before the Court to be a special federal matter.
The decision in Turner[16] was followed by Wilson J of the New South Wales Supreme Court in Fewin Pty Ltd v Burke.[17] In that case, the plaintiff was a company controlled by Mr Coshott. Mr Coshott had been declared bankrupt and the defendant (‘Mr Burke’) was made trustee of Mr Coshott’s estate. The plaintiff company subsequently brought proceedings in negligence against Mr Burke, alleging that Mr Burke had breached his duties to, among other things:
[16]Ibid.
[17](2015) 302 FLR 32 (‘Fewin’).
(a) exercise all reasonable skill, care and diligence in the administration of the estate;
(b) administer the estate as efficiently as possible;
(c) exercise powers and perform functions in a commercially sound way; and
(d) incur only necessary and reasonable costs.
Wilson J concluded that the negligence claim (a claim in tort) fell within the exclusive jurisdiction of the Federal Court, stating as follows:
The plaintiff’s claim is one founded upon the fulfilment of duties by the defendant while acting as trustee under the Bankruptcy Act. The statutory source of his duties and obligations is the same Act. Section 27 of that legislation provides that the Federal Court of Australia and/or the Federal Circuit Court of Australia have exclusive jurisdiction, save for some exceptions. The exceptions are not relevant here for present purposes.
I do not believe that this Court has jurisdiction to determine the plaintiffs’ claim. That jurisdiction rests in the Federal Court.[18]
[18]Ibid, [50]-[51].
However, notwithstanding the definition of “bankruptcy” in s 5 of the Bankruptcy Act, a matter may still arise under the Bankruptcy Act without being a matter “in bankruptcy” for the purposes of s 27 of the Bankruptcy Act. In this regard, Gleeson JA stated relevantly in Re Galtari Pty Ltd (in liq):[19]
[19][2018] NSWSC 917.
However, not every matter arising under the Bankruptcy Act will be a matter engaging the jurisdiction “in bankruptcy” under s 27 of the Bankruptcy Act: Coshott v Parker at [18]-[20]. In Meriton , Perram J observed at [172]:
“There is no precise overlap between jurisdiction exercised in respect of matters ‘arising under’ the Bankruptcy Act and the exercise of the jurisdiction ‘in bankruptcy’, although in practice there may tend to be some degree of coincidence between the two concepts.”
This statement was approved of by Payne JA (Basten JA agreeing) in Morris Finance Ltd v Brown (2016) 93 NSWLR 551; [2016] NSWCA 343 at [32]. Payne JA noted that although Perram J had dissented on the outcome in Meriton , the proposition was not inconsistent with anything decided in that case. In Meriton, Perram J further observed at [172] that the distinction was:
“ … important because to the extent that a matter arises under the Bankruptcy Act but does not involve the exercise of jurisdiction ‘in bankruptcy’, s 27 will not prevent a State court from exercising the jurisdiction conferred on it by s 39(2) of the Judiciary Act … ”
To use the relevant statutory language, not every matter “arising under” the Bankruptcy Act, being a “[law] made by Parliament” will be considered a “jurisdiction or proceedings under or by virtue of the [Bankruptcy] Act” (s 5).[20]
[20]Ibid [29]-[32].
Accordingly, even if this proceeding does not fall within the Federal Court’s exclusive jurisdiction conferred by s 27 of the Bankruptcy Act, this does not necessarily preclude this proceeding from otherwise arising under the Bankruptcy Act such as to render it a special federal matter for the purposes of s 6 of the State Act.
In R v Commonwealth Court of Conciliation Ex Parte Barrett,[21] Latham CJ set out the test for determining whether a matter arises under a federal law:
… a matter may properly be said to arise under a Federal law if the right or duty in question in the matter owes its existence to Federal law or depends upon Federal law for its enforcement, whether or not the determination of the controversy involves the interpretation or validity of the law.[22]
[21](1945) 70 CLR 141.
[22]Ibid, 154.
In Felton v Mulligan,[23] Menzies J stated relevantly, as follows:
A matter arises under a law when it is necessary in litigation to determine whether that law confers a right or affords a defence which is an issue in the litigation. A matter arises under a law of the Parliament when in a proceeding it is necessary that there should be a decision upon a claim made by one of the parties to the litigation which is based upon that law.[24]
[23](1971) 124 CLR 267.
[24]Ibid, 382.
In the same case, Windeyer J stated:
In my view a matter does not arise for adjudication under a law made by the Commonwealth Parliament unless a statute is relied upon as giving a right claimed or as the direct source of a defence asserted.[25]
[25]Ibid, 388.
In Australian Securities and Investments Commission v Landy DFK Securities Ltd,[26] in relation to whether a matter arises under a federal statute, Merkel J stated:
When it is said that a matter will arise under a law of the Parliament only if the right or duty in question in the matter owes its existence to a law of the Parliament that does not mean that the question depends on the form of the relief sought and on whether that relief depends on federal law. A claim for damages for breach or for specific performance of a contract, or a claim for relief for breach of trust, is a claim for relief of a kind which is available under State law, but if the contract or trust is in respect of a right or property which is the creation of federal law, the claim arises under federal law. The subject matter of the contract or trust in such a case exists as a result of the federal law.[27]
[26](2002) 123 FCR 548.
[27]Ibid, 555.
Ms Gomez submitted that the Bankruptcy Act does not provide any defence to the claims made in paragraphs 2(a) to (d) of the statement of claim, and Mr Carrafa has failed to demonstrate how he intends to rely on the Bankruptcy Act in his defence. As such, the matters in paragraphs 2(a) to (d) of the statement of claim cannot therefore be construed as arising under the Bankruptcy Act.
However, any allegation against Mr Carrafa that he misused his powers and position as a trustee in bankruptcy to fraudulently misrepresent or fraudulently conceal information, or to effect a malicious prosecution against Ms Gomez, will necessarily involve consideration of the powers and duties conferred on a trustee by the Bankruptcy Act. Accordingly, the above authorities make clear that such an allegations owe their existence to a federal law in the relevant sense.
Put another way, while the claims in paragraph 2(a) to (d) of the statement of claim do not explicitly rely on a federal law, these claims, insofar as they relate to allegations that Mr Carrafa improperly made allegations to AFSA and the DPP, made false representations to AFSA and the DPP, and/or failed to disclose material information to AFSA and the DPP, are inextricably linked with Mr Carrafa’s role and responsibilities conferred by the Bankruptcy Act as a trustee in bankruptcy. Notwithstanding that these causes of action might also arise under the common or general law, the source of Mr Carrafa’s responsibilities and powers, the exercise of which comprises the impugned conduct giving rise to allegations in paragraph 2(a) to (d) of the statement of claim, resides in the Bankruptcy Act and the Insolvency Rules, and therefore has a federal source.
In relation to this issue, in Fewin,[28] Wilson J stated relevantly as follows:
[28](2015) 302 FLR 32.
In his oral submission, counsel for the defendants stated,
“The Court has to satisfy itself it has jurisdiction before it can do anything. We say that where it is a matter that clearly arises as a consequence of duties by a trustee, where the Bankruptcy Act provides (a) the duties and (b) the consequences upon failure to comply with those duties, which were matters that were clearly dealt with in Truthful Endeavour, which was a case involving ownership of property by the way not a conduct issue. Very few of them are conduct issues but it is more, we say, where it is dealing with conduct and where conduct is directly conduct under the Bankruptcy Act.
Where that is the case, this Court does not have jurisdiction...” (T11:41‑50)
This conclusion is in accordance with the obiter of the Federal Court in Truthful Endeavour, at [(iii)],
“...the matter arose under a law of parliament for the purposes of s 76(ii) of the Commonwealth Constitution and s 39B(1A)(c) of the Judiciary Act 1903 (Cth), such that the Federal Court had jurisdiction. This was so even if the matter was to be resolved on the basis of general equity or common law; that did not deprive the matter of its character as a matter arising under a law of parliament, since the fact that the outcome of a controversy does not depend on federal law for resolution or enforcement. Rather, if a right in question or the subject of the controversy owes its existence to federal law, then the matter is one arising under the law, even if the matter can be resolved without involving the interpretation of the federal law...”
Applying the reasoning of the Federal Court to the facts in this matter, establishes that this Court does not have jurisdiction to determine the proceedings. Despite the fact that the proceedings are in common law, specifically negligence, the subject of the controversy, Mr Burke’s duties as trustee of the estate, owe their existence to federal law...” as it “arises under” the laws of Parliament. The relief sought in negligence is, accordingly, a “special federal matter”.[29]
[29]Ibid [37]-[39].
While each case turns on its own facts and circumstances, the preponderance of authority indicates that a proceeding of the current kind will be a special federal matter within the meaning of s6 of the State Act. Indeed, I consider that the current proceeding is a more clear cut case of what constitutes a special federal matter than the proceeding before the Court of Appeal in Turner[30], the reasoning of which I am bound to apply.
[30][2014] VSCA 248.
In the present case, Mr Carrafa relied upon the Bankruptcy Act for his powers, the alleged misuse of which forms the basis of Ms Gomez’s claims in paragraphs 2(a) to (d) of the statement of claim. Notwithstanding Ms Gomez’s submission that these matters fall within the jurisdiction of this Court, I am satisfied that the allegations in paragraphs 2(a) to (d) are matters arising under the Bankruptcy Act, such as to render the whole of this proceeding a special federal matter.
Ms Gomez submitted that, before making a determination whether to transfer this proceeding, this Court must consider which court is the more appropriate forum. While Ms Gomez’s submissions are admirably clear, in this regard they are misconceived. Ms Gomez’s submission conflates the considerations relevant to the Court’s power to transfer proceedings under s 5 of the State Act with the considerations relevant to the power under s 6 of the State Act.
The decision relied upon my Ms Gomez in her submissions, Glowtide Pty Ltd v Ocean Life Ltd[31], concerned s 5 of the Commonwealth Act. While the phrase ‘otherwise in the interests of justice’ in s 5(2)(b)(iii) of the State Act does require consideration of which court is the more appropriate forum, such consideration does not form part of the calculus in determining whether it is appropriate to exercise the Court’s power under s 6, in circumstances where the Court has determined the proceeding is a special federal matter. Accordingly, it is not necessary to engage with the Court’s power to transfer proceedings under s 5 of the State Act for the purposes of considering whether to transfer this proceeding to the Federal Court.
[31](1996) 19 ACSR 471.
Ms Gomez’s submission that s 4(1) of the Commonwealth Act invests this Court with jurisdiction to hear and determine the allegations in paragraph 2(e) of the statement of claim is correct, but this section must be read in the context of ss 6 and 9 of Commonwealth Act.
Section 9(1) of the Commonwealth Act provides relevantly:
Nothing in this or any other Act is intended to override or limit the operation of a provision of a law of a State relating to cross‑vesting of jurisdiction.
Further, s 4(1) of the Commonwealth Act must be read in the context of s 6 of the Commonwealth Act and s 6 of the State Act. Section 4(1) does operate to confer federal jurisdiction (subject to certain exceptions not relevant to the current case) upon State courts (noting that the converse does not apply, following the decision of the High Court in Re Wakim).[32] However, the general conferral of jurisdiction by s 4(1) of the Commonwealth Act must be read together with the specific provisions concerning special federal matters in s 6 of the Commonwealth Act and s 6 of the State Act. That is, there is a general conferral of Federal jurisdiction upon State courts, save that, if a proceeding in a State court concerns a special federal matter, the proceeding must be transferred to the Federal Court unless there are special circumstances warranting its retention in the State court. In the absence of special circumstances, s 4(1) of the Commonwealth Act does not assist Ms Gomez. It merely confers federal jurisdiction upon State courts in proceedings which are not special federal matters, or proceedings which are special federal matters where the State court has determined that special circumstances support the retention of the proceeding in the State court.
[32](1999) 198 CLR 511.
As I am satisfied this proceeding is a special federal matter, the only issue remaining for determination is whether I am satisfied that there are special reasons for the proceeding to remain in this Court.
A finding that there are special reasons does not require that the relevant circumstances must be extraordinary or unique; however, the circumstances must be uncommon or exceptional and different from the ordinary or usual circumstances.[33] The efficient and cost-effective conduct of litigation is also a relevant consideration in determining whether special reasons exist.[34]
[33]James v James (No 2) [2019] NSWSC 116, [98]; Montgomery v Porter [2019] NSWSC 1524, [25].
[34]Jin Niu Investments Pty Ltd v Wang [2019] NSWSC 1967, [33].
In Computershare Ltd v Perpetual Registrars Ltd (No 3),[35] Warren J (as her Honour then was) considered the meaning of ‘special reasons’ and stated as follows:
More recent cases dealing with the “special reasons” wording recognise the intention of the legislatures that there is a stricter test for a court to determine not to cross-vest a special federal matter. In Pridmore v Magenta Nominees Pty Ltd Scott J of the Supreme Court of Western Australia considered that, where a matter was appropriate for transfer to the Federal Court under the former wording of s 6 of the Commonwealth Act, “The position is strengthened by reason of the amendment and the need for the demonstration of ‘special reasons’.” In Re Williams; Ex parte Oates Anderson J of the Supreme Court of Western Australia also had occasion to consider the issue of “special reasons” and considered that the court:
... should not make an order under s 6(3) that the proceedings be determined by this Court unless I have a high degree of satisfaction that there are special reasons for doing so and that it was not:
... possible to construe s 6(3) in a way that would require the transferring court to inquire at all into the merits of the proceeding (as distinct perhaps from its competence) in a search for “special reasons”. To do so would be to retain and to exercise jurisdiction as to the merits, contrary to the main theme of s 6, which is that special Federal matters are for the Federal Court to determine. [36]
[35](2000) 2 VR 666.
[36]Ibid, 690.
Further, in relation to what constitutes ‘special reasons’, in Telstra Corporation Ltd v CXA Communications Ltd,[37] Chernov J stated:
[37](1998) 146 FLR 481 (‘CXA’).
The legislation makes it clear that before the proceeding involving a “special Federal matter” is to be retained in the State court, that court must be satisfied that there are “special reasons” for doing so, in the context of the very case which is sought to be transferred. Thus I take “special reasons” to mean reasons which are peculiar to the case and not general reasons of convenience, a matter to which the legislation itself refers.
In my view, in order for the reasons to be special, the circumstances of the case must be such as to take it out of the mainstream of the legislative intent that such cases be heard in the Federal Court…
…
In the context of this case, it should be noted that:
(a)at least a significant part of it in terms of the real issues between the parties and the likely length of hearing will involve the “special Federal matter”;
(b)the issue was raised in the defence at the time it was delivered, therefore early in the proceeding;
(c)the likelihood of this application being made was also raised early in the proceeding.
In all these circumstances, I find that contrary to the tentative view I expressed earlier, there are no “special reasons” which would permit this Court to determine this proceeding under s 6(3) of the Act. Consequently, I will make an order transferring the proceeding to the Federal Court.[38]
[38]Ibid, 483-484.
Two recent decisions of the New South Wales Supreme Court illustrate what may amount to ‘special circumstances’ within the meaning of s 6 of the State Act. In James & Ors v James (No 2),[39] the Court was concerned with a long running and bitterly fought dispute between four siblings concerning the ownership and possession of a residential property, and the distribution of the proceeds of sale of the property between the siblings and the trustees appointed by the Court to manage the sale of the property. During the course of the proceeding, one of the siblings became bankrupt. The outcome of the proceeding would, in effect, determine the size of the bankrupt estate. The question arose as to whether the substitution of the trustee in bankruptcy for the original defendant in the proceeding necessitated the transfer of the proceeding to the Federal Court.
[39][2019] NSWSC 116.
Slattery J formed the view that the pending trial of the issue of the apportionment of the proceeds of sale would be an exercise of jurisdiction ‘in bankruptcy’ within the meaning of s 27 of the Bankruptcy Act, and accordingly, the proceeding was a special federal matter for the purposes of the Jurisdiction of Courts (Cross Vesting) Act 1987 (NSW).[40] However, his Honour, upon the urging of the parties, and in the absence of any opposition from the Commonwealth and State Attorneys-General, determined that there were special circumstances which warranted the proceeding being retained in the New South Wales Supreme Court. Those special circumstances included the likely costs and delays occasioned by any transfer, and the Court’s close involvement in the supervision of the sale process and disputes between the parties to that time, such that it would ‘overwhelmingly serve the administration of justice’ for the proceeding not to be transferred. Further, any transfer would prejudice the ability of the trustee in bankruptcy to perform his duties, and the interests of the bankrupt’s creditors, and the resolution of the issues in the proceeding did not require any specialist knowledge of bankruptcy law. Finally, the appointment of the trustee in bankruptcy occurred once the proceeding was well under way, and the proceeding largely concerned the conduct of the bankrupt prior to her being declared bankrupt.
[40]Which is in substantially identical terms to the State Act.
Similarly, in Jin Niu Investments Pty Ltd v Wang,[41] one of the defendants in a proceeding concerned with alleged breaches of a joint venture agreement and misappropriation of funds was declared bankrupt on the last business day prior to the scheduled commencement of a ten day trial before Henry J. In an ex tempore ruling, her Honour found that the requirements of s 6(4) had been complied with, and that the claims in the proceeding engaged the jurisdiction in bankruptcy within the meaning of s 27 of the Bankruptcy Act, and the proceeding was thus a special federal matter. Her Honour noted the terms of s 6(6)(a) of the Commonwealth Act, which required the Court to have regard to the general rule that special federal matters should be heard in the Federal Court, but, in the proceeding before her, there were special circumstances which justified the retention of the proceeding in the Supreme Court. Her Honour stated as follows:
These proceedings are very well advanced, having been set down for a ten day final hearing a week ago. They were commenced in 2018 on an urgent ex parte basis when the Court made freezing orders prohibiting the removal from Australia or in any way disposing or dealing with assets in Australia of the bankrupt and Ms Li. Since that time there have been multiple directions hearings and interlocutory steps resulting in the filing and service of extensive material in support of the claims by the parties.
The plaintiffs are ready to proceed with their claims and would have done so on Monday, 18 November but for the appointment of Mr Taylor as trustee to Ms Wang’s estate the Friday before. The Court has time available to hear the plaintiffs’ claims over the next day or so.
It is inevitable that there would be delay and additional costs incurred if, at this late stage, the proceedings were now to be transferred to the Federal Court.
The efficient and cost effective conduct of litigation and use of the Court’s resources is not merely a matter of convenience to parties to proceedings, but are matters going to the proper administration of justice. There is a need to avoid disruptions in the court lists to avoid consequential inconvenience to the Court and prejudice to the interests of other litigants waiting to be heard: Sali v SPC Ltd (1993) 116 ALR 625 as endorsed by the plurality in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [26] and [93]. In my view, determining the proceedings in this Court avoids inefficiency occasioned by the need to adjourn trials which may impact other litigants in this and other courts and thereby promotes the effective administration of justice.[42]
[41][2019] NSWSC 1697.
[42]Ibid [16]-[19].
None of the factors referred to in the decisions above are present in the current case. The trustee was appointed many years ago: indeed, the bankruptcy has been discharged. This proceeding is at an early stage, and any costs and delays associated with any transfer will be minimal. Ms Gomez’s bankruptcy is not a merely incidental matter: the powers and duties of Mr Carrafa when acting in his capacity as her trustee in bankruptcy are central to the issues in the proceeding. There are no features of the present case which would cause me to depart from the general rule that special federal matters should be determined by the Federal Court.
In my view, Ms Gomez has not established that there are special reasons such as to warrant the proceeding being retained in this Court. Notwithstanding Ms Gomez’s submissions, I am satisfied that a significant proportion, if not all, of the issues in dispute between the parties arise from a common substratum of matters involving a special federal matter arising under the Bankruptcy Act. As in CXA,[43] the jurisdictional issue was raised in the defence at the time it was filed, early in the proceeding, and it is unlikely that transferring the proceeding at this point will result in undue delay or cost to the parties. As for Ms Gomez’s submission that the Federal Court does not have original jurisdiction with respect to tortious claims and does not regularly deal with such issues, I note that the Federal Court is invested with jurisdiction to determine common law tortious claims and has in the past considered claims involving allegations of malicious prosecution.[44]
[43]Ibid.
[44]See, for example, Frigger v Banning (No 8) [2019] FCA 1319, Menzies v Paccar Financial Pty Ltd [2016] (malicious prosecution) and PC Case Gear Pty Ltd v Instrat Insurance Brokers Pty Ltd (in liq) [2020] FCA 1317, Gill v Ethicon Sàrl & Ors (No 5) [2019] FCA 1905, and DOQ 17 v Australian Financial Security Authority (No 3) [2019] FCA 1488 (negligence).
For completeness, I note that if I did consider that there may be special reasons for retaining this proceeding in this Court, the procedure in s 6(4) of the State Act would need to be followed. In the absence of any real prospect of there being special reasons, I will not direct that the procedure under this provision be activated.
Accordingly, I will make an order transferring this proceeding to the Federal Court. Given that Ms Gomez has brought this proceeding in the wrong court, I agree that she should pay Mr Carrafa’s costs of the proceeding to date, and I will fix those costs at $2,000.00.
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