Grainger v Bloomfield & Anor

[2016] HCATrans 61

[2016] HCATrans 061

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane   No B70 of 2015

B e t w e e n -

MR GRAINGER

Applicant

and

MS BLOOMFIELD

First Respondent

BANKRUPT ESTATE OF MRS GRAINGER

Second Respondent

Application for special leave to appeal

KIEFEL J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON FRIDAY, 11 MARCH 2016, AT 12.10 PM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR A.J. GREINKE, for the applicant.  (instructed by Morgan Conley Solicitors)

MR M.O. JONES:   May it please the Court, I appear for the first respondent.  (instructed by Tucker & Cowen Solicitors)

KIEFEL J:   Yes, Mr Walker.

MR WALKER:   Your Honours, we submit ‑ ‑ ‑

KIEFEL J:   I am sorry, I should have added that there is no appearance for the second respondent, the Trustee in Bankruptcy, who is not seeking to be heard and will abide by the decision of the Court.  Yes, Mr Walker.

MR WALKER:   Thank you, your Honour.  In fact, that matter of procedure relates as well to the matter of substance which, we submit, is raised by the decision of the Full Court in this case.  It concerns a matter of critical importance in the financial dealings of many people in many circumstances because it involves consensual arrangements given statutory status but subject to statutory unwinding under the Family Law Act, on the one hand, and the tremendously important regime which is the current bankruptcy provisions, on the other hand.  In our submission, of their nature, these are regimes which are likely to intersect in many different cases in many different ways and for a long time to come. 

KIEFEL J:   Are you saying that there is a tension between the provision of the Family Law Act and the provisions of the Bankruptcy Act?

MR WALKER:   Yes, we are, and may we explain.  There is no doubt that under sections 120 and 121 of the Bankruptcy Act entirely salutary, wholly beneficial powers are given which are exercised upon the decision of a person holding the official role of Official Trustee in Bankruptcy, an official role which is anchored in the judicial power of the Commonwealth by means of the supervisory powers given to the court, which may be actuated upon application in that regard by interested persons.

There is also no doubt that the Family Law Act has enacted provisions which lend themselves to the possibility of abuse, that being intrinsic in any private arrangement where there may be motivations or circumstances which, to use old‑fashioned language, amount to an intention to defeat the interests of creditors. 

As your Honours appreciate and, from this case itself, there are State as well as federal statutes, which reflect nowadays a state of affairs concerning legislative addressing of the problems of collusive transactions to defeat creditors which operate in cases such as the present.  It is the operation in interaction, as we would submit, with obscure and inappropriate consequences following the Full Court’s decision, of the Bankruptcy Act and the Family Law Act, which we respectfully submit makes this a fit case for a grant of special leave.

KIEFEL J:   But, Mr Walker, the Bankruptcy Act itself envisages that persons can challenge questions, they can challenge agreements, try to have agreements ‑ ‑ ‑

MR WALKER:   Yes, by the Official Trustee.

KIEFEL J:   Quite, but they can challenge provable debts as well.

MR WALKER:   Quite, and it is all done – and that is exactly our point.  It is all done through the Bankruptcy Act which is a self‑contained regime which treats the position with respect to - I am going to call it equality, the principle of equality - upon a person’s estate being insufficient to meet their debts.  So there are established procedures which are compressed in the expression “provable debt” which have, as Justice Kiefel has pointed out, their own adjectival provisions for challenging, that is for adjudication.  That is all through the Bankruptcy Act.

We then turn to the family law provisions which start with a critical jurisdictional definition, and that is to be found in section 4A starting at page 107 of the application book.  The relevant third party proceedings in cases such as the present mean that we have an exhaustive jurisdictional provision to pick up and make enactment for the purposes of the constitutional head of power.  Then one sees a set of so‑called combinations, and there is the conjunction between (a) and (b) “and”, and of course, the critical preposition “between”.

KIEFEL J:   Would the Trustee in Bankruptcy fall within 4A(1)(b)(iii)?

MR WALKER:   No.

KIEFEL J:   No?

MR WALKER:   It has in fact, I think, been held that the Trustee is not a government body ‑ ‑ ‑

KIEFEL J:   It is not a government body.  Yes, that is right.

MR WALKER:   ‑ ‑ ‑ but, in any event, I think one would be Pollyanna to suggest that they are acting in the interests of a creditor.

KIEFEL J:   Yes, quite.  So the point is that there is no place there for the Trustee.

MR WALKER:   That is right, and this is a list which does understand what happens upon the law vesting a person’s property in another because you have here legal personal representatives, so that is covered.  So the administrator or the executor of a deceased estate is contemplated as one of the parties to this defined jurisdiction but not a trustee in bankruptcy. 

Now, bearing in mind that creditors are part of this jurisdictional definition, it is clear that something needs to be understood as to how these provisions interact with bankruptcy.  Parliament cannot be taken to have used the word “creditor” without understanding that sometimes we have creditors with greater claims than our assets are able at the time when they are due to discharge, in other words, bankruptcy; a situation of insolvency for which the bankruptcy provisions are required.

That is why, in our submission, the approach taken, of course in a different context, but for the same general reasons of principle and policy by this Court in Clyne’s Case, to which we have drawn sufficient attention in our written submission, to the meaning of the word “creditor” as it is affected by the event of bankruptcy, it cannot be dismissed as it was, with respect, with inadequate reasoning by the Full Court in this case.

Furthermore, this is a case which in a matter which is of such evident importance for so many kinds of dealings between people, there is no explanation, with respect, given of how it is that the earlier Full Court decision in Lasic ought to be regarded as being distinguished as to the critical reasoning. 

Of course there are cases on their own individual issues but exactly the same requirement was faced by the Full Court in Lasic as by the Full Court in this case, namely, is the word “creditor” to be construed in such a way as to incorporate, or include, after bankruptcy a person whose claims are now by law only the claims with respect to the possibility of a provable debt.

Now, of course, we accept the Full Court reasons in this case show there is more than one way, perhaps, to answer that question but, with respect, the reasons in this Full Court do two things which ought not to be left in this state, that is that this Court should take the case, because they do not overrule Lasic as to the critical reasoning in Lasic, and they do not explain why it is to be distinguished.  It simply will not do to say of an approach to the word “creditor” when there has been an intervening bankruptcy that the case, based upon its own circumstances, has nothing to say about the meaning of that word in another case where a bankruptcy has intervened.  Of course it does. 

Now, we accept, as the Full Court has drawn to attention, that this is not an area – that is the interaction between Bankruptcy Act and Family Law Act – which has gone unremarked by legislative attention.  The Full Court very largely based their reasons upon what we perhaps a little bluntly have called an expressio unius approach.  Let me explain. 

Page 114 of the application book contains one of those enactments to which the Full Court draws attention, the insertion of subsection 10(a) of section 79, and the point is made against us in the Full Court, repeated by our friend, that that is language which shows, as it were, legislative attention to an aspect of this problem of an intervening bankruptcy but that there has not been in relation to the critical provision, which in this case is section 90K starting on page 120, a similar enactment.

In our submission, that is a very dangerous and unstable way to approach the question which is whether or not a person remains a creditor within the meaning of the jurisdictional definition after there has been a bankruptcy.  We can see immediately, as was argued below and would be argued in this Court were special leave granted, that there are terrible problems in terms of working out such litigation if the Full Court’s decision were regarded as correct. 

May I illustrate one by going to the really very difficult provisions of section 90K(3), application book 121, on the premise that the Full Court’s decision were correct.  On that premise, you can see that there is an extremely broad power given, true, limited by the expression “as it considers just and equitable”, et cetera, but an extremely broad power given which it is difficult as a matter of text to see would or must draw short of affecting the state of a bankrupt estate, whether as to resources available to it or as to the alteration of the identity and quantum of claims upon it.

NETTLE J:   But why would it be a problem if the transaction was set aside, the property re‑vests in the bankrupt and thus it is under the control of the Official Trustee?

MR WALKER:   In such a case there is no doubt that there would not be a problem in terms of what I might call the commercial interests of those involved, so far as the bankruptcy is concerned.  The problem is giving that power not to the bankruptcy court and not to the bankruptcy official and to be done in proceedings in which the bankruptcy official cannot be heard.

KIEFEL J:   But here the Full Court at special leave book, page 61, paragraphs 47 and 48, draws the analogy with proceedings generally under section 58(3) of the Bankruptcy Act which envisages that so long as the leave of the court is obtained and perhaps on terms a creditor can commence legal proceedings in relation to a provable debt.

MR WALKER:   Quite.

KIEFEL J:   And acknowledge that so long as leave is given and a question of terms addressed by the court under the family law legislation, that likewise litigation in the nature that we are involved with here can be undertaken.  What is wrong with the reasoning there by analogy?

MR WALKER:   It is because section 58, in fact, is one of those provisions of the Bankruptcy Court that bespeaks the legislative scheme, in the jargon of the intention, that these are matters which are to be decided in the first instance by Official Trustees, and secondly by a court administering the Bankruptcy Act which, as their Honours were at pains to point out in that same paragraph 48 of their reasons, they are not doing. 

In our submission, there are raised questions about the relation between bankruptcy and the setting aside of financial agreements under the Family Law Act which are not answered by the approach taken by the Full Court, in particular there is an insufficient attention given to the jurisdictional difficulty of the Official Trustee being a party at all, because the definition of the jurisdiction in section 4A, to which we have drawn attention, excludes that person.

Now, conversely, if the reading which the Full Court in Lasic obviously favoured and which a general approach to the notion of creditor in this Court in Clyne supports were adopted, there is no such difficulty.  In the event of a financial agreement detrimental to the interests of creditors from its inception, and by reason of its inception, is a problem, it can and should be dealt with in the bankruptcy by the official – the Official Trustee – with that power under sections 120 and 121, whereby the salutary outcome, to which Justice Nettle draws attention, would come about in proceedings which would be properly constituted so as to have everybody involved who continues to have a relevant interest. 

In particular the bankrupt is not a person who is to be regarded likely as standing in as a proxy for the interests of the estate which would be represented were the trustee a party.  Indeed, the position of a bankrupt, bearing in mind the powers and obligations and the possibility of offences, is, in our submission, likely the last kind of personage to stand for that kind of proxy. 

As soon as one sees those problems in relation to the proper constitution of an argument about whether or not, and on what terms,

subsection (3) – and on what terms – there might be the unwinding of a financial agreement, then you are driven, in our submission, to making additions interstitially to these provisions so as to advance what might be called the interests of natural justice, that is, of course, the Official Trustee needs to be heard.

What we say is that these are not statutory texts that make that at all a straightforward outcome and there is great obscurity, for example, as to whether or not the Trustee in Bankruptcy is a person interested within the meaning of section 90K(3), bearing in mind that that is an ancillary claim in a jurisdiction defined by the parties to a proceeding which has been listed so as to exclude the Official Trustee. 

Now, for all those reasons, in our submission, this is obviously a matter which transcends the particular disputes between these parties.  On any view of it, Lasic and this case stand as decisions of equal authority which are impossible to reconcile.  That alone, in our submission, is a paradigm occasion for this Court to determine the issue rather than, for example, to wait for a third Full Court to have to grapple with the problems of stare decisis posed by those two decisions.

For all those reasons, in our submission, this is a case worthy of a grant of special leave and where, bearing in mind what the Court has said about the meaning of “creditor” in relation to a bankruptcy, there are also sufficient prospects to justify the grant.  May it please the Court.

KIEFEL J:   We need not trouble you, Mr Jones. 

In our opinion, there are insufficient prospects of success to warrant a grant of special leave in this case.  Special leave is refused.  Is there any application for costs?

MR JONES:   Yes, we seek costs, your Honour.

KIEFEL J:   Yes, there will be an order for costs.

MR WALKER:   May it please the Court.

KIEFEL J:   Thank you.

AT 12.28 PM THE MATTER WAS CONCLUDED