Healy v The Official Trustee in Bankruptcy
[2010] FMCA 842
•2 November 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HEALY v THE OFFICIAL TRUSTEE IN BANKRUPTCY & ORS | [2010] FMCA 842 |
| BANKRUPTCY – Application to annul bankruptcy – request to transfer proceedings to the Federal Court. |
| PRACTICE AND PROCEDURE – Parties request to transfer proceedings to Federal Court – where the parties consent to the transfer – application in Federal Court for leave to proceed against respondents in liquidation – factors to be considered – whether it is ultimately in the interests of the administration of justice. |
| Bankruptcy Act 1966 (Cth), ss.27, 153B Corporations Act 2001 (Cth), s.500(2) Federal Magistrates Act 1999 (Cth), ss.13(3)(a), 19, 39 Federal Magistrates Court Rules 2001 (Cth), rr.8.02, 15.03 |
| Clarke v West Australian Newspapers Ltd [2010] FMCA 502 Deputy Commissioner of Taxation v Cumins [2007] FMCA 1841 Genovese v BGC Construction Pty Ltd [2006] FMCA 1507 BGC Construction Pty Ltd v Genovese [2007] FMCA 1842 Swaby v Lift Capital Partners Pty Ltd (2009) 72 ACSR 627; [2009] FCA 749 |
| Explanatory Memorandum, Federal Magistrates Bill 1999, House of Representatives, The Parliament of the Commonwealth of Australia |
| Applicant: | JAMES GERARD MICHAEL HEALY |
| First Respondent: | THE OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF JAMES GERARD MICHAEL HEALY |
| Second Respondent: | WORLD CLASS SERVICE PTY LTD (IN LIQUIDATION) |
| Third Respondent: | FALAREN PTY LTD (IN LIQUIDATION) |
| Fourth Respondent: | GEMWALK PTY LTD (IN LIQUIDATION) |
| Fifth Respondent: | NORTH WANNEROO GAS PTY LTD (IN LIQUIDATION) |
| File Number: | PEG 163 of 2009 |
| Judgment of: | Lucev FM |
| Date of Last Submission: | 17 September 2010 |
| Delivered at: | Perth |
| Delivered on: | 2 November 2010 |
REPRESENTATION
| For the Applicant: | By written submissions |
| Solicitors for the Applicant: | De Vita + Dixon Lawyers |
| For the First Respondent: | By statement of agreed facts |
| Solicitors for the First Respondent: | Tottle Partners |
| For the Second, Third, Fourth and Fifth Respondents: | By statement of agreed facts |
| Solicitors for the Second, Third, Fourth and Fifth Respondents: | Cooper Legal |
ORDERS
Pursuant to section 39 of the Federal Magistrates Act 1999 (Cth), this action be transferred to the Western Australian District Registry of the Federal Court of Australia.
There be no order in relation to the costs of the application to transfer this action to the Federal Court.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 163 of 2009
| JAMES GERARD MICHAEL HEALY |
Applicant
And
| THE OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF JAMES GERARD MICHAEL HEALY |
First Respondent
| WORLD CLASS SERVICE PTY LTD (IN LIQUIDATION) |
Second Respondent
| FALAREN PTY LTD (IN LIQUIDATION) |
Third Respondent
| GEMWALK PTY LTD (IN LIQUIDATION) |
Fourth Respondent
| NORTH WANNEROO GAS PTY LTD (IN LIQUIDATION) |
Fifth Respondent
REASONS FOR JUDGMENT
(Delivered in Chambers under s.13(3)(a) of the Federal Magistrates Act 1999 (Cth))
Introduction
The substantive application to annul the applicant’s bankruptcy[1] was filed on 9 September 2009.
[1] “Bankruptcy Action”. The application was made under s.153B of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”).
Subsequent to the Bankruptcy Action being filed, the applicant filed an originating process in the Federal Court of Australia[2] on 21 December 2009 seeking, amongst other things, leave under s.500(2) of the Corporations Act 2001 (Cth)[3] to commence and proceed with the Bankruptcy Action.[4]
[2] “Federal Court”.
[3] “Corporations Act”.
[4] “Companies Action”.
The application[5] presently before this Court seeks an order transferring the Bankruptcy Action in this Court to the Federal Court.[6] The parties consent to that request.
[5] “Transfer Application”. The Transfer Application is made under s.39 of the Federal Magistrates Act 1999 (Cth) (“FM Act”) and r.8.02 of the Federal Magistrates Court Rules 2001 (Cth) (“FMC Rules”).
[6] “Transfer Order”.
The parties have:
a)filed a Statement of Agreed Facts, and the applicant has filed Submissions in support of the Transfer Application; and
b)requested that this Court determine the Transfer Application for a Transfer Order on the papers.[7]
[7] FMC Rules, r.15.03.
Agreed Facts
The parties submit that the following agreed facts are relevant to the making of a Transfer Order:
a)on 2 March 2007 Mr Graeme Trevor Lean was appointed the liquidator of each of the second, third, fourth and fifth respondents;
b)on 19 November 2007 a Registrar of this Court made a sequestration order against the estate of the applicant;
c)on 9 September 2009 the applicant commenced the Bankruptcy Action;
d)the application commencing the Bankruptcy Action was supported by a statement of claim;
e)on 21 October 2009 this Court made consent orders in the Bankruptcy Action, which included the following orders:
i)the respondents to file defences by 7 December 2009; and
ii)mediation to occur before a Registrar of the Court after 25 January 2010;
f)on 4 December 2009 the solicitor for the second, third, fourth and fifth respondents sent a fax to the solicitor for the applicant and the solicitor for the first respondent which said, amongst other things:
“We bring your attention to sub-section 500(2) of the Corporations Act 2001. In our view your client requires leave to proceed against the Second, Third, Fourth and Fifth Respondents. The Second, Third, Fourth and Fifth Respondents will not take any further steps in this matter until your client obtains leave of the Court.”
g)on 21 December 2009 the applicant filed an originating process in the Federal Court by which the Companies Action was commenced;
h)the originating process in the Companies Action sought, amongst other things, an order under s.500(2) of the Corporations Act that the applicant have leave, now for then,[8] to commence and proceed with the Bankruptcy Action against the second, third, fourth and fifth respondents;
i)at a directions hearing in the Federal Court on 10 February 2010, the Federal Court made programming orders for a hearing of the Companies Action on 30 April 2010;
j)on 17 February 2010 and 8 April 2010 a Registrar of this Court conducted mediation in the Bankruptcy Action;[9]
k)on 4 March 2010 the Federal Court made an order vacating the programming orders made on 10 February 2010, and listed the Companies Action for directions only on 30 April 2010;
l)on 23 April 2010 the Federal Court made an order by consent in the Companies Action adjourning the directions hearing listed for 30 April 2010 to 18 June 2010;
m)on 18 June 2010 the Federal Court made an order adjourning the Companies Action without fixing a further date, on the basis of an undertaking by the applicant to consent to a transfer of the Bankruptcy Action from this Court to the Federal Court, and to allow the solicitors for the respondents to take instructions as to whether the respondents would consent to such a transfer;
n)the applicant intended making submissions in the Companies Action concerning the merits of the Bankruptcy Action; and
o)the respondents have limited or no funds in their respective administrations.
[8] Traditionally referred to as a nunc pro tunc order.
[9] Mediation was also conducted on 18 May 2010 but was not referred to in the Statement of Agreed Facts.
Submissions
Relevantly, the applicant’s submissions in support of the Transfer Application are set out as follows:
a)the originating process in the Companies Action seeks, amongst other things, an order under s.500 (2) of the Corporations Act that the applicant have leave, now for then, to commence and proceed with the Bankruptcy Action against the second, third, fourth & fifth Respondents;
b)the applicant does not concede that leave is required under s.500(2) of the Corporations Act to prosecute the Bankruptcy Action. The applicant accepts that the provision does at least arguably operate as a bar to prosecution of the Bankruptcy Action;
c)courts have developed a number of factors relevant to the exercise of the discretion whether or not to grant leave to proceed against a company in liquidation. One such factor is whether the proposed action (in this case the Bankruptcy Action) has arguable merit;[10]
[10] Citing Swaby v Lift Capital Partners Pty Ltd (2009) 72 ACSR 627 at 631-632 per Gilmour J; [2009] FCA 749 at para.29 per Gilmour J.
d)if (which is not admitted) the Bankruptcy Action cannot proceed unless and until an order is made in the Companies Action under s.500(2) of the Corporations Act, then the issues the subject of the Bankruptcy Action will be resolved more quickly if the Bankruptcy Action and the Companies Action are both heard in the Federal Court;
e)if (which is not admitted) the Bankruptcy Action cannot proceed unless and until an order is made in the Companies Action under s.500(2) of the Corporations Act, then the issues the subject of the Bankruptcy Action will be resolved in a more cost effective manner if the Bankruptcy Action and the Companies Action are both heard in the Federal Court;
f)if the Bankruptcy Action and the Companies Action are both heard in the Federal Court then it is possible for the Bankruptcy Action and the Companies Action to be heard concurrently or consecutively before the Federal Court. If that were to occur, it gives rise to the following possible savings of judicial time, and cost to the parties:
i)rather than assess the merits of the Bankruptcy Action in a non-binding way for the purposes of the Companies Action,[11] it would be open to the Federal Court to simply determine the Bankruptcy Action and deal with the Companies Action accordingly; and
[11] See sub-para.(c) above.
ii)having found in the Companies Action that the Bankruptcy Action has merit, it would be open to the Federal Court to go on to finally determine the Bankruptcy Action. The evidence adduced and the submissions presented in the Bankruptcy Action could then be “piggy backed” onto the evidence adduced and the submissions presented in the Companies Action;
g)if the Federal Court was to find in the Companies Action that the Bankruptcy Action had arguable merit, and that an order should be made under s.500(2) of the Corporations Act, then if the Bankruptcy Action remained in this Court, there would necessarily be some duplication of issues in the Companies Action when the Bankruptcy Action subsequently came to be heard in this Court;
h)this Court and the Federal Court have concurrent jurisdiction in bankruptcy;[12]
i)having regard to the matters set out in the accompanying Statement of Agreed Facts and the submissions made above, the applicant submits that:
i)the Bankruptcy Action is likely to be heard with less cost and more convenience to the parties in the Federal Court than in this Court, hence the factor set out in r.8.02(4)(b) of the FMC Rules favours the making of the Transfer Order;
ii)the Bankruptcy Action is likely to be heard earlier in the Federal Court than in this Court, hence the factor set out in rule 8.02(4)(c) of the FMC Rules favours the making of the Transfer Order;
iii)the parties consent to the transfer, hence the factor set out in r.8.02(4)(e) of the FMC Rules favours the making of the Transfer Order;
iv)the Companies Action is a “proceeding in respect of an associated matter” within the meaning of s.39(3)(b) of the FM Act. There is a “practical link” between the Bankruptcy Action in this Court and the Companies Action in the Federal Court; and
v)it “is in the interests of the administration of justice” within the meaning of s.39(3)(d) of the FM Act for this Court to make the Transfer Order.
[12] Bankruptcy Act, s.27.
Application to transfer – legislation
The making of an order to transfer proceedings from this Court to the Federal Court is discretionary.[13] Any order made is not one in respect of which an appeal lies.[14] There are certain mandatory factors which this Court is required to take into account under the FM Act, as follows:
[13] FM Act, s.39(1) and (2).
[14] FM Act, s.39(6).
(a) any Rules of Court made for the purposes of subsection 40(2); and
(b) whether proceedings in respect of an associated matter are pending in the Federal Court; and
(c) whether the resources of the Federal Magistrates Court are sufficient to hear and determine the proceeding; and
(d) the interests of the administration of justice.[15]
[15] FM Act, s.39(3)(a)-(d).
The FMC Rules provides for other factors to be considered, as follows:
(a) whether the proceeding is likely to involve questions of general importance, such that it would be desirable for there to be a decision of the Federal Court or the Family Court on one or more of the points in issue;
(b) whether, if the proceeding is transferred, it is likely to be heard and determined at less cost and more convenience to the parties than if the proceeding is not transferred;
(c) whether the proceeding will be heard earlier in the Federal Magistrates Court;
(d) the availability of particular procedures appropriate for the class of proceeding;
(e) the wishes of the parties.[16]
Application to transfer – principles
[16] FMC Rules, r. 8.02(4)(a)-(e).
Pending proceedings in an associated matter in the Federal Court
Both the Bankruptcy Action and the Companies Action stand adjourned without a date fixed for their resumption: the Bankruptcy Action because of the institution of the Companies Action, and the Companies Action on the basis of an undertaking by the applicant to consent to a transfer of the Bankruptcy Action from this Court to the Federal Court.
This Court has previously discussed the meaning of ‘associated matter’ in relation to s.19 of the FM Act as follows:
9. It is necessary to consider the purpose of s.19 of the FM Act. The purpose of s.19(1) of the FM Act is explained by the Explanatory Memorandum, as being to “ensure that matters are completed in the Court in which they commenced and that parties do not seek to have the same matter dealt with” in this Court and in the Federal Court. The Explanatory Memorandum describes the purpose of s.19(3) as being to ensure that “inappropriate proceedings” commenced in this Court may be transferred to the Federal Court. The purpose, evidently, is to ensure that the “same matter” is not dealt with in two different courts.[17]
[17] BGC Construction Pty Ltd v Genovese [2007] FMCA 1842 at para.9 per Lucev FM. See also the Explanatory Memorandum, Federal Magistrates Bill 1999, House of Representatives, The Parliament of the Commonwealth of Australia (“Explanatory Memorandum”) at paras.31 and 33.
The Companies Action is not the ‘same matter’ as the Bankruptcy Action. The Federal Court will need to take into account different factors in determining whether or not to grant leave under s.500(2) of the Corporations Act than this Court would in determining whether or not to annul the bankruptcy under s.153B of the Bankruptcy Act. Further, the remedies or outcomes from the two Actions are different. The disposition of the Companies Action will determine whether or not the Bankruptcy Action will proceed but, whilst the Federal Court may deal with the merits of the Bankruptcy Action to some extent, it will not determine the issues in the Bankruptcy Action.
This factor does not therefore apply to the application in these proceedings because the matters are not, contrary to the submissions of the parties, associated matters. Nevertheless, the Court must take into consideration the fact that the Federal Court has adjourned its proceedings in order to facilitate the Bankruptcy Action being transferred to the Federal Court, and will do so when considering the interests of the administration of justice criterion.
Sufficiency of resources of this Court to hear and determine proceeding
This Court has sufficient resources in the Western Australian Registry to deal with the Bankruptcy Action. If the Bankruptcy Action stood alone, and no leave was required under s.500(2) of the Corporations Act, this Court would have the capacity to hear and determine this action within 6 months. Subject to determination of the issue of whether leave is required for the Bankruptcy Action to proceed in this Court (which is a matter in dispute), this factor would not ordinarily favour transfer of the Bankruptcy Action to the Federal Court.
Question of general importance
The Bankruptcy Action is an application for annulment of bankruptcy. There is no suggestion that there is a question of general importance involved which would warrant transfer to the Federal Court.[18]
[18] As to the nature of a question of general importance see Genovese v BGC Construction Pty Ltd [2006] FMCA 1507 at para.13 per Lucev FM (“Genovese”).
This factor does not favour transfer of the Bankruptcy Action to the Federal Court.
Cost and convenience of hearing and determination
The parties suggest that there will be a saving of judicial time and cost to the parties if the Bankruptcy Action is transferred to the Federal Court. It appears to the Court that this is the case, given that the Federal Court will likely need to assess the merits of the Bankruptcy Action, at least to some extent, in determining the Companies Action. There is therefore likely to be unnecessary wastage of time, money and resources for the parties and the courts if the Bankruptcy Action stays in this Court, requiring this Court to make a separate judicial determination in the Bankruptcy Action upon completion of the Companies Action.
It will be more convenient and less costly for the parties if the Bankruptcy Action and Companies Action are dealt with in a single court, giving rise to options to have the matters heard concurrently, or consecutively, and it ought to also make the overall management of the litigation, comprised of both actions, simpler.
This factor weighs significantly in favour of a transfer of the Bankruptcy Action to the Federal Court.
Earlier hearing of proceedings
It is not entirely clear how long it might take the Federal Court to deal with the combination of the Bankruptcy Action and the Companies Action if the Bankruptcy Action were to be transferred to the Federal Court. As indicated above, if the Bankruptcy Action stood alone, and no leave was required under s.500(2) of the Corporations Act, this Court would have the capacity to hear and determine this action within 6 months.
In the circumstances, this is a factor which is probably neutral in the assessment of whether to transfer the Bankruptcy Action to the Federal Court.
Availability of particular procedures appropriate for the class of proceeding
Given the concurrent jurisdiction of this Court and the Federal Court in bankruptcy matters, and the harmonisation of the bankruptcy rules for both courts, there is little practical difference in the particular procedures available for dealing with the Bankruptcy Action in this Court or the Federal Court.
This factor is seen as neutral in the assessment of whether to transfer the Bankruptcy Action to the Federal Court.
Wishes of the parties
The parties want a transfer of these proceedings to the Federal Court, and consent to that course. This Court has recently made the following observations related to parties consenting to transfer of proceedings:
Both parties wish that this case be transferred. I consider that this is a very significant matter. This seems to me to be clearly a case that the Federal Court would not have transferred down to this court had it been commenced there, given the importance of the matters discussed earlier in this decision. Whilst the interest of justice require that cases should be heard in the courts most appropriate to them, there should still be room for parties’ wishes to be respected. The administration of justice is a public service. Courts are provided so that society’s disputes can be resolved in a peaceable and effective manner. Governments in Australia and elsewhere have chosen to make very significant charges for the provision of this service. The preferences of parties who are required to pay for that service should be respected, if not always indulged.[19]
[19] Clarke v West Australian Newspapers Ltd [2010] FMCA 502 at para.13 per Raphael FM.
In this case it seems unlikely that, had the Companies Action been instituted in the Federal Court, the Bankruptcy Action would not also have been commenced in the Federal Court. Further, given:
a)the convenience of the Bankruptcy Action and the Companies Action being determined in a single court; and
b)that the Bankruptcy Action involves companies which are in liquidation,
it is unlikely that the Bankruptcy Action would have been transferred to this Court by the Federal Court. Both the Bankruptcy Action and the Companies Action would most likely have remained in the Federal Court. That outcome would have been consonant with the wishes the parties now express.
This factor therefore favours a transfer of the Bankruptcy Action to the Federal Court.
The interests of the administration of justice
The Court has previously said that the interests of the administration of justice are directed to a consideration of the interests of the management of justice, that is, the management of the proceedings pending before the Court.[20] That can obviously extend to a consideration of the management of proceedings in both the transferor and transferee courts.
[20] Genovese at para.28 per Lucev FM.
The Court considers, particularly with respect to the discussion above concerning the cost and convenience of the Bankruptcy Action being heard in the Federal Court “with” the Companies Action, that the best management of both the Bankruptcy Action and the Companies Action would be achieved by those actions being dealt with by a single court, and, in this case, the Federal Court. The Court also takes account of the fact that the Federal Court has adjourned its proceedings in order to facilitate the Bankruptcy Action being transferred to the Federal Court.
This factor weighs significantly in favour of a transfer of the Bankruptcy Action to the Federal Court.
Conclusion, costs and orders
The exercise of discretion does not require a court, absent statutory direction to the contrary, to give equal weight to all factors to be considered in the exercise of the discretion.[21]
[21] Deputy Commissioner of Taxation vCumins [2007] FMCA 1841 at para.47 per Lucev FM.
In this case the following factors which favour transfer of the Bankruptcy Action to the Federal Court:
a)the cost and convenience of the Bankruptcy Action being heard in the Federal Court “with” the Companies Action;
b)the wishes of the parties to have the Bankruptcy Action heard in the Federal Court; and
c)the interests of the administration of justice,
outweigh those factors which are neutral or against the transfer of the Bankruptcy Action to the Federal Court, and the Court has concluded that there ought to be a transfer of the Bankruptcy Action to the Federal Court.
The parties have consented to there being no order as to costs in relation to the Transfer Application.
The Court will make orders reflecting:
a)the Court’s conclusion that there ought to be a transfer of the Bankruptcy Action to the Federal Court; and
b)the parties’ consent to there being no order as to costs in relation to the Transfer Application.
I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate:
Date: 2 November 2010
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