The trustee of the Property of Paul Jason Uhrhane, a Bankrupt v Gunn (No 2)

[2013] QDC 287

DISTRICT COURT OF QUEENSLAND

CITATION:

The trustee of the Property of Paul Jason Uhrhane, a Bankrupt & Anor v Gunn & Anor (No 2) [2013]  QDC 287

PARTIES:

THE TRUSTEE OF THE PROPERTY OF PAUL JASON UHRHANE, A BANKRUPT

(First applicant)

and

PAUL LEROY AS TRUSTEE OF THE PERSONAL INSOLVENCY AGREEMENT OF DANIELLE SUZANNE UHRHANE

(Second applicant)

v

KERRY FRANCES GUNN

(First respondent)

and

EDWARD STEPHEN GUNN

(Second respondent)

FILE NO/S:

3130/2013

DIVISION:

Civil- Commercial List

PROCEEDING:

Application

DELIVERED ON:

22 November 2013

DELIVERED AT:

Brisbane

HEARING DATE:

19 November 2013

JUDGE:

Robin QC DCJ

ORDER:

Application filed 9 December 2009 stayed until further order

CATCHWORDS:

Bankruptcy Act 1966 (Cth) s27, s31(1)(f)

Civil Proceedings Act 2011 (Qld) s25, s28

Application by purported mortgagee against trustees of bankrupts for payment out of court of proceeds of sale of bankrupt’s real property following payment in proceeding started by trustees in the Supreme Court in due course transferred to the District Court by consent -whether Federal courts had exclusive jurisdiction

SOLICITORS:

Ms C Rennie, Patane Lawyers Pty Ltd for the first and second applicant

Mr J Loel, Lillas & Loel-Lawyers Pty Ltd for the  first and second respondent

1. Belatedly, a contention has been raised that the court lacks jurisdiction in this proceeding, to which, after taking a short time for consideration, I find myself compelled to give effect. The point is that by reason of s 27(1) of the Bankruptcy Act (Commonwealth) 1966, subject to irrelevant exceptions, the “concurrent jurisdiction Federal Court and the Federal Circuit Court have in bankruptcy” is exclusive of the jurisdiction of all other courts. The two listed exceptions are the High Court and the Family Court. The proceeding was accepted by the parties to be within s 31(1)(f), “applications to declare for or against the title of the trustee to any property.” As will appear, it might also come within “(e) applications to set aside or avoid a charge…”

1. Paragraphs (e) and (f) are instances of the rule set out in s 31:

“Exercise of jurisdiction

(1) In exercising jurisdiction under this Act, the Court shall hear and determine the following matters in open Court:

a)creditors’ petitions;

b)examinations under this Act;

c)proceedings in connection with the consideration of an annulment of a bankruptcy under section 153B;

d)applications under:

(i)section 222 (as applied by section 76B); or

(ii)section 222C (as applied by section 76B);

for an order setting aside or terminating a composition or scheme of arrangement under division 6 of Par IV; …”

The underlined terms are defined in the Act.  There is no definition of “jurisdiction in bankruptcy”, “bankruptcy matter” or any other important term of like import.

1. While s 31 may be regarded as essentially procedural in specifying the way in which the listed applications must be determined, it has been authoritatively decided in appellate decisions which this court must follow that the paragraphs in subsection (1) provide examples of the exercise of “jurisdiction in bankruptcy”, for purposes of applying s 27 in particular. The Court of Appeal in this State so decided in Cordes v Dr Peter Ironside Pty Ltd [2010] 2 Qd R 235 (decided on 9 October 2009) in reliance on an appellate decision of the Federal Court that “s 31(1)(f) provides an example of bankruptcy jurisdiction [that] is not obviously flawed”:[38]. The reference was to Scott v Bagshaw (2000) 99 FCR 573, the point of which decision was that the Federal Court had jurisdiction to entertain a matter, not that some other court did not.

1. Mr Loel, anxious to preserve the value of the work done by the parties already in this court, and earlier in the Supreme Court, and have directions leading to the setting down of the matter for trial early next year made by the court, strove to persuade me that Cordes was distinguishable. In it, a Supreme Court proceeding brought by a bankrupt was stayed in deference to s 27. His basis for distinguishing Cordes was “the parties involved in it being the trustee and the bankrupt rather than ‘strangers to the bankruptcy.’”, by reference to Cooper v Moloney No (5) [2012] SASC 211, where Blue J said:

“65       For the above reasons, the vesting of jurisdiction in the federal courts to determine contests the subject of the three potential qualifications does not disclose any statutory intention that jurisdiction to hear and determine litigation generally in respect of matters external to the bankruptcy be vested exclusively in the federal courts.

Established Principles

66         The following principles are established by intermediate court of appeal authority.

1. Section 27(1) is the source of the federal court’s 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 sections 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 37 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.  This is so notwithstanding that the determination depends upon the construction of sections 58 and 116 of the Bankruptcy Act. …”

1. His Honour’s propositions would have been persuasive, but for Cordes.  Mr Loel conceded that Cordes may support an argument that this court lacked jurisdiction, which he urged by reference to r 5 of the UCPR ought not be lightly accepted. I do not know whether he has been misled by the way in which Cordes was first reported: Lauren Kay Cordes as Trustee for Alexander George v Dr Peter Ironside P/L & ORS [2009] QCA 302, according to his written submissions. The reasons of the Court of Appeal indicate that Cordes was a bankrupt.  The outcome of the proceeding she instituted would, in the Court of Appeal’s view, necessarily involved a finding for or against the title of her trustee in bankruptcy.  It appears that her trustee was the fourth respondent.  As I read the published reasons, the outcome did not depend on that feature.

1. In Cooper v Moloney the authorities considered in Cordes were considered, and distinguished; the Supreme Court of South Australia was found to have jurisdiction notwithstanding that a federal court might have jurisdiction too.  Cordes was not referred to. 

1. Although Cooper was presented as if it were the last word, the decision is certainly not that.  The Full Court of the Federal Court has considered the vital issue more recently in Ferella v Official Trustee in Bankruptcy [2013] FCAFC 43 (7 May 2013), argued before Cooper, but decided afterwards.  In circumstances reminiscent of those encountered here there were instituted:

“THE SUPREME COURT PROCEEDINGS

15.On 16 August 2006 the respondent again advised the appellants that unless an application was made to ‘the Court’ within 14 days to determine the beneficial ownership of the Point Piper funds, it intended to make an interim distribution to creditors.  On 11 September 2006 Agusta commenced proceedings in the Supreme Court of New South Wales.  The first (and only) defendant was said to be the ‘Insolvency and Trustee Service Australia in the Estate of Angelo Ferella and Gustavo Ferella’.  At a later stage the name of the defendant was changed to ‘Official Trustee in Bankruptcy as trustee of the bankrupt estates of Gustavo Ferella and Angelo Ferella’.  The summons commencing the proceedings was signed by Nida Ferella who is the wife of Gustavo Ferella.  Tiziana Ferella, Angelo Ferella’s sister was also described in the summons as an ‘authorised person’.  In the proceedings Agusta sought declarations that:

·   it was the trustee of the Cavallino Unit Trust;

·   the Point Piper land was held pursuant to that trust;

·   the Point Piper funds were held on trust for the Cavallino Unit Trust; and

·   ‘all funds’ held by the respondent were held on trust for the Cavallino Unit Trust.

16.Such relief appears to be of the kind referred to in s 31(l)(f) of the Bankruptcy Act.  If so, then the matter was within the bankruptcy jurisdiction conferred exclusively on this Court and the Federal Magistrates Court, subject only to the jurisdiction of the High Court.  That point was not taken at first instance in the Supreme Court or in the Court of Appeal.  At first instance in this Court, the appellants submitted that the respondent should have resolved the case other than by participation in the litigation which in fact took place.  The primary Judge concluded that there was no reason to believe that the proceedings would have been disposed of more quickly, or with less expense, had they been conducted in some other forum.  The appellants did not complain that the respondent had allowed the proceedings to be conducted in a court other than a court having jurisdiction in bankruptcy.  In the draft amended notice of appeal the appellants now seek to rely upon the fact that the respondent did not identify any lack of jurisdiction in the Supreme Court and take steps to resolve the dispute between the parties in a way which did not involve litigation in a court which lacked the necessary jurisdiction.  The respondent submits that the question cannot be raised at this stage as it was not raised by the appellants in their submission.  We will return to this question.”

1. I am grateful to the Federal Court for a reference to this decision supplied when, with the approval of the parties, I approached that Court with a view to ascertaining whether there was any inexpensive or informal way to obtain leave of the Federal Court whereby the proceeding could go on in this court.  Perusal of the Bankruptcy Act suggests that there is no possibility of such leave in any event. 

1. One could devise strained interpretations along the lines that the trustee’s title to the real property was never challenged , the issue being about money, the proceeds of sale, which properly went to the trustees at settlement. Even if the money were somehow not relevant “property”, it seems clear that the underlying issue is whether the title was subject to a mortgage or charge in favour of the Gunns. It appears that the contest one way or another must go to the Federal Court or to the Federal Circuit Court and perhaps by use of what remains of cross-vesting provisions in which the Supreme Court may have a role but this court certainly does not. The Supreme Court would have to be persuaded to take the proceeding back under s 25 of Civil Proceedings Act 2011 (Qld). The parties on 15 August 2013 filed a request for a consent of order of the registrar, which was made that day, for transfer of the proceeding BS10348/09 from the Supreme Court to the District Court of Queensland. Section 28 does not apply to enable this court to order a transfer the authorities would indicate that the Supreme Court is deprived of jurisdiction on the same basis as this court is. It may be that the proper procedure would be to ask the Supreme Court to vacate the order of 15 August 2013.

1. On 5 November 2013, when the proceeding first came before me, the applicants, separately the trustees of Mr PJ Uhrhane and Ms DS Uhrhane were represented by Mr Dietz of counsel.  Mr Loel, for the nominal respondents, the Gunns, (one of whom is the aunt of one of the bankrupts), was at a disadvantage, having only just had come to his attention (although it had been supplied some days earlier) a 116 page affidavit.  He sought an adjournment of his application for leave to amend his clients’ statement of claim, which would produce the sixth version of it.  I assumed management of the proceeding by placing it on the commercial list, granted the leave to amend sought and fixed a mention for 19 November 2013, which might have been obviated had the parties proved able to agree on directions in the interim.  Steps taken in that regard were derailed when the penny dropped, so to speak, because the prayer for relief in the new statement of claim (which had been known about for some time), used the term “priority” to describe the Gunns’ position vis-a-vis the trustees’. 

1. No one should get too excited about the number of statements of claim.  The Gunns have been telling essentially the same story for a long time now.  The contest has all along over been who should get monies in court, a sum of close to $190,000 and accretions. 

1. The Gunns were second (registered) mortgagees of real property owned by the bankrupts.  After the share of Mr Uhrhane had vested in his trustee, the trustee desired to sell the property but found the Gunns were prepared to sign a release only on payment to them of the debt they claimed was secured by their mortgage.  The trustee applied to the Supreme Court by originating application 10348 of 2009 on 18 September 2009; the Chief Justice made an order requiring a release of mortgage to be provided on a trustee’s undertaking to pay the allegedly secured amount into court, the date of the order being 22 September 2009.  On 9 December 2009, the Gunns filed an application seeking payment to them of the monies in court; the upshot was an order of 22 December 2009 that the application continue as if started by claim, and a timetable directed for dates of pleadings, the Gunns having to go first.  The first statement of claim was filed ahead of time on 4 January 2010.  It sought:

“1.        A declaration:

a.that the amount of $187,919.04 was secured pursuant to registered mortgage 712059563;

b.that the First and Second respondents were entitled at 23 September 2009 to an amount of $187,919.04 from the proceeds of sale of the property described as Lot 14 of SP144928, County of Ward, Parish of Mudgeeraba, Title Reference 50373059;

c.that the First and Second respondents are entitled to an amount of $187,919.04 from the moneys paid into the Court 2 October 2009 pursuant to the order fo this Honourable Court made 22 September 2009;

d.that the First and Second respondent are entitled to interest pursuant to the Supreme Court Act from 23 September 2009.

2.An order that an amount of $187,919.04 plus interest be paid to the Fist and Second Respondents from the money paid into Court 2 October 2009 pursuant to an order of this Honourable Court made 22 September 2009.”

1. It could not have been clearer that the Gunns were after the money and, presumably, at the expense of the trustees, who would otherwise obtain it.  Knowing what we do now, this was the time to get the proceeding before a federal court.  However, the trustees and their legal advisers (in my view entirely understandably) did not advert to what Cordes had recently decided must happen.  I do not know when the decision of 9 October 2009 found its way onto the Courts Website.  The original defence was filed on 13 February 2010; there was no counterclaim.

1. Ms Rennie, representing the trustees now, assures the court that in raising the jurisdictional issue, her clients (whom I suspect harbour some concern about payment of their proper charges and expenses, which will no doubt have priority over claims of the creditors of the bankrupt estates) are not being mischievous or obstructive in raising the jurisdictional issue at this late stage – or seeking to place pressure on the Gunns.  She indicated their preference to have the matter proceed in this court, that the pressing concern was that any resolution of the proceeding by it not be challengeable for lacking a jurisdictional basis. 

1. Ms Rennie submitted that the proceeding ought to be stayed, in which I am driven to conclude that she is correct.  She also seeks costs, in which respect she is not persuasive.  It was her clients’ doing to proceed in a State court when, on basis of the authorities alluded to above, that may not have been necessary, or even appropriate, for the moment, I am not persuaded otherwise by the argument that only in the Supreme Court was there a possibility of the sale proceeds being paid into court.  It is true that a few days ago, Mr Patane raised the point that must be given effect to now.  His evidence and Mr Loel’s (orally) as to whether the latter conceded this court lacked jurisdiction conflict.  I am of the view that costs should be reserved to await the outcome of the wider contest. 

1. The saga includes an outing in the Court of Appeal to establish that the trustees might withdraw their pleaded admission of the registered mortgage.  It is unnecessary to go into detail here, but it is sufficient to say that the trustees challenge not just the registered mortgage, but another one in similar terms (one of which may have been lost), and a loan agreement as forgeries.  The Gunns I understand to assert that they are entitled at the least as equitable mortgagees by virtue of verbal agreements which confirmed the terms of written mortgages.  A further complication is that the trustees assert that the borrower from the Gunns was not the Uhrhanes, but rather their (now liquidated company) Chiefden Pools Pty Ltd, for whose business purposes some if not all of funds advanced were used.  In that case, if there was any security offered by them at all, the Uhrhanes would appear to have granted a third party security, neither than assume any direct personal obligation to pay.  The orders are that this proceeding be stayed until further order, with the costs of and incidental to the mention on 19 November 2013 being reserved.  The implications of the various forgeries may depend on whether they amounted to exercises to get into “legal” form agreements genuinely made.

1. A cloud seems to hang over any litigation involving a bankrupt or a bankrupt’s trustee that is not in a federal court. One wonders whether the inconvenient consequences which sections 27 and 31 of the Bankruptcy Act in combination are now shown to have were foreseen or intended by the Legislature, which one ventures to hope may consider them before too long and perhaps do something about them.  This mention ordered by me for 19 November was intended to take place unless obviated pursuant to a condition that was not fulfilled.  It seems in these circumstances that the parties were expected to attend on the day.  I would not characterise Mr Loel’s argument as completely untenable in terms of the authority located by him and Ms Rennie.