Watson v Healey

[1996] FCA 101

CATCHWORDS

BANKRUPTCY  -  jurisdiction  -  application by discharged bankrupt in respect of administration of bankrupt's estate  -  duties of Trustee completed  -  nature of jurisdiction "in bankruptcy".

Bankruptcy Act 1966 ss27, 55, 99, 178; sub-s5(1)
Vexatious Proceedings Restriction Act 1930 (W.A.) s3

Fencott v. Muller (1983) 152 C.L.R. 570
Forshaw v. Thompson (1992) 35 F.C.R. 329
McIntosh v. National Australia Bank (1988) 17 F.C.R. 482
Re Morton; Ex parte Morton v. Westpac Banking Corporation (1987) 77 A.L.R. 520
Official Receiver of Bankruptcy v. Todd (1986) 70 A.L.R. 119
Re Quinn; Ex parte Quinn, Official Trustee in Bankruptcy, Unreported (Federal Court of Australia, Tamberlin J., 22 December 1995)
In re Wheeler; Ex parte Wheeler v. Halse (1994) 54 F.C.R. 166
In re Wong; Ex parte Wong and Donnelly (1995) 131 A.L.R. 180

RE: MICHAEL JOHN WATSON V. GERALD MARK HEALEY AND KATHLEEN MARGARET HEALEY (MW) AND MICHAEL, WHYTE AND CO. AND OFFICIAL TRUSTEE IN BANKRUPTCY

RE: MICHAEL JOHN WATSON V. DAVID WILLIAM DE HAVELLAND AND PETER JOHN BRIDGE AND RICHARD ANTHONY CLARKE CULLEN AND OFFICIAL TRUSTEE IN BANKRUPTCY

WB240 OF 1986

LEE J.
PERTH
28 FEBRUARY 1996

IN THE FEDERAL COURT  )
OF AUSTRALIA         )
GENERAL DIVISION     )
BANKRUPTCY DISTRICT   )
OF THE STATE OF      )   
WESTERN AUSTRALIA     )    NO. WB240 OF 1986

RE:MICHAEL JOHN WATSON

Applicant

and

GERALD MARK HEALEY and

KATHLEEN MARGARET HEALEY (MW)

First Respondent

and

MICHAEL, WHYTE AND CO.

Second Respondent

and

OFFICIAL TRUSTEE IN BANKRUPTCY

Third Respondent

AND:

RE:MICHAEL JOHN WATSON

Applicant

and

DAVID WILLIAM DE HAVELLAND

First Respondent

and

PETER JOHN BRIDGE

Second Respondent

and

RICHARD ANTHONY CLARKE CULLEN

Third Respondent

and

OFFICIAL TRUSTEE IN BANKRUPTCY

Fourth Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER:    LEE J.

DATE OF ORDER:        28 FEBRUARY 1996

WHERE MADE:           PERTH

THE COURT ORDERS THAT:

1. The applications filed by the applicant on 17 May 1995 and 23 June 1995 be dismissed.

1. The applicant pay the costs of the respondents to each application.

Note:Settlement and entry of orders is dealt with in Order 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT  )
OF AUSTRALIA         )
GENERAL DIVISION     )
BANKRUPTCY DISTRICT   )
OF THE STATE OF      )   
WESTERN AUSTRALIA     )    NO. WB240 OF 1986

RE:MICHAEL JOHN WATSON

Applicant

and

GERALD MARK HEALEY and

KATHLEEN MARGARET HEALEY (MW)

First Respondent

and

MICHAEL, WHYTE AND CO.

Second Respondent

and

OFFICIAL TRUSTEE IN BANKRUPTCY

Third Respondent

AND:

RE:MICHAEL JOHN WATSON

Applicant

and

DAVID WILLIAM DE HAVELLAND

First Respondent

and

PETER JOHN BRIDGE

Second Respondent

and

RICHARD ANTHONY CLARKE CULLEN

Third Respondent

and

OFFICIAL TRUSTEE IN BANKRUPTCY

Fourth Respondent

CORAM:    LEE J.
DATE :    28 FEBRUARY 1996
PLACE:    PERTH

REASONS FOR JUDGMENT

The applicant ("Mr Watson") presented a petition under s.55 of the Bankruptcy Act 1966 ("the Act") as a debtor and by force of that section became a bankrupt on 28 April 1986. On the date of bankruptcy Mr Watson's estate was vested in the Official Trustee in Bankruptcy ("the Trustee"). As a result of the Trustee's administration of the estate all debts proved in the bankruptcy were paid in full. The final distribution to creditors who lodged proofs of debt in the bankruptcy occurred on 9 January 1989. By force of the operation of the Act, as it then stood, Mr Watson was discharged from bankruptcy on 29 April 1989. The Trustee's duties under the Act have been completed. It is not contended that surplus assets are vested in the Trustee or that claims affecting Mr Watson's entitlement to those assets have been made to the Trustee.

On 17 May 1995 (the first application) and on 23 June 1995 (the second application) Mr Watson filed two applications in this Court which purported to rely on the bankruptcy jurisdiction conferred on the Court by the Act,
each application bearing the heading and title of an application made in the bankruptcy matter commenced by Mr Watson's petition in April 1986.

On 8 September 1995 I made an order that the question of the Court's jurisdiction to deal with these applications be determined upon written submissions to be filed by the parties.  In due course those submissions
were filed as directed.

In the first application the nature of the claim for relief was described as follows:

"Pursuant to Section 19(1) of the Federal Court of Australia Act 1976 and Sections 17(1)(a), 28(1), 30 (1)b, 32 and 31(1)(f) of the Bankruptcy Act 1966 (Cth) claiming equitable relief for fraudulent misrepresentation, concealed fraud and lodging a false and misleading Certified Copy of Judgment Order and other Proceedings from the Local Court of W.A."

The respondents to the application were two creditors who had proved in the bankrupt's estate, the creditors' solicitors and the Trustee.  In the particulars of the application it was revealed that, in essence, the application sought orders setting aside the proofs of debt that had been lodged by the creditors and accepted by the Trustee in Mr Watson's bankruptcy.

In response to the first application the respondent creditors and solicitors made application to have the application dismissed on the ground, inter alia, that it was an abuse of the process of the Court.  Alternatively, the respondents sought an order that Mr Watson's application be stayed until such time as the respondents' application to have Mr Watson declared a vexatious litigant pursuant to s.3 of the Vexatious Proceedings Restriction Act 1930 (W.A.), and O.21 of the Federal Court Rules ("the Rules"), had been determined.

In the second application Mr Watson made the following claim for relief:

"Pursuant to section 19(1) of the Federal Court of Australia Act 1976 and Sections 27(1)(a), 28(1), 30(1)(b), 31(1)(h), 32 and 178 of the Bankruptcy Act 1966 (Cth) and also under the inherent jurisdiction of this Court, claiming equitable relief for fraudulent misrepresentation, concealed fraud and lodging a false and misleading proof of debt on the 9-7-1986."

The respondents to the application were two creditors who had proved in Mr Watson's estate in bankruptcy, a solicitor who had acted for those creditors at that time and the Trustee.  Again, the essence of the application was a challenge to the Trustee's acceptance of the proofs of debt lodged by the creditors coupled with claims in tort and equity.

The primary question for answer is whether the Court's jurisdiction in bankruptcy is attracted by the applications filed by Mr Watson.

Pursuant to s.27 of the Act the Court has jurisdiction in bankruptcy and by sub-s.5(1) of the Act "bankruptcy" is defined in relation to jurisdiction or proceedings, as meaning "any jurisdiction or proceedings under or by virtue of" the Act. The nature of the Court's jurisdiction in bankruptcy, therefore, is a matter of construction of the Act.

The relevant provisions of the Act are ss.99 and 178. Under s.99 of the Act a bankrupt is entitled to apply to the Court for an order expunging the amount of an admitted debt if the bankrupt considers that the proof of debt has been wrongly admitted by a trustee. By virtue of that provision of the Act the Court has jurisdiction to deal with, and make orders upon, such an application. Furthermore, pursuant to s.178 of the Act a bankrupt affected by any act, omission or decision of the Trustee may apply to the Court and the Court may make such order as it thinks just and equitable. Again, by force of s.178 the Court is empowered to conduct and determine litigation in respect of a controversy arising between a bankrupt and the Trustee of the bankrupt's estate relating to the administration of the bankrupt's estate.

Pursuant to the Constitution the jurisdiction of the Court must be defined with respect to matters arising under a law made by the Parliament. A "matter" to which the Constitution refers is a controversy able to be adjudicated upon and resolved by exercise of the judicial power of the Commonwealth. (See: Fencott v. Muller (1983) 152 C.L.R. 570 per Mason, Murphy, Brennan, Deane JJ. at pp.604-608.) The nature and scope of matters in respect of which the exercise of judicial power is conferred must be found in the law made by the Parliament under which the matters arise, in this case the Act.

It may be accepted that where the jurisdiction conferred is "in bankruptcy" the nature and scope of the matters made justiciable necessarily will be broad.  (See: Forshaw v. Thompson (1992) 35 F.C.R. 329 per Lockhart J. at 334.)

In s.99 the Act makes express provision for a bankrupt to apply to the Court to challenge a proof of debt admitted by a trustee. Subject to the Court's powers to make other orders on such an application it is the intention of the Act that there be finality in, and statutory authority supporting, the Trustee's conclusions of fact as to the validity of claims made in the proofs of debt lodged against the bankrupt's estate. (See: In re Wong; Ex parte Wong and Donnelly (1995) 131 A.L.R. 180 per Sackville J. at 182-183.)
In addition to the express right to apply to the Court provided by s.99 of the Act, s.178 provides a bankrupt with an entitlement to apply to the Court whenever the bankrupt is affected by an act, decision or omission of the Trustee. Therefore, pursuant to s.178 a bankrupt may challenge on broad grounds the manner of exercise of the Trustee's powers in administering the bankrupt's estate. (In re Wheeler; Ex parte Wheeler v. Halse (1994) 54 F.C.R. 166.)

Where the administration of a bankrupt's estate remains uncompleted, then notwithstanding that a bankrupt has been discharged from bankruptcy, the term "bankrupt" as used in the Act may include a discharged bankrupt in an appropriate context. (See: Official Receiver of Bankruptcy v. Todd (1986) 70 A.L.R. 119.) However, there is nothing in the words used in ss.99 or 178, or in the context in which those sections are found, to indicate that the term "bankrupt" as used in either section includes a discharged bankrupt and even less to indicate that it extends to a discharged bankrupt whose bankrupt estate has been fully administered and finalised by a trustee. (See: Re Quinn; Ex parte Quinn, Official Trustee in Bankruptcy, Unreported (Federal Court of Australia, Tamberlin J., 22 December 1995.))

Therefore, if a discharged bankrupt, the trustee of whose estate has completed the duties imposed by the Act, seeks resolution at law of a controversy in respect of an act
of the trustee carried out in the course of the trustee's administration of the estate, there is no jurisdiction in bankruptcy conferred on this Court by ss.99 and 178 of the Act to allow the Court to deal with the matter. If a discharged bankrupt, the trustee of whose estate has completed his duties, alleges that the trustee's administration of the bankruptcy provides a right to a remedy at common law or relief in equity, that right must be pursued in a court with such jurisdiction.

If the Court's jurisdiction in bankruptcy is not attracted by the applications filed there is no federal jurisdiction of which jurisdiction to deal with claims in tort or equity forms part. (See:  McIntosh v. National Australia Bank (1988) 17 F.C.R. 482 per Gummow J. at 484.)

As far as the Act is concerned the right to commence litigation in bankruptcy ends, at least, when the bankrupt has been discharged and the trustee of the bankrupt's estate has fulfilled the duties imposed on the trustee by the Act. As Spender J. said in Re Morton; Ex parte Morton v. Westpac Banking Corporation (1987) 77 A.L.R. 520 at 525:

"Quite simply, it is still, as it always was, in the public interest that there be an end to litigation.  There must, in my view, be a time when the process of insolvency comes to an end, and the subject of it can start anew.  If the conclusion at which I have arrived is wrong, a composition involving one or more secured creditors might well be a never ending story, to
the detriment of not only the debtor but of the public generally.  Mistakes or incorrect estimates ought to be susceptible of correction, but not for eternity."

Not only is Mr Watson no longer a bankrupt, his bankrupt estate has been finalised and the Trustee of the estate completed his functions under the Act more than six years ago. The Act does not contemplate litigation in the form of these applications and accordingly the Court has no jurisdiction in bankruptcy. The applications must be dismissed.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment of his Honour Justice Lee.

Associate:
               Date:

APPEARANCES 8 SEPTEMBER 1995 AND WRITTEN SUBMISSIONS

APPLICATION FILED 17 MAY 1995

Applicant in person.

Counsel for the First and Second Respondents:  C.M. Donatti
Solicitors for the First and Second Respondents:  Michael, Whyte & Co.

Counsel for the Third Respondent:  L.B. Price
Solicitors for the Third Respondent:  Australian Government Solicitor

APPLICATION FILED 23 JUNE 1995

Applicant in person.

Counsel for the Second and Third Respondents:  R.A.C. Cullen
Solicitors for the Second and Third Respondents:  Dwyer Durack

Counsel for the Fourth Respondent:  L.B. Price
Solicitors for the Fourth Respondent:  Australian Government Solicitor

Date of Judgment : 28 February 1996