FEDERAL COURT OF AUSTRALIA

Truthful Endeavour Pty Ltd v Condon (Trustee), in the matter of Rayhill (Bankrupt) [2015] FCAFC 70

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

the court

1    On 7 May 2015, at the conclusion of oral argument, this Court made orders dismissing the appeal with costs, indicating that reasons would be given later. These are those reasons.

2    The issue in the appeal was whether the primary judge erred in rejecting the appellant’s contention that, having regard to the principles in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589 (“Anshun”), the action brought by the respondent was an abuse of process.

3    The appeal was against the orders of the Court made on 23 January 2015 declaring that certain property at Kenthurst in Sydney was held by the appellant subject to an equitable charge in favour of the respondent. (See Condon (Trustee), in the matter of Rayhill (Bankrupt) v Truthful Endeavour Pty Ltd [2015] FCA 7.)

4    The respondent, Schon Gregory Condon, is the trustee of the bankrupt estate of Colleen Anne Rayhill (also known by her previous married name as Colleen Anne Lewis), appointed upon the making of a sequestration order on 14 May 2012. In that capacity, he became the registered owner of some real estate in Robson Road Kenthurst. The property had been purchased in August 2001 by Appinville Pty Limited as trustee of the Kenthurst Investments Trust, subject to a mortgage guaranteed by Mrs Rayhill. Mrs Rayhill later became (consecutively) the trustee of the Kenthurst Investments Trust and the registered owner of the property. In June 2011 Robana Investments Pty Ltd (“Robana”) replaced her as trustee and in March 2013 Robana was replaced as trustee by the appellant, Truthful Endeavour Pty Ltd (“Truthful Endeavour”).

5    In the meantime, Louise Lewis, Mrs Rayhill’s daughter, instituted proceedings in the Supreme Court of New South Wales, seeking declaratory and other relief on the basis that Mr Condon held the Robson Road property in trust for her and other beneficiaries under the deed that created the Kenthurst Investments Trust, which was made on the day Appinville purchased the property. Under the Bankruptcy Act 1966 (Cth), upon Mrs Rayhill becoming bankrupt, all her property, with certain exceptions, vested in the trustee (s 58(1)) and was property divisible amongst her creditors: s 116(1)(a). One of the exceptions was property she held in trust for another person: Bankruptcy Act, s 116(2).

6    Mr Condon opposed the application, contending that the Kenthurst Investments Trust was a sham and that, although the property had been purchased by Appinville, Mrs Rayhill had provided the whole of the purchase price so that the property was held by Appinville on a resulting trust in favour of Mrs Rayhill. Rein J held that the Trust had been created with an intent to deceive others but was not a sham. Nevertheless, his Honour dismissed Ms Lewis’s application on the ground that she had no standing to institute the proceeding: Lewis v Condon [2013] NSWSC 120; Lewis v Condon (No 2) [2013] NSWSC 126.

7    Ms Lewis appealed. The appeal was allowed, the Court of Appeal holding that the proceeding should not have been dismissed for want of standing. The Court went on to declare that the property was an asset of the Kenthurst Investments Trust, and remitted the proceeding to Rein J to consider what further relief (if any) was appropriate: Lewis v Condon [2013] NSWCA 204; 85 NSWLR 99. Leeming JA (with whom McColl JA and Sackville AJA agreed) was concerned to point out at [115] that he had:

made no determination as to whether there have been breaches of trust by Colleen, nor [relevantly] … whether there was an entitlement by Colleen, as trustee, to be indemnified from the Property for expenses, if any, incurred by her as trustee (for example, although some of the ANZ Loan moneys may have been used for private purposes, others may have been proper trust expenses). To that extent, Mr Conlon (sic) may have an entitlement to the proceeds of sale of the Property which takes priority over that of the beneficiaries: see Lemery [Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; 74 NSWLR 550] at [20] and the decisions there cited. Nothing in these reasons should be taken as determining those questions one way or the other.

8    In the proceeding below (in this Court), brought about two months after the Court of Appeal’s decision, Mr Condon claimed that there was such an entitlement. He applied for a declaration that as Mrs Rayhill’s trustee in bankruptcy he had an equitable lien over the Robson Road property in order to secure repayment to him of certain sums paid by Mrs Rayhill or on her behalf for the acquisition of the property plus interest or, in the alternative, that the title to the property was held subject to a constructive or resulting trust for him for the same purpose. He also sought an order that an account be taken of the sums paid plus interest and, in the event that a sum was found to be due to him on the taking of the accounts, an order that Truthful Endeavour pay that sum to him, the property be sold and the sum be paid out of the proceeds of the sale. Thus his claim was to vindicate the rights given to him in his capacity as trustee by the Bankruptcy Act.

9    In its defence Truthful Endeavour, amongst other things, contended that Mr Condon was estopped from bringing the application because the claim he was making was “relevant to” Ms Lewis’s Supreme Court action and it was unreasonable for Mr Condon not to have raised in the proceeding before Rein J his claim that Mrs Rayhill was a creditor of the Kenthurst Investments Trust. Before the primary judge, Truthful Endeavour argued that Rein J’s judgment gave rise to an issue estoppel or an Anshun estoppel. The primary judge rejected both arguments. The appeal sought only to challenge the findings on the Anshun estoppel point.

Anshun estoppel

10    There was no dispute about matters of principle in the appeal. The dispute turned on their application. But in order to understand how the principles operate, it is useful to recall the circumstances in which they were enunciated.

11    Before the proceeding with which Anshun was concerned, a dock worker who had suffered injury by the operation of a crane brought a suit for damages against the Port of Melbourne Authority, the owner of the crane, and his employer, Anshun Pty Ltd, which had hired it. By notices given under the Victorian Supreme Court Rules, the defendants sought contribution from each other under the Wrongs Act 1958 (Vic). The notice served by the Authority did not claim an indemnity, although the hire agreement contained a clause obliging Anshun to indemnify the Authority in respect of actions and claims in relation to injury or loss of life arising out of the hire, the Wrongs Act provided for an indemnity in an appropriate case, and the indemnity would have been a defence to Anshun’s claim for contribution. The jury found in favour of the worker and apportioned liability 90% to the Authority and 10% to Anshun. Judgment was entered accordingly. In Anshun the Authority sued to enforce an indemnity under a clause in the hiring contract, a claim that could have been made in the earlier proceeding. Gibbs CJ, Mason and Aickin JJ said at 602-603, in a passage cited by the primary judge at [101] of her reasons, that in a situation in which a plaintiff is said to be estopped because of its omission to plead a defence in an earlier action:

[T]here will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings, e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few…

It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment…

12    The Authority’s application failed because the High Court held that a judgment enforcing the indemnity would conflict with the earlier judgment for 10% contribution. The Anshun principle is based on unreasonable conduct in litigation. It should be noted that in Anshun, Gibbs CJ, Mason and Aickin JJ referred to the inutility of founding the test on abuse of process: Anshun at 602–603; see generally Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; 75 NSWLR 245 (“Champerslife”) at [1]–[4], [89].

13    Anshun was itself an application (possibly even an extension) of the principle expressed by Wigram VC in Henderson v Henderson (1843) 3 Hare 100 at 115; 67 ER 313 at 319:

[W]here a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.

14    The Anshun principle may apply to cross-claims as well as defences: Bryant v Commonwealth Bank of Australia [1995] FCA 1299; 57 FCR 287 (“Bryant”).

The proceeding before Rein J

15    On 19 November 2012 Ms Lewis filed a summons in the Supreme Court seeking a declaration that Mr Condon held the Robson Road property in trust for her and other beneficiaries of the Kenthurst Investments Trust. She also sought an order that Mr Condon transfer the property to Robana, which she alleged was the then trustee of the Trust. The hearing was expedited because the mortgagee of the property had obtained an order for possession and proposed to execute the order on 22 January 2013.

16    In his defence Mr Condon denied that the property formed any part of the assets of the Trust. He alleged that the Kenthurst Investments Trust was a sham and he asserted title as registered proprietor free from any estates and interests not recorded on the register. In response to an allegation that Appinville was registered as proprietor following completion of the purchase and in support of his case that the Trust was a sham, Mr Condon pleaded that Mrs Rayhill provided the whole of the purchase price for the property and that consequently Appinville acquired title to the property subject to a resulting trust in her favour.

17    Over Mr Condon’s objection the matter was set down for an urgent final hearing at a time when Mr Condon had not completed his investigation of Mrs Rayhill’s affairs. The hearing started on 1 February 2013, less than three months after the action had been launched, on the first day of the law term following the summer vacation.

18    After the Court of Appeal’s decision was published, the matter returned to Rein J on 19 July 2013.

19    At this time Mr Grieve QC, who was then appearing for Mr Condon, handed up draft short minutes of order seeking leave to file a cross-claim to enable the determination of the question of whether Mr Condon had an equitable lien over the property or part of the sale proceeds. He referred his Honour to what Leeming JA had said at [115] set out above at [7]. In anticipation of the application Mr Finch of counsel, who appeared for Ms Lewis, made his clients’ position very clear:

FINCH: As I understand it, Mr Condon … wants to open up another Pandora’s box and wants to, in effect, start new proceedings in these proceedings with a cross-claim.

HIS HONOUR: Against who? As you understand it?

FINCH: Well, I wouldn’t imagine it’s Truthful Endeavours, but, nevertheless, these papers were – there were some documents came yesterday. But as far as our interests are concerned it is simple, that if they want to start new proceedings they should start new proceedings. These proceedings have been factored as a determined [sic: finally determined] subject to consequential orders.

20    The position of the apostrophe after the “s” in “clients” in the preceding paragraph is not a typographical error. It seems that Mr Finch did not only appear for Ms Lewis. Truthful Endeavour had been given notice of Mr Condon’s application and had issued a summons itself. We were given to understand that on this occasion Mr Finch also appeared for Truthful Endeavour, instructed by the same solicitors who acted for Ms Lewis and who represent Truthful Endeavour in the current proceeding (see appeal transcript p 26).

21    After Mr Grieve had taken his Honour to the passage in Leeming JA’s judgment, his Honour said that the issue was not to be determined in the proceeding before him. Without demur from Mr Finch, Mr Grieve said “we could start fresh proceedings” to which his Honour replied: “I think that’s what you should do”. The following exchange then took place:

GRIEVE: But the long and the short of it is that our client is concerned on behalf of the creditors of Mrs Rayhill’s estate that if the property is transferred to this trustee it may be disposed of before he’s been able to establish his claim. Now, from a practical point of view, and this is not said in terrorem, but it’s just a matter of inevitable fact, that if our client is ordered to transfer the title today, and he will obviously comply with the order, but he will then immediately caveat the title to assert his entitlement to an equitable lien.

HIS HONOUR: That might bring that to a head, that long issue. But if you are going to bring proceedings anyway, one way or the other you could do that. I think it’s terribly confusing to try to introduce that now into these proceedings, I think it’s too late for that. I think what you have to do is commence fresh proceedings.

GRIEVE: Well, if that’s your Honour’s view, I can’t speak against it.

HIS HONOUR: Yes, it’s my view.

22    Before the hearing concluded, Mr Grieve asked his Honour to note that Mr Condon had formally applied for orders in accordance with the short minutes he had handed to the court and that his Honour had rejected his application “in case there’s some Anshun point that’s raised against us on another day”. His Honour signified his assent. The short minutes were then marked for identification.

23    It should be noted that, for the reasons given below, the proceeding before Rein J was a “special federal matter” that was required to be transferred to this Court under s 6(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (the “Cross-vesting Act”), in the absence of an order under s 6(3) of the Cross-vesting Act that the proceeding be determined by the Supreme Court. But the failure to make that order did not affect the validity of the decision: s 6(9) of the Cross-vesting Act. It would appear that no one drew these matters to the attention of Rein J.

The proceeding in this Court

24    In his originating application filed in September 2013, Mr Condon applied for the following relief:

(1)    a declaration that in his capacity as trustee of Mrs Rayhill’s bankrupt estate he had an equitable lien over the Robson Road property to secure repayment to him of the sums paid by or on Mrs Rayhill’s behalf for the deposit, stamp duty and repayments to the mortgagees for the acquisition of the property, together with interest on those sums;

(2)    in the alternative, a declaration that title to the property was held subject to a constructive or resulting trust in his favour to secure payment to him of those sums with interest;

(3)    an order that an account be taken of the sums paid by or on Mrs Rayhill’s behalf for the deposit, stamp duty and repayments to the mortgagees, plus interest; and

(4)    in the event that a sum is found due to him on the taking of the accounts, an order that

(a)    Truthful Endeavour is liable to pay that sum to him;

(b)    the Robson Road property be sold; and

(c)    that sum be paid out of the proceeds of the sale.

25    He also asked for an order for costs.

26    The originating application was supported by a statement of claim. On appeal we were not provided with the original statement of claim, only an amended statement of claim dated 10 September 2014. By this time, the Robson Road property had been sold. In that document the nature of the relief was narrowed, although it does not appear that the originating application was ever amended. In paragraph 31 Mr Condon claimed:

(1)    a declaration that the sale proceeds were held on resulting trust as to 39.13% in his favour;

(2)    a declaration that the sale proceeds were subject to an equitable charge in his favour to secure repayment to him of the debt due from the Trust to Mrs Rayhill;

(3)    an order that the sale proceeds be paid to him in discharge of the debt due to Mrs Rayhill from the Trust and in accordance with the terms of the resulting trust; and

(4)    costs.

27    These claims were based on allegations made in the amended statement of claim that:

    Mr Condon was the trustee in bankruptcy (para 1);

    Appinville settled the purchase of the Robson Road property on or about 19 October 2001 (para 4), shortly after Appinville was appointed trustee of the Kenthurst Investments Trust (para 3), and upon completion of the sale of the property became an asset of the Trust (para 5);

    The total purchase price paid by Appinville “for and in connection with” the purchase of the property was $1,885,044.60 (para 7), $1,085,000 of which Appinville borrowed from “Permanent Trustees (sic) Ltd” (para 8);

    Mrs Rayhill provided a guarantee to the lender (para 9);

    Mrs Rayhill also provided $737,704.52 “for and in connection with the purchase” (para 10);

    By reason of the initial contributions, the title Appinville obtained on completion of the purchase was held subject to resulting trust or, alternatively, a constructive trust, in Mrs Rayhill’s favour (para 11). Alternatively, she was a creditor of the Trust in the sum of $737,704.52 (para 13);

    Mrs Rayhill was the trustee of the Kenthurst Investments Trust from 1 November 2005 until June 2011 (para 14);

    As a beneficiary of the Kenthurst Investments Trust, Mrs Rayhill had a 39.13% interest in the property, “being the proportion which the Initial Contributions bore to the total amount paid by Appinville in connection with the purchase of the Property” (para 12);

    Mrs Rayhill made additional payments to Appinville in her capacity as trustee of the Kenthurst Investments Trust towards the repayment of the mortgage and to meet outstanding interest payments, which were itemised in paras 15 and 16, and included the sum of $1,708,358.98 paid on 12 October 2007 to discharge the mortgage;

    By reason of these additional payments or, alternatively, by reason of all her contributions, as at 14 May 2012 Mrs Rayhill was a creditor of the Kenthurst Investments Trust in the sum of $2,081,791.77, or alternatively $2,818,496.26 (paras 17-18);

    Alternatively, by reason of the payments she had made as trustee of the Kenthurst Investments Trust, Mrs Rayhill was entitled to be reimbursed from the assets of that trust in the amount of $1,658,364.40 (para 19)

    Pursuant to cl 8 of the trust deed Mrs Rayhill was entitled to be reimbursed from the assets of the Kenthurst Investments Trust and had the benefit of an equitable charge over the assets as security for her claims (para 16);

    On 29 June 2011 Mrs Rayhill was replaced as trustee of the Kenthurst Investments Trust by Robana, which in turn was replaced by Truthful Endeavour in about March 2013 (para 20);

    As trustee of the Kenthurst Investments Trust, Truthful Endeavour is liable to pay the Trust debts and is entitled to an indemnity from the assets of the Trust for the purpose of discharging those debts, including the debt owed to Mrs Rayhill (para 21);

    Upon the making of the sequestration order, the debts the Kenthurst Investments Trust owed to Mrs Rayhill and her rights of reimbursement from the assets of the Trust for the payment she made as trustee became vested in Mr Condon as a trustee in bankruptcy pursuant to s 58 of the Bankruptcy Act (para 22);

    Alternatively, as a creditor of the Kenthurst Investments Trust in respect of Mrs Rayhill’s contributions, Mr Condon is subjugated to the right of indemnity held by Truthful Endeavour against the assets of the Trust and is entitled to an equitable charge over those assets as security for that indemnity (para 23);

    On 31 October 2013 the registered mortgagee sold the Robson Road property (para 24) and upon completion of the sale retained $940,302.21 as surplus to discharge amounts then owing to the bank (para 25), $739,953.65 of which was paid into court (para 26). This latter amount (“sale proceeds”) are assets of the Kenthurst Investments Trust and represent the rest of the property (para 27);

    By reason of the resulting trust, Mr Condon is beneficial owner of 39.13% of the sale proceeds (para 28);

    Alternatively, Mr Condon is entitled to be reimbursed for the trustee payments from the sale proceeds in discharge of the equitable charge over the assets of the Kenthurst Investments Trust (para 30).

28    As will later be seen, the allegations about a resulting or constructive trust were later withdrawn, so the gravamen of Mr Condon’s case was that the sale proceeds were subject to an equitable charge in his favour to secure repayment to him of the debt incurred by the Kenthurst Investments Trust to Mrs Rayhill.

29    It is not necessary for present purposes to say anything about the defence, save with respect to the Anshun point. This part of the defence referred to the proceeding brought by Ms Lewis in the Supreme Court and the allegations made in those proceedings, comparing those allegations with the allegations made in this Court. Truthful Endeavour contended that the present claim was relevant to the earlier proceeding and that Mr Condon’s failure to seek orders in relation to the payments Mrs Rayhill had made to Appinville towards the purchase price and the discharge of a mortgage was unreasonable, as a result of which Mr Condon was estopped from bringing the proceeding and the proceeding was an abuse of process.

30    Nor is it necessary to refer to the particulars of the Anshun defence because of the way the matter was put to the primary judge. Rather, it is convenient to refer to the arguments advanced to support the proposition that Mr Condon was estopped from bringing his case in this Court.

31    Based on the reasons of the primary judge it appears that Truthful Endeavour contended that Mr Condon’s conduct was unreasonable because:

(1)    In the Supreme Court action he put in issue the question of whether the Robson Road property was held on a resulting trust for Mrs Rayhill and called evidence about the source of funds used to purchase the property and pay the ongoing interest;

(2)    Mrs Rayhill’s main creditor was a solicitor who had acted for her and may have held documents relevant to some or all of these matters and he had met with Mr Condon to discuss those matters; and

(3)    Mr Condon had tried unsuccessfully to file a cross-claim in the Supreme Court.

The jurisdiction of the Court

32    Before turning to the primary judge’s reasons there is an antecedent matter which requires attention. That is the question of jurisdiction. In the court below, Truthful Endeavour filed an interlocutory application seeking to strike out the action as an abuse of process on the ground that the Court did not have the jurisdiction to hear it. The interlocutory application was not pressed and her Honour dismissed it without giving reasons. The proposition that the Court lacked jurisdiction was never revived, although the appellant’s written submissions (para 22) contended that the claim for a resulting trust was not within the exclusive jurisdiction of a court exercising jurisdiction under the Bankruptcy Act Still, it is the first duty of a court to be satisfied of its jurisdiction – its public authority to adjudicate: Federated Engine Drivers’ and Firemen’s Association of Australasia v Broken Hill Pty Co Ltd [1911] HCA 31; 12 CLR 398 at 415; Khatri v Price [1999] FCA 1289; 95 FCR 287 at [14]. Presumably the primary judge was so satisfied. In that she was undoubtedly correct. But there is a decision of the Victorian Supreme Court which might cast doubt on this matter. Even in the absence of challenge, any such doubt should be eliminated.

33    The essential character of the proceeding which brings it within federal jurisdiction is straightforward.

34    As we have already said, Mr Condon is the trustee of Mrs Rayhill’s bankrupt estate. He was appointed trustee under the authority of the Bankruptcy Act when the sequestration order was made. At that time Mrs Rayhill’s property vested forthwith in him and became divisible amongst her creditors: Bankruptcy Act, ss 58 and 116(1). “Property” in this context refers to property of “every description”: see the definition of “property” in s 5(1) of the Bankruptcy Act. It includes the right to a chose in action or debt and, relevantly, to an equitable charge by way of security. The application brought by the trustee was one “to declare for…the title of the trustee to any property”: Bankruptcy Act, s 31(1)(f). Section 27 of the Bankruptcy Act confers on this Court and the Federal Circuit Court of Australia concurrent jurisdiction “in bankruptcy” and provides that that jurisdiction is exclusive of all other courts except for the jurisdiction of the High Court under s 75 of the Constitution and of the Family Court under s 35 or 35A of the Bankruptcy Act. (As will be seen below, s 27 must now be read in the light of the Cross-vesting Act, s 4(1).)

35    For present purposes, it is unnecessary to discuss the operation of s 27 and the meaning of the phrase “in bankruptcy”, beyond referring to two Full Court decisions: Scott v Bagshaw [2000] FCA 816; 99 FCR 573 and Meriton Apartments Pty Ltd v Industrial Court of New South Wales [2008] FCAFC 172; 171 FCR 380. From those decisions, the former in particular, there would appear to be no doubt that an application of the kind referred to in s 31(1)(f) is a proceeding in bankruptcy for the purposes of s 27(1) and the definition of “bankruptcy” in s 5(1). In Scott v Bagshaw the trustee of a family trust (Scott) applied for a declaration that each of three properties was charged in his favour with the payment of moneys due under a loan agreement and for the appointment of a receiver to the properties to effect their sale and, to the extent of the debt, the payment to him of the proceeds of sale (after costs and expenses were deducted) and the balance to two of three respondents. The properties were held in the joint names of the first respondent, a bankrupt, and his wife, who was the second respondent (Mr and Mrs Bagshaw). The third respondents were the bankrupt’s trustees in bankruptcy. The primary judge found there was no federal jurisdiction and stayed the proceeding. The Full Court granted leave to appeal and allowed the appeal. After referring to ss 27(1) and 31(1)(f), the Full Court said at [19]-[20]:

19    On the face of the pleadings, the claim is one to realise an equitable charge. The pleadings make no reference of any section of the Act and the matter may be capable of reaching judgment without reference to any section.

20    However, the undoubted effect of an order being made in the terms sought by the appellant would be that a declaration would be made against the title of the third respondents. Upon the third respondents becoming trustees, the title to the properties (and subsequently to the money representing part of the properties) became vested in them: subs 58(1) and s 132 of the Act. The consequence of any such order must therefore be that it would have a necessary adverse effect on the title of the third respondents to the extent that it established title to the appellant. That is a matter that falls within the jurisdiction in bankruptcy.

36    Further, in being a controversy as to what property vests in the trustee by the operation of s 58(1) and what is divisible amongst creditors under s 116(1), the matter can readily be seen as one that arises under a law of the Parliament for the purposes of s 76(ii) of the Constitution and s 39B(1A)(c) of the Judiciary Act 1903 (Cth).

37    Until recently, these propositions as to jurisdiction, and especially that contained in the preceding paragraph, needed little elucidation: if a proceeding is within the jurisdiction “in bankruptcy”, the “matter” of which the proceeding is part must be one arising under the law of the Parliament, that is, the Bankruptcy Act.

38    In Gorkowski v Turner [2014] VSC 200; 285 FLR 66, however, Vickery J in the Victorian Supreme Court held, in effect, that if the issues to be decided by the Court to resolve the controversy about a trustee’s title to property do not specifically involve a federal statute, but are ones which depend for their resolution upon general equity or common law, the matter will not be one which arises under a law of the Parliament. If that were right, it would deny the conclusions of Scott v Bagshaw and Meriton Apartments that the jurisdiction in such a case was “in bankruptcy”. If that were right, the coherent jurisdictional foundation of both this Court and the Federal Circuit Court to supervise and control the exercise of power of, and the estates held by, trustees in bankruptcy would be undermined. It is therefore necessary to identify why and to what extent, with respect, the decision in Gorkowski v Turner is wrong.

39    Gorkowski v Turner concerned a dispute in the Practice Court of the Supreme Court of Victoria about equitable title to land that had been in the name of the bankrupt, Mr Gorkowski. After some trouble and inconvenience (recounted by the judge at [4] of his reasons), the trustee in bankruptcy, Mr Turner, became the registered proprietor of the land in question, thus giving consequential effect to s 58(1) of the Bankruptcy Act. Mrs Gorkowski then filed proceedings in the Supreme Court seeking, amongst other things, a declaration that she owned the property in equity by reason of the dealings between her and her husband in the years before his bankruptcy. Thus, she asserted that the trustee held the property on trust for her. Such a claim had the necessary character of an assertion by her that, pursuant to s 116(2), the property was not divisible amongst the creditors of her husband’s bankrupt estate.

40    Mr Turner filed an application to strike out the proceedings on the basis that the Supreme Court had no jurisdiction because the matter was, by the definition of bankruptcy in s 5(1) and by ss 27 and 31(1)(f) of the Bankruptcy Act (being an application to declare against the title of the trustee of the property), within the exclusive jurisdiction of the Federal Court of Australia and the Federal Circuit Court of Australia. One argument of Mrs Gorkowski was that the Supreme Court was invested with federal jurisdiction by virtue of s 4(1) of the Cross-vesting Act. His Honour upheld that contention and then proceeded to consider the question of whether the proceeding was a “special federal matter” within the meaning of the Cross-vesting Act. Section 6 of the Cross-vesting Act requires a State or Territory Supreme Court in a pending proceeding which is a “special federal matter” (defined in s 3) to transfer the proceeding to the Federal Court (or, in an appropriate case, the Family Court or the Family Court of Western Australia or the Supreme Court of the Northern Territory) unless it makes an order that the proceeding be determined in the court in which it is pending. Such an order may only be made if the court is satisfied that there are special reasons for doing so in the particular circumstances of the case and after written notice has been given to the Attorneys-General of the Commonwealth and of the State or Territory where the proceeding is pending.

41    The judge first examined the Bankruptcy Act. His Honour concluded, in substance, that the proceeding was “an application to declare against the title of the trustee” for the purposes of s 31(1)(f) of the Bankruptcy Act and was therefore the exercise of jurisdiction “in bankruptcy”. Thus, prima facie the application was one in respect of which the Federal Court had exclusive jurisdiction. That conclusion involved the judge following, at this stage of his reasoning, Scott v Bagshaw and Meriton Apartments. (It is unnecessary to discuss the differences of opinion in Meriton Apartments between Branson and Greenwood JJ, on the one hand, and Perram J, on the other.)

42    His Honour then considered the effect of the Cross-vesting Act, and first, the vesting of jurisdiction by s 4(1) of that Act. In short, his Honour reasoned, the effect of that (later) statute upon the (earlier) Bankruptcy Act was to impliedly repeal that part of s 27 of the Bankruptcy Act as provides for exclusive jurisdiction in the Federal Court and Federal Circuit Court. In so concluding at [21]-[37], his Honour relied on a decision of the Full Court of this Court in Re Wilcox; Ex parte Venture Industries Pty Ltd [1996] FCA 1497; 66 FCR 511 at 523-525 (Black CJ, Cooper and Merkel JJ). In Re Wilcox, the Court concluded that the investing of jurisdiction in State Supreme Courts by s 4(1) of the Cross-vesting Act was effective to “disturb” (for this language, see Re Wilcox at 525B, that is, impliedly repeal) the pre-existing regime of exclusive jurisdiction, unless a specific exclusion to the operation of s 4(1) was found in s 4(4) of the Cross-vesting Act, identifying matters arising under nominated statutes.

43    There is no call, here, to question the correctness of Re Wilcox or the judge’s reliance upon it to conclude that the Supreme Court had jurisdiction to hear Mrs Gorkowski’s application, notwithstanding the terms of s 27 of the Bankruptcy Act. The above essential reasoning in Re Wilcox can be seen to be reflected in that of the New South Wales Court of Appeal (Basten, Gleeson and Leeming JJA) in Hopkins v Governor-General of Australia [2013] NSWCA 365; 303 ALR 157 at [8]ff. However, the Court of Appeal disapproved of one aspect of Re Wilcox insofar as the Full Court (66 FCR at 525C-E) expressed the view that, notwithstanding the general approach to the operation of s 4(1) and (4) that they had outlined, the express restriction on State courts in s 9 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) to “review” survived s 4(1) of the Cross-vesting Act. It is unnecessary to enter this debate. It is the next issue with which Vickery J dealt, concerning “special federal matter”, which is controversial.

44    Having concluded that the Supreme Court was invested with jurisdiction by s 4(1) of the Cross-vesting Act (notwithstanding the terms of s 27 of the Bankruptcy Act), his Honour then proceeded to deal with the question of whether “bankruptcy was a special federal matter”: see the proposition at [38] and what follows at [39]-[49] of his Honour’s reasons. The only relevance for the posing and answering of that question was the operation (or not, as the case may be) of s 6 of the Cross-vesting Act concerning the transfer of matters to the Federal Court.

45    At this point, it is helpful to refer in a little more detail to investing of federal jurisdiction in State courts and to the Cross-vesting Act. Section 4(1) of the Cross-vesting Act provides, relevantly, that where the Federal Court has jurisdiction with respect to a civil matter (whether conferred before or after commencement of the Cross-vesting Act) and a Supreme Court would not, apart from this section, have jurisdiction with respect to the matter, then the Supreme Court is invested with federal jurisdiction in respect of the matter. State courts are invested (subject to various qualifications and conditions by the mechanics of withdrawal and simultaneous investing in s 39(1) and (2) of the Judiciary Act) with federal jurisdiction in all matters referred to in ss 75 and 76 of the Constitution. This includes s 76(ii) – any matter arising under any law made by Parliament. Specific statutes may qualify or restrict that general investing. An example is s 27 of the Bankruptcy Act which provides for exclusive jurisdiction of two federal courts in bankruptcy. The authority of Parliament to make jurisdiction in federal courts exclusive is contained in s 77(ii) of the Constitution. Section 4(4) of the Cross-vesting Act lists various statutes and statutory provisions to which “[t]his section does not apply to a matter arising under”. The Bankruptcy Act and provisions of it is, and are, not mentioned in s 4(4). Hence, on the reasoning of Re Wilcox, the judge concluded that s 4(1) operated to impliedly repeal s 27(1) of the Bankruptcy Act insofar as it provided for exclusive jurisdiction of the two named federal courts.

46    The policy of the Cross-vesting Act not only reached to identify matters in respect of which the exclusive jurisdiction of federal courts was not to be disturbed (s 4(4)), but also to identify matters that should be transferred to federal courts. This was done by the notion of a “special federal matter”.

47    It is thus crucial for the operation of the Cross-vesting Act and the policies that underlie it, to understand what a “special federal matter” is. That phrase is defined in s 3(1) of the Cross-vesting Act and identifies certain matters in respect of which the State or Territory court would not, but for the Cross-vesting Act have jurisdiction, as follows:

3 Interpretation and application

(1)    In this Act, unless the contrary intention appears:

….

special federal matter means:

(a)    a matter arising under Part IV of the Competition and Consumer Act 2010 (other than under section 45D, 45DA, 45DB, 45E or 45EA); or

(aa)    a matter arising under the Competition Code (as defined in section 150A of the Competition and Consumer Act 2010) of the Australian Capital Territory or the Northern Territory; or

(ab)    a matter arising under section 60G of the Family Law Act 1975 in a court other than the Family Court of Western Australia or the Supreme Court of the Northern Territory; or

(b)    a matter involving the determination of questions of law on appeal from a decision of, or of questions of law referred or stated by, a tribunal or other body established by an Act or a person holding office under an Act, not being a matter for determination in an appeal or a reference or case stated to the Supreme Court of a State or Territory under a law of the Commonwealth that specifically provides for such an appeal, reference or case stated to such a court; or

(c)    a matter arising under the Administrative Decisions (Judicial Review) Act 1977; or

(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.

48    The closing clause of the definition (that the Supreme Court would not have jurisdiction apart from the Cross-vesting Act) is engaged by s 27(1) of the Bankruptcy Act.

49    As his Honour observed at [40], for an application of the kind brought by Mrs Gorkowski, the only relevant provision is para (e) of the definition in s 3(1).

50    Section 39B of the Judiciary Act deals with the original jurisdiction of the Federal Court. There are, of course, a very large number of statutes which contain individual conferrals of jurisdiction on the Federal Court. Section 27 of the Bankruptcy Act is an example. Section 39B(1A)(c) provides that the original jurisdiction of the Federal Court includes jurisdiction in any matter arising under any laws made by the Parliament (other than criminal matters). This provision operates according to its terms as a general conferral of jurisdiction: Transport Workers’ Union of Australia v Lee [1998] FCA 756; 84 FCR 60 at 67; National Union of Workers v Davids Distribution Pty Ltd [1999] FCA 1109; 91 FCR 513 at 520; Hooper v Kirella Pty Ltd [1999] FCA 1584; 96 FCR 1. It is not a gap filling provision or a bin for odds and ends of jurisdiction not previously given. As a general conferral of jurisdiction, it is to be construed liberally, eschewing limitation and implications not found in the words of the provision: see the cases referred to in ACTEW Corporation Ltd v Pangallo [2002] FCAFC 325; 127 FCR 1 at 23 [54] and [55].

51    Recognising the character of s 39B(1A)(c) as a general conferral of civil jurisdiction of matters arising under laws of the Parliament, it was necessary, for the purpose of determining whether there was a special federal matter, to enquire whether the matter (the controversy) was within the jurisdiction of the Federal Court “by virtue of s 39B”.

52    It should first be noted that, on the hypothesis thus far, the matter was within the jurisdiction of the Federal Court “under or by virtue of” s 27(1) and the definition of “bankruptcy” in s 5(1) of the Bankruptcy Act. Obviously, the Bankruptcy Act is a law of the Parliament. If a general conferral of jurisdiction such as s 39B(1A)(c) conferred jurisdiction on the Federal Court in matters arising under that Act, then the matter would be within the jurisdiction of the Federal Court both under or by virtue of the Bankruptcy Act and also by virtue of s 39B of the Judiciary Act. There being no reason to read para (e) of the definition of “special federal matter” in s 3(1) of the Cross-vesting Act as limited to matters within the jurisdiction of the Federal Court only by virtue of s 39B, if a proceeding such as Mrs Gorkowski’s application was a matter arising under a law of the Parliament (the Bankruptcy Act), then it was a special federal matter.

53    If, as Vickery J found (at [42] of his reasons), Mrs Gorkowski’s application was not a matter arising under the Bankruptcy Act, it is hard to see how it could be a “proceeding under or by virtue of the Act” and so within the federal jurisdiction “in bankruptcy”, in which case both Scott v Bagshaw and Meriton Apartments would have been wrongly decided.

54    His Honour was of the view that Mrs Gorkowski’s application was not a matter arising under the Bankruptcy Act, based on his reading of certain passages from R v Commonwealth Court of Conciliation; Ex parte Barrett [1945] HCA 50; 70 CLR 141 and Felton v Mulligan [1971] HCA 39; 124 CLR 367. The reasoning was at [42]-[49] (footnotes omitted):

42    [T]he present proceeding is not a matter “arising under” the Bankruptcy Act.

43    The test for determining whether a matter “arises under a federal law” was set out by the High Court in R v Commonwealth Court of Conciliation; Ex parte Barrett where Latham CJ said:

“ … 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.”

44    To similar effect is Felton v Mulligan, where the High Court considered what was necessary for a matter to arise under a Federal law.

45    Menzies J said in Felton:

“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.”

46    In the same case, Windeyer J said to similar effect:

“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.”

47    In the present case, although the outcome of the proceeding will affect the property of the Trustee in Bankruptcy, the proceeding does not owe its existence to the Bankruptcy Act in the relevant sense. The issue in question in this proceeding does not owe its existence to any Federal law or nor will the outcome depend upon Federal law for its enforcement. No provision of the Bankruptcy Act is relied upon by either the Plaintiff or the Defendant in the pleadings either to found the Plaintiff's causes of action or to provide a defence to the Defendant, other than paragraph [16] of the defence which pleads that this Court does not have jurisdiction to hear this dispute, founded upon s 27 of the Bankruptcy Act.

48    The proceeding involves the exercise of the Supreme Court's general jurisdiction to determine equitable property rights between two individuals, one of whom happens to be a bankruptcy trustee.

49    Accordingly, the present proceeding is not a “special federal matter” under the Cross Vesting Act and the Supreme Court of Victoria is invested with jurisdiction to determine it.

55    To understand the meaning of the phrase “matter arising under” a law of the Parliament, it is first necessary to understand the width of the word “matter”. It is the whole justiciable controversy: South Australia v Victoria [1911] HCA 17; 12 CLR 667 at 675; and Re Wakim; Ex parte McNally [1999] HCA 27; 198 CLR 511 at [139]-[142]. In Gorkowski it was the claim by Mrs Gorkowski that she was the beneficial owner of property that Mr Turner said was vested in him by a law of the Parliament.

56    The two cases referred to by the judge (Ex parte Barrett and Felton v Mulligan) are two central cases on the meaning of the phrase “arising under” in this context, but they are not exhaustive of the enquiry. The passage from Latham CJ in Ex parte Barrett quoted by the trial judge is indeed central. If the “right in question” owes its existence to federal law, then the matter is one arising under the law, even if the matter can be resolved without involving its interpretation. That the resolution of Mrs Gorkowski’s claim was to be reached through an examination only of equitable doctrine (see [48] of the judge’s reasons) is not, with respect, to the point. Mr Turner’s ownership of the property owed its existence and character to federal law: ss 58(1) and 116(1) of the Bankruptcy Act; Mrs Gorkowski’s claim was that she was the beneficial owner of the property which was therefore not property divisible among the creditors of her husband’s estate for the purposes of s 116(2) of the Bankruptcy Act. The “right in question” claimed by Mr Turner derived from ss 58(1) and 116(1); the “right in question” claimed by Mrs Gorkowski derived from s 116(2).

57    With the utmost respect, [47] of the reasons confuses a proceeding owing its existence to a federal law, such as where a federal statute creates a cause of action (a quintessential example of a matter arising under a federal law), with a right created by federal law that is in question in, or the subject of, the proceeding. It was the latter to which Latham CJ was referring in Ex parte Barrett. Similarly, for the purposes of what Menzies and Windeyer JJ each said in Felton v Mulligan, the federal law vested the rights claimed which were in issue. Mrs Gorkowski challenged the existence of rights conferred on the trustee by federal law. For the matter to arise under a federal law it was not necessary for that challenge to be articulated by reference to federal law. That the challenge (and so the issues in the case) was (or were) based on equitable principle did not detract from the fact that what was in issue was Mr Turner’s title given by ss 58(1) and 116(1) of the Bankruptcy Act and Mrs Gorkowski’s claim that (because of equitable principle) she beneficially owned the property so that the property was not divisible amongst the creditors of the estate by reason of s 116(2) of the Bankruptcy Act.

58    The essential error that is contained in [47] of the reasons is the reasoning to the effect that for there to be a matter arising under the Bankruptcy Act, there must be either a proceeding founded on federal law or a dispute about federal law. If there were, there would, of course, be a matter arising under a federal law; but these matters are not the only matters arising under a law of the Parliament. In this respect, the judge did not, with respect, correctly apply the statements of Latham CJ, Menzies J and Windeyer J in Ex parte Barrett and Felton v Mulligan. His Honour erroneously equated the “issue in question” with the equitable principles or issues to resolve the dispute. Contrary to his Honour’s conclusion, the rights in issue were not the equitable principles or issues to resolve the dispute, but were Mr Turner’s claim to ownership or Mrs Gorkowski’s claim that the property was not divisible. Both of those rights owed their existence to federal law, in the former case to ss 58(1) and 116(1) of the Bankruptcy Act and in the latter to s 116(2). That the outcome of a controversy does not depend on federal law for resolution or enforcement is not determinative.

59    The error is evident when one considers LNC Industries Ltd v BMW (Australia) Ltd [1983] HCA 31; 151 CLR 575, an authority to which his Honour does not appear to have been taken. In that case two companies were in dispute over quotas for the import of vehicles under import licences. The claims were based in contract and trust. The action was started in the NSW Supreme Court where Rogers J found for the defendant (BMW). The plaintiff (LNC Industries) applied for leave to appeal to the Privy Council. If Rogers J had been exercising federal jurisdiction, s 39(2)(a) of the Judiciary Act would have precluded any appeal to the Privy Council. The Attorney-General for the Commonwealth had the case removed to the High Court which held that federal jurisdiction was being exercised because the subject matter of the controversy (the quotas) owed its existence to federal law. The “right in question” owed its existence to federal law; it was not the contractual and equitable principles by reference to which the matter was resolved. The Court said the following at 581-582:

It is true to say that a matter does not arise under a law made by the Parliament merely because the interpretation of the law is involved: Felton v. Mulligan. On the other hand, a matter may arise under a law of the Parliament although the interpretation or validity of the law is not involved: R. v. Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett. The conclusion reached by Latham CJ in that case, and stated in a passage that has often been cited with approval, is “that 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”. Equally, there is a matter arising under a federal law if the source of a defence which asserts that the defendant is immune from the liability or obligation alleged against him is a law of the Commonwealth: Felton v. Mulligan.

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. In R. v. Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett, Latham CJ said that the view which he expressed was in accordance with Federal Capital Commission v. Laristan Building and Investment Co. Pty. Ltd. [11] where Dixon J. said:

“The Seat of Government is an integral part of the Federal System, and I see no reason for denying the application of sec. 76 to laws made pursuant to sec. 52(I). It would follow that a law of the Parliament conferring jurisdiction on the High Court is warranted by sec. 76(II), at least in relation to matters which arise as the result of enactments of the Parliament. It may well be that all claims of right arising under the law in force in the Territory come within this description, because they arise indirectly as the result of the Seat of Government Acceptance Act 1909 (see sec. 6), and the Seat of Government (Administration) Act 1910 (see secs. 4 to 7 and 12). But it is at least clear that a claim to a right conferred by or under ordinances made by the Governor-General in Council under sec. 12 of the Seat of Government (Administration) Act is a matter arising under an enactment of the Parliament.”

This view conforms with what was said by Walsh J. in Felton v. Mulligan and with the judgments of members of this Court in Moorgate Tobacco Co. Ltd. v. Philip Morris Ltd.

The contracts in the present matter were concerned solely with entitlements under the Regulations. The object of the plaintiff's claim was identified in the statement of claim as “any benefit accruing” after a certain time as a result of the utilization of a quota under the Regulations. It is common ground that the “benefit” mentioned is any “benefit” which might accrue under the Regulations. The subject matter of the contracts and of the action arose under and existed only by reason of the provisions of the Regulations and the Act in pursuance of which the Regulations were made. The Act was of course a law of the Parliament and the Regulations were made under it.

The present case is not, to use the words of Windeyer J. in Felton v. Mulligan, one in which the Regulations are merely “lurking in the background”. The very subject of the issue between the parties is an entitlement under the Regulations. In substance the plaintiff's primary claim is to the benefit of rights and privileges under the Regulations. In these circumstances the matter involved in the action arose under laws made by the Parliament. The Supreme Court was therefore exercising federal jurisdiction in dealing with it and it follows that s. 39(2)(a) of the Judiciary Act precludes an appeal to Her Majesty in Council.

(Footnotes omitted; emphasis added.)

60    If a controversy or matter manifested by a proceeding regarding beneficial ownership of property (by reference to equitable principles) claimed by the trustee in bankruptcy by force of ss 58(1) and 116(1) did not arise under the Bankruptcy Act, then what was said by the Full Court in Scott v Bagshaw at [20] would have been wrong. The Full Court was not wrong. In such a case a matter does arise under the Bankruptcy Act. It is a matter in bankruptcy; it is a matter that arises under a law of the Parliament (the Bankruptcy Act); it is a matter within the original jurisdiction of the Federal Court; it is a matter in respect of which the Supreme Court of a State or Territory would not, apart from the Cross-vesting Act, have jurisdiction within the closing clause of the definition of “special federal matter” in s 3(1) of the Cross-vesting Act; and it is a “special federal matter” for the purposes of the Cross-vesting Act, in particular s 6 of that Act.

61    With the utmost respect, Vickery J’s conclusions in Gorkowski that a proceeding of the kind before him was not a matter arising under the Bankruptcy Act, was not within the original jurisdiction of the Federal Court by virtue of s 39B of the Judiciary Act, and so was not a “special federal matter” within ss 3 and 6 of the Cross-vesting Act were wrong and should not be followed.

The primary judge’s reasons

62    We now turn to the reasons of the primary judge for rejecting Truthful Endeavour’s Anshun defence.

63    First, her Honour said that the fact that Mr Condon put in issue the question of whether the Robson Road property was held on a resulting trust and called evidence about the source of the funds used to purchase the property and to pay the ongoing interest did not mean that Mrs Rayhill’s status as a creditor of the Kenthurst Investments Trust was relevant, let alone so relevant, to the subject matter of the proceeding as to make it unreasonable not to have raised the claim.

64    Secondly, her Honour noted that the fact that Mrs Rayhill’s main creditor was a solicitor who had acted for her, may have held some relevant documents and had met with Mr Condon was “neither here nor there”.

65    Thirdly, the fact that in the remitted proceeding before Rein J Mr Condon had tried unsuccessfully to file a cross-claim weighs against any Anshun estoppel, not in favour of it. Ms Lewis objected to it being filed and Rein J upheld the objection on the basis that it could and should be dealt with as part of a new proceeding. Mr Condon accepted the ruling and did what his Honour contemplated. Her Honour went on to observe (at [105]):

If (a point discussed below) Louise Lewis is truly a privy of the trustee of the Kenthurst Investment[s] Trust, then – Louise Lewis having opposed the issues being raised before Rein J on the basis that a fresh proceeding could and should be commenced – it is difficult to see how it can be said by the trustee of the Kenthurst Investment[s] Trust (Truthful Endeavour) to be unreasonable for Mr Condon not to have raised the issues before Rein J. The point seems to be that it was too late for the issues to be raised before Rein J – but, as the transcript discloses, that is not the ground on which the objection was taken before Rein J and it was not the ground on which Rein J decided to reject the cross-claim.

66    Fourthly, neither the judgment of the Court of Appeal nor the judgments of Rein J were inconsistent with Jagot J’s judgment in this case. They deal with different issues.

67    Finally, her Honour agreed with submissions made by Mr Condon that there was no Anshun estoppel having regard to:

(a)    “the circumstances attending the commencement and expedited conduct of the earlier litigation”;

(b)    the forensic difficulties Mr Condon faced in fully investigating the purchase transaction in preparing his defence to Ms Lewis’s claim;

(c)    the limited scope of the issues raised in the earlier proceeding and the appeal;

(d)    the differences between those issues and the issues raised by the present proceeding;

(e)    Rein J’s decision to refuse Mr Condon leave to file the cross-claim and his Honour’s statement that the claims it made should be brought in fresh proceedings.

The appeal

68    Truthful Endeavour seeks to impugn all these findings. The primary judge is said to have erred because, contrary to her Honour’s findings:

(a)    it was indeed unreasonable for Mr Condon not to have raised in the proceeding before Rein J the claim that Mrs Rayhill was a creditor of the Kenthurst Investments Trust;

(b)    the raising by Mr Condon “of the issue of resulting trust” in that proceeding was a circumstance that made it unreasonable for him not to have raised that claim in the earlier proceeding;

(c)    the fact that the solicitor representing Mr Condon, who was also the principal creditor of Mrs Rayhill’s bankrupt estate, held “all relevant documents” was relevant in determining whether Mr Condon’s failure to make the claim in the earlier proceeding was unreasonable;

(d)    the fact that Rein J refused leave to raise the issues “at a late stage in the proceedings” weighed substantially in favour of the conclusion that there was an Anshun estoppel.

69    In its notice of appeal Truthful Endeavour also alleged that the primary judge failed to give adequate reasons for accepting or adopting the submissions made by Mr Condon but abandoned this ground of appeal at the hearing.

70    Mr Condon filed a notice of contention seeking to uphold the primary judge’s decision on the basis that if this Court were to hold that her Honour was wrong to conclude that Mr Condon’s conduct was not unreasonable, the following matters were “special circumstances” which in any event would have justified the rejection of the Anshun defence:

(a)    Mr Condon’s status as trustee in bankruptcy with no first-hand knowledge of the facts and circumstances surrounding Mrs Rayhill’s dealings with the Kenthurst Investments Trust;

(b)    The truncated trial preparation period and the disadvantage that imposed on a litigant in Mr Condon’s position;

(c)    The approach Truthful Endeavour took to Mr Condon’s attempt to file a cross-claim when Ms Lewis’s action was remitted to Rein J; and

(d)    The fact that the Supreme Court refused Mr Condon leave to do so on the basis that he would be free to file fresh proceedings.

No appealable error/ no Anshun estoppel

71    The appeal is in the nature of a rehearing. The question of whether Mr Condon’s conduct was unreasonable called for an evaluative judgment as to the proper conduct of modern litigation: Champerslife at [3]. Neither party addressed the Court on the significance of this for the question of what was the nature of the appellate review: see Studorp Ltd v Robinson [2012] NSWCA 382 at [7]; Murakami v Wiryadi [2010] NSWCA 7; 268 ALR 377 at [33]; and DAO v The Queen [2011] NSWCCA 63; 278 ALR 765 at [83]-[96]; Singer v Berghouse [1994] HCA 40; 181 CLR 201; and Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [38] and [107]. We have thus approached the matter by examining the circumstances and considering whether Mr Condon’s conduct was, in our view, unreasonable, or not.

72    We agree with the primary judge that it was not unreasonable for Mr Condon in Ms Lewis’ proceeding not to contend, or not to press the contention, that Mrs Rayhill was a creditor of the Kenthurst Investments Trust. Indeed, we would go further. In our view, the circumstances were such that the estoppel defence was barely tenable.

73    Truthful Endeavour submitted that the claim should have been made in the proceeding before Rein J “if nothing else because in the application it made on 19 July 2013 he sought to do so but also because all of the issues were appropriate to be dealt with before the same judge at the same time”.

74    We accept that (subject to and in light of the Cross-vesting Act) a case of the kind Mr Condon propounded in this Court could have been part of the case that he brought in the Supreme Court, and that that is relevant to the Anshun enquiry. But that alone is insufficient for the estoppel to operate. Truthful Endeavour conceded as much although some of its submissions might have suggested otherwise. Lord Kilbrandon’s statement to that effect in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581 was disapproved in Anshun and rejected in England: Johnson v Gore Wood & Co [2002] 2 AC 1 at 31 (Lord Bingham of Cornhill). In Anshun the plurality said at 601-602 that his Lordship had taken the principle in Henderson v Henderson too far and that his statement was unsupported by authority. As Mr Condon submitted, it does not represent the law in Australia. Merely because a matter could have been raised in earlier proceedings does not mean it should have been raised. Whether it should have been raised depends upon whether the matter was so relevant as to make it unreasonable not to raise it: Champerslife at [4] (Allsop P).

75    Nor should a mechanistic approach be taken in the identification of common facts or issues: Champerslife at [52] (Giles JA). Anshun recognises that there are “a variety of circumstances” which might justify a party who has not raised an issue in one proceeding agitating it in another.

76    Truthful Endeavour submitted, however, that it would ordinarily be against the proper administration of justice to permit a matter which could have been raised in earlier proceedings to be litigated in later proceedings because of the risk of inconsistent findings “in respect of the same issues”. It pointed to the provisions of s 56 of the Civil Procedure Act 2005 (NSW) (“CP Act”) and ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) (“FCA Act”), which provide that in civil proceedings the “overarching” (FCA Act) or “overriding” (CP Act) purpose of the Act and the rules made under it is to facilitate the resolution of disputes justly, quickly and inexpensively. Consequently, it submitted, “in the absence of any or any proper explanation as to the fact that the issues were not raised in the earlier proceedings, a close connection between the facts in separate sets of proceedings may make it unreasonable not to have agitated the issue in the earlier proceedings and hence raise the estoppel”.

77    It may be doubted whether, as the submission implied, there is any presumptive position or general rule. In each case it is necessary to decide whether the issues raised in the later proceeding was so relevant to the issues raised in the earlier proceedings that it would be unreasonable to permit the proponent to agitate them.

78    Truthful Endeavour’s defence failed at the first hurdle. It was unable to show the connection between the issues in the two proceedings. As the primary judge put it, Mrs Rayhill’s “status” as a creditor of the Kenthurst Investments Trust was not relevant, let alone so relevant, to the subject matter of Ms Lewis’s proceeding as to make it unreasonable for Mr Condon not to have raised that claim in that proceeding.

79    Counsel for Truthful Endeavour, Mr Johnson, relied on the fact that in the action in this Court Mr Condon had applied in his statement of claim for a declaration to the effect that 39.13% of the sale proceeds were held for Mrs Rayhill on a resulting trust and that in the Supreme Court he had filed a defence in which he had pleaded that:

(a)    [Mrs Rayhill] provided the whole of the purchase price for the property; and

(b)    Appinville thus acquired title to the property subject to a resulting trust for [Mrs Rayhill].

80    He also drew attention to Mr Grieve QC’s description of the issue Mr Condon wanted to raise in the cross-claim, namely, whether he had an equitable lien over the property or some part of it.

81    But Mr Condon’s attempt to file the cross-claim was foiled and at the outset of the hearing below in this Court he abandoned the allegation that there was either a resulting or a constructive trust. There was therefore no issue in the proceeding in this Court about title in the property being acquired by Appinville subject to a resulting trust in favour of Mrs Rayhill.

82    In effect, then, Mr Johnson’s submission amounts to no more than a submission that the allegation made in the action in this Court could have been made in Ms Lewis’s action.

83    Two additional observations should be made.

84    First, although there are obvious similarities between an equitable liens and a resulting trust in that both create an equitable interest in the property, there are also important differences. Most importantly, the rights acquired by the holder of a lien are different from the rights acquired by a beneficiary under a trust of any kind. A lien gives the holder an equitable interest in the property but, in contrast to a trust, no beneficial ownership which would enable her or him to use and enjoy the property and take action in respect of it. A lienee has only a security interest. He or she may only resort to the charged property to satisfy a liability. In contrast to a trust, the value of an equitable lien is not tied to the value of the property over which it is fixed. A beneficiary under a trust is entitled to the income of the property. A lienee is not. A trustee’s duties in relation to the trust property are far more onerous than are the lienor’s over the charged property. And the available remedies are different. A beneficiary under a trust may proceed in equity for performance of the trust but not for the sale of the trust property. A lienee, on the other hand, may. See the discussion of this question in Heydon JD and Leeming ML, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 2006) [226]-[229] and Burns FA, “The Equitable Lien Rediscovered: A Remedy for the 21st Century” (2002) 25(1) UNSWLJ 1.

85    Secondly, the nature and extent of the equitable lien the subject of the proposed cross-claim was unknown to the primary judge (or, for that matter, the Full Court) as neither party saw fit to tender the cross-claim. As the onus of making out the estoppel rested with Truthful Endeavour, it is reasonable to infer that it would not have assisted its case to do so.

86    The obligations of the Supreme Court to dispose of Ms Lewis’s action justly, quickly and cheaply, having regard to the real issues (CPA s 56), were unlikely to be served by the introduction of an additional issue which was, at best, peripheral to the questions raised in the pleadings. Moreover, the just resolution of the issues in dispute (FCA Act s 37M) would not be served by denying Mr Condon the chance to have them resolved at all when his earlier attempt to raise them had been opposed by those who now insist that he should have raised them at that time.

87    It is true that the allegation the subject of the thwarted cross-claim might have been made earlier. But the proceeding was brought on very quickly and the hearing expedited. These circumstances, as the primary judge recognised, were undoubtedly relevant to the reasonableness of Mr Condon’s conduct.

88    We also reject the proposition that the primary judge erred in failing to take into account on the question of reasonableness the familiarity Mr Condon would have had with all relevant issues because his solicitor, who was also the principal creditor of Mrs Rayhill’s bankrupt estate, had formerly acted for her and held all the relevant documents.

89    The fundamental problem with it is that it assumes that the solicitor in question held all the relevant documents. The assumption was not supported by the evidence.

90    The solicitor who was the principal creditor of Mrs Rayhill’s bankrupt estate was Salvatore Russo. Mr Russo is the solicitor on the record for Mr Condon in this proceeding but the Court was not taken to any evidence to indicate whether he ever represented Mr Condon in the Supreme Court action.

91    Mr Condon filed an affidavit from Mr Russo in the court below. Mr Russo stated in that affidavit that he was retained by Mrs Rayhill in her family law proceedings from 1 December 2004 until sometime in 2006 and that during that period he was well acquainted with her handwriting from documents she would send to him from time to time and corrections she had made to documents prepared for her. By reference to a number of pages exhibited to his affidavit (presumably taken from those documents), he then identified Mrs Rayhill’s handwriting. The exhibits were not included in the appeal books, presumably because neither party considered them to be relevant. Mr Russo was required for cross-examination, and although he was taken to various documents, he was not asked to identify the “relevant documents” so as to lay the basis for the submission that “all relevant documents” were in his possession during the period he acted for Mrs Rayhill. Moreover, while it was put to him and he accepted that he met with Mr Condon’s solicitors, the admission was not taken any further. Little wonder in the circumstances that the primary judge considered Mr Russo’s involvement to be “neither here nor there”.

92    At the hearing of the appeal, the Court was taken to the evidence of Mr Condon and one Nicholas Dale, both of whom had sworn affidavits in the court below. Mr Dale was Mr Condon’s solicitor. He had also acted for Mr Condon in Ms Lewis’s action since 13 December 2012. Mr Condon was required for cross-examination. Mr Dale was not. Relevantly, the effect of their evidence was that a significant number of relevant documents did not come into Mr Condon’s possession until after Ms Lewis’s action had concluded.

93    Mr Dale said that since the trial in Ms Lewis’s action Mr Condon had obtained “quantities of documents referring to numerous transactions which are relevant to the existence of a resulting or constructive trust in respect of other payments concerning the Kenthurst property in the period from 2000 to 2007”.

94    He said that Mr Condon had sworn an affidavit on 18 July 2013 (presumably in support of the cross-claim he asked to file the next day) in which he had indicated the nature and extent of documentary evidence produced to him after the trial had concluded in response to notices he issued under s 77A of the Bankruptcy Act and a notice issued at his request by the Insolvency Trustee Service of Australia (“ITSA”) under s 77C of the Bankruptcy Act. The notices were issued to a number of financiers and others. They were exhibited to Mr Dale’s affidavit as well as to an affidavit sworn by Mr Condon. Mr Dale said that most of the documents produced in response to the notices were not available to him or Mr Condon at the time of Ms Lewis’s Supreme Court action. Without objection, he asserted that “it was not open to Mr Condon [when the trial was conducted before Rein J] to agitate the matters to which he referred in his affidavit sworn on 18 July 2013”.

95    Mr Dale explained that the documents disclosed numerous transactions between Mrs Rayhill and companies she controlled. One of those documents, which Mr Dale said appeared to be in her handwriting, contained a statement to the effect that Mrs Rayhill had lent more than $2.3 million to one such company (Syfurn Pty Ltd) by about 2003. Other documents, Mr Dale said, were consistent with about $1.7 million “sourced from Syfurn Pty Ltd” being used in late 2007 to discharge a mortgage secured over the Robson Road property at the time. We would also interpolate here that a good deal of Mr Condon’s evidence in chief before the primary judge appears to have been derived from these documents.

96    None of this evidence was challenged. Indeed, as we noted above, Mr Dale was not required for cross-examination. Mr Condon was cross-examined, but it was common ground that no question relevant to the Anshun defence was ever put to him.

97    Mr Golledge submitted:

[N]otwithstanding the proposition in the appeal notice and which was put in submissions that somehow the role of Mr Russo, who had acted in some part of the history and as the solicitor in the court below, somehow, by a process of osmosis or whatever, information that had – he had, should be attributed to Mr Condon. Mr Russo gave evidence orally on a side issue in this case and none of that was traversed with him.

98    Mr Johnson did not contend otherwise.

99    It follows that her Honour was not in error in failing to take into account the familiarity Mr Condon would have had with the relevant issues because Mr Russo held all the relevant documents. The premise for the supposed error was never established.

100    Truthful Endeavour conceded that the primary judge was entitled to take into account Rein J’s decision to refuse leave to Mr Condon to file his cross-claim but that her Honour placed “undue weight” upon that circumstance “having regard to the principles of law applicable to the discretion exercised by Justice Rein and the operation of the Anshun estoppel principle”.

101    This submission should also be rejected.

102    It is impossible to see how it could be said that Mr Condon acted unreasonably in not seeking to agitate the issue when he tried to do so but was foiled in his attempt. We reject the contention that the primary judge gave this matter too much weight. It was only one of several factors that her Honour took into account. Besides, it was a substantial factor in Mr Condon’s favour.

103    Mr Condon was prevented from running the point in the Supreme Court after Ms Lewis, whose interests (as the primary judge found and as Mr Johnson accepted) were effectively the same as Truthful Endeavour’s, objected, through lawyers also representing Truthful Endeavour. The objection was not taken on the basis that the attempt was made too late, but because the allegations should be ventilated, if at all, in fresh proceedings. It was never suggested that if any such proceedings were brought an estoppel might be pleaded in defence. In this respect the circumstances differ markedly from the circumstances in Bryant, where an Anshun estoppel was found to arise. Mr Bryant was warned of such a possibility by senior counsel for the Commonwealth Bank (albeit in rather veiled terms). Here, if anyone’s conduct is unreasonable it is Truthful Endeavour’s decision to raise and maintain an estoppel defence in the particular circumstances of the case.

104    Mr Johnson relied on a decision of the NSW Court of Appeal in Zavodnyik v Alex Constructions Pty Ltd [2005] NSWCA 438; 67 NSWLR 457. In that case a builder, who had lost his application in the Fair Trading Tribunal based on contract on the ground that the contract was unenforceable, filed a fresh application (later transferred to the District Court) relying on restitution or quantum meruit, based on allegations he had made, but abandoned, in the Tribunal. Handley JA, with whom Mason P and Latham J agreed, held that the builder was barred by cause of action estoppel or, alternatively Anshun estoppel. In Zavodnyk, however, there was “a substantial if not total overlap in the facts underlying both claims, and the amount now sued for was comprised within the earlier claim” (at [40]). That is not the case here.

105    In the present case, the issues in the two proceedings were quite different. That is because the proceeding in this Court was founded on an acceptance of the findings of the Supreme Court. In this Court Mr Condon did not claim that Mrs Rayhill had provided the whole of the purchase money for the Robson Road property as he had in the Supreme Court. The claims in this Court, unlike the defence in the Supreme Court, extended to payments made by Mrs Rayhill after the property had been purchased. In this Court, but not in the Supreme Court, Mr Condon claimed that Mrs Rayhill was, by reason of those payments, a creditor of the Trust. In this Court, unlike the Supreme Court, Mr Condon ultimately made no claim that Mrs Rayhill was ever the beneficial owner of the property. In this Court, in contrast to the Supreme Court, Mr Condon’s claim to the proceeds of the sale of the property was made on the basis that Mrs Rayhill was entitled to a charge over the monies by reason of her status as a creditor of the Kenthurst Investments Trust and because, as trustee, she had expended her own money in discharge of trust debts. Consequently, as the primary judge observed, there was no possibility of inconsistent decisions.

106    In Tanning Research Laboratories Inc v O’Brien [1990] HCA 8; 169 CLR 332, Brennan and Dawson JJ said at 346:

A plaintiff who has an unadjudicated cause of action which can be enforced only in fresh proceedings … cannot be precluded from taking fresh proceedings merely because he could have and, if you will, should have counterclaimed on that cause of action in a forum chosen by the opposite party in proceedings in which the opposite party sued him. We do not read the majority judgement in Port of Melbourne Authority v. Anshun Pty Ltd as holding the contrary, except in a case where the relief claimed in the second proceeding is inconsistent with the judgment in the first: see especially at pp. 599-601.

107    In Bryant the Full Court was not quite so rigid, saying at 297–298:

Questions of substantive degree may be involved; and in contrast to defences, many cross-claims may have little or no connection with the principal claim in the action; there may be no more than an identicality of parties. Where that is so, there may be no policy justification for forcing defendants to litigate their claim as cross-claims rather than as principal claims in separate actions in the forum of their choice.

108    Similarly, in Ling v Commonwealth [1996] FCA 669; 68 FCR 180 Wilcox J said at 184E-F that, in considering the question of reasonableness, regard must be had to “all aspects of the case”, including the extent of the overlap between the facts underlying each claim and the “difficulties that existed, or might reasonably have been perceived, in raising the matter earlier”.

109    Earlier at 183B-C his Honour said that it was difficult to see any justification for applying the Anshun principle to a case where the cross-claim had no greater connection with the principle claim than the common identity of the parties. Where cross-claims overlap with the facts of the principal claim but involve additional facts, it is a question of degree. Where the additional facts are substantial, it may be appropriate to accept the reasonableness of separate proceedings.

110    That was the position here.

111    If Truthful Endeavour were right, then Mr Condon would be prevented from bringing a claim which was not raised in any previous proceeding and has therefore not been the subject of any previous judicial determination, and would not be inconsistent with any previous decision, in circumstances where, through no fault of his own, he was unaware of all the relevant facts at the time of the previous proceeding, and when he was effectively encouraged to bring the claim in fresh proceedings by Truthful Endeavour’s own lawyers and a justice of the Supreme Court. Not only would that be a harsh result, as Mr Condon suggested, it would be unjust. Anshun is concerned with preventing injustice. It would be antithetical to the principle for which it stands to hold that the circumstances of this case give rise to an estoppel. The primary judge was entirely correct to reject the proposition.

112    It follows that it is unnecessary to deal with the notice of contention. We would, however, make this observation. The expression “special circumstances” comes from Henderson v Henderson. The approach of the High Court differs in this respect from the approach taken in the United Kingdom. The Australian approach is to focus at the outset on all the relevant circumstances or, as Wilcox J put it in Ling v The Commonwealth at 184, “all aspects of the case”. If it were necessary to decide whether the matters raised in the notice of contention amounted to special circumstances so as to defeat the estoppel, then, for the above reasons, we would hold that they were.

Associate:

Dated:    25 May 2015