FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - application of s 58(3) - whether leave should be granted under s 58(3) of Bankruptcy Act 1966 (Cth) - whether proceedings in respect of a provable debt - whether proposed claim may obtain advantage over other creditors in bankrupt's estate - terms of leave.

PRACTICE AND PROCEDURE - jurisdiction - whether application under s 58(3) of Bankruptcy Act 1966 (Cth) is "special federal matter".

WORDS AND PHRASES - "legal proceedings in respect of a provable debt" - "special federal matter".

Bankruptcy Act 1966 (Cth) ss 58(3), 82, 116 (1)(a) and 149(4)

Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) ss 3 and 6

Judiciary Act 1903 (Cth) ss 38, 39(2) and 39B(1A)

Wrongs Act 1936 (SA) ss 25 and 26

Corporations Law ss 232, 598(4), 1317HD, 1317JA(2) and 1318(1)

Allanson v Midland Credit (1977) 16 ALR 43, applied

Cherry v Boultbee (1839) 4 My & Cr 442, considered

Re Thellusson, ex parte Abdy [1919] 2 KB 735, considered

Nocton v Lord Ashburton [1914] AC 932, considered

Re McMaster; Ex parte McMaster (1991) 33 FCR 70, followed

Tarea Management (North Shore) Pty Ltd (In liq) v Glass (1991) 28 FCR 93, approved

Storey v Lane (1981) 147 CLR 549, approved

Fraser v Commissioner of Taxation (1996) 69 FCR 99, followed

Ex parte Llynvi Coal & Iron Co; Re Hide (1871) LR 7 Ch 31, considered

Cornelius v Barewa Oil & Mining (NL) (In liq) (1982) 42 ALR 83, considered

Duke Group Ltd v Pilmer (1998) 27 ACSR 1, considered

IN THE ESTATE OF GARY MILTON KILLINGTON

EX PARTE: PHILIP ANTHONY CHISHOLM v THE OFFICIAL TRUSTEE IN BANKRUPTCY OF THE ESTATE OF GARY MILTON KILLINGTON

SG 7196 of 1998

MANSFIELD J

ADELAIDE

20 NOVEMBER 1998

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 7196 of 1998

IN THE ESTATE OF GARY MILTON KILLINGTON

BETWEEN:	EX PARTE: Philip anthony chisholm APPLICANT
AND:	the official trustee in bankruptcy of the estate of gary milton killington Respondent
JUDGE:	MANSFIELD J
DATE OF ORDER:	20 november 1998
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1. To the extent that such leave is necessary by reason of the provisions of s 58(3) of the Bankruptcy Act 1966 (Cth), leave is granted to Philip Anthony Chisholm to maintain his present appeal in Supreme Court of South Australia Action No 844 of 1996 for the purpose of seeking an order joining the Official Trustee in Bankruptcy as Trustee of the bankrupt estate of Gary Milton Killington as a party in the said Supreme Court proceedings, but only in so far as such appeal seeks the joinder of the Trustee in respect of the proposed claims by Philip Anthony Chisholm against the Trustee:

(a) that Philip Anthony Chisholm is entitled to indemnity or contribution at common law or in equity from the bankrupt estate of Gary Milton Killington in respect of any liability of Philip Anthony Chisholm to the plaintiffs or either of them in the said Supreme Court proceedings ("the indemnity claim"), and

(b) that Philip Anthony Chisholm is entitled to indemnity or contribution from the bankrupt estate of Gary Milton Killington under ss 25 or 26 of the Wrongs Act 1936 (SA) in respect of any liability of Philip Anthony Chisholm to the plaintiffs or either of them in the said Supreme Court proceedings ("the Wrongs Act claim").

2. In the event that the Supreme Court orders or permits the Trustee to be joined as a party in the said Supreme Court proceedings, leave is granted to Philip Anthony Chisholm to institute and maintain the proposed claims against the Trustee in the said Supreme Court proceedings only in respect of the indemnity claim and the Wrongs Act claim.

3. The leave hereby granted is subject to the term that, in the event that in the said Supreme Court proceedings (including any appeals) the Court should give any judgment or make any orders that the Trustee as trustee of the bankrupt estate of Gary Milton Killington is liable to Philip Anthony Chisholm, Philip Anthony Chisholm will not take any step or steps to enforce any such judgment or order other than by seeking to prove the same in the bankrupt estate of Gary Milton Killington, except with the prior leave of a court having jurisdiction under s 58(3) of the Bankruptcy Act 1966 (Cth) to otherwise order.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 7196 of 1998

IN THE ESTATE OF GARY MILTON KILLINGTON

BETWEEN:

EX PARTE: Philip anthony chisholm

APPLICANT

AND:

the official trustee in bankruptcy of the estate of gary milton killington

Respondent

JUDGE:	MANSFIELD J
DATE:	20 november 1998
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

The applicant Philip Anthony Chisholm ("Mr Chisholm") is the defendant in proceedings in the Supreme Court of South Australia Action No 844 of 1996 ("the Supreme Court proceedings"). He wishes to join the Official Trustee in Bankruptcy ("the Trustee") in the capacity as trustee of the bankrupt estate of Gary Milton Killington ("Mr Killington") in the Supreme Court proceedings. On this application, Mr Chisholm seeks either a declaration that s 58(3) of the Bankruptcy Act 1966 (Cth) ("the Act") does not prevent him from joining the Trustee in those proceedings, or alternatively he seeks leave to do so under s 58(3)(b).

Section 58(3) of the Act relevantly provides:

"(3) Except as provided by this Act, after a debtor has become a bankrupt, it is non competent for a creditor:

(b) except with leave of this Court and on such terms as the Court thinks fit, to commence any legal proceedings in respect of a provable debt or take any fresh step in such a proceeding."

THE SUPREME COURT PROCEEDINGS

In the Supreme Court proceedings, Nedlands Pty Ltd (in liquidation) ("Nedlands") and its liquidator Russell Henry Heywood-Smith ("Mr Heywood-Smith") are plaintiffs. Mr Chisholm is the sole defendant. As the pleadings indicate, many of the facts alleged in the Supreme Court proceedings are not in dispute.

The relevant period is from 24 October 1991 to 30 September 1992. Mr Killington held 85 per cent of the issued shares in Nedlands, and partly by reason of the issued shares being of different classes with different voting rights, he could control the voting at a general meeting. On about 19 January 1992, Mr Killington left Australia. There is an issue as to whether he left, intending never to return and so defeat or delay his creditors. He was made bankrupt on 30 September 1992, and the Trustee was appointed trustee of his estate. He died on 5 March 1997 whilst still overseas.

Mr Chisholm authorised or procured five payments of monies payable to Nedlands to be transferred to Mr KillingtonÕs account or at his direction overseas, namely:

.	$271,431.38	on	20 January 1992
.	$162,400.00	on	February 1992
.	$ 34,000.00	on	28 February 1992
.	$ 88,874.11	on	5 May 1992
.	$ 30,000.00	on	5 May 1992

and he also authorised payment of $6,857.60 of Nedlands funds on 5 May 1992 to discharge a personal liability of Mr Killington.

The claim is for declaratory orders, an order under s 1317HD of the Corporations Law (Òthe LawÓ) to recover the losses suffered by Nedlands by reason of those payments, and damages, and an order under s 598(4) of the Law.

The matters in contention in the Supreme Court proceedings are primarily whether Mr Chisholm, in relation to those payments, acted in breach of s 232 of the Law. Mr Chisholm asserts in his defence that at all times he acted properly, that at all times Nedlands was solvent, and that Mr Killington was the governing director of Nedlands so that Mr Chisholm was obliged to comply with Mr Killington's directions to make or procure those payments, and that they were in the nature of interim dividends. He seeks an order relieving him from liability under s 1317JA(2) or s 1318(1) of the Law. He also claims to be entitled to be indemnified by Nedlands under Article 113 of its Articles of Association, or not to be liable to Nedlands by reason of Article 114 of its Articles. The defence also includes the following:

"16. Further, and in answer to the whole of the plaintiffs' claim, the defendant says that if he is liable to the plaintiffs or any of them in damages (which is denied) the amount of damages is claimed as [sic] excessive, and any entitlement to damages from the defendant is limited to the amount equivalent to such amount (if any) as is payable to shareholders namely Christopher Killington, Catherine Killington and Lisa Killington upon the winding up of the first plaintiff in accordance with Article 115 of the Articles of Association.

17. Further, and in answer to the whole of the plaintiff's claim, the defendant says that if he is liable to the plaintiffs or either of them in damages (which is denied) the amount of damages is to be calculated by a reduction of the sum of $557,474.83 as referred to in paragraph 35 of the Amended Statement of Claim by the sum equivalent to the benefit which the first plaintiff has in its right to set off in equity the said sum against the amount payable by it to the estate in bankruptcy of the late Gary Milton Killington as a shareholder upon the distribution of the surplus assets of the first plaintiff in accordance with Article 115 of its Articles of Association."

Finally, he disputes that s 1317HD applies to the time at which the several payments were made.

The Supreme Court proceedings are listed for trial commencing on 1 March 1999.

On 17 August 1998, and after the close of pleadings, Mr Chisholm applied to join the Trustee as a defendant in the Supreme Court proceedings. The affidavit of Mr Chisholm in support of that application makes it plain that the order sought was to join the Trustee as a defendant, as distinct from bringing third party proceedings against the Trustee. On 21 August 1998, that application was refused by a Master of the Supreme Court. On 31 August 1998, Mr Chisholm appealed from that refusal. That appeal was heard on 14 October 1998, but was adjourned during argument when the issue arose as to whether s 58(3) of the Act presented an impediment to the proposed joinder in any event. The parties all took the view that that question involved a "special federal matter" as defined in s 3 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), and that the present application should be brought in this Court.

THE ISSUES

It is of course entirely for the Supreme Court to determine whether or not a party should be permitted to be joined to the Supreme Court proceedings. Consideration of the present application is confined to be proper operation of s 58(3) of the Act. It is not to be taken as otherwise reflecting in any way on the outcome of the appeal in the Supreme Court proceeding.

The proposed joinder of the Trustee as a defendant, or as it emerged in argument alternatively as a third party, is clearly in the relevant sense a commencement of legal proceedings. The issues argued before the Court were:

1. whether such proceedings were in respect of a provable debt; and

2. if so, whether in the circumstances, leave to commence and maintain the proposed proceedings should be given to Mr Chisholm and if so, upon what terms.

The Trustee, to the extent that leave to proceed is necessary under s 58(3)(b) of the Act, in the circumstances does not oppose Mr Chisholm being granted leave to continue the present appeal in the Supreme Court proceedings and, if successful, to join the Trustee as a party in the Supreme Court proceedings provided that such leave:

(a) is granted for the sole purpose of enabling Mr Chisholm to prove in the bankrupt estate of Mr Killington, in the event that in the Supreme Court proceedings (including any appeals) the Court gives a judgment or makes an order that the Trustee as trustee of Mr KillingtonÕs bankrupt estate is liable to Mr Chisholm for any cause of action capable of being proven in the bankrupt estate of Gary Milton Killington pursuant to the Act, and

(b) does not extend to the taking of any step to enforce any judgment or order given in the Supreme Court proceedings against any of the assets of Mr Killington which have vested or may vest in the Trustee as trustee of the bankrupt estate of Gary Milton Killington, without the prior leave of the Court.

In effect, as a practical matter, the Trustee's attitude quite properly is to ensure that if Mr Chisholm has an entitlement to any judgment against the bankrupt estate of Mr Killington, or in respect of Mr Killington's conduct, any such entitlement should be able to be enforced only in accordance with the Act. That attitude reflects the observations of the Full Court (Bowen CJ, Riley and Deane JJ) in Allanson v Midland Credit (1977) 16 ALR 43 at 49:

'Where a court is given power to grant leave to perform a particular act, or pursue a particular course of action, and the question whether the need for such leave has arisen involves difficult and complicated questions of law or fact, it is permissible, in an appropriate case, to proceed on the basis that such leave is necessary rather than involve the parties in the futile exercise of determining, possible after a series of appeals, whether the need for such leave has arise.'

Subject to the particular issues discussed below, that is an appropriate way for this matter to be dealt with.

The Trustee is concerned to ensure, however, that the basis of the proposed proceedings against the bankrupt estate of Mr Killington should result in no more than a judgment or order which, if it is a debt provable in the normal way, will be treated in accordance with the statutory scheme under the Act for properly applying the assets of a bankrupt estate. Paragraphs 16 and 17 of the defence in the Supreme Court proceedings indicate the possibility that Mr ChisholmÕs proposed claims against the Trustee might involve more than that.

It is necessary to consider more closely the nature of the proposed claims by Mr Chisholm against the Trustee.

THE NATURE OF THE PROPOSED CLAIMS

The proposed claims against the Trustee as trustee of the bankrupt estate of Mr Killington were identified in the course of submissions.

Primarily, Mr Chisholm seeks to contend that if he is liable to Nedlands, then Mr Killington should also be liable to Nedlands. In addition, he also claims that Mr Killington should indemnify him in respect of any liability he incurs to Nedlands. He asserts that he made or procured the payments which give rise to Nedland's claim against him at Mr Killington's request and instruction made as governing director of Nedlands. The claim for indemnity, so identified, could be dealt with in the way contemplated by the Full Court in Allanson.

However, the nature of the causes of action said to arise, and of the relief claimed, as explained in the course of submissions are more extensive than a proposed claim for indemnity. The proposed claims against the Trustee were identified as follows:

1. The claim by Mr Chisholm against the Trustee for indemnity in respect of any liability of Mr Chisholm to Nedlands. It is to be asserted that a fiduciary relationship existed between Mr Chisholm and Mr Killington which, in the circumstances, entitles him to such relief. I shall call this claim "the indemnity claim".

2. The claim by Mr Chisholm, said to be based upon Cherry v Boultbee (1839) 4 My & Cr 442, which is said somehow to entitle Mr Chisholm to a determination

(i) that to the extent to which he is liable to Nedlands, the bankrupt estate of Mr Killington should also be liable, and

(ii) that he cannot be ordered to meet any liability which he otherwise has to Nedlands unless and until the bankrupt estate of Mr Killington has paid to Nedlands the amount of that same liability, or alternatively the amount by which the estate of Mr Killington may derivatively benefit as a holder of 90 per cent of the issued shares in Nedlands.

I am not to be taken as indicating that I accept that that case provides a foundation for this claim. I do not need to address that question. The purpose of this claim is to procure a total or substantial reduction in the amount which Nedlands may be entitled to, rather than to constitute a sum payable to Mr Chisholm in respect of any liability he has to Nedlands. It is a development from pars 16 and 17 of the defence. I shall call this claim "the Cherry v Boultbee defence".

3. The claim by Mr Chisholm for orders under s 1317JA(2) or s 1318(1) of the Law relieving him from liability to Nedlands. No specific orders are sought against the Trustee, but it is said he should be joined so that he is bound by any findings made as between Nedlands and Mr Chisholm. I shall call this claim "the statutory defences".

4. The claim by Mr Chisholm for indemnity or contribution from the Trustee under ss 25 and 26 of the Wrongs Act 1936 (SA), based upon Mr Killington's conduct in relation to procuring the payments or receiving the benefit of them. I shall call this claim the "Wrongs Act claim".

5. The claim by Mr Chisholm that, if he is liable to Nedlands as claimed, the Trustee in the capacity of a shareholder in Nedlands should not be entitled to receive from Nedlands any monies upon distribution of the net proceeds of the winding up of Nedlands. Mr Chisholm relies upon Re Thellusson, ex parte Abdy [1919] 2 KB 735, to support the claim. It is not clear how the liquidator of Nedlands can be ordered not to comply with the Law; or in what other way the funds held by the liquidator should be applied. This claim is a variation on the Cherry v Boultbee defence. Again, I am not to be taken as accepting that this claim is arguable. It is not necessary to consider that question. I shall call this claim "the non-distribution claim".

Mr Chisholm contends that in respect of each of these five claims, leave to proceed against the Trustee is not required because s 58(3) only applies to legal proceedings in respect of provable debts and each of the claims is not in respect of a provable debt, as defined in s 82 of the Act. He acknowledges that there is room for argument to the contrary in respect of the indemnity claim and the Wrongs Act claim, at least in so far as he may base those claims upon having acted as agent for Mr Killington as governing director. He seeks leave under s 58(3) to cover that possibility. He also accepts that the non-distribution claim may fall under the aegis of s 58(3).

Section 82 of the Act provides:

"(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

...

(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy."

Put briefly, the primary contentions of Mr Chisholm with respect to the several claims are as follows. The indemnity claim is based on the proposition that the court will not allow parties to benefit from their own fraudulent conduct: Nocton v Lord Ashburton [1914] AC 932 at 954-955 per Viscount Haldane LC, and the remedy for such conduct is an order for the payment of unliquidated damages, so it is not a provable debt, by reason of s 82(2) of the Act. The Cherry v Boultbee defence is said to involve a rule that a person who has an obligation to contribute towards a fund, but who is also entitled to benefit from that fund, will not be allowed to benefit unless that person first contributes to the fund. Mr Chisholm submits that the application of that principle results in Nedlands not being entitled to recover from him the amount of its claim because the Trustee has 85 per cent shareholding in Nedlands and will (in some way which assumes no creditors of Nedlands) therefore otherwise recover 85 per cent of any monies paid by him to Nedlands. Consequently, it is contended, s 58(3) of the Bankruptcy Act does not apply because this claim seeks an order in relation to Mr ChisholmÕs liability to Nedlands and not in respect of any liability of the Trustee to him. Similarly, it is said that the statutory defences, if successful, will result in Mr Chisholm being relieved of liability to Nedlands, and do not involve any claim against the Trustee which could be in respect of a provable debt. The Wrongs Act claim, if successful, is said to constitute a claim for unliquidated damages, which would fall under s 82(2) of the Act and so not be in respect of a provable debt. The non-distribution claim, which is a variation on the Cherry v Boultbee defence, operating at a later stage in the potential money trail, is said not to attract s 82 because the orders sought would not involve a claim against the Trustee but an order that the Trustee not be entitled to receive certain monies.

CONSIDERATION OF APPLICATION

There are two questions which arise for decision under s 58(3)(b). The first is whether the leave of the Court is required in relation to the proposed proceedings, and if so, the second is whether in all the circumstances, that leave ought be given.

I agree with Hill J in Re McMaster; Ex parte McMaster (1991) 33 FCR 70 that the words "in respect of" should be given a wide meaning: Tarea Management (North Shore) Pty Ltd (In liq) v Glass (1991) 28 FCR 93 at 100, so as to give effect to the policy underlying s 58(3). That policy, as his Honour noted at 72, is well expressed by Gibbs J in Storey v Lane (1981) 147 CLR 549 at 557:

"to assist in ensuring that the assets of the insolvent debtor are distributed in the interests of creditors generally, to prevent one creditor obtaining an undue advantage over the others, and to prevent the scheme of the Bankruptcy Act from being defeated".

Reference should also be made to the decision of the Full Court in Fraser v Commissioner of Taxation (1996) 69 FCR 99, at 112-115 per Beaumont J, with whom Black CJ and Tamberlin J agreed.

The ambit of s 82 of the Act is also a wide one. In Ex parte Llynvi Coal & Iron Co; Re Hide (1871) 7 LR Ch App 28 at 31 James LJ noted in relation to an equivalent provision that:

"Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be a freed man Ð freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets."

Hill J in McMaster, at 72-73, said in a passage quoted with approval in Fraser at 112:

"The modern bankruptcy law serves three purposes. The first is to ensure that the assets of the bankrupt are distributed rateably among creditors. The second, which is interrelated with the first, is to ensure that one creditor does not obtain an undue advantage over other creditors. The third is to bring about the discharge of the debtor from future liability for his existing debts, so that the debtor may start afresh"

In the case of the indemnity claim and the Wrongs Act claim, I am not persuaded that s 82(2) applies so as to exclude those claims from debts provable in the bankruptcy of Mr Killington, notwithstanding the reference by Mr Chisholm to Cornelius v Barewa Oil & Mining (NL) (In liq) [1982] WAR 311, and to Duke Group Ltd (in liq) v Pilmer (1998) 27 ACSR 1 at 382-382. I do not have the benefit of a detailed proposed statement of claim. The transactions giving rise to those two proposed claims occurred before Mr KillingtonÕs bankruptcy. I have not heard full argument as to whether the two claims are in truth demands for unliquidated damages arising otherwise than by breach of trust.

However, granting leave to institute those two claims against the Trustee in the terms to which I have referred above, and in which Mr Chisholm acquiesces, would not subvert the objective of the Act. The assets of Mr Killington would still be distributed rateably among his creditors, and Mr Chisholm would not obtain an undue advantage over other creditors. The ultimate discharge of Mr Killington is now, in a practical sense, unrealisable, as he was not discharged from bankruptcy before his death. He did not, I am told, file his statement of affairs at any time prior to his death. Consequently, he and his estate do not benefit from any automatic discharge from bankruptcy: s 149(4) of the Act. There are sound reasons why the resolution of those two claims is better determined in the Supreme Court proceedings than by the proof of debt process under the Act, at least to the extent of a determination being made as to their validity and as to their quantum. The resolution of the issues in the Supreme Court proceedings provides a suitable alternative forum to the proof of debt procedure under the Act to determine whether such claims should succeed. The facts in issue, and their legal significance, arise in any event in the Supreme Court proceedings in the pleadings between Nedlands and Mr Chisholm. A comprehensive and contested trial provides a suitable vehicle for the determination of those issues. It will obviate the possible need for there to be two separate proceedings, with not all parties being entitled to participate. In a general sense, there is no suggestion that the bankrupt estate of Mr Killington will suffer financially if the leave is given.

In accordance with the approach of the Court in Allanson, rather than proceed to decide whether those two claims give rise to a debt or debts provable in Mr KillingtonÕs bankruptcy, I propose to grant leave to proceed in respect of those claims to the extent that such leave is necessary. That leave will include leave to maintain the current appeal in the Supreme Court proceedings for that purpose. It is, of course, entirely for that Court whether, on that appeal, any order is made joining the Trustee as a party to the Supreme Court proceedings in respect of either or both of those claims. I note that counsel for Nedlands, who I permitted to intervene to make brief submissions, concluded that as a matter of law both the indemnity claim and the Wrongs Act claim are not sustainable. I have not addressed those contentions in giving the leave which I propose to give. Such considerations may well be relevant in the Supreme Court proceedings on the topic of whether, on the appeal, the Trustee should be added as a party.

As expressed in argument, neither the Cherry v Boultbee defence nor the statutory defences involve Mr Chisholm seeking any orders against the Trustee. It was said that it was sought to

join the Trustee so that he may be bound by the findings made in relation to those defences. If the Trustee is joined in the Supreme Court proceedings, in the light of the leave that is proposed in relation to the indemnity claim and the Wrongs Act claim, that consequence will follow. If the Trustee is not joined in the Supreme Court proceedings in respect of those claims, I would not give leave under s 58(3) to join him in respect of the Cherry v Boultbee defence or in relation to the statutory defences. The purpose of the proposed joinder, when no relief against him is sought in respect of those matters, is not likely to serve the purposes of the Act. In particular, where the purposes of each of those defences is to disentitle Nedlands to any judgment against Mr Chisholm, or to reduce significantly the amount of any judgment to which Nedlands might be entitled against Mr Chisholm, the consequence will be that the monies potentially available through Nedlands to the creditors or contributories of Nedlands will be reduced. There is the potential for Mr Chisholm to achieve indirectly the consequence that his position qua the other creditors of Nedlands may be preferred. If that result be available to him as a matter of law in relation to Nedlands by reason of the Cherry v Boultbee defence or the statutory defences, so be it. But I do not see any reason why the Court should facilitate that prospect in a way which might subvert the purpose of the Act in treating all creditors of the bankrupt estate of Mr Killington equally. For example, if he is permitted to pursue the indemnity claim, and he succeeds in that claim, then, subject to any issue then requiring to be determined that the judgment in his favour is a provable debt in the bankruptcy, he will be able to prove in the bankruptcy along with any other creditors and be treated equally with them. At that point, any issue as to whether the judgment represents a provable claim in the bankruptcy will be much more readily determined because the true legal foundation for it and the facts giving rise to it will have been determined in the Supreme Court proceedings.

As noted above, it is not necessary for me to form any view as to the strength of otherwise of the Cherry v Boultbee defence, or of the statutory defences. There were submissions put that each of those defences was misconceived, or was doomed to fail. Those defences have presently been pleaded in the defence in the Supreme Court proceedings. Those contentions will be decided in those proceedings.

Finally, there is the non-distribution claim. It is discrete from the current issues in the Supreme Court proceedings. Because Mr Killington was not eligible for automatic discharge from bankruptcy, s 116(1)(a) of the Act continues to apply, so that after acquired or devolved property vests in the Trustee. If Nedlands succeeds in its claim against Mr Chisholm, in the winding up of Nedlands, Mr KillingtonÕs bankrupt estate as a shareholder in Nedlands becomes entitled to his interest in Nedlands: s 529 of the Law, and as I am told that the winding up of Nedlands was voluntary under Pt s 5 of the Law, to the distribution ultimately made: s 501 of the Law.

I do not see how the liquidator of Nedlands can do otherwise than comply with the law. In my view, Thellusson could not produce a contrary result, even if otherwise it stood for the proposition contended for. I am not to be taken as accepting that it does. I have not considered that question. Indeed, the result which I suspect Mr Chisholm wishes to achieve may be achieved within the existing statutory framework. For example, if he is permitted by the Supreme Court to pursue the indemnity claim in the Supreme Court proceedings and he succeeds in that claim, and assuming that the judgment against the Trustee is a provable debt in the bankrupt estate of Mr Killington, the flow of funds would be: Mr Chisholm pays Nedlands the amount of its judgment, Nedlands after paying the proper costs of its liquidation pays its creditors, if any, and then distributes the balance then remaining to its shareholders, including to the Trustee; the Trustee then considers the proofs of debt lodged (there is no reason to expect that any judgment in respect of a provable debt would not be accepted, but in any event there are procedures to resolve such issues), and applies the available funds pro rata first amongst the creditors. On the assumptions made, those creditors would include Mr Chisholm by reason of any judgment on the indemnity claim.

I do not give leave to pursue the non-distribution claim in the Supreme Court proceedings, or in any other proceedings. In my judgment, it is a claim which, if successful, would not serve the purposes of the Act as it is directed at cutting off a potential flow of funds to the Trustee to the advantage of one putative creditor, rather than ensuring that the assets of Mr KillingtonÕs bankrupt estate are distributed rateably among the creditors. Mr Chisholm, in a practical sense, is seeking to obtain an advantage over other creditors. The nature of the matter sought to be argued by Mr Chisholm under this claim does have some factual relationship to the matters presently the subject of the Supreme Court proceedings, but the issue goes beyond those matters. Given the result which is sought to be achieved, I do not consider it appropriate to give the leave sought in respect of the non-distribution claim.

I grant leave to Mr Chisholm under s 58(3) of the Act to maintain the present appeal in the Supreme Court proceedings so as to seek an order joining the Trustee as a party in the Supreme Court proceedings, but only in so far as such appeal seeks joinder of the Trustee in respect of the indemnity claim or the Wrongs Act claim. In the event that the Supreme Court then permits the Trustee to be joined as a party in the Supreme Court proceedings, I further grant leave to Mr Chisholm to institute and maintain his proposed claims against the Trustee in the Supreme Court proceedings again only in respect of the indemnity claim and the Wrongs Act claim. The leave so granted is subject to the term that, in the event that in the Supreme Court proceedings (including any appeals) the Court should give judgment or make orders that the Trustee as trustee of the bankrupt estate of Mr Killington is liable to Mr Chisholm, Mr Chisholm will not have any step or steps to enforce such judgment or order other than by seeking to prove in the bankrupt estate of Mr Killington, without the prior leave of a court having jurisdiction under s 58(3) of the Act.

CROSS VESTING

The parties agreed that questions raised on the application before the Court gave rise to a "special federal matter" as defined in s 3(1) of the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth), so that the Supreme Court could not entertain the issues in the absence of an order under s 6(3): s 6(1) of that Act:

Section 3(1) of that Act defines "special federal matter" to mean:

"(a) a matter arising under Part IV of the Trade Practices Act 1974 (other than under section 45D, 45DA, 45DB, 45E or 45EA);

(aa) a matter arising under the Competition Code (as defined in section 150A of the Trade Practices Act 1974);

...

(b) a matter involving the determination of questions of law on appeal from a decision of, or of questions of law referred to 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;

(d) a matter arising under section 32 of the National Crime Authority Act 1984; 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;"

Section 39B(1A) of the Judiciary Act 1903 (Cth) provides:

"(1A) The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter:

(a) in which the Commonwealth is seeking an injunction or a declaration; or

(b) arising under the Constitution, or involving its interpretation; or

That subsection was inserted by the Law and Justice Legislation Amendment Act 1997 (Cth) s 3, Sch 11.

It was by virtue of s 39B(1A)(c) that the parties took the view that the present issue which arose under the Bankruptcy Act 1966 (Cth) was within the original jurisdiction of this Court, under subpar (e) of the definition of "special federal matter" in the Jurisdiction of courts (Cross Vesting) Act 1987, and so was one which the Supreme Court should not entertain.

It is important to note the concluding words of that definition, namely that a matter will only be a "special federal matter" if the Supreme Court does not, apart from that Act, have jurisdiction with respect to it.

Section 39(2) of the Judiciary Act 1903 provides for the courts of the States (and Territories: s 3A) to be invested with certain federal jurisdiction as follows:

"(2) The several Courts of the States shall within the limits of their several jurisdictions, whether such limits are as to locality, subject-matter or otherwise, be invested with federal jurisdiction in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it, except as provided in section 38, and subject to the following conditions and restrictions:-

(a) A decision of a Court of a State, whether in original or in appellate jurisdiction, shall not be subject to appeal to Her Majesty in Council, whether by special leave or otherwise.

(b) (Repealed)

(c) The High Court may grant special leave to appeal to the High Court from any decision of any Court or Judge of a State notwithstanding that the law of the State may prohibit any appeal from such Court or Judge.

(d) The federal jurisdiction of a Court of summary jurisdiction of a State shall not be judicially exercised except by a Stipendiary or Police or Special Magistrate or some Magistrate of the State who is specially authorized by the Governor-General to exercise such jurisdiction or an arbitrator on whom the jurisdiction, or part of the jurisdiction, of that Court is conferred by a prescribed law of the State, within the limits of the jurisdiction so conferred."

Section 38 of the Judiciary Act 1903 does not preserve exclusive jurisdiction in the High Court in respect of an issue such as the one presently before the Court.

It would seem, therefore, that the Supreme Court may have jurisdiction to entertain the questions which arise in this proceeding in the circumstances, as jurisdiction had already been granted to it under s 39(2) of the Judiciary Act 1903. It is unnecessary to do other than to note the point, as it may arise in subsequent proceedings.

I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate:

Dated: 20 November 1998

Counsel for the Applicant:	Mr T Gray QC with him Mr A Tokley

Solicitors for the Applicant:	Johnson Winter & Slattery

Counsel for the Respondent:	Mr G Gretsas

Solicitors for the Respondent:	Gretsas & Chrzaszaz

Hearing Dates:	26 and 30 October 1998

Date of Judgment:	20 November 1998

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