FEDERAL COURT OF AUSTRALIA

Turner v Official Trustee in Bankruptcy [1999] FCA 1817

BANKRUPTCY – appeal from declaration that Official Trustee in Bankruptcy is entitled to become registered proprietor of property in land – operation of order made by Family Court that purported transfer of land be set aside – meaning and operation of subs 85(1) and (2) of the Family Law Act 1975 (Cth) – whether order setting aside transfer was in rem and so effective against third party

JURISDICTION – invalidity of cross-vesting scheme – accrued jurisdiction – whether State legislation empowers Supreme Court of New South Wales specifically

WORDS AND PHRASES – “transfer”, “instrument”, “disposition”

Real Property Act 1900 (NSW) s 138

Family Law Act 1975 (Cth)s 85

Family Provision Act 1982 (NSW) s 31

Federal Courts (State Jurisdiction) Act 1999 (NSW) s 4(2)

Bankruptcy Act 1966 (Cth)

New South Wales Insurance Ministerial Corporation v Anderson (Gleeson CJ, Kirby P and Priestly JA, 14 June 1994, unreported) followed

McGovern v State of Victoria [1984] VR 570 followed

Re Wakin (1999) 163 ALR 270 applied

Smith v Smith (1986) 161 CLR 217 applied

Edensor Nominees Pty Limited v Australian Securities & Investments Commission [1999] FCA 1722 discussed

Robins v Incentive Dynamics Pty Ltd [1999] FCA 1651 discussed

IN THE MATTER OF EDWIN JOHN TURNER

KENNETH EDWIN TURNER v

OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF EDWIN JOHN TURNER

N 637 of 1999

O’CONNOR, TAMBERLIN AND MANSFIELD JJ

SYDNEY

23 DECEMBER 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

IN THE MATTER OF EDWIN JOHN TURNER

THE COURT ORDERS THAT:

1.         Order 3 of the orders made by the primary Judge on 9 June 1999 is set aside for want of jurisdiction.

2.         A copy of this judgment and orders be served by the respondent on the Registrar-General of New South Wales

3.         Otherwise the appeal is dismissed.

4.         The appellant is to pay the respondent’s costs.

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

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

IN THE MATTER OF EDWIN JOHN TURNER

REASONS FOR JUDGMENT

1                     The appellant is the son of Edwin John Turner (“the bankrupt”). The Official Trustee in Bankruptcy was appointed as trustee of his bankrupt estate in accordance with a sequestration order made on 12 November 1991.  The bankrupt had been previously married to Rose Turner between 8 October 1964 and 13 July 1978 when the Family Court made an order dissolving the marriage.  Four years later, on 16 December 1982, the bankrupt married Anne Turner and that second marriage in turn has been dissolved.

2                     In February 1989, a real property transfer in registrable form was executed by the bankrupt and Rose Turner, in respect of the parcel of land known as 821 Eleventh Avenue, Austral, in the State of New South Wales (“the property”).  This transfer was dated 2 February 1989 and was registered on 24 February 1989 pursuant to the provisions of the Real Property Act 1900 (NSW) (“the Real Property Act”).

3                     On 22 February 1990 orders were made by a Judicial Registrar of the Family Court pursuant to s 85(1) of the Family Law Act 1975 (Cth).  Those orders provide:

“1.       That pursuant to Section 85(1) of the Family Law Act, the purported Transfer dated 2^nd February 1989 between Edwin John Turner and Rose Josephine Turner (as transferors) and Kenneth Edwin Turner (as transferee) in respect of the whole of the land comprised in Certificate of Title Volume 1035 Folio 178, be set aside.

2.         That the Wife be appointed the sole agent for the sale of the Husband’s interest in the said property situated at and known as 821 Eleventh Avenue, Austral in the State of New South Wales being the whole of the land comprised in Certificate of Title Volume 1035 Folio 178 and that upon sale of such property the proceeds be distributed in accordance with the Order made herein on 20^th September 1988.

3.         That the Husband pay the costs of these proceedings and that such costs to be as agreed or as taxed.”

4                     Section 85 of the Family Law Act, as it stood at 22 February 1990 provided:

“85      Transactions to defeat claims

(1)       In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.

(2)       The court may order that any money or real or personal property dealt with by any such instrument or disposition may be taken in execution or charged with the payment of such sums for costs or maintenance as the court directs, or that the proceeds of a sale shall be paid into court to abide its order.

(3)       The court shall have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested.

(4)       A party or a person acting in collusion with a party may be ordered to pay the costs of any other party or of a bona fide purchaser or other person interested of and incidental to any such instrument or disposition and the setting aside or restraining of the instrument or disposition.

(5)       In this section, “disposition” includes a sale and a gift.” (Emphasis added)

5                     The present case raises a question as to the meaning and operation of subs 85(1) and (2) and in particular the application of the underlined words in subs (1).

6                     In December 1996 an application was filed on behalf of the Official Trustee in Bankruptcy seeking a declaration that the Official Trustee is entitled to become the registered proprietor of the property, subject to a mortgage to the State Bank of New South Wales, and that an order be made that the property should vest in the Official Trustee subject to that mortgage.  The Official Trustee also sought a direction, pursuant to s 138 of the Real Property Act, that upon lodgment of a copy of the order, the Registrar-General should record the Official Trustee as registered proprietor of the property.  It was common ground that Rose Turner has not at any relevant time after 1990 held any interest in the property.

7                     The application was heard by O’Loughlin J who, on 9 June 1999, declared that the Official Trustee in Bankruptcy was entitled to become the registered proprietor of the property, and ordered that the property vest in the Official Trustee subject to the mortgage, and that the Registrar-General record the Official Trustee as registered proprietor of the property pursuant to s 138 of the Real Property Act.

8                     On the appeal two issues have been pressed.  The first concerns the operation of the order made by the Family Court on 22 February 1990, that the transfer dated 2 February 1989 be set aside.  The second issue relates to the extent to which the order of the Family Court to set aside the transfer was binding on the appellant who was not a party to those proceedings.  This in turn raises the question whether that judgment of the Family Court was an in rem judgment or an in personam judgment.

Effect of setting aside the transfer of 2 February 1989

9                     The appellant submits that the 22 February 1990 order of the Family Court was ineffective because at the time it was made the transfer had been registered under the Real Property Act and the operative effect of the instrument was spent. The proper course it is said would have been to seek an order that the disposition be set aside.  The order does not in terms set aside the disposition of the property but simply sets aside the instrument of transfer.  The success of this submission depends on the proper construction of s 85 of the Family Law Act which refers to setting aside “the making of an instrument or disposition by … a party.”  It is said that the Family Court order did not in terms set aside the disposition but only the instrument, and accordingly, because of the indefeasibility of the title to the property, that title remains with the appellant Kenneth Turner.  It is conceded that it was within the power of the Family Court to set aside the disposition, but the submission is that the order failed to achieve this.

10                  The appellant submits that the language not the intent is of critical importance in interpreting the orders of the Family Court.  In this regard, he refers to an observation in the judgment of Gleeson CJ in the New South Wales Court of Appeal in New South Wales Insurance Ministerial Corporation v Anderson (Gleeson CJ, Kirby P and Priestly JA, 14 June 1994, unreported) at 6, relating to an order made by a District Court judge:

“It does not depend on the subjective intention of the solicitors for the Government Insurance Office, and insofar as it depends upon the intention of Taylor DCJ that intention is to be ascertained from the language of the order which he made read, of course, in the context of the District Court Rules.”

11                  The language of s 85(1) indicates that it confers a discretion on the court to set aside the making of an instrument in certain circumstances.  Subsection (2) confers a consequential power on the Court to order that any real property dealt with by an instrument may be taken in execution or charged with the payment of costs or maintenance as the court directs, or that the proceeds of a sale shall be paid into court to abide its orders.  When this subsection is read together with subs (1), it is apparent that one anticipated consequence of setting aside an instrument is that the Court has a wide discretion to deal with real property by taking it in execution or charging it with a payment of money as it thinks fit.  This includes power to sell the property and make consequential orders necessary to give effect to such an order.  This lends support to the view that where an instrument is set aside, the underlying transaction is also set aside and the court can deal with the property as it sees fit in its statutory discretion.  This would not be the case if only the instrument was set aside and there was no consequential setting aside of the underlying transaction.  It is evident from Order 2 made by the Deputy Registrar, that it was made on the basis that the transaction underlying the transfer to Kenneth Turner was set aside by Order 1, and not on the basis of an invalidation of the instrument without any further consequences, as contended by the appellant.  The effect of setting aside the instrument of transfer was, in our view, that it was ineffective to pass the property to Kenneth Turner and accordingly the property remained in the bankrupt and became part of his bankrupt estate divisible among creditors upon the making of the sequestration order on 12 November 1991.

12                  Having regard to the above considerations we agree with the conclusion reached by his Honour Justice O’Loughlin in this matter that the transaction had been lawfully set aside by the order of the Family Court and this ground of appeal therefore fails.

In rem or in personam

13                  The submission for the appellant is that unless the judgment of the Family Court concerning the setting aside of the transfer was in rem, the order of the Family Court is not binding on the appellant because he was not a party. Therefore the decision of the Family Court could not be the basis for the decision of the primary Judge in this Court.  It is submitted that as the 22 February 1990 order set aside only the instrument,then it could not determine the status of the land such that the decision would be a decision in rem.  The appellant conceded that this submission had substance only if the 22 February 1990 order did not have the effect of setting aside the underlying transaction, because if it did so it would effect the status of the land and on well settled principle would be a judgment in rem.  The appellant referred to McGovern v State of Victoria [1984] VR 570 at 575 where the Full Court said:

“An exposition of the relevant principles may be found in Spencer Bower and Turner, Res Judicata, 2^nd ed., p. 229 where it is said that any ‘judicial decision which operates upon a thing (in the physical sense) by effecting a disposition of it, is said to determine the status of the thing, and such decision accordingly may be set up by, or against, any member of the … public, as conclusive in rem, whereas any decision which determines, not the disposition of the thing, but solely the personal rights, liabilities, equities and interests inter se in relation to the thing, concludes those parties only or their privies.”

14                  Other examples of an in rem judgment, which were referred to by the Court at the hearing of that appeal, included cases in Admiralty involving the condemnation of a vessel as lawful prize, and a declaration of a maritime lien attaching to a salvage vessel to secure payment of a reward for carrying out salvage operations.  The relevant principle was said to be that a judicial decision which creates title to or affects property in a thing in possession is a decision that determines the status of that thing and to that extent is conclusive in rem as against the world.  This is to be contrasted with a judgment in personam which usually only concludes the rights of the parties.

15                  In the present case the setting aside of the instrument and the underlying transaction clearly amounts to an in rem determination which affects both parties and non-parties to the proceedings. 

16                  Accordingly, we consider that this ground of appeal also has not been made out.  We note further that the final two grounds in the Amended Notice of Appeal are not pressed.  The appeal therefore must be dismissed.

17                  We should add that we share the primary Judge’s concern as to the position of the appellant, who on the evidence has substantially added to the value of the property.  At the conclusion of his reasons, O’Loughlin J adjourned the matter for further consideration in the light of his remarks as to the position of the appellant.  However, the orders made by his Honour on 9 June 1999 made no provision in relation to the position of the appellant.  The effect of his Honour’s order that the transfer be set aside is that any funds remaining after administration of the bankrupt estate will be paid to the appellant’s father.  On this appeal, however, the Court is not in a position to deal with any question as to competing entitlements, as between the appellant and his father, arising as a consequence of moneys having been spent by the appellant on the property since 1989.

Jurisdiction – Orders

18                  Although not adverted to in the course of submissions, we consider that as a consequence of the High Court decision in Re Wakim (1999) 163 ALR 270, there is a jurisdictional difficulty with respect to this Court’s power, on appeal, to make any determination with respect to the third order made by O’Loughlin J, which is expressed to be a direction to the New South Wales Registrar-General under s 138 of the Real Property Act 1900 (NSW).  There is, of course, no jurisdictional difficulty with respect to the first two orders made by his Honour which arise in the determination of the controversy arising from the Official Trustee’s claim under the Bankruptcy Act 1966 (Cth) that he is entitled to have the property vested in him.  That determination in turn involves interpretation of the effect of the orders made under the Family Law Act.  The determination of the Official Trustee’s claim (but not the s 138 direction) therefore  calls for the exercise of federal jurisdiction by a Chapter III Court in the sense that it requires the determination of a matter arising under the Bankruptcy Act.

19                  The third order of his Honour, however, raises different considerations. Absent any valid cross-vesting scheme whereby State jurisdiction is conferred on the Federal Court (which is the consequence of Re Wakim), this Court can only look to its accrued or associated jurisdiction to exercise a power under State legislation.  In this regard, the decision in Smith v Smith (1986) 161 CLR 217 requires consideration.  In that case the High Court held that the Family Court had no accrued or other jurisdiction to exercise a power of approval that was conferred specifically on the Supreme Court of New South Wales by s 31 of the Family Provision Act 1982 (NSW).  At p 241-242 Gibbs CJ, Wilson and Dawson JJ said:

“We would accordingly hold: (a) that the release comprised in cl. 7 of the deed dated 18 November 1983 was not effective for the purposes of s. 31(3) of the Family Provision Act 1982 (N.S.W.), notwithstanding the approval of the deed by the Family Court; and (b) that the Family Court had no accrued, pendent or associated jurisdiction in the present matter itself to exercise the power of approval given by s 31 of the Family Provision Act 1982 (NSW).”

20                  The same conclusion was reached by Mason, Brennan and Deane JJ who said at p 251:

“It is sufficient for us to say that if the Family Court assumed an accrued jurisdiction to make an order under s. 31 of the Family Provision Act approving a release in a maintenance agreement, the order would none the less not be an order of the Supreme Court.  It therefore would not amount to an approval by the “Court” which is referred to in s. 31(3), with the consequence that the release would have no effect by virtue of s. 31(2).  It is quite impossible to read the reference to “Court” in s. 31, viewed in the light of the definition of “Court” in s. 6(1), otherwise than as a reference to the Supreme Court.  It follows that the Family Court does not possess accrued jurisdiction to approve a release for the purposes of the State Act.”

21                  The consequences of the High Court decisions in Re Wakim and Smith were recently considered by the Full Federal Court in Edensor Nominees Pty Limited v Australian Securities & Investments Commission [1999] FCA 1722.  In that case the Court decided that there was a common substratum of fact which conferred jurisdiction on the Court to decide the whole controversy between the parties and therefore it had accrued jurisdiction.  However, the Full Court went on to decide that because the State power was conferred on the Federal Court only when exercising State jurisdiction there was no power in the Federal Court when exercising Federal jurisdiction to decide the matter.

22                  In the present matter, on a proper construction of s 138, the power to give directions is not available to the Federal Court.  The section itself refers simply to “the Court”.  However it is placed in Part 15 of the Act, which is entitled “Cancellation and Correction of Instruments”. In that Part only the Supreme Court of New South Wales is specifically referred to.  There are three sections in Part 15, being ss 136-138.  Section 136 refers to the Supreme Court in the context of it making an order for delivery up of a certificate of title or a duplicate registered dealing for cancellation.  Section 137 is a complementary power to s 136 to give effect to orders made by the Supreme Court under the latter section.  Elsewhere in the Act there are references to the New South Wales District Court and to the Land and Environment Court.  There is no relevant reference anywhere in the Act to the Federal Court. 

23                  In this context, it is apparent in our view that the reference to “the Court” in s 138 was not intended to confer power on the Federal Court.  Accordingly, the Federal Court is in our view precluded from exercising the power in s 138 of the Real Property Act, either as a part of its accrued jurisdiction or otherwise.

24                  Having regard to the above reasons, we consider that this Court should set aside the third order of Justice O’Loughlin made on 9 June 1999 for want of jurisdiction.  We note however, as was observed recently by the Full Court in Robins v Incentive Dynamics Pty Ltd [1999] FCA 1651, that on the suggested construction therein of s 4(2) of the Federal Courts (State Jurisdiction) Act 1999 (NSW) (“the State Jurisdiction Act”), any order made by this Court in exercise of its appellate jurisdiction is irrelevant to the operation of that Act.  Therefore, the setting aside of the order of the primary Judge in the case for want of jurisdiction would not, in our view, alter the character of his Honour’s order as an “ineffective judgement” for the purpose of its declared validity as a judgment of the Supreme Court of New South Wales under s 6(a) of the State Jurisdiction Act.

25                  Accordingly, while we consider that the Official Trustee is entitled to have the property vested in him and that the orders of the primary Judge to this effect making that declaration and vesting title remain in force, we think it necessary, while otherwise dismissing the appeal with costs, to set aside the third order of O’Loughlin J made on 9 June 1999 for want of jurisdiction.  We direct the respondent to serve a copy of these reasons and orders on the New South Wales Registrar-General.

Associate:

Dated:              23 December 1999