FEDERAL COURT OF AUSTRALIA

Campbell v Metway Leasing Ltd [2001] FCA 1311

CONSTITUTIONAL LAW – whether Bankruptcy Act 1966 (Cth) ss 60(2) and 60(3) invalid – where Bankruptcy Act 1966 (Cth) s 60(2) provides that if person commences ‘action’ then becomes bankrupt action stayed until trustee elects to prosecute or discontinue it – where Bankruptcy Act 1966 (Cth) s 60(3) provides that if trustee fails to do so within 28 days of service of notice of action trustee deemed to have elected to discontinue action – where applicants’ appeal to NSW Court of Appeal attracts Bankruptcy Act 1966 (Cth) s 60 because constitutes ‘action’ and commenced before applicants became bankrupts – where applicants’ application to High Court for special leave to appeal from NSW Court of Appeal decision and applicants’ present application before Federal Court on remitter from High Court do not attract Bankruptcy Act 1966 (Cth) s 60 because while both ‘action’ neither commenced before applicants became bankrupts.

CONSTITUTIONAL LAW – whether Bankruptcy Act 1966 (Cth) s 60(2) involves impermissible interference with State court’s exercise of judicial power – where State court exercising federal jurisdiction – whether Bankruptcy Act 1966 (Cth) s 60(2) confers function on State court in manner which Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51 prohibits – whether Beaumont J’s concurring reasons for judgment in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 applicable – whether Bankruptcy Act 1966 (Cth) s 60(2) regulates State court’s procedure in its exercise of federal jurisdiction – whether Bankruptcy Act 1966 (Cth) s 60(2) antithesis of law that does so because alters State court’s constitution or organisation – whether prohibition on federal legislation restricting or controlling a State in its exercise of its governmental powers applicable where relevant restriction or control of State court in its exercise of federal jurisdiction.

CONSTITUTIONAL LAW – whether Bankruptcy Act 1966 (Cth) s 60(3) involves impermissible interference with State court’s exercise of judicial power – where prohibition on federal legislation restricting or controlling a State in its exercise of governmental powers not applicable – whether court seized of action which trustee deemed to have elected to discontinue under Bankruptcy Act 1966 (Cth) s 60(3) should stay action until further order or dismiss it – whether Bankruptcy Act 1966 (Cth) s 60(3) operates in personam or on State court – whether Bankruptcy Act 1966 (Cth) s 60(3) gives ‘defendant or other party to the action’ entitlement to particular judicial order in defined set of circumstances.

BANKRUPTCY – whether applicants have standing to prosecute application to High Court for special leave to appeal from NSW Court of Appeal decision – where appeal to NSW Court of Appeal deemed abandoned under Bankruptcy Act 1966 (Cth) s 60(3) – where applicants purported to commence application for special leave while bankrupts – where applicants later discharged from bankruptcy – where discharge prospective – effect of Theissbacher v MacGregor Garrick & Co [1993] 2 Qd R 223.

Bankruptcy Act 1966 (Cth) s 60

International Arbiration Act 1974 (Cth) s 7, Sch 1

Judiciary Act 1903 (Cth) s 44

Bankruptcy Act 1887 (NSW) s 10(6)

Bankruptcy Act 1898 (NSW) s 10(7)

Bankruptcy (Repeal) Act 1978 (NSW) s 2(1)

Insolvency Act 1841 (NSW) s 33

Insolvency Act 1915 (Vic) s 176

Insolvency Statute 1865 (Vic) s 39

Cummings v Claremont Petroleum NL (1996) 185 CLR 124 referred to

John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 referred to

Re Lofthouse (2001)107 FCR 151 referred to

Aware Industries Ltd v Robinson (1997) 75 FCR 600 referred to

Millane v President, etc, of Shire of Heidelberg [1928] VLR 52 referred to

Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 55 ALR 594 referred to

Re Faulkner; Ex parte Official Receiver (1981) 52 FLR 109 referred to

Re Trower and Dickson; Ex parte the Official Assignee and Trustee (1893) 3 BC (NSW) 121 referred to

Healey v Prentice (No 2) [2000] FCA 1598 referred to

Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51 considered

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 followed

Baxter v Commissioners of Taxation (NSW) (1907) 4 CLR 1087 followed

Lorenzo v Carey (1921) 29 CLR 243 referred to

Russell v Russell (1976) 134 CLR 495 referred to

Commonwealth v Hospital Contribution Fund (1982) 150 CLR 49 referred to

Brown v the Queen (1985) 160 CLR 171 referred to

Commonwealth v Limerick Steamship Co Ltd (1924) 35 CLR 69 followed

Le Mesurier v Connor (1929) 42 CLR 481 followed

Koowarta v Bjelke-Petersen (1982) 153 CLR 168 referred to

Tasmanian Dam Case (1983) 158 CLR 1 referred to

Queensland Electricity Commission v Commonwealth (1985) 159 CLR 192 referred to

Second Fringe Benefits Tax Case (1987) 163 CLR 329 referred to

Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188 referred to

Williamson v Ah On (1926) 39 CLR 95 considered

Palling v Corfield (1970) 123 CLR 52 referred to

King v Automotive, Food, Engineering, Printing & Kindred Industries Union [2000] FCA 1900 referred to

Theissbacher v MacGregor Garrick & Co [1993] 2 Qd R 223 followed

Re Vescovi; Ex parte Knight (FCA: Pincus J, 9 March 1988, unreported) referred to

Abeyratne v Trkulja (1998) 90 FCR 253 not followed

AP Herbert More Uncommon Law 1982 p 80

KEITH MALCOLM CAMPBELL & ANOR v METWAY LEASING LTD

N 1295 of 2000

KATZ J

SYDNEY

13 SEPTEMBER 2001

THE COURT ORDERS THAT:

1          The application be dismissed.

2          The applicants pay the respondent’s costs of the proceeding.

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

REASONS FOR JUDGMENT

1                     There is before me a matter which was remitted by the High Court to the Federal Court under s 44 of the Judiciary Act 1903 (Cth).

2                     As remitted, the matter concerned the validity of subss (2) and (3) of s 60 of the Bankruptcy Act 1966 (Cth) (“the Act”).  It is convenient to set out immediately those and two related subsections of s 60 of the Act.  They provide as follows:

“(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.

(3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.

(4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:

(a) any personal injury or wrong done to the bankrupt, his or her spouse or a member of his or her family; or

(b) the death of his or her spouse or of a member of his or her family.

…

(5) In this section, action means any civil proceeding, whether at law or in equity.”

3                     I note that I have set out above subss (2), (3), (4) and (5) of s 60 of the Act in their current form.  Although those subsections have been amended in form since the enactment of the Act in 1966, they have remained unamended in substance.  Indeed, those subsections are very similar in substance to a provision first enacted almost 160 years ago, namely, s 33 of the Insolvency Act 1841 (NSW).  The latter provision, which was the original ancestor of subss (2), (3), (4) and (5) of s 60 of the Act, provided as follows:

“[A]ll actions commenced by any person whose estate shall afterwards be placed under sequestration as insolvent for any debt or demand due to the said estate and all proceedings therein shall upon the order of such sequestration being made be stayed until the trustee or trustees thereafter chosen for the administration of the said estate shall make election to prosecute or discontinue the same and the trustee or trustees shall be bound to make such election within six weeks after notice to that effect shall be served upon him or them by any defendant in any such action or otherwise shall be deemed to have abandoned the same Provided however that any insolvent person shall be permitted to continue in his own name and for his own benefit any action commenced by him previous to his insolvency for any personal injury or wrong done to himself or to any of his family.”

One sees in s 33 of the New South Wales Act of 1841 the use of a number of notions replicated most recently in s 60 of the Act: the stay of an action, on sequestration of the estate of the person who commenced it, until the making of an election by the trustee of the person’s estate either to prosecute the action or to discontinue it; the service of notice on the trustee, in the absence of the making of such an election by the trustee, by a person against whom the action was commenced; and the deemed abandonment of the action (which I take to be the equivalent of a deemed election to discontinue the action) by the trustee in default of the trustee’s actual making of an election within a certain period of time following service on the trustee of such notice.  In 1887, s 33 of the New South Wales Act of 1841 was replaced by s 10(6) of the Bankruptcy Act 1887 (NSW), the 1887 provision being in turn replaced by s 10(7) of the Bankruptcy Act 1898 (NSW) and the 1898 provision remaining on the New South Wales statute book until 1978 (though having prima facie been inoperative by reason of constitutional inconsistency with federal bankruptcy legislation for about fifty years beforehand): see the Bankruptcy (Repeal) Act 1978 (NSW), s 2(1).  Section 33 of the New South Wales Act of 1841, as well as serving as the model for subsequent New South Wales colonial provisions, had also served as the model for other colonial provisions on the same topic: see, for example, the Insolvency Statute 1865 (Vic), s 39.

4                     The relevant background to the commencement of the present matter in the High Court and to the matter’s remittal by the High Court to the Federal Court is as I set it out below.

5                     On 16 June 1995, Barr AJ, of the Supreme Court of New South Wales, having earlier given reasons for doing so, made a number of final orders, resolving claims which had been made by Metway Leasing Limited (“Metway”) against (relevantly) Mr Keith Malcolm Campbell and his wife, Mrs Lois Audrey Campbell.  By those orders, the Campbells were ordered to pay to Metway the sum of $104,569.16.  They were also ordered to give to Metway possession of certain land at Baulkham Hills in New South Wales and Metway was given leave to issue forthwith a writ of possession to enforce that order for possession.  The Campbells were further ordered to pay Metway’s costs, on a party/party basis up to a certain date and on an indemnity basis thereafter.

6                     (For the sake of completeness, I add that, although I can find in the voluminous papers before me no orders giving effect to them, Barr AJ had also earlier given reasons for resolving against the Campbells certain cross-claims which had been made by them against Metway.  As the present matter was conducted before me, no real attention was paid to those cross-claims and so I will ignore their existence hereafter in these reasons for judgment.)

7                     On 23 June 1995, the Campbells commenced, in the New South Wales Court of Appeal, an appeal from Barr AJ’s orders of 16 June 1995.

8                     On 6 June 1996, a sequestration order was made by the Federal Court against the estate of Mr Campbell.  The Official Trustee in Bankruptcy (“the trustee”) became the trustee of Mr Campbell’s estate.

9                     On 16 July 1996, solicitors acting for Metway wrote to the trustee, referring to a telephone conversation between them of earlier that day, confirming to the trustee the commencement of the appeal to the Court of Appeal by the Campbells and enclosing certain court documents.

10                  On 23 July 1996, the Federal Court extended until 26 August 1996 the time for the making by the trustee, in respect of the appeal, of the election referred to in subs 60(3) of the Act.

11                  On 4 April 1997, a sequestration order was made by the Federal Court against the estate of Mrs Campbell.  The trustee became the trustee of Mrs Campbell’s estate also.

12                  On 16 April 1999, solicitors acting for the trustee wrote two letters to solicitors acting for Metway, one relating to Mr Campbell and the other relating to Mrs Campbell.

13                  The letter relating to Mr Campbell recited the trustee’s receipt of Metway’s solicitors’ letter of 16 July 1996 and the extension of time granted by the Federal Court on 23 July 1996 and then continued,

“No election was made by our client to prosecute or discontinue the action and, in these circumstances, our client is of the view that it is deemed to have abandoned the action per force of Section 60(3) of the Bankruptcy Act, 1966.”

14                  The letter relating to Mrs Campbell referred to the letter relating to Mr Campbell and then advised that “in respect of Mrs. Campbell’s involvement in [the a]ppeal …, our client has not elected to prosecute the [a]ppeal and regards itself as having abandoned same”.

15                  On 19 April 1999, the appeal which had been commenced by the Campbells on 23 June 1995 came on for hearing in the Court of Appeal, both of the Campbells being bankrupts on that date and having remained so since the dates of the making of the sequestration orders against their respective estates.  The Campbells were present at the hearing, with Mr Campbell being unrepresented and Mrs Campbell being represented by counsel.  No person seems to have been present at the hearing on behalf of the trustee.  Metway was represented by counsel.

16                  It appears from the ex tempore reasons for judgment of Sheller JA, with whom Powell and Beazley JJA agreed, that, at the outset, Mr Campbell sought to have the hearing of the appeal adjourned, in order to permit him to apply to the Federal Court for the annulment of his bankruptcy.  (He had already made one earlier unsuccessful annulment application to the Federal Court.)  Mrs Campbell’s counsel sought no similar adjournment on her behalf.

17                  Ignoring for the moment any question as to the validity of subss (2) and (3) of s 60 of the Act, the appeal which had been commenced by the Campbells was an “action” for the purpose of those provisions (a matter not disputed before me by the Campbells): see Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 130-31 (Brennan CJ and Gaudron and McHugh JJ).

18                  Accordingly, subs 60(2) of the Act had the effect that, on Mr Campbell’s becoming a bankrupt, control of the appeal which had been commenced by the Campbells passed out of their hands into the hands of the trustee: as to the passing of control of the appeal out of the hands of both Mr and Mrs Campbell, even though only Mr Campbell had become a bankrupt, see John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 (NSWSC: Young J), referred to with approval in Re Lofthouse (2001)107 FCR 151 at 156, [16] (Gray J).  Further, under subs 60(2) of the Act, the trustee was now to elect either to prosecute the appeal or to discontinue it and, until the trustee made that election, the appeal was stayed.

19                  Subsection 60(3) of the Act, however, provided a means whereby, if the trustee had not yet made the election for which subs 60(2) provided, Metway (although not the Campbells; a bankrupt is not an “other party to the action” for the purpose of subs 60(3) of the Act: see Aware Industries Ltd v Robinson (1997) 75 FCR 600 at 601 (Northrop, Davies and Sundberg JJ)) could seek to bring about either an actual election by the trustee either to prosecute the appeal or to discontinue it or a deemed election by the trustee to discontinue it.  That means was service on the trustee of notice of the appeal.  If such notice were served and the trustee had not, within a period of twenty-eight days, actually elected either to prosecute the appeal or to discontinue it, then the trustee was deemed to have elected to discontinue it.  Although it is not made explicit in s 60 of the Act (presumably because it is, in substance, merely a copy at a number of removes of a legislative provision almost 160 years old), it is implicit in the section that a deemed election by the trustee to discontinue the appeal would bring to an end the stay of the appeal caused by subs 60(2) of the Act, in the same way as would an actual election by the trustee either to prosecute the appeal or to discontinue it.

20                  Sheller JA, recognising the purported applicability of subss (2) and (3) of s 60 of the Act to the appeal which had been commenced by the Campbells, held (at [26]) that the appeal was, in the circumstances, “to be taken as having been abandoned”.  His Honour then continued, “That being the case, it does not seem to me to be appropriate to grant the adjournment which Mr Campbell seeks”.

21                  Mr Campbell’s adjournment application having been refused, Metway then applied for the dismissal of the appeal, an application to which no opposition was expressed orally either by Mr Campbell or by counsel for Mrs Campbell.  As to that application, Sheller JA said (at [31]), “In light of the reasons I have given [that is, the reasons for rejecting Mr Campbell’s adjournment application] and the effect of s60 of the Bankruptcy Act[,] that [that is, dismissal of the appeal] seems to me to be the appropriate order that the Court should now make”.  Accordingly, the court made such an order (although a further application by Metway, for an order for its costs of the appeal, was refused).

22                  It is convenient to note now the existence of two cases, neither of which, it is apparent, was drawn to the attention of the Court of Appeal on the hearing of the Campbells’ appeal.  First, in Millane v President, etc, of Shire of Heidelberg [1928] VLR 52, Irvine CJ considered that the appropriate order in the case of an actual election by a trustee to discontinue an action was not to dismiss that action, but was instead to stay it until further order.  (That case was decided under s 176 of the Insolvency Act 1915 (Vic), the then current Victorian descendant of s 33 of the New South Wales Act of 1841.)  Then, in Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 55 ALR 594 (QSC), a case decided under the Act, Shepherdson J, relying on Millane, took the view that dismissal of an action should not occur in the case of a deemed election by the trustee to discontinue it.  Considering that, in such a circumstance, a court of competent jurisdiction could later extend the time for such election by the trustee even after its expiration, Sheperdson J instead took the view that such an action should be stayed, so that, if so minded, the trustee could afterwards seek an extension of time within which to elect either to prosecute or to discontinue the action.  (Shepardson J’s view that, even after the period of time within which to make an election had expired, a court of competent jurisdiction could grant to the trustee an extension of that time, was orthodox.  Shepardson J cited, in support of that view, Re Faulkner; Ex parte Official Receiver (1981) 52 FLR 109 (FCA: Lockhart J), a case which has been followed on many occasions since by other Judges of the Federal Court (see, for just one example, at [68] below), but the same view had already been acted on many years earlier: see Re Trower and Dickson; Ex parte the Official Assignee and Trustee (1893) 3 BC (NSW) 121 (SC: Manning J), a decision under the 1887 New South Wales Act.)

23                  On 17 May 1999, the Campbells, both of them being bankrupts on that date and having remained so since the dates of the making of the sequestration orders against their respective estates, purported to apply to the High Court for special leave to appeal from the judgment of the Court of Appeal.

24                  On 23 July 1999, Mr Campbell was discharged from bankruptcy.

25                  On 11 February 2000, the Campbells’ purported special leave application came on for hearing, at which time the Campbells sought to have their purported special leave application stood over so as to permit them to commence separate proceedings in the High Court challenging the validity of subss (2) and (3) of s 60 of the Act.  (They had not sought to make such a challenge in the Court of Appeal.) Metway did not oppose that course and the High Court adopted it.

26                  On 25 February 2000, the Campbells commenced in the High Court the separate proceedings which they had foreshadowed on 11 February 2000, those proceedings constituting the matter which is now before me on remittal.  On 25 February 2000, Mr Campbell was no longer a bankrupt, while Mrs Campbell remained one, having remained one since the date of the making of the sequestration order against her estate.

27                  On 29 April 2000, Mrs Campbell was discharged from bankruptcy.

28                  On 7 November 2000, the High Court remitted to the Federal Court the separate proceedings commenced by the Campbells on 25 February 2000.

29                  It will be seen from my recitation of the background to the commencement of the present matter and to its remittal by the High Court to the Federal Court that the Campbells’ appeal to the Court of Appeal was the first of three “actions” within the meaning of s 60 of the Act which, either on or after 23 June 1995, the Campbells either commenced or purported to commence; as well as that appeal, there was also the application to the High Court of 17 May 1999 for special leave to appeal and the present (remitted) action of 25 February 2000.  (As to a special leave application’s being an “action” within the meaning of s 60 of the Act, see: Healey v Prentice (No. 2) [2000] FCA 1598 (Madgwick J, 2 November 2000, unreported) at [35].)

30                  However, subss (2) and (3) of s 60 of the Act, assuming their validity, could have no application to the latter two (actual or purported) actions, since those subsections operate only on an action commenced by a person who is not a bankrupt at the time of that commencement, but who becomes one during the pendency of the action (see Cummings at 131).  (I note that Metway did not seek to argue to the contrary before me.)

31                  Thus, no question arises in the present matter as to the validity of subss (2) and (3) of s 60 of the Act in relation to the latter two (actual or purported) actions.  The question arises only as to the validity of subss (2) and (3) of s 60 of the Act in relation to the Campbells’ appeal to the Court of Appeal.  I draw attention now to the fact that that court is, of course, a State court, a matter of significance for present purposes.

32                  Although the Campbells attacked before me the validity of both subs (2) and (3) of s 60 of the Act in the application of those provisions to an action in a State court, it appears to me to be convenient to deal separately with the validity of those two provisions and to deal first with the question of the validity, in its application to an action in a State court, of subs 60(2) of the Act.

33                  So far as subs 60(2) of the Act in its application to an action in a State Court is concerned, the Campbells pointed to the automatic nature of the stay of the relevant action which is worked by the provision.  They treated as self-evident the propositions that: but for that provision, the State court concerned would have had a discretionary power to order a stay of proceedings in the action following the bankruptcy of the person who had commenced it; and, in the absence of the exercise by the court of such discretionary power, proceedings in the action could have been continued.

34                  The Campbells relied on two different streams of judicial authority in claiming that subs 60(2) of the Act, given its supersession of that discretionary power, was invalid.

35                  First, they claimed that the automatic stay provision in subs 60(2) of the Act constituted an impermissible legislative interference with the exercise of judicial power.  As the matter was put in their written submissions,

“It is not permissible for federal law to direct how actions in state courts will be disposed of.  This essentially is what ss.60(2) and (3) do.  The Federal law may operate in personam on a trustee but not on the Court or its procedures so as to interfere with the exercise of judicial power.”

It will be seen from the passage from their written submissions which I have just quoted that the Campbells were making an identical argument regarding both subss 60(2) and 60(3) of the Act.

36                  In support of that argument, the Campbells took me to two authorities only, namely, the decision of the High Court in Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51 (Brennan CJ and Dawson, Toohey, McHugh, Gaudron and Gummow JJ) and the decision of a Full Court of the Federal Court (Beaumont, Branson and Emmett JJ) in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1.  So far as the latter case was concerned, the Campbells relied only on the concurring reasons for judgment of Beaumont J.

37                  However, I consider that the Campbells’ reliance on Kable must have been directed solely to their attack on subs 60(3) of the Act, rather than being directed as well to their attack on subs 60(2) of the Act, because it was not, and could not seriously be, suggested that subs 60(2) of the Act confers any function on a court, while Kable was concerned with incompatibility between, on the one hand, functions (albeit State ones) conferred on State courts and, on the other hand, the function of those courts of exercising the judicial power of the Commonwealth.

38                  So far as Hi-Fert was concerned, the Campbells plainly relied on Beaumont J’s concurring reasons for judgment in that case for the purpose of their attack on the validity of subs 60(2) of the Act, and so I turn to that case now.

39                  Hi-Fert concerned the validity of subs 7(2) of the International Arbitration Act 1974 (Cth) (“the IAA”).  Subsection 7(1) of the IAA provided that s 7 of the IAA applied to an arbitration agreement where, among other things, the procedure in relation to arbitration under that agreement was governed by the law of a country which was a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (that convention being set out in Sch 1 to the IAA).  Subsection 7(2) of the IAA provided generally that where proceedings instituted by a party to an arbitration agreement to which s 7 of the IAA applied were pending in a court against another party to that arbitration agreement and the proceedings involved the determination of a matter that, in pursuance of that arbitration agreement, was capable of settlement by arbitration, then,

“… on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.”

Subsection 7(5) of the IAA provided that a court must not make an order under subs 7(2) of the IAA if the arbitration agreement concerned was either null and void, inoperative or incapable of being performed.

40                  Emmett J (with whom Branson J agreed (see at 7)) rejected an attack on the validity of subs 7(2) of the IAA.  His Honour said (see at 13-14),

 “Section 7(2), while it is expressed to impose a duty on the relevant court, does no more than create an entitlement for the parties to an arbitration agreement.  Section 7(2) provides: ‘on the application of a party to the agreement, the [c]ourt shall, by order ...  stay the proceedings.’ It could equally have provided: ‘A party to the agreement shall be entitled to a stay of the proceedings.’ Where a statute confers an entitlement on one party as against another party, a court having jurisdiction in relation to such an entitlement would be bound to exercise that jurisdiction, whether or not the statute is framed in terms which purport to impose a duty on the court or in terms which purport to create an entitlement in one of the parties.  In other words, s 7 does not purport to direct the manner and outcome of the exercise by the Federal Court of its jurisdiction.  The section merely lays down a general rule under which a party to an arbitration agreement is entitled to have that arbitration agreement given effect by the relevant court.

Section 7 lays down a substantive rule of law that an arbitration clause in a contract is to be given priority over all other clauses to the extent that it is to be enforced in substitution for any other clause.  A statute providing that particular contractual terms may not be enforced would be valid.  The effect of s 7 is simply that all contractual terms in a contract which contains an arbitration clause are not to be enforced in proceedings in a court.  Nor are secondary delegations [no doubt, ‘obligations’ was meant] arising from breach of such a contract.

In the present case, the Court must consider and determine whether or not the prerequisites for the granting of a stay have been established.  The Court must also determine whether the arbitration agreement … is null and void, inoperative or incapable of being performed and must consider whether conditions should be imposed on the stay.  All of those determinations involve the exercise of the judicial power of the Commonwealth.

…

I consider that s 7 is not an ouster of the exercise by the Federal Court of the judicial power of the Commonwealth….  …  Accordingly, s 7 is not invalid by reason of th[at] matter[ ].”

41                  In his reasons for judgment, Beaumont J said (see at 4) that since he was in “general agreement” with Emmett J’s reasons for judgment, he proposed only to “add a few observations on the main issues”.  As to the question whether s 7 of the IAA impermissibly interfered with the judicial process, Beaumont J said the following (at 5),

“Although the answer is not easily reached because questions of degree are involved, in my opinion, s 7 is, on balance, valid: such interference with the judicial process as does occur is kept within permissible limits.  This is achieved by the reservation to the Court of a power to impose appropriate conditions upon the grant of a stay.  Absent the Court’s power to impose conditions, there would, in my view, have been considerable force in the argument that s 7 was invalid.”

42                  Pointing to Beaumont J’s reference to the significance for the validity of s 7 of the IAA of the court’s power to impose appropriate conditions upon the grant of a stay, the Campbells argued before me that, on Beaumont J’s approach, subs 60(2) of the Act must be invalid.  That was because the subsection permitted no role whatever for the court in the staying of the action, let alone a role of imposing appropriate conditions on the grant by it of a stay.

43                  To my mind, the question of the validity of subs 60(2) of the Act is not to be resolved by reference to the observations of Beaumont J in Hi-Fert to which I have referred above, for the correctness of which observations I can, in any event, find no support in the reasons for judgment of Emmett J, with which reasons for judgment, as I have already mentioned, Branson J agreed.  The question is to be resolved instead by reference to the principle, recognised as early as 1907 (see Baxter v Commissioners of Taxation (NSW) (1907) 4 CLR 1087 at 1145 (Isaacs J)), that when a State court is invested with federal jurisdiction, “the Commonwealth Parliament c[an] at will regulate the procedure and control the method and extent of relief” in the State court.  That principle is relevant in present circumstances because, when a State court is seized of an action commenced by a person who afterwards becomes a bankrupt, that court begins, on that person’s bankruptcy (if it was not already doing so), to exercise federal jurisdiction in the action, a matter which the Campbells acknowledged before me.

44                  The statement of Isaacs J which I have quoted above was afterwards quoted with approval by five Justices of the High Court (Knox CJ and Gavan Duffy, Powers, Rich and Starke JJ) in their joint reasons for judgment in Lorenzo v Carey (1921) 29 CLR 243 at 252-53; and, for further reference to Isaacs J’s statement, see also Russell v Russell (1976) 134 CLR 495 at 518 (Gibbs J), 533 (Stephen J) and 536 (Mason J); The Commonwealth v Hospital Contribution Fund (1982) 150 CLR 49 at 75 (Brennan J); and Brown v The Queen (1985) 160 CLR 171 at 198-99 (Brennan J). 

45                  I consider that a law of the Commonwealth Parliament which provides for the automatic stay of an action on the bankruptcy of the person who commenced it, for the purpose of permitting the bankrupt’s trustee, who has just assumed control of the action, time within which to make a decision either to prosecute or to discontinue the action, can properly be described as a law which regulates the procedure of a State court in the exercise of the federal jurisdiction invested in it.  In that connection, it should be noted that the stay provided for is by no means contemplated to be a permanent one; in fact, the time required by the trustee to get his or her tackle in order may, depending on the circumstances, be very brief indeed and, in any event, a party against whom the action has been commenced can ensure that the time involved does not exceed four weeks by serving on the trustee the necessary notice.

46                  In a sense, of course, it may be said that subs 60(2) of the Act “interferes” with the exercise of judicial power, because it prevents the possibility of the exercise of that power during the period for which the automatic stay is in force.  However, many procedural laws have the effect of postponing the exercise of judicial power for the purpose of making its postponed exercise more just or efficient. The present law is, in my view, merely another such law, a view apparently taken by legislatures, first, colonial, then, State and, finally, the Commonwealth, for almost 160 years now.  Certainly, I do not regard the fact that the mere effect of a federal procedural law is to postpone, for what need not be more than a relatively short period of time, the exercise by a State court of the judicial power of the Commonwealth takes that law outside Isaacs J’s statement in Baxter.

47                  I note also that, in the relevant jurisprudence, a distinction has traditionally been drawn between a federal law which merely regulates the procedure of a State court in the exercise of federal jurisdiction invested in it, such a law being valid, and a federal law which purports, for example, to “alter the Constitution of the State Court” (The Commonwealth v Limerick Steamship Co Ltd and Kidman (1924) 35 CLR 69 at 105 (Isaacs and Rich JJ)) or to “affect or alter the constitution of the [State] Court itself or … the organization through which its jurisdiction and powers are exercised” (Le Mesurier v Connor (1929) 42 CLR 481 at 496 (Knox CJ and Rich and Dixon JJ)), to take two early descriptions of the type of federal law which is treated as the antithesis of one which merely regulates the procedure of a State court in the exercise of federal jurisdiction invested in it.  I am unable to see how subs 60(2) of the Act answers the description of such an antithetical law, nor did the Campbells suggest before me that it did.

48                  To characterise subs 60(2) of the Act as a law regulating the procedure of a State court in the exercise of the federal jurisdiction invested in it also answers the Campbells’ reliance of the second of the two streams of authority on which they relied in claiming that subs 60(2) of the Act was invalid, namely, that stream of authority which invalidates federal legislation that is aimed at the restriction or control of the States in the exercise of their governmental powers, including judicial.

49                  In support of that aspect of their attack on subs 60(2) of the Act (and on subs 60(3) of the Act; again, no distinction was made between the two provisions), the Campbells took me to extracts from the reasons for judgment of individual Justices in the following cases: Koowarta v Bjelke-Petersen (1982) 153 CLR 168 (Mason J at 225-26); The Tasmanian Dam Case (1983) 158 CLR 1 (Deane J at 254); Queensland Electricity Commission v The Commonwealth (1985) 159 CLR 192 (Gibbs CJ at 205-08); and The Second Fringe Benefits Tax Case (1987) 163 CLR 329 (Brennan J at 362-63).  To those references, they might perhaps have added a reference to the following statement made by six Justices jointly (Mason CJ and Brennan, Deane, Toohey, Gaudron and McHugh JJ) in Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188 at 229: “… State courts are an essential branch of the government of a State and … their continuance by s 106 of the Constitution precludes an exercise of Commonwealth legislative power prohibiting them from exercising their functions”.

50                  However, what is determinative for present purposes is that all of the statements referred to in the preceding paragraph, in so far as they were concerned with the exercise of their functions by State courts, were obviously concerned with the exercise by those courts of State functions, not with the exercise by them of federal jurisdiction.  That being so, those statements have no present application.

51                  I turn now to the question of the validity of subs 60(3) of the Act in its application to an action in a State court.

52                  So far as concerns subs 60(3) of the Act in its application to an action in a State court, the Campbells treated that provision as being one which requires the State court concerned to dismiss the action concerned, following a deemed election by the trustee to discontinue it.  Viewing the provision in that way, they made, as I have already mentioned, the same two arguments as those which they made in connection with subs 60(2) of the Act, namely, that the provision constituted an impermissible legislative interference with the exercise of judicial power and that the provision was impermissibly aimed at the restriction or control of the States in the exercise of their governmental powers, including judicial.

53                  As to the second of those two arguments, I need say nothing more than I have already said regarding it when discussing the Campbells’ reliance on it in their attack on subs 60(2) of the Act (see at [48]-[50] above).

54                  As to the first of those two arguments, it suffers from a number of difficulties.

55                  First, as I have already mentioned (see at [22] above), dismissal of an action is not the only available judicial order in consequence of a deemed election by a trustee under subs 60(3) of the Act to discontinue the action.

56                  Secondly, subs 60(3) of the Act does not, in terms, operate on the court concerned, but rather on the trustee.  (I note that in a passage in their written submissions, which passage I have already quoted at [35] above, the Campbells conceded that a federal law could validly “operate in personam on a trustee” and distinguished such a law from one which operated on a “Court or its procedures”.)

57                  Thirdly, even treating subs 60(3) of the Act as, in substance, operating on the court concerned and requiring it to make a particular judicial order (whether of dismissal or stay does not matter for present purposes), I find it impossible to distinguish the provision, in substance, from, for example, subs 7(2) of the IAA, held valid by a Full Court of the Federal Court in Hi-Fert.  All that subs 60(3) of the Act is doing is creating in “a defendant or other party to the action” an entitlement to a particular judicial order in a defined set of circumstances.  Before making that order, the court concerned will, of course, have to satisfy itself that the defined set of circumstances does exist.

58                  In their submissions regarding subs 60(3) of the Act, the Campbells emphasised that the set of circumstances defined in that provision was expressed in terms which included a “deemed”, rather than an actual, election by the trustee to discontinue the action, so that the court concerned would, according to their submission, be obliged to proceed on the basis that the trustee had elected to discontinue the action even if it was satisfied that the trustee had not actually so elected.

59                  While I accept that a federal deeming provision could constitute an impermissible legislative interference with the exercise of judicial power (see Isaacs J’s well known example in Williamson v Ah On (1926) 39 CLR 95 at 108), the present provision is manifestly not such a provision.  In substance, the provision confers on “a defendant or other party to the action” an entitlement to a particular judicial order on the trustee’s omission to make an election within the required period of time following the service on the trustee of a particular notice; to attach to that omission the description of a “deemed” abandonment of, or election to discontinue, the action by the trustee was a step by the Commonwealth Parliament which was quite unnecessary and which may be ignored for present purposes.  To adopt what AP Herbert once wrote (More Uncommon Law, p 80), “Lord Mildew’s famous ejaculation in Travers v. Travers: ‘There is too much of this damned deeming,’ will be in the minds of many”.

60                  If it were an impermissible interference with the exercise of judicial power to create an entitlement to an order in the circumstances defined in subs 60(3) of the Act, then I am unable to see how the Commonwealth Parliament would be acting constitutionally in any case in which it purported to entitle a party to a particular judicial order in a defined set of circumstances, rather than conferring on the court concerned a discretion whether or not to make the order in those circumstances.  Such a proposition only has to be stated for its unarguability to be recognised.  Not only does it find no support in Kable, but it is inconsistent with the approach taken by Emmett and Branson JJ in Hi-Fert. Furthermore, it is inconsistent with the approach which was taken by the High Court (admittedly in a criminal law context) in Palling v Corfield (1970) 123 CLR 52 (Barwick CJ and McTiernan, Menzies, Windeyer, Owen, Walsh and Gibbs JJ); and see also King v Automotive, Food, Engineering, Printing & Kindred Industries Union [2000] FCA 1900 (Branson, Finkelstein and Gyles JJ, 21 December 2000, unreported) at [62] (Gyles J) and at [43] (Finkelstein J, agreeing with Gyles J).

61                  In the result, I reject the Campbells’ attack on the validity of both subss 60(2) and (3) of the Act in the application of those provisions to an action in a State court.

62                  Before, however, concluding these reasons for judgment, there is one further matter with which I must deal.

63                   At the outset of the hearing before me of the present matter, I gave to the Campbells leave to amend their statement of claim so as to raise a question other than that of the validity of subss 60(2) and (3) of the Act.  That additional question was one which assumed the validity of those provisions.  As explained to me by the Campbells, the additional question sought to be raised by the amendment was, in substance, whether the fact that both of the Campbells had been discharged from bankruptcy after the commencement of their application to the High Court for special leave to appeal from the judgment of the Court of Appeal meant that they were now entitled as of right to prosecute that application for special leave, nonetheless though their appeal to the Court of Appeal had been the subject of a deemed abandonment by the trustee. Over Metway’s opposition, I granted the Campbells such leave to amend, but without then committing myself ultimately to making a decision on the question raised by the amendment.

64                  Having now had the opportunity to reflect on the matter, I accept the submission made by Metway during final submissions before me that it would be inappropriate, at least in the absence of the question’s being one remitted to the Federal Court by the High Court, for me to make a decision on it.  The question of the Campbells’ standing to prosecute their purported application to the High Court for special leave to appeal from the judgment of the Court of Appeal is one which should be reserved for decision by the High Court itself.

65                  However, since I have heard full argument on the question, I have decided, in an attempt to be of assistance to the High Court, should the question be raised again before it, to express some views on the question.

66                  Fundamental to the Campbells’ submission that, by reason of the fact that they had both been discharged from bankruptcy after the commencement of their application to the High Court for special leave to appeal from the judgment of the Court of Appeal, they were now entitled as of right to prosecute that application for special leave, nonetheless though their appeal to the Court of Appeal had been the subject of a deemed abandonment by the trustee, was the decision of the Queensland Court of Appeal (Fitzgerald P, Pincus JA and White J) in Theissbacher v MacGregor Garrick & Co [1993] 2 Qd R 223.  However, it appears to me that, far from supporting the Campbells’ submission, that decision, if anything, detracts from it.

67                  In Theissbacher, persons had commenced in the Queensland District Court an action claiming indemnity or contribution.  Their estates had subsequently been sequestrated, whereupon the persons against whom the action had been commenced had given notice under subs 60(3) of the Act to the trustee of the claimants’ estates.  The trustee had not actually made an election within the period of time provided for by that provision.  After the expiration of that period of time, however, and thus after a deemed election by the trustee to discontinue the action, the claimants’ bankruptcies had been annulled by the Federal Court.  The claim then came on for hearing in the District Court, which dismissed the claim by reason of the trustee’s deemed abandonment of the action.  That dismissal was, however, reversed by the Court of Appeal (Fitzgerald P dissenting).  In essence, the view expressed by Pincus JA and White J in their joint reasons for judgment (see at 230) was that “the annulment retrospectively deprived s. 60(3) of the effect it would, apart from the annulment, have had on the action”.

68                  It is plain, however, that Pincus JA and White J also took the view that if, on a proper construction of the provisions of the Act relating to annulments, the annulment of the claimants’ bankruptcies had not operated retrospectively, but only prospectively (in other words, had operated in the same way as a discharge from their bankruptcies would have done), then the action which had been deemed to be abandoned would not have been revived by the annulment.  I say that that is plain because, immediately after the passage from their joint reasons for judgment which I have quoted above, their Honours continued,

“That conclusion makes it unnecessary to deal with the other arguments raised, but we propose briefly to state our views about the principal additional point on which Mr Fleming [for the appellants] relied.  This was that the deemed abandonment under s.  60(3) does not destroy the trustee’s right to pursue the action absolutely, but has some lesser effect.  Although the point does not seem to have been dealt with in any case to which we were referred or which we have found, we express the view that the argument should not succeed.  It seems improbable that the legislature intended so minor a result as that in some unspecified way the trustee’s right to pursue the case should be interrupted rather than terminated.”

(I should perhaps add here that I do not understand their Honours, in the passage which I have just quoted, to have been intending to deny the possibility of a trustee’s obtaining an extension of time within which to make an election, even after the expiration of that time.  The unlikelihood of that having been their intention is reinforced by the fact that one of their Honours, Pincus JA, had formerly been a Judge of the Federal Court and, when such a Judge, had himself explicitly followed both Faulkner and Holmes (see at [22] above) in giving just such an extension of time: see Re Vescovi; Ex parte Knight (9 March 1988, unreported).  Nor (although I acknowledge that others have construed their Honours’ joint reasons for judgment differently: see, for example, Abeyratne v Trkulja (1998) 90 FCR 253 at 259 (North J)) do I understand their Honours, in that passage, to have been intending to deal with the effect of the deemed abandonment on the cause of action which had been sued on in the action, but only with the effect of the deemed abandonment on the action itself.  However, their Honours’ intention in that respect could be of no present relevance in any event, given that the Campbells were not, in their “action”, that is, in their appeal to the Court of Appeal, seeking to sue on a cause of action.)

69                  Thus, if the Campbells had been discharged from their bankruptcies after the date of the trustee’s deemed abandonment of their appeal, but before 19 April 1999, the day on which the appeal which they had commenced came on for hearing in the Court of Appeal, the application to their circumstances of the reasoning of Pincus JA and White J in Theissbacher would, it appears to me, necessarily have led to the conclusion that they remained unable to prosecute that appeal on that day.  I find it most difficult to understand how their position in that respect could have been improved by the fact that their respective discharges actually occurred after that day, at a time when, not only had that appeal already been the subject of an order of dismissal by the Court of Appeal, but they had also already, though being bankrupts, purportedly commenced their application to the High Court for special leave to appeal from the judgment of the Court of Appeal.

70                  In the result, I will dismiss the Campbells’ application, with costs. 

Associate:

Dated:              13 September 2001