Cunningham v Gapes [2015] QDC 5

DISTRICT COURT OF QUEENSLAND CITATION: Cunningham v Gapes [2015] QDC 5 PARTIES: JOHN WILLIAM CUNNINGHAM AS TRUSTEE FOR THE ESTATE OF ANDREW BRIAN GAPES (plaintiff) v ANTONIA GAPES (defendant) FILE NO/S: 4204/14 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: Brisbane DELIVERED ON: 4 February 2015 DELIVERED AT: Brisbane HEARING DATE: 23 January 2015 JUDGE: Rackemann DCJ ORDER: The proceeding is struck out. The plaintiff to pay the defendant’s costs of the proceeding on an indemnity basis. CATCHWORDS: PROCEDURE – COURTS AND JUDGES GENERALLY – COURTS – where claim by registered trustee in bankruptcy for monies is dependent upon a determination of whether the monies form part of the bankrupt’s estate – whether that determination falls within the exclusive jurisdiction of the Federal Court and the Federal Circuit Court BANKRUPTCY – BANKRUPTCY COURTS – JURISDICTION AND POWER OF COURTS – where claim by registered trustee in bankruptcy for monies is dependent upon a determination of whether the monies form part of the bankrupt’s estate – whether that determination falls within the exclusive jurisdiction of the Federal Court and the Federal Circuit Court COUNSEL: Mr P Somers for the Applicant/Defendant Solicitor for the Respondent/Plaintiff SOLICITORS: James Comonos Lawyers for the Applicant/Defendant Ferguson Cannon Lawyers for the Respondent/Plaintiff -- 1 of 6 -- 2 [1] The defendant is the wife of a bankrupt. The plaintiff is the trustee of the estate of that bankrupt. The plaintiff’s claim is for $87,900.32 for money said to be due and owing by the defendant to the plaintiff. The money was received into the defendant’s bank account and expended. The plaintiff claims that, pursuant to the Bankruptcy Act 1966 (Cth), the money formed part of the bankrupt’s estate and that the plaintiff is entitled to recover those monies by reason of its position as trustee of the bankrupt’s estate. [2] The defendant disputes the assertion that the money formed part of the bankrupt’s estate and says that this central issue is within the exclusive jurisdiction of the Federal Court and Federal Circuit Court (“the Federal Courts”). On 24 November 2014 the defendant filed a conditional notice of intention to defend. By an application filed on 5 December 2014, the defendant sought declarations and a permanent stay of proceedings. It now seeks an order that the claim filed on 27 October 2014 be set aside. [3] Sections 31 and 27 of the Bankruptcy Act provide, in part, as follows: “31 Exercise of jurisdiction (1) In exercising jurisdiction under this Act, the Court shall hear and determine the following matters in open Court: … (e) applications to set aside or avoid a charge, charging order, settlement, disposition, conveyance, transfer security or payment; (ea) applications under section 139A; (ff) applications to declare for or against the title of the trustee to any property; …” “27 Bankruptcy courts -- 2 of 6 -- 3 (1) The Federal Court and the Federal Circuit Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than: (a) the jurisdiction of the High Court under section 75 of the Constitution; or (b) the jurisdiction of the Family Court under section 35 or 35A of this Act.” [4] This proceeding does not involve, in terms, an application to set aside a payment or to make a declaration for, or against, the title of the trustee. Rather, it is a money claim. In order to establish its right to recovery of the money so claimed however, the plaintiff would have to establish that the money in question formed part of the bankrupt’s estate such that the plaintiff, as trustee of that estate, was entitled to the money which was, in fact, paid to the defendant. [5] At the time the proceeding was instituted, the plaintiff was well aware that there was a dispute about the trustee’s entitlement to the money and that the dispute had not been resolved either by agreement or by any proceeding in the Federal Courts. There had been an exchange of correspondence between the solicitors for the parties. It was pointed out, on behalf of the plaintiff, that an assertion that the money did not form part of the estate was rebutted with a letter from the plaintiff’s solicitors dated 16 July 2014. That remained an issue between the parties however, as evidenced by a letter from the now defendant’s solicitors dated 21 October 2014, asserting that the money received by the now defendant had been received on trust for the bankrupt and that, as between the trustee and the bankrupt, the receipt of the money on behalf of the bankrupt was protected under the Bankruptcy Act. Earlier the bankrupt, in the course of examination before the Deputy District Registrar of the Federal Court, said that the payment of the money into his wife’s account for expenditure was consistent with legal advice to the effect that the trustee did not have a right to the money. -- 3 of 6 -- 4 [6] The written submissions on behalf of the plaintiff on the one hand “agrees the question as to exempt property raised by the defendant must be determined by the Federal Court” and it was confirmed in the course of oral argument that such a proceeding would be brought but, on the other, the solicitor for the plaintiff placed reliance on the decision of Austin J in Sutherland v Brien [1999] 149 FLR 321 as providing some support for the proposition that this proceeding is not within the exclusive jurisdiction of the Federal Court and that the trustee “maintains discretion to bring proceedings in the state jurisdiction to recover debts”. The law has, however, developed since that case. [7] The approach to the application of the exclusive jurisdiction provisions of the Bankruptcy Act was the subject of consideration by the Court of Appeal in Cordes v Dr Peter Ironside Pty Ltd [2009] 2 Qd R 235. The Court of Appeal adopted the wide view of the exclusive jurisdiction conferred by s 27(1) of the Bankruptcy Act which had been adopted in the earlier cases of Scott v Bagshaw (2000) 99 FCR 573 and Meriton Apartments Pty Ltd & Anor v Industrial Court of New South Wales & Anor (2008) 171 FCR 380. [8] On the approach endorsed by the Court of Appeal, decisions involving findings either for or against the trustee’s title to property fall within the exclusive jurisdiction provisions. The Court of Appeal said that, insofar as earlier cases might imply that exclusive jurisdiction is confined to those matters required by a specific provision of the Bankruptcy Act to be brought in the Federal Court, one must accept that that would be too restrictive an approach.1 Accordingly, it matters not if, as in Scott v Bagshaw, the claim makes no reference to the Bankruptcy Act (although here it does) and the matter could proceed to judgment without any reference to the Act 1 Para [40]. -- 4 of 6 -- 5 (although again that is not the case here), so long as the orders sought would have a relevant necessary effect on the title of the trustees in bankruptcy. [9] What is important is not so much the form of the relief sought, but whether the proceeding would have the effect of determining one of the matters falling within the concept of jurisdiction in bankruptcy. In this case, the effect of determining the proceeding would be to make a determination about a matter of bankruptcy jurisdiction involving the extent of the bankrupt’s estate and, in particular, the entitlement of the trustee to the money in question and whether the payment made to the defendant is able to be recovered by the trustee. That was so from the outset. That is not to say a trustee will never be able to bring a debt recovery action in a State court. In this case however, the proceeding is caught by the exclusive jurisdiction provisions, given the finding it relies upon. [10] At the hearing of the application, the solicitor for the plaintiff contended that this proceeding should be temporarily stayed, pending a determination by the Federal Court (as to whether the money formed part of the bankrupt’s estate or were exempt) rather than permanently stayed or struck out. I accept the defendant’s submission however, that the proceeding should not be left stayed but on foot. There is no need to keep the proceeding alive. The point in issue can and must be determined elsewhere. If the defendant is successful in that other prospective proceeding there is, of course, no point to the present proceeding. If the plaintiff succeeds in its foreshadowed application to the Federal Court, the orders made could obviate the need for recourse to the present proceeding. [11] The central issue to be determined in the subject proceeding is within the exclusive jurisdiction of the Federal Courts. That was apparent at the time the proceeding was commenced. I accept that the defendant should not be burdened with an unresolved -- 5 of 6 -- 6 District Court proceeding, as well as facing a Federal Court proceeding, merely because the plaintiff commenced a proceeding in a court which could not determine the central issue pleaded in its statement of claim and known to be in dispute between the parties and upon which its entitlement to the monies turns. The proceeding should be struck out. There is no need to also make declarations. [12] The defendant seeks its costs on an indemnity basis. It has already been noted that the dispute, the resolution of which requires the jurisdiction of another court to be invoked, was well known prior to the institution of this proceeding. The plaintiff ought to have known that the basis of the claim was one that fell within the exclusive jurisdiction provisions. The defendant also invited the plaintiff to discontinue the claim before filing the subject application. That invitation was not taken up. The plaintiff offered to discontinue the present proceeding, but only on the basis of no order as to costs, something the defendant was justifiably not prepared to accept. An order for indemnity costs is warranted in the circumstances. -- 6 of 6 --