Fewin Pty Limited v John Christopher Burke

1. [1]

   On 11 September 2015, the defendant made an application before the Court for the proceedings brought by the plaintiff to be dismissed for want of prosecution and an asserted lack of jurisdiction, pursuant to r 12.7 and r 13.4 of the Uniform Civil Procedure Rules 2005 (“UCPR”).

2. [2]

   The principal submission of the defendant is that this Court does not have jurisdiction to hear, determine, or make orders in these proceedings. It is argued that s 27 of the Bankruptcy Act 1966 (Commonwealth) (“the Bankruptcy Act”) confers exclusive jurisdiction in relation to bankruptcy matters on the Federal Court and the Federal Circuit Court; and that as the proceedings should be characterised as a “special federal matter” this court is unable to assume jurisdiction via the relevant cross-vesting legislation.

3. [3]

   The application is contested by the plaintiffs.

A Brief History of the Proceedings

1. [4]

   On 7 November 2008 Robert Gilbert Coshott was declared bankrupt upon the making of a Sequestration Order by the Federal Magistrates Court of Australia. Subsequently, on 18 December 2008, the defendant, John Christopher Burke, was appointed trustee of Mr Coshott’s estate. The defendant was trustee in bankruptcy of the estate from that date until 25 February 2013, when the defendant resigned as trustee of the estate.

2. [5]

   It appears that Fewin Pty Limited, being the first plaintiff, is a company under the control of Robert Coshott, and the second and third plaintiffs. The second and third plaintiffs are, respectively, Robert Coshott’s brother, and his wife.

3. [6]

   As outlined in the Statement of Claim of 13 August 2014, the plaintiffs submit that at all material times between December 2008 and 25 February 2013, the defendant, as trustee of the estate, had duties to the plaintiffs as creditors of the estate, to the estate itself, and to others. The plaintiffs claim that the defendant had duties to:

   1. (1)

      Exercise all reasonable skill, care and diligence in the administration of the estate;

   2. (2)

      Administer the estate as efficiently as possible by avoiding unnecessary expense;

   3. (3)

      Exercise powers and perform functions in a commercially sound way; and

   4. (4)

      Incur only those costs that are necessary and reasonable.

4. [7]

   The plaintiffs claim that during the period between December 2008 and 25 February 2013, the defendant breached and/or failed to perform these duties.

5. [8]

   A Defence was filed on 17 September 2014. The Defence provided that any issue of claims arising from the conduct of the defendant was regulated by the provisions of the Bankruptcy Act and subject to the exclusive supervision of a court having jurisdiction under that Act. The Defence contends that the Supreme Court of New South Wales does not have any jurisdiction over the cause of action for this reason.

6. [9]

   There have been a number of adjournments in this matter. Primarily, these adjournments have related to a request to re-plead the case and also join the matter. There have also been some issues in relation to changes in representation on behalf of the plaintiffs. As a result, the proceedings have effectively stagnated since the end of 2014.

7. [10]

   On 31 July 2015, the matter was before the Common Law Registrar who made orders for the plaintiff to serve any proposed Amended Statement of Claim by 14 August 2015.

8. [11]

   The matter was relisted on 21 August 2015. The Registrar noted that the proposed Amended Statement of Claim had not yet been served. She ordered the plaintiffs to serve the pleading by 28 August 2015.

9. [12]

   The matter was stood over until 4 September 2015. At that date, the Amended Statement of Claim had still not been served. The Registrar made orders that the pleadings be served by 9 September 2015. A further order was made that if the plaintiffs failed to comply with the order for service the matter would be referred to the Duty Judge on 11 September 2015 for the plaintiff to show cause.

10. [13]

    This is how the matter came to be before me.

11. [14]

    The affidavit of the defendant, Mr Burke, was filed in Court on 11 September 2015. Annexure “C” to that affidavit attaches an email from Bruce Hocking, of Martin Place Lawyers, to John Burke (cc Mr G. Gee) at 7.13 pm on 9 September 2015. That email attached an unsigned copy of the Amended Statement of Claim (Annexure “D”).

12. [15]

    The affidavit of Mr Burke outlines the basis on which the defendant seeks to have the proceedings dismissed. At [13] Mr Burke states that there are substantial issues as to jurisdiction, as well as the standing of the plaintiffs (or at least the second and third plaintiffs). Mr Burke seeks to have the proceedings summarily dismissed pursuant to r 13.4 of the UCPR. It is contended that the matter is an abuse of process, or constitutes proceedings that are frivolous or vexatious.

13. [16]

    Rule 13.4 of the UCPR provides that,

14. [17]

    In the alternative, Mr Burke submits that the proceedings be dismissed for want of prosecution, pursuant to r 12.7 of the UCPR.

15. [18]

    Rule 12.7 of the UCPR provides that,

16. [19]

    On 11 September 2015 the parties made oral submissions on the motion before the court.

17. [20]

    Since the plaintiffs complained of the lack of notice of the defendant’s application, some further opportunity was given to the plaintiffs to file and serve any submissions relevant to the oral application by 16 September 2015; and the defendant was to file and serve any submissions in reply by 18 September 2015. Both of these orders were complied with.

Jurisdiction

1. [21]

   In regards to jurisdiction, the defendant argues that this Court does not have jurisdiction to hear the issues in dispute, and that the “desire” by the plaintiffs to commence proceedings or to continue the proceedings when the Court does not have jurisdiction constitutes an abuse of process, or, at the very least, frivolous and vexatious litigation, contrary to r 13.4 of the UCPR. The defendant submits that both the existing Statement of Claim filed in August 2014 and the Amended Statement of Claim filed in September 2015 seeks relief in respect of which this Court has no jurisdiction.

2. [22]

   Section 27 of the Bankruptcy Act provides that,

3. [23]

   The effect of s 27 is that the Federal Court of Australia and/or the Federal Circuit Court of Australia have exclusive jurisdiction in bankruptcy, save for some exceptions.

4. [24]

   The plaintiffs rely upon provisions within the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (“the Cross-vesting Act”) to establish this Court’s jurisdiction. The cross-vesting legislation as it was enacted purported to confer jurisdiction on the Federal and Family Courts and on the Supreme Courts of other States and Territories to hear and determine matters arising under State or Territorial law and providing for the transfer of proceedings between those courts.

5. [25]

   The issue of cross-vesting was considered in Re Wakim, Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511. In that matter, the High Court held that in so far as the State Acts purported to confer jurisdiction in State matters on the Federal or Family Courts, they were invalid, but that left untouched the provisions in the Commonwealth Act relating to conferral of federal jurisdiction on State courts (authorised by Ch III of the Constitution); the conferral by the States of jurisdiction in State matters on the courts of other States and Territories, and the provisions for transfer of proceedings between such courts.

6. [26]

   Relevantly, s 6(1) of the Cross-vesting Act provides that,

7. [27]

   A “special federal matter” is defined in s 3 as,

8. [28]

   The defendants submit that the proceedings should be characterised as a “special federal matter” as they are a matter within the original jurisdiction of the Federal Court by virtue of section 39B of the Judiciary Act 1903. Relevantly, s 39B(1A) provides,

9. [29]

   In opposition to the claim by the defendants, the plaintiffs firstly rely on, in the event that the proceedings do not involve a “special federal matter”, s 4 of the Cross-vesting Act to invest the Court with jurisdiction over the proceeding, and s 5 for the court’s jurisdiction to resolve any question of transfer of the proceedings to a federal court.

10. [30]

    Section 4 provides that,

11. [31]

    Section 5 relates to transfer of proceedings. It provides a basis for the Court’s jurisdiction to resolve any question of the transfer of the proceeding to a federal court.

12. [32]

    Secondly, the plaintiffs submit that in the event that the proceedings involve a “special federal matter”, s 6(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) gives jurisdiction to the Supreme Court to determine the proceeding, or to transfer the proceeding to a federal court as presumed by s 6(1).

13. [33]

    Section 6(3) provides that,

14. [34]

    This issue of jurisdiction in bankruptcy matters was considered in the Victorian Supreme Court in Maria Gorkowski v Turner [2014] VSC 200; (2014) 285 FLR 66. That case considered whether the Supreme Court of Victoria had jurisdiction to deal with a matter arising from bankruptcy. In those proceedings, the plaintiff, Ms Gorkowski, alleged that she had a beneficial interest in a property, the title of which had recently passed from her bankrupt son, Richard Gorkowski, to the defendant, Mr Turner, who was trustee for the estate of Mr Gorkowski. At [37] Vickery J held that pursuant to s 4(1) of the Cross-vesting Act, the Supreme Court could be invested with federal jurisdiction. The Court then considered whether the proceedings were a “special federal matter”. Critically, the Court found that bankruptcy was not “special federal matter” for the purposes of the Act. His Honour held that,

15. [35]

    Gorkowski v Turner was then considered, in obiter, in Truthful Endeavours Pty Ltd v Condon [2015] FCAFC 70; (2015) 231 ALR 483 per Allsop CJ, Katzmann and Gleeson JJ. The principal concern of the Court in this respect was the scope of the term “special federal matter”. The Full Court at [61] found that,

16. [36]

    The court considered the relationship of bankruptcy proceedings and state court jurisdiction at [32]-[61],

17. [37]

    In his oral submission, counsel for the defendants stated,

18. [38]

    This conclusion is in accordance with the obiter of the Federal Court in Truthful Endeavour, at [(iii)],

19. [39]

    Applying the reasoning of the Federal Court to the facts in this matter, establishes that this Court does not have jurisdiction to determine the proceedings. Despite the fact that the proceedings are in common law, specifically negligence, the subject of the controversy, Mr Burke’s duties as trustee of the estate, owe their existence to federal law…” as it “arises under” the laws of Parliament. The relief sought in negligence is, accordingly, a “special federal matter”.

20. [40]

    Although neither party drew my attention to the case, I note that the decision of Gorkowski v Turner went to the Victorian Court of Appeal. In Turner v Gorkowski [2014] VSCA 248, Neave and Santamaria JJA considered whether an application seeking a declaration for or against the title of the trustee to a trustee in bankruptcy under s 58(1)(a) of the Bankruptcy Act was a “special federal matter” within the meaning of s 6(1) of the Cross-vesting Act. The court appeared to reach a similar conclusion to the Federal Court. At [41],

21. [41]

    The plaintiffs submit that if this court agrees with the findings in Truthful Endeavours, that is, that the proceedings involve a “special federal matter”, then they rely on s 6(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) to determine the proceeding, or whether to transfer the proceeding to a federal court as is presumed by s 6(1). As noted above, s 6(3) provides that,

22. [42]

    The plaintiffs have not provided any submissions on why this court should be satisfied that are “special reasons” for the proceedings to be determined by this court.

23. [43]

    The plaintiffs further submit that at [21],

24. [44]

    The plaintiffs make two further submissions in regard to the application under r 13.4. These objections go to procedural issues more generally, as opposed to jurisdictional concerns.

25. [45]

    The first submission is that an application under r 13.4 should be dismissed on the basis that there was no notice of such an application.

26. [46]

    The second submission is that the defendant’s submissions on the application were directed to perceived inadequacies of the proposed Amended Statement of Claim and how the proposed pleading was said to contravene r 13.4. The plaintiffs argue that there were no submissions made regarding the inadequacies of the Statement of Claim filed in 2014. They submit that the question to be answered by r 13.4 is in relation to proceedings generally or to any claim for relief in proceedings. As such, they claim that the material before the court does not warrant the dismissal of the whole of the proceedings under r 13.4.

27. [47]

    Whilst the plaintiffs concede some “regrettable instances of non-compliance” with orders of the Court, it is submitted that the delay in moving this matter forward is not so grievous as to engage the Court’s powers pursuant to r 13.4 UCPR.

Determination

1. [48]

   There are two issues to be determined, that of jurisdiction, and the question of whether the proceedings should be dismissed. Having considered the evidence before the Court, the submissions of the parties, and the authorities and legislation to which the Court has been referred, both issues must be determined in favour of the defendant.

2. [49]

   The issue of jurisdiction has been a live issue since September 2014. Despite that length of time, the plaintiffs have not previously responded to the defendant’s concerns over that threshold question, or sought to deal with it in any way. Had they done so, it may be that the matter would have proceeded as an application for transfer to the Federal Court. No such application has been made.

3. [50]

   The plaintiffs’ claim is one founded upon the fulfilment of duties by the defendant while acting as trustee under the Bankruptcy Act. The statutory source of his duties and obligations is the same Act. Section 27 of that legislation provides that the Federal Court of Australia and/or the Federal Circuit Court of Australia have exclusive jurisdiction, save for some exceptions. The exceptions are not relevant for present purposes.

4. [51]

   I do not believe that this Court has jurisdiction to determine the plaintiffs’ claim. That jurisdiction rests in the Federal Court.

5. [52]

   Even was that not my conclusion, the issue of the dismissal of the claim pursuant to r 12.7 or r 13.4 remains.

6. [53]

   The plaintiffs have not acted expeditiously to finalise the pleading of the claim, and ready the matter for hearing. Whilst it is accepted that the whole of the delay in this matter is not attributable to the plaintiffs, a very substantial part of it is. As the party bringing the action against the defendant, there rests a particular burden on the plaintiffs to be ready to proceed with their claim in good time.

7. [54]

   It is not an appropriate use of this Court’s resources to utilise the Court as something of a holding venue whilst investigations and inquiries are conducted that should have been carried out prior to or very quickly after the commencement of the proceedings.

8. [55]

   Order after order of this Court with respect to filing necessary documentation has been ignored, leading to costs incurred without progress made. Ultimately, it was the dilatory approach of the plaintiffs and their casual lack of response to the orders of the Registrar, as repeatedly extended, that led to the matter being referred to the Duty Judge for consideration of the dismissal of the claim.

9. [56]

   The plaintiffs were on notice of that possibility, raised not just by the defendant but also by the Registrar. It should not be overlooked that this Court may, of its own motion, act to ensure the proper use of its resources, and thus an adverse outcome could be visited on a dilatory party.

10. [57]

    All litigants have a duty pursuant to s 56 of the Civil Procedure Act 2005, a duty which must be fulfilled: Chamberlain Group Pty Ltd v Kids for Life Pty Ltd [2015] NSWCA 241 at [16]-[17]; Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; (2013) 303 ALR 199; [2013] HCA 46 at [51]-[59], per French CJ, Kiefel, Bell, Gageler and Keane JJ.

11. [58]

    The tardiness of the conduct of the case has doubtless also led to the defendant needlessly incurring costs and a degree of anxiety over the outstanding litigation. In endeavouring to do justice to both parties, prejudice to a defendant occasioned by delay must be taken into consideration.

12. [59]

    Taking those matters into account, had I concluded that the Court was vested with jurisdiction, I would have dismissed the plaintiffs’ claim as frivolous or vexatious (r 13.4(1)(a)), or for want of prosecution (r 12.7(1)).

13. [60]

    The orders that the Court makes are these:

    1. (1)

       Leave to file an Amended Statement of Claim is refused;

    2. (2)

       The Statement of Claim of 13 August 2014 is dismissed; and

    3. (3)

       Costs as agreed or assessed are awarded in the defendant’s favour.