Robert Whitton as Trustee in Bankruptcy Estate of Steven Leonard Watton v Watton

1. [1]

   THE COURT: The applicant is described as the trustee in bankruptcy of Mr Steven Leonard Watton, the former spouse of the respondent Ms Charlene Watton. (In fact, this Court was told that Mr Watton had been discharged from bankruptcy, some seven years ago, but for reasons which were not disclosed, the administration of his bankrupt estate had not been completed. Nothing presently turns on this.)

2. [2]

   In early 2017, Ms Watton commenced proceedings in the Supreme Court seeking the extension of a caveat she had lodged over property in Rouse Hill of which Mr Watton had been the sole registered proprietor. The applicant trustee had by then become the registered proprietor of the property. The caveatable interest claimed was an equitable interest said to arise from “paying the monthly mortgage repayments on the property since March 2006”. Subsequently, Ms Watton also commenced proceedings in the Federal Court of Australia, following correspondence to the effect that that Court had exclusive jurisdiction by reason of Mr Watton’s bankruptcy. Ultimately, following a short oral hearing on 20 October 2017, the primary judge extended that caveat until such time as the Federal Court proceedings were determined, and otherwise dismissed the proceedings in the Supreme Court.

3. [3]

   Thereafter his Honour determined the question of costs on the papers, ordering that the applicant trustee in bankruptcy pay Ms Watton’s costs of the proceedings: Watton v Whitton as Trustee in Bankruptcy Estate of Steven Leonard Watton [2017] NSWSC 1598. The applicant seeks leave to appeal from the decision as to costs. Leave is required because the appeal is as to costs: Supreme Court Act 1970 (NSW), s 101(2)(c). The applicant also seeks leave, out of time, to challenge the orders made on 20 October 2017 extending the caveat. For her part, the respondent maintained that the application should be dismissed for want of jurisdiction, because an appeal could only be instituted and maintained in the Federal Court. In accordance with the applicant’s preference, the application for leave was heard concurrently with the appeal.

4. [4]

   For the reasons which follow, we have concluded that although this Court has jurisdiction to hear and determine the application for leave to appeal, leave to appeal and leave to extend the time to bring an appeal against the order extending the caveat should be refused.

Background

1. [5]

   The factual and procedural background was uncontroversial. The applicant acknowledged the accuracy of what had been stated by the primary judge at [5]-[18]. His Honour’s careful description of the events preceding the litigation, and the course of the proceedings in the Supreme Court, may conveniently be reproduced verbatim.

2. [6]

   On 13 October 2017, the trustee in bankruptcy filed a notice of motion seeking that the proceedings be dismissed. Probably from then, and certainly by its return date before the primary judge on 20 October 2017, it was common ground that there should be an order that the caveat continue for a period of time. The transcript records that the hearing commenced thus:

3. [7]

   However, that agreement did not prevent disputation. The trustee in bankruptcy maintained that no interlocutory relief as was granted could be given in circumstances where the Supreme Court lacked jurisdiction to grant final relief. As it was put:

4. [8]

   The trustee in bankruptcy was willing for a more limited order extending the caveat to be made, and also was prepared to consent to an injunction in the Federal Court. However, Ms Watton was concerned that the Federal Court might not have power to extend a caveat, and was also concerned to protect her position against third parties, who might be unaware of an injunction.

5. [9]

   The primary judge gave brief ex tempore reasons for his decision:

6. [10]

   His Honour then heard the parties on the papers as to costs. His Honour’s exercise of discretion started with the fact that Ms Watton had proposed the course ultimately ordered since 24 May 2017, which had continued to be opposed by the trustee, such that the costs should reflect Ms Watton’s success on the point that was ultimately determined: at [25]. (In fact, as the primary judge observed, Ms Watton had provided draft Federal Court pleadings as early as 13 April 2017.) His Honour then took into account three matters which might favour a different exercise of discretion. The first was that the proceedings had otherwise been dismissed, the second was that the trustee contended that proceedings should always have been commenced in the Federal Court, and the third was that there had been delay in commencing proceedings in the Federal Court: at [26]-[30]. In relation to the first matter, his Honour did not regard the order which was made as determinative, because the central matter in dispute was the caveat. In relation to the third matter, his Honour also did not regard Ms Watton’s delay as sufficiently egregious or causative of prejudice as to warrant her being disentitled of costs. In this Court, the second matter was said to give rise to a question of principle, and his Honour’s reasons addressing it may conveniently be reproduced in full:

7. [11]

   Those were the circumstances in which the primary judge ordered the trustee in bankruptcy to pay Ms Watton’s costs of the proceedings.

8. [12]

   The primary Judge did not refer to the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) (Cross-Vesting Act). However s 6 of the Cross-Vesting Act contains provisions relevant to the exercise of jurisdiction by the Supreme Court of a State in relation to a “special federal matter”. This expression is defined in s 3(1) to include:

9. [13]

   Section 6 of the Cross-Vesting Act relevantly provides as follows:

10. [14]

    The trustee accepted in this Court that the primary judge had jurisdiction pursuant to s 6(8) of the Cross-Vesting Act at least to make the orders by consent on 12 and 27 January 2017 extending the caveat.

11. [15]

    After filing and serving a notice of intention to appeal, on 19 February 2018 the trustee filed a summons seeking leave to appeal the order as to costs. Almost three months later, on 7 May 2018 the trustee filed an amended summons seeking leave to appeal not only from the costs orders, but also from the orders made on 20 October 2017 extending the operation of the caveat. The amended draft notice accompanying the amended summons incorporated Ground 4A as follows:

12. [16]

    At the same time the trustee filed the amended summons he filed “Applicant’s (Updated) Written Submissions” elaborating on Grounds 4 and 4A:

13. [17]

    The Court heard from the parties on all the issues: the trustee’s application for leave to file an amended summons seeking leave to appeal and an amended draft notice of appeal; Ms Watton’s objections to this Court’s jurisdiction, and the substantive appeal. The Court indicated that it would address the issues in its reserved judgment.

This Court’s jurisdiction

1. [18]

   The first question for determination is jurisdiction. That turns on whether s 7(5) of the Cross-Vesting Act is engaged, because that federal law subtracts from this Court’s jurisdiction to hear and determine an appeal brought pursuant to s 101 of the Supreme Court Act. Subsection 7(5) provides:

2. [19]

   One of the Acts specified in the Schedule is the Bankruptcy Act 1966 (Cth), and it is well settled that s 7(5) applies to applications for leave to appeal: see Bramco Electronics Pty Ltd v ATF Mining Electrics Pty Ltd (2013) 86 NSWLR 115; [2013] NSWCA 392 at [49] and the authorities there cited. Hence, if a matter for determination in the trustee’s application for leave to appeal is a “matter arising under the Bankruptcy Act” then both of the commands in subsection (5) apply, and the appeal must be instituted in and determined by the Full Court of the Federal Court.

3. [20]

   The requirements of subsection (5) are qualified by subsections (7) and (8), which provide:

4. [21]

   Ms Watton’s written submissions raised an objection to this Court’s jurisdiction to hear and determine the trustee’s application for leave to appeal. In his oral submissions on Ms Watton’s behalf Mr Golledge (who appeared with Mr Lipp) contended that it was no longer necessary to determine the objection to jurisdiction because this Court had “commence[d] to hear [the] proceeding by way of an appeal” within the meaning of s 7(5) of the Cross-Vesting Act. Mr Golledge further submitted that having commenced to hear the proceeding, it should in the interests of justice determine the whole of the proceeding.

5. [22]

   This Court heard full argument from Mr Hartford-Davis on behalf of the trustee before calling on Mr Golledge. It is possible that the course of the hearing enlivened s 7(7)(a) of the Cross-Vesting Act but it is not necessary to decide that question. The command in s 7(7) is to transfer the proceeding (relevantly) to the Full Court of the Federal Court unless the interests of justice require this Court to determine the matter. Further, s 7(7) qualifies s 7(5), which states the basic rule that the proceedings shall be instituted only in and shall be determined only by the Full Court of the Federal Court.

6. [23]

   The legislative scheme underlying s 7 is that appeals in matters arising under the federal Acts specified in the Schedule will be determined exclusively by federal appellate courts, save in circumstances where the interests of justice require a State appellate court to determine the appeal, or in cases of inadvertence. The administratively convenient course taken in this Court in no way suffices to satisfy the heavy burden of showing that the interests of justice require this Court to determine it.

7. [24]

   Accordingly, the question is whether s 7(5) applies to the present application for leave to appeal. Ms Watton submitted that although the costs order was not a matter arising under the Bankruptcy Act, the question whether the order extending the caveat was within power was such a question. When confronted with the propositions that appeals lie only from orders, and the trustee sought only to challenge the order as to costs, Ms Watton responded that it was necessary to determine whether there was power to extend a caveat in order to review the exercise of discretion as to costs:

8. [25]

   Contrary to Ms Watton’s submissions, s 7(5) is not, in our view, engaged. Until the out of time application was made to amend the summons seeking leave to appeal and the draft notice of appeal, the only issue in this Court was a challenge to the primary judge’s exercise of discretion as to the costs of proceedings in which the only relief granted was interlocutory relief to extend a caveat. True it is that the caveat asserted and protected a claimed equitable interest in land whose registered proprietor was a trustee in bankruptcy. In order to determine finally whether the equitable interest claimed by Ms Watton was established, there was unquestionably a matter arising under the Bankruptcy Act within the exclusive jurisdiction of the Federal Court and the Federal Circuit Court conferred by s 27 of the Bankruptcy Act. But, for the purposes of the exercise of the discretion as to costs, the Bankruptcy Act was “lurking in the background”, to use Windeyer J’s language in Felton v Mulligan (1971) 124 CLR 367 at 388 and 391; [1971] HCA 39. No right, obligation, entitlement or privilege which was the subject of the appeal arose under the Bankruptcy Act.

9. [26]

   In some circumstances, in order to determine a question of costs, courts embark upon a partial evaluation of the underlying issues. That course is very much disfavoured, as the principles associated with Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 disclose. We express no view as to whether in such a case, had the primary judge’s exercise of discretion been informed by either a tentative or a concluded view as to the merits of a claim arising under the Bankruptcy Act, the costs order would fall within the exclusive jurisdiction in bankruptcy. That is not what occurred in the present case. His Honour simply granted interlocutory relief, to which there was no objection in principle, although the parties disputed the form it should take. It is quite clear that the primary judge did not determine on any final basis any aspect of Ms Watton’s claim against property owned by a trustee in bankruptcy. Both parties and the primary judge proceeded on the basis that that was a matter for a federal court.

10. [27]

    The only question arising on the (unamended) application for leave is as to costs in light of the interlocutory relief which had issued. That does not amount to a matter arising under the Bankruptcy Act. We note that this is consistent with the result in Luxottica Retail Australia Pty Ltd v Grant [2009] NSWCA 378 (although no point as to jurisdiction was taken in that appeal).

11. [28]

    This Court’s jurisdiction is unaffected by s 7(5).

The application to seek leave to appeal from the orders extending the caveat

1. [29]

   We turn to the trustee’s application to extend the time for filing an amended summons seeking leave to appeal and an amended draft notice of appeal. The trustee seeks to contend that although the primary Judge had jurisdiction to make orders on 12 and 27 January 2017 extending the caveat, his Honour had no jurisdiction to make the further order extending the caveat on 20 October 2017 against a registered proprietor who was a trustee in bankruptcy.

2. [30]

   That is a singularly inappropriate vehicle for the grant of leave. The application is made months out of time. It is brought in circumstances in which the trustee accepted before the primary judge that his Honour had jurisdiction to grant at least some interlocutory relief. Hence this is not merely a case where an applicant seeks to advance a point which was not raised before the primary judge. This is a case where the trustee seeks to raise a point which is to some extent inconsistent with the stance he took before the primary judge. Of course, the primary judge lacked the benefit of any of the submissions now sought to be made in the event that leave is granted.

3. [31]

   There is no basis for the substantial extension of time for leave to appeal against the orders made on 20 October 2017. The trustee’s application to amend his summons for leave to appeal and the draft notice of appeal should be dismissed.

Leave to appeal

1. [32]

   Proposed grounds 1, 2, 3 and 5 in the draft notice of appeal sought to advance House v The King error in the exercise of the discretion to order costs, in conventional ways. They need not be summarised, because with commendable candour, Mr Hartford-Davis made it clear that only proposed grounds 4 and 6 might merit a grant of leave to appeal. The concession was well made. Proposed grounds 1, 2, 3 and 5 raised no question of principle or general importance or an injustice which was reasonable clear: Be Financial Pty Ltd, as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[38]; The Age Company Ltd v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26 at [13]. It is also to be borne in mind that leave was sought in respect of an order as to costs incurred in respect of an interlocutory hearing and where the discretion was exercised on the papers.

2. [33]

   Proposed grounds 4 and 6 are as follows:

3. [34]

   There is no sound reason to grant leave to appeal in respect of proposed ground 4. That ground is premised upon there being error in the order made on 20 October 2017 extending the caveat. But the draft notice of appeal challenges only the costs orders made by the primary Judge. It does not challenge the order made on 20 October 2017 extending the caveat. It cannot be right to grant leave to challenge the exercise as to costs on a basis that impugns the substantive order, in circumstances where the applicant for leave does not challenge, and continues to be bound by, the substantive order. Further, as has already been stated in dealing with the application for an extension of time, the submissions now sought to be advanced were never advanced to the primary judge.

4. [35]

   Proposed ground 6 falls within a different category. However, it is not necessary to reach a final view as to whether the Federal Court has power to make an order under s 74K of the Real Property Act 1900 (NSW). Indeed, it would be inappropriate to do so. Section 74K confers power upon the Supreme Court of New South Wales to make an order. The Court was not taken to any decision of the Federal Court where it has been determined, after argument, that the Federal Court had such power. It may very well be that there is such power, in accordance with what was said in John Robertson & Co Ltd (in liq) v Ferguson Transformers Pty Ltd (1973) 129 CLR 65 at 95; [1973] HCA 21, which was the view taken in Leroy v Koutavas, in the matter of Koutavas (No 2) [2017] FCA 912 at [11]-[15]. On one view it may be necessary to revisit, in an appropriate case, that reasoning in light of the way in which the operation of s 79 of the Judiciary Act 1903 (Cth) has been reinterpreted in Rizeq v Western Australia [2017] HCA 23; 91 ALJR 707. Although Rizeq was mentioned during the hearing, no submissions were addressed to this.

5. [36]

   It suffices for present purposes to observe two matters. The first is that there was no error in the primary judge proceeding on the basis that there might be a doubt as to whether the Federal Court had power to make an order, in circumstances where his Honour did not have the benefit of full argument on the point. The second is that there is no question of principle or public importance in ground 6 and we are unpersuaded that the trustee has made out a case of reasonably clear injustice.

Orders

1. [37]

   For those reasons, the trustee’s application to amend his summons to seek leave to appeal from the orders made on 20 October 2017 should be dismissed. Ms Watton does not seem to have filed an objection to competency, but in any event her application based on want of jurisdiction lacks merit. Leave to appeal from the costs order made on 22 November 2017 should also be refused.

2. [38]

   The discretion as to costs in this Court should be exercised on the basis that neither side has been wholly successful. Rather than apportioning costs by issues, which would be apt to lead to yet further disputation, it is appropriate to take a broadbrush approach: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219. The trustee should pay 50% of Ms Watton’s costs in this Court.

3. [39]

   The Court’s orders are: