Citation: Green v Schneller [2001] NSWSC 897
Court: Supreme Court of New South Wales, Equity Division
Date: 16 October 2001
Judge(s): Barrett J
Background
A creditor held judgment debts against a first defendant arising from proceedings commenced in 1994 and 1995. Before those debts were fully resolved, the first defendant transferred her interest in a jointly owned residential property to her husband (the second defendant) by an instrument dated 6 May 1998. The creditor commenced proceedings in the Supreme Court on 29 June 2001 seeking to have that transfer declared voidable as a fraudulent disposition under s 37A of the Conveyancing Act 1919 (NSW), on the basis it was made with intent to defraud creditors.
The proceedings were still on foot when, on 1 August 2001, the first defendant became bankrupt upon presentation of a debtor's petition. The Official Trustee appeared as trustee for the first defendant's estate.
Two competing motions followed. The creditor sought leave under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) to continue the proceedings. The second defendant sought a permanent stay or dismissal of the proceedings under the Supreme Court Rules.
Legal Issues
- Whether proceedings in the Supreme Court seeking to avoid a fraudulent property transfer constitute a "legal proceeding" within s 58(3)(b) of the Bankruptcy Act 1966 (Cth), given that the Act defines "proceeding" in s 5 to mean a proceeding under the Act itself
- Whether such proceedings are "in respect of a provable debt" for the purposes of s 58(3)(b)
- Whether the Supreme Court of NSW has jurisdiction to grant leave to proceed under s 58(3)(b) of the Bankruptcy Act
Decision
On "legal proceeding": Barrett J held that the expression "legal proceeding" in s 58(3)(b) carries its ordinary broad meaning and is not limited to proceedings under the Bankruptcy Act itself. The insertion of the word "legal" before "proceeding" signals a departure from the defined term in s 5 of the Act, which applies only where no contrary intention appears. The purpose of s 58, like s 60, is to centralise assets and crystallise liabilities under the Official Trustee's administration, a purpose that requires the provision to operate broadly across all civil proceedings.
On "provable debt": The court found that the substantive proceedings were "in respect of a provable debt." Although the claim was framed as seeking avoidance of a disposition rather than recovery of a debt, its practical and legal character remained connected to the underlying judgment debts owed by the first defendant to the creditor. Those debts were provable in the bankruptcy.
On jurisdiction: This was the decisive question. Barrett J concluded that the Supreme Court had no jurisdiction to grant leave under s 58(3)(b). Section 27(1) of the Bankruptcy Act confers jurisdiction in bankruptcy matters on the Federal Court, and that jurisdiction is expressed in terms that explicitly exclude the jurisdiction of all other courts except the High Court under s 75 of the Constitution. That exclusionary language was held to displace any jurisdiction that might otherwise arise under s 39(2) of the Judiciary Act 1903 (Cth), which generally invests state courts with federal jurisdiction under Commonwealth laws. The court noted that a cross-vesting pathway might theoretically exist but found it inapplicable on the facts.
Orders Made
- The creditor's notice of motion (seeking leave under s 58(3)(b)) was dismissed.
- The second defendant's notice of motion (seeking permanent stay or dismissal) was adjourned, to allow the creditor an opportunity to seek leave from a court with appropriate jurisdiction under s 27(1) of the Bankruptcy Act.
Key Takeaways
- The expression "legal proceeding" in s 58(3)(b) of the Bankruptcy Act 1966 (Cth) bears its ordinary meaning and is not confined to proceedings brought under the Act itself, notwithstanding the s 5 definition of "proceeding."
- Proceedings seeking to avoid a fraudulent disposition under s 37A of the Conveyancing Act 1919 (NSW) can constitute a "legal proceeding in respect of a provable debt" for the purposes of s 58(3)(b), where the underlying obligation is a provable debt in the bankruptcy.
- Section 27(1) of the Bankruptcy Act, which grants exclusive jurisdiction in bankruptcy matters to the Federal Court, displaces the general grant of federal jurisdiction to state courts under s 39(2) of the Judiciary Act 1903 (Cth).
- As a result, the NSW Supreme Court lacks jurisdiction to grant leave under s 58(3)(b) of the Bankruptcy Act, and a creditor wishing to continue such proceedings must apply to the Federal Court or another court invested with jurisdiction under s 27(1).
- In declining to grant a permanent stay, the Supreme Court recognised that the creditor should have the opportunity to seek leave from an appropriately empowered court before the proceedings are extinguished.
Legislation and Cases Referenced
Legislation:
- Bankruptcy Act 1966 (Cth), ss 5, 27, 58, 60
- Conveyancing Act 1919 (NSW), s 37A
- Judiciary Act 1903 (Cth), ss 38, 39, 39B
- Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), ss 3, 6
- Real Property Act 1900 (NSW)
- Supreme Court Rules (NSW), Pt 13 r 5(1)(c)
Cases:
- Storey v Lane (1981) 147 CLR 549
- Re Sharp; Ex parte Tietyens Investments Pty Ltd [1998] FCA 1367
- Aliferis v Kyriacou (2000) 1 VR 447
- Technical Products Pty Ltd v State Government Insurance Office (1989) 167 CLR 45
- Capel v Caram Finance Australia Ltd [2000] 2 QdR 126
- Cannane v J Cannane Pty Ltd (1998) 192 CLR 557
- Silvera v Savic (1999) 46 NSWLR 124
- Langdon v Gruber [2001] NSWSC 276
- Fraser v Commissioner of Taxation (1996) 69 FCR 99
- Re McMaster; Ex parte McMaster (1991) 33 FCR 99
- Sutherland v Brien (1999) 149 FLR 321
- Scott v Bagshaw (2000) 99 FCR 573
- Re Killington; Ex parte Chisholm [1998] FCA 1474
- Austral Pacific Group Ltd v Airservices Australia (2000) 74 ALJR 1184
- Adams v Cleve (1935) 53 CLR 185
- Baxter v Commissioners of Taxation (NSW) (1907) 4 CLR 1087