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The Jurisdiction of Courts (Cross-Vesting) Act 1987 aimed to grant certain courts jurisdiction to handle cases involving State or Territorial law and allowed for the transfer of cases between these courts.
In Re Wakim, Ex parte McNally (1999) 198 CLR 511, 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
In HBSY Pty Ltd ACN 151 894 049 v Geoffrey Lewis & Anor [2024] HCA 35, the High Court issued a writ of certiorari to overturn a decision made by the Full Court of the Federal Court of Australia and a writ of mandamus directing the Full Court to hear and decide the plaintiff’s appeal.
Background
Marjorie Lewis (the deceased) died on 15 August 2008, leaving a will dated 10 October 2006 (the Will). Other than a legacy of $5,000, the Estate fell into residue. Under the Will were five residuary beneficiaries: Marjorie’s brother (Allan) and his four sons (including Anthony and Geoffrey).
Anthony, claiming to be the executor of the Estate, established an estate account with Lewis Securities Limited (Lewis Securities), a company in which he held the majority of shares and served as director. Anthony deposited $571,084.93 into this account, which constituted a substantial portion of the deceased’s estate funds (Estate funds).
Allan and Anthony Lewis (“Anthony”) were named executors but renounced their executorship before obtaining probate. The Court granted Geoffrey (the administrator) letters of administration.
Anthony’s alleged misconduct concerning Estate funds during the months he was purporting to act as the executor and his subsequent bankruptcy is the origin of these proceedings.
Bankruptcy
In April 2009, Anthony was declared bankrupt. In July 2011, Anthony’s bankruptcy trustee assigned his assets, including any interest in the Deceased’s Estate, to HBSY Pty Ltd (the plaintiff and cross-defendant) for $275,000.
Anthony was discharged from bankruptcy in April 2012. Following his discharge, Anthony became the registered owner of the plaintiff and cross-defendant’s share capital.
Anthony’s alleged misconduct concerning Estate funds during the months he was purporting to act as the executor and his subsequent bankruptcy is the origin of these proceedings.
The administrator is the defendant and cross-claimant HBSY Pty Ltd (HBSY) – is the assignee of Anthony’s residuary share of the Estate.
The administrator, through his amended cross-claim filed on 14 December 2020, sought a declaration that the plaintiff and cross-defendant are not entitled to be paid Anthony’s share of the Estate:
“If the Court determines that the Cross-Defendant received a valid and enforceable assignment of an interest of Anthony Richard Lewis in the estate of the late Marjorie Lewis who died on 15 August 2008 (“the Estate”) (which is denied), the Cross-Claimant seeks:
(a) a declaration that the Cross-Defendant is deemed to have received a distribution from the Estate for $502,554.74 (“the Net Sum”) and interest thereon (or such other amount as the Court may determine);
Or further or in the alternative:
(b) a declaration that the Cross-Defendant cannot participate in or receive a distribution from the Estate without first paying the Net Sum and interest thereon to the Estate (or such other amount as the Court may determine).
2. A declaration that the Estate is not liable to pay any legacy to the Cross-Defendant. …”
The administrator also sought a declaration that the plaintiff and cross-defendant do not have standing to bring the primary proceedings commenced by statement of claim on 23 August 2019, where the plaintiff and cross-defendant sought to have the administrator removed and replaced as an administrator of the Estate.
Security for costs
The administrator filed a successful notice of motion in the primary proceedings seeking $75000 security for costs from the plaintiff and cross-defendant on 22 November 2019. As the plaintiff and cross-defendant failed to provide security for costs, the Court stayed the primary proceedings until it made further orders on 24 April 2020. As a result, the issues before the Court can be summarised as:
- (1) Did Anthony act as an unauthorised executor or intermeddler?
- (2) If yes, did he fail to fulfil his responsibilities?
- (3) Can any debt resulting from a breach be offset against Anthony’s beneficial entitlement in the Estate under s 86 of the Bankruptcy Act 1966 (Cth)?
- (4) If no, is the plaintiff and cross-defendant still barred from receiving any funds based on the equitable principles in:
(a) Re Dacre; Whitaker v Dacre [1916] 1 Ch 344
(b) Morris v Livie [1842] EngR 380; (1842) 62 ER 934; or
(c) Cherry v Boultbee[1839] EngR 1099; (1839) 4 Myl & Cr 442; 41 ER 171
- (5) If yes, was the right to rely on the principles waived by the Estate proving Anthony’s bankruptcy?
- (6) If not, has Anthony’s debt been eliminated due to his bankruptcy discharge?
The Court’s conclusions on those issues can be summarised as:
- (1) Anthony acted as an intermeddler when he obtained the funds of the Estate and transferred them to Lewis Securities because he took considerable steps of his own volition to manage the Estate and intended to act as executor.
- (2) Anthony breached his estate trustee obligations by unilaterally transferring funds to Lewis Securities. At all relevant times, Anthony was a director and majority shareholder of that company who stood to personally benefit from doing so.
- (3) Anthony’s debt is not subject to set-off under s 86 because a gift under a Will is not a ‘dealing’ for that provision.
- (4) Each equitable principle would prevent the plaintiff and cross-defendant from obtaining any funds from the Estate without the debt being satisfied. The principles as they apply to defaulting trustees (the principles in Re Dacre and Morris v Livie) have broad scope in their applicability to assignees, such that the plaintiff and cross-defendant cannot claim the interest unencumbered.
- (5) The Estate did not waive its right to pursue the equitable principles by proving in Anthony’s bankruptcy because it withheld Anthony’s entitlement from the amount it sought to establish. Any waiver only applies to the extent of the debt sought to be recovered.
- (6) As Anthony engaged in a fraud or fraudulent breach of trust within the meaning of s 153(2)(b) of the Bankruptcy Act 1966 (Cth) by unilaterally investing almost the entirety of the Estate’s funds in his own company Anthony did not extinguish his debt.
In HBSY Pty Ltd v Lewis [2022] NSWSC 84, the plaintiff and cross-defendant claimed the right to receive Anthony’s share of the residue without any obligation to contribute to the Estate for Anthony’s breach of fiduciary duty.
The plaintiff and cross-defendant argued that discharge from bankruptcy extinguished Anthony’s liability to the Estate per s 153(1) of the Bankruptcy Act 1966 (Cth). The primary judge ruled that s 153(2)(b) of the Bankruptcy Act did not extinguish Anthony’s liability. Although s153(2)(b) was not initially pleaded, the Court granted permission to amend the claim, and the primary judge found that Anthony had committed a fraudulent breach of trust.
Cross vesting
As the plaintiff and cross-defendant prepared to appeal the primary judge’s decision, their legal advisors concluded that the appeal fell under the jurisdiction of the Full Court of the Federal Court of Australia under section 7(5) of the Jurisdiction of Courts (Cross-Vesting Act) 1987 (Cth) as it concerned a matter under the Bankruptcy Act. At that point, the plaintiff and cross-defendant needed to apply for an extension of time to appeal to the Full Court.
The Jurisdiction of Courts (Cross-Vesting) Act 1987 aimed to grant jurisdiction to certain courts to handle cases involving State or Territorial law and allowed for the transfer of cases between these courts. The High Court ruled that the State Acts were invalid in conferring jurisdiction in State matters on the Federal or Family Courts but upheld the provisions in the Commonwealth Act that allowed for the conferral of federal jurisdiction on State courts. The preamble to the Act mentioned the inconvenience and expense litigants face due to jurisdictional limits. It aimed to establish a system of cross-vesting of jurisdiction between these courts without diminishing the existing jurisdiction of any court.
In HBSY Pty Ltd v Lewis [2023] FCAFC 109, one of the issues the Full Court determined in the proposed appeal was whether s153(1) of the Bankruptcy Act discharged Anthony from his liability to the Estate. The Full Court determined that it did not have jurisdiction under s 7(5) of the Cross-Vesting Act to hear the appeal and that the application for an extension of time needed to be more competent due to lack of jurisdiction. Without this issue, the Full Court would have granted the extension of time.
The application arises from HBSY Pty Ltd v Lewis [2023] FCAFC 109 that the Full Court did not have jurisdiction to consider an appeal from a decision of a single judge of the Equity Division of the Supreme Court of New South Wales. This decision turned on an issue concerning the operation of s 153 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). That discharge from bankruptcy operates to release the bankrupt from debts provable in the bankruptcy, except for those incurred using fraud or fraudulent breach of trust to which the bankrupt was a party.
The interpretation of the Full Federal Court’s jurisdiction to hear and decide an appeal related to the Bankruptcy Act 1966 (Cth) from a single judge of the Supreme Court of New South Wales. The question was whether section 7(5) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) applied to activate the Full Court’s appellate jurisdiction under section 24(1)(c) of the Federal Court of Australia Act 1976 (Cth).
This jurisdiction, provided by section 24(1)(c) of the Federal Court Act
“in such cases as are provided by any other Act,” is triggered by an appeal falling within the scope of section 7(5) of the Cross-vesting Act. Specifically, section 7(5) of the Cross-vesting Act stated that if it appears that a matter for determination in an appeal from a “decision of a single judge of the Supreme Court of a State or Territory.”
Is a “matter arising under” one of the thirteen Commonwealth Acts specified in the Schedule to the Cross-vesting Act (“the Scheduled Acts”), that appeal is required to be heard and decided by one of the three courts identified in section 7(5), including the Full Court. The Bankruptcy Act is one of the Scheduled Acts.
High Court of Australia
The plaintiff initiated legal proceedings in the Supreme Court of New South Wales to revoke letters of administration of a deceased estate granted to the first defendant. In response to a cross-claim filed by the first defendant, the plaintiff raised a defence based on a provision of the Bankruptcy Act.
The primary judge rejected the plaintiff’s claim. The plaintiff then filed and served a notice of intention to appeal to the Court of Appeal of the Supreme Court of New South Wales. However, the plaintiff’s legal advisors later concluded that as the plaintiff’s appeal would involve a matter arising under the Bankruptcy Act by section 7(5) of the Cross-vesting Act, the parties could only bring such an appeal before the Full Court.
As the deadline for filing a notice of appeal to the Full Court had passed, the plaintiff applied for an extension of time to appeal to the Full Court. The Full Court rejected the plaintiff’s application for an extension of time because section 7(5) of the Cross-vesting Act did not apply.
In November 2023, the parties sought leave of the High Court to hear HBSY Pty Ltd v Lewis [2024] HCA 35 in its original jurisdiction under s 75(v)of the Constitution for writs of certiorari and mandamus directed to the Federal Court of Australia.
The Attorney-General of the Commonwealth has intervened in support of the plaintiff and cross-defendant (as well as having filed a further notice of a constitutional matter).
The plaintiff and cross-defendant argue that the Full Court was mistaken in holding that, if interpreted literally, s 7(5) of the Cross-Vesting Act caused:
- (a) an implied partial repeal of s 39(2) of the Judiciary Act 1903 (Cth) (“the Judiciary Act”), and
- (b) a fundamental change in the allocation of jurisdiction concerning “matter[s] arising under” any of the Acts listed in the Schedule to the Cross-Vesting Act. Therefore, incorrectly denying jurisdiction constitutes a jurisdictional error attracting the relief of a writ of certiorari.
The Attorney-General of the Commonwealth submitted that the Full Court made an error in concluding that s 7(5) of the Cross-Vesting Act does not have its ordinary or literal meaning and that appeals to the Full Court of the Federal Court can only occur when a single judge of a State Supreme Court was exercising jurisdiction conferred by s 4 of the Cross-Vesting Act. Furthermore, the Full Court’s interpretation of s 7(5) unjustifiably deviates from its text. As a result, it fails to achieve its apparent purpose.
The Full Court should have construed s 7(5) as operating following its terms so that it requires any appeal from a single judge of a Supreme Court that arises under an Act listed in the Schedule to be instituted in and determined by the Full Court of the Federal Court, the Full Court of the Federal Circuit and Family Court of Australia (Division 1) or, with special leave, the High Court of Australia, irrespective of the source of the federal jurisdiction exercised by the Supreme Court.
The first defendant argues that the Full Court was correct in dismissing the extension of time application and awarding costs against the plaintiff and cross-defendant because:
- (a) s 7(5) of the Cross-Vesting Act does not apply where a single judge of a Supreme Court determined a matter arising under the Bankruptcy Act under jurisdiction conferred by s 39(2) of the Judiciary Act;
- (b) s 7(5) only applies where a single judge of a Supreme Court decides in the exercise of cross-vested jurisdiction (namely s 4(1) of the Cross-Vesting Act) and
- (c) As a result, s 7(5) did not give the Full Court jurisdiction to determine either HBSY’s extension of time application or the substantive appeal.
A majority of the High Court determined that the Full Court had misinterpreted section 7(5) of the Cross-vesting Act and that the Full Court had the authority to hear and decide the plaintiff’s appeal. The plaintiff’s appeal to the Full Court, which raised a matter for determination under the Bankruptcy Act, activated the Full Court’s appellate jurisdiction under section 24(1)(c) of the Federal Court Act due to the provision in section 7(5) of the Cross-vesting Act.
The High Court ruled that the State Acts were invalid in conferring jurisdiction in State matters on the Federal or Family Courts but upheld the provisions in the Commonwealth Act that allowed for the conferral of federal jurisdiction on State courts. The preamble to the Act mentioned the inconvenience and expense litigants face due to jurisdictional limits. It aimed to establish a system of cross-vesting of jurisdiction between these courts without diminishing the existing jurisdiction of any court.