Australasian Memory P-L & Anor v Brien

[1999] HCATrans 121

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S173 of 1998

B e t w e e n -

AUSTRALASIAN MEMORY PTY LIMITED

First Applicant

BARRY CHARLES AMOR

Second Applicant

and

RICHARD CAMPBELL BRIEN

First Respondent

STEVEN NICOLS

Second Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 MAY 1999, AT 9.32 AM

Copyright in the High Court of Australia

MR B.W. RAYMENT, QC:  May it please your Honours, in this matter I appear with my learned friend, MR J.G. DUNCAN, for the applicants.  (instructed by Gillis Delaney Brown)

MR S.D. ROBB, QC:   May it please the Court, I appear with MR G.L. RAFFELL for the respondents.  (instructed by Barker Gosling)

GLEESON CJ:   Yes, Mr Rayment.

MR RAYMENT:   Your Honours, we submit that if one looks at the question arising in this case under section 1322 it is a general provision which will not permit the extension of the time so emphatically prescribed in section 439A(1) and (2) of the Corporations Law and that the emphasis is given statutory consequence by section 435C(3), namely the ending of the administration. Moreover, your Honours, section 1322 was a provision of the law which came into the law before Part 5.3A, which was introduced at the same time as Division 5.4 upon which this Court ruled in David Grant v Westpac, that is the Act of 1992. 

Those were the two critical factors, in our respectful submission, which produced the result which this Court arrived at in David Grant and should have produced, we submit, the result that the critical question before the Supreme Court of whether section 447A permitted the orders which were made below.  That did not occur and, your Honours, the reasoning of the Court of Appeal about the matter is to be found at page 52 of the application book.  Consideration was there given by Mr Justice Sheppard who wrote the majority judgment to the decision of the Full Federal Court in Commissioner of Taxation v Comcorp which itself had been a decision on appeal from a judge of the Federal Court in which an order had been made under section 1322 and in which no consideration was given to section 447A.

The provision in Comcorp which was relevant was section 439A(4) which is a quite different provision from other parts of section 439A in that, in Comcorp, the problem was that there was not attached to a notice certain papers which 439A(4) required to be attached.  It was held in the Federal Court that section 1322 permitted an order to be made allowing the matter to go forward, notwithstanding that breach.  But that was not the kind of breach to which a statutory consequence of ending the administration was attached by the section.

Now, we would submit it does not really matter whether Comcorp was distinguishable or not.  What the Court of Appeal should have done was to follow the guidance given by this Court, in our submission, in the David Grant Case.

GUMMOW J:   It was another section.  But is there any disagreement amongst the Supreme Courts and the Federal Courts on this question of 1322?

MR RAYMENT:   Yes, there is.  Mr Justice Powell, in the Mulcon Case in which judgment was given here yesterday, although the point was not reached, would have applied David Grant and held that 1322 was unavailable.  And so he would have done in this case.  He was a dissentient in this case.

GUMMOW J:   But outside the New South Wales’ Supreme Court, was there any treatment of this in Victoria or South Australia?

MR RAYMENT:   No, I do not think we have found any such case yet, your Honour, but we would submit that the courts, if they properly read David Grant, would be bound to; either bound to or so close to bound to it does not matter.

GUMMOW J:   Now, there does not seem to be, at first blush, anyway, a great deal in your grounds, special leave questions 3, 4 and 5, does there?  It is really 1 and 2, is it not?

MR RAYMENT:   It is really 1 and 2.  I had in mind to adumbrate orally only in respect of grounds of 1 and 2, if your Honours please.  I do not want to take any further than our written submissions what we have said about the other grounds.  But could I turn, please, to section 447A which would, we would submit, become critical.

Your Honours, the words “is to operate” in section 447A, we submit, do not suggest the existence of a power to cure non-compliance.  We submit that those words, even though wide, do not permit the court to alter consequences in law of what has already occurred under the Part.  The administration came to an end and we submit so did section 447A in this case.  Your Honours, any other view would clash, we submit, with the words in subsection (6) of 439A, those words being “on any application made within the period”.  Those words are deprived of any sensible effect if a court can make an order notwithstanding that the application is made outside the period under 447A.

Now, all that was said below about this was that the section was “ambiguous”, 138.  It was noted that Mr Justice Handley in the Mulcom Case had said the question was important and he would not decide it.  A

preference was expressed for a view which was thought to be wider, but we would submit if the language is incapable of reaching the conclusion, then that should be the end of it.

Your Honours, if all of that be wrong, then 447A, we submit, is a power that first of all cannot be conferred on the Federal Court of Australia for reasons the same as were ‑ ‑ ‑

HAYNE J:   How would that question arise on this application?

MR RAYMENT:   Your Honours, what we submit is this.  Section 7 of the Corporations Act, New South Wales, picks up only so much of the Corporations Law as is in force.  Section 15A of the Commonwealth Act would require, if we be right, that 447A confers non-judicial power.  It would require ‑ ‑ ‑

GUMMOW J:   The corporation we are talking about here, where was that formed?

MR RAYMENT:   In New South Wales.

GUMMOW J:   That is what I thought.

MR RAYMENT:   But, your Honours, what we submit is that when you have a section such as section 7, it will pick up only so much of the federal law as is valid, as validly conferred upon the Federal Court and the Family Court and so on, the powers contained in section 447A.  It says, “as in force for the time being” in section 7.  So we would submit ‑ ‑ ‑

HAYNE J:   So the proposition is that the separate conferral of jurisdiction on the Supreme Court of New South Wales is to be limited according to the validity of conferral of jurisdiction on the Federal Court?

MR RAYMENT:   Yes.  Your Honours, that is how we put the application.

GLEESON CJ:   Thank you, Mr Rayment.  Yes, Mr Robb.

MR ROBB:   Your Honours, it may be fair to submit that Part 5.3A and other aspects of the Corporations Law are littered with the word “must” and, indeed, in section 439A, the section dealing with these meetings, there are many things that must be done.  One of them is that the meeting must be held within a five day window but, additionally:

The administrator must convene the meeting by:

(a) giving written notice of the meeting to as many of the company’s creditors as reasonably practicable; and

(b) causing notice of the meeting to be published:

and he must accompany the notice with various materials, including reports and statements. 

Now, it is our submission that the present case is almost as far away from David Grant as you could expect to find.  In David Grant, jurisdiction was granted to the court to set aside statutory demands.  The person with the interest in making the application, that is the recipient of the statutory demand, was given a right stipulated to be exercised within 21 days to make the application and as your Honours found, that the condition upon which the jurisdiction had to be exercised was integral to the very grant of power.  Now, there were other grounds upon which your Honour Justice Gummow’s judgment was based, which I will not go into now, but it is our submission ‑ ‑ ‑

GUMMOW J:   On the face of it, there was an interest in getting on with it in that sort of situation where there were statutory demands.

MR ROBB:   There was an interest in getting on with it.  The time limitation was integral to the jurisdiction.  As your Honour pointed out – I cannot remember the letters, 459G – effectively required – I am sorry, if an extension of time were granted under section 1322, it would not solve the statutory problem anyway because ‑ ‑ ‑

GUMMOW J:   If you are right about all of that, you still have to grapple with construction of these provisions.  People always want to construe some other section by what the Court said in relation to something else.

MR ROBB:   That is accepted, your Honour, and I refer to those matters because my learned friend puts the proposition that this case is within Grant, and we submit that it is clearly not.  Essentially in this case the requirement that the meeting be held within a five day period is obviously important and the statute states that that should happen.  Equally it states that notices should be given to people and that those notices must be accompanied by various documents.  The point is that in the hurly‑burly that must be involved, or must be expected in these administrations, many of these procedural or quasi‑procedural matters may sometimes be omitted.  The thrust of the present applicants’ argument is that wherever any of these steps are omitted, but resolutions are subsequently made at the meeting, those resolutions will be invalid and cannot be corrected by remedial provisions such as section 1322 or 447A.

That would always have the effect that, without any hope of correction, where any of the steps that must be taken for whatever reason, however inconsequential, are not taken, the inevitable conclusion is that the resolutions are invalid. We, in our written submissions, have pointed your Honours to the following. When one does look at the scheme of Part 5.3A, we submit that you see that it is not just concerned with the creation of an administration and its conclusion, but it is concerned primarily with what happens thereafter and it is clear that the fundamental intent of the section is that when the company appoints an administrator it delivers itself into the hands of the creditors and the creditors may vote to terminate the administration for a deed of company arrangement or for the company to go into liquidation. The statute sets out specific consequences of either resolutions that a deed of company arrangement be executed or that the company be liquidated.

Now, the effect of the argument for which the applicants contend is that whenever it is discovered that one of these procedural or quasi‑procedural steps is not complied with, no matter what has happened in relation to the affairs of the company, whether it has been de facto wound up and all its assets disposed of, whether parties have operated on a deed as if a deed of company arrangement was valid, that whoever at some later time chooses to do so, who discovers that one of the “must” provisions in section 439A has not been complied with, can simply say that the resolutions made at the meeting are invalid and the automatic and unavoidable effect is that the administration is brought to an end and everything done thereafter invalid.  Your Honours, we submit that ‑ ‑ ‑

GUMMOW J:   These validation provisions can have an impact on third and fourth party rights and obligations, I suppose.

MR ROBB:   Yes. 

GUMMOW J:   How do the mechanisms work for giving those third and fourth parties an opportunity to participate if they wish in this attempted validation procedure?

MR ROBB:   Well, the relief is discretionary.  As in this case, notices were published to all the creditors and there were a couple of responses which were considered carefully by the trial judge and others did not respond.  Your Honour is quite right, with respect.  These validating or remedial provisions are capable of affecting the interests of third parties and they can be taken out properly, and must be, and were in this case, in the first instance decision. 

On the other hand, of course, there are a different class of third parties called the creditors.  Now, the creditors overwhelmingly voted in favour of the winding up of the company, including of course one of the applicants.  What this case is about – and it is illustrative.  Mr Amor appoints the administrators, a meeting is held a few days early.  Mr Amor and all the creditors overwhelmingly vote for winding up, because the company is and always has been at relevant times insolvent.  Believing that the Act has automatically caused a winding up to happen, as it does, the respondents then do their job.  They dispose of the assets and pay the creditors and whatever, and then, as will not be unusual, they find that one of the principal assets of the company are debts apparently owed by companies associated with Mr Amor, statutory demands are then served and, suddenly, the fact that the company has been put into administration and that the creditors have voted for there to be a winding up is very inconvenient, and then a point is discovered.

Now, in our case, it was that the meeting was not held in the right time.  In another case it might be that a report that must be sent to creditors was not included in an envelope or all envelopes or something, and then it would not matter whether it was six months later or six years later, a person who sees particular personal benefit can take the view that the resolutions at the meeting were invalid and everything collapses.  We submit ‑ ‑ ‑

HAYNE J:   All of those may be very powerful reasons why there should be some validating provision available.  But the immediate question is, is there, and what is its extent?

MR ROBB:   We submit, your Honour, that it is in the nature of the reasons why these circumstances, in their statutory context, are distinguishable from Grant, that one would say that in the ordinary way a remedial provision in section 1322 is available.  The reasons which were seen in Grant for that case standing outside the general precept are not available here. On the contrary, there is every reason why the ordinary rules would apply in this case. Otherwise, what would result, we respectfully submit, is something diametrically opposed to the clear intent of Part 5.3A, that being that once the administration procedure is enlivened, the company’s affairs are delivered into the hands of the creditors, they vote according to their perception of their proper interests, and then certain results follow.

The effect of the applicants being correct in the present case is as extreme as if there is any shortfall in relation to a “must” provision the inevitable and inescapable result is a re-delivery of the insolvent company into the hands of its creditors.

HAYNE J:  Into the hands of its creditors?

MR ROBB:   Its directors, I am sorry.  I am indebted to your Honour.  So there is no special provision here, as there was in 459R, for applications to be made in relation to extensions of time.  This is just a general statutory provision which says that certain things must be done.  One of them is the subject matter of this case.  There are other things.  In many other provisions – we have actually listed them – there are four occasions when meetings must be held under this Part, and all of them have “must” provisions in them.

HAYNE J:   What do you say as to the state of authority around the country on this particular issue or related issues?  Is it a point where there is some divergence of view, other than the division in the immediate case that we see?

MR ROBB:   Yes.  We had set out – and obviously it is very summary form – in pages 185 and 186 of the application book a list of cases, and all we have done is list them.  The direct answer to your Honour’s question is that Justice Powell in this case and Mulcon took the view that because of the particular wording “is to operate” in section 447A, it could not allow retrospective fixing up.  But he dissented only on that ground in this case.  Otherwise, apart from some earlier cases which we have listed at 186 where, I think I am correct in summarising as follows:  in those cases, the court refused to apply 447A or 1322 to ex post facto rectify a problem but in each case there was a particular statutory jurisdiction within the relevant section that would have allowed the application to be made.  So the judgments were influenced by the fact that there was, as was the case in section 459R, the David Grant Case, a jurisdiction inherent in the section which enabled an application to be made.

But otherwise, my direct answer to Justice Hayne’s question is there is a very substantial body of authority which has accepted that either or both of 447A and 1322 is available in this circumstance.  There are a large number of first instance decisions.  So as far as we know there is no difference of opinion between intermediate courts of appeal on this subject.

GUMMOW J:   There do not seem to be any intermediate appellate decisions, do there?

MR ROBB:   No. 

GUMMOW J:   Apart from this one.

MR ROBB:   Apart from this one, that is true, your Honour.  It would be fair to say that there is, albeit at first instance, a virtually universal acceptance that, in relation to the “must” provisions in section 439A, they are as susceptible of remedial action under 1322 as any number of other sections and, in particular, that what distinguished the circumstances in David Grant are simply not relevant or ‑ ‑ ‑

GUMMOW J:   If you are right about 447A, would one get to 1322?

MR ROBB:   It would not be needed.  It works the other way perhaps, too.  If we are entitled to remedy under section 1322, all of the special points that are raised in relation to 447A would not arise.  We submit there are two remedial provisions and that there is no reason why in this case the Court should depart from a long accepted view that remedial provisions, which give the Court a discretion to exercise the power in a proper case, protecting all parties, should be narrowly construed unless, as your Honour Justice Gummow demonstrated in David Grant, the statutory context is to the contrary. 

Your Honours, I should say one more thing.  There was a special – I had understood that my friend was not going to speak orally about question 3 ‑ ‑ ‑

GUMMOW J:   You cannot speak otherwise, Mr Robb.

MR ROBB:   I am indebted, your Honour.  My learned friend did make the point that section ‑ ‑ ‑

MR RAYMENT:   It is pressed.  Three is pressed.

GUMMOW J:   Three is pressed?

MR RAYMENT:   Yes.  It is 4 and 5 that I did not address on.

MR ROBB:   Thank you.  The proposition was that if the Commonwealth Act failed in picking up the Corporations Law as set out in section 82, therefore from the perspective of the New South Wales Act, section 82 was not in force.  Now, the submissions we make about that were set out in paragraph 23 of our written submissions and it essentially is this:  section 82 does not enact the Corporations Law.  It says effectively the Corporations Law is verbally as set out below and sections ‑ ‑ ‑

GUMMOW J:   The New South Wales Supreme Court in this case had jurisdiction because of a law of New South Wales?

MR ROBB:   Yes.

GUMMOW J:   What was inside that package of the law of New South Wales is another question maybe, but it was a law of New South Wales?

MR ROBB:   Yes, your Honour.  An interesting consequence of my friend’s argument is if the White decision was decided in a way that the Federal Court did not have jurisdiction in the Corporations Law matters, neither court would either.  Your Honours, they are our submissions.

GLEESON CJ:   Thank you.  Yes, Mr Rayment.

MR RAYMENT:   Your Honours, I think we are at issue.  It is the case that we press grounds 1, 2 and 3.  Now, your Honours, what is enacted by section 7 – and I will just read its language – is that:

The Corporations Law set out in section 82 of the Corporations Act as in force for the time being:

is made part of the law of New South Wales and we would submit that would exclude what is not validly there because of section 15A.

Your Honours, if we turn to page 186, if the decision below is right, the first and second decisions are wrong and the fourth decision is wrong. 

GUMMOW J:   Would you say that again, Mr Rayment.

MR RAYMENT:   If the decision below is right, Mr Justice Davies was wrong to refuse to apply section 447A in a context to do with an extension of time.  So was Justice Branson and Justice Beaumont was also wrong.  So there is, in our respectful submission, at any rate a first instance difference of opinion from that which was held in the Court of Appeal.  Those are our submissions, your Honour.

GLEESON CJ:   We will adjourn for a couple of minutes to consider the course we will take in this matter.

AT 10.00 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.02 AM:

GLEESON CJ:   In this matter there will be a grant of special leave to appeal limited to grounds 1 and 2 appearing on page 167 of the application book.

MR RAYMENT:   May it please the Court.

MR ROBB:   May it please the Court.

GLEESON CJ:   We will adjourn to reconstitute.

AT 10.03 AM THE MATTER WAS CONCLUDED