Australian Guarantee Corporation Limited v Starkey

[1989] HCATrans 111

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4

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B62 of 1988

B e t w e e n -

AUSTRALIAN GUARANTEE CORPORATION

LIMITED

Applicant

and

GRAHAM LINDSAY STARKEY

Respondent

Application for special leave to

appeal

DEANE J

TOOHEYJ

McHUGH J

C2T 41/1/VH 1 12/5/89

- -

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 12 MAY 1989, AT 12,01___£J::1_

Copyright in the High Court of Australia

MR G.L. DAVIES, QC:  May it please the Court, I appear with my

learned fr.iend, MR G.J.GIBSON, for the applicant.

· (instructed by Henderson Lahey Trout)

MR A.J.H. MORRIS:  May it please the Court, I appear for the

respondent in this matter.	(instructed by Litster Mann
and Ffrench)

MR DAVIES:  Your Honours, the majority judgment of the Full Court

in this case purported to apply two principles in

refusing to validate payments of money made by a

company after commencement of winding up, pursuant

to section 368(2) of the Queensland COMPANIES CODE. discretionary terms, provides first, in subsection (1):

Any disposition of property of the company,

other than an exempt disposition ..... made after
the commencement of the winding up by the

Court is, unless the Court otherwise, void. Subsection (2) relevantly provides:

Notwithstanding sub-section (1), the Court

may, where an application for winding up has

been filed but .a winding-up order has not

been made, by order -

validating -

the making, after the filing of the application .....

or

(b)permit the business of the company .....

to be carried on.

Your Honours, in our respectful submission, the question before the Court, although involving the exercising of what appears to be a wide and general

discretion, is one which must be exercised upon

certain principles.	The majority of the Full Court
here said that the payments should not be validated
for one,which involved a second reason.	The main

reason which was given was that the payments amounted

-to a preference over other creditors.

Can I take Your Honours to the judgments of the majority members of the court where they said that?

First of all, Mr Justice Matthews at page 31, at

the bottom of the page, after referring to the

judgment of Mr Justice Young in RE TELLSA, said:

C2T41/2/VH	2	12/5/89
MR DAVIES (continuing):

And included in those matters is one

which I think is particularly relevant

in the present case, namely a consideration
of whether the payments by the respondent

aggregating $130,000.00 would, under the

bankruptcy law, be considered a preferential

payment.

Then His Honour took that up again on page 33
where, after reference to QUEENSLAND BACON PTY LTD V
REES, to which I will return a little later,

His Honour said:

In the instant case we are not, of course,

concerned with a relationship of buyer and

seller and it is clear from the facts that

the moneys paid were to satisfy debts

pre-existing to any relevant arrangements

made and that what payments were made were

not made on the basis that the relationship

between the parties would continue, but

because the respondent threatened action

in the form of repossession of its goods

if payments were not made.

Justice Vasta, at page 48, said - and I commence reading from about line 342:

Moreover, I am firmly of the view that the

respondents enjoyed an advantage ·against

other creditors in that they were able to

enforce payments by the company at times

when it was obvious that other unsecured

creditors were being made to wait or were

not going to be paid at all.

Their Honours also reached the conclusion that the

payments were not made in good faith. It is not

clear from Their Honours' conclusion whether in

doing so they were looking at section 122 only and,

therefore, seeing whether, having decided that the

-payment amounted to a preference, the matter was

still not within section 122 or whether, in any

event, they were saying that a payment made not in

good faith was not a payment which should be validated

under section 368(2). But, can I take Your Honours to

what they said about that. Justice Matthews, at the

bottom of page 32, said - and I am reading from the

second-last line:

But, in my opinion, the respondent could not

be said to have acted with good faith, as
that term is understood in insolvency

proceedings.

C2T42/l/SH. 3 12/5/89

So, His Honour seems to be adverting to section 122 and then Justice Vasta said, at page 48, just above

line 340:

The evidence does not support a conclusion

that the respondent's actions were motivated

by a wish to assist creditors as a whole -

Now, Your Honours, it may be accepted for the purposes

of our argument that if the principle of a preference

as properly stated applied to this case; in other words,

if there were a preference in this case and it was

not accepted on the basis of good faith, then, in

our respectful submission, there would have been a

very good basis for the court refusing to validate.

The point we make is that the court, in this case, misstated the principle applicable in order to determine whether there was a preference and by misstating the principle, they were led into error.

In order to demonstrate that, Your Honours, I

will have to, at least, take Your Honours very briefly

to the facts. The facts were that the company was the

lessee of 26 items of equipment from the applicant.

The payments which were made totalled $130,000 and
they were made in three payments in the months of

April, May and June 1987 and they were made explicitly

to prevent their repossession; that is, to prevent the

repossession of the goods by the applicant.

Can I take Your Honours for that to some pages

in the application book; first, to page 55

paragraph 3, Mr Grairger-Smith said:

The company used 90 items of equipment in the

course of its business and, of these, 26 items

were owned by the Applicant and leased to the

Company and two other items were the subject

of hire purchase agreements between the

Applicant and the Company.

(Continued on page 5)

C2T42/2/SH · 4 12/5/89

MR DAVIES (continuing):  And the~ Your Honours, on

page 58, paragraph 13, Your Honours will see

that on 29 April - this is when the first payment

was made:

a representative of the Applicant phoned

an employee of the Company and advised her

that the Applicant required a cheque for

$ 2 0 , 0 0 0 . 0 0 d a t e d 5 th May , 1 9 8 7 to be de 1 i v er e d

to its office by 1st May, 1987. The Applicant

was advised that no payment could be made

before 8th May, 1987. On that same date

the Applicant demanded that the Company
pay immediately by way of bank cheque to

the Applicant the sum of $80,000.00. The

Company's employee advised that a progress

payment under a Government contract was

due on 5th May , 1 9 8 7 and other c red i tors

as well as the Applicant had been "put off".

And then, in paragraph 16 on the following page:

On 8th May, 1987 the Applicant was advised
that the Company could not pay $80,000.00

as requested, but could only pay $10,000.00

on·that day, and a further $10,000.00 on

15th May, 1987. The Applicant was told that

Allan Fitzgerald had given instructions

to pay half of the amounts promised to all

financiers. The Applicant's representative

advised the Company's employee that unless the Applicant recieved $80,000.00 that day the Applicant would repossess the equipment.

And then finally, on paragraphs 18 and 19 on

the following page; Your Honours will see again

further threats to repossess and moneys paid.

So Your Honours will see that the payments were made under threat of repossession if they were

not paid and in each case, of course, the lessee

actually being in default under its lease payments.

Your Honours, the first of the three relevant

_2ayments was made before the applicant was aware

of the presentation of an application to wind

the company up. Then after the first payment,

and before the second payment, the applicant

became aware that there was an application to wind the company up but was told that it had

been withdrawn and from other inquiries ascertained

that that was the case. That appears, Your Honours, from that same affidavit - paragraph 14 on page 58:

On 29th April, 1987 the Applicant became

aware for the first time that an application

for the winding up of the Company had been filed.

C2T43/l/AG 5 12/5/89

And then on the following page, about line 102 or 103,

Mr Fitzgerald:

stated that the application for the winding

up had been withdrawn. Subsequent enquiries

made by the Applicant of the applicants

for the winding up revealed that the application

would not be continued.

The equipment was necessary for the continued

working of large earth-moving equipment which

was being used for the performance of government

contracts. That appears, Your Honours, from

the judgment of Justice Vasta at page 46,

lines 265 to 280 and it also appears from the

supplementary affidavit of Mr Grainger-Smith -

that is the second affidavit of Mr Grainger-Smith

which appears in the supplementary application

book - that is the reference to the paragraph 9

of the affidavit of Desmond Gerard Stirling.

That is page 3 of the supplmentary application book.

Your Honours, the financial position of the company did not materially alter between April, the date of the first payment, or even

prior to the first payment, and the winding-up
order. That appears from the affidavit of Mr Litster,

paragraph 6(d) on page 71.

(Continued on page 7)

C2T43/2/AC 6 12/5/89

MR DAVIES (continuing):  Your Honours, during the time that

the payments were made the applicant's position,

far from improving in consequence of the payments, our position, in fact, worsened. It worsened for

two reasons; the first is that the rental payments

were accruing at a faster rate than the payments which

were being made to us, and the second is that over

that period, through use or misuse, the machinery,

which was ours, depreciated substantially in value.

Can I give Your Honours the evidence for each of those.

At the commencement on this period, indeed on

8 April, the company was $100,000 in arrears.	That
appears from page 57, paragraph 9.	Your Honours

will see that refers to some discussions on 8 April

and it is said that:

At that stage the Applicant was

owed approximately $100,000 in arrears.

At the end of this period of payments to us, that

is on 3 June, immediately prior to the last payment,

we were owed $199,000. Can I take Your Honours to

that at paragraph 23, page 60:

On 3rd June, 1987 the Applicant received the sum of $60,000.00. By that date the

arrears had increased to $199,755.40.

So that $60,000 payment reduced it to $139,000 but

Your Honours will see that over that period our

position worsened, one would think as opposed to

other creditors whose position remained static.

Our position worsened because we had allowed the

property to remain in the possession of the company.

Also over that period, as I mentioned to Your Honours

earlier, the value of the machinery depreciated by

$200,000. That appears from page 61, paragraph 24(b).

So that in two respects we say our position had,

in fact, worsened, vis-a-vis other creditors.

It was argued before the Full Court that the

principle which was stated by Chief Justice Barwick in QUEENSLAND BACON was applicable, or applicable

-a_by analogy, to this case and His Honour

Mr Justice Matthews rejected that. Mr Justice Vasta

does not seem to have dealt with it expressly at all,

but Mr Justice Matthews deals with the argument on

page 33. He says:

An attractive argument to the contrary

was advanced by analogy with the provisions

stated by Barwick C.J. in QUEENSLAND BACON

where His Honour said -

then His Honour quotes from His Honour, a passage

which we would rely on, and His Honour said:

C2T44/l/HS 7 12/5/89

In the instant case we are not, of course, concerned with the relationship of buyer

and seller -

Can I pause there to say that no, of course, we are

not but we are concerned with the relationship of

lessor and lessee and in the same sense in which

Chief Justice Barwick used the principle to that

situation it is applicable to a continuing situation

between lessor and lessee, a situation which we could

have terminated by repossessing the goods.

(Continued on page 9)

C2T44/2/HS 8 12/5/89

MR DAVIES (continuing):  So, in the same sense in which

Chief Justice Barwick thought that there was

a mutual assumption that there would be a

continuance of relationship of buyer and

seller, there was,, in consequence of our

willingness to allow the company to remain in

possession of the equipment, a mutual

assumption that there would be a continuance

of a relationship of lessor and lessee.

His Honour said that the reason why - as

we understand his statement in that paragraph -

there was not that mutual assumption was

because the payments were made:

because the respondent threatened

action in the form of re-possession

of its goods.

In our respectful submission, that is, in fact,

the very reason why there was continuance of the

relationship. The payments were made on the mutual assurrption

of the continuing relationsbip because, as we say, the

continuing relationship because, as we say, the

applicanu,; in consequence of the payments,

refrained from repossessing the goods.

McHUGH J: 

But, does it matter, Mr Davies? Does not the

exposition of the section by Mr Justice Priestley
in TELLSA FURNITURE require, in a proper case,

an examination of the effect of a whole series

of transactions? Is it not really the same
thing, in effect?

MR DAVIES: 

Your Honour, what we are saying is - if

Your Honour is saying, as I understand you, that

Mr Justice Priestley says that you really have to

look at a very wide range of things, we accept

that. What we are saying in this case is that

this Court did not do that; that what this

Court said was, because we used the stick of

repossession to obtain payment, therefore we

obtained a preference or advantage. And, what we

say is, that is wrong as a matter of principle.

If the principle is as narrow as that, then the

situation, in our respectful submission, will

always be that people in the position of lenders,
such as this, will never allow the goods to

remain in possession of a company which has some

difficulty in paying back to allow it to trade out

of its difficulty. It will always repossess.

And that, in our respectful submission, would be

a very bad consequence for industry, whatever the

legal consequences might be. But, what we say is,

that it is, in fact, a far too narrow view of what

constitutes a preference or advantage.

C2T45/l/JH 9 12/5/89

MR DAVIES (continuing):  What both majority judges saw the

preference as constituted by was the mere fact

that the applicant could, and did, obtain payment

by threatening repossession. And, what we say is

that that alone is irrelevant, and that really is

perhaps the very point that Your Honour Justice McHugh

makes to me, that that really, alone, is an

irrelevant factor because, in the end, one really has

to look to see whether, looking at all the facts,

there is an advantage, and in this.case, of course,

one looks at the facts, one sees we did not get an

advantage out of it at all. In fact, we were

disadvantaged as against other creditors by

allowing the property to remain in the possession

of the company.

So, in our respectful submission, the real

error in the present case was in the judgment of the majority in concluding that preference means, and is

satisfied by, the mere fact that a creditor seeks to

use the threat of repossession in order to obtain

payment, whether, in fact, it obtains a priority or

advantage in terms of payment or not.

DEANE J: Except, can you put it as a real proposition of

law in that it depends,the way you are putting it,

very much on the benefit of hindsight in the
sense that, at the moment the payment was made, it

might be said that your client did get a preference?

The argument is really, "Well if you do not look at

it then, but look at it three months later when the

machinery has depreciated, and so on, you can see

that it did not really get a preference." I am not,

sort of denying the force of your approach, I am

just wondering whether it is really a question of

law, -Or whether it ·is a question of assessment

of a factual situation.

MR DAVIES: Well, the way Their Honours approached it, in our

respectful submission, it is a·question of law in this

sense that, leave aside for a moment the question of

depreciation of the property, Your Honours, if one just

looks at whether, in fact, the payments which were

being received in consequence of these threats kept

-up with the accruing debt. The answer which we could

have had, to ensure that our debt did not continue to

accrue without any security return to us, would have

been to obtain repossession, which we did not do.

(Continued on page 11)

C2T46/l/FK 10 12/5/89

MR DAVIES (continuing):  So, in our respectful submission,

even looking at it without the benefit of hindsight,
looking at it at the time, one can say, first,

that we did not obtain an advantage and, secondly,

and more importantly in the present case, that

Their Honours really looked at it in this narrow

way. Their Honours said, "Once you've got the

position where a creditor in this position says 'I will repossess unless you pay me', therefore

you have a preference".

And, in our respectful submission, that

just cannot be right and not only can it not

be right but it will have the most disastrous

consequences for analogous situations; that is,

situations where companies have financial difficulties

in repayment and there are creditors who have

goods either leased to that company or on hire

purchase to that company because they will not

exercise their discretion in allowing the goods

to remain in possession in the hope that they

get paid. They will, in all cases, repossess.

And, in our respectful submission, a

conclusion which precludes that would seem to

fly in the face of common sense and, in our

respectful submission, it is not in accordance

with the legal principles.

McHUGH J:  But does your argument really face up to the

real issues in the case and, that is, whether

or not the discretion exercised by the majority

miscarried. Both judges in the majority start

with the general proposition that section 368

expresses a policy that subject to the rights

of creditors with particular legal interests

the rateable division of assets among unsecured

creditors is to be accomplished by the liquidation

itself.

And then Mr Justice Vasta says, in effect, that he sees no material to disclose a departure
from that principle.	He said that the evidence

-~id not support a conclusion that your actions

were motivated by a wish to assist the creditors

as a whole and then he expresses the view that

you enjoyed an advantage against other creditors

because you are able to obtain payments.

(Continued on page 12)

C2T47 /1 /ND- 11 12/5/89

MR DAVIES:  That is the point, Your Honour. We say we

did not obtain an advatage against other creditors.

First of all we say to both those, first of all that the fact that our actions were not motivated by a wish to assist other creditors is irrelevant.

That cannot be relevant; we can be motivated

solely by a wish to assist ourselves as long as

we do not act in bad faith to other creditors.

McHUGH J:	But all Mr Justice Vasta was saying, was it not,
was that your client enjoyed an advantage against
other creditors in that they were able to enforce
payments by the company at times when it was
obvious that other unsecured creditors were
being made to wait, or were not going to be paid at all.
MR DAVIES:	But what we say, Your Honour, is that that is

not stating itl. accurately because what we were

doing was enforcing payments which really

represented an accuring and enlarging debt. What

we were doing was at most getting, I suppose,

containment of an increasing debt, instead of

getting payment of the debt. We were in no

better position than the other creditors with

respect to the debt which had accrued up to

that stage. In fact, as appears from the facts,

we ended up in a worse position than other creditors

because our debt at the end of that period was greater

than at the beginning, whereas presumably other

creditors' debts were the same.

McHUGH J:	But what His Honour was saying was that you
have got to show something positive in your
favour to depart from the general rule and he
just did not see anything that was in your favour.
MR DAVIES:	What is in our favour, of course, is that we allowed
the goods to remain in the possession of the company
so it can derive income by the only means it is

capable <lif doing so.	The only way it can ever
derive income to pay any creditors - it had

contracts which it was still continuing to do -

-._was by continuing to work. We allowed it the means

of doing that, so we did do something positive.

We did do something, in our respectful submission, which benefited creditors as a whole in the sense

that we left the machinery with the company to

allow it to derive income. If we had taken the
machinery from the company it could not have

completed those government contracts; it could

not have continued to work and therefore it could

not have, presumably derived further money to

pay creditors.

McHUGH J:	Even assuming that there is some error, what is
the question of public importance in the matter, 1'lr Davies?

C2T48/l/JM 12 12/5/89

MR DAVIES: The question of public importance in this

case, Your Honour, is that if this case is

allowed to stand the result will be that

creditors in like position will never allow

companies who do have difficulty in repayment

to continue in possession of machinery and
continuing to trade out of the difficulties.

What will happen in every case, in our respectful submission, is that the creditor will repossess

and, in our respectful submission, it is a matter

of public importance to the parties,who are

frequently in positions such as this, to know

whether in fact they have got that discretion to

allow machinery to remain in possession of the

company or whether in fact they will be

disadvantaged by it, as indeed, on the facts of

this case, the applicant has been.

McHUGH J: That really means, does it not, that discretion

should alway!? be exercised in favour of a creditor

in your client's position?

MR DAVIES:  No, I do not say that at all. I mean,

for example, if you take a client in our position

who had obtained, for example, more of his debt

than other creditors, if the position was that

we had obtained a financial advantage over other

creditors then it certainly should not be

exercised in our favour. Or even if - - -

McHUGH J:	But that only means it is a one-off case then,
does it not?
MR DAVIES:	No, it does not, Your Honour. This is,

in our respectful submission, the norm rather

than the exception. The norm would often be

that a creditor in our position, having a

canpany with an accruing debt, but in arrears,

would allow the company - because it says, "We've

got thesecontracts. This money is going to come

at the end of the contracts with the government

when we get the retention sums" and so on - to

allow the company to remain in possession of the
equipment and continue to trade. That is precisely

what happened in here. So, in our respectful

submission, it is not the exception, it is very

much the norm. The exception would be where you

get paid more than the other creditors; the norm would
be, in our respectful submission, where you get

paid something of your debt, not as much as the

debt is accruing, but something of it. Maybe,

in the end, everyone gets paid if the debtor can
trade out of his debts, but if that is not the

case then, as in this case, if this decision stands,

we lose out, notwithstanding that we allowed the

machinery to remain in possession of the debtor . We allowed the debtor to continue to earn income

. and we allowed that opportunity be given to other

creditors to obtain recovery of their debts.

C2T48/2/JM 13 12/5/89

DEANE J:  Mr Davies, what was the basis upon which the

Full Court was required to approach the matter?

Was it, as it were,a re-hearing and re-exercise

of discretion, or was it on the basis that

good grounds had to be shown for interfering

with the exercise of discretion by the judge

at first instance?

(Continued on page 15)

C2T48/3/JM 14 12/5/89

MR DAVIES:  The latter, Your Honour. But what the Full Court

said was. that, so far as the evidence was concerned,

- which is a different matter of course - they were

in as good a position as the judge at first instance

latter, in our respectful submission.

simply because all the evidence was on affidavit.

DEANE J:  You would say they would have to give weight

to the primary judge's exercise of discretion?

MR DAVIES:	Yes, indeed.
McHUGH J:	But all the judges held that His Honour had erred on a finding .of fact, did they not?

MR DAVIES:  They did, yes. I do not think there is anything

else we can usefully add, Your Honours.

DEANE J:  Thank you, Mr Davies. Yes, Mr Morris.

MR MORRIS:  Thank you, Your Honours. Your Honours, in my

submission, this is a most inappropriate case for

special leave. What it involves is the exercise

of a general and broad discretion, as my learned

friends conceded it was, in a case where the facts

are confused and, indeed, even in the Full Court
there was some degree of divergence between the

members of that Court as to what the facts were.

The point that my learned friends rely upon as

giving rise to the basis for granting special leave

is a point which, in our submission, on a close

reading of the judgments in the Full Court, arises
only in one of those judgments, the judgment of

Mr Justice Matthews, and in that judgment is essentially in the nature of obiter dictum.

In my submission, on a close reading of

Mr Justice Vasta's judgment, His Honour decided the

matter on a much more broad and general basis and

did not place specific reliance on the question

of whether or not there was a preference. Broadly,

reasons why special leave ought not to be granted.	therefore, it is my submission that there are five
Firstly, that the point relied upon by my learned
friends is not one that arises directly from the
judgments appealed from in the sense that it was a
point arising only from the judgment of one judge
and only by way of obiter dictum; secondly, that
the case was treated in the ,supreme court as essentially one of fact, there being no serious question in that court as to the test applicable; thirdly, that the case is an inappropriate vehicle to raise the issues relied upon by my learned friends because there is no substratum of facts conrrnon to each of the members of the majority in the Full Court; fourthly, that the point relied upon -

C2T49/l/DR 15 12/5/89

McHUGH J:  By fact you mean - you do not mean fact so much

as considerations, do you?

MR MORRIS:  I suppose that puts it more correctly, yes,

Your Honour.

The fourth point is that the relevance of

preference or the relevance of whether or not the
payment can be characterized as a preference is not

a point that can be said to be attended with any

substantial doubt and, indeed, I adopt what

Your Honour Mr Justice McHugh said earlier, that

all one need do is apply the test adopted by

Mr Justice Priestley in TELLSA to ascertain what

is the relevant test. There was no doubt, no

question amongst the members of the Full Court as to what were the relevant considerations. It was

simply a question of applying those considerations

to the peculiar facts of a rather complex case.

The fifth and final point is that, even if

Their Honours in the Full Court erred in the application of that principle or those principles to the facts of

the present case, that was simply an error on the

facts. It does not suggest that the principle itself
is in any substantial doubt at all.

In order to make good those propositions, it is necessary for me to take Your Honours briefly to the reasons for judgment of the Full Court, firstly, to

illustrate that really there was a substantial

divergence amongst the members of the Full Court as to questions of fact. In effect, all members

of the Court agreed that the primary judge was in

error in relation to five specific factual questions.

Mr Justice Vasta thought that three further errors

were demonstrated in the trial judge's reasons for

judgment. The first five matters which were common

to all of the members of the Full Court are summarized

in the judgment of Mr Justice Kelly SPJ, at pages 22

and 23 of the appeal book. In summary they are these:

Ground 1 which was the finding that the applicant

-believed that the receipt of progress payments was

likely to enable the company to pay its outstanding debts; ground 4 - these are taken from the grounds of appeal in the Full Court:

The finding ..... that the respondent -

was -

demanding payment of current rental in return for the company's right to continue using the

equipment.

C2T50/l/SH 16 12/5/89

Instead, the Full Court took the view that the payments

related to arrears of rental and were directed towards

securing the reduction of the company's past

indebtedness. Ground 5, the finding that the

applicant believed that:

If work continued on the contracts sufficient moneys would be received for the company to meet all its outstanding debts -

Ground 6, which was the finding that:

The respondent was motivated ..... by the

consideration that it was in the interests

of all creditors for the company to continue

work under the ..... contracts -

and ground 8, the finding:

Of a belief ..... that it was in the interests of

all creditors for the company to continue work

under its contracts -

Mr Justice Matthews agreed with the senior puisne

judge's views in relation to those five grounds,

as appears from page 31 and, as I have said,

Mr Justice Vasta found that three further grounds

of appeal on questions of fact had been made out and

that appears from page 44.

In my submission, the result is that the judgments

of the majority do not turn on any connnon substratum of

fact which makes it, in my submission, very difficult

for this Court to express a concluded view on matters
of principle, particularly in relation to a point

which is not, in my submission, at the centre of the

Full Court's decision but a point that arises on its

periphery.

(Continued on page 18)

C2T50/2/SH. 17 12/5/89

MR MORRIS (continuing):  The differences between the

various members of the Full Court on questions
of fact are of some importance because the

decisions of the respective judges in the Full

Court ultimately depend upon their application

of undisputed principles largely drawn from

the decision of the New South Wales Court of

Appeal to their perception, or their conclusions,

in relation to the facts. Mr Justice Vasta's

judgment, in my submission, on a proper reading

of it, is simply that and no more. It is

simply an application of what he perceived, and

what indeed my learned friends have conceived

it to be a broad discretion to the facts as he

found them in that case. He starts off, if I

can take Your Honours to page 47 of the appeal

record? He starts off on that page, saying:

From what I have already said I am of

the opinion that His Honour based the
exercise of discretion upon

conclusions which were not supported by

the evidence. In these circumstances,

this Court may exercise its discretion

upon the material which was before the

primary Judge.

His Honour refers to propositions of principle

from the decision in TELLSA, propositions which,

in my submission, are entirely unobjectionable.

And, then continues on page 48, at line 336:

The view I take in this case is that the

material discloses no considerations

which warrant departure from the

principle that the company's assets

should be distributed rateably among the

unsecured creditors. The evidence does

not support a conclusion that the

respondent's actions were motivated by

a wish to assist creditors as a whole or

that in fact, what was done between

3 April and 23 June was in the interests

of those creditors.

The next five lines are the lines relied upon

by my learned friends in support of their

submission that Mr Justice Vasta also relied upon

preference as being an issue in arriving at his

final conclusion. But, in my submission, when

you read those lines in the context of the whole

paragraph, it is quite apparent that His Honour

was simply treating the question of whether the

present applicant received an advantage as being

one of several matters which he took into account

in arriving at a discretionary result.

C2T51/1/JH 18 12/5/89

MR MORRIS (continuing):  He said:

Moreover, I am firmly of the view that the

respondents enjoyed an advantage against

other creditors in that they were able

to enforce payments by the company at times

when it was obvious that other unsecured

creditors were being made to wait or were

not going to be paid at all. To validate

such payments would in my opinion be an

obvious breach of the basic premise of the

COMPANIES CODE that in a winding up, all

unsecured creditors are to be paid pari passu. In relation to the preference point, which is at the

centre of my learned friend's submissions, it is
worthwhile adverting to the reasons for judgment of

Mr Justice Kelly, although he was in the minority,

because those reasons for judgment demonstrate what

little significance was really attached to that point

in the result of the case. Mr Justice Kelly dealt

with that matter at pages 28 and 29 and of particular

significance is his observation at line 210 on page 28

that as that aspect of the matter:

was not the subject of argument before us

I shall not consider this aspect but, if

the construction suggested were to be
correct, the question of whether the payments

here were preferences would not appear to

arise.

Now, I simply draw that passage to Your Honours'

attention to demonstrate what little significance was

attached to the question of preference by the court

as a whole. The only judgment which, in my submission,

really raises squarely the question that my learned

friends rely upon as giving rise to a special leave

point, is the judgment of Mr Justice Matthews. But,

in my submission, again, on a close reading of that

judgment, His Honour put his decision on two quite

distinct bases.

The first of those bases was a simple consideration,

again, in my submission, applying in an unobjectionable

way the decision of the Court of Appeal in TELLSA of

whether the applicant, the present applicant, had shown

sufficient reason for the Court to exercise its

discretionary power in its favour. That appears in

particular at page 32, from line 29.

(Continued on page 20·)

C2T52/l/VH 19 12/5/89

MR MORRIS (continuing):  His Honour sets out the section

and then continues from line 29:

The section clearly expresses the policy

of that law that; subject to the rights of

creditors with particular legal interests,

the rateable division of the assets among

the unsecured creditors is to be accomplished

by liquidation of the company ..... Exception

may be made to this general policy, however,

if the Court so orders. As a starting point

and by reference to the appeal, I think

that facts make it clear that rateability

among unsecured creditors has not been preserved

by reason of the payments which were made

to the respondent and I do not see this

as a case for departure from general policy.

Now, in my submission, that passage is really

the ultimate result of the whole case. That is

the aspect of Mr Justice Matthews reasons for

judgment upon which it coincides with Mr Justice Vasta's

reasons for judgment. If there is a ratio decidendi

in this decision of the Full Court that is it.

But His Honour went on then to deal with the

matter of a preference and dealt with that in

the last four lines on page 32 and on the next

two succeeding pages.

In my submission, the fact that His Honour

supported his conclusion that this was not an

appropriate case for upsetting the general rule,

by reliance upon the preference point, does not

make that point one that is open to be relied

upon as a basis for seeking special leave to

appeal to this Court. As to the essential principle

of the case, the essence of the discretion to

be applied, in my submission, each of the three

judges stated the principle in a way which is

entirely unobjectionable and entirely consistent

with the decision of the Court of Appeal in

New South Wales. The principle is stated in the

judgment of Mr Justice Kelly at page 24, commencing

-.~t line 47, that is the paragraph commencing "The considerations which may properly be taken

into account". In that passage His Honour refers
not only to the decision of TELLSA, at first

instance and in the Full Court, but also to the decision of the Full Court of the Supreme Court

of Queensland in RE ANDROMA and deals with

the principle in general terms through to page 26
at line 129, as I say, stating the proposition

in a way which is entirely unobjectionable.

20

C2T53/1/AC	12/5/89
MR MORRIS (continuing):	Mr Justice Matthews, in my

submission, does likewise in the passage to which

I have already directed Your Honours' attention

at page 31 from line 9, to page 32 at line 36.

Mr Justice Vasta likewise states the proposition

in broadly similar terms commencing at page 47

line 300, through to page 48 line 335.

In my submission, if this Court were to

consider this case as an appropriate vehicle for

reconsidering the relevance cf a preferential payment

in the context of an application under section 368,

in any event it could not conclude that the decision
of the Full Court was in any way subject to such

substantial doubt as to warrant the grant of special

leave.

DEANE J:	Mr Morris, the judgments in the Full Court
treat the applicant as a non-secured creditor.

MR MORRIS:	Yes, Your Honour.
DEANE J:	These were true leases, were they?
MR MORRIS:	They were true leases, yes.

DEANE J:  Not hire purchase agreements or options to purchase?

MR MORRIS:  There were two hire purchase agreements.

DEANE J:  I notice that some are referred to, but in the main

they were simple lease agreements.

MR MORRIS:  Simple leases, yes.

DEANE J:  It strikes one as a little bit odd from a finance

company to have a simple lease agreement, but

perhaps that is neither here nor there.

MR MORRIS:  I can only say, Your Honour, that from my

professional experience it is quite common these

days for finance companies to operate on the basis

of simple leases without an option to repurchase.

DEANE J:  Good, thank you.

MR MORRIS:	Your Honours, those are my submissions, unless there are any other aspects that I can assist
Your Honours with.

DEANE J:	Thank you, Mr Morris.	Yes, Mr Davies.
C2T54/l/HS	21	12/5/89

MR DAVIES:  Your Honours, I shall confine myself to the

question our learned friend really argued, that

this was not really part of the ratio of the

case. In our respectful submission, he referred

first of all to the judgment of Mr Justice Kelly

at page 28 where His Honour Mr Justice Kelly

was, at page 28 line 205, admittedly going off

to deal with quite another matter which was not

raised. But that is not the question in issue

here, that is the question which is whether the

effect of section 451(3) was:

that the only preferences in regard to which

a liquidator might take proceedings were

those which happened in the six months prior

to the filing of the originating process -

That has got nothing to do with this. In our

respectful submission, if one goes to the judgment

of Mr Justice Matthews at the passages referred

to by our learned friend, then one can that the

principle to which we have referred was at the

very heart of his conclusion. And, indeed, the

misstatement of it and its application formed

the ratio of his decision.

DEANE J:	I am sorry, what page was that, Mr Davies?
MR DAVIES:	32, Your Honour, first of all, is where he

ref erred to it. What he said was that, just below

line 35 on that page:

As a starting point and by reference to

the appeal, I think that facts make it clear
that rateability among unsecured creditors

has not been preserved by reason of the

payments which were made to the respondent -

He said "rateability ..... has not been preserved"

but his reason for saying "rateability ..... has not been preserved" is that which is stated on

the following page, page 33, just below line 65,

that is; that they:

were not made on the basis that the

relationship between the parties would

continue, but because the respondent

threatened action in the form of re-possession

of its goods if payments were not made.

(Continued on page 23)

C2T55/l /ND	22	12/5/89
Vakauta(2)

MR DAVIES (continuing):  So, he says for that reason

"rateability was not preserved". And we say,

for that very reason, rateability was preserved.

We say that that is one of the reasons which supports the argument that rateability was

preserved. Your Honours, similarly, with respect

to Justice Vasta, in his judgment it appears clear,

in our respectful submission, that at page 48 of

his judgment, the passage that commences "Moreover:

is an essential part of his reasoning to his conclusion

because he says:

Moreover, I am firmly of the view that the

respondents enjoyed an advantage against other

creditors in that they were able to enforce

payments by the company at times when it was

obvious that other unsecured creditors were

being made to wait or were not going to be

paid at all. To validate such payments -

they are payments referred to in the previous sentence -

would in my opinion be an obvious breach of the

basic premise of the Companies Code that in a

winding up, all secured creditors are to be

paid pari passu.

So, he is saying again, for the reason, that is

because we were being paid under threat of repossession,

that for that reason:

the basic premise of the Companies Code

that ..... all unsecured creditors are to be

, paid pari passu -

was not being preserved.

DEANE J:	Mr Davies, what if the lease had only gone on for one month more and your client had been paid the
rent for that month and the company had then been
wound up, would you say the position was the same
as to the payment of the back rent that had been
received at the beginning of the month?

(Continued on page 24)

C2T56/l/SH 23 12/5/89

MR DAVIES:  No, Your Honour, I would not say it is the same

thing because what we are saying, Your Honour, is

that one cannot decide this by reference to the

narrow principle which was stated by the Full

Court; that is, simply because we were paid

because we threatened repossession, that, therefore,

we obt~ined an advantage. In fact we did not

obtain an advantage because the amount which was

accruing was greater than the amount which we

were paid.

DEANE J:	Well you did not obtain an advantage because the
rent that subsequently became due was not paid.

MR DAVIES:  Rent that became due, yes. Over the period we

allowed the property to remain in the possession

of the lessee, yes.

DEANE J:	I follow the way you put it.
MR DAVIES:	Your Honours, we accept, as our learned friend

said, that the principles were stated correctly

by Mr Justice Kelly, but he was, of course, the

dissenting judgment in the case. Our learned

friend referred you to his judgment at pages 24 to 25

but, in our respectful submission, that does not

assist our learned friend's argument in any way

at all. We would contend that the principles were

correctly stated by him there. What we say they

were not correctly stated by the majority and,

in consequence of the mistatement of the principle,

the conclusion was one which was clearly wrong.

They are our submissions, may it please

the Court.

DEANE J:	Thank you, Mr Davies. This matter concerns the
exercise of a wide judicial discretion and turns
very much on its own facts.  We are not pursuaded
it raises any clear point of general principle
which would make it appropriate for the grant of
special to appeal. Accordingly, special leave
is refused.

MR MORRIS: If the Court pleases, I ask for costs.

DEANE J:	Mr Davies,can you resist that?
MR DAVIES:	No, Your Honour, we cannot.
DEANE J:	Special leave is refused with costs.

AT 12.57 PM THE MATTER WAS ADJOURNED SINE DIE

C2T57/l/DR 24 12/5/89