Australian Securities and Investments Commission v Landpoint Enterprises Pty Ltd (Receivers and Managers Appointed) [2011] HCATrans 49

[2011] HCATrans 49

[2011] HCATrans 049

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P43 of 2010

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

LANEPOINT ENTERPRISES PTY LTD (ACN 110 693 251) (RECEIVERS AND MANAGERS APPOINTED)

Respondent

GUMMOW J
HEYDON J
CRENNAN J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 8 MARCH 2011, AT 10.16 AM

Copyright in the High Court of Australia

MR S.J. GAGELER, SC, Solicitor‑General of the Commonwealth of Australia:   If the Court pleases, I appear with MR P.D. CRUTCHFIELD, SC and MR O. BIGOS for the appellant.  (instructed by Australian Securities & Investments Commission)

MR G.R. DONALDSON, SC:   May it please the Court, I appear with MR A.J. PAPAMATHEOS for the respondent.  (instructed by Mony de Kerloy)

GUMMOW J:   Yes, Mr Solicitor.

MR GAGELER:   Your Honours, it is not our intention to prolong what should be quite a short case.  However, in our submission, the nature and scope of the discretion to dismiss a winding‑up ‑ ‑ ‑

GUMMOW J:   Can I just ‑ ‑ ‑

MR GAGELER:   Yes, your Honour.

GUMMOW J:   How do you come to lose in the Full Court, to put it in a colloquial sense?

MR GAGELER:   I do not know.  I had somebody read to me part of the transcript last night and the transcript was incomprehensible.

GUMMOW J:   Is it paragraph 71 in the majority at page 1467 - is that the critical factor?  Paragraph 71, unless we get that in our mind we are setting off on a journey from no real starting point.

HEYDON J:   Is it not really 65, 69, 71, 73 - all things said not to have been taken into account?

MR GAGELER:   How we came to lose in the Full Court probably starts at paragraph 37 which contains an inaccurate statement of the previous position, that is before 1992.  We then go to paragraph – just picking up the highlights – 59, where you find an inaccurate statement of the policy ‑ ‑ ‑

GUMMOW J:   What I want to know is - if you can tell us - what is the root of the discretion referred to in 59?

MR GAGELER:   The statutory basis of the discretion, your Honour?

GUMMOW J:   Yes.

MR GAGELER:   It is in section 467 of the Corporations Act.  We have given your Honours, if it is convenient, an extract of the legislative material at the correct time.  If your Honours find it easier to look at the CCH version of the legislation, that is fine.  It is section 467 as we see it which would give the court power to dismiss, to adjourn or even stay, which would come within paragraph (c).

GUMMOW J:   Was there such an application for any of these orders made in the course of the hearing before the primary judge?

MR GAGELER:   The answer is not really.  I say that in qualified way because the procedural aspects of this case, your Honour, unfortunately are a bit of a mess.  We have given your Honours a document that is headed “Procedural Chronology at First Instance” and what you see is this.  After the making of the application by ASIC, there were a series of orders extending time for its determination that were made under section 459R.  The precise circumstance of each of those orders does not ‑ ‑ ‑

GUMMOW J:   Section 459?

MR GAGELER:   Section 459R, ordinarily an application must be determined within six months, but the court has, in exceptional circumstances, power to extend that time and there were a series of applications for extension which were granted for reasons which varied from time to time.  The precise reasons do not particularly matter, but relevantly to the question your Honour the presiding Justice asked me, if you look in this chronology, on 14 September 2007 there was an informal application, not made by notice of motion but made by letter, for an adjournment of the application or, alternatively, opposition to an extension of time for its determination.

KIEFEL J:   What was the basis of the application for adjournment?

MR GAGELER:   Well, amongst other things, as emerged from submissions that were filed on behalf of Lanepoint, it was said that there was a substantial dispute about the indebtedness of the company.  So at that time, in support of this, informal application was made on 17 September 2007, it was said in written submissions that part of the reason for – not the only reason, but part of the reason for that adjournment application being granted was that there was a substantial dispute as to the debt. 

What is behind this chronology that I have handed to your Honours is a bundle of supplementary documents which were actually handed up, I am informed, handed up to the Full Court of the Federal Court when precisely these sorts of questions were asked.  They should have been in the materials in the appeal book before your Honours.  Amongst those supplementary documents your Honours will see – and I apologise for the numbering – in the top right‑hand corner No 32 - it is actually the second of the documents which are part of that bundle, something which was the respondent’s, that is, Lanepoint’s outline of submissions, filed in support of that informal application.

At the page numbered 34 you will see it was being submitted in writing at that time that there was a substantial dispute and if you keep going to another document which is numbered – actually just after the numbered documents, just after 44 ‑ ‑ ‑

GUMMOW J:   The respondent’s outline?

MR GAGELER:   Yes.  There is a similar submission being made, paragraph 8, that is that there was a serious and genuine dispute, and that application made informally on 14 September supported by those submissions, came on for hearing before his Honour on 26 September, if you turn the page, the second page of this chronology, and unfortunately we do not have the transcript of what then occurred, but the summary as set out in this chronology is not controversial.  At the start of the argument, counsel for Lanepoint said that Lanepoint was not pursuing its adjournment application and would agree the substance of the minute of directions which had been prepared, which included the extension of time for determining the application, and Justice Gilmour made orders which have not been entered unfortunately, which extended time under section 459R for determining the application and listed the application for hearing which was to commence on 24 March ‑ ‑ ‑

GUMMOW J:   So, when this document says:

Gilmour J extends time –

that means he made an order under section 459R?

MR GAGELER:   Yes, he made an order under section 459R, and the extension order was entered I am told and he dismissed Lanepoint’s informal application for an adjournment at that point.

GUMMOW J:   Is there a copy of that?

MR GAGELER:   You would expect so, but there is not.

GUMMOW J:   Well, someone had better fish it out and give it to us at some stage.

MR GAGELER:   There is a note of the precise order, but the orders were not entered, unfortunately.

GUMMOW J:   I see.

MR GAGELER:   The extension of time orders were entered, your Honour, but if you would be assisted by having that, but the other order was not entered.  It was made and is uncontroversial.  We will provide the extension of time orders in due course.  Then on 14 November, your Honours will see that Lanepoint filed it grounds of opposition, which is a formal document ‑ ‑ ‑

GUMMOW J:   Opposition to what?

MR GAGELER:   Opposition to the application, that is ‑ ‑ ‑

GUMMOW J:   To the winding‑up application?

MR GAGELER:   The winding‑up application.  That is a formal document that is required by section 465C of the Act.

GUMMOW J:   That is at appeal book 5?

MR GAGELER:   Which is at appeal book 5.  So you will see that the opposition was on the ground that the company was solvent, that is, having decided not to pursue its adjournment application the tactical decision was made to fight the case on the merits.  ASIC had the benefit of the presumption of insolvency created by section 459C(2)(c), and that presumption operated by virtue of section 459C(3) except so far as the contrary was proved, and by that formal notice, as I said, required by section 465C, what Lanepoint was doing was notifying its intention to attempt to meet the challenge posed by section 459C(3).

GUMMOW J:   But does the record show any application under 467(1) for the exercise of the court’s powers there to ‑ ‑ ‑

MR GAGELER:   No, the most you get then is in Lanepoint’s final submissions, that is in its closing submissions before the judge at first instance, Justice Gilmour.  Your Honours will see those as a 25‑page document at the end of the bundle attached to the chronology.

GUMMOW J:   This is the last document in that bundle?

MR GAGELER:   Yes.

GUMMOW J:   Outline of further ‑ ‑ ‑

MR GAGELER:   No, not quite, it is the, I think it would be the third‑last document.  I am sorry, but the pages are not numbered in this.  This is exactly the form that was handed to the Full Court.

GUMMOW J:   Is it Outline of Respondent’s Further Submissions?

MR GAGELER:   No, it is called “Respondent’s Closing Submissions” and it is a document of about 25 pages – 3 April 2008.  At page 23, having made detailed factual submissions and evidentiary submissions about the status of the indebtedness to Westpoint management, it is said in paragraph 7, “both companies” – there was another company called Bowesco ‑ ‑ ‑

GUMMOW J:   That has disappeared from the litigation.

MR GAGELER:   It has disappeared, that is why the reference is to “both companies” –

submit that they have done enough to rebut the presumption of insolvency consequent upon the appointment of receivers.  Indeed, on the agreed facts alone these two companies are both clearly solvent.

Then if you go over ‑ ‑ ‑

CRENNAN J:   There is no complaint by Lanepoint, I take it, that there was insufficient opportunity to give evidence in relation to the hearing before Justice Gilmour?

MR GAGELER:   No.  This is an extremely straightforward case, your Honours.  What happened was that Lanepoint faced the presumption of insolvency, led evidence to attempt to overcome that presumption in terms of section 459C(3) and said, at the end of the day, yes, we have overcome the presumption, we have proved solvency but even if we have not ‑ ‑ ‑

GUMMOW J:   That is what they are saying at point 7 on page 23 of these final submissions, “done enough to rebut”, but where do they go on to say ‑ ‑ ‑

MR GAGELER:   Yes, at (v) on the next page, this is page 28 (v).  This appears to be what the judge interpreted as an application for dismissal:

Putting it another way, the companies have done enough, with other credible evidence, to demonstrate that the Lanepoint loan account is simply not correct.  It needs proper analysis of each transaction with reference to the actual cash flows and with cross reference to supporting documents and witness explanations if needed.  This is potentially a 10 day process.

GUMMOW J:   It would have been helpful to refer to some sections of the Corporations Act.

MR GAGELER:   Pardon, your Honour?

GUMMOW J:   Is there any reference here to section 467?

MR GAGELER:   No, but if you go on, it says:

If the submission is put that the companies should have provided evidence to the level of having this Court decide these complex issues – that cannot be so.  These proceedings are not the forum to resolve the underlying issues; only to establish a foundation that there is a contingent liability.  The applicant should take care that it does not elevate its own untested conclusions to the position of truth.

Now, that is about as high as the submission got.  His Honour Justice Gilmour interpreted that submission as, at its highest, an application for an adjournment or a stay or dismissal in the discretion of the court.

GUMMOW J:   Where did Justice Gilmour respond to that?

MR GAGELER: That was in paragraph 27 of his judgment in the appeal book at page 1414.

GUMMOW J:   Yes, I see, “submits that there is a genuine dispute”.

MR GAGELER:   Yes, and his Honour acknowledges a discretion.  His Honour does not locate it in section 467, but that is where the discretion would lie.  He goes on to say, in our submission, unassailably:

A great deal of evidence was adduced . . .  No suggestion was made that there was other relevant evidence available going to the resolution of this question.  If such an alleged dispute is raised and can be resolved during such an application then in my opinion it ought to be.

KIEFEL J:   The submissions that you have referred us to in the respondent’s closing submissions at paragraph 8(v) should then be understood, should they, as saying not so much that there is a contingent liability and that that is as far as the finding can go, but rather, that Justice Gilmour should not proceed to make a final determination, that there should be some sort of ‑ ‑ ‑

MR GAGELER:   Yes.

KIEFEL J:   That his Honour is not in a position to make a final determination.  There are other factual matters that might bear upon it and, really, all he could make is a contingent finding, I suppose, is really what they are saying.

MR GAGELER:   Exactly what is meant by the terminology of “contingent” is not clear.  It is also used ‑ ‑ ‑

KIEFEL J:   Yes.  What I suspect is it has more to do with the fact they are saying that the trial judge should not proceed to a determination.

MR GAGELER:   Yes.  I should have pointed out 8(ii) on the previous page.  This seems to be on the same theme:

winding up proceedings are not the forum to determine contingent claims one way or another ‑ ‑ ‑

KIEFEL J:   Yes, which is probably why Justice Gilmour thought that it was – it was really a request that he not determine the matter and put it over for a more substantial hearing.

MR GAGELER:   Yes.  That is the way he interpreted the submissions.

KIEFEL J:   His Honour points out in paragraph 28 there was, “No suggestion . . . that there was other relevant evidence” necessary, which seems to be the ‑ ‑ ‑

MR GAGELER:   Correct.  The question concerned the indebtedness of Lanepoint to a related company, Westpoint Management.  Westpoint Management was also in liquidation.  The liquidator of Westpoint Management gave evidence in these proceedings and produced the book relevant ‑ ‑ ‑

KIEFEL J:   So far as I could see there were two sources of the challenged debt of $6.6 million to the Westpoint investment fund.  One was the liquidator of the fund’s claim that that money was owed by Lanepoint and the second was a tax return in which that amount was also shown as a liability, I think.  Are they the two sources of initial information about the debt?

MR GAGELER:   The tax return can really be put to one side for present purposes.  The case really turned on the ‑ ‑ ‑

KIEFEL J:   The liquidator’s claim?

MR GAGELER:   ‑ ‑ ‑ liquidator’s claim.  What you see really summarised by his Honour at paragraphs 25 and 26 is that the liquidator was claiming the amount owed was $6.6 million.  That was the amount that you saw in the books of the company until very shortly before the receivers and managers ‑ ‑ ‑

KIEFEL J:   When you say the company you mean both Lanepoint and WIF?

MR GAGELER:   Yes, until very shortly before the receivers and managers were appointed.  Then there was a series of book entries, which changed that position in the accounts of those companies and related companies.  This is best set out, your Honours, in the affidavit of the liquidator, Mr Read, in volume 2 of the appeal books at pages 339 and following.  Paragraph 9 of the affidavit at page 340 and paragraph 10 have him stating his belief that the amount due was the $6 million and he bases that upon the report of the receiver and manager that you then see as the exhibit or annexure SAR1 beginning at page 341.

The best analysis of these so‑called transactions, which was really no more than book entries, appears at page 343 in the case of the Kingdream transfer, then at pages 344 and 345 in the case of the so‑called Round Robin Transactions.  Then to that report is annexed a very large number of primary accounting documents, which your Honours do not need in any way to go to.  But essentially what was shown, just by looking at the books of the company, was that very shortly before the appointment of the receivers there were book entries that purported to reduce the indebtedness of Lanepoint to Westpoint Management by about $4 million.

So the question was whether those book entries should be treated as signifying the true position between those two related companies and having decided to proceed to deal with the merits of the dispute your Honours see that the trial judge at page 1423, paragraph 70 had no difficulty in reaching a firm conclusion.  He said at paragraph 70:

I find that the Kingdream transfer and the $2m run‑around were improper transactions put into effect to conceal the true position that Lanepoint was indebted to WIF in approximately $6.6m and to render it unlikely that WIF could recover those funds -

in other words, using the language that was perhaps criticised in Raftland.  These were simply shams.

KIEFEL J:   His Honour did not perhaps need to go on to say that they were ineffective transactions.

MR GAGELER:   No, and in that respect his Honour was wrong.  ASIC was wrong to assert that they were voidable transactions - I am sorry, your Honour, in that paragraph?

KIEFEL J:   Yes.

MR GAGELER:   Yes. That is right.  They were just simply not real transactions.

HEYDON J:   Accepting ASIC’s submission that they are ineffective transactions.

MR GAGELER:   I was misinterpreting your Honour’s question because his Honour then goes on to deal with an alternative submission of ASIC.

KIEFEL J:   But for the purposes of the winding‑up order, his Honour did not need to make a finding about them being ineffective transactions.

MR GAGELER:   Well, he had to determine the indebtedness of Lanepoint to Westpoint management.  The solvency of Lanepoint turned on whether the indebtedness was less than $2.5 million, as Lanepoint claimed, or $6.6 million as the ‑ ‑ ‑

KIEFEL J:   But if they are ineffective transactions, it means they are liable to be set aside under the Act.

MR GAGELER:   What he said was they were not true transactions.

KIEFEL J:   I thought ineffective transactions carried a bit more with it than that – that they had consequences under the Act.

MR GAGELER:   Well, his Honour then goes on to deal with an alternative submission that ASIC put, that is, that they were voidable transactions.  In putting that alternative submission, ASIC was in error and in accepting that alternative submission, his Honour, we accept, was in error.

GUMMOW J:   But does his Honour accept that submission?

KIEFEL J:   I thought his Honour did not accept it at paragraph 85, that:

the unreasonable director related transactions ‑ ‑ ‑

MR GAGELER:   No, but he accepted ‑ ‑ ‑

KIEFEL J:   Paragraph 77?

MR GAGELER:   He accepted 78 and 79 that they were uncommercial transactions:

liable to be set aside at the instance of the liquidator -

That may be true, but it does not bear upon the question of solvency.

KIEFEL J:   Which is a fact of debt?

MR GAGELER:  Yes.

KIEFEL J:   The fact of whether or not the debts can be met.

MR GAGELER:  That is right.

CRENNAN J:   They are critical, of course, because it was common ground that Lanepoint had assets of $5.7 million, or something of that order, was it not?

MR GAGELER:   That is right.  So the case turned on whether the indebtedness to Westpoint Management was the $6.6 million or something less than the figure that your Honour has just stated.

KIEFEL J:   It is his Honour’s findings in relation to those – what I would call the extended findings of whether or not they are liable to be set aside that appears to have influenced the Full Court a little.

MR GAGELER:   Well, when you get to the Full Court ‑ ‑ ‑

GUMMOW J:   Before we get to the Full Court, the notice of appeal to the Full Court at appeal book 1444 is complaining about the evidentiary findings.

MR GAGELER:   Yes.

GUMMOW J:   There is no complaint that the court should not have got into the evidence because the court should have simply shunted it off under 467.

MR GAGELER:   There is sort of a complaint.

GUMMOW J:    Where?

MR GAGELER:   If you go to page 1444 which is the amended notice of appeal, at page 1445, paragraph 4.

GUMMOW J:   I see.

MR GAGELER:   That was the ground that is identified by the majority in the Full Court at page 1458, paragraphs 34 and 35, as the ground upon which the appeal should succeed.

GUMMOW J:   Yes, thank you.  But that means the Full Court is not determining the other grounds, does it not?

MR GAGELER:   The extent to which the other grounds were pursued in the hearing is not clear, certainly not clear from a reading of the transcript.  We can say this, that his Honour Justice Buchanan in dissent appeared to see himself as dealing with everything that was pursued in the appeal and there is no notice of contention before your Honours.  Therefore, if your Honours were to overturn the majority on the point raised by ground 4 of the appeal to the Full Court, your Honours would simply allow the appeal and restore the orders of Justice Gilmour, in our submission.

GUMMOW J:   That is the relief you seek, is it not?

MR GAGELER:   Yes, it is.  That is set out in our notice of appeal at page 1501.

GUMMOW J:   Yes, thank you.

MR GAGELER:   Your Honours, I probably planned to say much more than I have said, but I am not sure that I need to start at the beginning.

GUMMOW J:   We took you off your course.  I think we understand more fully now what the structure of the litigation was, at any rate. 

MR GAGELER:   Yes.

HEYDON J:   Could I just ask you this, Mr Gageler, it must follow from what you have been submitting that when in paragraph 65 on page 1466 the majority said that the “judge did not appear to give consideration” to something and when in 69 they say he “did not have regard” to something and when in 71 he failed to have regard to something and in paragraph 73 he “did not appear to take into account” something, that none of those things which he supposedly did not take into account were things which he was asked to take into account.

MR GAGELER:   Correct, yes.  The oral submissions at first instance are even harder reading than the submissions before the Full Court but we cannot see that the case for the exercise of the discretion before the trial judge was put more clearly than ‑ ‑ ‑

GUMMOW J:   By discretion you mean exercise of power under 467(1) to do what?

MR GAGELER:   Correct, was put any more clearly than in the written submissions that we have taken your Honours to.

GUMMOW J:   What is it said against you that trial judge should have done in exercise of his authority under 467(1)?

MR GAGELER:   It is apparently put against us that the trial judge should have dismissed the application, and should have done so because even though Lanepoint was unable to discharge the onus of proof cast upon it by section 459C(3), it had, in its words done enough to raise a substantial issue about its indebtedness, and therefore it is said the discretion should have been exercised.  The exercise of the discretion in those circumstances undermining, obviously, the structure of the Act, and the operation of the presumption.

KIEFEL J:   What they were saying was akin to saying there was a triable issue.

MR GAGELER:   At the end of the trial, yes, where they bore the onus of proof.  Your Honours, if I can then perhaps just say what we say about the Full Court, and I will perhaps reassess the extent to which I need to make more general submissions?  If you go to the Full Court’s judgment, that is, the majority, beginning at page 1452, paragraph 37, in our submission, is a wrong start.  It is an overstatement of the principles that emerge from the cases before the 1992 Reform Act.  The leading case at that time was the decision of the Privy Council in Brinds 63 ALR 94 at 99, and that was a case where the statement of principle appears at page 99, about line 30. The point being made being that:

It is a matter for the discretion of the judge whether a winding‑up order should be made on a disputed debt, and it is also a matter of discretion whether he decides the substantive question of debt or no debt.

There are then two cases cited, Justice Gibbs in QBS and the Privy Council itself in the earlier case of Bateman Television, and the quotations from both of those cases inform the content of the broad discretion that is there stated that also have some direct application to the present case.  It should be said Bateman Television, the earlier Privy Council decision, was a case where the trial on the winding‑up petition had gone for some four days.

GUMMOW J:   How long?

MR GAGELER:   Four days.  But Brinds, if you turn back to page 97, line 25, you will see the hearing on this winding‑up application had lasted some four weeks.  Nevertheless, in both cases it was seen as an appropriate exercise of discretion that the existence or non‑existence of the debt should be determined in a winding‑up application.  If your Honours will also note Ocean City, which was the case that was cited by the trial judge at paragraph 27, that was a decision of Justice French on the Federal Court and his Honour was here concerned with the Corporations Law as it existed immediately before the 1992 amendment.  So Brinds was a case that dealt with the Companies Act and then this was a case, Ocean City, which dealt with the Corporations Law, the essential structure remaining the same.

GUMMOW J:   Sir Harry Gibbs was dealing with the 1961 Act.

MR GAGELER:   He was dealing with the 1961 Act, so was the Privy Council in Brinds, your Honour, yes.  So Justice French here again applies to the new legislative setting Brinds.  He does that at pages 486 and 487.

GUMMOW J:   What is the foundation on these older cases?  Is it some notion of abuse of process, some specific statutory power like we now have in 467?

MR GAGELER:   A lot of old cases are not very precise.  The better view appears always to have been that it was an exercise of statutory power under section 467 or its equivalent.  The old equivalent was section 367 of the Companies Code.

KIEFEL J:   But was it based upon some idea about the status of the creditor – doubt about the status?

MR GAGELER:   The best explanation that we have found is in Justice McPherson’s book on company liquidation, the 1987 edition.  This was the edition that was – Justice McPherson’s explanation was endorsed, if I can put it that way, by Justice Hayne in a case I will just give your Honours the reference to.  It was Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at page 294. His Honour endorses the explanation that you see at page 63 of Justice McPherson’s work. In the second sentence he said:

there is a broad general principle that a winding‑up order will not, as a matter of discretion, be made on a debt which is bona fide disputed, provided that the dispute is based on some substantial ground.  No doubt one reason for this rule is that an applicant whose debt is disputed may lack the qualification necessary to file an application for a winding‑up; he is not a creditor if it turns out that the company was justified in refusing to pay.  But the principal reason is that a winding‑up application is not to be used for the  improper purpose of compelling a solvent company to pay a disputed debt ‑ ‑ ‑

GUMMOW J:   That suggests abuse of process, you see.

MR GAGELER:   Yes.  It certainly shades into abuse of process notions.  You see the same sort of explanation in Buckley.  We have given your Honours the 1957 edition of Buckley, but I should that say Justice McPherson, correctly, in our submission, appears to have seen the discretion as a statutory one.  At page 67 he appears to anchor the discretion in section 367 which, in our submission, is the correct way of seeing it.  You see essentially the same sort of explanation that I have given in Buckley at page 451.

GUMMOW J:   This is the 13th edition?

MR GAGELER:   The 13th edition.  We have given you that because that is picked up and in part quoted by Justice Gibbs in the QBS case to which I have already drawn attention.

GUMMOW J:   Yes, well, if you look at footnote (a) on page 451, one would need to know what company statutes were engaged in 1864 and 1865.

MR GAGELER:   I can tell you that.  It was the Companies Act 1862, which I had a look at and for relevant purposes, its structure was identical to what emerged in the 1961 Code.  We can provide your Honours with extracts from it.

KIEFEL J:   Do these considerations about oppressions of creditors in any event have the same application where the Australian Securities and Investments Commissioner is the applicant?

MR GAGELER:   No, not at all, nor where the presumption of insolvency arises by reason of events that are unconnected with a particular debt.  So in our submission, the majority in paragraph 37 just got of to a wrong start.  There was then, in paragraph 51, a recognition of the discretion, but in paragraph 59, in our submission, a fairly serious misunderstanding of the effect of the 1992 amendments where it is said that the legislative policy they manifest is that ‑ ‑ ‑

GUMMOW J:   Paragraph 59, perhaps does not give attention to the consideration Justice Kiefel put to you, which is the special position of ASIC.

MR GAGELER:   It really misunderstands that.  It wrongly equates the position of ASIC.

GUMMOW J:   It is assuming that these disputes are fought out between creditors and ‑ ‑ ‑

MR GAGELER:   Yes, it is doing that.  That is certainly a misunderstanding and that misunderstanding then flows through to paragraph 76 where there is a likening of this application.  This is when the court gets to re‑exercise the discretion for itself.  It seems to think that it was important that had Westpoint Management issued a statutory demand to Lanepoint founded on ASIC’s contentions, Lanepoint would undoubtedly have succeeded in setting aside the statutory demand.  A couple of things ‑ ‑ ‑

GUMMOW J:   That last sentence in paragraph 76, is the third party understood by you to be ASIC?  The reference is to ASIC, is it?

MR GAGELER:   Yes.  So, ASIC exercising the standing that is given to it by section 459P and having the benefit of the presumption is seen to be subverting the processes of the Act which is, in our submission, an extraordinary proposition.  The Court is also wrong, by the way, in paragraph 76 saying that:

Lanepoint would undoubtedly have succeeded in setting aside the statutory demand.

To set aside the statutory demand, it would need to show a substantial bona fide dispute, and in circumstances where the trial judge was prepared to make the finding to which I have already drawn your Honours’ attention at page 1423 paragraph 70 then the prediction of the majority at paragraph 76 could not, in our submission, be treated as undoubted.

So, if you go back to paragraph 59, that is simply, in our respectful submission, a serious misstatement of the legislative policy that emerges from the Corporate Law Reform Act of 1992.  What you see from the extrinsic material but what you see more clearly from the structure of that Act is an emphasis on efficiency and flexibility and commercial reality in the conduct of winding‑up proceedings.  Can I just give your Honours the references without taking your Honours through the material, just in the extrinsic materials?  You see those in the bundle that we have provided to your Honours; in the summary version of the Harmer Report in that bundle at page 108 where there are certain principles set out, you see it at page 115 in paragraphs 10 and 12, and you see it in the explanatory memorandum for the 1992 Bill, again in those materials.  If I can just give your Honours the references and I will take you to just two paragraphs?  Page 171, paragraph 14, 175 paragraph 20, 176 paragraph 23, page 242 paragraphs 664 and 665, and then at page 243 – these are the only paragraphs I particularly want to highlight – paragraphs 668 to 669.  There the presumption to which I will turn in just a moment is explained in terms of being more responsive than the old law to commercial realities.

Then if you go to the structure of the Act as it emerged from the 1992 amendments and flowed through to the 2001 Corporations Act, the starting point is section 459A, which refers to the application being made under section 459P.  The provisions of section 459P, your Honours will see in paragraph (f), specifically confer standing on ASIC.  Subsection (2)(d) requires leave in the case of ASIC to make that application and subsection (3) allows:

The Court may give leave if satisfied that there is a prima facie case that the company is insolvent –

You then go to paragraph 459C, which your Honour Justice Gummow referred to in passing in David Grant 184 CLR 265 at 278 as an important element of the scheme of Part 5.4 and it is.

(1)      This section has effect for the purposes of:

(a)     an application under section . . . 459P . . . 

(b)an application for leave to make an application under section 459P.

(2)The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made –

Relevantly, but for present purposes it is paragraph (c) –

a receiver, or receiver and manager, of property of the company was appointed –

(3)A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.

As your Honours have seen essentially all that occurred in this case is perhaps as the primary position, perhaps as an alternative position at first instance in final submissions the submission was put to the effect that if the company did not quite get to the point of proving to the contrary for the purposes of section 459C(3) then at least it had “done enough” for the discretion to be exercised in its favour.  For the discretion to work that way would be for it to undermine what your Honour properly described as an important element of the statutory scheme.

Then, your Honours, going back to the Federal Court majority judgment, what you see, as your Honour Justice Heydon pointed out, at pages 466 to 468, is the majority saying that there were three errors in the way in which his Honour, at first instance, exercised the discretion, a difficult position for the majority to hold given that these factors, as your Honour pointed out, were never put to the trial judge.  Nevertheless, none of them, in our submission, stand up to much analysis.  The first of them at paragraph 65 through to 68 was the consideration whether, and I am quoting:

all the parties necessary for the final determination of the issues raised by ASIC’s contentions . . . were before the Court.

The necessary parties there mentioned in paragraph 65 are other companies within the Westpoint Group who were the subject of these book entries, and in paragraph 68 they go so far as to suggest, as we read them, that the directors or other individuals, perhaps, who were engaged in these dealings should have been before the court.

Now, none of these parties, in our submission, were obviously a necessary party in any technical sense for the purposes of the winding‑up proceedings, even in debt recovery proceedings.  Obviously, the directors or other officers would not be necessary parties.  Indeed, it would be a pretty uncommercial approach to even think about joining them.  In our submission, the desirability of having third parties before the court in circumstances of a disputed debt must vary from case to case.  Here, the only question was the indebtedness of Lanepoint to Westpoint Management.  Westpoint Management was in liquidation and the position of the liquidator of Westpoint Management in relation to that debt was perfectly clear from the evidence that he gave before the court and I have drawn your Honours’ attention to that.  So, in our submission, there is nothing at all in that point.  The second error of discretion that was identified by the majority is at paragraphs 69 through to 71 and it is said there that his Honour erred in not having regard:

to the utility of considering ASIC’s contention that the impugned transactions were voidable transactions.

In our submission, and I have really said this already, there is almost something in this point, but the point is not one of utility, the point is really one of relevance.  If these transactions, that is the Kingdream transfer and the $2 million run around, these book entries, were not shams, but were voidable transactions, then they would be liable to be set aside by the liquidator under section 588FF, but that could not affect the prior question of whether the company was solvent or insolvent at the time of being wound up.

So it really was an irrelevant inquiry, but nothing turned on the point, because ASIC’s principal contention before the trial judge was that the transactions were shams, the language was “improper transactions” and that principal contention was itself sufficient to justify the procedural course adopted by the trial judge and it was that principal contention that his Honour accepted in the passage that I have already drawn your Honours’ attention to.

So the alternative contention, which should not have been pursued, it was an irrelevant inquiry based on section 588F, simply had no effect on the result either procedurally or substantively.  Then the final error identified by the majority is at paragraph 73.  This is put in terms of failure to take account of a relevant consideration, but it is difficult to see it as a distinct consideration in any meaningful sense; it is just another way of viewing the merits of the exercise, or non‑exercise, of the discretion.  It is not within that category of considerations which a judge would be bound to take into account.  Your Honours, it is not quite the way I intended to present the appeal, but that is the substance of our submissions.

GUMMOW J:   Yes, thank you.

KIEFEL J:   Just before you sit down, I know that you have dealt with this, but would you mind reminding me?  The majority in the Full Court only dealt with ground 4 of the grounds of appeal.  Why do you say it is not necessary for it to be remitted for them to determine the balance?

MR GAGELER:   Because the dissenting judge, Justice Buchanan, appears in his judgment beginning at page 1471, to have disposed of the substance of the appeal, including, in particular, a bias point that his Honour dealt with at pages 1477 to 1478.  It does not appear to us that there is anything of substance in the appeal that his Honour, the dissenting judge,

did not deal with.  If there were, one would expect a notice of contention before this Court, and there is not.

KIEFEL J:   Yes, thank you.

GUMMOW J:   Yes, Mr Donaldson.

MR DONALDSON:   If your Honours please.  Your Honours, before I commence my submissions, could I just deal with the chronology that my friend has handed to your Honours this morning dealing with ‑ ‑ ‑

GUMMOW J:   Just before you do that, what is your answer to the matter that Justice Kiefel was raising with the Solicitor at the end of his address?

MR DONALDSON:   Was that the last point, your Honour?  The circumstance where the majority has not dealt with all of the grounds of appeal – and this Court has dealt with this issue recently in a series of cases, the names of which I do not recall off the top of my head, but I can direct your Honours to them presently – in the circumstances where a Full Court has not dealt with all of the grounds of appeal, the appropriate course is, if the appeal is upheld, for the matter to back for the outstanding grounds that were not addressed to be dealt with.  So if the appeal succeeds, then the matter would go back to the Full Court to deal with the grounds that were not addressed at all by the majority in their judgment.

GUMMOW J:   Even if it was apparent that there was a dissenting judgment which appeared to be correct on those issues?

MR DONALDSON:   Well, the difficulty, your Honour, is that for this Court to come to that conclusion, it does not have the benefit of the reasoning of the majority judges in relation to the matters that they simply did not address.  With respect to my friend, if one looks at Justice Buchanan’s judgment in dissent, his Honour does not deal with the other grounds in particular detail.  It would appear, for one reason or another, as though this issue as to whether the discretion to grant a stay or not, which was ground 4 of the appeal, was the matter that occupied the court in the Full Court.  So it would appear that the other grounds were not addressed.

GUMMOW J:   So that means your address is limited to upholding the decision of ground 4?

MR DONALDSON:   Yes.  Can I say, your Honour, in our written submissions we made that clear and we said in our written submissions that if the ground succeeds, it ought go back. 

Your Honour, in relation to what happened before Justice Gilmour, as my friend has taken you through, it appears that some – in fact, I think there was a history before 14 September 2007, but in any event, at least from that date there was an application before the court to adjourn the hearing of the winding‑up application and in the papers that my friend handed up this morning in that first bundle – that is the one with a cover “Supplementary Documents” – at page 43 of that bundle your Honour will see reference there in the ASIC responsive submissions of 26 September 2007 at paragraph 8, so that is on page 43, the basis of that adjournment application, and that is that there was a contention that the two debts that were the subject of dispute between Lanepoint and Westpoint Management Pty Ltd, which was in answer to Justice Kiefel’s earlier question, that was the statutory manager of the Westpoint Investment fund, which was a management investment scheme.

It was proposed that the issue of those two debts be referred off to be dealt with somewhere else.  So that was the basis of the adjournment application.  That application was not successful and there was an alternative submission opposing leave under 459R.  When the matter came before Justice Gilmour there was not, as my friend has indicated, as it were, a motion or a process that had been filed with the court in which this issue of the grant of a stay was squarely raised by way of a motion.  However, as my friend has indicated, it was squarely before his Honour and his Honour understood what the submission was and his Honour dealt with that issue as to a stay.

It might be thought that that was a rather unusual way of dealing with the issues and your Honours have been referred by my friend to a judgment of Justice French in the case Ocean City.  In that case an application to stay for the reasons dealing with a disputed debt arose.  That application was dealt with.  His Honour Justice French dismissed that application determining in the exercise of his discretion that he would determine the disputed debt and then in further separate proceedings went on to deal with the issue of the disputed debt.  So there was no, as it were, overlap between the stay application and in this case the issue as to solvency. 

In this matter it would appear that for an obvious reason those two inquiries were conflated, unhappily, but nonetheless conflated.  The explanation for that would appear to be that the two debts that were sought to be – or the winding‑up application was sought to be stayed so that two disputed debts could be dealt with somewhere else.  They were the two debts that were the sole issue in relation to solvency because it was accepted in the proceedings that if those two debts either were not owing by Lanepoint or that those two matters ought be – that those two debts were owing by Lanepoint ought be determined somewhere else the winding‑up application would either be dismissed in the first instance or stayed.  So the precise facts that were the subject of the winding‑up application were also the precise facts that were the subject of the stay application. 

GUMMOW J:   Can you say that again?  The precise facts ‑ ‑ ‑

MR DONALDSON:   The precise issue that was the subject of the application to stay, that is the dispute as to these two debts, was also the precise issue which determined the solvency because all other facts in relation to solvency were agreed, that is the other debts of the company were ‑ ‑ ‑

GUMMOW J:   Why should we then send it back?

MR DONALDSON:   Because, your Honour, this was not a matter that was - or the issue as to those two debts were not matters that were properly dealt with in a winding‑up application, the principal reason being one of the matters identified by the majority in the Full Court in this matter.

That is, that the allegation that was ultimately made, and it is not really clear whether it in fact was ever ultimately made by ASIC, but what underlay the ASIC submission in relation to these two debts is that there was a most serious fraud that had been undertaken and various parties or persons who were – could only be contended to have been party to those frauds were before the court and none of those matters were squarely put to those witnesses.

GUMMOW J:   They would be before the court in an action in debt?

MR DONALDSON:   No, they were before the court, your Honour, in giving evidence in the winding‑up application, and I will take your Honours to that evidence in a moment, if I might.  The serious allegations which were ultimately made by ASIC in the winding‑up application, that is that various witness who gave evidence in this matter were actually parties to a fraud, was never squarely put to them.  They were never given an opportunity to comment or to provide an explanation in relation to these matters, put in that context.  As their Honours Justices North and Siopis held, in a circumstance such as this in a winding‑up application where a witness or a party does not have the protections that a party would ordinarily have where allegations of this type are made against them, a winding‑up application is an inappropriate forum to be dealing with it.

KIEFEL J:   The liquidator’s report and the matters relied upon in the affidavit to which we were taken identify the two major transactions, one involving Kingdream and the other the run‑around, which clearly identify the inferences that could be drawn if those facts were correct.

MR DONALDSON:   Your Honour, the evidence to which my friend took you in fact was not evidence of the liquidator of these companies, it was all that he did – and that is Mr Read – all that he did was annex a copy of a letter and that is what my friend was actually reading from, from one of the other receivers or managers in the Westpoint Group and that was at page 341 which is in the second volume of the appeal book.  So, that was not an assertion directly by the liquidator of Westpoint Management Pty Ltd.  This is a letter from KordaMentha.

KIEFEL J:   He adopts it; he incorporates it in paragraph 10 of his affidavit, so it is his opinion.

MR DONALDSON:   Yes, your Honour.  He states it as his belief based upon having received that letter.  If one looks at the evidence which was before the court in relation to those two matters, and in answer to your Honour Justice Kiefel’s question, the fact that these two debts or transactions were going to be the subject of questions during the course of the hearing of the winding‑up application, I suppose it did not take anybody by surprise because of that evidence.  The evidence in relation to that, your Honours – and I will deal with the two debts separately, if I might, because your Honours will recall that there were two debts that were at issue in the winding‑up proceeding – one was referred to as the “Kingdream transfer”, and the other which was rather interestingly referred to as the “$2 million run‑around” – but in relation to each of those, and if I could deal with them separately?

In relation to each of those, and if I could deal with them separately, if your Honours could turn in the first volume of the appeal book, please, to page 116, this, your Honours, is the evidence of Mr Nairn.  If your Honours look over on page 116, your Honours will see that Mr Nairn was, at the material time, a director of Westpoint Management.  So he was a director of the other party to the transaction, that is, the issue was as to whether a debt was owed by Lanepoint to Westpoint Management.

GUMMOW J:   What is the immersion in this detail going to, Mr Donaldson, other than to show that there was a real fight about solvency that went over four days?

MR DONALDSON:   Well, your Honour, there was a real fight as to these two debts, your Honour.

GUMMOW J:   Yes, and it was resolved.

CRENNAN J:   But Mr Nairn was not believed on crucial issues, is that not the position, by the primary judge?

MR DONALDSON:   It is a bit difficult to know, your Honour, whether he was not believed or the basis upon which, if he was not believed, he was not believed.

CRENNAN J:   I think from time to time the primary judge has said things like, “I do not accept Mr Nairn’s evidence in this respect”, for example, at paragraph 46 of his judgment.  I think there is more than one instance of that.

MR DONALDSON:   His Honour does say that on occasions in relation to aspects of Mr Nairn’s evidence, your Honour.  If your Honours look through Mr Nairn’s evidence, and I will not take your Honours through it, but simply to refer your Honours to pages 117 ‑ ‑ ‑

GUMMOW J:   Are you trying to controvert his Honour’s findings on this gentleman’s credit?

MR DONALDSON:   No, your Honour.  All I am seeking to do is to show to your Honours that there was evidence before the court at the winding‑up application hearing that showed, to use your Honour’s term, that there was a real fight as to these debts and if there was a real fight as to these debts, then, in our submission, the Full Court was correct ‑ ‑ ‑

GUMMOW J:   It also said a real fight which was thrashed out over four days.

MR DONALDSON:   Again, your Honour, there is a bit of murkiness about four days, if I can say this.  These two transactions in relation to Kingdream transfer and the other two million dollar transaction ‑ ‑ ‑

GUMMOW J:   Wait a minute.  What do you say about paragraph 28 of the trial judge’s reasons:

No suggestion was made that there was other relevant evidence ‑ ‑ ‑

MR DONALDSON:   One thing, your Honour, that can be said about that is his Honour then goes on, having said that there was no other relevant evidence – in fact, he does not go on.  His Honour says it earlier in his reasons that, in fact, there were witnesses who were not called who ought to have been called.

KIEFEL J:   I think he is holding that against Lanepoint whose position was to rebut the presumption, if that helps you.

MR DONALDSON:   He is holding it against Lanepoint because one of the burdens that Lanepoint had because of the nature of the proceeding was to rebut the presumption, but what his Honour did not have regard to, of course, is that here was a company that had been in receivership – two receiverships, in fact – for some considerable period of time.  No doubt it had limited capacity to call upon former employees to be giving evidence about these matters and Mr Nairn, your Honour, gave the clearest evidence in relation to those two witnesses that they had erroneously prepared the reports that he – the financial records of Westpoint Management and Lanepoint that he had to, after inquiry, go and correct.

KIEFEL J:   Was there any evidence to explain their absence as witnesses?

MR DONALDSON:   No. 

CRENNAN J:   His Honour says that in paragraph 40, page 1418.

MR DONALDSON:   No, there is not.  There was no explanation as to why they were not there.  I was simply saying to your Honours that in this case, unlike, for instance, a case involving a statutory demand where the company is still functioning and operating and when if there are employees who should be giving evidence in relation to insolvency who are still employees of the company, then they can be called upon to do it and if they do not, it is odd. 

KIEFEL J:   Was it Lanepoint’s position before the Full Court that there was evidence which could or have been adduced or was not taken into account by his Honour?  Was that one of the grounds?  I am looking at ground 1(a) of the minute of amended notice of appeal at appeal book 1444.  I think, looking at the balance of the grounds, that is probably – sorry ground 1(a) and 1(b) are probably the only grounds which suggest that something was not taken into account. 

MR DONALDSON:   Yes.  Can I say, your Honour, there seems to be a bit of an overlap between 2, 3 and 4 as well.

KIEFEL J:   They do not seem to be of the same type as 1.

MR DONALDSON:   Yes.

KIEFEL J:   Ground 1, I think, is the only one that identifies additional evidence or evidence not taken into account.

MR DONALDSON:   Your Honour is right that that is the only ‑ ‑ ‑

KIEFEL J:   Are you able to assist us with saying what was the nature of the evidence before we – we would have to go, I think, to ground 1 to determine if it were necessary whether there was a remitter.

MR DONALDSON:   Except that that ground was before the court and was not dealt with before the court.  I do not have the submissions.

KIEFEL J:   You do not know what the evidence was?

MR DONALDSON:   Your Honour, I do not know off the top of my head.  Your Honours know that I did not appear in the Full Court.  I do not have the submissions that were filed in the Full Court in front of me, your Honours.  Perhaps that can be addressed while I am dealing with other issues, your Honour.

KIEFEL J:   The balance of the grounds do not seem to raise anything new.  They are simply complaints about correct tests that his Honour should have applied.

MR DONALDSON:   Yes.  I think I said earlier that there ‑ ‑ ‑

KIEFEL J:   I am sorry to interrupt you, but ground 6 is a matter that the Full Court took up.  So it would seem to be that if there was going to be any issue about there being a remitter, it would hinge on ground 1.

MR DONALDSON:   Yes, that is right, your Honour, in relation to what evidence was going to be put up in relation to findings that his Honour made.  Quite so.

KIEFEL J:   Yes.  Now I have taken you off the track.

GUMMOW J:   A relevant statement of principle as to remitting partly dealt with procedures is in Lockwood 217 CLR 274 at page 312, paragraph 105.

MR DONALDSON:   Yes.  Thank you, your Honour.  The other authority often cited is Kuru v New South Wales (2008) 236 CLR 1 at page 6, which is paragraph 12 in a joint judgment of the Chief Justice and Justices Gummow, Kirby and Hayne and that is, your Honours, if I can say, a restatement of a number of earlier comments by this Court dealing with the obligation of intermediate Court of Appeal to deal with all grounds of appeal so that matters do not have to be remitted.

GUMMOW J:   That passage at paragraph 12 is not addressed to the issue as to whether there truly is an outstanding issue.

MR DONALDSON:   In Kuru there was no issue as to whether an outstanding issue or not.

GUMMOW J:   So that it is necessary to remit it.

MR DONALDSON:   Quite.

GUMMOW J:   That is what we talked about in Lockwood.

MR DONALDSON:   Yes.  Your Honours, so as your Honours understand the issue of principle to the extent that there is one which is before the Court, can I say this to your Honours, that the issues before the court are to be understood in this way.  It is uncontroversial that prior to the introduction of Part 5.4 into the Corporations Act that there was a well‑understood and often exercised power to stay or dismiss winding‑up applications.

GUMMOW J:   It seems to have come from what was said Lord Justice Turner in the Catholic Publishing Case, which is footnote (a) in the passage from Buckley at 451 that we referred to.

MR DONALDSON:   Yes, but the authority that is often cited as the genesis of it, your Honour, is that which is actually cited by the Full Court in this matter.

GUMMOW J:   The historical reason for it being that this has all taken place in Chancery and in 1864 Chancery ordinarily did not decide debt cases.  So the question then was, when the 1862 Companies Act came along, did it, in giving this winding‑up jurisdiction to the Chancery Court, fully face up to the previous inhibition, or lack of jurisdiction really, to entertain ordinary debt claims.  The answer given by Lord Justice Turner said yes the statute did face up to it, that the Chancery Court now did have this power to determine debts, but it might decline to do so.  That is where it all comes from.

MR DONALDSON:   Yes, your Honour, there is no question ‑ ‑ ‑

GUMMOW J:   People have been floundering around for a hundred years because they do not understand the relationship between Chancery and common law before 1873.

MR DONALDSON:   Yes, quite.  Your Honour, there is no doubt that the Court has a discretion and power to determine a debt in the course of a winding‑up, there is no issue as to that, and that is all that Sir Harry Gibbs was saying in the QBS decision, and equally there is no doubt that the court has a power or discretion to not determine a debt where there is a serious issue as to it and where ‑ ‑ ‑

GUMMOW J:   But the statutes move on.

MR DONALDSON:   They do, your Honour, and we do not quibble ‑ ‑ ‑

GUMMOW J:   They moved on considerably in 1992.

MR DONALDSON:   Only in one respect, with respect, your Honour.

GUMMOW J:   The emergence of ASIC would have been undreamt of when Lord Justice Turner was sitting on the Bench, I would have thought.

MR DONALDSON:   Well, your Honour, ASIC had a standing under an equivalent provision 459P prior to the Harmer reform.

CRENNAN J:   The presumption of insolvency.

MR DONALDSON:   The presumption of insolvency, your Honour, under 459C, was introduced, but it was introduced to overcome the old deeming provision under 362 of the Companies Act, which deemed it to be insolvent, and then of course what happened is rather than operate as a deeming provision, there were constant streams of applications of various kinds as to the status of a creditor and as to whether there was a serious dispute as to the debt so as to reverse the effect of the deeming provision.

When the Harmer reforms were introduced, they did two things materially.  One was to introduce the presumption of insolvency – or three things actually.  One was to introduce the presumption of insolvency, another was to give rise to a further ground for the presumption of insolvency which is oddly the ground in this case, that is, the appointment of a receiver, which was not a ground for deemed insolvency prior to the Harmer reforms.  Thirdly, and most significantly, your Honours, that it introduced Division 3 into Part 5.4, Division 3 being the statutory demand process and the setting aside of the statutory demand process so that, as used to happen, it was only when one got to the final winding‑up application that all these issues as to the status of the creditor and the like were raised for the first time.  So the substantial reform which was brought in in Part 5.4 was to ensure that in the overwhelming majority of those cases which is expired 21‑day statutory demands, if there was a dispute as to whether a debt was owing or solvency, that matter was resolved early. 

We have referred, in our submissions, to the New South Wales Court of Appeal decision in Switz which sets all of this out there.  Your Honours, the status of ASIC and its inclusion in section 459P as a party having standing to bring a winding‑up application, there is nothing particularly novel in any of that.  I was going to deal with Justice Gummow’s question as to – I think it was Justice Gummow – well, going to be Justice Gummow’s question as to the source of the power exercised by the court to stay a winding‑up application in the event of a genuine dispute as to a debt, it either emerges, your Honour, under the particular provision, which is 467(1) that my friend, Mr Gageler, referred you to earlier, or the other possible source of it, your Honours ‑ ‑ ‑

GUMMOW J:   Section 467(1)?

MR DONALDSON:   Yes. 

GUMMOW J:   Or maybe 459A?

MR DONALDSON:   There is 459A, your Honour, but there is a discretion to not order a winding‑up under 459A because it is permissive, but the other source of it, your Honour, is in – I am terribly sorry, your Honour – yes, your Honour, it is 467(1)(c).

GUMMOW J:   Yes, “other order that it thinks fit.”

MR DONALDSON:   Yes, that is right.  I should also, not that it is squarely relevant to this, but I should also refer your Honours to section 467(7) which is a specific power in relation to the staying of proceedings not in these circumstances, but in other circumstances.  Your Honour, the power to stay, we would accept, is exercisable under 467(1)(c).  The only qualification to that, your Honours, and we do not ‑ ‑ ‑

GUMMOW J:   You want a permanent stay, do you not?

MR DONALDSON:   No, we want the order that was made by the Full Court, which is to stay it until further order, maintained.  I do not quite understand why my friend contended that what we seek here is a dismissal on the basis that we had rebutted the presumption.  That is not our position at all.  We simply seek the order of the Full Court be maintained, that is that the matter be stayed, pending further order of the Court.  Could I just quickly refer your Honours ‑ ‑ ‑

GUMMOW J:   Just a minute where is the Full Court order?

MR DONALDSON:   The Full Court order, your Honour, is ‑ ‑ ‑

GUMMOW J:   At 1480 “is stayed until further order”?

MR DONALDSON:   Yes, it is stayed until further order.

GUMMOW J:   What is going to happen?

MR DONALDSON:   Sorry, your Honour?

GUMMOW J:   With a view to what happening?  What is it that is contemplated is going to happen that is going to elicit a further order?

MR DONALDSON:   A number of things could happen, your Honour.  One of them is ‑ ‑ ‑

GUMMOW J:   Could happen?

MR DONALDSON:   Well, could happen.  But, your Honour, there is again no issue that there could be a conditional stay so a stay could be ordered on certain conditions.  It was not here.  But, of course, its stay ‑ ‑ ‑

GUMMOW J:   I thought you just nailed your case to the mast at page 480 which does not have any conditions on it.

MR DONALDSON:   I am sorry, your Honour, we seek it to be stayed until further ‑ ‑ ‑

GUMMOW J:   If you want a variation of that order you have to specify it.

MR DONALDSON:   We do not have any difficulty with the order of the Full Court, your Honour, that is stayed until further order.  What could happen, your Honour, in the future is that there may be proceedings between the parties to these debts.  Those parties may compromise those matters.

GUMMOW J:   Yes that is right.  I noticed that.  How on earth is that a relevant consideration?

MR DONALDSON:   Well it goes, your Honour, to the ‑ ‑ ‑

GUMMOW J:   That the parties might reach a commercial settlement.  That is true of all litigation.

MR DONALDSON:   The point of that submission, your Honour, deals with my friend’s criticism of the reasoning of Justices Siopis and North where their Honours were suggesting – and this is at page 1466 in volume 4 where there was some criticism of the Full Court’s decision on the basis that their Honours concluded, as one of the factors to be taken into account, that all parties necessary for the final determination of the issues were not before the court.  His Honour did not hear what the position of the putative creditors was in relation to these debts, other than that there was a deal of evidence before the court as to commercial arrangements that the parties were contemplating entering into in relation to the compromise of those two debts.

So, your Honour, in our submissions, we simply contend that when their Honours are there referring to the failure of the trial judge to have regard to that factor it is simply to draw attention to the fact that those entities were not parties to this winding‑up application and their interests were central to it.  That is the point of that submission.

KIEFEL J:   It did not prevent them being witnesses to these proceedings and they were through the appropriate ‑ ‑ ‑

MR DONALDSON:   No, there was nothing to prevent them issuing a statutory demand, your Honour, if they wanted to.

KIEFEL J:   At paragraph 75 of the Full Court’s reasons the re‑exercise of the discretion and the reference to the stay is made.  It is said to be a stay –

pending the determination of proceedings brought by the liquidator of Westpoint Management to determine the extent of the WIF liability.

MR DONALDSON:   That is certainly what is in mind, your Honour, yes.  Can I say, your Honour, that one would expect that as Westpoint Management is in liquidation, the liquidator of Westpoint Management, when it saw this judgment, and subject to, of course, this appeal, would have read it.

GUMMOW J:   When it says “pending the determination of proceedings”, is it referring to proceedings on foot?

MR DONALDSON:   No, there are no proceedings on foot.

GUMMOW J:   It means, pending the institution on determination of proceedings, does it not?

MR DONALDSON:   Yes.  Well, or to be brought.  Nobody contemplates, your Honour, that this will simply go off into the ether and never be resolved, nobody suggests that for one moment.  Could I finally draw your Honours’ attention to the final paragraph of the judgment of this Court in the case of David Grant & Co Pty Ltd v Westpac? My friend, Mr Gageler, referred to it earlier, and that is (1995) 184 CLR 265 at page 279. That was the first case in which this Court considered the then new Part 5.4. The issue in the case had nothing to do with the issues before this Court; the issue there was whether section 1322 of the Corporations Act could be infused into the statutory demand process.

The only reason I refer your Honours to this is for the final paragraph where Justice Gummow refers there to, in effect, a power to stay, other than pursuant to the statutory power under 467, that is that there may be injunctive relief available under the general equity jurisdiction, and your Honour in footnote (31) referred to what is undoubtedly the leading case as to that, which is L & D Audio Acoustics Pty Ltd, which was a judgment of Justice McClelland, and the passage precisely referred to, which is at page 183 of Justice McClelland’s judgment in L & D Audio, is the, as it were, the locus classicus in relation to the power of the Court to stay on the basis of a disputed debt.  So the power exercisable by the Court to not deal with a disputed debt under a winding‑up application is either under 467 or pursuant to that general power.  Your Honour, can I then say to your Honours that under the old – and I will come of course to Part 5.4, but the changes made by 5.4 need to be understood having regard to what went before them and what the changes were.

Your Honours will know that the issue as to the staying or the power as to the staying of a winding‑up application on the basis of a disputed debt prior to the introduction of Part 5.4 arose at different parts or times of the winding‑up process and in response to different issues.  One of the powers exercisable was to grant an injunction to restrain the presentation of a winding‑up petition on the basis of a disputed debt.  Another application was to seek the dismissal of the winding‑up application on the basis of a disputed debt that went to the status of the applicant as a creditor and that was the most usual of these applications, that is, that there was a dispute as to whether the applicant was a creditor and therefore the application was dismissed. 

In addition to that, there was also a power to stay or dismiss the winding‑up up application as an abuse of process.  The abuse of process power had different heads or limbs and in the case of Evans & Tate in the New South Wales Court of Appeal that we have referred to in our written submissions, that was a case ‑ ‑ ‑

GUMMOW J:   What is the citation of that?

MR DONALDSON: That, your Honours, is (2007) 69 NSWLR 374 and the relevant passages, your Honour, is paragraphs 55 through to 57 in Justice Beazley’s judgment on page 387. It is principally, your Honours, paragraphs 56 and 57 where the court there refers to Justice McLelland’s judgment in Re Jeff Reid and Justice McGarvie’s judgment in Fortuna, but they are to make the point, your Honour, that in the event that there is a genuine dispute as to a debt, there is a power in a court to stay it and on the basis that a winding‑up proceeding is an inappropriate forum for that question to be determined.  That was a basis or a limb of the abuse of process jurisdiction or power that was exercisable.  This case, as it happened, that is, the Evans & Tate Case, dealt with really a true case of abuse of process, that is, the contention that the winding‑up application was brought for a collateral or an improper purpose and that, of course, is a power which is available.

Your Honour, that power clearly existed prior to the introduction of Part 5.4.  In our submission, and it is not disputed by ASIC, the only substantial change made to the existence of that power by Part 5.4 of the Act is the introduction of Division 3, that is, that there is now a statutory process to deal with genuine disputes as to debt when they arise in response to a statutory demand.  That, your Honours, is dealt with principally in sections 459G and 459H.  Your Honours realise that when a 21‑day notice is given, the company receiving the 21‑day notice within that time can bring on an application in respect of that 21‑day notice to set it aside and one of the bases upon which it can be set aside, your Honour, is if there is a genuine dispute as to the debt, and that is section 459H(1)(a).

Then just in relation to those statutory demands, your Honour, there is a further power under 459S.  If that application is not brought within the 21‑day period, there is a further power under 459S of the Act which relates to a ground that could have been brought by the company but was not within the 21‑day period and your Honours will see there is a power under 459S(2) dealing with that circumstance.

Your Honour, there is no - and we do not quibble with the contention that the introduction of Division 3 into Part 5.4 gave rise to a substantial change to the powers that courts have when the issue as to a genuine dispute as to a debt arises during the course of a winding‑up.  But, your Honours, that statutory process in 3 is, in our submission, really the totality of the changes that were made.  ASIC does not contend that, in this circumstance, the court did not have a power to stay on the basis that there was a genuine dispute as to these two debts.

As I said earlier, your Honour, the complication in this case, unfortunately, was that the application to stay the matter on the basis of a genuine dispute is that the debt involved precisely the same issues and facts as to solvency and those two matters were dealt with together or conflated.  Your Honours, I have taken your Honours – or referred your Honours to the evidence, and it is dealt with in our written submissions, as to the evidence as to the, as it were, the genuine dispute as to these two debts. 

Could I then, your Honours, take you to the reasoning of the Full Court?  That is in volume 4 of the appeal book.  Their Honours’ criticism of the trial judge, your Honours, really commences at paragraph 60 on page 1465.  Your Honours see there the proposition that it is:

not possible to say it exhaustively the considerations –

that give rise to the exercise of the discretion.  With respect, that is entirely correct.  That is, there are no rules or truncation upon the exercise of the discretion.  Much will depend upon the circumstances of each of these cases.  I have dealt, your Honours, with the reasoning at paragraph 65 in earlier submissions as to the status or as to the position of the liquidator of Westpoint Management.  In our submission, that is the way in which paragraph 65 of their Honour’s judgment is to be understood. 

Second, your Honour, their Honour’s reasoning at paragraph 66 and this is their Honour’s conclusions in relation to the manner in which the trial judge dealt with these two issues.  If one puts to one side as one must this false issue as to section 588F, C, D and E of the Corporations Act, what the trial judge then concluded in relation to the manner in which these two disputed debts were dealt with in the books of account of the two companies, Westpoint Management and Lanepoint, was that they were improper transactions without his Honour explaining, with respect to him, in any way what genus as understood by law that particular verbal formulation is.

What it concealed, the use of a conclusion or a slogan such as an improper transaction, is that what his Honour was, in fact, concluding was that various people, some of whom were before the court and others were not, were involved in a fraud, that is, to divert indebtedness from one entity to another.  That is why their Honours, at paragraph 68, go on to say that a winding‑up application where notice of these sort of matters is not given to either witnesses or parties, is an inappropriate forum for these issues to be dealt with. 

In this case, if your Honours go to the passages in the evidence that I have directed your Honours to, it was never put to Mr Nairn, for instance, that as a director of Westpoint Management in undertaking the inquiry that he did and making the alterations to the books that he did, that he was involved in fraud.  It was never put to him or that he was clearly breaching the fiduciary duty which he owed as a director of Westpoint Management.  None of these issues was squarely put to him or to any of the other witnesses who were cross‑examined by ASIC in these proceedings.  With respect, it is why the Full Court is entirely correct to have concluded on this basis that a winding‑up application where there are no pleadings, there are no express allegations seemingly made, is a most inappropriate forum to be dealing with these particular allegations in this particular matter. 

As we have said, your Honours, and has my friend, Mr Gageler, has conceded, their Honours at paragraphs 69 and 70 also deal there with the trial judge’s error in relation to 588F of the Corporations Act.  The other consideration – again your Honours for the purposes of completeness – that their Honours took into account is at paragraph 73 on page 1468 where their Honours considered that the fact that Lanepoint was not actually trading and that this indebtedness is really the only matter to be resolved, was relevant – that Lanepoint was not trading was relevant to the exercise of discretion.

Your Honours, understood in that way, this is simply a case where the Full Court has found error in the exercise of an undoubted discretion by the trial judge.  They have re‑exercised that discretion.  In our respectful submission, no error has been shown in the manner in which the Full Court went about the exercise of their discretion, particularly, if I might say, having regard to the nature of the allegations that were made, that is, of clear breaches of statutory and other fiduciary duties and, indeed, of fraud.  There the Full Court in the exercise of its discretion was, your Honours, with respect, entirely correct in ordering the determination of those two debts be stayed and be dealt with in other proceedings.

BELL J:   Can I just take up one matter with you.  In the event that consideration were to be given to a remitter, Justices Siopis and North at paragraph 35 of their reasons on 1458 describe ground 4 as being “the primary ground”.  As I understand it, all three judges were agreed that the motion to amend the notice of appeal so as to rely on ground 7 should be dismissed.  I rather took the Solicitor’s submissions to be that having regard to the contents of Justice Buchanan’s judgment, it was his understanding that the only ground pressed on the hearing of the appeal had been ground 4.  I appreciate you were not there, Mr Donaldson, but that is in issue, is it, in the way the matter was, in fact, conducted before the court?

MR DONALDSON:   Your Honour, I will check it because the counsel who argued the appeal before the Full Court is at the back of the Court and I will check it, your Honour.  But it was my ‑ ‑ ‑

GUMMOW J:   It has to be checked by reference to – were there written submissions – the transcript? 

MR DONALDSON:   Quite so.  I was not going to pass on, your Honour – it was just an anecdote.

GUMMOW J:   It is not a question of recollection.

MR DONALDSON:   I will have to send a note to your Honour in relation to that, but, for what it is worth, your Honour, my understanding has always been that the other grounds were pressed, although, as it happened on the day, principal attention was directed to ground 4.  Your Honour, it is likely that that was the case, one would expect, because there is, as I say, a certain overlap between the other grounds other than ground 1 in the notice of appeal.

BELL J:   Yes.

MR DONALDSON:   But as Justice Kiefel has indicated earlier, it is really the submissions that were put or proposed to be put in relation to ground 1 that give rise to the issue as to whether the matter will be remitted.

KIEFEL J:   If you are doing a note on the other matter, you might like to address that.

MR DONALDSON:   I was going to do that as well, your Honour.  I was going to say before Justice Bell asked her Honour’s question that we will have to send your Honour a note in relation to that.

GUMMOW J:   Send it to the Court, I would hope?

MR DONALDSON:   Of course, your Honour.

GUMMOW J:   Now, what is this note going to deal with specifically?

MR DONALDSON:   It is going to deal, your Honour, specifically with whether ground 1 of the notice of appeal, which commences at 1444 of the appeal book, was pressed before the court and whether the grounds appear first.  Second, whether the other grounds of appeal, other than ground 7, were pressed and, third, what submissions were put in relation to ground 1.

KIEFEL J:   You might also deal with the question of its relevance to any question of remitter by this Court, because it is a matter that needs mainly to be addressed.

MR DONALDSON:   Yes.  I was proceeding on the basis that the answer to the third of those would deal with that issue as well. 

KIEFEL J:   Not necessarily.  It might be a question of substance involving the remitter.

MR DONALDSON:   I will make sure that it certainly does deal with it, your Honour.

KIEFEL J:   Thank you.

GUMMOW J:   How long do you need to do that?

MR DONALDSON:   That can be done by the end of the week, your Honour.  Is there any further question?

GUMMOW J:   Yes, Mr Solicitor.

MR GAGELER:   Your Honours, the only thing I wanted to say by way of reply will probably be overtaken by the note to be provided to the Court, but can I say it briefly anyway?

GUMMOW J:   Do you know whether the transcript was kept of the argument in the Full Court?

MR GAGELER:   Yes, and also we have the written submissions.

GUMMOW J:   That should make it pretty clear pretty quickly.

MR GAGELER:   It is an unedifying experience I am afraid, reading through it.

GUMMOW J:   Well, we are used to that.

MR GAGELER:   If you look at the notice of appeal at page 1444, this really had been pointed out.  Ground 7 was sought to be added and leave was refused, so that goes.  Grounds 2, 3, 5 and 6 in their very drafting appear to be variations of ground 4.  That leaves ground 1.  Ground 1(b) goes to the tax liability issue which is neither here nor there.  Insolvency did not turn on that.  That leaves ground 1(a).  Ground 1(a), in the written submissions to the Full Court, was lumped together with ground 6, that is it appears not to have been dealt with separately at all. 

If you ignore that and just look to the affidavits that are referred to, those affidavits are in the appeal book, volume 4 – I will just give your Honours the references – at pages 1257, 1272 and 1330, and what they are all concerned with, you could probably infer this by reference to the dates that are mentioned in ground 1(a), they are all concerned with the possibility that after the four‑day hearing that occurred before Justice Buchanan ‑ ‑ ‑

GUMMOW J:   Sorry, say that again, that ‑ ‑ ‑

MR GAGELER:   I am sorry, after the four‑day hearing before Justice Gilmour in March 2008, it was being pressed upon his Honour that there was still a possibility of a compromise being reached between Lanepoint and the liquidator of Westpoint Management, and that is what these affidavits go to, the possibility of a compromise being reached over this $6.6 million debt.  That is something that is addressed in Justice Buchanan’s judgment at page 1474, where he says in paragraph 99 that:

The proposition at the heart of Lanepoint’s case at the trial, and on the appeal, was that there was a “genuine dispute” about the amount of the debt –

Now, that is ground 4 and all of the variations of ground 4, but he goes on, and this appears in paragraph 100, to be the most that you could extract separately out of ground 1(a):

A related argument for Lanepoint was that the liquidator might also, in due course, decide to accept some lesser amount as a pragmatic commercial settlement ‑

That is what his Honour then deals with in paragraphs 100 to 101.  If there were anything outstanding once ground 4 was dealt with, it would be that hope, rather than expectation that was the subject matter of ground 1, in our submission, appropriately dealt with by Justice Buchanan.  There is nothing in it, nothing to warrant remitter to the Full Court, but in any event, we do maintain that if a case for remitter is to be mounted before this Court there really should be compliance with rule 42.08.5, that is, it should be the subject of a notice of contention.  If the Court pleases.

GUMMOW J:   That would need leave at this stage, would it?

MR GAGELER:   It would need leave at this stage.

GUMMOW J:   And would you oppose that leave?

MR GAGELER:   Yes, we do.

GUMMOW J:   On what ground?  It is best we get it on the table now.

MR GAGELER:   Just procedural regularity, it is just too late.  I mean, it is too late.  I am not sure if it was this point or another point, but we said, if issues are to be raised in this Court that should be done by notice of contention.  We said that in our submissions in reply at paragraph 6, but we would also say, in any event, your Honours ‑ ‑ ‑

GUMMOW J:   Anyhow, there does not seem to be any evidence of any prospect of any pragmatic commercial settlement.

MR GAGELER:   No, that is right.

GUMMOW J:   We would have heard about it by now.

MR GAGELER:   There is nothing in the point.  If the Court pleases.

CRENNAN J:   May I just ask you this?  Do you say anything about the complaint made that it was never put to Mr Nairn that he was guilty of fraud or breach of fiduciary duty?  What do you ‑ ‑ ‑

MR GAGELER:   Is this a procedural fairness ground that was not pursued before the Full Court.  I mean, our learned friend, skilfully tries to read paragraph 68 of the majority judgment in the Full Court as a finding of want of procedural fairness.  There is no finding of want of procedural fairness in that paragraph.  What the Full Court is saying is that the appropriate course would have been to have the third parties, Mr Nairn and others, joined in some way in appropriate proceedings.  That is all they are saying, but so far as the want of procedural fairness is concerned, so far as that might be now put as some independent argument and allowed to be pressed, we would say that the liquidator’s affidavit quite clearly identified the issues well in advance of the trial.  There was no doubt about these two transactions being labelled from the beginning as mere book entries done ‑ ‑ ‑

CRENNAN J:   They get back to the onus in relation to the presumption of insolvency.

MR GAGELER:   Exactly.  They presented arguments and they were cross‑examined.  There was no want of procedural fairness in the way in which the case was conducted.  They presented arguments, I am sorry, and they were in a position to call whatever evidence they chose to call.  If the Court pleases.

GUMMOW J:   Thank you.  Within seven days the respondent will file and serve any further submissions dealing with the matters raised at the conclusion of argument this morning, together with any proposed notice of contention for which leave would be sought to file it out of time, and within seven days thereafter the appellant will file and serve its response to those submissions and application it made for the notice of contention.  The Court will consider its decision in this matter, and we will adjourn until 9.45 am tomorrow.

AT 12.17 PM THE MATTER WAS ADJOURNED