Barnet & Ors v Fortress Credit Corporation (Australia) Ii Pty Limited; Fletcher & Ors v Fortress Credit Corporation (Australia) Ii Pty Limited

[2012] HCATrans 33

[2012] HCATrans 033

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S270 of 2011

B e t w e e n -

KATHERINE ELIZABETH BARNET AND WILLIAM JOHN FLETCHER

First Applicant

OCTAVIAR LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 107 863 436

Second Applicant

OCTAVIAR ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 101 069 390

Third Applicant

and

FORTRESS CREDIT CORPORATION (AUSTRALIA) II PTY LIMITED

Respondent

Office of the Registry
  Sydney  No S271 of 2011

B e t w e e n -

WILLIAM JOHN FLETCHER AND KATHERINE ELIZABETH BARNET

First Applicant

OCTAVIAR LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 107 863 436

Second Applicant

OCTAVIAR ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 101 069 390

Third Applicant

and

FORTRESS CREDIT CORPORATION (AUSTRALIA) II PTY LIMITED

Respondent

Applications for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 FEBRUARY 2012, AT 11.57 AM

Copyright in the High Court of Australia

__________________

MR B.A.J. COLES, QC:   In these applications, if your Honours please, I appear with MS J.K. TAYLOR for the applicants.  (instructed by Henry Davis York Lawyers)

MR N.C. HUTLEY, SC:   May it please the Court, I appear with my learned friend, MR C.N. BOVA, for the respondent.  (instructed by Baker & McKenzie Solicitors)

GUMMOW J:   Yes, Mr Coles.

MR COLES:   If your Honours please, these applications, it is contended, raise matters of some substantial concern on the question of the proper course to be observed in the Federal Court’s exercise of its jurisdiction under section 24 of the Federal Court Act both generally and in the particular context of proceedings under the Corporations Act, especially those proceedings under that Act which are ordinarily carried out in the absence of any other person or, in effect, on ex parte basis.

As your Honours will have seen, the liquidators in each case made application to Justice Stone for approvals under section 477(2B) of agreements necessitated because their performance would extend the duration provided for by that Act, and without court approval they might not make such agreements, and secondly, they applied for directions under section 479(3) of the Act. 

Section 24, of course, of the Federal Court Act confers jurisdiction on the Federal Court to hear and determine appeals from single judges and Fortress, the respondent, of course was not a party.  Indeed, its contention is it could not have been made a party in the proceedings before the first instance judge and being a person who was not a party, and we add, might not properly have been made a party.  It of course had no obvious plain or automatic right to engage the court’s jurisdiction under section 24 of the Federal Court Act.

HAYNE J:   You say that Fortress was neither necessary nor proper?

MR COLES:   Yes, we do.  Section 24, of course, of the Federal Court Act does not identify who may be the range of appellants to take advantage of the jurisdiction which it confers.  However, in the case of a non‑party who seeks to bring an appeal there must be some proper basis for engaging the court’s jurisdiction and cases in the past have established that before at least anybody can come forward and engage the court’s jurisdiction under that section there must be some controls lest anybody asserting whatever degree of interest or curiosity might step forward.

One of the controls which we contend must be necessary, either generally and certainly in the specific context of the proceedings before her Honour, is a requirement that a person who seeks to persuade the court to grant it leave to be heard as an appellant must demonstrate some immediate right, duty or liability to generate the court’s willingness to receive submissions on the matter. 

Whilst, of course, the grant of leave to bring an appeal under section 24 is discretionary and may involve a broad range of flexibly applicable considerations, we contend that one aspect or one feature of the process of entertaining an application for leave to appeal that is not discretionary and is not simply part of a broad ranging collection of miscellaneous matters which may be taken into account is a central core requirement that the applicant for leave to appeal must demonstrate some immediate right, duty or liability affecting it.

The recognition of whether or not, we next contend, such a duty, right or liability applies to a person seeking to appeal from a decision or decisions of the kind made by Justice Stone would ordinarily, we respectfully suggest, and would in most cases where the subject matter of the proceedings at first instance arises under a statutory jurisdiction, ordinarily the considerations which would be indicative of the existence of what we contend is the essential requirement of a right, duty or liability be found in the provisions of the particular statute itself, in this case in the provisions of the Corporations Act.

This requirement for a sufficient interest, in our respectful submission, is not merely a matter of weighing in the scale of other matters as on the best discretionary collection of features as perhaps appears to have been the case if your Honours, for example, look at the miscellany of matters, I think there are five points listed in bullet point form in paragraph 50 of the Full Court’s judgment to which I will return.  Our first complaint under this aspect of the matter, your Honours, is the ‑ ‑ ‑

GUMMOW J:   Just looking at Mr Hutley’s submissions at page 115, that is an extract from the Full Court.

MR COLES:   If your Honour is looking at paragraph 24 on that page, your Honour, your Honours will find that in paragraph 34 of the Full Court’s judgment at the application book page 47, what is clear from that, in our respectful submission, and you pick this up particularly in the last sentence on page 48, the last sentence in the same paragraph, what is clear, in our respectful submission, is that the Full Court was recording in that whole paragraph 34 what was Fortress’ contention and you will not find in a judgment, in our respectful submission, an acceptance of that contention. 

Rather, if you go back to the second bullet point in paragraph 50 on page 53, there is simply included in the catalogue of matters which are said to generate an affirmative conclusion in favour of leave to appeal that:

Fortress is a secured creditor of the claimant –

that is to say the party that is going to sue it and is going to borrow funds for that purpose.  They say:

its interests in that regard could be affected by the expenditure of the funds of the Funder under the Funding Agreement.

In our respectful submission, that does not satisfy – there are two vices with it - really, they mean the same thing.  It does not satisfy what we contend should be the precisely identified immediate right, duty or liability which Fortress can say it is affected by. 

Rather, it really demonstrates no more than an indirect commercial or economic dissatisfaction, potentially, with the possible outcome inasmuch as the company over which it is a secured creditor will have entitlements over the next company – the company which is described as the funder and the value of the entitlements available to Fortress as a secured creditor of the claimant company may wax or wane amongst a myriad of other possibilities on the level of dividends, if any, available to be paid by the funder company to the claimant company and if, which is contentious, the charge which Fortress enjoys is valid, then something may pass through as a result of that. 

GUMMOW J:   That is a result of a legal relationship between the parties.  You do not just brandish the word “commercial” as something extraneous to ‑ ‑ ‑

MR COLES:   No, it is a result of a legal relationship between Fortress and the claimant company but Fortress is not, of course, a creditor of the funding company.  That is the point really.  It has no interest in the assets or liabilities or in the administration of the affairs of the funder company.  Its argument and, indeed, its interest is limited to that as creditor or and secured creditor, if its security is any good, in what is described in their Honour’s judgment as the claimant company. 

To summarise where I had been proceeding, your Honour, we complain or wish to argue that that economic interest – well, firstly, their Honours did not really identify what we say is the requisite interest.  They posited in the second bullet point passage I have referred the possibility of one but that seems to be, on our respectful contention, no more than the recognition of a potential economic impact rather than the careful description of the relevant sufficient legal interest to amount to the threshold requirement which must, of course, in our submission, be an anterior conclusion reached ahead of the consideration of any of the broader discretionary circumstances.  Indeed, after all, one determines question of standing anterior to or before one determines the merits and other discretionary features of what it is the applicant wishes to agitate.

We say, your Honours, that section 24 plainly does not confer a general discretion to hear appeals from non‑parties against orders given in proceedings for approvals and directions under the Corporations Act, particularly of the kind in question here.  The Full Court’s decision does appear to accept that the assertion of a potential economic outcome amounts to a sufficient interest to be taken into account amongst the raft of discretionary considerations referred to rather than isolate that as the anterior and, in effect, irreducible core requirement for the identification of a sufficient legal grievance. 

The effect, therefore, of the Federal Court Act provision – the effect of the Court’s decision, really, is that section 24 has been used or is available to confer standing by means of an appeal even if there had been no standing or no right to insist on being heard at first instance.  We have given your Honours some references to a New South Wales Court of Appeal decision, Deloughery, which your Honours will find behind tab 4 of the materials that are supplied. 

The paragraphs to which we referred in our written submissions, specifically paragraphs [33] and [36], tend to lend support to the proposition - indeed, perhaps if I read to your Honours shortly paragraph [33] of the Court of Appeal’s observation.  To make this clear, this is Deloughery v Weston (2010) 79 ACSR 180. At paragraph [33] of their reasons, the Court of Appeal recorded with, in our submission, apparent approval what Justice Barrett had said at first instance in relation to the position:

members of a committee of inspection and individual creditors [do] not occupy any position attracting the protection of the principles of procedural fairness associated with Cameron v Cole –

and some other cases:

They were not, in the context of the liquidator’s application for section 477(2B) approval and related guidance, persons against whom “a claim or charge is made” (to use the language of Rich J ‑ ‑ ‑

GUMMOW J:   Just tell me, Mr Coles, what was the particular matter arising under the federal law?

MR COLES:   Section 477(2B) approval Corporations Act and 479(3) directions.

GUMMOW J:   You say that Mr Hutley’s client was a stranger to that controversy in the sense that it could not thereafter be made a party.

MR COLES:   That is the first thing we say.  The second thing is though ‑ ‑ ‑

GUMMOW J:   You firstly have to identify the ambit of the matter in the federal jurisdiction.

MR COLES:   Absolutely.  We have made that observation, in effect, in our submissions in reply.  The second point ‑ ‑ ‑

GUMMOW J:   Just a minute.  In that identification, the course of authority in the Court does not take, one might say, a narrow view.  It tends to focus on practical realities to some degree.

MR COLES:   Yes, indeed.  In our respectful submission, the proposition we suggest is well supported is that one needs more than just what we have described as a concern that any member of the public might air or some complaint about potential interference with ultimate economic outcomes.  A passage in the ‑ ‑ ‑

HAYNE J:   If the orders stand, that is, if the orders made at first instance stand, Fortress as a secured creditor of OCV may see the value of property subject to its security eroded, may it not?

MR COLES:   It may see the value of the assets over which it has security ‑ ‑ ‑

HAYNE J:   Has security.

MR COLES:   Yes – well, less valuable, I suppose, in any event, yes.

HAYNE J:   Yes, because there is a receivable due from the company that can be called OA to OCV.

MR COLES:   Yes.  The fate of that ‑ ‑ ‑

HAYNE J:   Well, why is that not enough?

MR COLES:   Well, that receivable is not, in our respectful submission, in effect, what one might describe as an earmarked or appropriated asset.

HAYNE J:   No, but neither of these entities is in a position to pay 100 cents in the dollar, is it?

MR COLES:   That is right.  So what we say about that, your Honour – of course, at the risk of perhaps some repetition, or the proposition we would seek to make good, is that when you are a claimant in an insolvent company, of course, and that insolvent company in turn has claims against another insolvent company, which is upon the respective fates of all of which the value ultimately a Fortress’s charge will depend, then it does not matter how far down the track one has to trace the process.

One is at the end of the day really subject simply to the processes which the winding‑up administration dictates, that is to say, proofs of debt must be received, adjudicated, dividends must be paid, in the meantime various other recovery actions instituted and defensive actions proceeded with, at the end of all of which there may or may not depending on the fortunes of administration and the like and not to mention the other priority claims, there may be a particular dividend available directly or indirectly, here indirectly, from a particular source.

In that sense, the company that is a debtor to Fortress’ secured creditor may or may not be insolvent.  Even if it were solvent no one would be suggesting that they had had any particular interest or entitlement to take steps in relation to its assets, so that is why we ascribe, your Honour, if we are correct in doing so, the particular interest firstly is not identified at all satisfactorily by the Full Court, but secondly to the extent that they noted it as being no more than an economic one when we emphasise they should have found a proper legal grievance.

I will mention shortly, your Honours, by way of description in the light of your Honour Justice Gummow’s references to the – I see the light – paragraph 17 of what the Full Court said in Australian Industry Group is in point, particularly the reference Justice Hayne suggested.  The last point I wanted to emphasise, and I am conscious of the about to expire time, your Honours, is of course the importance of recognising the Corporations Act itself has its own elaborate mechanisms for reviewing the conduct of liquidators; we have drawn attention to many of them in our submissions.

Of particular importance, for example, is section 477(6) which confines, in our submission, on its proper construction, the task of – or the jurisdiction to review liquidator’s powers, of exercise of the powers and the like, to in effect that class of persons who are interested in the winding‑up – creditors, ASIC and the like – but certainly not non‑creditors.  Of course,

that is our very complaint; Fortress is not a creditor of the funder and has no right to be dictating to the administrators or liquidators how to proceed.

The use, in short, of section 24 appeal mechanism bypassing the 477(6) process, bypassing as Fortress no doubt felt it should, the 1321 process whereby you need to show you are aggrieved before you can challenge a decision of a liquidator, and that usually means by reason of some connection between yourself and the winding‑up, the 536 proceeding which is an inquiry in relation to ‑ ‑ ‑

GUMMOW J:   Well, “aggrieved” is not a particularly narrow term either.

MR COLES:   No, but it has a rather special particular and well‑evolved content in the context of that particular section.  “Aggrieved”, of course, will take its meaning whenever it is used in a statute from the context and the like of the statute itself.  It has a very specialised meaning – well, I should say more accurately, a well‑evolved meaning, and it has a well‑developed set of procedural principles attending its administration which is simply bypassed, if one can use section 24 in the way that happened here.  I just in effect leapfrogged the entire Corporations Act procedures, come in as it were out of the cold from a proceeding you were never entitled to participate in and say, “Well, I could not do it originally but I want to do it as an appellant.  Please give me leave because I have got a good point”.

This, in our respectful submission, is a highly contestable state of affairs and has the implications which our submissions point to so far as administration of liquidations generally and may justify your Honours’ consideration for special leave because of those wider implications in addition to the matters we have put in our written submissions.  I see the time, if your Honours please.

GUMMOW J:   Thank you.  We do not need to call on you, Mr Hutley. 

We see no prospect in the demonstration of error by the Full Court of the Federal Court in this matter.  Accordingly, special leave is refused with costs. 

We will adjourn to reconstitute.

AT 12.20 PM THE MATTER WAS CONCLUDED