Battenberg v Union Club

[2006] HCATrans 621

[2006] HCATrans 621

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S222 of 2006

B e t w e e n -

LORD ANDREW CHARLES ROBERT BATTENBERG

Applicant

and

UNION CLUB

Respondent

Application for special leave to appeal

GUMMOW J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 NOVEMBER 2006, AT 12.10 PM

Copyright in the High Court of Australia

MR M.R. ALDRIDGE, SC:   I appear for the applicant, may it please your Honours.  (instructed by Russo and Partners)

MR S.J. GAGELER, SC:   If the Court pleases, I appear with MR R.C. SCRUBY for the respondent.  (instructed by Minter Ellison)

GUMMOW J:   Yes, Mr Aldridge.

MR ALDRIDGE:   Your Honours, this application and any subsequent appeal ultimately concerns the construction and meaning of a clause of the respondent’s Articles which are set out at page 123, for example, of the application book.  The critical phrase of article 16(b) is a phrase “if he becomes a bankrupt”.

GUMMOW J:   No, the crucial words are “shall cease”.

MR ALDRIDGE:   Yes, “shall cease . . . if he becomes a bankrupt”.

GUMMOW J:   Yes.

MR ALDRIDGE:   The question that arises is whether a subsequent annulment of that bankruptcy destroys as a legal fiction of the historical fact of bankruptcy so it can be said that the clause has never operated.

GUMMOW J:   No.  Whether it means that he never ceased within the words of the article.

MR ALDRIDGE:   Yes. he never ceased because the ‑ ‑ ‑

GUMMOW J:   What is the situation in the mean time?

MR ALDRIDGE:   Because it is a legal fiction, your Honour, the situation is he ceased to be a member until the bankruptcy was annulled, at which time he had never ceased to be a member.

GUMMOW J:   Why would you construe a rule like that?  The rule, I would have thought, in these sort of private arrangements like clubs is designed to avoid a situation where club members are required to associate with colleagues who they might not wish to associate with because they have got the stigma of bankruptcy.

MR ALDRIDGE:   That is what the majority in the Court of Appeal found, your Honours, but annulment of a bankruptcy can come about for many reasons.  One of the reasons an annulment of a bankruptcy can come about is if the Federal Court is satisfied that a person should never have become a bankrupt, that is, for some reason the bankruptcy was wrongfully ‑ ‑ ‑

CALLINAN J:   Those are no doubt matters that the committee would consider on an application to rejoin after the annulment, the circumstances of the annulment.

MR ALDRIDGE:   Indeed, they could, your Honour.

CALLINAN J:   That is the practical answer:  to make an application when it is annulled to rejoin.

MR ALDRIDGE:   I accept, your Honours, that in the context of this particular association, observations of that have some force, but our submission is these are common phrases.  As Justice Campbell identified in his judgment, this phrase is commonly used in statutes as to when people cease to hold office.  It is commonly used in contracts other than in contracts in relation to social clubs, such as commonly, for example, mortgages and building contracts, where those sort of considerations do not apply, which is why – the submission is we say that this becomes a special leave case, not so much because of the factual context in which this case arises, but because of the widespread consequences of a phrase of this nature where those sort of considerations might not so be readily available. 

So if your Honours take the view that this is confined to a dispute as to the rules of a private club, then I can see why we might face some difficulty in getting leave.  We submit that the issue is a wider one than that.  There are wider consequences. 

The Club and the members, to the extent they had any control over the rules, deliberately decided in article 16 to use words from the Bankruptcy Act.  They chose the phrase “becomes a bankrupt or enters into a deed of assignment, a composition or scheme of arrangement under Part X” deliberately.  They could have included “enters into a composition under section 74”, which would have covered the present case, but did not.

GUMMOW J:   The significance is the words “shall cease” and “becomes”.  It is ipso facto and eo instanti.

MR ALDRIDGE:   Yes, your Honour, but the submission we put that Justices Campbell and Bryson accepted is that at the time the Club sought to invoke this rule was after the annulment so that the Club – and nobody could say that he had become a bankrupt because the bankruptcy had been annulled.  It had, as a matter of legal fiction, never occurred.  So there was nothing on which the rule could operate at the time ‑ ‑ ‑

GUMMOW J:   That goes to questions of discovery and concealment, I suppose, which we do not have to get into.

MR ALDRIDGE:   No, your Honour.  There is no doubt the evidence was that the Club found out about the bankruptcy after its annulment.  It still waited some five months or so before it acted, but alternatively there was no suggestion that there was a deliberate concealment either.  So that issue was not an issue that was run in the proceedings.  Of course, it was taken into account as a notional fact in what was preferred to be – as to identifying the preferred interpretation of the statute by Justice Santow that there could be a possibility for that ‑ ‑ ‑

GUMMOW J:   The remedy for your client when this was disclosed, as Justice Callinan puts to you, is to reapply.

MR ALDRIDGE:   Yes, in the circumstances which are probably not canvassed in the judgments, but that is something that was never going to happen in this particular case for other reasons.  There have been – I will not go into it – other proceedings between the parties for other reasons.  The problem, we would submit, can be identified by what Justice Santow said at a number of pages through his Honour’s judgment where he referred to the fact the annulment would reinstate the membership.  We submit that it is not a case of reinstating the membership.  The case is that the membership never ceased.  It is a legal fiction, it is artificial – we accept both those things – but the legal fiction is that the bankruptcy had never occurred, therefore, the clause could never have operated, therefore, there is not a reinstatement of membership.  There never was a cessation of membership. 

To look at it as a reinstatement case is, in our submission, respectfully, to miss the point of the argument.  The point of the argument is that the clause never operated because the condition that triggered the clause is taken as a matter of law never to have occurred.  That would be so even on the interpretation favoured by Justice Santow where he added the words “whether or annulled or not”.  We would say it had already become superfluous because if the bankruptcy is never taken to have occurred, the clause is never triggered whatever the words added on the end are.

GUMMOW J:   There is a further question.  Why would we engage ourselves in construing the Articles of this private club?

MR ALDRIDGE:   Of itself, not, your Honour.  Your Honours would because it is a clause that is widely used in contracts and statutes all around Australia.  That is the special leave issue, not the private club issue, your Honour.  Justice Campbell set out in his judgment at page 20 of the book a number of non‑federal statutes.  For example, at line 20 his Honour referred to the Partnership Act, then the Powers of Attorney Act, later the Aboriginal Housing Act, the Administrative Decisions Tribunal Act ‑ ‑ ‑

GUMMOW J:   The phrase may take all sorts of colour in its context.

MR ALDRIDGE:   Yes, it might, your Honour, but we would say that “becomes a bankrupt” is a common phrase in mortgages, it is a common phrase in building contracts which give rise to acts of default or rights of ‑ ‑ ‑

GUMMOW J:   It has to be linked to “shall cease to be a member”.

MR ALDRIDGE:   Again, your Honour, the “shall cease” is linked to “becomes a bankrupt”.  If one never becomes a bankrupt, one never ceases. 

CALLINAN J:   But you have to look at the object and purposes of all the rules.  As Justice Gummow has really just said, that colours the object and purpose.  The setting colour the construction to be given to be the rules and that language in any particular case.  They are not going to get a common rule in relation to those words stated by the Court.

MR ALDRIDGE:   But, your Honour, this is an issue that four judges in the Supreme Court canvassed, four experienced commercial and equity judges.  They split evenly on the issue and essentially they split along ‑ ‑ ‑

GUMMOW J:   I think they were induced by you to scan the world from China to Peru, as Lord Justice Harman said on one occasion.  In fact, it was really very much a micro issue focused on this particular provision.

MR ALDRIDGE:   Yes.  Well, it is a particular provision but it shows a wider issue and raises the issue of what the effect of annulment is.  As their Honours went through the authorities, there is a strong body of law in Australia now that suggests that annulment operates retrospectively to destroy the fact of bankruptcy itself.  If it does that, we say it does that for all purposes and a clause in a contract that requires of the fact of bankruptcy as its triggering event is covered by that law, and this is such a clause and there are many other such clauses that so exist. 

The argument in favour of the respondent, we submit, your Honours, is really drawn by the consequences of the result, but why in other cases, other than this one, such as where a bankruptcy order is wrongfully involved, should it be that a person is not reinstated to their previous rights in every way?  That is what we submit the intention was with the legislature in choosing the word “annulment”, not just for the purpose of the Bankruptcy Act but for all purposes, and this is one such purpose.  Those are our submissions, may it please the Court.

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

The construction given to the provision of the respondent’s Articles which is in question here by the New South Wales Court of Appeal was correct, having regard to the nature of the setting in which the provision is made.  Accordingly, special leave is refused with costs.

AT 12.22 PM THE MATTER WAS CONCLUDED