Battenberg v Union Club - [2005] NSWSC 242

No judgment structure available for this case.

Reported Decision:
53 ACSR 263

New South Wales

Supreme Court

CITATION:
Battenberg v Union Club [2005] NSWSC 242
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 7 March 2005

JUDGMENT DATE :

30 March 2005

JURISDICTION:
Equity

JUDGMENT OF:
Campbell J

DECISION:
Annulment has the effect that member still a member

CATCHWORDS:
CORPORATIONS - membership - Articles of Association say member shall cease to be a member if he becomes bankrupt - sequestration order made against member - bankruptcy later annulled - whether member still a member - BANKRUPTCY - discharge of bankrupt and annulment of sequestration order - annulment pursuant to section 74 Bankruptcy Act - effect of annulment on bankrupt's membership of corporation which has Article saying a member ceases to be a member if he becomes bankrupt - JUDGMENTS AND ORDERS - setting aside - effect of setting aside considered generally - effect of setting aside sequestration order by statutory provision for annulment on operation of clause in corporation's Articles that member ceases to be a member if he becomes bankrupt

LEGISLATION CITED:
Aboriginal Housing Act 1998
Aboriginal Land Rights Act 1983
Administrative Decisions Tribunal Act 1997
Bankruptcy Act 1966 (Cth)
Companies Act 1961 (Q)
Conveyancers Licensing Act 2003
Corporations Act 2001 (Cth)
Funeral Funds Act 1979
Government Railways Act 1912
Income Tax Assessment Act 1936 (Cth)
Inheritance (Family Provision) Act 1938 (UK)
Justices of the Peace Act 2002
Partnership Act 1982
Powers of Attorney Act 1993
Western Lands Act 1901

CASES CITED:
Re Baysington Pty Ltd (1987) 12 ACLR 412
In Re The Bodega Company, Limited [1904] 1 Ch 276
Bond v Rozenes (1996) 134 ALR 583
Re Bond; Ex parte Ramsay (1992) 92 ATC 4807; (1992) 25 ATR 61
Caboche v Ramsay (1993) 119 ALR 215; (1993) 93 ATC 5135; (1993) 27 ATR 479
In Re Carew [1896] 2 Ch 311
The Commissioner for Railways (New South Wales) v Cavanough (1935) 53 CLR 220
The Commonwealth v McCormack (1984) 155 CLR 273
Coyle v Cassimatis (Supreme Court of Queensland, Court of Appeal, 1 November 1993, unreported)
In re D'Altroy's Will Trusts [1968] 1 WLR 120
In re Dewhirst; Flower v Dewhirst [1948] Ch 198
Director of Public Prosecutions v Ashley [1955] Crim LR 565
Dodworth v Dale [1936] 2 KB 503
In re Eaves; Eaves v Eaves [1939] Ch 1000
In re Eaves; Eaves v Eaves [1940] Ch 109
Re Fitzgerald; ex parte Fitzgerald (1988) 99 ALR 189
In re Forder [1927] 2 Ch 291
Re French Caledonia Travel [2003] NSWSC 1008
Grady v The Commonwealth for Railways (NSW) (1935) 53 CLR 229
Guss v Johnstone (2000) 74 ALJR 884
Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378
Re Hayes; ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216
Re Hudson; Ex parte ANZ Banking Group Ltd v Bird (1994) 50 FCR 281
King v Henderson [1898] AC 720
Lynch v Hargrave [1971] VR 99
McIntosh v Lobel (1993) 30 NSWLR 441
Meerkin & Apel v Rossett Pty Ltd (No 2) [1999] 2 VR 31
Metcalfe v Metcalfe [1891] 3 Ch 1
National Australia Bank Ltd and Others v Bond Brewing Holdings Ltd and Others [1991] 1 VR 386
Re Oates; ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402; (1987) 88 ATC 4038
Oates v Commissioner of Taxation (1990) 27 FCR 289
Permanent Trustee Co Ltd v Cormack (1920) 21 SR (NSW) 1
Production Spray Painting & Panel Beating Pty Ltd & Ors v Newnham & Others (No.2) (1992) 27 NSWLR 659
R v Lapuse [1964] VR 43
Rainsford v the Trustee of the Salisbury Club (1914) SR 65
Rainsford, Appellant v Trustees of the Salisbury Club, Respondents (1914) App D 499 (S Africa)
Rimanic v Business Licensing Authority [2002] VSCA 64
In re Rodwell, decd; Midgley v Rumbold [1970] 1 Ch 726
Salter v NCSC [1989] WAR 296
Santos Ltd v Pettingell (1979) 4 ACLR 110
In Re Scientific Investment Pension Plan Trusts [1999] Ch 53
Simon v HPM Industries Pty Ltd (1989) 15 ACLR 427
In Re Smith [1916] 1 Ch 369
Stanham v National Trust of Australia (NSW) (1989) 15 ACLR 87
Theissbacher v MacGregor Garrick & Co (1993) 2 QdR 223
Torsir Pty Ltd v Maxgrow Developments Pty Ltd (No 2) (1995) 7 BPR 14,392
Vella; Ex parte Seymour (1983) 67 FLR 287
John Vouris Re; Epromotions Australia Pty Ltd and Relectronic-Remech Pty Ltd (In Liq) [2003] NSWSC 702; (2003) 47 ACSR 155
In re Weibking; ex parte Ward [1902] 1 KB 713
White v Tomasel [2004] QCA 89
Wilde v Australian Trade Equipment Pty Co Limited (1981) 145 CLR 590
In re Wombwell's Settlement [1922] 2 Ch 298
Worrell v Westpac Banking Corporation (1994) 51 FCR 304

PARTIES:
Lord Andrew Charles Robert Battenberg - Plaintiff
Union Club - Defendant

FILE NUMBER(S):
SC 2448/04

COUNSEL:
M R Aldridge SC; J R Dupree - Plaintiff
T F Bathurst QC; M J Darke - Defendant

SOLICITORS:
Russo and Partners - Plaintiff
Minter Ellison - Defendant

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

30 MARCH 2005

2448/04 LORD ANDREW CHARLES ROBERT BATTENBERG v UNION CLUB

JUDGMENT

HIS HONOUR:

Nature of the Case

1 This case concerns the operation of a provision in the Constitution of a corporation whereby a member ceases to be a member if he becomes bankrupt. It concerns whether such a clause should be held to have effectively terminated membership if the decision is made after both a sequestration order is made against the member, and the resulting bankruptcy has been annulled.

Facts

2 The defendant is a corporation limited by guarantee. In its Articles of Association the defendant is referred to as “the Club”.

3 Clause 4(a) of the Articles expressly provides that a member shall not, by reason of that membership, have any interest in any of the property, profits or income of the Club.

4 Clause 16(b) of the Articles of Association provides:

“A member shall cease to be a member if he becomes bankrupt or enters into a deed of assignment, a composition or a scheme of arrangement with his creditors under Part X of the Bankruptcy Act 1966 (as amended).”

5 The plaintiff became a member of the defendant on 6 October 1992. On 19 May 1997 the Federal Court of Australia made a sequestration order against the estate of Andrew Charles Robert Lee. It is common ground that the person against whom that sequestration order was made is the same person as the plaintiff.

6 On 23 March 2000 the plaintiff’s bankruptcy was annulled pursuant to section 74(5) of the Bankruptcy Act 1966 (Cth).

7 In or shortly before April 2001 the defendant became aware of the sequestration order, and raised it with the plaintiff. The plaintiff’s solicitor wrote to the defendant on 11 April 2001 stating that the bankruptcy had been annulled ab initio, and hence operated as if no bankruptcy had ever taken place. Initially the defendant accepted that submission, but changed its mind after receiving legal advice. On 16 August 2001 the defendant wrote to the plaintiff informing him that, pursuant to Clause 16(b) he had ceased to be a member on 19 May 1997.

8 Between 19 May 1997 and 16 August 2001, save for one immaterial exception, the defendant provided the plaintiff with the usual and full rights of a member and the plaintiff made membership and other payments to the defendant. That exception concerned a period in April 2001 when the plaintiff was required to vacate the Club’s premises, for a reason unconnected with his bankruptcy.

9 From 16 August 2001 the defendant has not treated the plaintiff as a member.

10 In his Statement of Claim the plaintiff seeks:

(a) a declaration that on the true construction of Clause 16(b) of the Articles of Association of the defendant, and in the events which have happened, he did not cease to be a member of the defendant by reason of the Sequestration Order;

(b) a declaration that the defendant was not entitled on or about 16 August 2001 or at any time thereafter to rely upon the Sequestration Order and prior bankruptcy of the plaintiff to deny him membership,

(c) a declaration that he was at all material times and is a member of the defendant,

(d) an injunction restraining the defendant from asserting that the plaintiff is not a member of the defendant by reason of the Sequestration Order and prior bankruptcy,

11 No evidence was led, or submissions put, in support of the claim for damages.

12 The Statement of Claim made allegations that the defendant had waived any entitlement to act under Clause 16(b) of the Articles, and that by reason of the defendant’s “acquiescence, delay and laches” the defendant was disentitled from relying upon Clause 16(b). However, no submissions were put at the hearing in support of those allegations. The question for decision is thus essentially one of the construction and effect of Clause 16(b), in the context of the relevant provisions of the Bankruptcy Act 1966 (Cth) and the general law.

Relevant Provisions of the Bankruptcy Act 1966

13 Section 43(1) empowers the Court to make a sequestration order against the estate of a debtor. Section 43(2) provides:

Upon the making of a sequestration order against the estate of a debtor, the debtor becomes a bankrupt, and continues to be a bankrupt until:

(a) he or she is discharged by force of subsection 149(1) or in accordance with Division 3 of Part VII; or

(b) his or her bankruptcy is annulled by force of subsection 74(5) or 153A(1) or under section 153B.

14 Section 73 contains provisions enabling a bankrupt to propose a composition in satisfaction of his or her debts, or a scheme of arrangement of his or her affairs, and for the creditors, by special resolution, to accept that proposal. Section 74 provides:

(5) Upon the passing of a special resolution at a meeting of creditors of a bankrupt under subsection 73(4), the bankruptcy is annulled, by force of this subsection, on the date on which the special resolution was passed.

…

(6) Where a bankruptcy is annulled under this section, all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment shall be deemed to have been validly made or done but, subject to subsection (7), the property of the bankrupt still vested in the trustee vests in such person as the Court appoints or, in default of such an appointment, reverts to the bankrupt for all his or her estate or interest in it, on such terms and subject to such conditions (if any) as the Court orders.

(7) Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered, any such property vested in the trustee at the time of the annulment of the bankruptcy, notwithstanding that it vests in equity in such person as the Court appoints or in the bankrupt, as the case may be, does not vest in that person or the bankrupt at law until the requirements of that law have been complied with.

15 Annulment of a bankruptcy can also be obtained under section 153A if the trustee is satisfied that all the bankrupt’s debts have been paid in full. In that case the bankruptcy is annulled by force of section 153A itself on the date on which the last such payment was made, without the need for any court order. Another path to annulment of a bankruptcy is through section 153B, which empowers the Court to make an order annulling a bankruptcy if it is satisfied that a sequestration order ought not to have been made or, in the case of a debtor’s petition, that the petition ought not to have been presented, or ought not to have been accepted by the Official Receiver. Section 154 provides, in section 154(1)(a) that if the bankruptcy of a person is annulled under either section 153A or 153B all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment are taken to have been validly made and done. Section 154 goes on to deal with various ways in which the property of the former bankrupt still vested in the trustee may be applied, subject to which the remainder (if any) of the property of the former bankrupt still vested in the trustee “reverts to the bankrupt”.

The Plaintiff’s Submission

16 Mr Aldridge SC, counsel for the plaintiff, submits that, subject to the exceptions made by section 74(6) and section 154, and certain common law exceptions not presently relevant, the annulment of a bankruptcy requires that it be treated as nothing. While section 74(6) states some exceptions, whereby certain acts done on the footing that there was a bankruptcy, prior to the annulment, continue to have validity after the annulment, nothing in section 74(6) preserves the validity of any termination of the plaintiff’s membership pursuant to Clause 16. Rather, the defendant did not take any steps at all in relation to the plaintiff’s bankruptcy while it was on foot, and only sought to take advantage of the order at a time well after the annulment.

17 Mr Aldridge points to the decision of Hill J in Oates v Commissioner of Taxation (1990) 27 FCR 289. It considered the impact of annulment of a bankruptcy upon section 80(4) Income Tax Assessment Act 1936, which provided that the ability of a taxpayer to carry forward losses was lost if “… the taxpayer has become a bankrupt …”. His Honour concluded, at 304, that:

“… a taxpayer whose bankruptcy is annulled, will not be a person who has become a bankrupt within the meaning of s 80(4), so that the losses he has incurred in previous years are forever lost to him.”

Bankruptcy Act

“… subject to these, and perhaps other exceptions that may arise … it seems not incorrect to say that the effect of the annulment will be the setting aside of the bankruptcy order.”

18 His Honour did not seek to determine the full scope or characteristics of the exceptions. Rather, he turned to the second basis, which was the construction of section 80(4) Income Tax Assessment Act 1936 (Cth). He considered its history, and purpose. The purpose included that if a bankruptcy released a taxpayer from the obligation to pay debts which were properly claimable as tax deductions, but which the taxpayer had not actually paid, it would be unfair to the Revenue for the taxpayer to have available a deduction for tax losses arising in part from those unpaid debts. Yet, if the bankruptcy is annulled at a time when there are unpaid debts (as happens today pursuant to section 153B) the liability of the taxpayer to pay those debts (rather than have them dealt with through the administration of such assets as there might be in his bankrupt estate) revives. That fact, taken in conjunction with the way that the setting aside of a judgment (not necessarily one involving bankruptcy) operates ab initio, particularly when a matter of status is involved, and the analogy between setting aside a judgment and annulling a bankruptcy being close, leads to the conclusion his Honour reached.

19 Mr Aldridge also referred me to the decision of the High Court in The Commissioner for Railways (New South Wales) v Cavanough (1935) 53 CLR 220. There, the respondent was an officer of the appellant. The respondent was convicted of a criminal offence. Section 80 of the Government Railways Act 1912 provided that an officer convicted of felony shall be deemed to have vacated his office. The respondent’s conviction was set aside upon an appeal to a Court of Quarter Sessions. He was re-employed by the appellant, and sued to recover the amount of salary he had not been paid in the period after his conviction. The High Court unanimously upheld his right to do so. Rich, Dixon, Evatt and McTiernan JJ said, at 224-5:

“In our opinion he is so entitled because, his conviction having been quashed, he cannot be considered ever to have been convicted and he cannot be deemed to have vacated his office.

ab initio

R v Drury

Dr Drury’s Case

Lord Sanchar’s Case

Dr Drury’s Case

Archbold’s Criminal Pleading, Evidence and Practice

As the respondent in contemplation of law was never out of office, he is entitled to the salary attached to it.”

20 Starke J at 227-8 said:

Alleyne v The Queen

Smallcombe v Olivier

Archbold’s Criminal Pleading, Evidence and Practice

R v Drury

R v O’Keefe

R v Lee

Justices Act 1902

21 Mr Aldridge also referred me to Theissbacher v MacGregor Garrick & Co (1993) 2 QdR 223. In that case Pincus JA and White J considered the effect of acts done by a trustee in bankruptcy which, had the bankruptcy continued, would have resulted in an action being deemed to be abandoned under section 60 Bankruptcy Act 1966 (Cth), when the bankruptcy was later annulled. Their Honours said, at 229:

“The former bankrupt is, at least in general, treated as never having been made bankrupt; that is the effect of annulment. If one applies that principle to the present case then the appellants, being deemed never to have become bankrupt, are unaffected by s 60(2), which depends upon their having become bankrupt; in consequence s.60(3) does not effect them either.”

22 Mr Aldridge also relies on Re Hudson; ex parte ANZ Bank v Bird (1994) 50 FCR 281, where Northrop J said, at 289:

Re Lawson

Coyle v Cassimatis

“… although only annulled ‘on’ the day of the creditors’ special resolution, the annulment was retrospectively effective to annihilate the (bankrupts’) bankruptcy and its consequences except as otherwise provided by the Act, notably subs 74(6). Prima facie, therefore, the (bankrupts) were, in law, never bankrupt.”

Bankruptcy Act 1966

“in any bankruptcy”

23 Finally, Mr Aldridge refers me to the decision of Drummond J in Worrell v Wespac Banking Corporation (1994) 51 FCR 304. There, his Honour followed the decision in Coyle v Cassimatis, on grounds not only of comity but also that in his Honour’s view it was (at 307) “plainly right”. Drummond J noted, at 306, that though section 74(5) fixes the date on which the annulment occurs as the date of resolution of creditors, it says nothing in express terms about what effect such an annulment is to have – and hence section 74(5) provides no obstacle to an annulment operating retrospectively.

24 It is convenient to note here other judicial statements of the retrospective operation of an annulment of bankruptcy. In Re Oates; ex parte Deputy Commission of Taxation (1987) 17 FCR 402; (1987) 88 ATC 4038 Sheppard J said at 404 of FCR, 4040 of ATC:

“Subject to the operation of s 154(2), the order [of annulment] places the bankrupt in the same position as he was prior to the making of the sequestration order. Thus property which has vested in the Trustee pursuant to s 58, subject to s 154(2) and (3), revests in the bankrupt. He is not released from any of his debts and, at least in legal theory, he is treated as if he were never bankrupt.”

25 In Re Fitzgerald; ex parte Fitzgerald (1988) 99 ALR 189 at 191 Pincus J referred to this passage with approval. It assisted his Honour to conclude that when a person has become bankrupt on his own petition, and afterwards a sequestration order is made on a creditor’s petition presented on the same day as the debtor had presented his own petition, but without the judge who made the sequestration order being aware that the debtor was already bankrupt, the setting aside of the sequestration order has the effect that section 149(3)(b) Bankruptcy Act 1966 (Cth), (which then provided that where there is a second bankruptcy there is no automatic discharge of the bankrupt after three years) no longer prevents the automatic discharge from having occurred

Submissions of the Defendant

26 Mr Bathurst QC, for the defendants, submits that the task to be performed in this case is fundamentally one of construction of Clause 16(b). In taking construction as his starting point, he differs from Mr Aldridge, who takes a consideration of the nature and effects of annulment as his starting point. In approaching the question of construction, Mr Bathurst submits that account should be taken of the fact that the defendant is a company, that its corporate constitution has effect as a contract between the defendant and each member (Corporations Act 2001 (Cth) section 140(1)(a)), that as a contract, the Constitution is to be interpreted as a whole (Santos Ltd v Pettingell (1979) 4 ACLR 110 at 118-9 per Rath J), and that as a corporate constitution it is to be interpreted literally because it is an instrument on which third parties might rely (Simon v HPM IndustriesPty Ltd (1989) 15 ACLR 427 at 433 per Hodgson J; Stanham v The National Trust of Australia (New South Wales) (1989) 15 ACLR 87 at 90-91 per Young J).

27 Mr Bathurst QC submits that Clause 16(b) of the Articles of Association of the defendant is a self-executing provision, that it operated automatically as soon as the bankruptcy occurred, and that the subsequent annulment cannot undo the work which, by the time of the annulment, the clause had already done. To treat it in the way for which the plaintiff contends would give the clause a different operation to what its words plainly say. If the plaintiff were right, any effect of the clause would be provisional, and continue only unless and until an annulment occurred. There is, Mr Bathurst points out, no express requirement that the defendant give a member notice before the clause has effect, and there is no allegation by the plaintiff of the existence of any implied term to that effect.

28 As well, he submits that the clause needs to be considered in the context of the Articles as a whole. If the plaintiff were right, what would happen upon the bankruptcy of a member would be in effect a suspension of membership. Yet there are other provisions in the Articles which make express provision for circumstances in which suspension of membership is to occur. Examples are Clauses 17(c) (which expressly provides for expulsion, and suspension from all or some privileges of membership, as being alternative possible sanctions if a member is found guilty of wilful infringement of the Articles or By-laws or conduct which is prejudicial to the interests of the Club), Clause 36(b) (which provides for suspension of a member who is tardy in paying his House Account) and Clause 44(d) which provides for suspension of the rights of a member who is tardy in paying any special levy).

29 Further, Mr Bathurst submits that if the operation of Clause 16(b) were reversed on annulment of bankruptcy, there would be an inconsistency between the treatment of bankrupts under the clause and the treatment under the clause of members who enter into arrangements with their creditors under Part X of the Act. Arrangements under Part X cannot be annulled. Thus, a person whose membership ceased because he had entered into a Part X arrangement could not have that situation reversed, even once he had duly performed the arrangement. That discrepancy is particularly pointed in the present case, where it is the resolution of creditors under section 73(4) to accept a proposal for a composition or scheme of arrangement of someone already bankrupt which triggers the annulment.

30 Finally, Mr Bathurst submits that the consequences of giving effect to the plain words of Clause 16(b) are not unduly harsh. Upon annulment of his bankruptcy, a former member of the Club can once again be nominated for, and elected to, membership in accordance with the Club’s Constitution.

The Correct Way of Approaching this Case

31 Mr Bathurst QC has urged me not to be seduced into exploring the intricacies of the law of relation back of annulments, but to simply construe the clause. Writing this judgment would have been an easier task if that course had been open to me, but unfortunately I do not think it was. The task involved in deciding this case is not just one of construction of the article, in the sense of ascertaining its meaning, but also of deciding how it operates. Even to the extent to which the task is one of construction, the clause is one which uses legal terminology in the critical phrase of “becomes bankrupt”, and the meaning of that terminology cannot be decided upon without looking at the framework of legal rules and policies in which the clause, and the legal terminology in it, must operate.

32 I accept the principles of construction of Clause 16 which Mr Bathurst put forward, and which I have summarised in para [26] above. However, in my view, adopting the contentions of the plaintiff would not involve any adoption of a non-literal meaning of Clause 16. Indeed, the case proceeded on the mutual assumption that, apart from any question of the effect of a subsequent annulment of a bankruptcy, a person “becomes bankrupt” within the meaning of Clause 16 when a sequestration order is made, not when that person is in fact insolvent, nor when that person commits an act of bankruptcy. That assumption is correct: section 43(2) Bankruptcy Act 1966 (Cth); In Re Weibking; ex parte Ward [1902] 1 KB 713.

33 As well, a rule of an unincorporated club, whereby someone ceases to be a member if he becomes insolvent, is self-executing: Rainsford v the Trustee of the Salisbury Club (1914) SR 65 at 73 (Southern Rhodesia). (An appeal failed, but on the ground that the plaintiff had nominated the wrong defendant: Rainsford, Appellant v Trustees of the Salisbury Club, Respondents (1914) App D 499 (S Africa).) And a provision for a director to vacate his office on the happening of some event is one which operates automatically on the occurrence of the event, and even if the company does not know that the event has occurred: In Re The Bodega Company, Limited [1904] 1 Ch 276 at 283. The case proceeded on the mutual assumption that the same must apply to a provision in articles of association whereby a member ceases to be a member on the happening of some event. The real question to be decided in the case, it seems to me, is whether, in light of the annulment, it is now open to the Court to decide that the plaintiff is someone who has ever become bankrupt.

Range of Consequences Triggered by Bankruptcy

34 The Bankruptcy Act 1966 (Cth) itself provides for consequences of a person becoming bankrupt. Significant amongst them are the vesting of the property of the bankrupt in the Official Trustee or registered trustee under section 58(1), which is the first step in the statutory scheme for distribution of that property proportionately among creditors whose proofs of debt are accepted, and the staying under section 60(2) of actions commenced. However, there is a vast array of effects of bankruptcy which arise outside the context of the Bankruptcy Act 1966 (Cth). Section 9 Bankruptcy Act 1966 (Cth) preserves the capacity of the States and Territories to make laws on matters not dealt with expressly or by necessary implication in the Bankruptcy Act 1966 (Cth). State legislation provides for numerous consequences to arise when a person becomes bankrupt.

35 One example is section 33 Partnership Act 1892, which provides that, in the absence of agreement to the contrary, bankruptcy of one partner dissolves the partnership. Another example is section 5 Powers of Attorney Act 1993, which provides that there is a vacancy in the office of an attorney if the attorney becomes bankrupt.

36 There are multitudes of New South Wales statutes which provide that a public office is vacated if the holder becomes bankrupt. In alphabetical order, the statutes creating the disqualifications, they run from the office of a member of the board of the Aboriginal Housing Office (section 30(7) and Schedule 1 clause 4(1)(f) Aboriginal Housing Act 1998), that of an officer or Regional or Alternate Representative under the Aboriginal Land Rights Act 1983, pursuant to section 69(f) of that Act, and that of a member of the Administrative Decisions Tribunal, pursuant to section 18 and Schedule 3 clause 8(1)(e) Administrative Decisions Tribunal Act 1997, to a member of the local land board for an administrative district, under section 9(4) Western Lands Act 1901. Other New South Wales statutes make bankruptcy the occasion upon which certain administrative action can be taken, or court orders can be applied for – eg if a licensed conveyancer becomes bankrupt, and the Director-General is of the opinion that a person is unable to obtain payment or delivery of property held by the licensee, the Director-General can apply to the Court for the appointment of a receiver of property of the licensee, under section 105 Conveyancers Licensing Act 2003; if any of the individuals administering a pre-paid funeral fund becomes bankrupt the Director-General can cancel the registration of the fund, under section 39 Funeral Funds Act 1979; if a Justice of the Peace becomes bankrupt, the Governor can remove him or her from office under section 9 Justices of the Peace Act 2002.

37 Under Commonwealth legislation, a person ceases to be a company director if that person becomes disqualified from managing corporations (unless ASIC or the Court permits them to manage the company): section 203B Corporations Act 2001 (Cth) - and a person is disqualified from managing corporations if the person is an undischarged bankrupt: section 206B(3) Corporations Act 2001 (Cth).

38 In private law, it is very common to find that a contractual power of some sort is triggered if one of the parties to a contract becomes bankrupt -- for example, if the mortgagor under a mortgage becomes bankrupt, that commonly triggers a contractual power to appoint a receiver or exercise a power of sale; if a builder becomes bankrupt the building contract often confers a power of termination of the building contract on the proprietor.

39 These examples are by no means exhaustive. They serve to illustrate how wide a field of legal regulation is potentially affected if annulment of a bankruptcy has the effect that a consequence which, but for the annulment, would be held to have arisen under one of these statutes or contracts must be held not to have arisen, if the bankruptcy is later annulled.

40 That annulment of a bankruptcy has the potential to alter what would otherwise be the legal situation in a very wide variety of contexts is, however, a reason to be cautious about making quick generalisations about what is the effect of annulment. Rather than run that risk, I propose to give some consideration to how annulment operates in various areas of the law where it has a role to play, and consider what, if anything, can be drawn from that for the purposes of the present case.

Setting Aside of a Judicial Determination, Outside Bankruptcy

Criminal Conviction

41 The setting aside of a criminal conviction involves it being held to be, retrospectively, of no effect. Setting aside a criminal conviction is annulment of it by another name. The Commissioner for Railways (New South Wales) v Cavanough (para 19 supra) shows how setting aside of a conviction can operate even to overcome a self-executing provision of a statute. In Cavanough the High Court was taken, in submission, to In Re the Bodega Company Limited [1904] 1 Ch 276 (see (1935) 53 CLR 220 at 223, and para [33] above), but their Honours obviously did not regard the self-executing nature of the statute before them as presenting any obstacle to the effectiveness of their reasoning.

42 The reach of the retrospective effect of the setting aside of criminal convictions is illustrated in the following cases.

- A person who has been convicted of an offence, and had the conviction quashed on appeal is entitled, at a subsequent trial, to an unqualified direction that he had no prior convictions, not a direction which tells the jury in terms that he has a prior conviction which was quashed on appeal: R v Lapuse [1964] VR 43.

- If a person is convicted in his absence of a driving offence and his licence is in consequence revoked, then is charged with driving while unlicensed, then obtains an order setting aside his conviction because of lack of service, then is tried again for the first offence and found guilty, and finally has the charge of driving while unlicensed come on for hearing, it is the effect of the setting aside of his conviction that he was not, at the time he is alleged to have driven while unlicensed, someone who was unlicensed: Lynch v Hargrave [1971] VR 99 at 102 – 107.

Rimanic v Business Licensing Authority

Overturning of Judgments in Civil Cases

43 The principles stated in Cavanough apply to civil cases and have the effect that a successful appellant is entitled an order for restitution, entitling it to recover any monies paid under the reversed judgment, with interest: The Commonwealth v McCormack (1984) 155 CLR 273 at 276-7; Production Spray Painting & Panel Beating Pty Ltd & Ors v Newnham & Others (No 2) (1992) 27 NSWLR 659 at 661 per Handley JA (with whom Mahoney and Priestley JJA agreed).

Annulment in Civil Law Outside Bankruptcy

44 It has repeatedly been held that a declaration of nullity of marriage has a retrospective effect. In In re Wombwell’s Settlement [1922] 2 Ch 298 a man whose son was intending to marry transferred property to trustees to be held for himself “until the said intended marriage”, and thereupon upon the trusts of a marriage settlement. The marriage ceremony was gone through, but later a decree of nullity of the marriage was made. It was held, at 308, that the property remained held on the initial trust for the settlor. It was not, it seems, considered that the apparently self-executing provisions of the settlement, in ending the trust in favour of the settlor when the marriage occurred, prevented this conclusion from being reached.

45 In Re Dewhirst; Flower v Dewhirst [1948] Ch 198; 64 TLR 74 concerned a will in which a testator gave the income of his estate to his wife so long as she remained his widow, and on her remarriage to continue to pay her half the income, and on her death or remarriage to hold the estate on trust for the benefit of his children. She remarried, but that marriage was later declared to be void. After her remarriage the trustees paid her half the income in her own right, and, as she had the care of the infant children of the marriage, also paid her the other half in exercise of power to pay for their maintenance. The decision follows In Re Wombwell’s Settlement, and holds that the remarriage must, after the declaration of nullity, be treated as never having taken place.

46 In re D’Altroy’s Will Trusts [1968] 1 WLR 120 concerned a gift in T’s will to X during his lifetime so long as he shall remain the widower of Y. At the date of death of T , X had remarried. After T’s death that marriage was annulled. No part of the estate had been distributed. It was held that it should be distributed on the footing that X had not remarried, notwithstanding that the annulment occurred only after the death of T, and it is usually as at the date of a testator’s death that one decides whether the conditions have occurred for any gift which is to arise immediately after the testator’s death.

47 In Re Rodwell, decd; Midgley v Rumbold [1970] 1 Ch 726 concerned the Inheritance (Family Provision) Act 1938 (UK), which conferred standing to apply for an order on “a daughter who has not been married”. At the time of the deceased's death his daughter had been through a ceremony of marriage, and that marriage had been annulled. It was held, at 731, that she was “a daughter who has not been married in the eye of the law looking at her at the date of death”, and hence had standing to apply.

48 Somewhat similarly, if an employer exercises a statutory power to dismiss an employee, and an appeal permitted by statute reverses the decision, the employee is entitled to wages for the period between the initial dismissal and its reversal: Grady v The Commissioner for Railways (NSW) (1935) 53 CLR 229.

Limits on the Extent to which a Judgment which is Set Aside has its Consequences Undone

49 As all members of the High Court giving judgment in Cavanough pointed out, the extent to which the consequences of a judgment which is set aside will be undone is not complete. In Wilde v Australian Trade Equipment Pty Co Pty Limited (1981) 145 CLR 590 the High Court held that where an order permitting registration of a company charge out of time was set aside, this did not affect the validity of the registration of a charge, which had occurred before the decision setting aside the order. Stephen, Murphy and Wilson JJ (with whom Aikin J agreed) said, at 603:

“… the consequence that will follow an order setting aside an earlier decision will vary from case to case. So long as the earlier decision stands, and no stay is operative, it is a lawful decision and the action taken in reliance upon it is lawful. It is true that from the moment it is set aside the order can no longer provide the lawful justification for further action, but whether what has been done can be undone will depend upon the availability of appropriate remedies, to bring about the appropriate relief.”

50 In Wilde no such remedy was available, because although section 106 Companies Act 1961 (Q) conferred on the court power to rectify an entry in the registry of charges, it did not confer power to order that an entry be removed. As well, section 103(2) made a certificate of registration of the charge “conclusive evidence that the requirements as to registration have been complied with”. This provision was deliberately adopted (as their Honours accepted at 606-7) to overcome problems which had arisen under Bills of Sale Acts where a secured creditor could be defeated through having not complied with certain technical requirements of registration, by permitting the registrar to exercise his own judgment about what he would register, and providing that once he has certified that the charge is registered the title of the creditor to his security shall be unassailable on the ground of the insufficiency of the registration.

51 Another exception to the retrospectivity of the setting aside of judgments, is that an act of bankruptcy arising from failure to comply with a bankruptcy notice remains in effect, even if the bankruptcy notice was based upon a debt resulting from the judgement which was later set aside: Re Hanby; ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378 (Gibbs J); Re Hayes; ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216 (Street J); Re Vella; Ex parte Seymour (1983) 67 FLR 287 (Morling J). The result of these cases was approved by the High Court in Wilde at 603, and in Guss v Johnstone (2000) 74 ALJR 884 at [58] (though in the latter case subject to recognising the statutory power of the Court under section 41(6A) Bankruptcy Act1966 (Cth) to extend time for compliance with a bankruptcy notice even after the time for compliance has expired). The result in these cases arises, in my view, as the result of the special statutory regime, capable of affecting status, under which an act of bankruptcy occurs. See generally Guss v Johnstone (2000) 74 ALJR 884; King v Henderson [1898] AC 720 at 728–9. If the preconditions stated by the statute for that act have all arisen, it is going behind the statute to say that the act of bankruptcy has really not occurred.

52 As well, if a judgment has been acted upon before it is overturned on appeal the consequences of that action are, at least in some circumstances, not rendered unlawful. Thus when a judge dismisses the claim of a former lessee of land that he had validly exercised an option to renew, and declares that in remaining in occupation after a particular date the lessee is a trespasser, and the lessor afterwards peacefully takes possession of the premises (acting on the advice of lawyers, though without a court order for possession), the lessor’s action in so doing is not itself a trespass, even if the decision of the judge is later reversed on appeal: McIntosh v Lobel (1993) 30 NSWLR 441 at 459 – 465 per Kirby P (with whom Cripps JA agreed).

53 White v Tomasel [2004] QCA 89 arose from an auction of Torrens title land, at which the land was knocked down to a bidder. The auctioneer executed a contract to sell to the bidder. The vendor, who had left the auction by the time the contract was signed, later disputed that the auctioneer had authority to sell at the price at which the land had been knocked down. Various District Court judges made orders for specific performance of the contract, authorising the Registrar to sign a transfer and other incidental matters, and refusing a stay pending appeal. Settlement of the sale was effected in accordance with a procedure permitted by the District Court’s orders, and the transfer was registered well before the vendor’s appeal to the Queensland Court of Appeal was heard. All judges in the Court of Appeal agreed that the process in the District Court had involved multiple errors. The majority in the Court of Appeal (Williams JA and McMurdo J) held that it would have power, if the various orders of the District Court were set aside, and a trial showed that the agent lacked authority, to order a retransfer of the land as part of the restitution effected in consequence of the orders being set aside. Their Honours held that the indefeasibility provisions of the Torrens legislation would not stand in the way because the registration had been obtained only through a court order, and a personal equity would arise if that court order were set aside. In my respectful view that goes too far, and I prefer the dissenting judgment of Davies JA, to the effect that these circumstances do not give rise to a personal equity. If I am right in preferring the view of Davies JA, it means that the circumstances in which the setting aside of an order can have a retrospective effect are somewhat narrower than they would otherwise be. However the difference between the judges in White v Tomasel relates to the scope of a personal equity, a matter peculiar to the Torrens system, and does not impact upon the present case.

54 There are some limits to the type of action on the basis of a judgment which will be held not to be reversed if the judgment is later set aside, however. In Cavanough the employer had, in one sense of the expression, acted in reliance upon the conviction when it failed to pay Mr Cavanough his salary, but that was not sufficient to prevent the overturning of the conviction being given retrospective effect. In Lynch v Hargrave [1971] VR 99 (para [42] above) the prosecution had, in one sense, acted in reliance upon the conviction and consequent cancellation of the driving licence in charging the person convicted with unlicensed driving, but that was not sufficient to prevent the overturning of the conviction from having retrospective effect. The limits of when acting in reliance on a judgment prior to its being reversed result in the reversal of the judgment not being given retrospective effect are examined in the illuminating article by D M Gordon “Effect of Reversal of Judgment on Acts Done Between Pronouncement and Reversal” (1958) 74 LQR 517 and (1959) 75 LQR 85, and further explored in D M Gordon “Action on a Judgment Under Appeal” (1968) 84 LQR 318. Those limits need not be further discussed here, because in the present case in no sense did anyone act in reliance upon the plaintiff’s bankruptcy before it was annulled.

55 As well, while restitution can be ordered following the reversal of a judgment on appeal, there are limits on what can be achieved through the remedy of restitution. Those limits are discussed by Brooking J in National Australia Bank Ltd and Others v Bond Brewing Holdings Ltd and Others [1991] 1 VR 386 at 591– 2. In particular,

- in the absence of an undertaking as to damages, the court has no power to award damages to give compensation for harm suffered which arises from the making of an order which an appeal court holds is mistaken, and sets aside: National Australia Bank Ltd and others v Bond Brewing Holdings Ltd and others [1991] 1 VR 386 at 561 (and after further argument) 576–7 per Kaye J, 587 – 591 per Murphy J, 601 – 603 per Brooking J.

- when a court quashes the decision of another court in exercise of its supervisory jurisdiction over that court it has no power to make an order for payment of the costs in the court below, as it is not a matter of restitution to do so (as opposed to on appeal, when the statutory provisions creating the right of appeal determine the powers of the appeal court); Production Spray Painting & Panel Beating Pty Ltd v Newnham (No2) (1992) 27 NSWLR 659.

Meerkin & Apel v Rossett Pty Ltd (No 2)

Forfeiture Cases

56 A separate line of authority, where limits are imposed on the retrospective effect of a judicial determination being undone, concerns interests arising under wills or settlements which are stated to come to an end in the event of the donee becoming bankrupt.

57 There is one category of such provision which is ineffective to bring the gift to an end, where that ineffectiveness arises not by virtue of any limitation on the relation back of any annulment there might be of the bankruptcy, but as a matter of the public policy in favour of freedom of alienation, applied to the construction of the gift itself. If a forfeiture clause purports to provide that an interest to which a beneficiary is absolutely and inalienably entitled ceases to be his if he becomes bankrupt, that clause is repugnant to the gift, and void: In Re Smith [1916] 1 Ch 369; Re Bond; Ex parte Ramsay (1992) 92 ATC 4807 at 4818 – 4820 per Hill J and on appeal sub nom Caboche v Ramsay (1993) 119 ALR 215 at 218 per Ryan J, 226 – 228 per Gummow J, 249 per Lee J. However, if the clause is drafted so as to make the interest of the donee one which in its nature endures only until bankruptcy it is valid: Jacobs Law of Trusts in Australia 6th ed para [923] and cases there cited; Caboche v Ramsay supra; In re Scientific Investment Pension Plan Trusts [1999] Ch 53.

58 Such gifts should be distinguished from gifts which are conditional, but expressed to be forfeited if the donee becomes bankrupt. In that situation, the principle applied, if the donee becomes bankrupt but the bankruptcy is later annulled, is that if there was nothing on which the forfeiture clause could operate before the bankruptcy was annulled, then the forfeiture clause is ineffective: Metcalfe v Metcalfe [1891] 3 Ch 1. Whether there is anything on which a forfeiture clause could operate before the bankruptcy was annulled does not depend upon the accident of whether the beneficiary has actually had the gift, or part of it, transferred to him or her, but on whether there is property which should be treated as payable to, or retained for, or appropriated for, the benefit of the beneficiary: In re Forder [1927] 2 Ch 291. In reaching this conclusion, three different principles seem to be at play. The first is the presumed intention of the testator or settlor, that someone who was a bankrupt should receive nothing under the will or settlement. The second is that the effect of the forfeiture of one person’s interest in property is that an interest in that property thereupon becomes vested in someone else, and the courts show particular reluctance about disturbing property interests which have become vested. The third is that, when the bankruptcy results from a sequestration order, if the circumstance is such that there is property on which the sequestration order can act, then its having so acted is one of those circumstances where there is an “act done in the execution of justice” which is one of the categories of circumstance which a subsequent annulment does not undo.

59 The reluctance of the courts to undo property rights which have become vested in consequence of a transaction which is later nullified is illustrated in Dodworth v Dale [1936] 2 KB 503. There, a taxation authority’s attempt to recover a marriage allowance, which had been claimed by a taxpayer as a deduction during the subsistence of a marriage which was later annulled, did not succeed.

60 It may be that the cases concerning forfeiture of a property interest on a bankruptcy which is later annulled are hard to reconcile with the cases concerning how annulment of a marriage affects property interests. It is not necessary for me to reconcile them, nor to reach a conclusion on whether they cannot be reconciled. It suffices to accept each of these lines of cases as they stand, and see whether there is anything in them, considered separately, which bears upon the present case.

61 The present case can be distinguished from the cases in both lines of cases which have held an annulment not to be fully retrospective, at least on the basis that the occurrence of the bankruptcy of the plaintiff did not cause any property rights to become vested in anyone else. This is the consequence of the defendant being a corporation limited by guarantee, and Clause 4(a) of the defendant’s articles (para [3] above). Indeed, it is hard to see how the occurrence of the bankruptcy gave anyone a vested right to have the plaintiff regarded as not being a member of the defendant.

62 A different type of limitation on the court being able retrospectively to undo a transaction after its basis has been annulled is illustrated by In re Eaves; Eaves v Eaves [1939] Ch 1000, and on appeal [1940] Ch 109. There, a will gave property on trust for T’s widow during her widowhood and, subject to the widow’s interest to T’s son. The widow and the son were themselves trustees. The widow remarried, and with her consent the property was handed over to the son. After twelve years that marriage was annulled. The widow then claimed to be entitled to a life interest in the trust fund. She failed because at that time there was no trust fund in existence, it having been disposed of with her consent. The present case is not analogous.

Forfeiture Cases Depending on Construction of the Forfeiture Clause

63 There is a very limited category of cases in which a forfeiture clause in a will or settlement has been construed as not applying to an event, of the type which causes the forfeiture, if that event is one concerning which, from the time it happened, there was an entitlement to have it set aside. InRe Carew [1896] 2 Ch 311 concerned a gift by will of an interest in remainder to X but if at the time that interest in remainder was to arise X was bankrupt it was to pass to his wife and children. X had heavily encumbered his interest under the will and, a few days before his interest was due to arise, he presented his own petition for bankruptcy. The resulting bankruptcy was promptly annulled “as being a mere device and trick” (per Lindley LJ at 315), and a “pretended bankruptcy” (at 317 per Kay LJ), and was treated as though it had not occurred at all, for the purpose of deciding whether X remained entitled.

64 In Permanent Trustee Co Ltd v Cormack (1920) 21 SR(NSW) 1 the plaintiff was trustee of a will under which the defendant was given certain property until (inter alia) he had execution issued against him. The plaintiff and the defendant settled a dispute on the basis that the defendant would consent to a judgment, pay it by instalments, and the plaintiff would take no further proceedings on the judgment. As a result of a mistake in the plaintiff’s office, a writ of execution was obtained, and given to the Sheriff with instructions not to execute it. The settlement agreement was otherwise performed. Six years later the existence of the writ came to light, and a question arose of whether it had caused a forfeiture. By that time, proceedings to set aside the writ would probably not have been entertained by the Court, as the writ had expired. Harvey J held it had not triggered the forfeiture. He held, at 6, that if the defendant had applied in Chambers he would have been entitled, ex debito justitiae, to an order discharging the writ, and if it had been set aside:

Re Carew

65 In Torsir Pty Ltd v Maxgrow Developments Pty Ltd (No 2) (1995) 7 BPR 14,392; (1995) 18 ACSR 201 Young J applied this line of authority to hold that a contractual power to rescind a contract if a petition for winding up was presented was not triggered by a winding up summons which would be dismissed ex debito justitiae (because the person bringing it did not have locus standi to do so).

66 This line of authority does not apply in the present case, where there is no suggestion that the sequestration order against the plaintiff could have been set aside the instant it was made.

Crimes which have Being a Bankrupt as an Element, Alleged to be Committed after Sequestration Order and Before Annulment

67 Director of Public Prosecutions v Ashley [1955] Crim LR 565 held that, where a crime which had being bankrupt as an element was alleged to have been committed after the sequestration order and before annulment, the annulment did not prevent there being a conviction for that crime. So far as crimes which are established by the Bankruptcy Act 1966 (Cth) itself are concerned, section 275(a) Bankruptcy Act 1966 (Cth) makes clear that the annulment does not prevent the person being prosecuted: Bond v Rozenes (1996) 134 ALR 583. Concerning crimes arising other than under the Bankruptcy Act 1966 (Cth), there is some uncertainty. Re Baysington Pty Ltd (1987) 12 ACLR 412 considered various crimes not arising under the Bankruptcy Act 1966 (Cth), including a crime of, in effect, acting as a company director while disqualified through being a bankrupt. Master Seaman QC held (at 416) that the general statement that an annulment remits a bankrupt to his former condition is not directed to the criminal consequences of acts at the time when they were done, and that cases concerning annulment of marriage or construction of wills do not bear upon the question. An appeal, Salter v NCSC [1989] WAR 296; (1988) 13 ACLR 253; 6 ACLC 717, reversed the decision of Master Seaman QC, but on different grounds to one now under consideration. In consequence, the decision of Master Seaman QC is not a binding authority even within the Western Australia court system: Re French Caledonia Travel [2003] NSWSC 1008; (2003) 59 NSWLR 361; (2003) 48 ACSR 97 at [59]. In Bond v Rozenes (1996) 134 ALR 583 at 587 – 588 Sundberg J reviewed the mixed judicial and academic reception which Ashley has had, including that in Theissbacher v MacGregor Garrick & Co [1993] 2 QdR 223 Pincus JA and White J, obiter, at 229 said that the decision in Director of Public Prosecutions v Ashley was hard to reconcile with other authorities (which gave extensive relation-back to the operation of an annulment) and was “perhaps erroneous”. Sundberg J did not choose among the various views expressed on this topic. Nor is it necessary for me to do so.

Conclusions about Whether the Annulment has a Retrospective Effect in the Present Case

68 Treating an act in the law as having a retrospective effect is a familiar legal occurrence. Quite apart from the circumstances involved in the cases mentioned earlier in this judgment concerning setting aside judgments and convictions, and annulment of bankruptcies and marriages, it occurs whenever a court order is made which has effect nunc pro tunc. In the operation of section 447A Corporations Act 2001 (Cth) when the Court makes an order about how Part 5.3A of the Act “is to operate”, by saying that henceforth the past will be treated as being different in some way to the way it actually occurred, the court makes orders with a retrospective effect: John Vouris Re; Epromotions Australia Pty Ltd and Relectronic-Remech Pty Ltd (In Liq) [2003] NSWSC 702; (2003) 47 ACSR 155 at [68] - [72]. The doctrine of relation back in bankruptcy provides another familiar example. So does recision of a contract ab initio.

69 Treating an act in the law as having a retrospective effect has considerable artificiality in it – it involves saying that in the eyes of the law what happened is different to (and sometimes the opposite to) what, on more everyday standards, actually happened. However that sort of artificiality is inherent in the notion of an event which happened being “annulled”. If Parliament has legislated that a bankruptcy will in some circumstances be annulled, it has legislated that this sort of artificiality will occur.

70 The task of the Court in the present case is to decide whether, today, the condition for the plaintiff’s ceasing to be a member of the defendant, namely that he is someone who on 19 May 1997 became bankrupt, has occurred. The Bankruptcy Act 1966 (Cth) has provisions in sections 73 and 74, which have the effect that, today, the bankruptcy which once applied to the plaintiff is one which has been “annulled”. Subject to exceptions which the Bankruptcy Act 1966 (Cth) creates, and exceptions which arise as a matter of the general law, in the eyes of the law it is treated as not having occurred. None of the exceptions in the statute itself operate to give it any residual operation which is relevant to this case. Recognising today that in law the plaintiff was never bankrupt does not involve any upsetting of vested property rights or other vested rights. There is no action which was taken in reliance upon the bankruptcy being on foot and valid, which is relevant to the present case.

71 The principles about when an action taken in reliance on a court judgment will be upset apply in the present case because the sequestration order which was made against the plaintiff is itself a court judgment. The protection that the general law gives to actions taken in reliance on a court judgment arises, in part, from two different considerations. One is that while ever there is a court order on foot, it is to be obeyed by those to whom it is directed. The other is that people ought be able to order their affairs on the basis that once a court decision has been given it is to be taken as correct. In the present case, proceeding, today, on the basis that the plaintiff did not become bankrupt on 19 May 1997 will not undermine either of those policies.

72 Another factor which enters into the court sometimes limiting the effect of actions done in reliance on a court judgment is (as in Wilde) that the Court does not have the power to give an adequate remedy to undo the consequences of someone having acted in reliance on the judgment. That factor does not apply here, where the remedies of declaration and injunction which the plaintiff seeks are well within the Court’s powers. Yet another factor is where there is some policy expressed in legislation (as happened with section 106 Companies Act 1961 (Q) in Wilde, or as seems to be the basis for recognising that an act of bankruptcy based on non-compliance with a bankruptcy notice continues to have effect even if the judgment on which the bankruptcy notice was founded is set aside) which the Court is obliged to give effect to, and which stops a remedy being granted. There is no such factor in the present case.

73 It is not open in the present case to reach a conclusion using the type of reasoning employed by Hill J in Oates v Commissioner of Taxation (1990) 27 FCR 289, for two reasons. First, in Oates Hill J was concerned with the interaction of two pieces of Federal legislation, the annulment provisions of the Bankruptcy Act 1966 (Cth) and section 80(4) Income Tax Assessment Act 1936. One of the recognised sources of a limit on the retrospectivity of annulment is when giving effect to another statute requires that the annulment not be in all respects retrospective. A private contract, like the contract contained in the Articles of Association of the defendant, does not have the same capacity to limit the operation of the retrospectivity of an annulment. Second, in any event the history and purposes of Clause 16(b) cannot be called into play in the present case in a similar way to that in which Hill J in Oates was able to use the history and purposes of section 80(4). Concerning the history of Clause 16(b) the evidence states nothing, and in any event, there are difficulties of principle in using evidence of surrounding circumstances to construe the contract contained in the Articles of Association. While the purpose of Clause 16(b) can be deduced in a very general way – that the members did not wish to associate in their Club, with people who were bankrupt – I do not find any indication in the Articles, considered as a whole, about there being any purpose expressed about whether their wish to not associate with bankrupts extended so far as to wishing not to associate with people who had once been bankrupt, but whose bankruptcy had been annulled.

74 While it is true that the Articles expressly draw a distinction between circumstances in which there can be an expulsion of a member, and circumstances in which a membership is suspended, I do not see that as a reason for not recognising the retrospectivity of the annulment which the plaintiff here asserts. This is partly because I doubt if a private contract can control the effect which a statutory provision for annulment has, and partly because the type of “suspension” of a membership which comes into being upon the pronouncing of a sequestration order, and endures unless and until the resulting bankruptcy is annulled, is a “suspension” which is brought to an end by operation of law. The suspension which arises under express provisions of the Articles is one which can be brought to an end by the action of the member himself, or the effluxion of time (as when there is a decision that a person’s membership be suspended, say, three months) or by the operation of the organs of the defendant itself.

75 While it is true that there is some inconsistency between the treatment of bankrupts under Clause 16(b) and the treatment under the clause of members who enter into arrangements with their creditors under Part X of the Act (see para [29] above), that inconsistency is not a reason for rejecting what would otherwise be the effect of a statute.

76 In these circumstances I conclude that there is no exception of a type recognised by the general law to the retrospective operation of the annulment of the plaintiff’s bankruptcy. The plaintiff is entitled to declarations and an injunction to give effect to the arguments decided in this case.

Waiver

77 After judgement had been reserved in this case, and without any leave to make further submissions being sought or granted, the plaintiff's counsel sent to my chambers further written submissions dealing with the topic of whether the defendant had waived any right it might have had to treat the plaintiff as not being a member. In these circumstances, and those referred to at para [12] above, I shall ignore those submissions. My doing so will not affect the outcome of the case.

1. Declare that on the true construction of Clause 16(b) of the Articles of Association of the defendant, and in the events which have happened, the plaintiff did not cease to be a member of the defendant by reason of the making of a sequestration order against him on 19 May 1997.

2. Declare that the defendant was not entitled on or about 16 August 2001 or at any time thereafter to rely upon the said sequestration order and any resulting alleged bankruptcy of the plaintiff to deny him membership.

3. Declare that the plaintiff at all material times since 16 August 2001 has been, and continues to be, a member of the defendant.

4. Order that the defendant, by itself its servants and agents, not assert that the plaintiff is not a member of the defendant by reason of the said sequestration order or any resulting alleged bankruptcy.

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04/04/2005 - Addendum added - Paragraph(s) end of judgment

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Citations

Battenberg v Union Club [2005] NSWSC 242

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CITATION:	Battenberg v Union Club [2005] NSWSC 242 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	7 March 2005
JUDGMENT DATE :	30 March 2005
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Annulment has the effect that member still a member

CATCHWORDS:	CORPORATIONS - membership - Articles of Association say member shall cease to be a member if he becomes bankrupt - sequestration order made against member - bankruptcy later annulled - whether member still a member - BANKRUPTCY - discharge of bankrupt and annulment of sequestration order - annulment pursuant to section 74 Bankruptcy Act - effect of annulment on bankrupt's membership of corporation which has Article saying a member ceases to be a member if he becomes bankrupt - JUDGMENTS AND ORDERS - setting aside - effect of setting aside considered generally - effect of setting aside sequestration order by statutory provision for annulment on operation of clause in corporation's Articles that member ceases to be a member if he becomes bankrupt
LEGISLATION CITED:	Aboriginal Housing Act 1998 Aboriginal Land Rights Act 1983 Administrative Decisions Tribunal Act 1997 Bankruptcy Act 1966 (Cth) Companies Act 1961 (Q) Conveyancers Licensing Act 2003 Corporations Act 2001 (Cth) Funeral Funds Act 1979 Government Railways Act 1912 Income Tax Assessment Act 1936 (Cth) Inheritance (Family Provision) Act 1938 (UK) Justices of the Peace Act 2002 Partnership Act 1982 Powers of Attorney Act 1993 Western Lands Act 1901
CASES CITED:	Re Baysington Pty Ltd (1987) 12 ACLR 412 In Re The Bodega Company, Limited [1904] 1 Ch 276 Bond v Rozenes (1996) 134 ALR 583 Re Bond; Ex parte Ramsay (1992) 92 ATC 4807; (1992) 25 ATR 61 Caboche v Ramsay (1993) 119 ALR 215; (1993) 93 ATC 5135; (1993) 27 ATR 479 In Re Carew [1896] 2 Ch 311 The Commissioner for Railways (New South Wales) v Cavanough (1935) 53 CLR 220 The Commonwealth v McCormack (1984) 155 CLR 273 Coyle v Cassimatis (Supreme Court of Queensland, Court of Appeal, 1 November 1993, unreported) In re D'Altroy's Will Trusts [1968] 1 WLR 120 In re Dewhirst; Flower v Dewhirst [1948] Ch 198 Director of Public Prosecutions v Ashley [1955] Crim LR 565 Dodworth v Dale [1936] 2 KB 503 In re Eaves; Eaves v Eaves [1939] Ch 1000 In re Eaves; Eaves v Eaves [1940] Ch 109 Re Fitzgerald; ex parte Fitzgerald (1988) 99 ALR 189 In re Forder [1927] 2 Ch 291 Re French Caledonia Travel [2003] NSWSC 1008 Grady v The Commonwealth for Railways (NSW) (1935) 53 CLR 229 Guss v Johnstone (2000) 74 ALJR 884 Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378 Re Hayes; ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216 Re Hudson; Ex parte ANZ Banking Group Ltd v Bird (1994) 50 FCR 281 King v Henderson [1898] AC 720 Lynch v Hargrave [1971] VR 99 McIntosh v Lobel (1993) 30 NSWLR 441 Meerkin & Apel v Rossett Pty Ltd (No 2) [1999] 2 VR 31 Metcalfe v Metcalfe [1891] 3 Ch 1 National Australia Bank Ltd and Others v Bond Brewing Holdings Ltd and Others [1991] 1 VR 386 Re Oates; ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402; (1987) 88 ATC 4038 Oates v Commissioner of Taxation (1990) 27 FCR 289 Permanent Trustee Co Ltd v Cormack (1920) 21 SR (NSW) 1 Production Spray Painting & Panel Beating Pty Ltd & Ors v Newnham & Others (No.2) (1992) 27 NSWLR 659 R v Lapuse [1964] VR 43 Rainsford v the Trustee of the Salisbury Club (1914) SR 65 Rainsford, Appellant v Trustees of the Salisbury Club, Respondents (1914) App D 499 (S Africa) Rimanic v Business Licensing Authority [2002] VSCA 64 In re Rodwell, decd; Midgley v Rumbold [1970] 1 Ch 726 Salter v NCSC [1989] WAR 296 Santos Ltd v Pettingell (1979) 4 ACLR 110 In Re Scientific Investment Pension Plan Trusts [1999] Ch 53 Simon v HPM Industries Pty Ltd (1989) 15 ACLR 427 In Re Smith [1916] 1 Ch 369 Stanham v National Trust of Australia (NSW) (1989) 15 ACLR 87 Theissbacher v MacGregor Garrick & Co (1993) 2 QdR 223 Torsir Pty Ltd v Maxgrow Developments Pty Ltd (No 2) (1995) 7 BPR 14,392 Vella; Ex parte Seymour (1983) 67 FLR 287 John Vouris Re; Epromotions Australia Pty Ltd and Relectronic-Remech Pty Ltd (In Liq) [2003] NSWSC 702; (2003) 47 ACSR 155 In re Weibking; ex parte Ward [1902] 1 KB 713 White v Tomasel [2004] QCA 89 Wilde v Australian Trade Equipment Pty Co Limited (1981) 145 CLR 590 In re Wombwell's Settlement [1922] 2 Ch 298 Worrell v Westpac Banking Corporation (1994) 51 FCR 304
PARTIES:	Lord Andrew Charles Robert Battenberg - Plaintiff Union Club - Defendant
FILE NUMBER(S):	SC 2448/04
COUNSEL:	M R Aldridge SC; J R Dupree - Plaintiff T F Bathurst QC; M J Darke - Defendant
SOLICITORS:	Russo and Partners - Plaintiff Minter Ellison - Defendant