Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd

[1992] HCATrans 88

~

~ -.~·,..

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M66 of 1991

B e t w e e n -

BRICK & PIPE INDUSTRIES LTD

Applicant

and

OCCIDENTAL LIFE NOMINEES PTY

LTD, OCCIDENTAL LIFE INSURANCE

CO OF AUSTRALIA LTD and REGAL

LIFE INSURANCE LTD

Respondents

Application for special leave

to appeal

MASON CJ
DEANE J

GAUDRON J

Brick 1 13/3/92

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 MARCH 1992, AT 3.24 PM

Copyright in the High Court of Australia

MR P.G. HELY, QC:  May it please the Court, I appear with my

learned friend, MR J.L.B. ALSOP, for the applicant.

(instructed by Marshalls & Dent).

MR F.H. CALLAWAY, OC:  May it please the Court, I appear

with my learned friend, MR J. ELLIOTT, for the

respondents. (instructed by Freehill Hollingdale &

Page)

MASON CJ: Yes, Mr Hely?

MR HELY:  Your Honour, this application seeks to bring

forward for the Court's consideration the proper

construction and effect of two provisions of the

Companies Code. The first is section 230 which

deals with loans to directors, and the second is

section 68A(4) which deals with a ceiling of

instruments, and the two questions are quite

distinct.	And I come, first, to the section 230
question.

If one turns to page 178 of the papers, one

sees the section reproduced. Its effect is to
prohibit a company from making a loan to one of its

directors or to another company controlled by such

a director in particular circumstances.

Subsection (b) is the subsection with which the

Court is principally concerned, and its effect is

that where a company is prohibited from itself

making a loan, it may not:

give a guarantee or provide security in

connection with a loan made -

by a third party.

What happened here is that the Occidental

group provided money to a company called Spersea

and Brick & Pipe entered into a deed of guarantee

and indemnity. Spersea defaulted. Brick & Pipe

has been called upon, pursuant to the deed of

guarantee and indemnity, and that document, if

valid, will produce the consequence that Brick & Pipe will pay to the Occidental group the moneys which that group paid to Spersea. That was held

not to contravene section 230 of the Code for two
reasons: firstly, because there could be found in

the deed of guarantee and indemnity a severable

indemnity and because, according to the judges

below, section 230 did not operate with respect to

an indemnity.

Secondly, the word "security" where appearing

in section 230 was confined to a security upon

property, as distinct from a personal covenant.

The reasons of the Full Court for coming to this

Brick 2 13/3/92

conclusion appear upon pages 181 to 182 of the

papers. What Their Honours did was to commence

with the proposition that the expression

"guarantee" and the expression "security" were wide enough to encompass, or sufficiently flexible so as

to encompass, the parts of the instrument which are

attacked in the circumstances of the present case.

But notwithstanding the conclusion that the words

had sufficient breadth to cover the circumstances

of the present case, they gave them a confined or
restricted operation. In giving them a confined or

restricted operation, they have produced the

consequence that whereas a pure guarantee would be

proscribed, had instrument which takes a slightly

different form but which has the same practical

consequence, is not. We would submit that that is

an absurd result, and one which disobeys the

injunction in section SA of the Companies and

Securities (Interpretation and Miscellaneous

Provisions) Act, which requires a purposive construction to be given to all provisions of the

Code itself.

So, our first complaint is that whilst

accepting that the words of the section were broad

enough to cover the circumstances of the present

case, the court improperly confined the meaning of

those terms so as to exclude the circumstances of

the present case and so as to produce a result

which, we submit, is absurd. The question is, I

suppose, "Why is that an appropriate case for

special leave?" and we would submit that the

provisions of the Companies Code have been carried

into effect in the same form in the Corporations

Law.

Secondly, what is concerned with a common form

of financing transaction, hence this issue is

likely to arise upon a number of occasions and,

thirdly, whilst there has been published an

exposure draft directed towards the possibility of	amendment to the legislation so as to specifically	incorporate the giving of an indemnity within its
proscription, we would submit that the mere fact of that exposure draft would not deter the Court from
granting special leave.

One still has to establish, even if the Court

were persuaded that this document amounted to the

giving of a loan or to the giving of a guarantee or

the provision of security, that it was in

connection with a loan made from Occidental

to Spersea. This was a point which was found

against us by the trial judge and not dealt with by

the Full Court. The trial judge, he said with some

hesitation, came to the conclusion that there was

Brick 3 13/3/92

not a loan from Occidental to Spersea, but simply

the purchase of bills of exchange.

We submit that that conclusion was wrong and

should be reviewed by this Court, principally for

these reasons: firstly, one can accept that in the usual tripartite situation where a bill of exchange

is drawn by a person, accepted by another, and

discounted by a third, that there is no loan of

money. The authorities establish that the

acceptor, by putting his name on such as bill, does

not lend money. They also establish that the

discount house by discounting such a bill does not
lend money, it simply purchases an asset.

There is no-case, which we have been able to

find, which considers the type of arrangement which
existed here, which was purely bilateral in the

sense that Occidental, pursuant to a contractual

arrangement, simply paid money to Spersea in return

for bills of exchange drawn by Spersea on

Occidental. The only academic commentary which we

have come across upon that issue appears at

page 98. Its an article by Mr Lehane in which, to

put it at its lowest, he at least questions and

doubts whether this two-party transaction

constitutes the purchase of a bill of exchange, or

whether it constitutes the making of a loan.

Now, we say that one cannot sensibly talk in

terms of buying an instrument upon which the

purchaser as acceptor is principally liable. The

features of this transaction, which we rely upon as

constituting it as a loan are these: firstly,

Spersea by drawing the bills did not become

entitled to receive any money from anyone. Its

entitlement to receive money depended upon the

promise by Occidental contained in the facility

agreement to discount the bills.

Second, Spersea, as drawer of the bills, did not become liable on the bills to repay money to
Occidental.	The source of its obligation to repay

the moneys provided were contractual promises

contained in the facility contract. And, fourthly,

Occidental, pursuant to the facility contract, was entitled to require the moneys paid under the

agreement to be repaid prior to the date fixed by

the bill. Thus, one has a situation in which money

is paid over, pursuant to a contract, in return for

a promise to repay that money plus the discount.

That, we submit, satisfies the ordinary description

of a loan, and it is quite unreal to characterize

that transaction as being a purchase of bills of

exchange. In truth, the bills of exchange played

no part in the financing process.

Brick 4 13/3/92

We would submit that this question as to

whether there was or was not a loan is not a matter

which is peculiar to the documentation which was

used in this case. It is a question of general

application, as appears from the affidavit of

Mr Lehane, sworn on 5 March 1992, in which he

indicates that these are common transactions which

are documented in a common form. The features

which exist in the instant case upon which we rely

to suggest that this is a loan, are features which

are common to transactions of this type.

In addition, we would submit that the

considerations of justice in the particular case

would justify the granting of leave here, firstly,

because the judge came to his conclusion, with some

hesitation and, secondly, because the way in which the Full Court approached the matter has denied to

my client any appellate review of that conclusion
hesitatingly reached. So, for those reasons, we

would submit that the grant of special leave is

appropriate.

I referred to the discussion paper which

changes the section so as, specifically, to include

an indemnity. Whilst the definition of "loan" has

been changed or is proposed to be changed, the

proposals do not touch the circumstances of the

present case and if the section is enacted in the

proposed form the same question, which arises in

the circumstances of this case, would arise with

respect to the new legislation. Those are the

submissions I wanted to put on section 230.

The second question, as I have said, concerns

section 68A. If Your Honours would please turn to

page 32, Your Honours will see article 107 of the

articles of association of Brick & Pipe. They

require or they specify the conditions which are to

be complied with before the company seal is affixed

to a document. One such condition is a resolution

of the board of directors of the company.

resolution was passed in the circumstances of the No such

present case.

On page 157 and page 158, one sees the

provisions of section 68A set forth.

Subsection (1) permits the making of:

the assumptions referred to in

sub-section (3) -

subject to subsection (4). In this case, the deed

of guarantee and indemnity, as I have said, was not

the subject of any board resolution, but it was

executed under common seal by Mr Goldberg as a

director, and by Mr Furst, as secretary. Furst did

Brick 5 13/3/92

not hold the office of secretary but he was a

director. The court held that pursuant to (3)(c),

he having been held out by the company as
secretary, persons were entitled to assume, in

effect, that he had the powers and functions of

that office. The court had then turned to

paragraph (e) and came to the conclusion that the

instrument was duly sealed because it bore an

· impression of the seal and was attested by persons

with respect to whom people were entitled to make

relevant assumptions.

Subsection (4), in particular paragraph (a),

provides that one cannot:

make an assumption referred to in

sub-section (3) -

if you have -

actual knowledge that the matter that, but for

this sub-section, he would be entitled to

assume is not correct.

The case that we sought to put before the Full

Court was that Occidental had actual knowledge that there had been no resolution of the board

authorizing the affixation of the seal in the

circumstances of the present case. The Full Court

had dealt with this matter at page 167 - - -

GAUDRON J:  Mr Hely, that turns entirely on when the

document was executed, does it?

MR HELY:  No, Your Honour, it, in fact, is not related to

that subject-matter at all. What one is concerned

with is what is meant by this expression ttdue

sealing". Our submission is that there is only due sealing if all of the provisions of the articles as

to sealing have been complied with. It is only in

those circumstances that one can say that a

document has been duly sealed. Subsection (3)(e)

says and there can be due sealing if you are

entitled to make those assumptions, and

subsection (4) says, if you have got actual

knowledge of the incorrectness of the matter which, otherwise, you could assume, then you cannot assume

it. We said there was actual knowledge of the

absence of a board resolution, and the court said

that, as a matter of construction of the statute,

even if that be true as a matter of fact, it was irrelevant to the questions of due sealing. And

that is what Their Honours said at 167 to 168.

GAUDRON J: But is there a finding of actual knowledge that

there was no resolution?

Brick 6 13/3/92

MR HELY:  I am so sorry, that is the second question.

GAUDRON J: Yes.

MR HELY:  No, there is not.

GAUDRON J: There is not? And to support that actual

knowledge you go back, do you not, to the date on

which the seal was fixed on the document rather

than the date on which it bears?

MR HELY:  Yes. I think probably the best way I can put it

is this: would Your Honour please turn to

page 196, at about line 25, across to 197 at about

line 19. This is the affidavit in support of the

application for special leave, and it lists the

facts upon which we would rely in asserting actual

knowledge.

GAUDRON J: But there was no finding?

MR HELY: There was no finding, and I have to go a little

further. I have to take Your Honour to page 64, in

the judgment at first instance, at line 8, in the

passage commencing:

The matter raised went only to an assertion that Mr Dodge -

and so on, and at line 15, His Honour says:

I am by no means satisfied that Mr Dodge had

the relevant actual knowledge at any time

before completion of the transaction -

but then he goes on to say but in any event on the

proper construction of the statute it would be

irrelevant, and then on page 66, at about line 5,

in the passage commencing "Moreover", His Honour

says that, of the absence of meetings, "the

defendants knew nothing.", which means that I am in

a slightly worse position than the position that

Your Honour was putting to me but I have to say

this: these two findings were challenged in the

Full Court and the Full Court has just not directed

itself to that challenge at all. It has gone off

on the basis of a misconstruction of the statute,

we respectfully submit, as a result of which it has

simply not dealt with or challenged those findings

of fact and, again, there has been no appellative

review of those findings.

So, we do submit that if Your Honours are

satisfied that there is substance in our criticisms

that we offer on the legal point, that the Court

ought not to be deterred from granting special

leave, firstly, because the trial judge gave but

Brick 7 13/3/92

cursory consideration to the factual position, and

the Full Court, notwithstanding the challenge, gave

to it none at all.

GAUDRON J: In this area, though, to be ultimately

successful, you have to succeed on your

construction point and you have to have facts found

for you and, at the end of the day, it is of no

consequence unless you also survive the ruling

Duomatic, is it?

MR HELY: True. The rule, Duomatic, has its own

fascinations.

GAUDRON J:  But this point avails you nought unless you

survive Duomatic.

MR HELY:  To get up on this point I have to satisfy the

Court, firstly, that there is an error of

construction of section 68; secondly, that there

was, in fact, actual knowledge. I would propose to

satisfy the second of those matters, principally,

by what is on pages 196 and 197 and, thirdly, I

have to get over Duomatic, but to get over

Duomatic, we would submit, is not an awesome

hurdle. It is an obstacle of the most modest

proportions and, again, one only has the decision

of the trial judge on that question which, at

least, superficially, is inconsistent with a

Appeal of New South Wales upon the same question.	decision of Mr Justice Meagher in the Court of of the Full Court. So, there are ripples but, I
would submit, they are nothing more than that.
And, of course, they do not bear upon the
section 230 point, which is quite independent of
them.

GAUDRON J:	No.
MR HELY:	So far as the Duomatic point is concerned, our

principal proposition would be that if the giving

of guarantees was, pursuant to the articles, a

matter which was committed to the authority of the

directors, the general meeting by formal resolution

cannot tell the directors how they should discharge

their functions in that regard. If the general

meeting cannot do so, directly and formally, then

it cannot do so indirectly and informally by

Duomatic-type principles. So Duomatic throws up

quite a number of crisp and, perhaps, significant

legal questions but nothing much in the way of

factual problems.

DEANE J:  Mr Hely, I think I have missed something. You

said the 230 point is quite distinct from the 68

point?

Brick 8 13/3/92

MR HELY:  Yes, Your Honour.

DEANE J: If there was no knowledge under (4)(a), why would

not (3)(a) affect the section 230 point?

MR HELY:  Because the section 230 point assumes the full

validity of the instrument. The section 68A point

goes to sufficiency of execution and to form

validity. Section 230 says that if you have an.

instrument which is properly executed and, apparently, valid, it is struck down if it constitutes the giving of a guarantee or the

provision of a security in relation to a loan, to

one of the prescribed class.

DEANE J: But if (3)(a) applies and they can assume the

memorandum and articles of a company have been

complied with, and the memorandum and articles require their resolution as directors in these circumstances, is that relevant to the 230 point?

MR HELY:  No, Your Honour. Section 230 operates totally

independently of the company's constitution. It

assumes full validity and constitutional regulatory

but it, none the less, operates to strike down the transaction if the requirements of the section are

satisfied, and in order for those requirements to

be attracted it is simply a question as to whether

the company, in this case Brick & Pipe, gave a

guarantee or provided a security in connection with

a loan disbursed, so that there is - - -

DEANE J: What I had in mind was 230(3)(b) which excludes a

case where the:

making of the loan, the giving of the

guarantee ..... has been authorised by a

resolution of the directors.

MR HELY:  No, it was common ground between us in the Full

Court that if this document had constituted the

giving of a guarantee or the provision of a

security, and if the transaction between Occidental

and Spersea satisfied the description of a loan,

then section 230 applied to invalidate the

transaction.

DEANE J: And it mattered not that section 68 provided that

the person dealing with the company was entitled to

assume that there had been a resolution of

directors?

MR HELY: No. Firstly, there was an issue - - -

DEANE J:  I am not trying to be difficult I am just trying

to understand. Is the position this, that its

common ground that even though section 68 operated

Brick 9 13/3/92

to entitle the alleged lender to assume that there

had been a resolution of directors, that that is
irrelevant to the question whether

section 230(3)(b) applies?

MR HELY:  That was certainly the case in the Full Court, and

I was looking at page 179 - - -

DEANE J: It is no doubt quite right, I cannot find my way

at all around these company codes.

MR HELY:  Your Honour, it is getting worse.

DEANE J: Yes, but I was just trying to understand why that

was not so.

HELY J:	Can I direct Your Honour's attention to page 179,
line 46, which specified the issues before the Full
Court, and perhaps a more direct response to Your Honour's question is that 230(3)(b) is
concerned with fact and not with fiction. Section 68A, in the circumstances to which it
applies, permits one to assume to be so that which
may not accord with the fact.  But when one comes
to section 230(3) the legislatipn is concerned with actual facts, not with assumptions or fictions, and
it was certainly common ground, both at first
instance and on appeal, that there was no such
resolution in fact.  Those are our submissions, if
the Court pleases.

MR CALLAWAY: If the Court pleases.

MASON CJ:  Mr Callaway, is it conceded that there is no

connection between 230 and 68, in other words,

that 230(3)(b) is looking to a resolution in fact?

MR CALLAWAY:	The first part of Your Honour's question was common ground in the Full Court, but the reasons
suggested in the second part of Your Honour's question does not seem to have been addressed at all, but it is clear that in the Full Court no
attempt was made to interrelate section 68A with
section 230 in such a way as to get over the
alleged section 230 difficulty. Whether it would
be too late to resile from that if special leave
were granted is another question. There may well
be difficulties, and no doubt there were good
reasons why counsel did not seek to argue that.
DEANE J:	You should not contemplate resiling from my

questions. I was just - - -

MR CALLAWAY:  No, no. I am just conscious, Your Honour,

that -

DEANE J:  - trying to see the answer to it.

Brick 10 13/3/92

MR CALLAWAY:  - - - I may not have the conduct if the appeal

for special leave were granted and I would not want

to say more than is necessary for today's purposes.

Certainly, for the purposes of the special leave

application, I am content to argue it on the basis

that there is no link.

MASON CJ: We need not hear you then, on that point. All we

wish to hear you on is section 230.

MR CALLAWAY: If the Court pleases. Might I assume, solely for the purpose of presentation of the submission,

that there is something in the section 230 point,

that it would be a special leave point?

MASON CJ: Well, we are making that assumption at the

moment.

MR CALLAWAY:  Yes. Well, consistently with the Court's

guidance, if that was so, this case would still, in

our respectful submission, be a horribly unsuitable

vehicle for the consideration of section 230. In
the first place, even if the applicant succeeded on
the guarantee and security point, the meaning of
the word "guarantee", the meaning of the word
"security", in section 230(l)(b), the result of the

case would not be different if the respondents

succeeded on the loan point, as they did before

Mr Justice Ormiston. Secondly, even if the

applicant succeeded on the guarantee and security

point, that point is likely to be academic if the

draft legislation is enacted, and later I desire to

take the Court very briefly to that draft

legislation because, whilst it is heavy enough to

require a wheelbarrow, the actual section is quite easy to identify and the proposed new section will

expressly refer to "guarantee" or "indemnity".

Thirdly, the Court has no assistance from the

Full Court on the loan point, and the loan point itself arose in what the Full Court described, at

page 180, line 15, as "an atypical litigious

setting." So that the Court is not given the

opportunity to take an isolated question of

construction of the words "guarantee" and

"security". It is a Siamese twin with the, we

would say, largely factual question of whether this

bill facility, in fact, involved a loan.

DEANE J: Except, with the amount of money involved here,

there would not be any real problem if we disagreed on the construction of 230 and its applicability to

the document in sending the loan question back to

the Full Court, so it could be addressed as it

possibly should have been in the first place.

Brick 11 13/3/92

MR CALLAWAY: Well, Your Honour, the amount of money

involved is, if I might respectfully submit, a

two-edged sword. These companies are life

insurance companies under judicial management. The

ultimate question that lies behind the veil of the

law is when the unfortunate policy owners will get

some money, if they do. So that that is a factor

which we submit is relevant in the Court's

discretion in granting special leave.

The unsuitability of the case - and I do not wish to dwell on this, but it would be foolish not

to remind the Court of it - is also illustrated by

the fact that this was a case in the commercial

list that somehow went wrong and went for five

weeks in the commercial list, with all the

attendant problems to which the learned primary
judge refers: the 20 witness' statements and and

the nearly 1000 pages of oral evidence and so on

and so forth. Unless the Court could make a clean

break between the question of construction and the

question of fact, that would militate against this

being a suitable vehicle.

Might I briefly take the Court to the proposed

legislation? It will not take more than a few

minutes but it does illustrate clearly why the

question is likely to become academic.	We thought
as it was only - - -

MASON CJ: What was the question of fact that you were

adverting to just then, Mr Callaway?

MR CALLAWAY: Whether the bill facility, in the circumstance

of this case, constituted a loan or not,

Your Honour. As this is only draft legislation, we

thought, perhaps, in an abundance of

conscientiousness that it should be exhibited to an

affidavit explaining its status. The Registry very

properly refused to receive the affidavit, I think,

yesterday.	I really just desire to hand up the
book to Your Honours, as one might hand up other

material. At page (i) it is explained that this is

an "exposure draft" of a bill to reform corporate

law. At page (ii), it is said that:

it is intended that the legislation be

introduced into Parliament during the Autumn

Sittings this year -

but then comments are invited. The relevant part

of the legislation is the proposed new part G,

which begins at page 59. Your Honours will see

there are page numbers in the bottom right-hand

corner of each page, and at page 60, in a section

described as G234, the whole of section 234 of the

Corporations Law is repealed. That, of course, is

Brick 12 13/3/92

the section which corresponds with section 230.	It
is replaced by voluminous provisions, but it is
sufficient for the moment to go first to
section 243BA, which is on page 82, and which, if

there is a centre of gravity in these provisions,

is the centre of gravity, providing that subject to

certain exemptions:

a company other than an exempt company must

not enter into a regulated financial
transaction in relation to a person who is

relevantly connected with the company.

A ttregulated financial transactiontt is defined on

page 77 in the section.243AQ, and Your Honours will

see that - - -

DEANE J:  You are going a bit fast.

MR CALLAWAY:  I am sorry, Your Honour. Your Honours will

see in paragraph (d) the draftsman has expressly

picked up the indemnity point so that that section

would say, omitting immaterial words:

a company enters into a regulated financial

transaction in relation to a person if the

company .....

(d) enters into a guarantee or indemnity, or

provides a security, in connection with:

(i) a loan or quasi-loan made, or to be made,
to the person.

So that the principal point sought to be agitated in this honourable Court is likely to be addressed in this legislation. I would add, without taking

up too much of the Court's time on it, that while

that is clearly so because the words say so, it is

arguable that the bill facility loan point is taken

up too. It may be that the definition of

"quasi-loan" would extend to a bill facility and it

may be that the "catch-all" provision, in 243AQ(h)

would pick up a bill facility, but that is a

question of some difficulty, which would hardly be

appropriate on a special leave application.

None of that is to suggest, if the Court

pleases, that there is something wrong with what

the Full Court and Mr Justice Ormiston said about
the meaning of the words in the present section -

or rather in section 230. In a statute, a

guarantee does, prima facie, mean an obligation to

answer for the debt, default or miscarriage of

another. It is not correct to say that in statute

one finds the word "guarantee" used, in a loose

sense, to include an indemnity. The stronger

Brick 13 13/3/92

argument, if one may say so for the purpose of

forensics, is the security limb, but there there

are two difficulties at least, in the way of saying

that an indemnity is a security.	One is the words
of legislation itself.	The legislation says

"guarantee or security", "not guarantee or other

security". The words thereby suggest that a

guarantee would not have been the kind of security
that the legislature had in mind, thereby lending

force, in our respectful submission, to the

holdings of all four judges who have considered it,

that it is a security in relation to property that

is considered.

That was the gist·of the Full Court's

reasoning. Mr Justice Ormiston also added the

observation that an indemnity is a primary

obligation and if one thinks about it, in a

prohibition against loans coupled with a

prohibition against giving a guarantee - secondary

obligation - or providing a security, an indemnity

does not lend itself to inclusion in the term

"security". It is a primary obligation, however

much it may give comfort to the creditor in

question.

My learned junior reminds me that in the

Moschi case Lord Diplock, in very clear terms,

referred to the difference between a guarantee and

an indemnity in terms which, in our submission,

would not suggest that the legislature is likely to

use the word "guarantee" in some loose sense.

Your Honours, in our submission, the decision of the Full Court, reinforced by

Mr Justice Ormiston's reasoning on the loan

question, is correct. But if the Court granted special leave, it is unlikely the result of the case would change, and for the other reasons I

mentioned earlier, quite apart from that, this is

an unsuitable vehicle for the consideration of what
would seem to be transient statutory language.	As

that is the only point Your Honours desired me to

address - - -

DEANE J: Mr Callaway, can I just raise this with you? I am

right, am I not, that the relevant clauses are at

pages 291 and 292, that is clauses 2.l(a) and (b)?

MR CALLAWAY:  Yes. Your Honour, judging by the judgments

below, the way that the matter was taken was that

2.l(a) is the guarantee and 2.l(b) is an indemnity

and they are separate and severable and the

indemnity falls outside section 230.

DEANE J: Well, you are answering what I was going to ask

you actually.

Brick 14 13/3/92

MR CALLAWAY:  I am sorry, I did not mean to interrupt

Your Honour.

DEANE J:  No, you are not. What I was going to ask you was,

was anything said about the proposition that (a) is

a guarantee of performance, (b) is an indemnity

against breach of performance and, in that context,
if the guarantee of performance falls as unlawful,

(b), being the indemnity against breach of the

guaranteed performance, must necessarily fall as

incidental?

MR CALLAWAY:	So far as I am aware, Your Honour, no.
DEANE J:	I see.
MR CALLAWAY:	The document does, in fact, contain at least

three indemnities. Somewhere later on there is the

usual clause, I think associated with Carruther's

case - an unhappy memory, but if there is something

wrong then there is another indemnity and

everything applies mutatis mutandis.

DEANE J: Well, (b) seems to be the one that the courts

dealt with but, as you say, it seems to have been

approached on the basis that if (b), looked at

discretely, is not a guarantee, that is the end of

that argument. Am I correct in that?

MR CALLAWAY: Well, that is certainly the way it is recited

in the judgments below. Your Honour, it is a

curious feature that section 3.2 appears to apply
to both limbs and is at great pains to say that the
obligation are primary obligations.

Mr Justice Ormiston referred to that, and seemed to

read it and, judging by the judgment, with some

encouragement from the parties, as a clause that

was an appendant to (b), but it is not at all

obvious that it is just appendant to (b) - - -

DEANE J: But also if an indemnity is given to back up a

guarantee, the fact that the parties say the

indemnity is quite independent may not be the end

of the matter.

MR CALLAWAY: Well, it was apparently common ground that it

was, Your Honour, reading the judgments, but it is

also probably true to submit that even if the Court

could free itself of the loan question it might not

be a particularly neat question of construction,

given the shape of this document. If the Court

pleases, those are our respectful submission.

MASON CJ: Thank you, Mr Callaway. Yes, Mr Hely.

MR HELY:  Your Honour, there is no issue of fact so far as

the making of a loan is concerned. All of the

Brick 15 13/3/92

primary facts are established, not disputed and

indisputably. The question is purely a question of

characterization.

The fact that Your Honours do not have the

benefit of the assistance of the Full Court is, we

respectfully submit, not a reason for refusing

special leave but a reason for granting it.	We
would submit that the crisper the question of

indemnity, the less one is concerned with questions

of peculiarity of the construction of this

document. It, having been approached in the way it

was, in the Full Court, throws up a much crisper

issue, less dependent upon the precise clauses in

the document than perhaps the issue that His Honour

Mr Justice Deane had in contemplation. Those are

our submissions.

MASON CJ:  The Court will take a short adjournment in order

to consider the course it will take in this matter.

AT 4.15 PM SHORT ADJOURNMENT

UPON RESUMING AT 4.23 PM:

MASON CJ: This application seeks to raise questions of

construction relating to the meaning of the words

"guarantee" and "security" in section 230(l)(b) of

the Companies Code. We agree with the conclusion

reached by the Full Court of the Supreme Court that

the words "guarantee" and "security" do not
comprehend a free-standing indemnity. That being
so, we do not consider that leave should be granted

on the section 230 point.

In so far as the section 68A point is

concerned, the case does not provide a suitable
vehicle for the determination of the only question
of general importance involved. The application

for special leave to appeal is therefore refused.

MR CALLAWAY:	If the Court pleases, we ask for costs.
MASON CJ:	You do not oppose costs, Mr Hely? The

application is refused with costs.

AT 4.25 THE MATTER WAS ADJOURNED SINE DIE

Brick 16 13/3/92