CGU Insurance Limited v One.Tel Limited (In Liquidation)

[2010] HCATrans 60

[2010] HCATrans 060

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney     No S294 of 2009

B e t w e e n -

CGU INSURANCE LIMITED ACN 004 478 371

Applicant

and

ONE.TEL LIMITED (IN LIQUIDATION) (ACN 068 193 153)

First Respondent

CHRISTINE WATSON AS REPRESENTATIVE OF THE ESTATE OF THE LATE DAVID PATRICK WATSON

Second Respondent

JOHN HUYSHE GREAVES

Third Respondent

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Fourth Respondent

Application for special leave to appeal

GUMMOW J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 MARCH 2010, AT 11.47 AM

Copyright in the High Court of Australia

__________________

MR A.W. STREET, SC:   May it please the Court, I appear with my learned friend, MR E.G. ROMANIUK, for the applicant.  (instructed by Colin Biggers & Paisley Solicitors)

MR B.A.J. COLES, QC:   If your Honours please, I appear with my learned friend, MR P. KULEVSKI, for the first respondent.  (instructed by Clayton Utz Lawyers)

GUMMOW J:   Yes.  There is a submitting appearance for the second and fourth respondents, is that right?

MR STREET:   Yes, your Honour.

GUMMOW J:   And no appearance for the third.  Thank you.  We would be assisted by hearing first from you, Mr Coles.

MR COLES:   Thank you, your Honours.  Your Honours, the applicant’s contentions that the nominated trustee appointed by the deed of arrangement cannot maintain the proceedings against it in consequence of the termination of the deed seems to us respectfully dependent upon the essential proposition that the authority to bring that proceeding and to continue or maintain it derives from the deed and requires some underpinning statutorily from the Act at the time to support the present proceeding.

GUMMOW J:   The deed draws its life from the statute, does it not?

MR COLES:   Yes, indeed, but the point, I suppose ‑ ‑ ‑

GUMMOW J:   But for the statute, the deed would not be worth much.

MR COLES:   But the point is the deed itself contemplated during the life of the deed an event which did happen, that is to say, the assignment which was completed by notice and was, it seems fair to say, effective at law whereby the chose in action in question was assigned by the debtor, Mr Greaves, to the then trustee Mr Watson and that assignment was undoubtedly effectual at law during the life of the deed and well before it terminated.  The authority then and thereafter to institute and maintain and, in our respectful submission, to continue the proceedings instituted against CGU to enforce that chose in action did not derive from and did not depend on the continuance of the deed itself or, for that matter, any authority contained in the Act.  I will come back to that latter point in a moment, but can I explain to your Honour how, in short, one can identify the basis of the trustee’s entitlement to sue.

GUMMOW J:   When you talk about assignment, Mr Coles, it has to be absolute.

MR COLES:   Yes.

GUMMOW J:   What do you say?  It has got to be absolute in the terms of section 12 of the Conveyancing Act.

MR COLES:   Could I trouble your Honours to receive, if it is of interest, copies of section 12 to make shortly the point I was about to mention before I make the other point in relation to the Bankruptcy Act itself.

GUMMOW J:   Yes.

MR COLES:   I am sorry, I may have interrupted your Honour.  Could I just draw attention, if it is convenient, to the provisions of section 12 which familiarly expresses a ‑ ‑ ‑

GUMMOW J:   There is a question here of the interaction between section 12 and the federal law, the Bankruptcy Act, is there not?

MR COLES:   Inasmuch as the federal law supported the creation of the deed and the deed contained be provision for the assignment there is, but no question in a sense of any consistency or any failure or inability of the respective provisions to operate harmoniously arises. 

GUMMOW J:   No, but I think it is said against you in the written submissions at page 110, paragraph 44 that the effect of the Bankruptcy Act is that the assignment was not absolute and conditional because it only remained effective while the deed operated and that seems to be an area of debate.

MR COLES:   Yes, that is the proposition I am seeking to deal with.  The Act of course ‑ ‑ ‑

GUMMOW J:   Why is that not a special leave question?

MR COLES:   Can I shortly say why, in our respectful submission, whilst perhaps interesting, your Honour would not be attended with sufficient doubt to justify such a grant.  It is simply this, your Honour, that the Bankruptcy Act itself or the then provisions dealing with ‑ ‑ ‑

GUMMOW J:   The Bankruptcy Act.

MR COLES:   The Bankruptcy Act dealing with the relevant then operative provisions relating to deeds of arrangement in the events that happened that allowed the prospect that a deed of arrangement might contain, as indeed this deed of arrangement did, assignment ‑ ‑ ‑

GUMMOW J:   Or might come to an end.

MR COLES:   Indeed, explicitly contemplated ‑ ‑ ‑

GUMMOW J:   .....absolute in terms of section 12.

MR COLES:   Inasmuch as the Act contemplated or at least did not forbid the inclusion in a deed of arrangement of an assignment, it laid down no particular provisions or particular outcomes for either effecting or recognising events of termination of that assignment.  Rather it left any aspect of a deed of arrangement which might contain provisions for assignment to the general law of assignment and the general law of assignment included section 12 of the Conveyancing Act and section 12 ‑ ‑ ‑

GUMMOW J:   General law, you mean the State law.

MR COLES:   Including State law, yes.

GUMMOW J:   You could not do this at common law.

MR COLES:   No, quite, but could I just draw your Honours’ attention for present purposes to ‑ ‑ ‑

GUMMOW J:   It is a statutory assignment.

MR COLES:   A statutory assignment, and there is no ‑ ‑ ‑

GUMMOW J:   It is not an actual assignment.

MR COLES:   No.  The possibility that could have been if for some reason it failed at law was countenance, but there does not seem to be genuine dispute that notice of the assignment was given and the assignment was perfected by that notice.  I really wanted to draw your Honours’ attention to the explicit provision somewhat further down in the text.

GUMMOW J:   Yes.

MR COLES:   Your Honours will see that:

Any absolute assignment by writing –

not being by way of charge –

of any debt or other legal chose in action, of which express notice in writing has been given to the debtor . . . shall be, and be deemed to have been effectual in law . . . to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge –

and so forth.  So, the authority, we would emphasise, for the institution and maintenance of the proceedings to enforce the cause of action on chose in action, in effect, derive from the title of the assignee as such, the assignment having been effected at law and the right to sue ‑ ‑ ‑

GUMMOW J:   That is the question.

MR COLES:   That is the question.  We say, your Honour, nothing in the Bankruptcy Act intersects with that.  There are two propositions really, that is the first one.  Nothing in the Bankruptcy Act either in its then provisions and certainly nothing we have detected in its recast version purports to deal with that question.  Indeed, as I have said, your Honour, inasmuch as one could, by judicial interpretation include an assignment in an arrangement.  Nothing in the Act regulated either the mechanism or the formalities of that assignment.

A second and I think related point, your Honour, stems from the applicant’s emphasis on the identification within the then parked in arrangements and they survive in the recast form of a statutory authority on the part of the trustee of a deed to institute proceedings in his or her official name.  The point we have made about that, your Honour – let me say, the applicant emphasises I think in adoption of something Justice McDougall said at first instance, that section 219 of the Act in its then and substantially similar present form in effect influences a view of the construction of the legislation and suggests that there may have been some authority to sue conferred by that section.  That is not, in our respectful submission, a rational or maintainable interpretation of its provisions and to the extent that that might once have been thought arguable, it was disposed of in the latter part of the 19th century in at least one English case to which we have given your Honours a reference, which is Leeming v Lady Murray, and to similar effect was a later case called Pooley’s Trustee in Bankruptcy v Whetham.

If your Honours wish to be further assisted by referring to those cases, I can expand upon the point, but the short point to emerge from them is that statutory provisions of the kind and, indeed, the statutory ancestor in the English legislation of section 219 of the Bankruptcy Act in this country in its present form, that statutory ancestor was recognised as doing no more than supplying a procedural device to enable the trustee to do something which he or she could not theretofore do before, mainly, to sue in an official name rather than in a personal name.  If, indeed, the trustee chose to sue in a personal name, as we suggest the trustee had always done in this case or at least had done by the time of proceedings, then there was no problem with that and section ‑ ‑ ‑

GUMMOW J:   What do you say about paragraphs 39 and 40, page 109, the other side’s submissions?

MR COLES:   Again, your Honour, it is really a variant of the same point that the proposition that you cannot be a trustee of a deed of arrangement under the Bankruptcy Act unless you are a registered trustee is undoubtedly right.  But the short answer is that to maintain the cause of action, which is the issue in dispute raised by CGU, requires no more than that you should be entitled to the benefit.  You should be, in effect, the complete ‑ ‑ ‑

GUMMOW J:   What happens if the action is fruitful?

MR COLES:   That, of course, remains a matter in which CGU has no interest at all.  Obviously it would prefer not to have to pay, but it is of no interest to CGU at all and there is no dispute amongst ‑ ‑ ‑

GUMMOW J:   I know, but what happens?

MR COLES:   Well, no doubt, the trustee recovering the action, recovering the money, will disperse it in accordance with what were the

intentions of the parties to the now terminated deed.  That is not a matter CGU can gain any comfort from, in our submission.

GUMMOW J:   Forget about CGU for a minute.  Suppose the trustee is delinquent in some way, what is the recourse?

MR COLES:   It was suggested, and I do not think we disagree with it, by Justice McDougall that the persons in the position of my client, One.Tel, or ASIC for that matter as well, would have standing to assert an interest in the due administration of the trust which would continue to bind the plaintiff in the proceeding.

GUMMOW J:   With a general law trust.

MR COLES:   A general law trust, which is perfectly capable, in our submission, of surviving the termination of the deed.  The Court of Appeal pointed out, in our respectful submission, accurately that there are consequences, so far as the Bankruptcy Act is concerned, with the termination of the deed which do not mean therefore that the termination provisions or, in effect, that there is an element of ‑ ‑ ‑

GUMMOW J:   .....of the legislature to use this word “termination”, is it not?

MR COLES:   Yes.  But, in our respectful submission, there are consequences of being a deed of arrangement, so far as the Bankruptcy Act is concerned, which will be lost when the deed is terminated, but without it, in our respectful submission, annihilating or extinguishing any trust that arose or any obligation which a court might enforce as a result of the relations between the parties, notwithstanding that termination.  So, in our respectful submission, it all boils down to whether the assignee may maintain the cause of action and, in our respectful submission, he can stand proudly and say as assignee “I may do so”.  The fact that the assignment was effected under a deed now terminated is not to the point.  They are our submissions, if your Honours please.

GUMMOW J:   Yes, Mr Street.

MR STREET:   If your Honours please.  In our respectful submission, the questions raised in relation to the assignment proposition that my learned friend was seeking to address are ones which do raise the intersection of the federal statute and the State legislation and, effectively, the reasoning of the Court of Appeal is to ‑ ‑ ‑

GUMMOW J:   He is right though, is he not?  It is not a question of inconsistency, it is a question of intersection and co‑operation?

MR STREET:   It is a question of intersection, and in that regard though, your Honour, the effect ‑ ‑ ‑

GUMMOW J:   No, I mean that both are effective within their terms.  The question then is how they mesh.

MR STREET:   The effect though of the Court of Appeal reasoning is to raise higher than its source section 12.  The assignment must have been subject to the statutory trust, it must have been subject to the statutory regime under the Commonwealth Act and if subject to that statutory regime, it cannot rise higher and, as your Honour put to my learned friend, in my respectful submission, correctly, the condition which was extant at the time of the purported assignment on trust was a condition that it was subject to the trust provisions, including that statutory regime that provided for termination under section 235(d) and provided for termination in the terms of the trust deed itself.

GUMMOW J:   What do you say happens on the termination of the deed as to the control of this action?

MR STREET:   Your Honour, it is merely held in those circumstances on a bare trust by the trustee for the person who would be entitled to it subject to the existence of any deed and that would ultimately be Mr Greaves, and the effect of that may or may not give rise to some other question.  It is not one, in our respectful submission, that removes the force of the proposition in the present case that there is, in our respectful submission, an erroneous approach to the adoption of the construction questions that arose in light of the statutory provisions that created the Part X deed of arrangement.

Your Honours, the further point we put is my learned friend gets no comfort from seeking to say, “Well, I might have brought an administration suit”.  Can I just draw your Honours’ attention to the nature of the order that was made by his Honour in respect of these proceedings on page 27, order 17, there was verdict and judgment entered for the first defendant.  There was no administration suit brought.  The proposition that my learned friend seeks to pray in aid that perhaps I could have gone off seeking some other powers was not done.

Your Honours, we respectfully submit it is one where the issues that arise in respect of the assignment are of importance.  We respectfully submit the question of the statutory operation and effect of the Part X deed in light of the provisions purporting to vest a cause of action in the statutory trustee are ones the Court of Appeal has, in essence, created a private trust.  Your Honours, there are two further aspects I would seek to touch on.  One is, there is also, we respectfully submit, a serious question raised in relation to the question of no loss under the policy.  Can I just take your Honours very briefly to clause 11 which in the ‑ ‑ ‑

GUMMOW J:   Where is this thrown up in the draft notice of appeal?

MR STREET:   Your Honour, it is thrown up in the notice of appeal in essence by ground ‑ ‑ ‑

BELL J:   Ground 6, is it?

MR STREET:   Ground 6, your Honour, yes.  Can I just take ‑ ‑ ‑

GUMMOW J:   Page?

BELL J:   Page 101.

MR STREET:   Our notice of appeal is on page 101.  Can I just take your Honours very briefly to the provision in the deed and if one turns, your Honours, to page 135, clause 11, your Honours, we have attacked the central reasoning of the Court of Appeal in our written submissions that support some form of continuing private trust after the termination which somehow gives rise to an ability to effect powers under clause 9, or exercise powers under clause 9 and clause 10.  That just cannot be correct, but clause 11 provides this:

Prior to the execution of the certificate referred to in clause 9, neither the Trustee nor any creditor will take any steps to enforce against the Debtor the compensation order and the costs order made on 6 September 2004 in the ASIC Proceedings other than to seek recovery pursuant to the arrangement constituted by this Deed.

Your Honour, those terms “to seek recovery pursuant to the arrangement constituted by this Deed” is exhaustive, in our respectful submission, of the ability to enforce.  Once the deed came to an end, there is no ability to enforce.  There is a material difference between a covenant not to enforce a judgment or order than there is in respect of a covenant not to sue.  The very nature of the judicial determination that gives rise to the liability gives rise only to one consequence, enforcement.  In those circumstances where you cannot have any clause 9 certificate, where the deed of arrangement has come to an end, we say that in the present case there can be no loss payable within the meaning of a policy. 

The policy provisions, your Honour, just so that I take your Honours to it very briefly, appear relevantly in respect of loss at page 126 and in clause 5.8 your Honours will see the reference to the words “Loss”, at about line 12, “shall mean the amount payable in respect of”.  Now,

your Honours, there can be no amount payable if, in fact, there is no ability to enforce, and we say that the construction by the Court of Appeal that there was some continual operation in terms of an ability for the trustee to exercise powers not governed by the trust deed that had plainly terminated is a private trust directly contrary to the principles that were identified and applied in the court and in that regard we respectfully submit it is a matter where special leave should be granted.  If the Court pleases.

GUMMOW J:   Do you want to say anything about that last point, about the term “loss”?

MR COLES:   Yes, with respect, three things.  Firstly, in our respectful submission, the claimed impact of clause 11 of the deed on the policy provisions and the suggestion that it somehow does the opposite of what the deed expressly intended to do, namely, to not release the debtor from liability so as to thereby exempt from further claim the applicant, in our respectful submission, raises firstly no question of general or other importance.  It concerns the particular drafting of a particular policy in a particular deed.

Secondly, it is comprehensively dealt with by the judgments both of Acting Justice Sackville and separately in a short paragraph – I think paragraph 6 – in the judgment of Justice Hodgson and, in our respectful submission, raises no question of general importance and merely demonstrates an aspiration to re-agitate matters of individual textual contention relating to what must be a very one-off proposition, as I say, with respect your Honours, of no general significance apart from the concerns it may have to the applicant itself.  So, your Honours, in our respectful submission, would not identify as a separate head of consideration for special leave the suggested issues of textual examination which the latter point Mr Street raises give rise to. 

The final point – I said there were three – I think, your Honour, is his suggestion that there can be no trust life after a deed appointing a trustee under the Act terminates.  That, in our respectful submission, cannot be right because a deed will often terminate leaving proprietary interests lying wherever they do at that date.  Indeed, the Act itself makes provision for how those interests are, in the main, to be dealt with.

GUMMOW J:   But section 224 is the provision, is it not?  It does not seem to indicate any specific consideration of the situations, I suspect.

MR COLES:   No, I think that is right, your Honour.  Its purpose, your Honour, is really to, in effect, protect and, indeed ‑ ‑ ‑

GUMMOW J:   What has been done.

MR COLES:   Yes.  We say, your Honour, the assignment, once it took effect, quite apart from the other reasons that one might pray in aid, you would not find in 224 an argument perhaps contrary to its purpose, namely, that those things which happened under the deed remain effectual, in effect, valid and effectual, and are not liable to be set aside generally by a trustee of a subsequent deed or the like.

GUMMOW J:   You say the assignment is one of those activities?

MR COLES:   The assignment classically falls in within that ‑ ‑ ‑

GUMMOW J:   All right.  Well, I think we are seized on what the problem are.  There will be grant of special leave in this matter.  It will be a one‑day appeal and the parties should be prepared for a listing in the May sittings.

MR STREET:   Your Honour, could we have leave to correct the notice of appeal to make it consistent with the arguments that were addressed?

GUMMOW J:   In what respect?

MR STREET:   In two respects, your Honour.  One, I think in respect of the notice of appeal in ground ‑ ‑ ‑

GUMMOW J:   Just a minute.  What page?

MR STREET:   Page 100.  Paragraph 2, it erroneously says “covenant not to sue”, it should be “covenant not to enforce”.

GUMMOW J:   I see.

MR STREET:   And to squarely plead the ground referable to the condition in respect of the assignment, your Honour, which was addressed in the submissions but was not squarely identified.

GUMMOW J:   What would the ground be?

MR STREET:   That the Court of Appeal erred in law by failing to hold that there was no absolute assignment within section 12 of the Conveyancing Act.

GUMMOW J:   Very well.  I think that should be allowed, Mr Coles.  Very well.  There is leave to amend the draft notice of appeal as indicated and the matter will be a one‑day appeal, as indicated, and the parties should be ready for a listing in May.

AT 12.12 PM THE MATTER WAS CONCLUDED