CLC Corporation v Bennett & Co and Ors

[2001] HCATrans 415

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P9 of 2001

B e t w e e n -

CLC CORPORATION

Applicant

and

BENNETT & CO

First Respondent

SIMON ANDREW READ and JEFFREY LAWRENCE HERBERT

Second Respondents

Application for special leave to appeal

KIRBY J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON THURSDAY, 25 OCTOBER 2001, AT 10.31 AM

Copyright in the High Court of Australia

MR E.M. HEENAN, QC:   May it please your Honours, I appear with my learned friend, MR T.J. CARMADY, for the applicant.  (instructed by Williams & Hughes)

MR K.J. MARTIN, QC:   If it please your Honours, with my learned friend, MS J.M. HILL, I appear for the first respondent.  (instructed by Bennett & Co)

KIRBY J:   Yes, Mr Heenan.

MR HEENAN:   May it please, your Honours, the question of importance posed by this litigation is, do the provisions of section 530B(1) of the Corporations Law, a copy of which is in our book of materials ‑ ‑ ‑

KIRBY J:   I think Mr Martin concedes it is a question of importance, but he says the Full Court got the important question right.

MR HEENAN:   Yes.  Well, the question is whether that section prevents the claim or enforcement of a lien over documents against a liquidator for all purposes, as was held by Justice Steytler at paragraph 19 of his reasons at first instance, which are at application book, pages 7 and 8, or should the section be read in a way which limits its effect so as to allow a liquidator to obtain possession of books of the company in order only to inform himself about its affairs and administration without being able to use or dispose of the documents ‑ ‑ ‑

HAYNE J:   But the critical question is, can the liquidator, having taken possession, dispose of them whether in the course of making title or otherwise?

MR HEENAN:   Yes, your Honour.

HAYNE J:   Why can the liquidator dispose of them?

MR HEENAN:   Because a possessory lien such as this was is extinguished on possession being yielded and ‑ ‑ ‑

HAYNE J:   Undoubtedly the general law would say that.  Why does the statute permit that result when it says a lien is not otherwise prejudiced?

MR HEENAN:   It is important to appreciate that the section is not confined to possessory liens.  It applies to all liens, including equitable liens where there may be proprietary interests.  So the breadth of the application of the section needs to be measured against all its potential applications and where the section says, as it does, that the lien may not be claimed or enforced, any form of enforcement, even a residual one, would contravene the express provisions of the statute.  Even in the Full Court, the majority ‑ ‑ ‑

HAYNE J:   Sorry, enforcement against whom?

MR HEENAN:   The liquidator.

HAYNE J:   The claim being enforced, how is the lien being enforced against the liquidator?

MR HEENAN:   It is being converted into a species of security against the proceeds of the sale which become accessible through the surrender of the lien.

HAYNE J:   That assumes the liquidator can make his sale and complete it, does it not?

MR HEENAN:   Yes, it does.

HAYNE J:   That is the nub of the question.

MR HEENAN:   Your Honours, the section would apply to many forms of documents, but many of which would be in the nature of instruments of title or their equivalent which could only be used to give access to valuable property.  Examples would be chequebooks, certificates of deposit, bearer bonds and a variety of other papers which would be part of the books of a company; and when it is appreciated, as it seems to have been overlooked by the Full Court, that it is part of the positive duties of a liquidator to realise the assets of the company in liquidation, satisfy existing liabilities as far as possible and distribute any surplus rateably according to the priority of creditors, then the realisation by the use of such documents of property of the company becomes part of the duties of the liquidator.

The section, in my respectful submission, should be given an ample interpretation in order to assist the implementation of all the liquidator’s duties, and the approach of the Full Court has been to limit its application to informing himself of what the state of the company’s affairs are, and stopping at that point, giving residual force to what is thought to be the vestiges of a lien.  In my respectful submission, that concept is foreign to the nature of a possessory lien which will be lost entirely on possession of the goods in question being handed over.  A possessory lien such as the solicitor’s lien over documents is not enforceable except by the retention of possession.  Possessory remedies only are available.  According to the authorities, there is no associated power of sale even by order of the court, although that depends on the rules of court in different jurisdictions.  So, essentially, the vital elements of a possessory lien are lost on lawful surrender of the documents.  There is nothing left and that was the point of Justice Steytler’s conclusion at first instance.

HAYNE J:   On that understanding, what work does the expression “but such a lien is not otherwise prejudiced” have to do?

MR HEENAN:   Once the liquidator has used the documents for such other purpose, for whatever purpose is necessary or desirable in the performance of his duties, the lien may be exercisable by third parties.  We have in our written submissions indicated that in certain circumstances the lien may be exercisable by third parties, such as where the company in liquidation is one of a joint venture or a partnership or a number of joint clients, joint and several clients of the solicitors, the lien may be enforceable against the remaining clients or the remaining persons with a joint interest.  But in many instances, it will be lost.

With proprietary liens, the matter may be somewhat different, although it is difficult to see or to imagine a situation in which there may be a proprietary lien of real value over a book of the company.  It may be a book of extraordinary rarity and intrinsic value.  In that case, once the liquidator has dealt with it, it may be possible for it to be returned to other parties with a joint or concurrent interest in the property.  To that extent, the lien is not otherwise prejudiced.  But in most instances of possessory liens, it will be lost entirely, certainly in cases such as this.

Now, your Honours, the antithesis between the two approaches can be seen very clearly from a comparison of three short passages in the judgments.  If we go to Justice Steytler at application book pages 7 and 8, paragraph 19, which runs over the page and is a somewhat lengthy paragraph, I will not read it in full, but in our respectful submission, Justice Steytler correctly analyses the law of liens and the application of the section in that paragraph.

KIRBY J:   We read both the Full Court’s and Justice Steytler’s reasons.  If there is an ambiguity in the statute and one has to choose which is the preferable construction, why is not the construction which the Full Court adopted preferable, especially given that formula, but the line is not otherwise prejudiced, which is a formula that does not exist in New Zealand, as I understand it?

MR HEENAN:   That is true, your Honour.

KIRBY J:   It has been added to the Australian statute and is intended to have work to do.

MR HEENAN:   Yes, that is true, your Honour, and there are potentials for it to have work to do, particularly in relation to proprietary liens.  But it is difficult to find useful scope in relation to possessory liens of this character.

KIRBY J:   That is so and given that possessory liens are a very significant group of liens, why should we attribute to the Parliament or to the parliaments the purpose of giving that exception such a narrow operation?

MR HEENAN:   Well, your Honour, the answer to that question is that that is where the plain reading of the section leads.  It is a ‑ ‑ ‑

KIRBY J:   That becomes the question.

MR HEENAN:   Yes, it is only a modification of the section which leads to the contrary result and if we can go to a passage in the judgment of the Full Court in the reasons of Justice Wallwork at page 32, paragraph 43, your Honours will see how the Full Court read down the section, but the reading down has consequences, as Justice Murray himself recognised, although he did not pursue it, at pages 35 and 36.  Line 45, in the middle of that paragraph, his Honour Justice Murray said:

But the effect of the subsection is to preserve the legal force and effect of the lien otherwise that in respect of the entitlement to possession of the documents in question.

We have two answers to that.  We say not against the liquidator, but the analysis proceeds on the erroneous assumption that a common law possessory lien has some force in validity after possession has been disposed of and that, in my respectful ‑ ‑ ‑

KIRBY J:   I think we understand the point but, essentially, you say it is inherent in the use of the word “lien” in the exclusion that it picks up all of the law and learning on liens. 

MR HEENAN:   Yes.

KIRBY J:   The contrary view is that “lien”, having been used in perfect generality, it is intended to pick up all forms of lien and that that is the purpose of the legislature.  So that is the controversy.  We have Justice Steytler going one way, we have unanimous Full Court going the other way.  The unanimous Full Court gives full effect to the words of the statute.  You want to, as it were, gloss the statute with old learning as to liens.  Now, each is a legitimate view, but yours does not seem to be the view that gives full force to the words that the parliaments have actually used.

MR HEENAN:   May I take your Honour to paragraph 66 of Justice Murray’s reasons at page 36 of the application book.  His Honour says:

so to interpret s 530B in respect of the production of books to a liquidator for his purposes in the statutory administration of the company would have the same effect as the production of books to a court where it so directs under the Law, s 597(10).

There are marked dissimilarities between 597(10) and 530.

It is of no moment, I think, to consider whether the consequence of the conclusion to which I have come is that by the operation of s 530B the common law solicitor’s lien, being entirely possessory in character, would, as I suspect is the case, be converted into a different statutory form of lien.

Now, in my respectful submission, that conclusion which his Honour did not fully pursue or develop is a necessary consequence of the decision of the Full Court.

HAYNE J:   But is it a conclusion any greater than saying there is a statute, the statute has intervened, and that is a statement of the blindingly obvious?

MR HEENAN:   Well, it is a mutation of the lien.  It converts the lien into a right against the proceeds of the application of the use of the certificates of title in this case, although that is a variant.

HAYNE J:   No, Mr Heenan, no, it precludes what the liquidator did in this case.  The liquidator was not entitled to a ‑ ‑ ‑

MR HEENAN:   I was just about to recognise the point your Honour had previously made, but this case ran on the assumption that the creditor claiming the benefit of the lien had access to the proceeds of sale.  Your Honour Justice Hayne’s view is ‑ ‑ ‑

HAYNE J:   It reflected the fact that the parties were fussed about money rather than bits of paper.  This is not a surprising proposition.

MR HEENAN:   It is not, your Honour, but it reflects an acknowledgment that the lien is entirely possessory in character and unless one accepts that the statute converts a possessory lien into a different form of lien, then there is great violence done to the traditional concepts of lien.  Now, that, in our respectful submission, is the essential point.  It has been said of other claims in different circumstances that inherent in its nature one would suppose was an incapability of conversion into a right in respect of any property other than the subject matter of the lien itself.  This approach taken by the Full Court involves a conclusion that there is a conversion of the traditional possessory lien into a different species.

HAYNE J:   No, it assumes that the liquidator converted the document.

MR HEENAN:   Well, that is perhaps the better conclusion, but it is not the conclusion which the Full Court reached.

HAYNE J:   I understand that.  But that would be the legal basis upon which the construction of the statute put forward or adopted by the Full Court would sound in damages of the suit of the lienee, would it not?

MR HEENAN:   Yes, it would, for conversion. 

HAYNE J:   Yes.

KIRBY J:   You have not stated it, but I assume that this is now part of the Act, section 530B has survived into the Act?  It is still a live issue?

MR HEENAN:   Yes, I am not conscious of any issue on those grounds, your Honours.

Now, in our respectful submission, your Honours, there is a necessity for liquidators to have access and use of books which are obtained pursuant to this right of access or production to documents.  The contradistinction between the sections allowing a liquidator to inspect documents on the one hand or to inspect documents over which a chargee or mortgagee has an interest or possession stand in marked contrast to the section which allows the production of the documents.  The production gives, in our respectful submission, unfettered use and so it must be because, for example, if the chequebooks and savings account books of a company were in possession of its accountant, who had a general or a particular lien, the only point in obtaining possession of them, in our respectful submission, would be to allow use to be made of them. 

Now, I accept that this case turns on the question of whether there is a limited function which the liquidator may exercise when he obtains production of these documents.  In our respectful submission, there is no express limitation in the section, nothing to suggest or imply that that should be the case because of the contrast with the sections dealing with the inspection of other documents and the inspection of secured documents.

I intended to submit that if it is acknowledged that this point is important and that it is attended with appreciable doubt, then because of the decision of this case in ASC v Marlborough it is a decision of an

intermediate Court of Appeal on a co-operative national piece of legislation which would have been binding on all courts in Australia, intermediate and ‑ ‑ ‑

KIRBY J:   Mr Martin concedes that it is an important point of general significance.  He just says that the Full Court has given the preferable construction.

MR HEENAN:   I appreciate that, your Honour.  I am not sure that I can enlarge on what I have already said.

KIRBY J:   You put your argument very elegantly and very succinctly and it is an argument.  It is a question of which is the preferable construction.

MR HEENAN:   May it please your Honours.

KIRBY J:   Thank you very much, Mr Heenan.  The Court does not need your assistance, Mr Martin.

In our view, the decision of the Full Court was correct.  The construction of the Corporations Law, section 530B(4) which the Full Court adopted was the preferable one. Accordingly, special leave must be refused with costs.

AT 10.50 AM THE MATTER WAS CONCLUDED