Commonwealth of Australia v Ling

[1996] HCATrans 360

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  Nos S143 and S188 of 1996

B e t w e e n -

COMMONWEALTH OF AUSTRALIA

Applicant

and

NOEL LING

Respondent

Applications for special leave to appeal

BRENNAN CJ
TOOHEY J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 2 DECEMBER 1996, AT 9.19 AM

Copyright in the High Court of Australia

MR P.M. BISCOE, QC:   If the Court pleases, I appear with my learned friend, MR S.J. GAGELER, for the applicant.  (instructed by the Australian Government Solicitor)

MR G.T. BIGMORE, QC:   If the Court pleases, I appear with MR T.D. CASTLE for the respondent.  (instructed by J.M. Smith & Emmerton)

BRENNAN CJ:   Mr Biscoe.

MR BISCOE: If the Court pleases, the questions of principle in this case arise from a familiar factual scenario. First, the creditor obtains the final judgment. Second, all avenues of appeal are exhausted. Third, execution of the judgment is not stayed. Fourth, the creditor issues a bankruptcy notice with which the debtor does not comply. Fifth, years after the judgment against him the debtor commences proceedings against the creditor which would have constituted a defence of equitable set‑off and more if it had been raised in the original action. Finally, the debtor fails to have the bankruptcy notice set aside because he fails to satisfy the court under section 40 of the Bankruptcy Act that he could not have set up his set‑off or cross‑claim in the original proceedings.

Against that background we would suggest two questions of general public importance arise which this Court has not previously considered.  The first is:  is the creditor entitled to summary judgment on the basis of an Anshun estoppel? The second is: in any case, is the creditor entitled to a sequestration order or does that have to await the determination of the debtor’s claim? As to the first of those matters, the sequestration order, that turns, we would suggest, on the interrelationship between section 52(2)(b) and 40(1)(g) of the Bankruptcy Act and our submission is that the debtor’s claim cannot be other sufficient cause within the meaning of section 52(2)(b).

GUMMOW J:   Why is that?

MR BISCOE: Really for two reasons, your Honour. First of all, that provision, section 52(2)(b), has been interpreted narrowly by this Court in Cain v Whyte 48 CLR 639, a creditor recovered judgment against a debtor. The court ordered that payment of the judgment debt be deferred under financial emergency legislation. It was held that the court order did not constitute other sufficient cause within the meaning of section 52(2)(b).

GUMMOW J:   Sorry, it was held that what would not constitute sufficient cause?

MR BISCOE:   The fact that a court had ordered that payment of a judgment debt be deferred under financial emergency legislation; nevertheless, the sequestration order was made.  We would suggest that it would be more likely that there would be other sufficient cause in a case such as that than in a case such as this.  But the second answer to your Honour’s question is this, that when one looks at the relevant structure of the Bankruptcy Act one observes that section 40(1)(g) is a specific substantive provision subject to detailed qualifications and that the related provision, section 41(7), is also concerned with procedural matters. It requires an affidavit to be filed within a specified time.

In contrast, we would suggest section 52(2)(b) is a general provision and, in our submission, should not be interpreted as overriding and ignoring the specific provisions in sections 40(1)(g) and 41(7). We say that section 40(1)(g), in effect, covers the field. Now, it is true, your Honours, that this point was not argued below and, of course, that weighs against this application, but we would respectfully submit that it is expedient in the interests of justice to entertain it because it is a narrow point of law but nevertheless one which is of considerable general importance. No evidence could be relevant and the only reported decision on the point ‑ ‑ ‑

GUMMOW J:   But if left uncorrected, what do you say the Full Court decision would be proposition for in this particular area?

MR BISCOE: It would be proposition for this statement, your Honour, that even though one loses at the section 40 stage and so the legislation says go forward to bankruptcy, nevertheless, at the sequestration application stage you can get thrown out, and we would say as a matter of proper construction of the statute that that is not an available argument and, therefore, it is of general importance. That is why I commenced my submissions by setting out what I suggested was a familiar factual scenario underlying this case.

GUMMOW J:   But that could be met, could it not, by pointing out that this argument was not put to the Full Court?

MR BISCOE:   Well, it could, but in the meantime there is a stream of cases coming through.  I, of course, acknowledge that factor.

GUMMOW J:   I see what you say about mischief that can be generated by this.

MR BISCOE:   Yes, and that is why I would seek to stress it is a rather narrow point and therefore one which, because of the mischief factor which your Honour mentioned, would be appropriate for this Court to look at.  Could we say there that the only case on the point which is against us, a first instance decision of Re James was actually referred to by the Full Court and, in effect, applied at page 154 line 15 of the application book.

Your Honours, may I then turn to the second point in this application and that is the Anshun point.  Your Honours, Mr Ling had a defence of equitable set‑off which, if upheld, would have completely defeated the Commonwealth’s claims.

BRENNAN CJ:   What was the defence of equitable set‑off and how did it answer that description?

MR BISCOE:   By virtue of the reasoning which the Full Federal Court itself applied, your Honour.

BRENNAN CJ:   Arising out of the same set of facts?

MR BISCOE:   Not the identical facts, but sufficiently closely associated with them.

BRENNAN CJ:   What were the common facts, if any?

MR BISCOE:   Your Honour, the common facts were these, that the Chinese students had contracts with Mr Ling.  They had a contractual right to a refund of fees if unable to enter Australia for legitimate reasons and they were unable to enter Australia for legitimate reasons, which is to say the change of government policy, and it was that change of government policy which Mr Ling complained falsified the representations which he alleged the Commonwealth had made to him and on which he relied.

BRENNAN CJ:   But the change of government policy was no element of the Commonwealth’s cause of action?

MR BISCOE:   Well, it was, your Honour, in the sense that ‑ ‑ ‑

BRENNAN CJ:   Why?

MR BISCOE:   In this sense, with respect, because the Commonwealth said that it was a term of the contracts between Mr Ling and the Chinese students ‑ ‑ ‑

BRENNAN CJ:   Yes, that they should be able to come into Australia.

MR BISCOE:   Further than that, that they would be entitled to a refund if for any legitimate reason they could not come into Australia.

BRENNAN CJ:   Yes, very well.  They were entitled to a refund.

MR BISCOE:   Yes.

BRENNAN CJ:   So you would prove contract, payment, inability to come into Australia, entitlement to refund.

MR BISCOE:   One further factor, your Honour, with respect, and that is that they could not enter Australia for a legitimate reason.

BRENNAN CJ:   That is a legitimate reason; they did not have a visa.

MR BISCOE:   They did not have a visa and they did not have a visa arising, it is said, out of the change of government policy.

BRENNAN CJ:   It does not matter what reason, does it, in terms of the Commonwealth’s cause of action?  So long as they did not have a visa, that was all that was necessary.

MR BISCOE:   Yes.

BRENNAN CJ:   The policy question arises in a completely different context.

MR BISCOE:   Well, it was the representation which Mr Ling said that he had relied upon which got falsified by the change of policy which was the event whereby they did not get the visa.

BRENNAN CJ:   And that is the cause of action of Mr Ling.

MR BISCOE:   Yes.

TOOHEY J:   And the cause of action of the Commonwealth arose out of the taking of an assignment from the students of whatever rights they had.

MR BISCOE:   It did, but of course the Commonwealth also had another cause of action against Mr Ling which was under the Trade Practices Act as well.

TOOHEY J:   No, but the cause of action upon which the Commonwealth sued was a cause of action, was it not, deriving from the assignment which the Commonwealth had taken from the students?

MR BISCOE:   Yes, that is so.

TOOHEY J:   Which tends to put the Commonwealth’s action or the students’ and Mr Ling’s action in somewhat separate categories.

MR BISCOE:   All we would say about that is that there was a very close relationship between the two.  I do not, of course, seek to argue that it arose out of the identical set of facts, but we say that there was a very close relationship between the two.  The relationship between the two is very similar to that which was referred to by the Full Federal Court in the Bryant Case in respect of which there was held to be an Anshun estoppel and where this Court recently declined to give special leave to appeal, but I take your Honour’s point, with respect, about the degree of overlap of the facts.

BRENNAN CJ:   Well, it just seems to me at the moment, if I might say so, Mr Biscoe, that there is not the slightest error of law on the Anshun point.

MR BISCOE:   Your Honour, could I put it to you this way ‑ ‑ ‑

GUMMOW J:   The trouble really is that the Federal Court spent an enormous amount of time worrying about jurisdiction, no doubt led by arguments of counsel which are really beside the point, that distracted them from any close analysis of the Anshun point and they may have stumbled on the right answer, I think.

MR BISCOE:   For the wrong reasons.

GUMMOW J:   Well, maybe.

MR BISCOE:   Your Honour, can I say this.  What the Federal Court has said here - and this is the matter which would interest your Honours, I would respectfully suggest - is this, that there were jurisdictional and procedural problems in the Federal Court ‑ ‑ ‑

GUMMOW J:   Yes, why?

MR BISCOE:   Well, that was the burden of my submission to your Honours.  There were none.  There was jurisdiction, if not under

section 32, as they held, and we would suggest under section 86 of the Trade Practices Act, and not only that, the ‑ ‑ ‑

GUMMOW J:   But granted that all of that was a distraction, one nevertheless has to get down to the Anshun point, which is what is being put to you, I think.

MR BISCOE:   But nevertheless, your Honour, if that is allowed to stay there, that because of difficulties we have in Australia over a court of limited jurisdiction like the Federal Court, that people can stand by for those reasons we would suggest that would be a matter which this Court would wish to correct.

GUMMOW J:   All courts in Australia have limited jurisdiction at the trial level.  They cannot try actions between States in Supreme Courts.

MR BISCOE:   Yes, this supposedly arose out of the special difficulty with - if your Honours thought this, that there is no jurisdiction problem with the Federal Court entertaining this application and, secondly, that this rule which they said was troublesome, Order 5 rule 1 of the Federal Court Rules, not only was not troublesome, it actually facilitated the bringing of this claim as a cross‑claim and actually permitted it, then the whole basis of the Federal Court’s judgment disappears and so we would submit that would be a matter which would be of some public interest to your Honours.

The only other matter that I would like to mention, if I may, is this, that your Honours would recall that there were two other alternative routes to jurisdiction discussed by the Full Court.  One was under the cross‑vesting legislation or by remitter from this Court.  In a sense it is unnecessary to go to that, but nevertheless it was referred to and we would submit that the necessary invoking of curial discretion ‑ ‑ ‑

GUMMOW J:   Why we have to travel from Sydney to Melbourne via Darwin is just beyond me.

MR BISCOE:   If the Court pleases, I say no more as regards that.  If the Court pleases, those are my submissions.

BRENNAN CJ:   Yes.  We need to hear you, Mr Bigmore, on the bankruptcy point but not on the Anshun point.

MR BIGMORE:   If the Court pleases, our learned friends have said that the mischief that remains is that here is a clear case where the Commonwealth should have succeeded in its petition against the debtor because there is no other sufficient cause shown.  Of course, the point is that that was not put to the judge at first instance, nor was it put to the Full Court, but there is no mischief, in our respectful submission, because in any other case that might come before the Court there might be a very real argument about whether there was, in fact, other sufficient cause and that point so far has been left for another day.

If one had a bankruptcy petition come forward where a debtor put forward a very interesting argument for other sufficient cause, and Mr Ling’s case may well be regarded as an interesting case for other sufficient cause, then it would be expected that the merits of that would be explored at first instance and certainly by the time the matter came to the Full Court.  Those issues have not been explored for a very good reason and that is because the Commonwealth decided to attack the proceeding which represents Mr Ling’s other sufficient cause by an application for summary dismissal.  Had that not occurred they could have easily sat back and let us prove our case in the bankruptcy proceeding.

We will yet have to do that and it is appropriate for that issue to be left for another day before a single judge of the Federal Court who will no doubt decide whether or not we do have other sufficient cause on the basis of the Unilan judgment and so on. So we say that there is no mischief in the fact that the Full Court has dealt with the matter the way it has. The Full Court has been content to see the matter go back to a judge at first instance to deal with the matter as - I perhaps should not say an ordinary bankruptcy case, but not a completely unusual bankruptcy case because repeatedly debtors come forward alleging that, apart from solvency, they have other sufficient cause why a sequestration order should not be made under section 52(2)(b). The point which has not really been raised in the notice of appeal ‑ ‑ ‑

GUMMOW J: But there are some inhibitions on them giving it another run in respect of section 40(1)(g) under the rubric of other sufficient cause.

MR BIGMORE:   With respect, your Honour, of course, that really goes to the Anshun point, which is whether or not it was reasonable for us to have raised it earlier.  The bankruptcy notice is based upon the existing judgment.  We do not resile from the existence of that judgment.  We come back and say that we do have a good cause of action against the Commonwealth and we should have the opportunity to run it in our cause which has been transferred from the Supreme Court of Victoria, but we say in relation to the matter as a simple bankruptcy point that it is still open for a judge at first instance dealing with the bankruptcy petition in the fullness of time - and that petition will not lapse under the Act because a sequestration order has been made on it and overturned - it will survive for whatever length of time is necessary and if Mr Ling wins his case against the Commonwealth, there it is, if he loses that case against the Commonwealth then no doubt a sequestration order would be pronounced by the judge sitting in the bankruptcy matter.  But if Mr Ling’s separate action against the Commonwealth were not running and he simply chose to raise other sufficient cause in the bankruptcy matter then he would have to show the merits of that case and it would be a matter for a judge at first instance to deal with those merits.

The merits have not gone past that stage.  They have not even been aired at first instance.  That is why we say the Full Court has said nothing in relation to that.  They were quite content to see that matter go back to a judge at first instance in a bankruptcy matter.

BRENNAN CJ:   What page is that that you are ‑ ‑ ‑

MR BIGMORE:   That is at page 153, your Honour, line 40 and through to page 154.  The cases referred to by the Full Court at page 154 of the appeal book are cases which plainly state that an action against the petitioning creditor by the debtor theoretically may amount to other sufficient cause.  Of course, whether it does or not amount to other sufficient cause depends upon the merits of that very case and those merits have not been gone into at any stage of this proceeding or either of these proceedings at this stage and as far as the bankruptcy case is concerned it is, with respect, quite reasonable for that to go back to a judge at first instance to determine whether or not on the evidence, when that finally comes forward, there is other sufficient cause.

There has been no evidence at all adduced at any stage.  There has been a pleading so far and that is all that one can say, but it is not, with respect, appropriate or it was not appropriate for the Full Court to deal with the merits of Mr Ling’s claim the way in which it had come before the Full Court.  In any other bankruptcy case one might imagine the petitioning creditor would fight very hard to resist the debtor’s alleged other sufficient cause and would put the debtor to the proof of the matters upon which he relied and evidence would be heard and witnesses would be evaluated.  There would be a proper evaluation of the so‑called claim by the debtor against the petitioning creditor.

In this case there has been none of that because the parties have chosen the course - or the Commonwealth particularly has chosen a course of trying to strike out that claim as it exists in its action transferred from the Supreme Court of Victoria and that is really why we are here, because that strike‑out application succeeded at first instance.  What followed was that the judge at first instance was bound then to make the sequestration order because that claim did not exist, not because of any decision of the merits, but because it had been struck out on an application we say, and which the Full Court agreed, was wrong, with the Anshun principle.

TOOHEY J:   But you seem to be getting fairly close to saying that there has to be full‑scale hearing in order to establish whether or not the other sufficient cause exists.

MR BIGMORE:   Yes, your Honour.

TOOHEY J:   That may not be so though, may it?  I mean, the claim sought to be made by the bankrupt may be on its face virtually devoid of merit.

MR BIGMORE:   Yes, that would be so and no doubt that point would have been pressed before the Full Court but was not.  My learned friend says that it was pressed before the Full Court.  I think it was certainly said that the basis of the claim relied upon Unilan and it was a claim against the Commonwealth in negligent misstatement, but it must be accepted surely that only when evidence was gone into could that claim be properly evaluated.

GUMMOW J:   The claim in Unilan failed, did it not?

MR BIGMORE:   Yes, it did, but not on the facts, not on any principle - there was no principle that one cannot sue the Commonwealth for negligent misstatement.

GUMMOW J:   No.  There was not any principle that you could either.

MR BIGMORE:   No, your Honour.  It is still open, of course, yes, with respect, but we say that that principle is open.

GUMMOW J:   It is authority for the proposition that even if you could, the facts did not measure up to it.  That is what it is authority for.

MR BIGMORE:   Yes.  We would say this would not be an appropriate vehicle to explore that issue ‑ ‑ ‑

GUMMOW J:   No.

MR BIGMORE:   ‑ ‑ ‑ until there has been evidence and one can look at what issues really are involved.  We have not seen anything more than the pleading at this stage and we conceded, of course, before the Full Court, as the Full Court recounts, that the case is a difficult one and it will be a lengthy one, but we cannot take that matter any further, if the Court pleases.  We simply say that this is not an appropriate vehicle for that matter to be pursued and there is no underlying mischief.  Debtors would not be encouraged by the existence of the Full Court decision here to raise other sufficient cause where they had not thought of it previously because they will still be troubled in just about every other conceivable case to go to the merits of their so‑called other sufficient cause.  We say we were prepared to do that and we have been shut out by what is effectively an interlocutory application.  If the Court pleases.

BRENNAN CJ:   Yes, thank you, Mr Bigmore.  Mr Biscoe.

MR BISCOE: If the Court pleases, we would suggest that the burden of my friend’s submissions rather exposes the question of principle to which we refer. It highlights the problem, that is, is it a proper approach to the construction of this statute that one has to go into the facts, having failed at the section 40 stage. My friend suggests that that sort of inquiry is an appropriate inquiry at the section 50 stage. We seek to raise the question of principle that that route is not available.

BRENNAN CJ:   But it is not a question of going into the facts, is it?  It is a question of at least giving preliminary consideration to the nature and strength of the case that the judgment debtor wishes to raise.

MR BISCOE:   That was done in this particular case in the sense that by looking at the pleading itself and suggesting that the case did not have sufficient validity, a submission which was rejected by the Full Court.

BRENNAN CJ:   Well, having been rejected, then there was question of considering, “What was the nature of this case?  Did he have one?”

MR BISCOE: Yes. There is a preliminary question though, we would suggest, the one of principle which we seek to agitate, that having lost at section 40 that should be the end of the matter. The sort of principle, your Honour, that we would seek to invoke is this, if I could just elaborate on the type of argument a little bit. Section 40(1)(g) and section 52(2)(b) are both powers to prevent proceeding to bankruptcy. Section 52(2)(b) is a general residual power not expressed to be subject to limitations or qualifications. Section 40(1)(g) is a specific power. It applies where a debtor seeks to set up a cross‑claim in the face of a judgment debt, the specific power subject to a limitation or qualification.

BRENNAN CJ: You are going too fast for me I am afraid, Mr Biscoe. Section 40(1)(g) is what?

MR BISCOE: Your Honour, section 40(1)(g) and 52(2)(b) are both powers to prevent proceeding to bankruptcy. Section 52(2)(b) is a general residual power but not expressed to be subject to any limitations or qualifications. Section 40(1)(g) is a specific power. It applies where a debtor seeks to set up a cross‑claim or a set‑off in the face of a judgment debt. That specific power is subject to a limitation or qualification. It cannot be exercised unless the debtor shows the cross‑claim could not have been set up in the earlier proceedings.

The general power, however, under section 52(2)(b) cannot be exercised, we would submit, to do that which is the subject of the special power under section 40(1)(g). In other words, it cannot be exercised to prevent proceeding to bankruptcy where a debtor seeks to set up a cross‑claim in the face of a judgment debt. To put it rather baldly we would submit ‑ ‑ ‑

BRENNAN CJ: Well, putting it in this case, would section 40(1)(g) fall for consideration?

MR BISCOE: The debtor failed at section 40(1)(g) in an earlier proceeding before Justice Hill, from which there was no appeal. We say he having failed there under that specific provision, that he cannot ‑ ‑ ‑

GUMMOW J:   You say he was getting another go for the go he had lost before Mr Justice Hill.

MR BISCOE: Yes, and further, we say section 40(1)(g) covers the field.

BRENNAN CJ:   But all of that was postulated on the footing of his being held out by the Anshun principle.

MR BISCOE:   No, with respect, not at all.  If we had succeeded on the Anshun principle, then he would have been finished at the section 50 stage, no doubt about that, but this is entirely independent of that. We point to the specific power in section 40(1)(g), peculiar to cross-claims and set-offs. We point to the general power in section 52 and we say it covers the field. It is the sort of principle, in fact, which we would seek to invoke. It may not be entirely on all fours but very similar is in Saraswati v The Queen 172 CLR 1, at page 24 point 4 where Justice McHugh cited the Leon Fink Case:

“It is accepted that when a statute confers both a general power, not subject to limitations and qualifications, and a special power, subject to limitations and qualifications, the general power cannot be exercised to do that which is the subject of the special power.”

GUMMOW J:   But you have to rely, do you not, on 40(1)(g) in using the phrase, “counter-claim, set-off or cross demand” as embracing wider concepts than merely answering estoppel, do you not? Is not the theory that those phrases in section 40(1)(g) are designed to catch up as much as possible by way of countervailing claims?

MR BISCOE:   Yes.  If the Court pleases.

BRENNAN CJ:   Where was the judgment that says that he failed on 40(1)(g)?

GUMMOW J:   It is not in the book, I think. 

BRENNAN CJ:   It is not in the book, is it?

MR BISCOE:   The judgment itself is not in the book but it is referred to in the Full Court’s judgment at page 124 of the application book at line 14:

It was held by Hill J that the matters on which Mr Ling relied could have been set up in those proceedings.

And that is an earlier reported case of Re Ling.  What he had done, your Honours, was to have filed the affidavit ‑ ‑ ‑

BRENNAN CJ:   What does that lead to, “could have been set up in those proceedings”?

MR BISCOE:   That is a reference to section 40(1)(g), your Honour, where it says, that where:

a creditor who has obtained against the debtor a final judgment.....the execution of which has not been stayed, has served.....a bankruptcy notice under this Act and the debtor does not:

(i) .....within the time fixed by the Registrar by whom the notice was issued.....

comply with the requirements of the notice or satisfy the Court that he has a counter‑claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained.

TOOHEY J: Your argument is that if it falls within paragraph (g) then nothing in the language of section 52(2)(b) is wide enough to allow that matter to be reagitated?

MR BISCOE:   Yes, your Honour.

TOOHEY J:   Perhaps not “reagitated”; “agitated”.

MR BISCOE:   Yes.

BRENNAN CJ:   That seems a very draconian conclusion, does it not?  In other words, once the bankruptcy notice has done its work, that is the end of it.

MR BISCOE:   Yes, done its work, in a sense, but it then still has to show, of course, that he could not set it up.

BRENNAN CJ:   In other words, the other cause in 52(2)(b) can never be postulated to be that which might have been raised under 40(1)(g) before the bankruptcy notice had done its work?

MR BISCOE:   Yes, your Honour.

GUMMOW J:   Does Wren v Mahoney have anything to say as to this?

MR BISCOE:   Your Honour, I had not thought that bore on the issue.  That was the other High Court case in this area.  In fact, I think, the only other High Court case in this area but I think it has nothing at all to say on this particular point, your Honour.  If the Court pleases.

BRENNAN CJ:   This application raises two questions.  The first is whether the respondent was estopped from prosecuting his action against the Commonwealth by reason of the application of this Court’s judgment in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. There is no error in the decision on this point, although this view cannot be taken to express an opinion on the supposed jurisdictional difficulties dealt with in the Federal Court.

The second question is whether the Full Federal Court was in error in its consideration of “other sufficient cause” in section 52(2)(b) of the Bankruptcy Act 1966 (Cth). The applicant seeks to argue that, the respondent not having succeeded in establishing “that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt” under section 40(1)(g) of that Act, could not succeed in showing “other sufficient cause” to resist the making of a sequestration order under section 52(2)(b). That argument was not raised below. Without expressing any view as to its correctness or otherwise, the absence of consideration by the courts below shows this not to be a suitable vehicle for considering the point on appeal. For these reasons, special leave will be refused.

MR BIGMORE:   If the Court pleases, we seek an order for costs.

MR BISCOE:   Nothing we can say, your Honours.

BRENNAN CJ:   Special leave will be refused with costs.

AT 9.59 AM THE MATTER WAS CONCLUDED