Corporate Systems Publishing Pty Ltd & Anor v Lingard & Ors

[2010] HCATrans 137

[2010] HCATrans 137

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P39 of 2009

B e t w e e n -

CORPORATE SYSTEMS PUBLISHING PTY LTD (ACN 009 412 622)

First Applicant

NICK CHRISTOU

Second Applicant

and

KEITH GRAEME LINGARD

First Respondent

STANTON PARTNERS AUSTRALASIA PTY LTD (ACN 085 103 206)

Second Respondent

STANTON ACCOUNTANTS & ADVISORS PTY LTD (ACN 085 059 909)

Third Respondent

NEIL KEVIN JOYCE

Fourth Respondent

DEMANDEM HOLDINGS PTY LTD (ACN 009 258 664)

Fifth Respondent

GLENLEA ENTERPRISES PTY LTD (ACN 065 274 544)

Sixth Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 28 MAY 2010, AT 12.40 PM

Copyright in the High Court of Australia

__________________

MR A.P. RUMSLEY:   May it please the Court, I appear for the applicants (instructed by Alan Rumsley Commercial Disputes Lawyer)

MR M.L. BENNETT:   May it please the Court, I appear for the respondents.  (instructed by Lavan Legal)

GUMMOW J:   Yes, Mr Rumsley.

MR RUMSLEY:   May it please your Honours.  Effectively three grounds are raised in relation to this application for special leave; going to the first, effectively, recipient liability as a short hand.  We have findings in the Court of Appeal endorsing those of the trial judge below which now result in inconsistent decisions between State appeal courts.  New South Wales Court of Appeal applied a different test to the relevant limbs, the first and second limbs. in the decision of Kalls v Baloglow as opposed to the findings of the trial court in this case with ‑ ‑ ‑

GUMMOW J:   This litigation depends on the construction in the first instance of this agreement, does it not, which appears in 107 and 108 of the application book?

MR RUMSLEY:   If that is accepted, your Honour, there still remains the issue that what happened here was there was a finding of breach of an express trust.  That breach of trust was excused by the written agreement but to an extent.  The matter then left, undealt with if you will, breaches that continued, those breaches being payments that had not been made either inconsistent with the trust deed or the agreement itself.  So, effectively, the point in answer is that although they agreed to do something different to what the trust deed said, they did not even do that. 

That, your Honours, is why the trial judge, having handed down his initial reasons for decision, finding that no monetary claim could be sustained by the plaintiffs, reflected upon his reasons for decision upon hearing submissions and accepted that, in effect, at best he had allowed a partial defence.  That was a partial defence where, on all of the evidence before him, there still remained breaches that were not excused by that consent as defined pursuant to the agreement.  The applicants say, your Honours, whether or not the interpretation of the agreement is found against them, the issues still arise.  They arise in relation to a smaller sum than they would if the consent defence were not upheld, but they do still arise. 

GUMMOW J:   Where do you point to particular error by the Court of Appeal?

MR RUMSLEY:   The Court of Appeal’s endorsement of the trial ‑ ‑ ‑

GUMMOW J:   On this point of what is in dispute outside the agreement, or not covered by the agreement.

MR RUMSLEY:   What is not covered by the agreement?

GUMMOW J:   Yes.  You say the agreement is not a complete answer because it does not ‑ ‑ ‑

MR RUMSLEY:   I do.

GUMMOW J:   Yes.

MR RUMSLEY:   That is the finding of the trial court, your Honour, and that was upheld up by the appeal court that the agreement was not ‑ ‑ ‑

GUMMOW J:   I know.  Where does the Court of Appeal say that and what criticism do you direct to it?  We have to get down to tin tacks.

MR RUMSLEY:   I accept that, your Honour.  Your Honour, I am looking at the references in counsel’s submissions that go to application book 157.  What their Honours do there in paragraph 202 is discuss the distributions pursuant to what they have characterised as “the 50% formula” being the interpretation held of that relevant agreement.  If you have a look, your Honours, where they say “However, he said”, they refer there to the trial judge’s findings which they have endorsed:

I did not find that the plaintiffs consented to receiving no distribution of income of the two trusts.  What they consented to, by the January 2002 Agreement, was to receiving an amount calculated as 50% of net collections in satisfaction of their entitlement to an equal distribution of income.

The point is, your Honours, that that distribution under the 50 per cent did not occur and the respondents ‑ ‑ ‑

GUMMOW J:   How is this possibly a special leave point?

MR RUMSLEY:   The point in relation to that – that is actually the ‑ ‑ ‑

GUMMOW J:   You are taking us to pages 157 and 158?

MR RUMSLEY:   Yes.  I am taking you there, your Honour, in relation to the third point raised in the application for special leave which, on the applicant’s submission, is interrelated with both of the first heads and, in effect, in answer to a proposition that given construction of the agreement, the first two do not survive argument, as I had understood it.

GUMMOW J:   That is right.

MR RUMSLEY:   While still on that point, your Honours, in relation to the evidence, if I could direct you to page 182 of the application book.  Contained there is an exhibit put into evidence by the respondents which identifies what is effectively the amount payable to the applicants under the 50 per cent calculation.  If your Honours look to the right, there are two relevant columns, one headed “Net” and the other headed “Cheque banked by Christou”.  If you follow those numbers down, your Honours, you will see that for every year other than 2001 they underpaid even on the 50 per cent collections formula.  So for every year that they alleged this agreement bit, they were in breach of this agreement. 

HEYDON J:   You have a judgment in your favour on that point, have you not?

MR RUMSLEY:   Against the company, your Honours.  The point put is that having made that finding, the finding being there was a breach of an express trust, that breach of express trust was not excused by a defence of consent.  The proper approach to following was to find both on the recipient liability issue and also on the accessory liability issue and that is to find that, effectively, the case that was put is there was a breach of trust, payments were made that way.  The response to it was, but they were consented to to an extent, and it is evident on all of the evidence that they never met the obligations under the 2002 agreement, as it is referred, however construed by the court.

On that point, your Honours, it is the applicant’s submission that the liability of recipient and the liability of accessory are both made out, and the other points raised effectively go to the difference between knowledge of the first and second limbs.  If I could take you to the book of authorities, behind the first tab is the decision in Barnes v Addy.  At page 251 in the final paragraph, Lord Selborne sets out the test which is effectively not a test that arose in that case.  He refers to it having been the test as at that time, but in any event ‑ ‑ ‑

GUMMOW J:   You can take it we are very familiar with this.

MR RUMSLEY:   I expect that is so, your Honours.

GUMMOW J:   Why read it again?  You have limited time.  What is the point you want to make?

MR RUMSLEY:   Only to contrast it with the findings of the trial judge at paragraph 340 of his reasons for decision where his Honour said:

The plaintiff makes claims against the beneficiary defendants under both limbs of the rule in Barnes v Addy.  Both limbs have requirements of knowledge on the part of a defendant.  As will appear, the knowledge required for liability under each limb appears to be the same.

That, your Honour, we say is contradistinction to the test of Lord Selborne which identifies first the recipient liability and then, after saying “or”, the liability of the assistor with knowledge in a dishonest and fraudulent design on the part of the trustees.  The point the applicants take on this is the fraudulent and dishonest design is relevant to the extent it arises in respect of the second limb.  It is not relevant in relation to the first limb.  The first limb requirement of knowledge, not how the knowledge is obtained,

looking at the Baden categories, but the knowledge itself, is a different point.  The point is, the knowledge must be the funds were from a trust and received in breach of that trust, effectively is the answer in this case, because it is an express trust and there was a breach of that express trust.  That, your Honours, is the recipient liability ground.

The next is the defence of consent.  Effectively, the approach taken by the trial court was to identify what the document by way of agreement said on its proper construction and to then use that as the endorsement of consent of applicants, notwithstanding an acceptance by the court that that was contrary to its literal reading.  The position is that the applicant says, the test in respect of consent is not merely one of construction of the contractual agreement, there is more to it, and the more to it means there must actually be demonstrated knowledge on the part of the consenting beneficiary in respect of what it is they are consenting to.  In this case, the position was always argued in respect of that being a limited acceptance, limited in the context of, the practice was to be sold.

Your Honours, the final point in relation to the third ground that we went to first in respect of what the fraudulent and dishonest design is is the applicant again points to the evidence I took you to show that there is nothing at all in the conduct of these respondents that indicates any knowledge that the payments that were made were consistent with the agreement that excused them in any event; so the applicant’s position remains.  The fraudulent and dishonest integer was made out.  It was made out by the breach of trust which was intentional.  It was only excused to an extent by the finding that there was consent, because that consent was not an open‑ended consent.  As the trial judge said, he did not consent to receive no income at all.  He only consented to receive a reduced amount in discharge of his entitlement to receive a one‑third equal net contribution.  Unless, your Honours, there is anything more, that is the oral submissions of the applicants.

GUMMOW J:   Thank you.  We do not need to call on you, Mr Bennett.

Upon the findings made by the primary judge, including the construction given to the 24 January 2002 agreement, which were upheld by the Court of Appeal, no question of principle arises to attract a grant of special leave.  Special leave is refused with costs.

We will adjourn to reconstitute.

AT 12.53 PM THE MATTER WAS CONCLUDED