Coventry & Anor v Charter Pacific Corporation Limited
[2005] HCATrans 138
[2005] HCATrans 138
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Brisbane No B68 of 2004
B e t w e e n -
MICHAEL JOHN COVENTRY AND LYNETTE HELEN COVENTRY (AS TRUSTEES OF THE MIKE AND LYN COVENTRY FAMILY TRUST)
First Appellant
ANDREW COVENTRY
Second Appellant
and
CHARTER PACIFIC CORPORATION LIMITED
First Respondent
BARRY TABE (AS TRUSTEE OF THE TABE FAMILY TRUST)
Second Respondent
GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 10 MARCH 2005, AT 10.02 AM
Copyright in the High Court of Australia
__________________
MR M.M. STEWART, SC: May it please your Honours, I appear with my learned friend, MR C.A. WILKINS, for Mr Andrew Coventry and Mrs Lynette Helen Coventry, who formerly was part of the court headings and on the record. (instructed by McMahons)
MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR N.J. OWENS, for the first respondent, Charter Pacific Corporation Limited. (instructed by Allens Arthur Robinson)
GLEESON CJ: There is a certificate from the Deputy Registrar that the second respondent, Barry Tabe as trustee of the Tabe Family Trust, has filed an appearance in this matter indicating that he will submit to any order of the Court save as to costs. Now, that still leaves the first‑named appellant, Michael John Coventry, and we have had a letter, as you know, which refers to the fact that a sequestration order was made against him on 23 February 2005 based on an act of bankruptcy that occurred on 6 August 2004.
MR STEWART: That is so, your Honour. The letter I understand the Deputy Registrar has provided your Honours with is one from Mr Bruce Milner, Mr Michael Coventry’s trustee in bankruptcy, and it is a little elliptical. I caused our instructing solicitor to speak with Mr Milner to try to elucidate exactly what his position was and it seems that Mr Milner takes the attitude, born of the fact that he has no funds and he has really just come into the administration, he has only just been appointed as trustee, that it is too early for him to make a decision about whether or not to support the appeal.
I should have prefaced my remarks, if it be necessary, to clarify that I do not hold instructions to act on behalf of him and that is something that our instructing solicitors have clarified yesterday, so I do not say these things in a capacity as Mr Milner’s legal representative but these inquiries have been made for the assistance of the Court.
KIRBY J: He says he was instructing your solicitors, is that correct?
MR STEWART: No, not instructing them. He was ‑ ‑ ‑
KIRBY J: They are not instructed.
MR STEWART: By Mr Milner, no. One of the questions I arranged for our instructing solicitors to ask was just that, and he said no, not at this stage. He went on to repeat what is found in his letter, namely that he is interested in participating in the appeal. Perhaps if I can put it in my language, to the extent that it might benefit the estate, but not to the extent that it might place him personally at risk, as he might be if he were to support the appeal at this stage. Now, there might be arguments as to costs.
GUMMOW J: How are you here, in the face of section 58(3)(b)?
MR STEWART: Mr Coventry, Mr Andrew Coventry, the remaining appellant.
GLEESON CJ: What is the position of Lynette Coventry? Is she a party to this appeal?
MR STEWART: I think the answer, with respect, your Honour, to that question is yes. When the papers for special leave were filed, her name did not appear as part of the papers. I have been shown a letter that the Deputy Registrar wrote to our instructing solicitors on that occasion, and that pointed out that it was necessary for the active parties, those parties who were active on the appeal before the Court of Appeal, to be named in the special leave papers.
Now that was interpreted by our instructing solicitors as requiring that Mrs Coventry, who has no interest in this appeal, should be named as an applicant in the special leave proceedings, and that is how she has come to appear as an appellant. She has played no part in the appeal and as far as I know, there are no instructions that our instructing solicitors hold to prosecute the appeal on her behalf or even to appear for her on the appeal. So that is something that has come about as a result of an error or misunderstanding.
We recognise and concede the force of – I think it is the last submission made by our learned friends in their written outline that her position must be formalised. We would like an opportunity though, to consider the most convenient way of doing that, and it may be that we can do it by agreement with our learned friends.
GLEESON CJ: I may have misunderstood something that you said a little earlier. I know that you announced your appearance for Andrew Coventry.
MR STEWART: Yes.
GLEESON CJ: Did you announce an appearance for Lynette Helen Coventry?
MR STEWART: I should not have. I beg your pardon if I did.
GLEESON CJ: There is some inconsistency in the heading of documents that we have.
MR STEWART: I understand.
GLEESON CJ: Some documents identify as the first appellant Michael John Coventry and Lynette Helen Coventry as trustees of the Mike and Lyn Coventry Family Trust. They are identified compendiously as the first appellant and Andrew Coventry is identified as the second appellant. In other documents the first appellant is identified as Michael Coventry and the second appellant is identified as Andrew Coventry. Which is correct?
MR STEWART: The second is correct – of the two men.
GLEESON CJ: So the parties to the appeal are Michael Coventry as first appellant ‑ ‑ ‑
MR STEWART: Now his trustee.
GLEESON CJ: ‑ ‑ ‑ and Andrew Coventry as second appellant. Is Lynette Helen Coventry, as far as you understand, a party to the appeal?
MR STEWART: No.
GLEESON CJ: And the notice of appeal was filed by your instructing solicitors on behalf of Michael Coventry as first appellant and Andrew Coventry as second appellant?
MR STEWART: My instructions are that the only instructions they held at that time were from those two men. I couch the answer that way because I am just not certain whether Mrs Coventry was named as an appellant in the notice of appeal.
GLEESON CJ: Let us have a look at it.
HAYNE J: Page 423.
GUMMOW J: Maybe we need to look at the order of the Queensland Court of Appeal at 420. After all, that is what the appeal is brought from. It seems that the only involvement of Michael John Coventry was with Lynette Helen Coventry as trustees in this family trust that the Chief Justice referred to. They were one of the appellants and then that was carried over into the application for leave.
MR STEWART: That is how the court heading in the Court of Appeal appeared. The relevant claim or cause of action the subject of this appeal today was one which involved a judgment given against Mr Michael Coventry on the basis of misleading and deceptive representations made by others.
GLEESON CJ: And Andrew Coventry?
MR STEWART: Most of them were actually made by Andrew Coventry.
GLEESON CJ: I am sorry. Was the judgment a judgment against Michael Coventry, or was it a judgment against Michael Coventry and Andrew Coventry, or was it a judgment against Michael Coventry and Lynette Coventry and Andrew Coventry?
MR STEWART: Michael Coventry and Andrew Coventry so far as the issues relevant to the appeal today are concerned, your Honour.
GLEESON CJ: And did both Michael Coventry and Andrew Coventry become bankrupt?
MR STEWART: Yes.
GLEESON CJ: And were discharged from bankruptcy?
MR STEWART: Yes, something that cannot be said about Mrs Coventry.
GUMMOW J: Then Michael has gone bankrupt again.
MR STEWART: On the 23rd, yes.
GLEESON CJ: Recently?
MR STEWART: Yes, on 23 February this year.
KIRBY J: Does that affect his right to prosecute anything in these proceedings without the consent of his trustee?
MR STEWART: Yes, in our submission, it does. The right to prosecute the appeal is something that upon the making of the sequestration order and the appointment of a trustee vested in Mr Milner and he has not, despite a direct request or inquiry whether he wished to do so, seen fit to instruct us to represent him here today other than on the terms set out in the letter that he sent to the Registrar.
GLEESON CJ: That seems to suggest that the technical position is that one of the parties to the appeal, one of the appellants, is simply absent. Is that right?
MR STEWART: Yes, that is so, your Honour. One of the other things I asked our instructing solicitor to do was to draw to Mr Milner’s attention that perhaps really the position he should be adopting was to apply for an adjournment or to simply participate in the appeal by some way other than by instructing us. Anyway, that has been drawn to his attention and I understand ‑ ‑ ‑
KIRBY J: Can the issues in the appeal be dealt with on the appeal of Mr Andrew Coventry who does not have the bankruptcy problem?
MR STEWART: I beg your pardon, your Honour, I missed the beginning of that question.
KIRBY J: Can the issues in the appeal be heard and determined on the appeal of Mr Andrew Coventry who does not have the supervening second bankruptcy problem?
MR STEWART: We submit so, yes. It leaves the unsatisfactory state of affairs where the appeal, if I can call it Mr Michael Coventry’s appeal, is still on foot.
KIRBY J: We are informed by the trustee’s letter, at least, that he would seek in the event that the appeal succeeds to take advantage in the estate of Mr Michael Coventry of any success that Mr Andrew Coventry were to secure in the appeal.
MR STEWART: Yes, I must confess I have not turned my mind to whether or not it is open to the trustee to do that.
KIRBY J: That is a question that may lie in the future but at least he is not opposing the matter proceeding. He does not ask to be heard to assert his rights as trustee.
GLEESON CJ: The orders for damages with which we are concerned made against Michael Coventry and Andrew Coventry were made by reason of misrepresentations made by them contrary to certain statutory provisions, is that right?
MR STEWART: Yes.
GLEESON CJ: I presume the orders were not made against Michael Coventry in his capacity as trustee of a trust?
MR STEWART: I believe not.
GUMMOW J: Well, you say that, but look at pages 371, 372. We should not have to trawl through all this. The third defendants were Michael John and Lynette Helen and you look at the first paragraph of the order at 372:
The Plaintiff recover against the Third . . . Defendants -
Presumably, they are liable only to the extent of the trust assets.
MR STEWART: I can understand your Honour drawing that conclusion from the form of the order, that being a possibility ‑ ‑ ‑
GUMMOW J: We have to deal with all of this, you know.
MR STEWART: I understand. On my understanding, that was not the nature of the judgment, that is to say, it was not the nature of the judgment that the liability of ‑ ‑ ‑
GUMMOW J: Someone will have to go back and correct the order in the Supreme Court of Queensland, I imagine. Why should we get involved in it?
KIRBY J: You say there is a disharmony between the reasons for judgment and the orders of that court?
MR STEWART: Yes, I think so.
KIRBY J: But have the orders been finalised? Have they been taken out for the purpose of this appeal?
MR STEWART: Yes.
KIRBY J: Can they alter their orders?
MR STEWART: No.
GLEESON CJ: Which is the order against Andrew Coventry? Where do we find that?
GUMMOW J: He was the fifth defendant, was he not?
MR STEWART: Paragraph 1, your Honour.
GLEESON CJ: Who was the fourth defendant again?
HAYNE J: Tabe.
GUMMOW J: Tabe.
MR STEWART: The fourth defendant was Mr Tabe.
GUMMOW J: His trustee.
GLEESON CJ: And is Lynette Helen Coventry at any risk as to costs in this appeal?
MR STEWART: Given how her name came to appear on the record, I think the answer to that would have to be yes, there is a risk, but for the reasons I mentioned earlier as to how she came to participate or be seen to participate in the appeal, there are also grounds for submissions that she should not be ordered to pay the costs.
GLEESON CJ: It seems to come to this. Andrew Coventry is certainly one of the appellants and you appear for him.
MR STEWART: Yes.
GLEESON CJ: There seems to be a doubt as to whether Lynette Coventry is an appellant, and you certainly do not appear for her.
MR STEWART: That is so.
GLEESON CJ: Michael Coventry was an appellant but his capacity in that regard was overtaken by the bankruptcy order, and his trustee in bankruptcy, although aware of the appeal, does not appear, does not seek to make any submissions, does not apply for an adjournment.
MR STEWART: That is so.
GLEESON CJ: What do you say we should do?
MR STEWART: Proceed with Mr Andrew Coventry’s appeal.
GUMMOW J: Yes ‑ ‑ ‑
MR STEWART: I am not empowered – I am not authorised to seek anything in relation to the others or a course that would benefit the others - I beg your pardon, benefit really Mr Michael Coventry or his trustee.
GLEESON CJ: What does Mr Jackson have to say about this?
MR JACKSON: Your Honour, the information has come at a very late point and I only became aware just before I came into Court of the position of Mr Michael Coventry. The matter could proceed in Andrew Coventry’s appeal. There seems no reason why that could not happen.
Your Honour, I really need to have two or three minutes to find out to give your Honours an answer to the question whether we desire it to proceed. If it were possible to do that, I would appreciate it.
GLEESON CJ: Why do we not adjourn for five minutes and you can ‑ ‑ ‑
HAYNE J: In the adjournment it occurs to me that something may turn, something may not turn, on the orders at 372, paragraphs 6 and following. They are only the costs. It is orders 2 and 3. We have cross‑claims happening in this which may – they may not - be affected by the disposition of any appeal by Mr Andrew Coventry. All I do is draw it to attention. It may be that at the end nothing turns on it, Mr Jackson.
MR JACKSON: Yes, thank you, your Honour.
GLEESON CJ: We will adjourn for five minutes.
AT 10.19 AM SHORT ADJOURNMENT
UPON RESUMING AT 10.25 AM:
GLEESON CJ: Yes, Mr Jackson.
MR JACKSON: Thank you, your Honours. So far as the progress today of the appeal is concerned, we are prepared to go ahead with the appeal by Andrew Coventry. So far as the remainder of the case is concerned, we would not be prepared, if I can put it this way, to proceed with the case so far as Mr Michael Coventry is concerned on a basis where we might be liable for costs but not have the prospect of recovering any. What that means, of course, is that, as we would understand it, the appeal by Michael Coventry would not be able to go ahead. The ultimate disposition of it probably is a matter that would need to be resolved at a later point once the trustee has decided what to do and has sought any necessary leave. So far as Lyn Coventry is concerned, as we understand the position, she is not proceeding with an appeal and, in any event, she would seem to have had no interest in the appeal except perhaps as trustee.
Could we also say, in answer to your Honour Justice Hayne, and referring to page 372 of the appeal book, that so far as the orders are concerned in paragraphs 2 and 3 on that page there has been a stay of those orders. The desire was to be able to set the amounts off against any amount that would be payable – I am sorry – the intention was that the amounts that we might have to pay be set off against the amounts referred to in paragraph 1. The ultimate working out of that may be complicated but that is the proposition.
GLEESON CJ: Is there anything you want to add to that, Mr Stewart?
MR STEWART: No, your Honour.
GLEESON CJ: We will adjourn for a moment to consider our position. I just want to get the position about parties clear. Does the latest bankruptcy of Michael John Coventry mean that in any event there would need to be an amendment to the description of the parties to the appeal?
MR STEWART: Yes, and I understand leave would be required. Mr Milner would have to apply for leave.
KIRBY J: You cannot do so on behalf of anybody, at the moment, because Michael Coventry has passed out of your power.
MR STEWART: Yes. We sought from the trustee the opportunity to speak for him today and he has declined to give it to us.
GLEESON CJ: The fact is that both Michael Coventry and his trustee in bankruptcy are aware of these proceedings today and neither of them has appeared.
MR STEWART: Yes.
GLEESON CJ: We will adjourn for a short time.
AT 10.28 AM SHORT ADJOURNMENT
UPON RESUMING AT 10.34 AM:
GLEESON CJ: When this appeal was called on for hearing, Mr Stewart of senior counsel announced his appearance with Mr Wilkins for the second appellant, Andrew Coventry. There was no appearance for the first appellant, Michael John Coventry, but the Registrar of the Court received a letter from a trustee in bankruptcy dated 9 March 2005 informing the Court that a sequestration order was made against the estate of Michael John Coventry on 23 February 2005.
There has been no appearance for the trustee in bankruptcy of Michael John Coventry, thus there is an appearance for the second appellant, there is no appearance for the first appellant, and it appears from the information before the Court that there may be a need on the part of the first appellant’s trustee in bankruptcy to obtain leave if the first appellant desired to prosecute this appeal. The course that we propose to take is to hear the appeal of the second appellant. We will hear oral submissions of counsel for the second appellant and counsel for the respondent.
The representative of the first appellant will have 28 days from today to file any written submissions that may be sought to be made in support of the appeal if the first appellant desires to prosecute and is in a position to prosecute the appeal. In the event that any such written submissions are made within the time we have limited, the respondent will have a further 21 days to file any written submissions in answer to those submissions, as the respondent may be advised. Yes, Mr Stewart.
MR STEWART: Thank you, your Honours. The appeal concerns the proper construction of section 82 of the Bankruptcy Act. We contend that upon its true construction the section permits the admission to proof in bankruptcy of an unliquidated demand for damages pursuant to statute to compensate a party who has suffered loss by reason of misleading and deceptive conduct in circumstances where the loss is caused by the entry into or by the performance of a contract induced by the misrepresentations. The literal meaning of the language of subsection (2) which is the ‑ ‑ ‑
KIRBY J: Could you help me with the history of Australian bankruptcy law for this type of provision. I saw references that it actually goes back to the imperial Act, though that was in different terms. How did it come into Australian law and what has been the course of its history since?
MR STEWART: I suppose there are two answers to your Honour’s question. Some say that the genesis of section 82(2) is to be found in section 153 of the Bankruptcy Act 1861.
GUMMOW J: Well, the first question is, did the 1924 Australian Act have an equivalent of 82(2)?
MR STEWART: Yes.
GUMMOW J: What was it, do you know?
MR STEWART: I beg your pardon, your Honour, I do not know the section number – I will find that – but it was in identical terms to the current section 82(2). In fact, the current section 82(2) has been in the United Kingdom and Australian legislation since 1883. Since 1869 the exception has referred to unliquidated claims arising out of a contract or a promise and in 1873 ‑ ‑ ‑
KIRBY J: It is claim, not demand.
MR STEWART: I beg your pardon, a claim arising out of a contract or promise.
KIRBY J: So, originally, it was “claim” and then it later became “demand”?
MR STEWART: Yes.
KIRBY J: When did it become “demand”? In 1889, did it? Or 1883, was it? What was the Imperial Act?
MR STEWART: 1869.
GUMMOW J: Anyhow, the closest British Act to the 1924 Act was the Act of 1914, was it not?
MR STEWART: Yes.
GUMMOW J: And that had this provision in it?
MR STEWART: Yes.
KIRBY J: So it has been around for an awful long time.
MR STEWART: It has.
KIRBY J: In the present form?
MR STEWART: It has.
KIRBY J: That is a point Mr Jackson makes on the authorities. Anyway, you will come to that, you are just giving us the history at the moment.
MR STEWART: Thank you, your Honour. Well, it is a question ‑ ‑ ‑
KIRBY J: There is no more history? That is it.
MR STEWART: Yes.
GLEESON CJ: You were on the point of telling us, I think, that the reference to breach of trust was added at some stage.
MR STEWART: In 1873.
GLEESON CJ: Thank you.
MR STEWART: The point I commenced upon a little earlier was that it is an issue of statutory construction, the starting point naturally for which should be the literal meaning of the language found in the provision. The literal meaning of subsection (2) is wide enough, in our submission, to encompass the sort of position that we advocate here.
The principal point – I mean, it would have been so easy for the Parliament, had it been its intention to confine the types of unliquidated claims that could be proved in bankruptcy to claims for damages for breach of contract, to have said that, by the simple expedient of using words such as “by means of a breach of contract” or “arising under a contract”. One notices that the Parliament has gone to the trouble in 1873 of using that sort of mechanism to confine the sorts of trust‑related claims, if we can put it that way, unliquidated claims, that can be made the subject of a brief in bankruptcy.
GUMMOW J: What is the policy of all of this?
MR STEWART: I beg your pardon?
GUMMOW J: What is the policy of all of this, of keeping some claims out? I mean, the basic idea of bankruptcy is that they all go in. Why are they taken out?
MR STEWART: Section 82(1) essentially says everything goes in, but the policy considerations that we can identify is that there must be a commercial element, or a commercial nature, to the dealings. I perceive that the thrust of your Honour’s question is ‑ ‑ ‑
GUMMOW J: Was there not some problem with how you go about proving unliquidated damages with the proof?
MR STEWART: Prior to 1861, that was the case. Even unliquidated claims for damages for breach of contract, not fixed by judgment prior to the commencement of the bankruptcy, were incapable of being admitted to proof. The reason for that, it was said, was that it rendered the bankruptcy unwieldy, and the fixing, the liquidating, of the sum that could be proved in the bankruptcy was something that had to be left to a jury. It was not something that could be done by the commissioners or the other officers who administered the estates in bankruptcy. That changed in 1861.
HAYNE J: Now, some of these matters of history are dealt with by Justice Brooking in his reasons in Aliferis [2000] 1 VR 447 where I think the whole of his Honour’s judgment is directed to recounting at least some aspects of the history of these provisions. Do you say that that recounting is accurate?
MR STEWART: Yes.
HAYNE J: Is it sufficiently complete?
MR STEWART: There are additions to it to be found in the judgment of Chief Justice Jordan in Page v Commonwealth Life Assurance Society Ltd (1935) 36 SR (NSW) 85. It is an authority that we understand is on our learned friend’s list. There his Honour details the history of the bankruptcy legislation or, if we can put it this way, more accurately, the legislation dealing with insolvency, because, as his Honour indicates in that judgment, the first forms of insolvency legislation really dealt only with the debts of traders. Subsequently, a separate law of insolvency that applied to traders and all others grew up. It, it is said in his Honour’s judgment, had as its object the facilitation of people who had been committed to prison for their debts, to obtain their release. And there is a more fulsome ‑ ‑ ‑
GUMMOW J: There is a judgment by Justice Lockhart on this, too.
MR STEWART: I beg your pardon, your Honour. I am not aware of that.
GUMMOW J: I will find it, I suppose. I remember it very well.
MR STEWART: We will find it, your Honour. The original point was that the literal meaning of the language is, in our submission, ample to encompass this sort of claim. The use of the words “by reason of” is apt to connote something that has a causal connection with something else.
KIRBY J: That is why both sides have, in my view, properly applied themselves to the issue of the policy of the legislation. I do not think we are going to ultimately find the solution in the words, because we had a case, the decision of which was handed down last week in Tang – it may be this week – on “under an enactment” I think was the phrase, and finding the formulation and finding the cut‑off point is a matter upon which you are not necessarily going to find the solution in the words. You are going to have to look at how the statute is intended to operate.
MR STEWART: With respect, we agree with that proposition as a general one, without wanting to concede that there are not indications in the literal meaning of the language that point our way. The fact that the Parliament has gone to the trouble of limiting, as we indicated before, the trust‑related claims that can be proved to ones that arise out of a breach of trust – not just a trust – it points in our favour.
KIRBY J: This is not a new problem.
MR STEWART: No.
KIRBY J: Mr Jackson makes much of the fact that it was picked up in the Law Reform Commission Review. I do not want to take you off your course, because I think we have to go through this systematically and the analysis of the language.
GLEESON CJ: Mr Stewart, I would like to understand, a little better than I do at the moment, the precise relationship between the demand for damages and the contract.
MR STEWART: That is part of our ‑ ‑ ‑
GLEESON CJ: The words used by the section turn upon a relationship between what the section calls a “demand”, what the section calls “damages” and what the section calls a “contract”. I would just like to understand what you say, in the present case, is the precise relationship between the demand, the damages and the contract?
MR STEWART: The demand is the claim, if one likes.
GLEESON CJ: On the facts of this case, the case with which we are concerned.
MR STEWART: I beg your pardon. I misunderstood. The demand here is a claim that could give rise to an opportunity to prove in the liquidation for unliquidated damages.
GLEESON CJ: Mr Coventry must have said something that was not true. Is that what happened?
MR STEWART: Yes.
GLEESON CJ: That is what I want to understand.
MR STEWART: The facts of ‑ ‑ ‑
GLEESON CJ: Yes.
MR STEWART: I beg your pardon. Mr Coventry made misrepresentations as to the state of development of some software which was owned by a company. He said things like, “It’s ready to go to market. It is fully developed and really all that is required is capital to allow the business to spread it in the market and make profits”. That was found to be misleading and deceptive. As a consequence of that, the respondent claims, and his Honour has found, that the respondent entered into a contract in the form of a deed which did two things. It obliged the respondent to acquire shares in a company and it also obliged the respondent to lend money to the company. It is the sums that were lent, pursuant to the deed, that one finds amounting to the $600,000 that is the subject of the judgment that is the subject of the appeal.
GLEESON CJ: Now, when did the respondent suffer the loss for which it was compensated by the damages?
MR STEWART: In our submission, when they entered upon the deed which obliged them to advance the moneys.
GLEESON CJ: So your submission is that the respondent in the present case suffered loss in the form of undertaking a contractual obligation, is that right?
MR STEWART: Yes.
CALLINAN J: Mr Stewart, was it the deed or was it before the first agreement was made in December 1992 that the loss was suffered? Have I got the sequence wrong? I thought the parties reached the first agreement in 1992, then subsequently there were obviously some differences and then some compromises.
MR STEWART: Yes, but his Honour found that the misrepresentations continued to be relied upon at the date the deed was entered into and, to that extent, the deed superseded the agreements that had preceded it.
CALLINAN J: Well, there were continuing misrepresentations from before December 1992 until the making of the deed. Is that right?
MR STEWART: Yes, the misrepresentations spanned a considerable period.
CALLINAN J: And they were effectively the same misrepresentations.
MR STEWART: Yes, in respect of the software.
CALLINAN J: About the efficacy of the system?
MR STEWART: Yes.
GLEESON CJ: In the section, does the word “arising” relate to the word “demands” or to the expression “unliquidated damages”?
MR STEWART: Your Honour, our submission is that the demand is for liquidated damages and so the two can be treated as one. The demand for liquidated damages is a thing that must arise from a contract by reason of the contract. Our submission is that that is the literal meaning of the section.
GLEESON CJ: Is it part of your argument that in this case the demand was a demand for damages to compensate for loss suffered, the loss being the undertaking of the contractual obligation?
MR STEWART: Yes, or, alternatively, the performance of the contractual obligation. That is how we advance the submission.
GUMMOW J: Which contractual obligation would not have been assumed but for the misleading conduct.
MR STEWART: Yes. I say “contract”. It was in the form of a deed but the deed catered for consideration, so it took effect as a contract as well.
GLEESON CJ: Well, “contract” is the language of the section.
MR STEWART: Yes. It also uses “promise” and some of the cases have said that that is a deed and there can be a distinction. But we advance the submissions on the basis that this deed was a contract within the meaning of the expression “contract” found in 82(2). I am not sure if I sufficiently fully answered your Honour’s question about the relationship of the deed, the claim and the damages. I hope I have. The demand, I beg your pardon.
GLEESON CJ: Misrepresentations were made by both of the Coventrys, were they?
MR STEWART: Yes. The principal ones, however, were made by Andrew Coventry, and Michael Coventry was found to be liable for them, because Andrew acted as his agent.
GLEESON CJ: So Andrew Coventry made false representations about the ‑ ‑ ‑
MR STEWART: Subject of the business venture.
GLEESON CJ: ‑ ‑ ‑ viability of a business venture.
MR STEWART: Yes.
GLEESON CJ: And those representations induced Mr Jackson’s client to enter into a contract by which Mr Jackson’s client undertook to advance moneys to Evtech.
MR STEWART: Yes.
GLEESON CJ: Evtech was unable to repay the moneys.
MR STEWART: Yes.
GLEESON CJ: Thank you.
KIRBY J: Why did the fraud exception not apply in the circumstances you have outlined? It is common ground, as I understand it, that it did not apply.
MR STEWART: It was not pleaded as fraud, there was no finding of fraud and the findings were unchallenged and not sought to be supplemented.
KIRBY J: So these were innocent misrepresentations, were they?
MR STEWART: Yes. Well, the ‑ ‑ ‑
CALLINAN J: They were section 52, were they not?
MR STEWART: They were section 52 – it is a contravention of section 995 of the former Corporations Law, which is an analogue, effectively, for section 82 of the Trade Practices Act, and the damages are sought under section 1005, which is an analogue of section 82 of the
Trade Practices Act.
CALLINAN J: And fraud would have to be specifically pleaded, you would say?
MR STEWART: We would submit so, yes, your Honour, with respect.
KIRBY J: Well, not pleaded, not tried, not found and not now in dispute. At some stage perhaps you can help us on how that exception to the argument that you are operating fits into what you suggest is the policy of the legislation.
MR STEWART: Yes, your Honour. Can we take your Honours to the judgment of the Court of Appeal in this case, which is found at 179 FLR 438. The copy in the appeal record is not the published version. We have referred to the report found in the Federal Law Reports.
GLEESON CJ: Is it different?
MR STEWART: No.
KIRBY J: But is the one that is published the Queensland Supreme Court Report?
MR STEWART: Yes.
KIRBY J: Should we not be referring to that, because this is a decision of the Supreme Court of Queensland Court of Appeal. The Federal Court Reports ‑ ‑ ‑
MR STEWART: The one in the appeal record, your Honour, is simply a ‑ ‑ ‑
GLEESON CJ: Mr Stewart, one of the advantages of media neutral citations is that it should not matter which version we are referring to; they have paragraph numbers.
MR STEWART: Of course, and can I ask your Honours to go to paragraph 66 of the judgment. This is found part way through the judgment of Justice Jerrard, in whose judgment the other members of the Court of Appeal, the president and Justice White, agreed. In our submission, at the commencement of paragraph 66 one finds the reasoning, the essential reasoning, that underpinned the judgment in this case.
It must be said that his Honour thoroughly canvassed the law and also the submissions of the parties before reaching this point but the reasoning, in our submission, is encapsulated in these four or five lines where his Honour says:
The construction determined upon in Aliferis v Kyriacou has the advantages –
three advantages, really –
of historical consistency, consistency with the right of election long recognised to exist, and it is a result consistent with the analysis of Giles J in CCA Systems, which analysis I find persuasive –
In summary, it is our submission that none of those three consistencies that inclined his Honour to reach the conclusion that his Honour did can be justified.
Firstly, as to historical consistency, we understand his Honour to be referring to what his Honour perceived to be an uninterrupted line of orthodox authority which supported the decision in Aliferis. It is our submission that that is not the case now, as is demonstrated by recent authorities of Australian courts, and, indeed, has not been the case since the late 19th century when the case of Jack v Kipping was deciding, but, rather, the two conflicting lines of authority have existed in parallel down through those years. So it is not the case that, notwithstanding the literal meaning of the legislation, the history of the way it has been treated by courts in an uninterrupted line justifies departing from that literal meaning and adopting an alternative one. We will return to that.
As to the right of election, that stems from cases such as Parker v Norton, and those cases really stand for the principle that is a standard election principle: when faced with inconsistent rights, a party must elect. In this case, when a party has one claim which is provable and one claim which is not provable in a bankruptcy, then he must elect, which is to say he cannot enjoy the fruits that flow from the legislation by participating in a bankruptcy as a result of proving in the provable claim and also seek to enjoy the fruits of the non‑provable claim by suing.
We, with respect, cannot see how that can have a bearing upon the construction of section 82(2), because the principle assumes that one of the claims is not provable. The issue we address today is the extent to which 82(2) does make a claim provable or the extent to which it excludes claims from proof. If the claim is not provable, the principle of election can be given full play. The principle of election is not affected at all, in our submission, by an acceptance of our submissions, which would simply mean that some claims that our learned friends would suggest are not provable are provable.
Finally, we will return to the analysis of Justice Giles, which was in a misleading and deceptive conduct case, where there was a contractor who had been induced by the misleading and deceptive conduct. His Honour, when dealing with section 82(2), said that the demand did not arise out of the contract; it arose out of the misleading and deceptive conduct. We will have something to say about that as well.
Your Honours, we do not intend to follow the line of authority right from the late 18th century until today, but, rather, concentrate on the three principal authorities by which our learned friend’s position really commenced in the late 18th century. They are the decisions of Johnson v Skafte, Re Baun and Re Newman. If your Honours will bear with me, Johnson v Skafte (1869) LR 4 QB 700 considered section 153 of the Bankruptcy Act 1861. The text of that ‑ ‑ ‑
KIRBY J: You were saying 18th century, you meant 19th century. These are 19th century cases.
MR STEWART: I beg your pardon, they are 19th century cases. The text of the section is conveniently set out in the judgment of Justice Charles in Aliferis at paragraph 35. It was not in identical terms to section 82(2), but it had a lot of the hallmarks of it. It provided:
If any bankrupt shall at the time of adjudication be liable, by reason of any contract or promise, to a demand in the nature of damages which have not been and cannot be otherwise liquidated or ascertained, it shall be lawful for the court acting in prosecution of such bankruptcy to direct such damages to be asses by a jury –
In Skafte the plaintiff was a subtenant. His landlord, the defendant, failed to pay rent to the ultimate landlord, with the result that the ultimate landlord distrained goods on the premises, including the plaintiffs. The plaintiff had to pay money to the ultimate landlord to regain possession of his goods and sued to recover compensation in respect of that loss that he had suffered. Mr Justice Lush decided the case on the basis that section 153 applied only to – to adopt his Honour’s expression – “express contracts”. We can see that his Honour went on to deal with other aspects of the case, but the ratio of the case, in our submission, is that in Johnson v Skafte ‑ ‑ ‑
GUMMOW J: What do they mean by “express contract”? Are they excluding common money counts?
MR STEWART: Yes, implied contracts is how his Honour put it in this case.
GUMMOW J: What were then called implied contracts.
MR STEWART: Yes. That is as his Honour described it. So the ratio of the case really is that in Johnson v Skafte there was no contract, as there is in this case.
GLEESON CJ: You find a reference in the judgment of Justice Hayes, do you not, on page 705 to the policy? Do you see the note from Chitty on Contracts referred to?
MR STEWART: Yes, your Honour.
GLEESON CJ: It was the fact, originally, that damages had to be ascertained by a jury and had not been ascertained at the time of bankruptcy but put them to one side.
MR STEWART: Yes.
KIRBY J: Was that because it would involve the interruption of the administration of bankruptcy and was going to take too much time and was too uncertain?
MR STEWART: Yes, by the time of the passing of the legislation, that is to say the 1861 Act which has been the subject of discussion in Skafte’s Case, that was the position although it may be - we have not been able to identify exactly what this was in the earlier stages of the life of the legislation. It may be that originally all that was being dealt with was the debts of traders. We have already canvassed the changes in the policy or the legislation that led up to 1861.
GLEESON CJ: What is interesting about this case is the way it was argued. If you look at the arguments of counsel, counsel for the defendant on page 702, goes straight to Bullen & Leake and says this is the appropriate form of action and his opponent meets him on the same ground. He says this is an action in tort. So they argued the case on the basis that it was a question of identifying the form of action.
MR STEWART: They did, at least in part, but their Honours do not appear to have decided the case in that way.
HAYNE J: But the question in Skafte was whether section 153 could be engaged by directing damages to be assessed and if assessed they would then be provable. Is that right?
MR STEWART: Yes.
HAYNE J: And the provision with which we are concerned, which stems perhaps ultimately from the 1869 Act, is the mirror image, excluding things from proof.
MR STEWART: Yes.
HAYNE J: Now, does anything turn on that?
MR STEWART: Our opening submission was that the literal language of the section started with section 82(1) which has the effect of admitting everything to proof subject only to the exclusions found in subsection (2) and the fraud exception, as your Honour indicated. It can then be seen, in our submission, as legislation in the nature of remedial legislation and, subject to countervailing considerations to be found in the context or other evidence of the policy, the legislation should be construed generously widely with the result that the exclusion found in subsection (2) should be construed narrowly.
KIRBY J: But unless the principle behind it was the forms of action, distinction between contractual-type claims and obligations in tort, it is pretty hard to say the policy was that if it goes off to a jury trial, that will take time, because in those days it did not take time. I mean, look at this case, 157 days. Jury trials even in my youth were over in a day or two days and that would have been even more so in the 19th century, so I do not quite understand what the principle of the distinction was that they were seeking to introduce for the efficient administration of bankruptcy. Presumably that was the overall objective, or was it some notion of fairness or nebulousness of claims or uncertainty of claims? I just do not understand.
MR STEWART: With respect, we accept what your Honour has said but that does not gainsay that there were advantages to be gained by having a system which would permit the administration to be conducted more quickly than otherwise would be the case, that is to say, if all the claims were thrown in, but that was overcome in 1869 with the introduction of section 153 and the introduction of the ability of the bankruptcy court to liquidate the damages effectively by hearing the claim.
Another policy that is likely to have come into play is the one we mentioned a little earlier, and this is to be found in Chief Justice Jordan’s judgment that we referred to earlier. The original bankruptcy law having concerned itself with the debts of traders, by the 19th century, the prisons were groaning with debtors, and legislation was introduced which had as its object the facilitation of those people gaining their freedom by giving up their assets, so that their creditors of all types could share in it. So it is ‑ ‑ ‑
KIRBY J: If one of the reasons for the bankruptcy or the failure of a business was that there had been some claim in tort by the business, say, a nuisance or something of that kind ‑ ‑ ‑
MR STEWART: Or an assault.
KIRBY J: ‑ ‑ ‑ it does not seem protective of the creditors to exclude that from inclusion in the bankruptcy if an amount is recovered. I can understand divorcing personal injuries and so on, but there are torts that are related to the business.
MR STEWART: Yes.
KIRBY J: I do not understand why they adopted this principle. Does Justice Brooking, who is a very considerable historian – he goes into these matters very thoroughly – is there anything in Aliferis that puts his finger on why this was included at the time?
MR STEWART: No. His Honour traces the authorities ‑ ‑ ‑
GUMMOW J: The trouble is, of course, that the legal system on which the bankruptcy law is operating has changed enormously since the 1860s.
MR STEWART: It has.
GUMMOW J: Notions of express contracts and so on, jury trials.
HAYNE J: Causes of action generally.
GUMMOW J: Yes, the ground has been moving, but on the top of it you have this rather antique section. The question really is, does the construction of the section require some accommodation of the practical realities of what is underneath in the legal system from time to time? And you do not answer that just by reciting all the cases.
MR STEWART: No.
GUMMOW J: We are just looking at the top of the iceberg, that is all.
MR STEWART: With respect, we agree entirely with that approach. We were dealing, however, with what motivated Justice Jerrard and, indeed, Justice Charles in their cases.
GLEESON CJ: Yes, I know. Do we know what was the reason for the change in language that was adopted in 1869? They did change the words, did they not?
MR STEWART: In 1869, section 153 was introduced. If that were to ‑ ‑ ‑
GLEESON CJ: Yes, but the provision – you have just been referring us to Johnson v Skafte.
MR STEWART: Yes.
GLEESON CJ: That was dealing, was it not, with earlier legislation?
MR STEWART: I do not believe so, your Honour. If you look at the top of page ‑ ‑ ‑
GLEESON CJ: It was dealing with the Bankruptcy Act 1861, was it not?
MR STEWART: I beg your pardon, it was. I misunderstood your Honour’s question. I was answering by reference to section 153 of 1861. Your Honour was talking about 1869.
GLEESON CJ: No, I began by talking about a change in 1869.
MR STEWART: Yes.
GLEESON CJ: And what I would like to do is compare the language of the 1861 Act with the language of the 1869 Act. Was it different?
MR STEWART: It was.
GLEESON CJ: What was the reason for the change? That is my question.
MR STEWART: It is difficult to divine that for present purposes, where the focus of your Honour’s attention is the words “by reason of a contract”. The words are identical. In section 153 of the 1861 Act one finds:
If any bankrupt shall, at the time of adjudication be liable, by reason of any contract or promise –
then it goes on to say which is unliquidated, that can be proved and provides for the mechanism for fixing it.
GLEESON CJ: The change was from a verbal formula that talked about somebody being “liable, by reason of any contract or promise, to a demand in the nature of” unliquidated damages arising other than by reason of a contract, was it not?
MR STEWART: Yes.
GLEESON CJ: Is there any significance in the difference?
MR STEWART: In our submission, there is. We continue to return to the literal meaning of the language. It does not refer to a liability under a contract, as the earlier legislation did.
GLEESON CJ: You can understand, can you not, why counsel in Johnson v Skafte would have gone to Bullen & Leake in order to answer the question whether somebody was liable by reason of a contract?
MR STEWART: Yes.
GLEESON CJ: It is not self-evident that when you are asking the question whether somebody has a demand arising by reason of a contract, it is quite so obviously answered by going to Bullen & Leake.
MR STEWART: We agree.
GLEESON CJ: I just wondered if we know why they made that change.
MR STEWART: There is nothing we have been able to find. There is no mention of it in ‑ ‑ ‑
HAYNE J: Is there not something in Hide’s Case (1871) LR 7 Ch App 28, particularly in Lord Justice James’ reasons at 31, where his Lordship identifies a reason for the passing of the 1869 Act in the third line of his Lordship’s reasons and following, “A great number of cases occurred”, et cetera, in effect where the bankrupt was left liable. Then the 1869 Act:
dealing in express terms with almost every one of the cases which had ever previously occurred, and excluding nothing but demands for damages for personal torts –
in effect, trying to sweep everything into the bankruptcy. That seems to be his Lordship’s view of what was happening.
MR STEWART: Indeed, your Honour, his Lordship continued to say commencing at the third line from the bottom of the page:
Every possible demand, every possible, claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury.
So at the very least, the 1869 Act widened the scope of unliquidated claims that formerly were capable of being admitted to proof as a result of section 153 of the 1861 Act.
If I can just return briefly to Johnson v Skafte, it did not deal with the section in the terms that 82(2) now adopts. His Lordship Mr Justice Lush identified as the ratio of the case the fact that in that case there was no express contract to which anything could be related sufficiently or otherwise to render it provable, because it was, as he described it, an implied contract, being a claim upon assumpsit. Therefore, it provides scant basis for any line of authority that unliquidated claims for damages for breach of contract are the only unliquidated claims that are not excluded by section 82(2).
The next influential decision is that in Ex parte Baum; In re Edwards (1874) LR 673. Your Honour, this considered section 31 of the 1869 Act, and there was analogous to this case ‑ ‑ ‑
GUMMOW J: Just before we leave the unpronounceable Welsh case, I have a note that it was considered in Park Air Services [1996] 1 WLR 649. Has anyone looked at that?
MR STEWART: We have not, I am afraid. In Baum; In re Edwards it was argued that the claim for damages for fraudulent misrepresentation was one substantially arising out of the contract and one sees that from page 675 about halfway down the page. With, we submit, with respect, very little reasoning, Lord Justice Mellish concluded that it was clear that damages for false representations were not provable. Again, in the absence ‑ ‑ ‑
GUMMOW J: I do not think Lord Justice Mellish ranked very high in the Chancery pantheon.
MR STEWART: That gives us some comfort, your Honour. In relation to the case, it is so bereft of reasoning that our submission follows that it also provides scant, if any, basis for this long line of cases that Justice Jerrard and Justice Charles seem to have been influenced by.
GUMMOW J: The same counsel who had been in the Welsh case turned up in this one, too.
HAYNE J: Mr De Gex was in a large way of practice in bankruptcy, I think.
GUMMOW J: Yes. Mr Winslow, too.
MR STEWART: The next case we would take your Honours to is In re Newman; Ex parte Brooke (1876) 3 Ch D 494. Again, this considered section 31 of the 1869 Act. There a creditor sought to prove a judgment which was given after the commencement of a composition for damages for negligence concerning injuries she had suffered in an accident involving the defendant’s bus. Accordingly, there could be no question that this liability had any connection with a contract at all. Their Honours had no cause to ‑ ‑ ‑
KIRBY J: Is this the reason that you are reading us these decisions, to show that the policy that has been read into the statute is “If it is commercial, if it is connected with the business affairs, then it goes into the bankruptcy, and if it is not, then it does not”?
MR STEWART: No, your Honour, although those issues might be elucidated by some of the discussion concerning the cases.
KIRBY J: In a sense that just postpones the question of what the statute means, because you then would get arguments as to how you would conceptualise that distinction.
MR STEWART: We do not wish to deal with any other cases in relation to that line, but we dealt with them because it seems that Justice Charles and, equally, Justice Jerrard have taken the view that there is this long line of cases, uninterrupted line of cases, that adopt this expansive construction of section 82(2) so as to widen the ambit of the cases excluded from those which can be proved.
GUMMOW J: Should not the tendency be to the opposite, having regard to what is said in Storey v Lane 147 CLR 549 as to the general structure of the bankruptcy law? The point I am making to you is at 556 of Chief Justice Gibbs and 563 to 564 in Justice Aickin.
MR STEWART: We agree.
GUMMOW J: The Act:
should operate uniformly on debts of equal degree owed by a bankrupt, uniformly both as to the bankrupt and as to his creditors –
and so forth, all to go into the one administration so far as practicable, possible, and it was not practicable or possible initially because of this jury problem and the problem with swearing the proof. You could not swear an amount in the proof.
MR STEWART: For the benefit of both the creditor and the bankrupt.
GUMMOW J: Yes. But initially, how could you swear a proof when there was an unliquidated claim? That was the problem.
MR STEWART: Yes, but before 1861 one had to run the risk of perjury if the swearing of the proof was inaccurate.
GUMMOW J: Exactly.
MR STEWART: That was fixed by the introduction of the process introduced in 1861 and which has formed part of the bankruptcy regime ever since.
GUMMOW J: Yes, Lord Justice James was talking about these things.
MR STEWART: And Lord Justice James spoke in really expansive terms about the effect of the 1869 Act and the changes it introduced.
GLEESON CJ: Lord Justice James and Lord Justice Mellish came together, you can read Newman. And the language that they both use is like the language which you find in Groom v Crocker. The world is divided into actions in contract and actions in tort, and if the action is in contract one results follows, and if the action is in tort a different result follows, and you answer the question by getting out Bullen & Leake.
KIRBY J: That is what Mr Harmer said was the fragile foundation for this provision and it depended a bit on how you pleaded the action today. That was not a very good foundation for the distinction today.
GUMMOW J: It was also dealt with in the Cork Report (Cmnd 8558, 1982) - are you familiar with that? Paragraph 1313 deals with the historical nature of reasons for this rule. It has gone in England in 1986, is it not, following the Cork Report?
MR STEWART: With the Insolvency Act, yes.
GUMMOW J: But the Harmer Report did not really take up the cudgel, did it, in Australia?
MR STEWART: The Harmer Report expressed a view about the state of the law, with which we respectfully disagree. It had something to say about whether the recommendation in relation to section 82(2) was based on the research performed by that body, and the report reveals very little of the reasoning that underpins the conclusion which one can reasonably infer the authors of the report formed, which was that 82(2) had a very broad application and therefore excluded claims such as the ones that we are seeking to argue should be admitted to proof or were provable here. And nothing was done to the Bankruptcy Act but we, with respect, cannot see that that provides any basis that there has been some post-Harmer report, legislative intention that section 82(2) have that result. If the authors of the report were correct, according to your Honours’ judgments, we will lose the appeal. If they were wrong, the opinion held by the Harmer Report authors should have no influence whatsoever on the outcome of the appeal. So to summarise, the three ‑ ‑ ‑
GUMMOW J: But is there any accommodation of the judicature pleading system which came after this and upon the reasoning in these earlier cases, rooted as they are in Bullen & Leake? Is there any consideration of that chain? I do not think so.
MR STEWART: I am really confining myself to ‑ ‑ ‑
GUMMOW J: Just a recitation of all these cases.
MR STEWART: Yes. To summarise, the three earliest influential cases in the line of authorities relied upon by Justice Jerrard and Justice Charles are the three we have referred to and for the reasons we have mentioned they deserve to be given little weight in the course of the judgment that has to be made about the meaning of the section in this case.
HAYNE J: The closest consideration to it may be in paragraph 14 of Aliferis in Justice Brooking’s reasons where his Honour refers to the “forms of a bygone age” not impeding “principled enunciation”, but then expressing a view about, in effect, freedom to depart from meaning assigned to the words earlier. His Honour’s answer to the problem was to treat “by reason of a contract” as requiring plea of the contract “as an element of the cause of action”. Now, if that were adopted, why would that test not be met even in the facts of this case? The plea of entering the contract was, was it not, the necessary step to establishing the damage alleged?
MR STEWART: We agree, respectfully, with the thrust of your Honour’s point.
GUMMOW J: Was it dealt with in the Court of Appeal in Queensland in this case, that point?
MR STEWART: In Justice Jerrard’s judgment his Honour was very influenced ‑ ‑ ‑
GUMMOW J: At some stage someone had to consider under a system of back‑pleading, which we have now, with these section 52 and cognate section claims, what you have to allege. Is not what Justice Hayne said right?
MR STEWART: We agree, but it appears that what has happened in the Court of Appeal is that Justice Jerrard has – Justice Jerrard has said, this is not ‑ ‑ ‑
GUMMOW J: Having done that you measure it up with the Bankruptcy Act section.
GLEESON CJ: Is this not the point Justice Jerrard was dealing with in paragraph [66] at the end of the paragraph when he referred to your “alternative way of putting” the case? What you have just adopted in your submission is what Justice Jerrard described in the Court of Appeal as your “alternative way of putting” the case?
MR STEWART: Yes.
GLEESON CJ: Whether his answer to that is a good one or not, that was the way he endeavoured to deal with it.
MR STEWART: Yes.
HAYNE J: The difference between the two propositions, the one I put to you for your consideration, and his Honour’s, lies in the third last line:
elevates a matter of normally necessary evidence –
What I had understood Justice Brooking to be saying was, “Look to the material facts that have to be pleaded. If one of the material facts that has to be pleaded is the contract, one answer, if the contract is not a material fact, opposite answer.” Now, if Justice Gerrard treats this as a matter of evidence I do not know whether his Honour is right or wrong.
MR STEWART: His Honour Justice Jerrard expressed himself in this way. This is not a demand that arises out of a contract, it is a demand that arises out of the misleading and deceptive conduct, notwithstanding that the result of the misleading and deceptive conduct was a contract that the party otherwise would not have entered into.
HAYNE J: There lies the difficulty, that if you put on actions the single line tag, “This is a misleading and deceptive claim” that lumps together a series of claims which may be radically different.
MR STEWART: With respect, we agree entirely. I mentioned that part of his Honour’s judgment because, as a result of it, we have interpreted his Honour’s interpretation of what Justice Brooking has said in the Aliferis Case as meaning it has to be a claim for damages for breach of contract in order to escape the exclusion found in section 82(2). In our respectful submission, it is difficult to put a different complexion upon Justice Jerrard’s judgment. We would be content with your Honour Justice Hayne’s characterisation of what Justice Brooking has said. If it is to be simply an element of the action, to be judged by reference to its relevance to the action as a whole, in our submission, this claim was not caught by the exclusion of section 82, because it was something that arose by reason of the contract.
Analysis of the case discloses, however, that Cave J was not necessarily suggesting that only claims arising out of contract could be set off under a provision such as s 86.
And your Honours will then see about three-quarters of the way down the page:
It follows that Jack v Kipping, properly understood, recognizes that a claim against the bankrupt can be set off under s 86 only if it would, but for the set off, be provable in the bankruptcy.
That is really all that the case decides, your Honours.
Could I come next to the question of the policy, in a sense, of the bankruptcy law. This is an aspect we have dealt with in our written submissions in paragraphs 31 to 40, and may I deal briefly with the legislative history of the laws relating to bankruptcy and company liquidation in Australia, which culminated of course in what seems to have been a decision to change the law in relation to the application of section 82 in company liquidations but not in bankruptcy.
Could I take your Honours briefly to the summary of the earlier history by Chief Justice Jordan in Page v Commonwealth Life Assurance Society Ltd (1935) 36 SR (NSW) 85. At page 89 your Honours will see in the paragraph commencing about point 6 or 7 on the page, there is a reference to the law of bankruptcy being initially “concerned only with defaulting traders”.
Then one sees at page 90, about five or six lines down the page:
In this state of the law, it was held that if there was a claim in tort against the bankrupt, and judgment was obtained before the commencement of the bankruptcy, the judgment debt was provable . . . although verdict without judgment was not sufficient.
Your Honours will see then, a little further down, two sentences down:
a claim against the bankrupt in respect of a tort committed by him could not be proved in the bankruptcy unless it could be framed in contract.
Your Honours will see then a discussion of that going through to about three quarters of the way down the page, particularly:
it was not the object of those laws to protect him from the consequences of his own wrongs –
One comes, then, on the next page to the Bankruptcy Act 1861 being referred to, then, a little further down, section 153 of the Act of 1861 and then the Act of 1869. Your Honours will see that passage quoted.
Now, there is a discussion at page 94, about the first new paragraph, of the absence of “the distinction between traders and non‑traders” in New South Wales bankruptcy law, to “a general scheme of bankruptcy” at the top of page 95. Then, on page 95, about three quarters of the way down, a reference to the fact:
The Act of 1841 and several Acts amending it were replaced by the Bankruptcy Act, 1887, which . . . contained in s 45 provisions –
shortly, which are now found in the Bankruptcy Act.
Finally, your Honours, at page 98, about halfway down the page, there is reference to:
the undoubted policy of the bankruptcy law to concern itself only with such claims as are provable in bankruptcy and to treat any surplus assets which may remain as belonging to the bankrupt. But it has never been the policy of that law to treat the bankrupt or his property as exempted from liability for non‑provable claims except to the extent necessary for the satisfaction of all such claims as are provable.
That is slightly off the point, but it assumes that there will be non‑provable claims which are not in contract.
Your Honours have been taken already, I think to the observations in Victor v Victor. That was a case, I think, where there were actually two judges, not just Sir George Mellish. There were Cozens‑Hardy, Master of the Rolls, and Fletcher Moulton that were on the case, but the observation I made was correct.
As your Honours have seen, the exception was considered by the Law Reform Commission in 1988. Your Honours have, I think, the report of Law Reform Commission, relevantly, paragraphs 783 and 786. They recommended in paragraph 786:
that claims for unliquidated damages arising from tort should be admissible –
and in footnote 18 referred to the way in which that might be effected, so far as the Bankruptcy Act was concerned.
The recommendation appears to have been accepted in relation to the liquidation of corporations but not in respect of bankruptcy and one can see that from section 553E of the Corporations Act which was inserted by the Corporate Law Reform Act 1992. I do not think I need to take your Honours to the terms of it and your Honours ‑ ‑ ‑
KIRBY J: Are they administered by different Ministers? Small business administering bankruptcy and the Attorney-General corporations, do you know?
MR JACKSON: I do not know the position now or then, I am afraid.
KIRBY J: You cannot assume because law reform reports and proposals are not implemented that they have been rejected, sometimes just not been considered.
MR JACKSON: In paragraph 2 of the explanatory memorandum which your Honours should also have circulated by the Attorney-General, he refers in paragraph 2 at the second dot point, that “the personal bankruptcy aspects of” the Law Reform Commission Report “are being addressed in a separate legislative exercise”, for which your Honours, one still waits. But what does emerge, to put it shortly, is that whilst no doubt Parliament’s inaction is not binding on the Court but in circumstances where the issue has been the subject of consideration by a law reform body, recommendation for change has been made, the recommendation has been acted on in part only and not in the relevant respect, then we would submit the Court should hesitate before adopting a different version of the law.
There is of course a satisfactory reason for the distinction between the liquidation of companies on the one hand and bankruptcy on the other, and that is that in the case of liquidation of companies that is usually the end of them. There are some exceptions when sometimes a company has to be revivified to sue so the benefit of an insurance policy can be obtained, for example, but generally speaking, once they are gone, they are gone. But in the case of bankruptcy, the individual remains. In relation to the explanatory memorandum, could I just give your Honours the references to the relevant paragraphs: paragraphs 32, 848 to 853, 860 to 861 and 874.
Your Honours, may I then seek to conclude our submissions by referring to our written submissions. Could I refer particularly to the concluding part of it. What we would seek to refer particularly to are the matters in paragraph 62, the artificial distinctions that may be drawn if the view suggested by the appellant is adopted.
Again, in paragraph 63, we have referred to the uncertainty that might arise, but could I just emphasise, your Honours, it is not just a question of courts. It is a question of trustees in bankruptcy having to deal with these things, and it is desirable that they be able to identify what ‑ your Honours, if I could adopt a word – category claims would fall into. They have to make these decisions for very practical reasons.
Your Honours, we refer in paragraph 4 to the difference between the various‑ that there are meaningful differences to the various causes of action, and that is also in paragraph 65.
What we would also say is that this is a case where we had available to us the choice to endeavour to prove in the liquidation or to endeavour to go outside the liquidation. We have not endeavoured to prove in the liquidation. We have elected, and there is no reason why that election, with respect, is not one that was open to us.
Your Honours, although one appreciates the Court is not bound by decisions of courts lower in the hierarchy or in different hierarchies, there is a fair body of authority, in our submission, which supports the contention that we advance, and we would submit it is an appropriate resolution of the issues.
GLEESON CJ: Thank you, Mr Jackson. Yes, Mr Stewart.
MR STEWART: Your Honours, on the topic of the part played by the deed in the incurring of loss, might we just supplement the references in our written outline to the evidence. Your Honours will find at paragraph 30 of our written outline the reference to the passage in Justice Fryberg’s reasons at paragraph [330], set out at page 208 of the appeal book, where his Honour said:
All of the plaintiff’s claims hinge upon the two deeds. The plaintiff’s execution of these deeds is an essential element of its claim for damages. The plaintiff attributes its execution of the deeds to the alleged misrepresentations.
What we ought also to have referred to is his Honour’s further reasoning in relation to those matters, which is to be found at paragraphs [766] and [767], found at page 338 of the appeal book.
Finally, in response to a matter raised by your Honour Justice Callinan, while this is in no way a complete response to your Honour’s query as to the elucidation of the meaning of “promise” in the textbooks and the authorities, there is a reference to it in the judgments in Aliferis [2000] 1 VR 447 at 448, towards the foot of the page. They are our submissions.
HAYNE J: Can I just mention one matter? I think I am right in saying that the Canadian legislation was the same. It probably traces back to the same root. I do not know about the New Zealand legislation, and I have not had a chance to look at what the Canadians have said about it, but, at least for my part, I would be glad if the parties could put in writing a note of anything that they say can be gleaned from equivalent provisions in the Canadian and, if they exist, the New Zealand provisions.
MR STEWART: Thank you, your Honour.
GLEESON CJ: Thank you, Mr Stewart. We will reserve our decision in this matter, and we will adjourn until 9.30 tomorrow morning in Sydney and 9.30 tomorrow morning in Melbourne.
AT 2.59 PM THE MATTER WAS ADJOURNED
Key Legal Topics
Areas of Law
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Civil Procedure
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Commercial Law
Legal Concepts
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Abuse of Process
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Appeal
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Costs
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Jurisdiction
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Res Judicata
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Stay of Proceedings
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