Foots v Southern Cross Mine Management Pty Ltd & Ors
[2007] HCATrans 318
•19 June 2007
[2007] HCATrans 318
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Brisbane No B26 of 2007
B e t w e e n -
KENNETH JOHN FOOTS
Appellant
and
SOUTHERN CROSS MINE MANAGEMENT PTY LTD
First Respondent
ENSHAM RESOURCES PTY LTD
Second Respondent
BLIGH COAL LIMITED
Third Respondent
IDEMITSU QUEENSLAND PTY LTD
Fourth Respondent
EPDC (AUSTRALIA) PTY LTD
Fifth Respondent
LG INTERNATIONAL (AUSTRALIA) PTY LTD
Sixth Respondent
FOOTS PTY LTD
Seventh Respondent
LITTLE DIGGER MINING LIMITED
Eighth Respondent
NORMA AGNES FOOTS
Ninth Respondent
KENNETH JOSEPH HILL
Tenth Respondent
Application for special leave to appeal
GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
CRENNAN J
TRANSCRIPT OF PROCEEDINGS
AT BRISBANE ON TUESDAY, 19 JUNE 2007, AT 12.14 PM
Copyright in the High Court of Australia
__________________
MR P.J. DUNNING, SC: May it please the Court, I appear with my learned friends, MR S.A. McLEOD and MR S.J. WILLIAMS, for the appellant. (instructed by Conroy & Associates)
MR W. SOFRONOFF, QC: May it please the Court, I appear for the respondent with my learned friend MR A.M. POMERENKE. (instructed by Allens Arthur Robinson)
GLEESON CJ: Yes, Mr Dunning.
MR DUNNING: Thank you, your Honours. Your Honours, this appeal concerns the proper meaning and, indeed, the width of the meaning of the expression “debts and liabilities” in section 82(1) of the Bankruptcy Act. It is a matter that this Court gave careful consideration to, that and a related question, in a decision of Coventry v Charter Pacific which both sides call in aid. In particular, in that case this Court was concerned with the breadth of the express exceptions to that expression “debts and liabilities” in section 82(1) that are set out in 82(2) of the Bankruptcy Act. So much is apparent from the reasons of the joint judgment of your Honour the Chief Justice, Justices Gummow, Hayne and Callinan, at paragraph 5.
Your Honours, in our respectful submission, it is the logical starting point for the consideration on this appeal of the breadth of that question that your Honours necessarily considered but not in this precise context in Coventry. Consequently, your Honours, I intend to take you through both the joint reasons for judgment of the Chief Justice and Justices Gummow, Hayne and Callinan and also Justice Kirby’s judgment with a view to building a foundation on which the submissions are made for the appellant surrounding these four propositions that relevantly emerge from Coventry.
Firstly, the provenance of section 82 of our Bankruptcy Act and the changes to it dating back to section 31 of the Bankruptcy Act (UK) (1869), which can be seen as the progenitor of the now section 82. Secondly, that the 19th century English cases and the authorities that have followed them are important in interpreting the breadth of debts and liabilities in section 82(1). Thirdly, that the reasoning in that case holds that that expression in subsection 82(1) is one of wide import as a result and, finally, to deal with the statements of principle by your Honour Justice Kirby regarding the purposes of the modern bankruptcy legislation set out in there. May I take your Honours firstly please to the provenance of section 82.
GUMMOW J: Where are we going though? What is the purpose of this journey, as they used to say?
MR DUNNING: The purpose of this journey, your Honour, is to demonstrate that the proper approach that the Court ‑ ‑ ‑
GUMMOW J: Apropos of this particular factual situation in this case.
MR DUNNING: Your Honour, the purpose of it is to demonstrate that the Court of Appeal ought to have considered the learning in those 19th century English cases and, in particular, Re British Gold Fields, as informative of the proper construction of that expression in section 82(1).
GUMMOW J: Can you just explain to me in terms of section 82, how you say your case falls in or out of it?
MR DUNNING: Your Honour, I say that my case falls inside section 82(1) on the basis that the costs order in question was an obligation incidental to a provable debt being the judgment that Ensham had secured against Mr Foots on its principal claim.
GUMMOW J: Now, the devil seems to be in the phrase “incidental,” does it not?
MR DUNNING: Yes.
GUMMOW J: What do you mean by that in terms of section 82?
MR DUNNING: In terms of section 82 ‑ ‑ ‑
GUMMOW J: It does not appear there, you see.
MR DUNNING: No, it does not appear there, but as we go through the provisions of section 82, it is clear that – leave the learning to one side, though ultimately we should come back to that, but even if we look at the express terms of section 82, it contemplates that that expression “debts or liabilities” has a wide import beyond a debt simpliciter ‑ ‑ ‑
GUMMOW J: The question is, how wide, you see.
MR DUNNING: Indeed it is, your Honour, yes. If I can give but one illustration of that, where we see in section 82(2) the reference to “Demands in the nature of”, in our respectful submission, that is apt to indicate that the net is cast very wide in respect of debts and liabilities because it is necessary to be wide enough that in section 82(2) you need to exclude a matter as distantly removed from a debt simpliciter, if I could put it that way, as a demand in the nature of. That is indeed one of the matters in Coventry that I was wishing to take your Honours to in due course.
GUMMOW J: Why did this debate break out in the Supreme Court which does not normally exercise bankruptcy jurisdiction? Why did we have that happen?
MR DUNNING: Certainly, your Honour. What happened was this. There was a lengthy civil trial, if I can state it broadly, whereby Ensham alleged breach of fiduciary duty against Mr Foots and, indeed, fraud and other matters but they arose out of his position as its CEO. That case was heard over some many weeks through to judgment. Justice Chesterman, the trial judge, delivers his reasons for judgment indicating that he has found in favour of Ensham and against Mr Foots.
The matter is stood over a little while for the formulation of the formal orders in relation to what I may call the principal judgment or the money judgment. That comes back on shortly later and his Honour gives judgment in favour of Ensham against Mr Foots in the sum of about $2.46 million. The question of costs was reserved because it was plainly going to be a complex question. It had been a very long and expensive trial. There had been multiple parties and multiple claims. It was not a simple plaintiff and defendant case.
GLEESON CJ: And, I think, there was an application for indemnity costs, was there not?
MR DUNNING: Indeed there was, your Honour, yes. The special considerations were always going to obtain there which would require the consideration of what were very lengthy reasons in relation to the findings that had been made against Mr Foots. Subsequently, Mr Foots, unable to pay the money judgment that had been awarded against him on the principal claim, petitioned for bankruptcy and was bankrupted on his own petition. The matter then comes back on for the hearing of the costs argument.
KIRBY J: In your submission you seem to lay a lot of emphasis on the fact that he was bankrupted on his own petition.
MR DUNNING: I am not meaning to, your Honour.
KIRBY J: Bankruptcy is a public act by a court and it is not something in his gift for himself only. It is a public act that has legal consequences.
MR DUNNING: I would agree, your Honour, and I was not seeking to make anything of it.
KIRBY J: I just thought there was a little bit of forensics in there.
MR DUNNING: I hope there are some forensics elsewhere but none were intended there. It would not have mattered, for the purpose of my argument, whether Ensham had been able to bankrupt him on its ‑ ‑ ‑
GUMMOW J: Anyhow, while the Supreme Court is pending its consideration of costs ‑ ‑ ‑
MR DUNNING: Mr Foots becomes bankrupt.
GUMMOW J: There is a bankruptcy the supervenes and then what happens?
MR DUNNING: Then the costs hearing comes on for argument and Ensham assert that they should have an order ‑ ‑ ‑
GUMMOW J: Then the Civil Procedure Rules kick in, do they?
MR DUNNING: They do. They needed leave under rule 72 of the uniform Civil Procedure Rules to proceed against Mr Foots because he was bankrupt.
GUMMOW J: If?
MR DUNNING: Because he was bankrupt, your Honour.
GUMMOW J: It does not say with respect to a provable debt, does it, the Civil Procedure Rule?
MR DUNNING: No, it does not, but the argument proceeded on the basis that leave would not be granted if, in fact, leave was sought to pursue a claim that was, in truth, a provable debt for the purpose of the Bankruptcy Act and indeed that if it was for a provable in respect to the Bankruptcy Act leave ‑ ‑ ‑
GUMMOW J: So the theory was the court was not going to give leave in those circumstances?
MR DUNNING: Correct, your Honour. Indeed, no leave had been sought of a Federal Court for leave to proceed in respect of a provable debt.
GUMMOW J: That is what mystifies me. Why are there two pathways for this?
MR DUNNING: Your Honour, in our respectful submission, there are not necessarily two pathways.
GUMMOW J: To be more precise, why is there a federal and a State pathway?
MR DUNNING: Because rule 72 contemplated that leave was necessary to proceed against Mr Foots as a bankrupt and that then necessarily provoked what were the relevant questions for the exercise of that discretion as to grant leave and one of them was, was this in respect of a provable debt?
KIRBY J: Why is not solely a federal question?
MR DUNNING: As to whether it is a provable debt?
GUMMOW J: No, as to whether you get leave. Is there provision in the Bankruptcy Act about leave?
MR DUNNING: There is.
GUMMOW J: Does that not cover the field?
MR DUNNING: Your Honour, in our respectful submission ‑ ‑ ‑
GUMMOW J: Otherwise you might get leave in one place but not the other.
MR DUNNING: Indeed, you may.
KIRBY J: That cannot be. There is a federal power in respect of bankruptcy. It has been exercised. It is a very important national statute and it has been invoked in this case and it is supervened and we are then in federal territory.
MR DUNNING: Yes. None of that we would, with respect, disagree with. There may, of course, be occasions where the Federal Court, which is the court that primarily ought to be the granter of leave, grants leave and there is ‑ ‑ ‑
GUMMOW J: Simply because it is seized of the administration of the whole estate.
MR DUNNING: Yes, but in answer to Justice Kirby’s question, there may be nonetheless, after a grant of leave in the Federal Court, occasions – not that any spring readily to mind – where the discretion might be exercised differently in the Supreme Court, but it is right to say that it is primarily a federal matter. But Ensham having not gone and sought leave to the Federal Court in respect of this provable debt, as we would contend, it was a matter that was necessarily ‑ ‑ ‑
GUMMOW J: How then can they proceed in the face of the prohibition of the federal Act? That is what I am mystified me. The federal Act says you cannot do things unless you get leave under that Act. If you do not have leave under that Act, how can you do these things other than by defying the federal law?
MR DUNNING: That comes out of the ultimate question that, in our respectful submission, is raised on the appeal. If the trial judge did as he did and the majority did as they did, took the view that it was not in respect of a provable debt, then there was no need for the intervention of this Court.
GUMMOW J: Exactly. So your proposition, I think, has to be that you escape the federal Act because the federal Act does not bite because there is no provable debt. Is that the way it works?
MR DUNNING: No, we assert it is a provable debt, so that, indeed, leave undoubtedly ought to have been got from the Federal Court which it would not have been because it was, we say, a provable debt and should have been part of the estate in the interest both of the bankrupt and his creditors. Similarly though, you would not grant leave in those circumstances under rule 72. The appellant’s contention is that the claim for costs was a provable debt within section 82(1) of the Act and therefore caught in Mr Foots’ bankruptcy.
GUMMOW J: What is the section in the federal Bankruptcy Act dealing with leave?
MR DUNNING: Section 53, I believe, your Honour. Mr Sofronoff reminds me that Justice Chesterman refers to it in his reasons at page 296 of the record, your Honours, paragraph [20].
GUMMOW J: “Take any fresh step”.
HAYNE J: And the argument against you, at least at leave, see page 8 of the leave transcript, was that no leave was required, this not being a provable debt, is that right?
MR DUNNING: So that it would be left on the basis that we waited unless and until Ensham sought to issue a bankruptcy notice on the judgment or move against the order for costs. In our respectful submission, Mr Foots has an entitlement worthy of consideration in this Court as to whether leave under rule 72 ought to have been granted given that the case proceeded before Justice Chesterman and again in the Court of Appeal on the basis that the legal issue involved was whether the costs in question or the claim for the costs in question were a provable debt in his bankruptcy. If they were not, leave was properly granted under rule 72. If they were, leave ought not to have been granted. I do not understand our learned friends to contend anything to the contrary of that.
GUMMOW J: Bankruptcy operates not just inter partes but it is a matter of status.
MR DUNNING: Indeed, your Honour, it is.
GUMMOW J: In a sense, it is an in rem activity.
MR DUNNING: Yes.
GUMMOW J: You seek to engaged us, it seems to me, to produce a result in this Court which would support a course of action which was in defiance of 58(3) of the Bankruptcy Act.
MR DUNNING: No, your Honours, we would in fact seek to have your Honours deal with the matter so that it would curtail that defiance. The point put on behalf of Mr Foots from the outset is that this was in respect of a provable debt and his Honour Justice Chesterman should not have gone on to deal with the question of costs in respect of Mr Foots. That was a matter that should have been dealt with within his bankruptcy. By the appeal we are not urging your Honours to act in defiance of the federal Act. Indeed, the appeal is in every practical sense in support of it.
GLEESON CJ: How was that matter going to be dealt with within his bankruptcy bearing in mind that what was on foot was an application for indemnity costs against him, not, for example, for some scale costs that followed the event?
MR DUNNING: In our submission, your Honour, in the first instance the trustee would look at assessing that in the same way as the trustee looks at assessing, say, contingent claims or future claims or, indeed, even present obligations that are difficult of computation. If that ultimately proved to be impossible, there is a means within section 82 to avoid that consequence.
GLEESON CJ: Who would have exercised the discretion involved in deciding to make an order for indemnity costs?
MR DUNNING: The trustee ultimately would have to balance those matters or, alternatively, deal with it as if it were a matter that was not appropriate, notwithstanding that it was in the nature of a provable debt, to be dealt with in that way as there is provision in section 82 to do.
GLEESON CJ: Presumably, ultimately, if it came to that, it would be for Justice Chesterman who was the trial judge to decide whether there should be an order for indemnity costs in the proceedings or, to put it a little differently, who but Justice Chesterman would exercise the function of deciding whether there ought to be an order for indemnity costs?
MR DUNNING: Well, in our respectful submission, that is a matter that the trustee can resolve in the orderly conduct of the bankruptcy. If I can perhaps attempt to illustrate the point this way. Say Mr Foots had petitioned for bankruptcy or been bankrupted for any other purpose prior to the judgment on the principal claim so there was extant a claim against him for breach of fiduciary duty, so it would have been in respect of a provable debt for the purposes of section 82. The trustee would then have had to grapple with what is the correct amount to admit that debt to proof for? There is a procedure in the Act for the trustee to assess that and, if the creditor in the position of Ensham is dissatisfied with it, an appeal mechanism to deal with those issues. So, in our submission, it would be no different to that situation where some of the same sorts of value judgments have to be made by the trustee in the discharge of what, as Justice Gummow ‑ ‑ ‑
GLEESON CJ: Is this a prediction about how the trial judge would have exercised his discretion?
MR DUNNING: Your Honour, it is ultimately a decision as to what amount the claim for costs should be admitted to proof and, to some extent, that may involve an assessment of what, if it had gone to hearing, the likely cost assessment would have been.
GLEESON CJ: By Justice Chesterman?
MR DUNNING: Yes.
GLEESON CJ: So it would have involved an exercise in predicting how Justice Chesterman, the trial judge, would have exercised his discretion on the matter of costs?
MR DUNNING: In this particular instance, but as a matter of principle no differently to, say, prior to the matter coming on for hearing. But after a lot of costs had been incurred, Mr Foots became bankrupt, the trustee would still have to determine how those costs should fall, on our submission, in respect of those provable debts.
GLEESON CJ: But presumably nobody except the trial judge had a power to order indemnity costs.
MR DUNNING: Nobody but a judge of that court and in this case the judge to do that was the trial judge, yes.
HAYNE J: But does that not suggest that the way it operated would be that it would be for Mr Sofronoff’s client, bankruptcy having supervened, to apply for the leave of whichever of the Federal Courts had the relevant jurisdiction, leave to “take a fresh step” in the proceeding on the assumption that that leave was granted, which may be thought to be probable or improbable, it matters not? It would then be for the trustee in your bankruptcy, your client’s bankruptcy, to determine whether to resist the further prosecution of the proceeding which is going on with leave of the Federal Court?
MR DUNNING: Yes.
GUMMOW J: So if you were successful in getting the orders you want at page 350 from us, what Justice Hayne has been putting to you would be the sequel, is that right?
MR DUNNING: It is a potential sequence.
KIRBY J: It is not the sequence you in fact pursued. You took your chances and fought things over before Justice Chesterman and an issue that has occurred to my mind and put in by the dissenting opinion in the Court of Appeal is that your proper course was to have recourse to Federal Court and to seek protection of the Federal Court of its jurisdiction under the Bankruptcy Act.
MR DUNNING: But, with great respect, how would that be achieved? Justice Chesterman’s attention was directed on behalf of Mr Foots to the fact that this was in respect of a provable debt. In the passage I have taken your Honours to ‑ ‑ ‑
KIRBY J: By invoking the trustee who has an interest in getting the estate and protecting the estate from an indemnity order for costs.
MR DUNNING: Your Honour, my recollection is that the trustee was informed and did not participate. As Justice Gummow has pointed out, the bankruptcy is not simply a matter inter partes. Mr Foot cannot make the trustee do that.
KIRBY J: Exactly.
MR DUNNING: The Federal Court is not going to grant an injunction to restrain Justice Chesterman from entering upon the question in relation to rule 72.
KIRBY J: But once there is a federal law that is arguably covering the field and talks about fresh steps, and this is on one view of it a fresh step, then it would seem to be a matter within federal jurisdiction in the Federal Court rather than in the State Court.
MR DUNNING: With that proposition, your Honour, we do not ‑ ‑ ‑
KIRBY J: I realise this, but the question is whether you adopted the right procedures to assert that?
MR DUNNING: But we were not the moving party. We endeavoured unsuccessfully to resist the moving party doing that. It was not in our power to compel the trustee to do anything.
HAYNE J: The current hypothesis which brings us here is that, at least in the courts of Queensland, your client has been treated as liable to a debt which stands apart from the bankruptcy and in respect of which he remains personally liable.
MR DUNNING: Precisely.
HAYNE J: Now, that may itself generate hours of innocent amusement in a Federal Court about whether it is within or without the bankruptcy, but the hypothesis of the current proceeding is that he is liable for a debt that stands apart from the bankruptcy, is that right?
MR DUNNING: That is so, your Honour, yes.
HAYNE J: Which is why we are here.
MR DUNNING: That is so, yes.
KIRBY J: That is based on 19th century decision‑making rather than on the terms and policy and purpose and effect of the federal Bankruptcy Act of Australia.
MR DUNNING: In our respectful submission, no, your Honour. There is a happy coincidence of the two here. The 19th century cases lead to the congeniality, if I may use the expression, that your Honour saw as lacking in Coventry. This is a case where those 19th century English cases lead to the sort of common sense practical result that ‑ ‑ ‑
KIRBY J: I was in a minority on that view in Coventry.
MR DUNNING: I appreciate that, your Honour.
KIRBY J: The Court took the view that the Act was premised on and used the language of and assumed the rules that had pre‑existed the passage of the Australian statute.
MR DUNNING: I appreciate that, your Honour.
KIRBY J: You are just trying to comfort me in my earlier error.
MR DUNNING: No, I am not particularly trying to comfort, your Honour. I am hopefully trying to make the point that this is a case where the decisions as old as British Gold Fields and as recent as the unanimous decision of Sommerfeld in the Queensland Court of Appeal lead to the same result whether you trace through the cases from British Gold Fields onwards or you approach the matter from the sort of, if I may put it this way but certainly not disrespectfully, the sort of raw textual analysis that Justice Jerrard did in the outset of his reasons in about paragraph [14] in the majority decision below.
KIRBY J: Justice Jerrard took the view that he should first reach a view as to what the Australian statute meant.
MR DUNNING: I do not know that he put it in those terms, but the practicality of how his judgment is framed, in our respectful submission, leads to that result. The approach was to say, does it come within the language of 82(1), referred to those well known cases like Community Development as to what contingent debt means, and then says, no, it does not, up to about paragraph [14] and then thereafter says, “In deference to the arguments of counsel, I shall” deal with the 19th century English cases. His Honour then does and accepts that British Gold Fields had the meaning contended for by Mr Foots, but says that it was not sufficiently authoritative – my language – in the circumstances to bind him in that case.
GLEESON CJ: Yes.
MR DUNNING: Thank you, your Honours. Your Honours, if I can then move to those matters in Coventry that I was wishing to take your Honours to to develop the argument. The first is the provenance of section 82 of the Bankruptcy Act. May I ask your Honours please to go to paragraph [22] of the majority reasons that commence on page 138 of the copy that your Honours have. Might I particularly draw your Honour’s attention ‑ ‑ ‑
GUMMOW J: Between us we, all except Justice Crennan, I think, were parties, were we not?
MR DUNNING: I appreciate that, your Honour, yes. Your Honour, I was not proposing to read it all out to your Honours, but the statements of principle there are, in our submission, important when one then goes to deal with the reasons of British Gold Fields. If your Honours prefer, I can simply give you the paragraph numbers I was going to take your Honours to.
GLEESON CJ: That is probably a good idea.
MR DUNNING: Thank you, your Honours. In relation to the first of the propositions is to the provenance of section 82 of the Act. Can I direct your Honours’ attention, please, to paragraphs [22] to [28] of the majority judgment and, in particular ‑ ‑ ‑
KIRBY J: I think I agreed in the orders in the case, did I not? So it is not a majority and a minority. It is the joint reasons and my different way to come to the same conclusion.
MR DUNNING: Sorry, that is exactly right.
GLEESON CJ: It is what the Americans call a “plurality.”
MR DUNNING: Yes. I did not realise I had called it the majority reasons. Your Honour came to the same conclusion as the other members of the Court and, indeed, there are some aspects to your Honour’s reasoning that, whilst you identified but not accepted them, support the majority approach.
KIRBY J: You just do not wish to appear to be sensitive.
MR DUNNING: No. Your Honours, in relation to the development of the bankruptcy legislation through to 1869, might I simply make these additional submissions beyond those matters set out in the paragraphs I have directed your Honours to? In our respectful submission, what happened in 1869 was there was an important shift in how the bankruptcy legislation was cast in this connection. Prior to the 1869 Act, those debts that were provable in bankruptcy were, in effect, a list, an expanding list, through to 1869 – the most recent being that section 153 of the Act that had proceeded it – of debts that were provable in bankruptcy. So debt or creditor alike, if you wanted to determine whether a particular claim was a provable debt, the proper course was to take the claim and compare it against that list of, as I say expanding list, debts that were provable in bankruptcy.
In our respectful submission, what happened in 1869 is a quite different approach taken by the legislature. There, there was a broadly cast definition of debts and liabilities so that you start, in effect, from the premise that it is a debt or liability and the proper point of inquiry is, is the debt or liability in question one that is within one of the exceptions that are set out in there?
HAYNE J: In 82(1), what temporal element do you say is engaged in the circumstances of this case, because there are several temporal elements found in 82(1)? How do you read it to apply to this case?
MR DUNNING: Your Honour, the way we read it to apply to this case is incidental obligations to any of a debt or liability, present, future or contingent, are within the wide import of section 82(1) when you read ‑ ‑ ‑
HAYNE J: That is telling me a manner of reading. What I want you to do is wrestle with the words quite precisely and directly. Which words in 82(1) are engaged?
MR DUNNING: The words in 82(1) that are engaged, your Honour, are the words “debts and liabilities”.
HAYNE J: And the temporal element? Is it a debt or liability to which he was subject at the date of bankruptcy? Is it a debt or liability to which he may become subject before discharge by reason of an obligation incurred before date? Which is it?
MR DUNNING: It is the latter, your Honour.
GUMMOW J: What is the obligation incurred?
MR DUNNING: Your Honour, the obligation incurred in the circumstances has to be, in this case, the primary judgment or, were it not a matter where a judgment had been ordered, the claim by Ensham. So it was pre-judgment. That would be the relevant obligation.
GUMMOW J: What do you mean by “judgment?”
MR DUNNING: The judgment on the principal money sum that Ensham had sued for in respect of the breach of fiduciary duty.
GLEESON CJ: If this were a case in which legal costs were an allowable deduction for income tax, in what year would the deduction be allowed?
MR DUNNING: They would be allowed, in my respectful submission, over those years leading up to the order in which Ensham had incurred those costs. I am not sure I have understood your Honour’s question properly.
GLEESON CJ: There is authority on the meaning of the word “incurred” in that context. It means “come upon,” or something like that.
MR DUNNING: Yes.
GLEESON CJ: Would it be incurred during the year in which the litigation was conducted or the year in which an order was made by Justice Chesterman, if they were different years?
MR DUNNING: It would be the former, your Honour. Ensham would incur those costs in the year – that is, from the point of view of, are they a deductible expense? They were an expense incurred when they outlaid the ‑ ‑ ‑
GLEESON CJ: On the basis, is it, that he came upon this liability by his conduct at the litigation?
MR DUNNING: This is Ensham your Honour is speaking of?
GLEESON CJ: Mr Foots’ liability. If Mr Foots were entitled to a tax deduction for the costs of this litigation, when did he incur the liability?
MR DUNNING: Your Honour, I am not meaning to avoid your Honour’s question by any means, but that would be at the same time in which he incurred the requisite primary liability. So that would be the date. I do not give your Honours a specific date I appreciate, but in terms of when he came upon the liability or the obligation, he would have come upon it both when he came upon ‑ ‑ ‑
GUMMOW J: When he suffered entry of judgment against him for this large sum of money?
MR DUNNING: It would certainly be no later than then, yes. But he may in truth have come upon the obligation sometime earlier, that is, he was obliged to pay it and entitled to pay it and discharged that obligation for the ‑ ‑ ‑
GUMMOW J: He would not know how much to pay.
MR DUNNING: He may not know how much to pay, but that would not stop, for example, by consensual arrangements. Say Ensham say to him, “Look, we think you have done the wrong thing here. You must put it right or we will sue you” or, indeed, “we have sued you” and he comes along and he says, “All right. I intend to put it right. What sum of money is necessary for that?” and $10 is agreed, you do not need a judgment for that to be the amount which he is obliged to pay or the obligation that he has come upon. That is really the quantification of it.
HAYNE J: Can I just make this a little more concrete by reference to the record. Is it the order at appeal book 126, 127 and 128 which is the critical one in your submission, or is it some later order?
MR DUNNING: Your Honour, in my submission, it is no later than then because certainly by that stage he has the obligation to pay that amount. Indeed, what was previously the claim that Ensham had against him for the misconduct alleged has now merged into a money judgment. But even prior to that date there was, in the sense that his Honour the Chief Justice has put to me, an obligation to pay. The making of the order was the curial assessment that he was so obliged and that was the monetary value of it.
GLEESON CJ: You were giving us some references in Coventry.
MR DUNNING: I was, thank you, your Honour. Your Honours, as to the second of the propositions that the 19th century English cases and onwards are important to determining the proper construction of section 82(1), may I direct your Honours’ attention please in the joint judgment to paragraphs [50] to [51] and again to [75] and [77]. Might I also direct your Honours’ attention, please, to the reasons of his Honour Justice Kirby at paragraphs [108] to [111]. The approach that your Honour Justice Kirby sets out at paragraphs [108] to [110] is one that your Honour rejects as the appropriate approach at [111], but that principle sits comfortably with the approach taken in the joint judgments to the proper use that should be made of the 19th century cases.
In that regard, can I give your Honours a reference, please, to the approach that was taken by the majority in the Court of Appeal below at paragraph [14] of the reasons of Justice Jerrard at appeal book page 318 and, more generally, at paragraphs [4] to [13] and [15] which cover pages 315 to 319. I give your Honours those references to make good the submission I made a little earlier that, in effect, his Honour’s approach was to come at section 82(1) really on the basis of textual analysis and then only come to the English authorities as to what section 82 should mean after that.
Your Honours, the other member of the majority, Justice Holmes, was in agreement with that approach, and your Honours see that at paragraph [55] of her Honour’s reasons at appeal book page 329. We submit that the proper approach was that identified by Justice Mullins in the minority and your Honours see that at paragraphs [83], [85] to [87] and [92] of that judgment, which your Honours will find in the appeal book at pages 336 to 339.
The third proposition that I rely on Coventry for is the holding of the Court that the expression “debts and liabilities” in section 82(1) is an expression of wide import. Can I direct your Honour’s attention, please, to paragraphs [3], [21], [36] and [37] of the joint judgment in Coventry in that regard and also, though Justice Kirby would have approached the matter differently, Justice Kirby’s analysis in the first half of paragraph [92] in Coventry.
Finally, your Honours, the last of the propositions was the proper purpose of the Bankruptcy Act which, whilst it cannot be used to read into the Act words that are not there, it is nonetheless a relevant consideration when it comes to construing this Act in its context. Can I direct your Honours’ attention – these were all out of Justice Kirby’s judgment – paragraphs [86], [88], [97], [114], [116] and [117] and, in our respectful submission, there was nothing inconsistent in the majority judgment with those expressions set out by your Honour Justice Kirby as to the purpose of modern bankruptcy law regarding the orderly conduct of a bankrupt’s affairs and the grant of a fresh start to a bankrupt. There is nothing inconsistent in the joint judgment with those expressions in Justice Kirby’s judgment, but the joint judgment did not have occasion to go to it.
Your Honours, it being, in our respectful submission, a case where the starting point as to the proper construction of section 82(1) does involve the development of the English cases, in our submission, the proper place then to start is the decision of Re British Gold Fields, a decision of the English Court of Appeal which was authored by Lord Lindley. Your Honours, we have set out in some considerable detail in our written outline the relevant passages out of the case. That starts on page 9 of our primary outline, your Honours. We hope that it is of assistance that we ascribe some numbers that are obviously not in the report itself to make reference to the relevant passages in British Gold Fields more digestible.
Your Honours, we received communication from the Registrar directing our attention to the Law Times. It is reported in a number of places and we have looked at that case for the additional words and, apart from the references at the end to Lord Justices Rigby and Collins stating they concurred, we could not see anything additional in the judgment.
GUMMOW J: No, it is a question of the argument.
MR DUNNING: The headnote is expressed differently, yes.
GUMMOW J: No, not the headnote, the argument and the focus upon section 35 of the Companies Act. The special and exclusive and limited cost regime in section 35 of the Companies Act 1862.
MR DUNNING: Yes, but ultimately there was a discretion to be exercised as to whether there was a ‑ ‑ ‑
GUMMOW J: That is the question.
MR DUNNING: If I can perhaps ask your Honour to go ‑ ‑ ‑
GLEESON CJ: Perhaps you can come back to this when we resume.
MR DUNNING: Thank you, your Honour.
GLEESON CJ: We will adjourn now until 2.15.
AT 1.00 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.15 PM:
GLEESON CJ: Yes, Mr Dunning.
MR DUNNING: Your Honours, as we broke to lunch we were moving to the decision in British Gold Fields. The matter there concerned was in relation to certain applications that have been brought regarding a misrepresentation of prospectus and certain shareholders wishing to have their names removed from the register and be reimbursed their subscriptions and their costs. The relevant statutory provision was section 35 of the Companies Act. An expurgated version of it is conveniently set out in the reasons of Justice Chesterman at paragraph [30] on page 299 of the book.
GUMMOW J: We have got a copy of the section, have we?
MR DUNNING: Your Honour, he has not set it out in full but he has set out what seemed to be the relevant terms of it. Mr Sofronoff has kindly passed me a full copy of the section if your Honours would like it. As your Honours will see from the relevant parts of it that are extracted in Justice Chesterman’s judgment in the last four lines:
and the Court may … make an Order for the Rectification of the Register, and may direct the Company to pay all the Costs of such Motion ... and any Damages the Party … may have sustained …’
Indeed, if you go to the full version of the case, it makes it clear that the section contemplated that in fact there could be yet another costs order. Your Honours will see that ‑ ‑ ‑
GUMMOW J: It is in the middle of the section:
the Court may either refuse such Application, with or without Costs, to be paid by the Applicant, or it may, if satisfied of the Justice of the Case, make an Order for the Rectification of the Register, and may direct the Company to pay all the Costs of such Motion, Application, or Petition, and any Damages ‑ ‑ ‑
MR DUNNING: Indeed. They really expressly contemplate, in our submission, first of all that there might be a dismissal of the application but something other than the ordinary order for costs, and then the power to award costs expressed in the general discretionary fashion. That was.....lines of paragraph 30. As to how the case was approached in the House of Lords, can I take your Honours, please, to ‑ ‑ ‑
GUMMOW J: Court of Appeal, you mean, do you not?
MR DUNNING: Sorry. In the Court of Appeal. My apologies, your Honour. Can I take your Honours, please, to the decision in Re British Gold Fields? At paragraph 9 of our primary outline we have sought to set out the essential passages in it. If I can start from there, paragraphs [1] to [4] deal with a summary of the facts with which their Honours were concerned, but I will not trouble your Honours to read that out to you. But I can then take you to what we have nominated as paragraph [4], which appears at pages 8 to 9 of the judgment, Mr Gore-Brown appeared for the appellant, the official receiver. If I can take your Honours, please, to the last four lines on our page 9, Mr Gore-Brown’s submission was:
Now, there could be no “liability” for costs until an order for payment was made, and as these costs have been incurred by the company since the commencement of the winding-up, and there was no “obligation” on the company before, they are not provable.
Then if we go to the paragraph we have nominated as [5] which was Mr Gore-Brown in reply:
These costs were not a debt in either of those forms at that date. They were not a liability at all; all the applicants had was a mere chance or possibility. In Vint v. Hudspith it was distinctly held that there was no obligation or liability to pay costs until an order was made –
What, in our respectful submission, is clear is that British Gold Fields was a case argued on the basis that the costs in question were in the discretion of the court and the very issue that is urged against the appellant in this Court, as it was below, was the issue that was agitated by Mr Gore-Brown on behalf of the official receiver in British Gold Fields. Indeed, it seems that the contingent liability argument was the one that was being contended for by the shareholders. Your Honours will then notice ‑ ‑ ‑
GUMMOW J: The shareholders said the actions were brought before the winding up but stood over for convenience. A possibility of having to pay costs may be contingent liability. See Vint v Hudspith.
MR DUNNING: Yes. It would be fair to say the Court of Appeal dealt with it on a different basis to ‑ ‑ ‑
GUMMOW J: The claimants are persons who set up that they had been defrauded by the company. If that claim is successful the company will have to pay their costs.
MR DUNNING: Yes.
GUMMOW J: There was not much chance of the discretion going the other way, I do not think.
MR DUNNING: That might well be right, your Honour, and the same is said in this case, that ‑ ‑ ‑
GUMMOW J: It is just an illustration that if you read judgments, you have got to understand the context in which they were given.
MR DUNNING: Your Honour, I appreciate that and it is our respectful submission that the context of this judgment was the official receiver brought to the court a matter that was considered a matter of general principle and the case was argued on the basis that it involved an exercise of discretion as in relation to costs, because those submissions made by Mr Gore-Brown cannot, in our respectful submission, be understood otherwise than as addressing this very argument that the cost could not be a debt or liability because they involved an exercise of discretion.
Your Honours, it is apparent that the Court of Appeal considered the matter as one of general application as your Honours will see from what is set out at the paragraph we have nominated as number [7]. Then your Honours, if I may direct your attention to the paragraph we have nominated as [9], Lord Lindley says:
Upon carefully examining s. 37 and the decisions upon it and corresponding sections in earlier Bankruptcy Acts, I am satisfied that the order appealed from is correct . . . The decisions on this section have established the following rules, which are consistent and reasonable, and quite in accordance with the language of the section.
We draw attention to the fact that British Gold Fields was not a case where the court had sought simply to impose some judge‑made law but. rather, the court properly addressed ‑ ‑ ‑
GUMMOW J: Anyhow, what was the statutory form of words in the bankruptcy legislation?
MR DUNNING: The statutory form of words in the bankruptcy legislation, your Honour, is that which is set out in Coventry, save by this stage the equivalent of 82(2) also now did not exclude claims for breach of trust. Paragraph [27] of Coventry, your Honour, is perhaps a convenient place to find that. Indeed, perhaps while your Honours have got Coventry out at paragraph [27], if it assists, can I just indicate to your Honour the equivalent provisions in section 82. At paragraph [27] your Honours will see “Section 31 of the 1869 Act provided”. Your Honours, the first three lines are the equivalent of 82(2) of the current Act. Going over the page, your Honours, the next paragraph that starts, “Save as aforesaid” there is some mild change in language, but the substance is the same. That is the equivalent of section 82(1) of our current Act.
The next paragraph, your Honours, that starts, “An estimate shall be made according to” is equivalent of 82(4). The next paragraph, your Honours, is the equivalent of 82(5) to 82(7). Then, your Honours, the next paragraph that starts, “‘Liability’ shall for the purposes of this Act” is the equivalent of the now section 82(8) of the Bankruptcy Act. Then, your Honours, if I can return to the decision of the Court of Appeal on page 10 of our outline the paragraph we have nominated as [10], his Lordship goes on:
If an action is brought against a person, who afterwards becomes bankrupt, for the recovery of a sum of money, and the action is successful, the costs are regarded as an addition to the sum recovered and to be provable if that is provable, but not otherwise.
That is the first of Lord Lindley’s rules, as he puts them. Now, what appears in the next paragraph:
If, therefore, what is recovered is unliquidated damages “arising otherwise than by reason of a contract, promise, or breach of trust,” –
in our respectful submission, his Lordship is really amplifying and illustrating the point he is making by the rule just stated. I should tell your Honours, Justice Holmes took a different view of that in the Court of Appeal and your Honours will see that at paragraphs [70] to [72] of her Honour’s reasons for judgment at pages 333 to 334 of the record. Her Honour really ascribed to Lord Lindley as making a second rule there and she could not quite understand the interaction of them. In our respectful submission, what is set out there is really an amplification or an illustration of the rule that his Lordship is referring to.
Indeed, he deals with it in the case that was perhaps the one that called for most attention, that is, where you have a claim “arising otherwise than by reason of a contract, promise, or breach of trust”. He makes the point that that “is not recoverable unless judgment, or at least a verdict”. Now, in our submission, to put the matter in the context of this case, the verdict was when Justice Chesterman handed down his reasons for judgment and the judgment was when his Honour made the money order ‑ ‑ ‑
GUMMOW J: Say that again? The verdict was what?
MR DUNNING: When his Honour gave his reasons for judgment but had not pronounced the formal orders in respect of Mr Foots. Your Honours, Lord Lindley then refers to Newman and to Bluck and then goes on to say:
On the other hand, if what is recovered is provable, so are the cots of recovering it: see Emma Silver Mining Co. v. Grant.
Then his Lordship goes on to deal with the situation where the action is against a bankrupt but the action is unsuccessful and says that does not need trouble him because the issue of cost does not arise and then deals with an unsuccessful action by a bankrupt, that is, where the bankrupt is the moving party but he is unsuccessful and concludes by saying that:
In such a case there is no provable debt to which the costs are incident, and there is no liability to pay them by reason of any obligation incurred by the bankrupt before bankruptcy; nor are they a contingent liability to which he can be said to be subject at the date of his bankruptcy.
His Lordship cites Vint in that regard. Then, finally, your Honours, on page 12 of the judgment and page 11 of our outline and the paragraph we have nominated as [13] his Lordship turns specifically to section 35 then says:
to rectify the register and for a return of money paid is not a claim for unliquidated damages. It is a claim for two things, namely, first, for the removal of an impediment which prevents the demand for a return of the money from being successful; and, secondly, it is a demand for the repayment of a liquidated sum, and not for unliquidated damages. The register having been rectified, the sums paid by the applicants are clearly provable debts, and the costs of rectifying the register are costs of obtaining an order without which these debts cannot be recovered or admitted to proof. The costs are therefore properly added to the debts provable.
Your Honours, that reasoning of the Court of Appeal in British Gold Fields, in our submission, has been widely accepted and it was consistent with the authorities as they then stood. Indeed, Justice Jerrard observed himself in the Court of Appeal that the authorities cited by Lord Lindley in the passages I have taken your Honour to were essentially in support of the propositions he stated. Your Honours will see that at paragraph [46] of his Honour’s reasons which is at page 327 of the appeal book. In that regard I would also direct your Honours’ attention to Justice Holmes at paragraph [68] and [69] in that regard.
Sorry, I think I have given your Honours the wrong paragraph numbers. The statement by Justice Jerrard that the authorities largely supported the proposition set out by Lord Lindley is at paragraphs [32] to [33] and [47] which your Honours will find at pages 323, 324, and 327 to 328 of the application book and your Honours will not that Justice Mullins made a similar observation at paragraph [94] which your Honours will find at page 340 of the record.
Their Honours in the majority in the Court of Appeal were disinclined to follow what was said in British Gold Fields because, as they put it, in effect, it reflected an undue reliance on what had been the previous law that costs would always follow the event and fail to recognise the essentially discretionary character of an order for costs that prevails in the 20th or 21st century cases. In that regard you will see Justice Jerrard at paragraph [46] on page 327 of the record and Justice Holmes at paragraphs [68] to [69] starting at page 333.
In our respectful submission, Justice Mullins in the minority set out the proper understanding of British Gold Fields at paragraph [96] of her Honour’s judgment which your Honours will find at page 340 of the record and, in particular, what was being suggested was not that it was a contingent liability but, as her Honour put it:
The rationale for allowing the costs of the proceeding that has resulted in the provable debt is that the costs were incidental to proving that debt and should therefore themselves be provable. That can be seen as a logical and fair result. Successor provisions in bankruptcy legislation to that which was considered in British Gold Fields have not endeavoured to address specifically the issue of costs of a proceeding in the various circumstances covered by British Gold Fields.
Your Honours, we would submit as we did in the Court of Appeal, that the statements in British Gold Fields and, indeed, those subsequently made in Sommerfeld were in fact the ratio of those cases not merely obiter and we do so for the reasons set out at paragraph 25 of our primary outline. Your Honours, it is submitted that thereafter there was widespread acceptance of British Gold Fields as an accurate statement of the proper understanding of what was the equivalent of section 82 of our Bankruptcy Act.
GUMMOW J: That brings us back to where we were before. How do you fit it within the language of 82(1)?
MR DUNNING: In the manner I endeavoured to explain to Justice Hayne. If one takes the view that those words “debts and liabilities” are of wide import in section 82, then they are sufficiently wide to include obligations that are incidental to them just as, for example ‑ ‑ ‑
GUMMOW J: What do you mean by “incidental”? I asked you this before.
MR DUNNING: Insubordinate conjunction with, that is, something that is relevantly – I was going to say incidental, that is obviously not helpful – an obligation that arises in connection with ‑ ‑ ‑
GUMMOW J: Are a necessary concomitant, a legally necessary concomitant?
MR DUNNING: No, because, in our submission, section 82 is not drafted in those sorts of prescriptive terms but perhaps if I can illustrate the point ‑ ‑ ‑
GUMMOW J: Incidental in some economic sense? It is no good just leaving a couple of slogans on the Bar table and sitting down and asking us to write some judgment.
MR DUNNING: Your Honour, in our respectful submission, incidental in a – perhaps if I could take your Honours to the language of the section.
GUMMOW J: The word “incident” has a whole complex meaning in the law of real property, for example, in the law of tenures. I do not think you are seeking to invoke that.
MR DUNNING: No.
GUMMOW J: So what are you seeking to invoke?
MR DUNNING: Your Honour, I am seeking to invoke it in the very manner that it was invoked in those passages in British Gold Fields to which I have just taken your Honours.
GUMMOW J: Where? One of the problems of British Gold Fields that is put against you is that Lord Lindley did not descend into a pit of statutory language.
MR DUNNING: That is what is said against it, yes. That is certainly was not the attitude his Lordship took to it and, when one comes to determining what that expression means, you have to look at the whole of section ‑ ‑ ‑
GUMMOW J: No, but where did he descend into the pit?
MR DUNNING: I would not actually characterise it as descending into the pit of statutory interpretation. His Honour recognised, as did this Court in Coventry, the development of the law in relation to bankruptcy and the much widened class of liabilities and debts that were to be provable debts in bankruptcy.
GUMMOW J: He says it is quite in accordance with the language of the section, that is as close as we get, and it is sensible and reasonable.
MR DUNNING: He does say those things, your Honour.
GLEESON CJ: Do we have that case of Emma Silver Mining v Grant?
MR DUNNING: Your Honour does.
GLEESON CJ: Does that address the statutory language?
MR DUNNING: No, it would be fair to say that Emma Silver Mining v Grant is a case where the reasons do not address that situation. Perhaps I can give your Honours the relevant passages in it. If I can ask your Honours to go to page 123 which is still in the headnote and in the argument of Waddell ‑ ‑ ‑
GUMMOW J: What is the citation?
MR DUNNING: It is (1880) 17 Ch D 122 which should hopefully be certainly in our list.
GUMMOW J: We have Emma Silver Mining v Grant. It is the third case in the appellant’s amended list of authorities and legislation.
MR DUNNING: Is that (1880) 17 Ch D 122?
GLEESON CJ: No, it is 11 Ch D 918.
MR DUNNING: I regret to say, your Honour, that somebody has obviously photocopied the wrong version.
GLEESON CJ: Can you read onto the record the passage that you rely on?
MR DUNNING: I will, your Honour. Your Honours, in argument of Waddell it is said that:
The Plaintiff company, on the 24th of February, 1880, served the Defendants Albert Grant and Waddell with the following notice of motion –
Waddell was not the counsel, Waddell was one of the parties –
That in accordance with the finding of the Court on the 26th of February, 1879, on the trial of the issues, the Plaintiffs might be admitted to prove against the estate of the Defendant Albert Grant, as creditors for the sum of £137,611 3s. 5d., being the amount which, at the date of the liquidation by arrangement of the affairs of the said Albert Grant, appeared from the same finding to be due from him to the Plaintiffs in respect of the sum of £108,188 6s. 11d. received by him as a promoter of the Plaintiff company, as therein mentioned, and interest on the same as in the said finding specified, and for the costs of and incidental to the trial of the said issues and the application for such trial –
That is on page 123, your Honour, starting at about point 2. At the foot of page 130, going over to 131, it is said:
There will be judgment against the Defendant, the trustee in bankruptcy, in the terms of the notice of motion, except that the Plaintiff company “is to be at liberty to go in and prove” under the liquidation for the sums therein mentioned: the trustee to take his costs out of his own estate. There will also be a declaration against the Defendant Albert Grant that the debt found due from him on the issues was incurred by means of fraud and breach of trust, and judgment for payment by him of the amount to the Plaintiff company. The action will be discontinued except to the extent covered by this judgment.
So it was really in the formal order that the court made.
GLEESON CJ: No reasoning?
MR DUNNING: No, there is no reasoning, your Honour.
GLEESON CJ: Thank you.
GUMMOW J: Is it part of your submissions that both the 1924 Australian Act and the current Act were prepared on the basis that Gold Fields was to be understood as following from the otherwise unspecific form of words that was being used?
MR DUNNING: Yes, your Honour.
KIRBY J: Is anything said to that effect in either the second reading speech or explanatory memorandum?
MR DUNNING: No, we have not been able to find anything to that.
KIRBY J: You just say it was a common assumption?
MR DUNNING: Yes, inasmuch as the law was, we say, as is understood to be as set out in British Gold Fields and the fact that the legislative provision was adopted unchanged on both of those occasions indicates a legislative intention to adopt the law as it then stood.
KIRBY J: I appreciate the way you say that and you probably have some support from the approach of the joint reasons in Coventry; on the other hand, since the 19th century and even since 1924 there have been developments in the way we interpret statutes. We are now much more contextual and less textual. We are more concerned to give effect to the purpose of the statute than they were in the literal days. So the question is whether with the command of the Australian Parliament in 1966 there is any reason to think that there should be a different approach to the broad language of the Act. Why gloss it with 19th century cases? I am back in the realm of Coventry now.
MR DUNNING: In our submission, your Honour, you would adopt that approach set out in the joint judgment in Coventry that pays attention to the 19th century cases but when one looks at it on a textual basis and a contextual basis, its context including the current state of the law as it is understood, it in fact reinforces the decision made in British Gold Fields. Those passages about the convenience and sense of the approach are properly matters that your Honours might refer to together with the approach set out in Coventry in coming to the conclusion that the construction favoured in British Gold Fields remains the appropriate construction for section 82 in respect of an issue such as this.
GUMMOW J: Have you followed through the various editions of, is it Williams, is it, the leading text in their treatment of this subject since the 1890s?
MR DUNNING: Your Honour, I have not followed every version of Williams, no. I certainly have looked at it but I cannot give your Honour an assurance that I have made sure I looked at every edition.
GLEESON CJ: McDonald, Henry & Meek would have been the Australian textbook at the time of the introduction of the Bankruptcy Act 1966, would it not?
MR DUNNING: Yes.
GLEESON CJ: What did it say about this?
MR DUNNING: Your Honour, it referred to British Gold Fields. Your Honours, we have set out ‑ ‑ ‑
GUMMOW J: You have referred to that, have you not, somewhere?
MR DUNNING: Yes, I have, I was going to say paragraph 34 of our primary outline, in particular footnotes 26 to 29, we have sought to set out the relevant case law that has followed British Gold Fields and also the relevant ‑ ‑ ‑
GLEESON CJ: Yes, we have read that. What did McPherson’s Law of Company Liquidation say about this, if anything?
MR DUNNING: All four editions adopted British Gold Fields as an accurate fact of the law.
GLEESON CJ: Are the relevant company law provisions any different?
MR DUNNING: They certainly are now and our learned friend has referred to the different legislative provisions in that regard and say against us, the winding-up provisions ‑ ‑ ‑
GUMMOW J: What the Chief Justice is putting is they were not always like that. At one stage they were picked up, were they not?
MR DUNNING:
That is right, yes, but as I apprehend the point that is made against us, given they have now been enacted in different terms, something more must have been intended, that is, some wider class of provable debts than that in the equivalent section 82.
GUMMOW J: But we are trying to construe the Bankruptcy Act 1966 and at that stage what was in the Bankruptcy Act was picked up in the company law, was it not?
MR DUNNING: That is right.
GUMMOW J: What I am trying to find out is, at that stage, both in the United Kingdom and this country, was there a continuous stream of authoritative exposition of the texts everyone used which just treated British Gold Fields as ipsi dixit?
MR DUNNING: Your Honour, in our respectful submission, there was, particularly the then Dr McPherson’s books and, as we point out, under all three authorships. Firstly, the then Dr McPherson, subsequently Professor O’Donovan and then Professor Keay. We can have copies made of those relevant text provisions if your Honours would like.
GLEESON CJ: No, we can get access to them, thank you.
MR DUNNING: Your Honours, in that regard it was accepted, seemingly, by the majority below that British Gold Fields had largely been adopted as an accurate statement of the law in those leading texts and your Honours will see that at paragraph [46] of Justice Jerrard’s judgment on page 327 of the record and [74] of Justice Holmes’, page 334. Her Honour Justice Mullins at paragraph [96] in the minority, page 340 of the record, makes the point, rightly we submit, that cannot have been something ignored by the legislatures in these re-enactments.
Your Honours, if we can then come forward to the most recent dealings with this issue, that is, the decision of the English Court of Appeal in Glenister v Rowe. If we may simply direct your Honour’s attention, please, to pages 81 and 82 of that decision. Glenister v Rowe was a case where the costs were not incident to a provable debt, that is, the costs arose out of proceedings that were not in respect of a provable debt; they were in respect of a strike-out application. Your Honours, the critical passage is on the top of page 82 between lines A and B where Lord Justice Mummery, with whom the other members agreed, quotes with approval the passage out of British Gold Fields and, in particular, your Honours will see on the third line:
In such a case there is no provable debt to which the costs are incident, and there is no liability to pay them by reason of any obligation incurred by the bankrupt before bankruptcy –
Your Honours, the last of the cases in that regard is the decision of the Court of Appeal in Sommerfeld, that is, the Queensland Court of Appeal decided about two years prior to the decision the subject of this appeal. The full name of the case is Fraser Property Developments Pty Ltd v Sommerfeld. We have set out in some detail the relevant provisions in our written submissions but the critical passages are at paragraphs [10] to [12] of the reasons for judgment of Justice McPherson.
GLEESON CJ: There was no contradictor in that case?
MR DUNNING: No, your Honour, you will see in paragraphs [15] and [16] that Justices Williams and Philippides agreed in the ‑ ‑ ‑
GLEESON CJ: No, there is no counsel for the other side.
MR DUNNING: Sorry, no contradictor in the case, no. Your Honours will see that careful consideration was given to the cases as they stood and we would draw particular attention to what is said by Justice McPherson in paragraph [10], a bit past halfway through, referring to the decision of Lord Lindley:
that if an action was brought against a person, who afterwards became bankrupt, to recover a sum of money, and the action was successful, the costs were regarded as an addition to the sum recovered and so provable if the debt was provable “but not otherwise”.
In the last couple of lines of that paragraph, his Honour quotes from Lord Lindley again:
“In such a case there is no provable debt to which the costs are incident –
His Honour then refers, in paragraph [11] to:
What was said by Lord Lindley there has since been followed and applied in a number of English decisions, of which the most recent is Glenister v. Rowe
Then in paragraph [12] it starts, “The principle applies in the present case.” In our respectful submission, “the principle” his Honour is plainly referring to is the principle in British Gold Fields upon which we rely in this appeal. Indeed, his Honour comes back to it ‑ ‑ ‑
GLEESON CJ: What about the next sentence?
MR DUNNING: His Honour was there concerned with costs incidental to something that was not “a provable debt”. What had happened was there were some proceedings in a Tribunal. An application was brought in the Supreme Court to remove them, an appeal was made from that jurisdictional question and that was the costs we are concerned with, that is, the costs of taking a jurisdictional point in the Court of Appeal so they were not incidental to any provable debt and therefore applying British Gold Fields according to its terms, they themselves would not be provable in the bankruptcy.
GLEESON CJ: I see that Justice Bergin of the Supreme Court of New South Wales has dealt with this procedural issue that you were confronted with at the beginning of your submissions.
MR DUNNING: Yes, but in terms, as I recollect your Honour, that if it is not in respect of a provable debt there is then no impediment to dealing with it.
GUMMOW J: Yes, that is what Justice McPherson was saying in paragraph [12].
MR DUNNING: That is right.
GUMMOW J: How do you get around what he says at paragraph [12]?
MR DUNNING: Sorry, which particular ‑ ‑ ‑
GUMMOW J: The second sentence:
A potential or contingent liability for costs is not a provable debt unless an order for payment of those costs has been made before bankruptcy intervenes.
MR DUNNING: His Honour is plainly there referring to costs that are incidental to proceedings that are not in respect of a provable debt because otherwise his Honour would not have referred with approval, both before and after, to the passages in Glenister I have taken your Honour to; a matter perhaps best illustrated, your Honour, by what appears late in paragraph [12]. Your Honour draws my attention to the statement:
A potential or contingent liability for costs is not a provable debt unless an order for payment of those costs has been made before bankruptcy intervenes
If I can just take your Honours, please, to about line 35:
The case is not one in which it can be said that there is a provable debt to which an order for costs is or would be incidental in the sense laid down in Re British Gold Fields of West Africa. The “proceeding” instituted by Sommerfeld was not to recover a sum of money, but for an order that the plaintiff Fraser Property Developments discontinue its action in the Supreme Court and re‑institute it before the Tribunal.
When one sees the passages in paragraph [10] that I took the Court to a little earlier and that passage there a bit past the middle of paragraph [12], plainly Justice McPherson is approving British Gold Fields in terms and applying that part of the principle that was relevant to the facts of the case that the Court of Appeal were concerned with, that is, costs incidental to proceedings that were not in respect of a provable debt.
Your Honours, it is said by the majority below and by our learned friends that the two-member Court of Appeal in Re Pitchford in 1924 circumscribed the application of British Gold Fields. We have dealt with that in our outline at paragraphs 39 to 48 and unless your Honours have any specific questions I am content to rest on what we have said in writing about it. We would also direction your Honours’ attention to Justice Mullins’ correct analysis that it did not so limit British Gold Fields at paragraph [97] on page 341 of the application book. Similarly Weller is a case raised against us. We, again, are content, unless your Honours have any questions, to rely on what is set out in our written submissions in reply at paragraph 16 but note that Weller was a case decided well before the enactment of the 1869 English Act and must be understood in that context.
Finally, your Honours, we have set out at paragraphs 30 to 32 of our outline what we say is the orthodox approach to statutory construction which properly entitles your Honours to consider the context in which section 82 appears, that is ‑ ‑ ‑
GUMMOW J: You do not need to labour us with that, surely.
MR DUNNING: No, I am not proposing to labour your Honour with it. Finally, your Honour, can I take you, please, to the text of section 82 and draw specific attention to some provisions in it that, we submit, are consistent with the expression “debts and liabilities” having a wide import. In section 82(1), your Honours will see that the “debts and liabilities” are those which may arise “by reason of an obligation incurred before the date of the bankruptcy”. One can see that the conception of “debts and liabilities”, if it is to be wide enough to incorporate something that might simply be described as arising “by reason of an obligation incurred before the date of the bankruptcy” is wide indeed. I have made a similar submission earlier in relation to subsection (2) and subsection (8), the definition of “liability” is expansively cast as including “compensation” as:
an obligation or possible obligation to pay money or money’s worth on the breach of an express or implied covenant –
Chief Justice, if I could just return to a topic that you raised with me early on in the argument about Justice Chesterton being the best person to deal with the claim for costs. Can I give you some specific references to the statutory scheme by which that difficulty is intended to be addressed. Your Honours will see that sections 82(4) through to 82(7) deal with the machinery provisions for arriving at a quantifiable figure for an unquantified amount and, similarly, section 82(8)(c)(iii) in that regard, with that language in mind, that the court in Coventry was right to describe the words “debts and liabilities” in section 82(1) as wide.
Finally, your Honours, can I give you two illustrations of cases where in the bankruptcy connection this notion of “incidental obligations” is the language used, has been seen to be, in our respectful submission, unremarkable. The first is the decision of Mackenzie which is in both lists. If I can take your Honours please to page 9 of Mackenzie ‑ ‑ ‑
GUMMOW J: What is the reference?
MR DUNNING: The citation is Mackenzie v Rees (1941) 65 CLR 1. If I can take your Honours, please, to page 10, the connection is different but the approach, we say, is consistent. About point 5 on the page you can see that Justice Dixon says:
See, further, White v. Knox and Johnson v. Norris. In the latter case the court discusses an objection that the subsequently accruing interest should not be paid, because it has never been proved as a debt. “We do not think this objection is sound. The proof of an interest-bearing claim is proof of the interest collectible on such claim. Interest is an incident of, or a part of, the debt, and no separate proof of it is required.”
HAYNE J: Now, what his Honour says there is – at least at first blush – consistent with what is said in Williams and Muir Hunter, The Law and Practice in Bankruptcy, 19th edition (1979) concerning section 30 of the English 1914 Act, which I think is substantially the same as the Australian 1924 Act where the editors say that a successful plaintiff’s costs, the present case, is it not:
a successful plaintiff’s costs can only be proved in the bankruptcy of the defendant where the debt or claim in respect of which the costs are recoverable is itself provable, for a plaintiff’s rights to costs is a mere addition or appurtenance to the claim or cause of action, and must follow the same rule as that to which they are attached.
Now, right or wrong, that is what the books were suggesting, at least at that time.
MR DUNNING: That is right, and that is the approach that was taken by Justice Dixon. I should add two things to the reference I have given your Honours in Mackenzie. The first is the court was split but not on that issue. There seemed to be no objection in the reasons of the other members of the court to what had been said by Sir Owen Dixon in that passage that I have given your Honours and, true, it was, secondly, a case where the issue involved was how did you deal with an entitlement to interest where there turned out to be a surplus in the estate after the payment of the principal debt, and those remarks were made in the course of that reasoning.
I have handed up to your Honours a decision of Justice Perry in the Supreme Court of South Australia in a case called Davies v Gertig. It is not in the outline, your Honour. It is reported at 83 SASR 521. The case goes on appeal but this point itself was not concerned in the appeal. Can I ask your Honours, please, to go to page 526 and paragraph 39. To give your Honours very briefly the background, there is a plaintiff in a personal injuries case, the defendant makes an offer early on in the litigation. The litigation goes through to judgment.
The defendant’s offer is better than the plaintiff’s judgment and it is anticipated that the costs order in favour of the defendant is going to be substantially exceeded by the costs order in favour of the defendant as a result of the offer and, indeed, to overtake the principal judgment for the personal injuries and the question was whether it was permissible to set off, first of all, the costs orders and then set off the principal judgment because the principal judgment was protected under section 116(2)(g) of the Bankruptcy Act because it was damages or compensation recovered in respect of personal injuries.
To that background, your Honour, the question then was, how do you treat the costs of the plaintiff so that the plaintiff has a damages judgment for personal injuries that is protected by section 116 and therefore not an asset available to the general body of creditors and Justice Perry dealt with it in this way. At paragraph 39, second sentence:
But if at any time the plaintiff recovers the damages, they would, by force of s 116(2)(g)(i), which expressly applies to such damages whether recovered before or after bankruptcy, be excluded from the property divisible amongst his creditors.
As for the costs to which the plaintiff is entitled, no suggestion has been made by either party, or for that matter the plaintiff’s trustee in bankruptcy, that the plaintiff’s entitlement to costs should form part of his bankrupt estate.
Then in 41, the provision we most rely on:
Although an entitlement to costs relating to the successful enforcement of a right of recovery of damages or compensation for personal injury is not expressly referred to in s 116(2)(g) of the Act, for the purposes of that subsection, I would regard any entitlement for costs arising in such circumstances as falling within the meaning of the words “damages or compensation”.
Then in paragraph 43, second sentence:
I would regard the entitlement to costs as an appendage to the right to recover damages, and the destination of the costs should be the same as the destination of the damages –
which we say is an interpretation, albeit of a different provision in the Act but consistently with the matter in which we say it should be construed here. Finally, there are some, we submit, very practical reasons why the Act would be construed that way otherwise you run into difficulties not only with costs, but you also run into difficulties with, for example, interest. If you have a question of statutory interest that is not in the form of a judgment, though a plaintiff with a proper claim for it, similarly – and we have given this illustration in our written outline – a claim, say, under section 52 of the Trade Practices Act that includes a claim for both damages under section 82 and the relief under section 87, if the respondents’ contention is right and the judgment below is right, then the claim under section 82, assuming it is misrepresentation in relation to a bilateral contract, would be in respect of a provable debt but not that in respect of section 87 because the 87 relief is purely discretionary.
One can think of many instances where there is relief that is purely discretionary and if that was the basis there would be many debts not caught as provable debts, but if one takes the view that obligations that arise
incidentally to a provable debt, that problem is overcome and, in our submission, it does no violence to the language of subsection (1) when one considers the reasoning of this Court in Coventry, for example, at paragraph [20].
HAYNE J: Just to go back a bit, such of the old books as I have been able to look at quickly suggest first a distinction is to be drawn between plaintiff’s costs and defendant’s costs. We are here concerned with plaintiff’s costs, are we not?
MR DUNNING: We are, your Honour, yes.
HAYNE J: And it suggests that the distinction is to be drawn because the costs of a defendant in resisting a suit are not properly to be regarded, I think, as a contingent obligation of the defendant. Contrast that with a plaintiff who is sued on a cause of action. The plaintiff alleges the defendant is liable in respect of events which by hypothesis are pre‑bankruptcy events. The relevant contingency is that the plaintiff succeeds and recovers an order. That starts to grapple more closely with 82(1), I think. You then need to embroider the picture just a little by noting that not all claims made by plaintiffs are provable debts, see 82(2), and you have to be sure that the claim being made by the plaintiff is a claim in respect of a provable debt.
MR DUNNING: That is so, and once one gets to that point, you also take out the magic of a judgment. It means that you then have a sensible regime whereby you can deal with interest and costs of a legitimate plaintiff’s claim within the bankruptcy via the mechanism in section 82(4) and onwards for arriving at those figures.
HAYNE J: That approach to the matter seems supported by – so that you have some record of what is being referred to – Ringwood, Principles of Bankruptcy, 15th edition (1927) at 169 and Ringwood, Principles of Bankruptcy, 18th edition at 142.
MR DUNNING: Thank you. Unless your Honours have any other questions.
GLEESON CJ: Thank you, Mr Dunning.
MR DUNNING: Thank you, your Honour.
GLEESON CJ: Yes, Mr Sofronoff.
MR SOFRONOFF: Thank you, your Honours. Your Honours, before going to the cases, may I deal briefly with the history of the legislation. We have not put into our books the three earlier statutes that we found but we have copies of them and we will hand them to your Honours’ associates in due course. There is no need for your Honours to look at them now, but the history appears to be that the earliest statute was one passed under the reign of Henry VIII in 1542 entitled, “An act against such persons as do make bankrupt”.
HAYNE J: I just wondered whether there was a divorce tacked into the legislation?
MR SOFRONOFF: No. The second statute was under the reign of Elizabeth I in 1570 which was a whole new statute. The third one then was enacted in the reign of George I in 1721 and what it did was to add a provision that made – promissory notes and other bills of that kind which would gain currency at that time – provable debts. So they do not bear upon our question, but if your Honours would go to our book of legislation. Relevantly, the first Act that concerns the Court in any way is the statute of 1825 which is in our book of legislation under tab 17.
Your Honours will see on the first page we have photocopied, section LI at the foot of the left‑hand column covers bills, bonds and notes, as had that earlier statute that I mentioned. Then over the page, section LVI, contingent debts were covered. But would your Honours notice at the foot of the page, section LVIII, it deals with costs:
if any Plaintiff . . . shall have obtained any Judgment, Decree or Order against any Person who shall thereafter become Bankrupt for any Debt or Demand in respect of which such Plaintiff or Petitioner shall prove under the Commission, such Plaintiff or Petitioner shall also be entitled to prove for the Costs which he shall have incurred in obtaining the same –
That provision then was replicated in the next Act which was passed in 1849 and your Honours will find it at page 601, if your Honours can see that, but it is section CLXXXI ‑ ‑ ‑
KIRBY J: Which tab is this?
MR SOFRONOFF: It is under tab 18, your Honour, CLXXXI, your Honours will see replicated the earlier provision. Then the next statute under tab 19, the statute of 1861, similarly made provision in section 149. Your Honours will notice that section 149 speaks of, “Money, Costs, or Expenses”, the payment of which can be enforced by “Process of Contempt”. Your Honours, reference to Daniell, The Practice of the High Court of Chancery, 7th edition (1871) at 1035 shows that a way of enforcing orders for costs was by writ of sequestration or writ of attachment, and there is such a case to which I will come in a moment.
By the time of the next Act, the 1869 Act, which is under tab 20, we no longer find a cost provision. We have set out section 31 which sets out what are provable debts which is now a compendious definition and one question which arises is whether the use of those expressions was intended to change the landscape of legislative bankruptcy so that costs orders that had not been made now became, by some means, provable debts.
Your Honours, in our respectful submission, Justice Holmes was correct in first asking the question, what was the costs regime under which the early judges made their decisions? If your Honours would go to page 330 of the record, at the top of the page her Honour had observed that for a long time until the Judicature Acts were passed a successful plaintiff had a statutory right to recover the costs of the writ which included all of the costs of the suit and later statues, her Honour observed, covered the position of non‑suit and other ‑ ‑ ‑
GUMMOW J: That is in actions at law, is it not?
MR SOFRONOFF: Actions at law, quite right, your Honour, because in chancery costs were discretionary.
GUMMOW J: The Judicature Act just made that general?
MR SOFRONOFF: Exactly.
GUMMOW J: But section 35 of the Companies Act is its own costs regime?
MR SOFRONOFF: Yes, it is. In Pitchford one of their Honours observed that what had happened there was that an application was made in the winding up and that the costs that were allowed to be proved were part of the costs of an application in the winding up. Could I come to that, your Honours. Could I take your Honours to two older authorities. One is Ex parte Hill which is the first case in our book of cases, and I do that a little hesitantly because it is a judgment in which Lord Eldon had to consider whether costs were provable at common law in circumstances where there was a verdict, judgment and taxation of costs subsequent to a commission of bankruptcy issuing, and his Lordship concluded that the costs were not provable.
Your Honours will see that question posed just after the reference to “The Lord Chancellor [Eldon]”, and then, your Honours, the answer put in slightly backhanded language appears at the foot of 1242 over to 1243. But my purpose in taking your Honours to that case is not to demonstrate that proposition but, rather, to show that at that time, 1804, there was a great deal of controversy about the circumstances in which costs referrable to claims, on the one hand provable, on the other hand not provable, on the one hand where a verdict had been obtained but a judgment had not before bankruptcy, on the other hand where neither had been obtained until after bankruptcy were concerned. A great deal of ink was used to write about that, and your Honours will see an example of that in Ex parte Hill.
If your Honours look, for example, at the second photocopy page, 1240, his Lordship first referred to a textbook written by one of the barristers in the case, Mr Cullen, and excerpted a number of passages from it and then in the middle of the page, page 1240, he pointed out that:
The case put here is precisely that before the Court; a suit commenced before the bankruptcy; but an ascertained debt by a verdict after it; and it is laid down here that the costs would be discharged by the relation to the original debt. But, connected with the former passage, it is stated as the Law, that they could not be proved unless by relation to the ascertained debt; and that, where the original cause of action is for a demand in its nature uncertain and contingent, as for damages in Tort, the costs cannot be proved, unless there is a verdict before the bankruptcy for in such a case the subject, to which they are incident, was not a liquidated debt –
and one can hear echoes of Lord Justice Lindley in that old dictum. If your Honours look a little below, his Lordship observed that in equity the position was different and he refers to a case called Ex parte Sneaps:
“In Courts of Equity it is entirely in the discretion of the Court, whether there shall be any costs at all. There, it is said, the taxation, constitutes the demand and if the taxation is subsequent to the bankruptcy, though the Order for it was made before, the debt is also subsequent; and cannot be proved –
Could I take your Honours to Sneaps.
HAYNE J: Just before you do, the learning that is reflected in Gill is then specifically dealt with in the legislation that you took us through earlier, is it not, from the 1825 Act on?
MR SOFRONOFF: No, your Honour.
HAYNE J: It is not?
MR SOFRONOFF: No. What happened after the 1825 Act was that thereupon only costs which had been ordered were taxable.
HAYNE J: But the problem was resolved statutorily?
MR SOFRONOFF:
By that means, yes, that is right, and rendered, in our respectful submission, all of this immaterial. But could I take your Honours to Sneaps which we finally found yesterday, your Honours, referred to in a book that Lord Eldon referred to Cooke, Bankrupt Laws, edited by Mr Roots. His Lordship referred to the 5th and 8th editions, I think; we have the 7th. Could I take your Honours quickly through that just to show this problem, in our respectful submission, because of the rule that costs follow the event as a matter of law exercise the minds of judges. If your Honours go to page 199 your Honours can see next to the sidenote “Aylett v Harford” on the fourth line, “On the general issue pleaded, the plaintiff recovered a verdict for 100l”, so he had a verdict for a liquidated sum. He had sued on a liquidated sum, “The defendant moved for a new trial” and that took up time and then “a commission issued”, that is, he made himself bankrupt or somebody made him bankrupt. After that:
the plaintiff proved his debt under the commission, being on a promissory note . . . and his judgment entered on the said verdict –
and he was allowed to prove it –
But the Commissioners refused to let him prove the costs . . . Lord Chief Justice De Grey said, the Commissioners were mistaken in not suffering the plaintiff to prove his costs –
and that error was corrected. Then if your Honours go over the page, next to the sidenote “3 Wils.” there is a reference to “ex parte Todd”. In that case there “was an action in ejectment”, there was a judgment – there was a verdict, there was a judgment but, “the judgment being after the bankruptcy, there was not a debt at the date of the commission”. In another case, “Walter and Sherlock”, if you drop five lines:
an ascertained debt, it was held, though the verdict was before the bankruptcy, that the costs could not be proved being unliquidated at the bankruptcy –
and so on. If your Honours then would go to page 211, the author is dealing with contingent debt and in that context he is dealing costs. If your Honours look at the foot of the page, a case called Sneaps is dealt with:
Sneaps was committed for a contempt in non‑payment of costs, given upon a petition, which were taxed subsequent to his bankruptcy, but the order for taxation was made before it.
So order before bankruptcy, taxation after the bankruptcy and he is in contempt if he was liable to pay it. If your Honours go to the next page, the paragraph beginning “The Lord Chancellor”:
The Lord Chancellor observed, it is generally true, that where several distinct acts are necessary for the completion of any business, the completion refers to the inchoation –
that is, the starting point, the rudimentary starting point:
But the question is, Whether the making an order can be considered as such inchoation –
that is to say, could the making of an order for costs be an inchoation of the taxed costs that come later –
And he said he thought it clearly could not. That it might as well be said, the damages assessed in trespass are to have reference –
he is using an example –
to the trespass, which they certainly have not, for they have their origin in the judgment. He took it to be clear, that in all instances in the Court of Chancery the taxation constitutes the demand, and as the taxation was subsequent to the bankruptcy, the debt is therefore so –
So the position which obtained at that point was that at law costs inexorably followed the event. Indeed, your Honours will see references in the cases referred to in this book to the jury adding them to the quantum of the jury fines. So in every sense, upon a verdict of a jury finding facts as a jury before judgment, before there is a motion for judgment, before judgment is entered, there is a crystallised liability. In the case of chancery the position was otherwise because of the rule in chancery that costs were always discretionary although the discretion might be circumscribed in the ways that we all know. If your Honours would go to our book of legislation ‑ ‑ ‑
GUMMOW J: You fix on this word “accessorial”, I think, used by this text writer at page 212 where opposite the annotation of “Ex parte Charles”, it says, refers to “Lord Ellenborough . . . which are accessorial to the damages found”. That seems to be genesis of the idea. So it is an analogy to property ideas, actually?
MR SOFRONOFF: It is, but your Honour will also see the Latin expression “costs de incremento” which one keeps seeing in these cases that the costs are de incremento and the costs are considered, we submit, because of the rule that rendered costs payable as a matter of law as part of the judgment that you got. Now, your Honours, in chancery, the position was otherwise and we have a copy of a passage from the 5th edition of ‑ ‑ ‑
HAYNE J: The meaning of “costs de incremento” is in the first three lines of this Chapter, is it not, and I then need to ask you what am I to understand by those first three lines? Am I to understand that the jury returns its verdict, verdict includes an amount for costs to the point of verdict, and the costs de incremento are the subsequent costs?
MR SOFRONOFF: Your Honour, I do not know.
HAYNE J: Nor do I. Do I need to know is the next question?
MR SOFRONOFF: Your Honour, having re‑read these cases and tried to understand the concept used at the time, it is difficult to know what is meant by the expression “de incremento” except that it is always used in the context of the regime that appears to be assumed rather than stated that costs ‑ ‑ ‑
KIRBY J: Is that not a reason for care on our part not to, as it were, be picking up and running with decisions in the earlier parts of the 19th century?
MR SOFRONOFF: Absolutely, your Honour, that is right.
KIRBY J: And applying the policy and principles and language – above all, the language – of the Bankruptcy Act of this country in 1966.
MR SOFRONOFF: Your Honour, in our submission, one starts with the language of the statute and, of course, one is informed as far as is relevant by the historical context. One does not consider these things in a vacuum but, nevertheless, one looks at the language, and when one looks at the language to which I will come, in our submission, it does not assist to ‑ ‑ ‑
KIRBY J: Except that its purpose, the whole purpose of bankruptcy, is to give a new beginning.
MR SOFRONOFF: Your Honour, could I answer that proposition in this way. The bankruptcy statutes today and previously are black‑letter law in that at the beginning strict debts only were provable and the definitions had to be added to as cases arose where it was creditors who sought to prove in the bankruptcy rather than liberating the debtor, the bankrupt, from those claims as documents became more current, but in each case one looks at the words of the statute not some ab initio conception of what the bankruptcy law ought to be.
In this case, what our learned friends would invite the Court to do was to read section 82 as though somewhere the words “and incidental thereto” appeared but, in our submission, there are a number of problems with that. First, as to the policy, not all claims are discharged by bankruptcy; claims principally for wrongs are not discharged for bankruptcy. HECS debts, the Commonwealth HECS debt is not discharged from bankruptcy, and we have given a list of them in our outline of submissions but your Honours will see them in section 82. So there is no complete discharge from bankruptcy and it would therefore not be correct to say that the general policy of the Act ought to inform the construction of section 82 so that the words “debts and liabilities (and anything incidental thereto)” should be added to it, because on any view, the policy is not as wide as our learned friends would wish it to be.
Secondly, your Honours, to add those words does not assist because one does not know what is meant by the word “incidental”. Certainly, if there is a debt that is incidental, then it is already a debt that existed before the bankruptcy and one does not need reference to additional words to bring it within the bankruptcy.
If is not a debt before bankruptcy, on what possible basis can it be brought into account in the bankruptcy when all that is permitted to be brought into account are debts which existed, subject to the wide definition of “contingent liabilities” and “future debts” and so on, before bankruptcy? So, in our submission, an appeal to the policy of the Act is of no use here because it does not assist one in answering the question, how does one then read the words of section 82 to encompass something that our learned friends say are covered by the words ‑ ‑ ‑
KIRBY J: But we all know of cases in which ultimately the biggest stake in the whole case is the costs. By the time many litigants get to this Court, the thing that they are really concerned about is where the costs will fall, and that must be so in much litigation, that as the case goes through the courts the costs become really a very important part of the stake.
MR SOFRONOFF: Yes, your Honour, and knowing that, then one knows the consequence of petitioning for one’s bankruptcy before the order is made. I need to deal with this proposition that has been put that throughout relevant legal history bankruptcy has always been administered in the way our learned friends contend it ought to be found in this case. What I want to do now, having gone to this book, I need to deal briefly with Daniell’s Chancery Practice just to show your Honours the reference to the position with respect to costs in chancery which were never subsumed into the British Gold Fields doctrine.
Your Honours have seen the reference to Sneaps that it was not subsumed. You had to await a taxation before that was regarded as giving rise to a liability. Could I take your Honours to Daniell. It is our legislation book, which is volume 2 of our authorities, tab 49. Your Honours will see at the foot of the left‑hand page:
The giving of costs in equity is entirely discretionary. It must not be supposed, however, that the Court is not governed by definite principles –
Then the familiar language is then employed as to what the nature of that discretion is. If your Honours would go to the next tab, that is an extract from The Annual Practice in 1899, the English‑wide practice. If your Honours go to the second page of the content, the history of the costs rule is referred to briefly, consistently with what Justice Holmes said in her reasons. At the top of the page:
Previously to R.S.C. 1875, O. 55, r. 1, corresponding to this rule, the courts of common law had no discretion as to costs, but the costs followed the result. The Court of Chancery had an absolute discretion as to costs –
then there are some dealings with it.
KIRBY J: What page is that of the book?
MR SOFRONOFF: That is page 904, your Honour, top of the page. About 12 lines down there is a reference to Foster v. G. W. Ry., 8 Q.B.D. 515. There Lord Justice Brett deals briefly, could I tell your Honours, with the history of costs orders at common law and in chancery. If your Honours then turn over to the next tab, we have a 19th century bankruptcy book, 1884 and in it your Honours will see the common law position set out beginning from page 283. That is all set out as though the Judicature Acts had not been passed rendering costs for discretionary matter, but at page 285 your Honours will see costs in equity dealt with in the middle of the page. Then there is a reference to Ex parte Hill in the footnote that I referred to earlier. The author then sets out the various provisions of the Bankruptcy Acts which dealt with proof of costs.
What one gets from that, your Honours, in our respectful submission, is that in the 19th century before the Judicature Acts, because of the law that costs did follow the event at common law, costs came to be regarded as appurtenant to or accessorial to a verdict of a jury given before bankruptcy. However, the position where costs were discretionary, the one place where costs were discretionary in chancery, that was not so. Upon the passage of the Judicature Acts where costs became discretionary across the whole jurisdiction, it could no longer be said as a matter of principle that the old rules made sense.
GLEESON CJ: That is what Mr Gore-Browne argued before Lord Justice Lindley.
MR SOFRONOFF: That is exactly what he argued, your Honour. As to that case, could I take your Honours to it but could I say this about it ‑ ‑ ‑
KIRBY J: I noticed he was stopped and he lost the case.
MR SOFRONOFF: Yes, it was a trick, your Honour. They stopped him.
KIRBY J: This is terrible. It happened in one celebrated occasion in this Court. The Privy Council was there hovering in the background.
MR SOFRONOFF: That is right, your Honour.
KIRBY J: It has never happened since.
MR SOFRONOFF: I bet Mr Gore-Browne never forgot it either. Could I say this about that decision. Either it is anachronistic, that is to say just wrong, and one notes that Lord Lindley had been a Serjeant‑at‑Law, I think the last Serjeant appointed to the Bench, so one can take it that he practised in the Court of Common Pleas and was familiar with the common law rules and he espoused the common law rules in that judgment.
GUMMOW J: He had the support of the specific section.
MR SOFRONOFF: Does your Honour mean that the section made provision ‑ ‑ ‑
GUMMOW J: “May” meant “must” in the sense that this was the consequence if you did that. If that was the outcome, you did this.
MR SOFRONOFF: Your Honour, that is the second thing that we would wish to say about it, namely, that he was dealing with a particular provision of a particular statute and, as the decision in Pitchford to which I will come in a moment makes plain, this was an application made to rectify a register in a winding up, made to recover, that is to say, made to obtain the right to prove for the subscriptions paid in the winding up and the costs of that were costs in the winding up. In that sense it was a right decision. Your Honours, could I say something though about the cases that his Lordship referred to in support of his dicta. If your Honours take up the authorised report ‑ ‑ ‑
HAYNE J: Tab 8, I think.
MR SOFRONOFF: Thank you, your Honour. If your Honours go to page 11 of that, could I deal with Newman, Bluck, Emma Silver Mining and over the page Vint v Hudspith without taking your Honours to the actual cases. Newman, which is referred to by a different in the Law Times edition, was indeed authority for the proposition that if the sum recovered is not provable because a verdict was obtained after bankruptcy, then the costs were not provable either. Bluck, however, was a case where a person who later became bankrupt sued ‑ ‑ ‑
HAYNE J: Newman, I might say, seems to draw, from your point of view, an unfortunate comparison with what otherwise might have been the case. Newman is taken I think as authority in Ringwood and the like as – Lord Justice James at 3 Ch D, particularly at 496 to 497, dealing principally with damages for a tort, unless judgment has been signed, in effect no proof, but then goes on to discuss Ex parte Peacock:
successful Defendant’s costs of an action founded on contract, though not taxed till after adjudication, were within the second clause of sect 31 ‑ ‑ ‑
MR SOFRONOFF: Your Honour, this was a case where the order that his Honour made was an order that Mr Foots pay damages. The damages that were claimed in the originating proceeding and in the statement of claim were two kinds; damages for breach of contract and damages for deceit. It is not clear from the order which was the basis upon which damages – they were the same damages in any event, given the way the case was conducted, and they were unliquidated damages. So, to the extent that it matters, in our submission, it does not matter.
HAYNE J: But was the exception to 82(2) engaged, that is, is the judgment sum provable in the bankruptcy?
MR SOFRONOFF: Yes, the judgment sum was, at least insofar as it was couched upon contract. Your Honours, can I come back to British Gold Fields. Re Bluck was a case where the person who later became bankrupt sued a person. The plaintiff in that case then became bankrupt. Costs were then ordered against the bankrupt and it was held that they could not be proved because they post-dated the bankruptcy. The judge in that case, Lord Cave, held that the nature of the claim, tort or contract was irrelevant and, importantly, said the only way in which it can be put as a provable debt as being in the words of section 37, a contingent liability:
by reason of any obligation incurred before the date of the receiving order.”
I cannot, however, find that there was any obligation incurred before the date of the receiving order, for it cannot be said that the mere bringing an action puts the plaintiff under an obligation to pay costs if the action goes against them. That can only arise on judgment being given and then, if the judgment is that he pay the costs, he becomes a debtor for the amount of the costs.
HAYNE J: So that is unsuccessful plaintiff, is it?
MR SOFRONOFF: Unsuccessful plaintiff.
HAYNE J: Are those costs.
MR SOFRONOFF: But his Lordship is speaking generally.
HAYNE J: At some point in your argument would you deal with whether a distinction is to be drawn between the costs of parties according to whether they are unsuccessful plaintiff or defendant?
MR SOFRONOFF: Your Honour, dealing with the law now makes no difference because in every case the question whether an order for costs is made will depend upon the exercise of a discretion and the order that is then made, and whether the order is made against a plaintiff or a defendant who has been unsuccessful or a plaintiff or a defendant who has been partly unsuccessful, which might be the case, makes no difference. What matters is whether at the relevant date, which is the date of bankruptcy, there is a debt or liability of the kind defined in 82. In our respectful submission, all of the cases, save British Gold Fields, say that there is no such debt or liability until the order is made. I include in that general statement the cases in England that follow British Gold Fields and the cases here. Could I deal with them quickly but I hope accurately.
GUMMOW J: Just before you do that, though, this distinction that you took us to in that old textbook between the situations in actions at law and actions at judgment, the legislature had woken up to it though, had it not? Had it not dealt in the same fashion with costs in either species of litigation?
MR SOFRONOFF: Because of the Judicature Act, you mean?
GUMMOW J: No, no. For example, section ‑ ‑ ‑
MR SOFRONOFF: Your Honour means the provision that I took your Honours to?
GUMMOW J: Yes. The 1849 Act, for example.
MR SOFRONOFF: Yes. Yes, your Honour. Those provisions did not ‑ ‑ ‑
GUMMOW J: Section 181, is it?
MR SOFRONOFF: Sorry, your Honour?
GUMMOW J: Page 601.
MR SOFRONOFF: The 1861 Act ‑ ‑ ‑
GUMMOW J: No, 1849.
MR SOFRONOFF: 1849?
GUMMOW J: Yes, that is fuller, I think.
MR SOFRONOFF: Yes, your Honour. They did.
GUMMOW J: And they dealt with the position of defendants too. Now, the question then is, when in the 1869 Act you get general provisions like section 31, they were really setting out to achieve any other result?
MR SOFRONOFF: Your Honour, in our submission, the law did not change by the incorporation into the 1869 Act of a general definition of “provable debts” because ‑ ‑ ‑
GUMMOW J: But you did not have to have taxed at the time of the bankruptcy. That is what these sections were saying.
MR SOFRONOFF: One had an order and subsequently one could assess those costs if one had the order. That was a mechanical exercise, an objective exercise, involving no exercise of ‑ ‑ ‑
GUMMOW J: I just want to get this clear. So you say what one gets from the earlier statutes, before the 1869 Act, is that at least, whether it was at law or in chancery, you had to have got an order?
MR SOFRONOFF: Yes.
GUMMOW J: And the liberality, if that is the word, was you need not have taxed it?
MR SOFRONOFF: Correct. You need not go to the expense of taxing it. The trustee could assess it.
GUMMOW J: Yes, and it is against that background that you get to the first of the section 82 type provisions?
MR SOFRONOFF: That is right.
HAYNE J: Can I then just delay you a moment on that particular section of the 1849 Act to follow how you make that work with the words, particularly the plaintiff:
That if any Plaintiff . . . shall have obtained any Judgment, Decree, or Order against any Person who shall thereafter become bankrupt for any Debt or Demand in respect of which such Plaintiff or Petitioner shall prove under the Bankruptcy, such Plaintiff or Petitioner shall also be entitled to prove for the Costs which he shall have incurred in obtaining the same –
What are the costs “in obtaining the same”? Is it not the judgment, decree or order for the debt or demand?
MR SOFRONOFF: Yes.
HAYNE J: Regardless of whether an order has been made for those costs?
MR SOFRONOFF: Yes, and the same for a defendant.
GUMMOW J: That is contrary to what we were just ‑ ‑ ‑
HAYNE J: Is that not a hurdle in your way and contrary to what you have just put to Justice Gummow? Either that or I have slipped more than the usual number of cogs, Mr Sofronoff.
MR SOFRONOFF: Sorry, your Honour. Excuse me, your Honours. The last such statute, your Honours, is the 1861 statute.
GUMMOW J: Yes. You might be happier with section 149.
MR SOFRONOFF: I am happy with it, your Honour, because that expressly refers to ‑ ‑ ‑
GUMMOW J:
entitled to enforce against the Bankrupt Payment of any Money, Costs, or Expenses by Process of Contempt issuing out of any Court, shall be entitled to come in as a Creditor under the Bankruptcy, and prove for the Amount payable under the Process, subject to such ascertaining of the Amount as may be properly had by Taxation ‑ ‑ ‑
MR SOFRONOFF: Yes. I do not want to stretch the language of the 1849 Act too much, because our case is against stretching of language, but the “judgment, decree or order” may involve reading that as including an order for costs although not taxed. But I do not have to go there because by 1861 what you needed was something that was enforceable although not crystallised in an order for taxation.
GUMMOW J: What does come out of both the 1849 and 1861 statutes is that the legislature was a wake up to the different procedures in law and equity and was treating them the same in this bankruptcy regime.
MR SOFRONOFF: Yes.
GUMMOW J: How they were treating it we have just been debating, but they were treating them indifferently.
MR SOFRONOFF: Indifferently. But the other point is that by the time of the passage of the Judicature Acts, the learning that related to cases at common law where costs always followed the event no longer applied because we are now dealing with always discretionary orders. So the position which obtained pre-Judicature Act in relation to chancery was that you needed an actual taxation. The taxation was the demand, it was said in Sneaps and then picked up in Re Hill, the case I took your Honours to earlier.
Could I come back, your Honours, to Re British Gold Fields and to the cases that Lord Lindley relied upon. Re Newman was authority for the proposition his Lordship referred to. Re Bluck was, in our submission, decidedly against it, and Emma Silver Mining Co said nothing at all about it. Emma Silver Mining was a case where the claimant wanted to prove in the winding up in respect of a debt arising out of a fraudulent inducement to obtain shares in a company and also wanted to be free to proceed against a debt a post-bankruptcy because of an exception that related to fraud that permitted that and was allowed to do both of those things. Cost did not enter into it.
If your Honours turn over the page, there is a reference to Vint v Hudspith. That is intriguing because Lord Lindley was a party to that decision which was one relating to the question whether a woman described as a femme covert and who had married a person who had become bankrupt remained liable. Could I give your Honours the reference. It is 30 Ch D 24. At 27 Lord Lindley said:
I doubt very much whether a possibility of having to pay costs is a provable debt. It may in some cases be a “contingent liability.”
GUMMOW J: He also said, “the case shews the misfortune of marrying an executrix.”
MR SOFRONOFF: Yes.
GUMMOW J: It is the age of Gilbert and Sullivan.
MR SOFRONOFF: Which is a punctuation of how dated these cases are, in our submission. Your Honours, Re Newman, Mr Pomeranke reminds me, was a case where costs were ordered before bankruptcy. Your Honours, could I deal with what could be called the 20th century English cases of which, I think, there are relevantly three. The first is Re Pitchford, which is in our book at case 14, I think. The only purpose for which I wish to take your Honours to this case is that Lords Astbury and Lawrence deal with Re British Gold Fields.
If your Honours go to page 265, after citing it at the top of the page, Lord Astbury at the foot of the page deals with the facts and then goes over the page. He cites the passage that is relied upon and then interprets it in the way that your Honours can see there. I read that as meaning the costs which the successful litigant has obtained an order for. If your Honours then go to page 268, Justice Lawrence agreed. On the right‑hand page, 269, just below halfway observes that, “The costs were entirely in the discretion of the High Court, and neither the official receiver nor” – in that case in the circumstances in which obtained – “the county court can determine” what the High Court would have done, just as here the official receiver cannot determine what Justice Chesterman might have done. But over the page at 270, after referring to the famous dictum, Justice Lawrence says, five lines down:
When the learned judge there speaks of the action being successful, I think he must mean that judgment is pronounced in the action in favour of the plaintiff for the sum claimed and for the costs of the action.
Then a little further down, after citing the decision again, his Lordship said:
What was decided there was that the applicants ought to be allowed to prove for the costs incurred by them in obtaining an order in the winding up for the rectification of the register of the company, as, without such an order, their proofs could not have been admitted; consequently the costs were necessarily incurred in removing an impediment to the admission of their proofs. No difficulty arose in that case either in determining the right to costs or in ascertaining the amount of the costs, as both the application for rectification and the application to be admitted to proof were made in the winding up and the same Court had full jurisdiction to deal with the whole matter . . . I have only referred to that statement –
in an earlier case –
as in my opinion it tends to support the view that, unless and until an order for payment of costs is made, there can be no liability giving rise to a provable debt.
The case his Lordship referred to was In re A Debtor, which was the other 20th century English case. It is sufficient to tell your Honours that Justice Jerrard dealt with at page ‑ ‑ ‑
GUMMOW J: Who was the judge in In re A Debtor?
MR SOFRONOFF: The Master of the Roles Cozens-Hardy and Lord Justices Fletcher Moulton and Buckley. It is dealt with in paragraphs [35] and [36] of the reasons of the Court of Appeal at page 324. That deals with those earlier English cases. One then comes to Glenister and Glenister is, in our respectful submission, a case that entirely puts British Gold Fields to rest insofar as interpreting it in the way my learned friends would invite the Court to interpret it. I need not read to your Honours the passages at paragraphs (1) to (6), pages 84 to 85, which summarise the law as the English Court of Appeal held it to be. Notice, your Honours, paragraph (3) in particular.
The reasoning, your Honours, in Lord Justice Thorpe’s reasons for judgment at 85 are, in our submission, applicable here, the difference is between a liability, an actual liability and the risk of a liability being imposed. Here Mr Foots faced the risk of a liability being imposed but he never faced the liability for costs until Justice Chesterman made his order. That risk was a risk that was faced in the context of this being a large action, as our learned friend has pointed out, with many issues, many parties. It was not merely plaintiff and defendant but there were plaintiff and counter‑claiming defendant and parties added by the counter‑claiming defendant and ultimately what was sought was indemnity costs, costs to be paid on an indemnity basis. So there was a range of costs orders that could have been made and all of it depended upon the exercise of a discretion.
GUMMOW J: Can you just go back to Glenister for a minute at page 83, letter B?
MR SOFRONOFF: Yes, your Honour.
GUMMOW J: You will see the reference to Justice Tadgell and Justice Kitto there:
the “notion that a contingent debt must be founded on an existing obligation.”
You rely on that, do you not?
MR SOFRONOFF: Yes, we do, your Honour. We cite some cases in our outline. Engwirda is one of them where Justice Kitto said what your Honour has just read, but also National Bank v Mason which more obviously illustrates the point. In National Bank v Mason there was a mortgage of land owned, relevantly, by Mason, he might have guaranteed it. Mason had an account, or Mason’s company, any way, Mason had an account with the bank. He paid out the mortgage, although it was not released, and the accounts had a zero balance, so he owed no money and was entitled at that point to a discharge if he asked for it. Subsequently, he banked the cheque into his account. The bank collected the money from the payer, paid it into the account and Mason withdrew the money.
The drawer of the cheque claimed that the cheque had been converted and sued the bank. The bank refused to release the mortgage on the footing that there was at least a contingent liability within the language of the mortgage for the payment of the money sought in the action by the third party against the bank for conversion. The Court held that there was no contingent liability because there was no present liability in the respondent, Mr Mason, to the bank. Liability might arise upon the happening of an event but there was no current existing liability which might give rise to an actual liability to pay upon a contingency and so the bank failed. Similarly, the same definition was used in Engwirda.
HAYNE J: Can you relate those definitions to this particular claim insofar as it was a claim in contract?
MR SOFRONOFF: Your Honour, there was no obligation here of Mr Foots from which one can say upon a contingency.
HAYNE J: What was the essence of the claim made against him in contract that led to the, whatever it was, 2 million judgment?
MR SOFRONOFF: He had a contractual duty of good faith and to act in the best interests of Ensham Resources and he breached that duty. In the circumstances of the case that was, as it happened, the breach of fiduciary duty. It was also deceit and it was also a breach of contract.
HAYNE J: On one analysis of it he had breached a fiduciary duty which at the moment of breach he was bound to remedy, was he not?
MR SOFRONOFF: Yes, your Honour, but the damages were – what was sought in that respect was either an account of profits which was abandoned at the end of the case or equitable compensation.
HAYNE J: Yes.
MR SOFRONOFF: There was another part that held property that it was bound to give back. That was not Mr Foots.
HAYNE J: Why is that not a contingent liability applying the Engwirda type analysis of it?
MR SOFRONOFF: Because the only contingent liability he had, if he had one, was a contingent liability under the contract to pay damages. He had no contingent liability under his contract to pay costs of an action. Your Honours, could I then deal with Sommerfeld. It is fair to say that Re British Gold Fields has been cited in texts. Since it contains no analysis, the texts do not descend to any analysis, they are merely cite it. Could I mention, your Honours, that with respect to the Australian Bankruptcy Act 1924 it was assented to on 8 October 1924 and by that stage In re A Debtor and Pitchford had been decided. Pitchford was decided in May 1924.
So to the extent that it might be said that the Commonwealth Parliament had at the forefront of its mind, or at least in its mind, the decision in Re British Gold Fields of West Africa, the Parliament probably also had in its mind the decision of the Court of Appeal in Pitchford and the decision In re A Debtor. One gets nothing out of that kind of reasoning, in our respectful submission.
HAYNE J: It is interesting that the textbook or Ringwood does not cite British Gold Fields at all. It deals with Newman, In re A Debtor, Pitchford and still formulates a proposition which is antithetical to that for which you contend.
MR SOFRONOFF: I have not seen that book, your Honour.
HAYNE J: No, I understand.
MR SOFRONOFF: Your Honour, Mr McPherson’s book does the same thing. Then his Honour sitting as a judge in Fraser Property Developments v Sommerfeld, without the benefit of contrary argument it should be said, cites Re British Gold Fields of West Africa for the usual sort of proposition but it is interesting that at paragraph [12], which is the paragraph that everybody relies upon, in this case anyway, his Honour cites Glenister v Rowe for the proposition:
that costs of legal proceedings are in the discretion of the court; and until an order is made there is no obligation or liability to pay them.
In other words, when his Honour deals with this question as a matter of principle he concludes that there is no liability until an order is made for the obvious reasons that we have been advocating. So, in our respectful submission, it would be incorrect to regard Sommerfeld as an authority for the proposition that once you get what is called a verdict, or even indeed an order, from a judge before bankruptcy ordering the payment of damages, that in the event that a costs order is made against the unsuccessful party at some subsequent time after bankruptcy that is to be referred back to the inchoation of that ultimate order which existed prior to bankruptcy.
Could I then, your Honours, go to section 82 itself. Section 82(1), in our respectful submission, does not need any assistance. It encompasses, subject to the exceptions set out later, all kinds of debts and liabilities which are contemplated to be subsumed in a bankruptcy and from which a person who is bankrupt is to be freed and it has been the subject of scholarship. The word “contingent” has been dealt with in Engwirda and, indeed, in Bluck and in the National Bank Case, to which I have referred, requires an underlying obligation and section 82(1), in our respectful submission, does not need the words “incidental thereto” implicitly added after the words “certain or contingent”. There is no textual justification in the Bankruptcy Act, certainly none has been pointed to, to warrant that.
GUMMOW J: The question of interest, that would be contingent, would it?
MR SOFRONOFF: I am sorry, your Honour.
GUMMOW J: Future interest?
MR SOFRONOFF: Future interest.
GUMMOW J: You say it is at least attached to the principal obligation, do you not?
MR SOFRONOFF: Your Honour, it is a liability under the principal obligation which will arise on a future debt so it is a future debt. Thank you, your Honours.
GLEESON CJ: Thank you, Mr Sofronoff. Yes, Mr Dunning.
MR DUNNING: May it please your Honours. Very briefly in reply, in relation to the last matter just mentioned regarding interest, interest under the statutes will involve an exercise of discretion and that discretion may be informed by things very akin to those things which inform the exercise of discretion as to costs; conduct of the proceedings, delay in bringing proceedings and all of those sorts of things. It if be right, in our submission, that costs are not provable debts until an order is made, so too the situation in relation to pre‑judgment interest under the various statutes throughout Australia.
GUMMOW J: What I was inviting Mr Sofronoff to consider was the treatment of interest on which you relied from Mackenzie v Rees at page 10, namely, “an incident of, or a part of, the debt”.
MR DUNNING: Yes, but the point I make is that when one comes to deal with the issue of pre‑judgment interest, it has the consequences I have just described. In relation to Sommerfeld, your Honours, with respect, it is not an application of a principle in Glenister in the manner that you have described, it is in terms an application of British Gold Fields applying the facts of that case to the particular principle that was relevant to it. So much is apparent in paragraph [10] of Justice McPherson’s reasons that your Honours will find between lines 35 and 40 on page 407, in paragraph [12] on page 408 betweens lines 30 and 35.
As finally to the submissions that were made that those statutory enactments that dealt with costs leading up to the 1869 Act but not containing an equivalent leading ultimately to the submission that this is an exercise in black‑letter statutory construction, in our submission, that sequence of developments in relation to costs is consistent with the notion that prior to 1869 the legislative approach had been to collect a series of identified obligations and characterise them as provable debts and that from 1969 onwards the relevant inquiry changed to a broad category of provable debts subject to express exceptions and that really that analysis of the development of the statutes prior to 1869 simply supports that contention. That was what culminated in this Court in Coventry at paragraphs [20], [36] and [92], observing the very wide nature of the obligations provable by section 82(1) of the Bankruptcy Act. Thank you, your Honours.
GLEESON CJ: Thank you, Mr Dunning. We will reserve our decision in this matter and we will adjourn until 10.15 tomorrow.
AT 4.14 PM THE MATTER WAS ADJOURNED
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