Friend v Brooker

[2008] HCATrans 344

[2008] HCATrans 344

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S306 of 2008

B e t w e e n -

NICHOLAS MACARTHUR FRIEND

Applicant

and

FREDERICK CLARKSON BROOKER

First Respondent

FRIEND & BROOKER PTY LTD

Second Respondent

Application for special leave to appeal

FRENCH CJ
GUMMOW J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 30 SEPTEMBER 2008, AT 11.03 AM

Copyright in the High Court of Australia

MR C.R.C. NEWLINDS, SC:   May it please the Court, I appear with my learned friend, MR B.R. KREMER, for the applicant.  (instructed by Bull, Son & Schmidt)

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR M.S. WHITE, for the respondent.  (instructed by Jonathan D’Arcy & Co)

FRENCH CJ:   There is no appearance for the second respondent.  Mr Newlinds, it might assist us if you confine your opening submissions to the question of why special leave should be granted in respect of the procedural fairness aspect.  That is grounds 10 and 11 of the proposed notice of appeal.

MR NEWLINDS:   If your Honour pleases.  Fundamentally, we complain the procedural fairness miscarried in the Court of Appeal because the Court of Appeal proceeded‑ and when I say that I mean Justice Mason and Justice McColl – on the premise of two fundamentally wrong facts.

The first fact was the proposition that at the time the parties distributed the remaining money in the company to themselves, there was only one remaining “external debt” owed by the company.  That is clear in the first judgment of both Justices Mason and McColl.  At page 136 of the appeal book Justice Mason confirms that that is the premise upon which he has proceeded and at page 138, at the top of the page, makes it clear that he considered that an important matter.  Now, your Honours see that at page 138 about line 10:

My reasons for proposing declaratory and consequential relief referable to the outstanding burden of the SMK loan focus upon matters peculiar to that loan in its creation and partial discharge as well as the circumstances surrounding the company exhausting its assets involving as they did ‑ ‑ ‑

GUMMOW J:   Yes, but I think it comes to this, Mr Newlinds.  Suppose for a minute you have special leave on grounds other than grounds 10 and 11, how would you be prejudiced?

MR NEWLINDS:   Because I can win on grounds 10 and 11 as well, because, even if the legal propositions for which our learned friends seek to support the Court of Appeal’s conclusion be right, they are fundamentally underpinned by what we say are two erroneous findings of fact.  They are both encapsulated in that paragraph at the top of 138.  They are that there were no other ‑ ‑ ‑

GUMMOW J:   Just suppose you won on grounds 10 and 11, what order do you then get?  The Court of Appeal does it again, does it not?

MR NEWLINDS:   The Court of Appeal would have another go at it.

GUMMOW J:   That is not what you have asked for?

MR NEWLINDS:   No, it is not.

GUMMOW J:   Hence our questions for this. 

MR NEWLINDS:   Yes.  So there are two propositions.  This is the last remaining “external debt” of the company and the second is there was something unique about the SMK loan.  Now, noting that Justice Mason in his first judgment made a finding directly contrary to that, to the effect that the SMK loan although a large one was but one of a run of transactions about which there was no particular distinction, our complaints are these.

Both findings were not matters the subject of pleading, were not matters the subject of submissions, fell from the court in the first judgment after us having been given no notice that they were even considering it, are the subject of no evidence.  So to the extent the court is concerned that by raising complaints about factual findings made in the Court of Appeal, that would involve some comprehensive review of factual matters that were before the trial judge in the Court of Appeal.  That is not so.

I would do no more than stand up and say, there was no evidence that justifies those findings and if my learned friend could successfully do so, he would take your Honours to the evidence, and it would be as simple as that.  Those are my submissions in relation to those points, your Honour.

FRENCH CJ:   Yes, thank you, Mr Newlinds.

MR WALKER:    Your Honours, on that point, the appeal transcript to which we have made reference in our written submission, there is a bundle that has been supplied to your Honours.  I do not want to take you to particular pages but that which is numbered 189 at the top right‑hand corner, page 38 of the appeal transcript, certainly at about line 20 makes it pretty clear early in the hearing of the appeal that the effect of the way in which the parties had chosen to constitute the trial was one which produced this outstanding debt as the only item, as it were, in what I will call a notional general account, that is the first thing, and, second, that there was full opportunity given, as recorded by their Honours in their judgment rejecting the application for the withdrawal of their reasons, for the current applicant to have dealt with all of those matters during the appellate hearing.

In short, there was no bolt from the blue of a kind which we do concede would attract this Court’s visitorial jurisdiction, were it so; visitorial jurisdiction on the basis that that would mean this Court would be left as the last and only forum for that matter to have been dealt with.

If there were an issue of that kind, as Justice Gummow has pointed out, it would be unimaginable that a matter of this kind would then receive its final consideration in this Court because there are matters of fact and the difference between a true appeal and appeal by way of rehearing is one which, in any event, one would expect the applicant to treat as producing the need, not simply the desirability, of a simple remitter to the Court of Appeal.

In our submission, however, the factual foundation for the procedural unfairness allegation is missing for the reasons we have put in writing and which I have sought to emphasise in what I have just said.  May I now turn to the matters upon which your Honour the Chief Justice dispensed my learned friend from addressing?

It is, we have to accept, an important area of doctrine which was invoked by the Court of Appeal in making orders effectively for equitable contribution arising from a relationship extending over many years in which finance had been provided in a way that did not always operate within the constraints of a trading corporation with a capital limited by shares.  However, the findings of fact stemming from a trial, whereas your Honours have seen in our written submissions there was a deal of common ground as to what had occurred, turn on matters of recollection of conversations which are themselves not proffered to this Court as in any way fit for the grant of special leave, nor has any appellate ground for review, which, in our submission, ought to attract this Court’s attention concerning the effect of the various conversations you have seen referred to, particularly in our written submissions.

The effect of those conversations is, in our submission, a full‑blooded, wholehearted acceptance by the applicant that this was money that had been devoted to the common enterprise organised through the corporation.  True, late in the day ‑ ‑ ‑

GUMMOW J:   The weasel words are “organised through”, are they not, Mr Walker?

MR WALKER:    Absolutely, your Honour.  I had to confront it, but to try and turn it to my advantage, in our submission, this corporation was not treated on the evidence by these gentlemen as between themselves in organising finance for it as anything like the only structure by which claims inter se to equalise financial contribution that might otherwise follow from the device of share capital being divided equally and directors’ loans being, of course, the responsibility of the corporation.  It is quite plain the history did not include, what I will call, a punctilious understanding of the corporation as the real, as well as artificial means by which their joint enterprise was exercised.

GUMMOW J:   I do not know.  Have a look at page 12 in Justice Nicholas’ finding, line 25, “We will need to protect ourselves against bad debts and such like” by having a company.

MR WALKER:    Yes, your Honour, but the preceding sentence gives you a flavour of ‑ ‑ ‑

GUMMOW J:   They did not have to read Salomon v Salomon to work that out.

MR WALKER:    Yes, but may I say Salomon v Salomon was neither tattooed on any part of their anatomy nor in their mentality.  The preceding sentence, “We will have to run the partnership through a company structure”, whatever that means, and, in our submission, what it does mean ‑ ‑ ‑

GUMMOW J:   What it means is the next sentence, partners are personally responsible, companies are not.

MR WALKER:    Yes, limited liability, unquestionably, was seen as the boon that the corporation held out, but when it came to financing the enterprise in which, as it were, creditors could be held at bay with limited liability and the capitalists derived benefit within the law, nonetheless, this corporation was to be financed by contributions that, as your Honours have read, were recorded with varying degrees of punctiliousness as directors’ loans.

The very important SMK loan was unquestionably vital to the continued operation of the company which it need hardly be said, not least by the ambitions which led to it being set up and by the way it was capitalised and thereafter run, can be described without any need to venture into metaphor, as a joint enterprise, a common enterprise, that is, they were involved through their family trusts in the equity commonly and they commonly were involved in its management as offices.

GUMMOW J:   There were a lot of cases cited in the Court of Appeal, including Muschinski and Baumgartner, but I can think of at least two occasions in the last 10 years in which we have referred to those cases, and it escaped the attention of counsel in the Court of Appeal.  One was in Giumelli 196 CLR 101 at 113. The other is Bathurst City Council 159 CLR 566 at 585, which at least would suggest some caution in jumping into the pool with the words “Baumgartner” in front of it.

MR WALKER:    Yes, your Honours, it is an important doctrine.  We have to accept that.  What I am trying to persuade your Honours is, however ‑ ‑ ‑

GUMMOW J:   We say these things and hope that they will be read.  It is a hope the flags from time to time.  It is certainly flagged here.

MR WALKER:    Some of us do, your Honour.  Your Honours, it has not been suggested by our learned friends that there has been a departure from what, in our submission, is a doctrine laid down by this Court in the general propositions for which the Court of Appeal judgment would stand, if it were to be left alone by this Court.  In short, in our submission, they do not depart from, as we have put in our written submission, what can be seen in some comments, and they are only comments obiter in Burke v LFOT, and going back, as we would prefer to see it, with respect, to Albion.  In our submission, the role of the co‑ordinate liability ‑ ‑ ‑

GUMMOW J:   There has to at least have been an imminent demand, does there not, so that it can achieved in equity on a quia timet basis?

MR WALKER:   Yes.

GUMMOW J:   Where is the quia timet here that is said against you?

MR WALKER:    Your Honour, there is no doubt that the factual record is deficient in our favour in that regard.  What we have is amounting ‑ ‑ ‑

FRENCH CJ:   It is more than deficient, is it not?  Does it not lie against you that there was no intention to recover in the foreseeable future?

MR WALKER:    I do not think there is anything that amounts to anything as happy as a forgiveness, your Honour.

FRENCH CJ:   No, not a forgiveness, but certainly a denial of an imminent demand.

MR WALKER:   The evidence is, as the Chief Justice has put it, we are not on the edge of a precipice.  We were not at the time of the trial.

CRENNAN J:   The creditor had made no indications about recovery, had it?  I thought that was the basis on which this case was conducted.

MR WALKER:   We did not prove that we were on the wrong end of an urgent demand, that is correct.

CRENNAN J:   Or any demand from the creditor?

MR WALKER:   Yes, your Honour.  That, of course, does not mean that there is not a liability.  In our submission, that may mean that relief may be shaped, perhaps in a declaratory way, so as to recognise what is an extremely live and hot controversy between these parties but the fact that it has not yet come to the need, perhaps, for executive orders of the kind that one would ordinarily find in an order for an account in a case calling for equitable contribution.  It is for those reasons, in our submission, that although the area is an important one, the basal concepts of the common enterprise leading, depending upon the circumstances of the relationship, to liability to answer a common demand is, in our submission, not one which is likely to be departed from by any reasoning of this ‑ ‑ ‑

GUMMOW J:   Does that you mean you support declaration – you do not support declaration 3, or do you, at page 174?  It declared a requirement “to contribute so as to equalise” and there was a reference to determine the sum due.

MR WALKER:   We support declaration 3.

GUMMOW J:   All right.

MR WALKER:   That, after all, is what we asked for and, as a respondent, that is certainly our position.  We support declaration 3.  We do not, as it were, have anything in the nature of a cross‑appeal in relation to that relief.  It is for those reasons, in our submission, your Honours, that once the conversations which this Court is most unlikely to revisit in terms of the findings made by the Court of Appeal, once those conversations establish the understanding and acceptance of the common benefit which was produced by the individual shouldering of a burden so as to produce at the other end the common subjection to the liability to meet that burden, in our submission, this case does not provide a vehicle for exploring the matters that the applicant has raised as matters, naturally, of important doctrine.  It is for those reasons, in our submission, that there ought not to be a grant of special leave on the other grounds either.

FRENCH CJ:   Thank you, Mr Walker.  Mr Newlinds, perhaps in reply if you would just confine yourself again to the procedural fairness question, grounds 10 and 11?

MR NEWLINDS:   If your Honour pleases.  Can I just have one more go at that.  We will put to the Court, if special leave is granted, that the way

this case was run, there were only two possible outcomes; one, there be an order for an account or, two, application dismissed.  What we do not want to happen is for it to be put against us at a hearing that as a matter of discretion there is no need for an order for an account because the SMK loan was the only loan outstanding, therefore, the account sorts itself out and you get back to the same problem.

That was not a submission that was made in opposition to an account below.  As we read Justice Mason and Justice McColl, they both say they would not have ordered a full account and not for that reason, for other discretionary reasons, but that is a reason why it is possible that at the hearing of an appeal there could become an issue as to whether, well, was this the only outstanding ‑ ‑ ‑

GUMMOW J:   If that arises, we can always expand the grounds, I suppose.

MR NEWLINDS:   If your Honour pleases.  I will sit down.

FRENCH CJ:   The Court is of the view that there should be a grant of special leave in relation to all but grounds 10 and 11 of the notice of appeal.

There is an outstanding order, I think, for the stay of the implementation of the orders of the Court of Appeal pending the application for special leave.

GUMMOW J:   Page 175.

FRENCH CJ:   Page 175, Mr Newlinds?

MR NEWLINDS:   Yes, your Honour.  I would seek that order.

GUMMOW J:   That seems to continue until we decide the appeal, does it not?

MR NEWLINDS:   I am told that was the intention, your Honours.

FRENCH CJ:   Are you content that we do not add anything?

MR NEWLINDS:   I am content, your Honour.  If there is a problem we will go and approach the Court, but I do not think there will be.

FRENCH CJ:   How long do you think this will take, Mr Newlinds?  Is this a day or a day and a half?

MR NEWLINDS:   I would like to say a day.  Perhaps a day and a bit.

FRENCH CJ:   Mr Walker?

MR WALKER:   I think it might spill over, but I am bound to say it could be made not to.

MR NEWLINDS:   I would take what I could get, your Honour.

FRENCH CJ:   We will set it down for a day and a half.

MR NEWLINDS:   If your Honour pleases.

MR WALKER:   May it please the Court.

FRENCH CJ:   Yes, thank you.

AT 11.23 AM THE MATTER WAS CONCLUDED