Hungerfords (Registered Firm) & Ors v Walker

[1988] HCATrans 183

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A8 of 1988

B e t w e e n -

HUNGERFORDS (Registered Firm),

HUNGERFORD SPOONER AND KIRKHOPE

(Registered Fim) and HUNGERFORD

HANCOCK AND OFFNER (Registered Firm)

Appellants

and

PETER VICTOR WALKER, BARRY JOHN WALKER,

MICHAEL TIMOTHY WALKER, DOROTHY ROSE

WALKER and DIANE MARY WALKER (Tradin~

as "RADIO ELECTRIX")

Respondents

MASON CJ
WILSON J
BRENNAN J
DEANE J

Hungerfords(2)

DAWSON J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON WEDNESDAY, 24 AUGUST 1988, AT 10.02 AM

(Continued from 23/8/88)

Copyright in the High Court of Australia

AlTl/1/MB 88 24/8/88

:MASON CJ:  Yes, Mr Bennett.

MR BENNETT:  If Your Honours please. I propose, Your Honours,

in my submissions in reply to go through matters

in the same order that my learned friend dealt with

them. The first matter is that my learned friend

submitted that the evidence was that there was

an excess of customers in that customers were

demanding more than could be supplied and that

was used to support the submission that any money

that went into the business would have produced

turnover at the gross profit rate.

Your Honours, it is my submission that there was a lot of evidence about the growth spiral, a

lot of evidence about how successful the business

was and how prosperous and profitable it was,but

there was no evidence which distin~uished whether

the limiting factor on its growth was customer

demand or whether the limiting factor was ability

to purchase goods. So one does not know if there

were more goods than could be supplied or more

customers than available goods, and unless one

knows that one cannot draw that further inference

that a small sum of money would necessarily have

produced a profit of the turnover rate.

I should say my learned junior has gone through

the unrecorded transcript to check that proposition

I have just put to Your Honours. The second matter

is my learned friend submitted that in the defence

there was an admission concerning the implied term.

We say two things about that: first, it is an admission

of law and, of course, the admission cannot change

what the legal position is. At the time of the

pleadings, of course, no one knew about HAWKINS V

CLAYTON. But, secondly, and perhaps more importantly,

all the cases seem to suggest that there is not a great difference between the rule in tort and

the rule in contract. Certainly Mr Justice Brennan

said that in the :MAN case and there are statements
to that general effect in a number of the other

cases.

We would submit that the recent developments

in the law of contract which say that the second leg of HADLEY V BAXENDALE may be an exception to the LONDON CHATHAM AND DOVER principle have to

be read subject to the qualifications in the

LIESBOSCH case and, we would submit, subject to

the further qualifications which have been submitted

about the route the Court should take in relation

to consequential financial loss. The third matter

is that my learned friend submitted that the

question of what would have happened to the money in the business was a logical conclusion from the

AlTl/2/MB	89	24/8/88
Hungerfords(2)

highest rate being paid. In other words, he

adopted the argument which appears in the Full Court

judgment that any money used in the business would

necessarily have returned a profit at the rate

of the highest loans. That simply does not answer

my example about the $900,000 and the last 100,000

at a higher rate. There was evidence here of other

borrowings, both from a company controlled by

grandparents and of bank overdrafts and so on, and,

in my respectful submission,one simply cannot

draw the assumption that the highest rate is

necessarily the earning rate on marginal sums of

money,for the reasons I have submitted.

My learned friend then referred to a number of

cases. The first of the cases he referred to was

the New Zealand decision in BROADBANK CORPORATION.

It is significant in that case that in the passage

my learned friend read - Your Honours need not go

to it but it is at page 278 line 2 - the court

specifically distinguished the English authorities

on the basis of the legislative history in England

and the difference between the New Zealand legislation

and the English legislation. The New Zealand

legislation is set out in that case - Your Honours,

again, need not go to it but it is set out early

in the judgment and it is at page 267. If

Your Honours examine it Your Honours will see that

the South Australian position is closer to the English position than it is to the New Zealand

position. So that basis for distinguishing the

English position is not open here.

My learned friend referred to the WADSWORTH

case. That, of course, was a case where there was

a non-payment of money due by a person who knew

the specific purpose for which it was intended to

use that money. So that it is analogous to the

example I gave of the completion of the conveyancing

transaction where the $1 million has to be repaid

on the day or the deposit will be forfeited. It	is a case in that category where there was found
to be specific knowledge. It does not assist in relation to the submissions we have put.

The MEDDICK case, the stockbroker case, was

also a case of deliberate breach. That also was

a case where the cheque which was converted was

on its way to be used for a specific purpose.	So
it is a little different to a situation where one simply inflicts financial loss. This was a cheque being paid for certain things and it was
intercepted and did not pay for them.	So the loss,

quite naturally, was the loss of those things rather

than of the cheque. It is in a special category,

we would submit.

AlTl/3/MB	90	24/8/88
Hungerfords(2)

My friend referred to the ESSO case. There are

a number of distinguishing features of the ESSO

case, but the main distinguishing feature is that that was not a case where a single financial loss of payment of money or non-receipt of money was

inflicted. It was a case where the loss inflicted

was the purchase of a business which was losing

money. Now, clearly, if by misrepresentation,

negligent or fraudulent or warranty, one induces
a person to buy a business and the business is
losing money, one could obviously look at continuing

losses of that business. There may come a time when

one has to look at questions of mitigation for

non-disposal of it but it quite different to

inflicting a single financial loss. It is,

of necessity, a continuing situation, quite

distinct from this case where a once and for all

specific financial loss is inflicted.

It is that that distinguishes this case, we

submit, from all these other cases. SOUTH AUSTRALIA V

JOHNSON was a case, as was pointed out at page 175,

where the case was said not to be of general

application,. it did turn on very specific

facts. ARCHER V BROWN was a case of fraud and

the courts have always applied special principles

in the case of fraud and, we would submit that is

not of assistance in the present case. The same

applies to the section 52 cases because in the section 52 cases the Federal Court has adopted the rule that the measure of damages is the fraud

measure of damages and that position was adopted

fairly early and has been applied with some

consistency although not universally.

It is interesting that in attempting to deal

with the problem under section 52 there are
differences on the Federal Court and the problem

has not been totally resolved but, of course, again,

in most of those cases a person acquires a business

or something of that sort and therefore the real

issue concerns the continuing losses of the business

for a period. We would submit that those cases do

not really assist Your Honours in relation to the

present problem.

Now, turning to my friend's submissions about

the corporate veil, in relation to the facts my

friend took Your Honours through the preamble to

the deed. The only matters I would remind

Your Honours of in relation to that deed are that

it contains recitals showing that although they

were bound to keep the present structure, the

structure as recited was that the named partners

were directors and shareholders and were among

the beneficiaries, it did not say they were

AlTl/4/MB	91	24/8/88
Hungerfords(2)

all the beneficiaries and, of course, we know that
they were not from the evidence that was given.

It was that structure which they were prohibited from changing. So it is a structure in which they are not - and that deed does not suggest that they

are - the whole of the beneficial interest. As I

say we still do not know if those trust deeds -

we know the head trust deed is a unit trust as between the families but we do not know if the

individual trust deeds are unit trusts or discretionary

trusts.

In relation to the submission concerning the debt remaining at the time, the evidence was, from

page 166, that the actual transfer of the business

from the partnership to the company was done not

by deed but by entry in a minute book. The evidence

about what took place on the transfer is the

evidence of Mr Whitbread at 168 line 25 where he

said that what happened was all the assets including

Mutual Acceptance liability was taken over. Now,

it is true, as my learned friend has said, that

the partners continued to be personally liable

and they guaranteed the company's obligation and

they continued to be liable for the debt.	The
phrase used was "as principals".	But that is

quite irrelevant, with respect. There is no
suggestion they paid it or were ever called upon

to pay it. There is no suggestion that the company

ever defaulted.

The evidence says that the company continued

to carry on the business and, we would submit
for all practical purposes, as between the

individuals and the company, it was the company

clearly that was primarily liable for the debt,

having taken over the assets and liabilities. That

must follows from that evidence. Certainly as

between Mutual Acceptance and the partners it	could sue them directly if it wished, but that	is not, we would submit, to the point. In any
event, as I have submitted, it does not matter
very much what happened to the Mutual Acceptance debt because the issue on which this case was
decided, both by Mr Justice Bollen:and by the
Full Court, was whether the money would have earned
the higher rate in the business not whether it
would have been paid to Mutual Acceptance.

Now, my friend referred to four cases on

corporate veil. I will not take Your Honours to

all of them again except to remind Your Honours

that in MALYON's case, that was the widow and

the one man company, there was no need for any

corporate veil to be lifted there.	Her husband
had been killed.	She was entitled to the loss

AlTl/5/MB	92	24/8/88
Hungerfords(2)

she had suffered in consequence of that. That

loss included a loss of receipts from the one man

company. It would not have mattered if it was

an outside employer who was paying the salary

directly to her. There was no corporate veil to

be lifted there, it is simply what her loss was. that was at the material time a case with only one shareholder. The ESSO case, we would submit

in relation to that issue, the issue of corporate

veil,is not correctly decided. It is a case where

the Court of Appeal said that it would ignore the
fact that there was a wife who was a co-shareholder

and simply allow the husband to claim all the

losses made by the company,consequent upon

representations to him.

Now, the problem might have been solved if the

company had been joined as a plaintiff and that
representations could have been shown to be made

to him as agent of the company. It might have

been solved if he had simply claimed his dividend

loss from the company. But the way the Court of

Appeal dealt with it, we respectfully submit,

cannot be justified on the authorities, and

Lord Denning's remarks about lifting the corporate

veil in that case have not been applied, we would

submit, in other cases where there is not a one man

company in every sense of the word.

Your Honour Mr Justice Deane put yesterday, in argument, the suggestion that the appropriate

course for this Court to take, bearing in mind

the difficulties of the factual situation, was

simply to adopt what the Full Court had said on

the figures, with the 27 per cent discount. We would make the submission that the Full Court's reasoning on that area is flawed by the submission

we have made, that there is simply a non sequitur

in saying the company was necessarily earning at

the highest interest rate it was paying and,

therefore, that it would have made on the small

additional sums, on every cent of them, that

amount of interest.

We would submit that the reasoning which

I took Your Honours to in Mr Justice Bollen's judgment is so cogent and so clearly correct that

we would submit that the appropriate course for

the Court to take is to say that is the conclusion

which should be reached on that area.

DEANE J:  What I intended to put to you was that when

one properly understands what is involved here

there is no question at all of lifting the

corporate veil in that all that is involved is

an assessment of the damage sustained by the

AlTl/6/MB	93	24/8/88
Hungerfords(2)

personal plaintiffs and that in that context

it is not really appropriate for us to get

involved in what ultimately comes down to a

lot of factual matters, if one reaches that

view?

MR BENNETT:  Yes. But, Your Honour, that is far closer

to the approach taken by the trial judge. The

trial judge allowed a discount at each of the

three stages, in a sense: (a) the question of

what money would have been left in the partnership;
(b) the question of what the partnership would

have made from it and then there is the third

stage for which no discount was made, as to what

happens after 1982. We say it is mathematically

demonstrable that a large part of what was ordered

to be paid was after 1982 - that is certainly more

than 27 per cent - that each of the first two

factors, particularly the second, require a very
substantial discount and that the second factor

is adequately satisfied by a 10 per cent return.

Really, what the trial judge did,ultimately,

was to make no deduction for the first factor,
come to, say, 10 per cent return was a fair approach

on the second factor and he made no deduction for

the third factor. W:: are prepared accept that if
the other parts remain.

To that extent we say the conclusion from that line of reasoning is to take Mr Justice Bollen's

approach rather than the Full Court's approach.

MASON CJ:  That may be so, Mr Bennett, but the real question

is whether or not the Court ought to give

consideration to rescinding the grant of

leave in so far as it permits you to raise this

matter, that is, confining the grant of leave so

as to exclude the corporate veil point. Discussion

seems now to indicate that perhaps the argument

on this aspect of the case does not really raise
some	question of general principle and there

is no doubt at the time the special leave application

was presented and granted it was thought to raise

the question of general principle. Now, with the

benefit of hindsight, it really seems to depend on a

rather massy factual situation, in other words,

a situation which ordinarily would not attract

the grant of special leave. It would follow,

of course - and perhaps we ought to give Mr Gray

the opportunity of saying something about it - that

if the grant of special leave was confined in that

way it would not be appropriate to grant the

respondent special leave in relation to the

matter that the respondent seeks to raise by way

of cross appeal.

AlTl/7/MB	94	24/8/88
Hungerfords(2)
MR BENNETT:	Yes, I follow that, Your Honour.	Your Honour,

my submission is that if that were to be done,

the exclusion would not extend to the corporate

veil point. The corporate veil point is quite

separate from my third point in the five in the

outline of submissions. The point about how much

would have been paid by the partners to the company

and how much by the company, how much return the

company would have made, are factual issues -

although the way they have been dealt with before

this Court, fairly short factual issues. They

do not have general application but, we submit,

the rest of the matter being here there is no

reason not to deal with them if the Court is

satisfied of the flaw in the reasoning which has

already been fully argued before Your Honours.

There is nothing more I want to say about that.

But in relation to the corporate veil point, that

is quite severable from that and that does raise

a question of principle because the question of

principle is, put very simply, is ESSO right on

that issue? Can one say where damages are

suffered as a result of a wrong done to an individual

by his family company in which he and his children

have some ultimate beneficial interest, is the

court entitled, without investigating the precise

returns each would have got, to say, "Well, we

will treat the family unit as one and give him

damages at 100 per cent on that basis", as was

done with the wife in ESSO and as was done with

the children in this case.

We submit that is a question of importance

and it is a very short question. The fact that there

have been a number of recent cases on the corporate

veil issue, although one man company cases, makes

this a very appropriate case to deal with that

because the one man company case is not an appropriate

case to deal with that problem and this case, we

would submit, is. If the law is as clear as

we submit it is, that one simply cannot lift a

corporate veil in that sort of case, then there is

a Court of Appeal decision which this Court would

be departing from and that, we submit, is a matter

of importance.

For that reason we submit, first, that special

leave would not be rescinded at all but if it is,

it would only be on that first issue and not on the

corporate veil issue.	Your Honours, there is very
little more I need to deal with.	My learned friend

refers to the advice given by my clients in relation

to the incorporation of a company. We would submit

that that simply is an irrelevant consideration

on the issue of damages, very obviously. My

friend referred to the absence of any challenge to

the question of payment of all funds into the

AlTl/8/MB	95	24/8/88
Hungerfords(2)

company. We only remind Your Honours of one passage.

That is at pages 207 and 208, particularly 208,

where Mr Perry put to Mr Michael Walker, I think it

was:

We'd assumed from that you left your current

account in credit to the extent of a share of

profits that you didn't draw so that there

was a source of funds available there to pay

your tax.

A.	Could you explain that?
Q.	Are we to understand from your last answer

that you left your share -0f profits to be

credited to your current account, partnership,

so that a source of funds was available from

which to pay your tax.

A. Yes.

So what he said is, "I left my share of profits

in so as to provide a fund to pay the tax." That

rather suggests that if the tax had been less, or

anticipated as less, more might have been drawn.

So, we would submit, there was to that extent

challenge to the overall proposition. But, really,

the challenge to the proposition is not so much

evidence as common sense, and that was set out

very fully in the passage which I read to Your Honours

from Mr Justice Bollen's judgment.	May it please
the Court.

MASON CJ:  Thank you, Mr Bennett. Mr Gray, do you want

to say anything about the matter I raised with

Mr BennettZ The matter was raised with you more

indirectly, perhaps, by Justice Deane yesterday afternoon.

MR GRAY:  Yes. If Your Honour the Chief Justice pleases,

the way we see it is that the cross appeal does

touch directly on the broad brush reduction
by the Full Court at 25 per cent.	The way my

friend has put his argument,· the lifting of the
corporate veil point has, in a sense, touched

that area when he deals with just the later losses

and links that back to a broad brush approach.

We accept that the cross appeal is essential on a fact

and viewed in that light if the Court were to

rescind special leave on the corporate veil point

and that the only point going on for consideration

was the primary question of law about interest

and IA PINTADA, then that would be a very relevant

factor in regard to our cross appeal.

MASON CJ:  Thank you. The Court will consider it decision

in this matter.

AT 10.27 AM THE MATTER WAS ADJOURNED SINE DIE

AlTl/9/MB	96	24/8/88
Hungerfords(2)