Kation Pty Ltd & Anor v Lamru Pty Ltd & Anor

[2010] HCATrans 142

[2010] HCATrans 142

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S13 of 2010

B e t w e e n -

KATION PTY LTD ACN 001 959 799

First Applicant

PETER LAWRENCE LEWIS

Second Applicant

and

LAMRU PTY LTD ACN 052 117 923

First Respondent

NORTEX PTY LIMITED (IN LIQUIDATION) ACN 002 903 362

Second Respondent

Application for special leave to appeal

FRENCH CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 28 MAY 2010, AT 10.36 AM

Copyright in the High Court of Australia

MR T.S. HALE, SC:   If the Court pleases, I appear with my learned friend, MR J. BAIRD, for the applicant.  (instructed by Kemp Strang Lawyers)

MR S.J. MOBEY:   May it please the Court, I appear for the first respondent.  (Lyons & Lyons Solicitors & Attorneys)

MR V.R.W. GRAY:   May it please the Court, I appear for the second respondent.  (Somerset Ryckmans)

FRENCH CJ:   Yes, Mr Hale.

MR HALE:   Your Honours, in this application two questions arise for special leave.  The first is whether the interests of the administration of justice require consideration of the prejudice to the applicant arising from the unintended consequence of an order made on the second day of a long trial.

FRENCH CJ:   To which he consented.

MR HALE:   Yes. 

HAYNE J:   The point is whether, after more than 100 days of trial, the court should intervene to remedy what you say is the consequence of the separation of issues then agreed?

MR HALE:   Yes, and in circumstances in which the order for separation has also to be understood in the circumstances of the rulings or indications that the trial judge made at the time, which I wish to come to in a moment, which in substance were these; that the determination of the quantum of the Mark Lewis bonus was to be determined at a later time and that was likely to be the result of perhaps even an inquiry and unless and until that could be done, he, the primary judge, was not in a position to determine what damages, if any, would flow from any breach of trust and, therefore, he took the view – and I will need to take your Honours to the transcript references – that if there was to be inquiry, all that needed to be done was to establish that there was sufficient to warrant an inquiry.

Is it convenient, perhaps, to identify – and I am sure your Honours will stop me if I am repeating something that is quite apparent – but the central points relevant to the determination of the bonus issues were, firstly, that in the company’s accounts, that is to say, Nortex, there were credits standing to the account of Mark Lewis for the bonuses under challenge.

FRENCH CJ:   There were distinctions between the 1995 payment and the 1996 and 1997 payments.

MR HALE:   There were.

FRENCH CJ:   There was an adjustment of accounts for the first, but the judge declined to do that for the second two because Lewis was not a party, is that ‑ ‑ ‑

MR HALE:   That is partly it, but perhaps I can go to this and if I can just follow through.  What also was occurring was that Mark Lewis had lodged a proof of debt in respect of the unpaid credit balance on his loan account which included the bonuses credited to his account.

HAYNE J:   What had happened to that proof?

MR HALE:   That proof was the subject of a compromise or an intended compromise which was also listed for hearing on the same day, which motion is at document number one in the supplementary application book.  Relevant to that, as your Honours will see, was that there was to be evidence led by the liquidator.  If your Honours go to page 1, your Honours will see the notice of motion.  Relevant to that was evidence going to justify that particular compromise, that is to say, which went to reasonable remuneration. 

Also, of course, Lamru claims that the credits were made in breach of trust and that Mr Lewis and Mark Lewis were liable to indemnify Nortex and, therefore, the extent of Mr Lewis’s liability to indemnify the company in respect of the credits could only be for so much of the bonuses to which Mark Lewis was not entitled and this marked the extent of the company’s loss and Mr Lewis’s liability.  So that aspect in the determination of the proof of debt was centrally relevant, as it were, to the final determination.  Now, as your Honours have already seen, the issue ‑ ‑ ‑

HAYNE J:   I would have thought that the centrality of the administration in liquidation of this company was rather swamped in the course of this litigation and swamped to the detriment of the orderly conduct of the litigation perhaps, but do go on.

MR HALE:   Yes.  The proposition I wish to establish is, firstly, how the trial was conducted having regard to certain rulings of the primary judge, that is to say, that this issue of the determination of bonuses would not be determined until the conclusion of the proceedings and, therefore, it was not available to the primary judge at this point to establish what Mr Lewis’ indebtedness was, if any.  Your Honours have seen at page 7 of the supplementary application book is where his Honour on the second day – and if I might make reference to the line numbers in the original transcript –  where at line 36 his Honour raised the question of a separate trial which your Honour has seen was subsequently made.

Then if we go to page 36 of the supplementary application book, we will see that at day 45 of the trial – and it should be said there were many other issues being determined, this is but one – there was then a consideration by Mr Somerset, appearing for the liquidator, about the indebtedness or the entitlement of Mr Mark Lewis, and the figure at line 43 of 58,000 is reference to that.  Your Honours will see at the next page, page 37, beginning, in particular, from about line 6, the counsel then appearing for the applicant referred to the difficulties of remuneration.  Then your Honours will see at lines 31 to 36 the trial judge recognised the difficulty in relation to determining damages:

But in any event these subsequent matters all go to the damage, if any, that is suffered through any breach of trust that is established.

That is to say, those amounts are relevant.  Then Mr Cotman, at line 42, refers to the “striking of accounts”.  Over the page his Honour ‑ ‑ ‑

HAYNE J:   There is frequent reference in this part of the material to the amount at stake being in the order of 58,000.  Does that sufficiently capture the amount at stake?

MR HALE:   No.

HAYNE J:   How much was at stake?

MR HALE:   There were three, 58,000 ‑ ‑ ‑

FRENCH CJ:   That was the 1995 balance?

MR HALE:   That was the 1995, so there were another two years and the 58,000 was the sum in which the respondent, that is to say, Lamru, contended was the proportion of the bonus to which it was entitled.

FRENCH CJ:   Can you remind us of the other two sums?

MR HALE:   The other two sums are 101,000 for 1996 and about 130 for 1997.  I can pick those up in the pleadings if ‑ ‑ ‑

HAYNE J:   About 300 all told?

MR HALE:   Yes.  What his Honour is dealing with on page 38, between lines 8 and 22, his Honour is recognising the necessity for the liquidator’s determination and he is there referring to, as your Honours will see, between 19 and 22, a reference, perhaps, to the Master to make a determination as to proper remuneration.  His Honour then, at lines 32 and 38, recognises there must be some evidence as would warrant the referral of the matter for an inquiry, and we see that again at line 43.  Then on page 39 his Honour says, at the bottom of page 39, having considered all of these matters, he says at line 44:

I must know what the liquidator has done or is doing about these things to guide what the final result may be or the outcome may be of the questions that I do have to determine.

Then he goes on, on page 40 of the supplementary application book because a recognition as he says at line 5 to six –

in the case of the 58,070 is interesting because it would make the damages go away altogether.

Similarly at line 16 about the final entitlements and the “impact on whether or not they in fact suffer any loss.”  At line 33 the discussion of an intermediate result.  He then, at page 41 between lines 24 and line 31, refers to counsel for Lamru, the fact that until this reasonable remuneration is determined, it is not – what he is saying, if part of the remuneration is determined to be reasonable, you cannot get relief in respect of that, using the example of the 70,000 at line 30.  Now that then led to, on page 42, on day 47, from about lines 37 to 41, the reference to the affidavit of Mr Frost, which was dealing with the remuneration evidence.  Then your Honours can see at page 43 at lines 36 to 38 where his Honour says in relation to the solicitor for the liquidator:

why is this relevant?  One thing that I won’t be embarking on is a determination of how much.

So he is not going to go ahead and deal with that.  As a consequence of that, if your Honours go to page 44 at the bottom, the last couple of lines at 44 over to page 45, exhibits are removed.  Then at page 46 from about line 44 Mr Silvia, who is the liquidator, is being cross‑examined and Mr Cotman asks certain questions and there is an objection and at page 47 at line 18 Mr Cotman explains why he is asking these questions, in order, which is, to justify an inquiry:

Only that it is not a matter de minimus.  I’m not trying to nail this down to dollars and cents because I know we can’t do that.

So what his Honour then does is takes over the question and asks the question, which is at 28 to 36, which is to establish there is a case about this remuneration.  Then his Honour says at line 38 “I think that is as far as it can go.”  Then your Honours see Mr Cotman’s comments.  Now, from that point on there is no evidence led as to reasonable remuneration.  Then if your Honours go to the main application book and the third judgment – I think it is application book page 215.  If your Honours go to paragraph 6.  This is when an application has been made to have the Mark Lewis payments determined.  Your Honours see in paragraph 6:

However, in relation to the question of the Mark Lewis payments and the order that ought be made, in the course of trial evidence was not received as to the value of Mark Lewis’ services to the company, which is said to exceed the remuneration that he was actually paid (other than the disputed bonuses).

Then at paragraph 7 there is reference to cross examination.  Now, as your Honours have seen, that was because of the way in which the trial judge had determined that this issue would be dealt with.  There would only be such evidence as to warrant an inquiry and it would go no further because there would then be an ultimate inquiry to determine the amounts which would ultimately lead to the striking of the loan accounts.  It was consistent with that that the applicant – going back to the supplementary application book at page 69, paragraph 19 – immediately after the first judgment in its short minutes of order sought to give effect as to what it understood was going to be occurring, namely, the “re‑list the Liquidator’s Notice of Motion”, whereas your Honours have heard that the two issues began together because they were interrelated for the reasons I have already identified.  The only reason for the liquidator being there was in order that he might lead evidence going to justify the motion.

Now, what we submit and your Honours have read our submissions, is that while the order for separate trial undoubtedly was by consent, nonetheless, it was not something that perhaps should have been given the detailed consideration it should so far as the ramifications were concerned.

HAYNE J:   Albeit it so, why should this Court intervene at this stage of such an unduly prolonged litigious process in respect of an amount of what order of magnitude?

MR HALE:   Well, I think with interest, I am told, it is almost a million dollars.  The reason is that because – and we put it fairly and squarely on the particular section of the Judiciary Act – of the impact this decision had and, particularly having regard to the rulings that immediate followed, that the applicant conducted a case on the basis which the trial judge had indicated it should be and undoubtedly in the passage of time with all the other rulings, it was somehow forgotten, but the applicant had always taken the view that what was involved was that these matters for the striking of the loan accounts would occur at a later stage.  Now the reason, to answer your Honour Justice Hayne’s question, because, we would say, the inherent injustice of what has occurred and, yes, it is a long trial, but long trials, as your Honour would know, are productive of very large amounts of costs.

HAYNE J:   Exactly so.  Large trials are productive of enormous costs and litigation of this kind concerning the events of the mid‑1990s I think?

MR HALE:   Yes.  What ultimately we ask and the relief we sought in the Court of Appeal, as we seek here, as was sought before the primary judge, was that the judgment be set aside and the inquiry take place that the primary judge indicated was likely to take place as to the striking of the loan accounts and only after that, there be the final determination of the amounts that are owing.  Because the consequence at the moment, of course, is if it be the case that Mark Lewis is entitled to, or at least his appeal succeeds, the loan accounts will effectively be rewritten and the applicants will ultimately be paying damages in relation to loan accounts that, in fact, do not reflect the true position.

FRENCH CJ:   The Court of Appeal examined the course of proceedings below and I think at 341, paragraph 99, came to the conclusion that:

it does not appear that either party proceeded on the basis that the bonuses issue should not be determined with respect to the claims against Kation and Mr Peter Lewis.

Now, essentially what you are asking us to do is to conclude from our examination of the record that the Court of Appeal was wrong in that conclusion.

MR HALE:   In truth, yes, and the reason is, amongst other things, going from paragraph ‑ ‑ ‑

HAYNE J:   You seek to have us do that by pointing to the loan account or by pointing to transactions concerning not these parties, but someone not a party to the litigation, Mark Lewis, is that right?

MR HALE:   Well, he was a party to the proceedings, but, yes ‑ ‑ ‑

HAYNE J:   But he is not a party to this application?

MR HALE:   No, but we are not ultimately asking this Court to, as it were, rewrite the loan accounts, rather, that the matter be referred ultimately to the Supreme Court for that determination by a Master, as the primary judge had in mind, certainly at about the time of days 46 and 47. 

Going back to the Court of Appeal, the references, particularly at page 341, as your Honour will see at paragraph 99 in the second sentence, the basis of the view about the agreement as to the course the trial would take was revealed in the second sentence:

Somewhat ironically, a dispute with respect to the admission of evidence arose –

et cetera.  Now, as I have already earlier indicated, that was for the reasons in the transcript in order to determine that there was an issue which would warrant the reference of the question to a Master or some further inquiry.

FRENCH CJ:   I think your time is up, Mr Hale.

MR HALE:   As the Court pleases

FRENCH CJ:   We will not need to hear from the respondents.

In our opinion, this application does not raise any question of general principle nor warrants the intervention of this Court having regard to the Court of Appeal’s characterisation of the proceedings at first instance.  This Court also has regard to the already extraordinarily protracted character of these proceedings and sees no reason to add to it.  Special leave will be refused with costs.

We will adjourn now to reconstitute.

AT 10.58 AM THE MATTER WAS CONCLUDED