Kerry Lowe Management Pty Limited v Isherwood

[1990] HCATrans 164

ltl/Jt -!) 1,~USTRALIA,1~ --~y,_,__~ ......

IN THE HIGH COURT OF AUSTRALIA

Off ice of _the Registry

Sydney No S34 of 1990

B e t w e e n -

KERRY LOWE MANAGEMENT PTY

LIMITED

Applicant

and

PAUL ISHERWOOD and ANTHONY

SHERLOCK

First Respondents

EOUITICORP AUSTRALIA LIMITED,

BILL ACCEPTANCE CORPORATION

LIMITED and UCL FINANCE LIMITED

Second Respondents

Application for special

leave to appeal

MASON CJ
TOOHEY J

MCHUGH J

Kerry 1 6/8/90

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 6 AUGUST 1990, AT 3.07 PM

Copyright in the High Court of Australia

MR M.TOBIAS, OC:  If the Court pleases, I appear with my

learned friend, MR D. ROBINSON, for the applicant.

(instructed by Messrs Freehill Hollingdale & Page)

MR B.R. MCCLINTOCK: If the Court pleases, I appear for the

first and second respondents. (instructed by

Messrs Clayton Utz)

MR TOBIAS:  Your Honours, the point in this application is a

short but important one in terms of its public

importance. It relates to the circumstances in

which an appointment of receivers and managers -

joint and several receivers and managers - is valid

in circumstances where the deed of charge, pursuant

to which the appointment is made, permits only of a

joint appointment.

The decision of the Court of Appeal, we would

be submitting, is inconsistent with two decisions
of single judges: one, Mr Justice Davies of the

Federal Court in relation to the decision of wood;

and that of Mr Justice Franklin of the Supreme

Court of Western Australia in relation to the

Wrights Hardware case. The only differences

between those cases on the one hand and the present

case relates to the actual form of the appointment.

The form of the appointment in the present

case is conveniently to be found at page 87,

lines 15 to 25. What it sought to do was to appoint

the first respondents to be joint receivers and

managers and each of them to be several receivers

and managers. In the two decisions to which I have

made reference, the form of the appointment was to

appoint the particular defendants jointly and

severally to be receivers and managers.

The point of distinction raised by

Mr Justice Priestley was that in relation to the

present case there were two distinct appointments:

one as joint receivers and managers and one as

several receivers and managers.

McHUGH J: Was there an equivalent of clause 26.15 in the

other cases?

MR TOBIAS:  No.

McHUGH J: Well, that is a fairly fundamental point, is it

not?

MR TOBIAS:  No, Your Honour, because although

Mr Justice Brownie relied on 26.15 the Court of

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Appeal did not, in our respectful submission, nor

could they. If Your Honours go to 26.15, which is

at page 79, which is the severance provision to

which Your Honour Mr Justice McHugh is referring,

it says:

If any term or condition of this charge or the

application thereof to any person or

circumstance is or becomes void or voidable or

otherwise unenforceable it shall be severed

and the remaining terms and conditions shall

not be affected.

Now, Your Honour, in our respectful

submission, that cannot have any application, in
our submission, to a quite separate deed of
appointment. What Mr Justice Priestley sought to

do, although he does not use the term "severance"

was to say, "Well, there was a valid and an invalid

appointment under the same provision. I can sever

the invalid part and accept the valid part". That

is not quite the way His Honour put it in the

judgment, particularly at the bottom of page 16 and

the top of page 17.

In fact there are only two parts of the

judgment when this issue arises; if I can go back a

page to 15? It firstly arises at 15, just before

line 40:

The deed by which the Receivers were appointed

separated the joint and several appointments
in a way which in my opinion calls for the

conclusion that if the power of appointment was only that of appointing one receiver or

joint receivers, then the deed of appointment

succeeded in achieving the latter; and that

the further purported appointment of the

Receivers as several Receivers effected

nothing and should simply be disregarded.

Come back to the same point, at the bottom of

page 16, when dealing with proposition (iii) in the

judgment of Mr Justice Davies in Wrights Hardware -

proposition (iii) is at line 25:

the appointment to act as receivers and

managers jointly and severally was different

in substance and effect from an appointment of

them to act jointly.

A proposition which, in our submission, is clearly

correct. He then says, at the bottom of page 16,

that proposition:

Kerry 6/8/90

may well be applicable to a case where the

deed of appointment is to be construed as

showing that the appointment was of receivers

and managers jointly and severally or not at

all, but in a case such as the present, where

the appointment in my opinion purported to

effect distinct appointments ..... as

joint ..... and then of each of them as several

managers, the proposition can have no

operation.

Now, in our respectful submission, the

appointments in question were appointment of the

first respondents as joint receivers and managers

and an appointment of each of them as several.	An
appointment which, in terms - terms the same as

that in the cases to which I have referred - was of

X and Y as receivers to act jointly and severally

is equally an appointment of each of them jointly

and an appointment of each of them severally.

It is a distinction without a difference, in

our respectful submission, to suggest that the form
of words adopted by the draftsman in the present

case indicated any difference than if they had in

fact used the time-honoured phrase of appointing X

and Y jointly and severally.

McHUGH J: Well, what about clause 26.15. Does not it say:

If any term ..... or the application thereof to

any person ..... becomes void voidable or

otherwise unenforceable it shall be severed -

MR TOBIAS: But, Your Honour, that means the term will

be - - -

MCHUGH J: No, it does not - - -

MR TOBIAS: - - - or condition is to be severed.

McHUGH J:  - - - it is the "it", that is the application.

If any term or condition ••••• or the

application -

So, you read it, "If the application of any term or

condition becomes void or otherwise unenforceable it

shall be severed". Why does not the "it" there

refer to the application?

MR TOBIAS: Well, except if Your Honour then reads on:

Kerry 6/8/90

and the remaining terms and conditions shall

not be affected.

McHUGH J: Well, that is right, they are not affected.

MR TOBIAS: It does not say, "Terms, conditions or

applications shall not be affected".

MCHUGH J: Yes.

MR TOBIAS: But, Your Honour, in our respectful submission,

there was no - - -

McHUGH J:  But your argument would lead to the view that the

words, "or the application of it thereof to any

person", has got no effect.

MR TOBIAS:  No, Your Honour, that would depend on the term

and condition. The relevant term or condition in

the present case is the one that is set out at

page 61 which, in certain circumstances, gave the

mortgagee the power to appoint any person to be a

receiver. Now, in our respectful submission, that

provision applied to the mortgagee but, in our

submission, it would a strange reading of

clause 26.15 to say that the deed of appointment

that was entered into by the mortgagee constituted

an application of condition 6 to the first

respondents. Certainly it was the exercise of the

power to which - - -

McHUGH J: But 26.15 may not exhibit the highest form of the

draftsman's art.

MR TOBIAS:  No.

McHUGH J: But why does it not, on its natural reading, have

this effect: that you say clause 6 of the deed, in

so far as it appoints each of these persons to be

several receivers and manager is void or otherwise

unenforceable and it is to be severed?

MR TOBIAS: Well, I understand what Your Honour is putting

but, in our respectful - - -

McHUGH J:  It only means then all you have got to say is,

"and the application of the remaining terms". That
last clause upon which you place stress cannot be

read literally. The remaining terms and conditions

cannot be affected. It is the application of them,

is it not?

MR TOBIAS:  No, Your Honour, because if one goes back to the

first line of 26.15, as Your Honour pointed out to

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me, it contemplates a situation when either a term

or a condition or an application of a term or
condition is void or unenforceable. So, the term

itself is unenforceable and what the provision then

says if the term or condition is unenforceable,

that is a provision of the document, then the

balance of the terms and conditions stand even

though the invalid one is severed. But, in our respectful submission, it does not say that the

words "application thereof to any person" cannot

include the execution of a deed of appointment

which is quite a separate act. When it is looking

at "application thereof to any person" it is

looking at the reference to the term or condition

and its application to the person, in this case,

the power, for instance, that it gives to the

mortgagee.

So, what the provision is relating to, in our submission, is that the application of clause 6 to

the mortgagee, if that was invalid, then its

application, assuming it applied to other persons,

could be severed. But, in our submission, it does
not go so far, either the matter of literal

construction or otherwise, to say that the deed of

appointment constitutes an application of clause 6

to the first respondents because what clause 26.15

is looking to, in our submission, is the

application of the term or condition to a person -

where the terms or condition itself is applicable

to a person, for instance, referred to in it, in

this case, the giving of the mortgagee of power to

appoint a receiver.

We would respectfully submit that although

Mr Justice Brownie relied on 26.15,
Mr Justice Priestley in the Court of Appeal did not

and, in our submission, rightly so. Now, if that

be the case and 26.15 plays no part in this

exercise then, in our submission, there is no

distinction of substance between this case and the

two first instance decisions to which I have

referred.

The result is therefore as follows: firstly,

that we have what might be referred to as a not

uncommon form of appointment of joint and several

receivers and managers, the validity of which is in

issue and which will arise again in this area of

commerce. Secondly, and most importantly, we have

this decision in which, in our submission, an
attempt is made to distinguish the first instance

cases in circumstances which, in our submission,

are erroneous with the result that there is an

Kerry 6 6/8/90

apparent conflict between the opinion of the Court
of Appeal on the one hand and the Federal Court and

the Supreme Court of Western Australia on the other

in an important area of the administration of the

laws of receivers and managers which this Court

ought to resolve.

McHUGH J: But it is only a case for the application of the

common law rules of severance, is it not?

MR TOBIAS:	No, Your Honour.
MASON CJ:	Why not?

MR TOBIAS: Because, Your Honour, we would respectfully

submit, leaving aside 26.15, that there was no

severance - although His Honour found severance

here, although he does not describe it as such,

that argument was rejected in Wrights Hardware and

in Wood's case.

McHUGH J: That probably means they are wrong.

MR- TOBIAS: Well, Your Honour, the fact is there is then a

conflict between those cases which stand and the

Court of Appeal's decision which erroneously sought

to distinguish them.

MASON CJ: Well, the Court of Appeal is likely to be

followed in the future rather than the decisions at

first instance.

MR TOBIAS: With respect, not, because the Court of Appeal

did not seek to pass on the correctness of Wood

and Wrigh~s Hardware.

MASON CJ: But why should we be concerned about these

decisions at first instance?

MR TOBIAS: Because, Your Honour, there now exists a

situation when the law in relation to the validity

of appointments of receivers and managers where the

deed permitting the appointment only permits of a

joint appointment but where the appointment

purports to be joint and several is confused;

confused to the point that only last Tuesday

Mr Justice Gyles of the Commercial Division of the Supreme Court reserved on practically an identical

issue.

MASON CJ: But henceforth, surely, people who are appointing

receivers and managers under a deed such as this

are going to follow the Court of Appeal precedent

if we refuse special leave in this case.

Kerry	6/8/90
MR TOBIAS:	Upon the basis that that distinction is

sufficient for their purpose?

McHUGH J:  On the basis that you have now got - the

important point is that all decisions say that they

can only be appointed jointly?

MR TOBIAS: Correct.

McHUGH J: Well, any solicitor now that draws up a document

which purports to appoint them jointly and

severally - - -

MASON CJ:	- - - deserves his fate.
McHUGH J:	You have now got three decisions.
MR TOBIAS:	But he will then say, "Well, I've got a choice.

I can do it the way in Wood and Wright and suffer

the consequence or I can do it the way of this case

and get away with it" in circumstances, in our

submission, where the point of distinction adopted

by the Court of Appeal is just semantic and does

not involve any distinction in substance at all.

In any case of the appointment of a joint and

several receiver, there is clearly an appointment

of the two - if it is two - persons jointly and

each of them severally whichever way you put it

into the document.

McHUGH J:  The blue-pencil rule can apply, you do not have

to have any form of distributive severance.

MR TOBIAS:  We would submit not, Your Honour, and that is

the very point of the two first instance decisions

because that argument was put in those cases and

rejected, that you cannot just blue-pencil and take

out the one that is invalid and continue with the

one that is valid.

McHUGH J:  Why?

MR TOBIAS:  That is the very arguments that were rejected in

that case.

McHUGH J:	On what basis?
MR TOBIAS:	We would submit that the proper basis is that

where, in the case of the appointment of receivers
and managers it is trite law that the appointment

must be made strictly in accordance with the terms

in which it is couched. It is important, the

appointment of a receiver, to permit a mortgagee to

Kerry 6/8/90

take possession of property of the mortgagor against the mortgagor's will in a consensual

situation such as this or, for that matter, even in

a court appointed receiver and manager situation.

It is a very significant act and one which the law

requires to be carried out strictly and to the

letter of the enabling power.

McHUGH J:· Well, your argument comes to this, that there is

no room for any common law severance rule in

respect of the appointment of receivers and

managers?

MR TOBIAS:  No, in our submission, not. If that is so then

Your Honour would then be able to apply, in the

other case which is referred to, that is

Mr Justice Owen's decision in Meggitt where the

power was to appoint a receiver and manager and the

appointment was only of a receiver.

McHUGH J: There is a world of difference between the two

cases. I do not see any comparability.

MR· TOBIAS: Well, Your Honour, in our submission, one could

say, "Well, you've done it half-way, that's good

enough", but - - -

McHUGH J: Appointing somebody as a receiver when the only

appointment is as a receiver and manager are very

different. They are two very different concepts.

MR TOBIAS: But, Your Honour, it is also a totally different

concept between a joint and a several appointment

but when they are rolled up as they are and when
the power is to only appoint a joint receiver then

it is our submission the whole appointment to the

office falls because one cannot distinguish between
the appointment of the individual to the office and
the powers with which he is invested either to act

alone or to act jointly. And if that is so, in our

respectful submission, then there is really no room

in this particular area of the law for the blue-

pencil rule. It would lead, in our submission, to administrative problems in terms of what a receiver	and manager or receivers and managers can or cannot
do which, in our submission, would not assist in
the administration of this area of the law of
commerce.

For those reasons, Your Honours, we would

submit that a point of general importance in this

area does arise, that the judgment of the Court of

Appeal in the manner in which they sought to

distinguish the two cases to which I have referred

Kerry 9 6/8/90

is erroneous and that this Court should resurrect

the law as is set out in those two cases.

MASON CJ:  Thank you, Mr Tobias. The Court need not trouble

you, Mr McClintock.

The Court is of opinion that the decision of t~e Court of Appeal is not attended with sufficient

doubt to justify the grant of special leave to

appeal. The application is therefore refused.

MR MCCLINTOCK: Costs, Your Honour?

MASON CJ:	You do not oppose an order for costs, Mr Tobias?
MR TOBIAS:	No, Your Honour.
MASON CJ:	The application is refused with costs.

AT 3.26 PM THE MATTER WAS ADJOURNED SINE DIE

Kerry 10 6/8/90