Keydata Corporation Limited v Burencar Pty Limited (In Liquidation)

[1992] HCATrans 356

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S96 of 1992

B e t w e e n -

KEYDATA CORPORATION LIMITED

Applicant

and

BURENCAR PTY LIMITED (IN

LIQUIDATION)

Respondent

Application for special leave

to appeal

MASON CJ
DEANE J

GAUDRON J

Keydata 1 10/12/92

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON THURSDAY, 10 DECEMBER 1992, AT 9.30 AM

Copyright in the High Court of Australia

MR P.R. HAYES, QC:  May it please the Court, I appear with

MR H.K. INSALL for the applicant. (instructed by

Baker & McKenzie)

MR R.A. CONTI, QC:  May it please Your Honours, I appear

with MR M.B. OAKES for the respondent. (instructed

by Minter Ellison Morris Fletcher)

MASON CJ:	Mr Hayes?
MR HAYES:	The Court should have been handed, or is about to

be handed our outline of argument together with the

cases that we rely upon in the folders.

MASON CJ: It is a rather longer outline than we are

accustomed to receiving, even on the hearing of an

appeal.

MR HAYES:  The summary of the uncontentious facts which

perhaps could have been avoided, Your Honour,

because they appear from various judgments, are

there.	The argument itself is well under the
limit.	I apologize that it ran on.

If I can just briefly tell Your Honours how

the matter arises. The applicant was called

Budget Corporation Limited. It has a number of

public shareholders, most of whom subscribe for

shares as part of the float of Budget Corporation

Limited which took place in 1988.	It is now under
quite separate management.	BCL entered into a

series of agreements with a company called

Budget Rent A Car System which was part of the Budget Group in Australia run by Mr Ansett and

Mr Hamley, who controlled a group of companies of

which Budget Transport Industries was the parent

company and Budget Investments, another company in

the group.

The group had urgent needs for funds and BCL

was formed. It was a shelf company. It was

formed for the purpose of being floated and raising

funds from the public and financial institutions,

and a prospectus was issued in this regard, and

money so raised was paid by BCL to BRACS as

consideration for the assignment of certain rights held by BRACS with a company in the United States,

which is Budget USA, which owns the world-wide

rights to the Budget name and system, and the

amount paid was about $23 million, and as it turned

out, BRACS went into liquidation, the American

parent avoided, or terminated the various

agreements that were assigned. A management

agreement was entered into between the various

Budget companies so that BRACS would manage the

Keydata 2 10/12/92

arrangements which would produce licence fees to

BCL and BCL would pay management fees.

One of the agreements signed was an assignment

by BRACS of its interest in licence agreements

pursuant to which BRACS licensed the use of the

Budget systems within Australia and the Pacific

Basin to BCL.

When BRACS went into liquidation and

Budget USA terminated the agreement pursuant to

which BRACS held the rights, there were various

claims made by BCL and by BRACS. BCL claimed that

BRACS owed it licence fees which it had received

under the arrangement and not remitted, and BRACS

claimed to be entitled to management fees from BCL

which it had earned as manager, and BTI also was

said to owe licence fees for an earlier period, and

by 8 February 1990, BCL had commenced proceedings

against BRACS in respect of the licence fees. And

by that date it had commenced pre-trial discovery
proceedings against a number of persons including

BRACS, BTI, BI and Ansett and Hamley, to ascertain

whether or not there existed a claim against those

parties for breach of fiduciary duty arising from

their activities as promoters of the float of BCL.

On 8 February 1990, agreement was reached

between a company called Lanella Pty Ltd which was
a consortium of motor vehicle manufacturers and

Budget USA and the various local Budget entities,

wherein Lanella was going to take over the business

formerly run by the Budget Group in Australia and

it took an assignment of the various rights and as

part of the Lanella arrangement, disputes between
various parties was sought to be resolved.

On 8 February, that is the same day as the Lanella agreement, the various Budget companies,

including BCL and BRACS - BRACS acting through its

then liquidator - entered into the letter agreement

of 8 February, which is the agreement that appears

at pages 99 to 101 of the application book, which I

will come to very shortly, and those parties

entered into a deed of release on 17 March 1990,

and that is set out at pages 94 to 96 of the

application book. Recital C of the deed of release referred to the letter agreement of 8 February, and

it is the 17 March deed that contains the release

which has been held by the courts below to be

effective to bar the claim that BCL wishes to bring

against BRACS - it is now called Burencar Pty Ltd

(In Liquidation).

So BCL has brought proceedings in the

Supreme Court of New South Wales commercial

division, against the solicitors for BCL at the

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time of the transactions, Westgarth Baldick, and

against the accountants and auditors for BCL during

the transactions, Coopers & Lybrand. It is also

claiming that more than $23 million was paid for

valueless rights. BCL has also sought to join

BRACS as a defendant claiming that it was a

promoter and breached fiduciary duties. BRACS has

raised against BCL the 17 March 1990 release as a

total answer to its claim. The matter came before

Acting Justice Palmer who delivered lengthy reasons

on 20 December 1991 upholding the effect of the

release and thereby dismissing the plaintiff's

claim to join Burencar to the proceeding - - -

DEANE J:  Why do you want to sue Burencar if it is in

liquidation?

MR HAYES: It has got about $5 million - - -

DEANE J: It has got a lot of assets, has it?

MR HAYES:  Well not a lot, it has some money. It has made a

partial distribution but I think the evidence was

that there was about $5 million being held pending

the - - -

DEANE J:  Is it insolvency or ..... for other reasons?

MR HAYES:  Yes. It is insolvent but the size of the claim

compared to the other claims would give rise to a

substantial claim which could be made against the

assets if this claim were successful.

DEANE J:	Was it in liquidation when the deed was executed?
MR HAYES:	Yes, it was, and one or other of the parties,

Coopers & Lybrand and Westgarth Baldick, have

joined Burencar as a party to the proceeding that

is ongoing against them, so that they are sort of

out of the frying pan and still very near the
flames.	But this is an application directly by BCL

against Burencar (In Liquidation).

Now, the Court of Appeal in New South Wales

with the lead judgment being delivered by

Justice Meagher, by judgment dated 14 July 1992,

dismissed BCL's appeal, and for reasons I will come

to very shortly, it is submitted that there are

apparent errors of principle in the judgment and it

is also submitted that there are points of general

importance raised by the matter that would justify

special leave.

If I could trouble the Court first to go to

the 8 February letter agreement and the 17 March

deed that I have identified at the rear of the

application book. Page 94 is the first page of the

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deed of release, Your Honour. The parties there,

BCL, I have identified, BRACS and the other two

Budget companies, BTI, the parent company and

another Budget company, Budget Investments.	The
recitals are that:

BRACS, BTI and BCL entered into a Management

Agreement dated 30th day of September, 1988, whereby BRACS agreed to act as manager to BCL

in consideration of a management fee.

Pursuant to a Deed of Assignment -

Your Honours see there were right to receive

service fees, and then:

On 8th February, 1990 BCL entered into a

conditional agreement with BRACS, BTI and BI.

This deed is now entered into pursuant to the

agreement of 8th February 1990.

And that is what I refer to as the letter

agreement, which I would ask the Court to go to

before we go further into the deed - starts at

page 99. The letter is said to be intended to set

out the relationship between those parties:

BCL offers to conclude an arrangement as follow:

BRACS is to release BCL from any obligation to pay,

"unpaid management fees". BCL as against BRACS and

BTI is entitled to certain licence fees:

BTI and BCL shall enter into a mutual deed of

release in respect of all inter company

indebtedness and other claims -

and that expression, "all inter company

indebtedness and other claims", the Court will

find, it finds its way into the deed of release:

BCL shall assign any entitlements which it may
have against BRACS in relation to sums of
money payable in respect of licence payments -

The parties are to procure the conversion of certain convertible notes in BCL into ordinary

shares. That was, Your Honours, part of the

process whereby the consideration was raised to pay

the $23 million. Then there is to be an

arrangement about a deposit of $79,000 to meet

certain claims that might be bought by Budget

equities. Then there is a recital about

Tricontinental accepting some money in full payment

of the redemption of the convertible notes it held

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in BCL. Again, Your Honours, that was part of the

consideration raised for part of the $23 million.

And then Quadrax, which was a Hamley company,

was going to convert some notes into ordinary

shares and relinquish claims for outstanding

interest. And, all of these matters are to be

completed before or simultaneously with the Lanella

agreement. And then, there are other clauses there

of no moment to this application.

So going back to the deed of release, the

with various aspects of licence fees. All of this

Court sees that clause 1 deals with the release by

is consistent with the agreement that had been

reached on 8 February, which was subject only to

approval:

Litigation

BCL agrees to discontinue legal proceedings

commenced against BRACS.

Well, as I told the Court in the brief

introduction, there was, at that date, proceedings

which BCL had brought against BRACS alone in

relation to licence fees. There was also a pre-

trial discovery application brought in the

Victorian Supreme Court which BCL had brought

against BRACS but also against BTI, BI, Ansett and

Hamley and others, seeking pre-trial discovery of

documents that might be relevant to a breach of

promoter's duty claim.

Then the release clause, 4.1 is the operative clause upheld by the courts below, and the Court

sees that BCL releases BRACS, BTI and BI:

from all indebtedness and other claims it has

or may have -

and then there is a release back the other way.

In the judgment of the Court of Appeal,

Justice Meagher's judgment which appears starting
at page 73 of the application book, His Honour

reasoned that the words, "all claims" are broad and

all encompassing and that it was appropriate to

identify what claims the parties knew of, and those

were, His Honour said, the claim brought for the

licence fee and the claim in respect of which

prE-trial discovery had been brought, and

therefore, His Honour said, there was a clear

meaning to be given to the release; it effected the

release of this claim. If necessary to look at

extrinsic evidence he pointed to some pieces of

correspondence emanating from BCL to the effect

Keydata 6 10/12/92

that prior to the release it had in mind this

claim, the promotor's duty claim.

Now, Your Honours, we submit, and submitted to the Court of Appeal, that there are

well-established principles of construction of a

deed of release that words of broad release such as

"all claims" are to take their meaning from

recitals if they appear in the deed, and from the

four corners of the deed. So that it is necessary

as a first and, we would say, a final step, to look

at the four corners of the deed, looking

particularly at the recitals, to see what claims

the parties had in mind releasing. Those

principles, Your Honours, have been laid down since

at least the last century in England, and were

in Grant v John particular cases which Grant v John Grant relied

given effect to by the High Court

upon were Payler v Homersham - that is the first
case on the list of authorities - and Lampon v

Corke, and those cases Your Honours, together with a great many others, and text books statements, do

support the proposition, and Mr Justice Palmer

below accepted it, that the wide words of a release

in a deed of release are to be looked at in the

context of introductory words to identify what the

parties had in mind as being the subject of the

release, and that it is not sufficient to simply

say, "Well, 'all claims' means all claims", and
then it is just a matter of identifying what claims
the parties knew about and they are taken to have
intended to release those claims.

The point put shortly is that when the Court looks at the recitals to the deed of release, when

one looks at the letter agreement which the

recital C of the deed of release refers you to, and

then when you look at the subject-matter of the

release which has clearly been a carefully drawn

document drawn by lawyers, there is no reference at

all to a claim for breach of fiduciary duty by

promoters.

The whole tenor and specific content of the

deed, including its recitals relate to money claims

and that the parties are to be taken to have

intended to release the claims identified in the

deed of release.

MASON CJ:  You say it is a carefully drawn document, but I

would not have thought it was a carefully drawn

document. The recitals tend to refer to

agreements, rather than to claims. It is not the

kind of recital which specifies claims or

categories of claims, particularly the third

recital, recital C.

Keydata	10/12/92
MR HAYES:	I accept that, Your Honour, and when I say

"carefully", what I mean to say is that some effort

has gone into the document and it has been drawn by

lawyers. If it was really -

MASON CJ: That does not tell us very much, does it? We

have seen a lot of documents into which effort has

been put by lawyers, but does not necessarily merit

the description carefully drawn, and particularly,

carefully drawn, having regard to the submission

that you are putting to the Court.

MR HAYES: Well, we say despite the efforts made by the

parties to identify matters that concern them, the

document is very sloppy, so if they are

inconsistent notions, I have to stand by them. But

by "carefully drawn", Your Honour, I mean that the
parties have obviously gone to trouble to identify

matters that were concerning them. Whether they

have done it well and whether there are ambiguities

in the language is quite another matter.

Now, Your Honours, Mr Justice Meagher skips,

at least in writing - he may have done it

internally, but in writing he skips the step of

saying, "Well, I have got to look at the terms of

the release, and I have got to look at the recitals

to identify, not just what claims there were

around, but what claims the parties intended to

release", and he did not do that. That is a

fundamental error based on Grant v John Grant and a

long line of cases before and since to that effect.

Now, Your Honours, furthermore, the claim said to have been released is a serious claim of breach

of trust, breach of fiduciary duty, and there are

principles dealing with how a trustee can effect a

release of a claim for breach of trust.

DEANE J: Yes, except in any of those cases, did you have a

situation where the party being released was, for

practical purposes, a different entity to the party

that had been guilty of the breach of trust? I

mean, it is not as if you have, A, a person who was

trustee getting a release from B, his beneficiary.

It is a case where the company alleged to be guilty
of the breach of trust has gone into liquidation
with the result that, in a practical sense, you

have the creditors of that company on one side and

the beneficiary on the other.

MR HAYES:	None of the cases that I can cite have those elements.
DEANE J:	It is not really against you in one sense in that

it is an unusual situation, but it does move you

Keydata 10/12/92

out of the central area of the considerations on

which you rely.

MR HAYES:  It may, Your Honour. Mr Justice Palmer accepted

that Farrant's case for example,

Farrant v Blanchford, case No 3 on the list of

authorities, does form part of a long line of

authority that was applicable here, to the effect

that where a claim for breach of trust is seeking

to be effected by a release, the releasee has to

prove that the releaser gave fully informed consent

to the release.

DEANE J: That is basic principle, but equity looks at the

reality, and what would you say the position was if

the deed of release had been between BCL on the one

hand, and BRACS creditors on the other? There

would just be no room for the application of that

principle.

MR HAYES: Well, we would submit, Your Honour, that what one

is looking at is what has to occur to dispose of a

claim for breach of trust. I would not be sure

that in those circumstances there would no

application for the principle, but I do not have

that situation here, I have the fact that it is the

same party, just that hard times have befallen it

and there is now a liquidator representing the

shareholders and creditors. So, I would

respectfully submit, Your Honour, that the reality

is we are looking at a claim of a release of breach

of trust by the party who allegedly committed that

breach of trust, and that is all I need for this

principle to apply.

DEANE J: Well, what I am suggesting to you is is that sort

of equitable principle does not apply

automatically. You have got to look at what the

substance of the case is, and what the real issue

is, and whom the real issue is between.

MR HAYES:	I accept what Your Honour says, and I would point out that Mr Justice Meagher in his judgment does
not address the matter at all, so we do not know
what kind of private thought went on about that,
but we have not seen the benefit of it in writing
and we go to what Underhill says - the last of the
passages in the folder the Court has been given -
and Underhill says that where a release is:

intended to cover known breaches of trust -

the release -

must contain -

Keydata 9 10/12/92

the very last page in the folder, Your Honours,

under the heading, "Necessity of reciting actual

breach" where - "For these reasons" - he has gone

on and talked about the Farrant principle:

For these reasons a release, where intended to

cover known breaches of trust, must contain

recitals showing fully and precisely the

circumstances under which the breach took
place, including the amount of the loss (if

any) and that such circumstances did in fact amount to a breach of trust. If this be not done, the general words will be controlled and

restricted in their operation by the recitals

to the matters actually stated. Indeed, it is

the duty of the trustees to see that the

beneficiary, who is about to execute a

release, is properly advised as to his rights.

MASON CJ:  Do the authorities cited in footnote 18 support

that proposition?

MR HAYES:  Not directly, Your Honour, no. We have looked at

those authorities and although -

MASON CJ: Well, that is why I asked you the question. I

looked at them and I did not think they supported

the proposition.

MR HAYES:  They do not negative it but they are all but

applications of the principles that would say where

you are intending to release a breach of trust, you

have to obtain the fully informed consent of the

releaser and that you have the onus of doing so,

and one could understand those being the principles

that such a rule would make sense. But not only do

those cases not support it, Your Honour, lengthy

researches have not found a case that deals

directly with that particular proposition. Mr

Justice Palmer heard what we had to say about

Underhill, but in one line said he did not think it

was right, he did not say why, or brought to our

knowledge has anyone cited any case to the

contrary, and we would submit it is an interesting

point of principle which, as a matter of public

policy, is likely to be right, needs to be decided.

Now, just going back to what Mr Justice Deane

put to me. We submit that creditors can be in no

better position from a company which has committed

a breach of trust in terms of looking at the

releasing of the claim for breach of trust.

DEANE J: That would be undoubtedly so if the release were

executed before the company went into liquidation. I would not accept that it was so when the release

Keydata 10 10/12/92

is executed after the company has gone into

liquidation.

MR HAYES: Well, I cannot again, Your Honours, despite

considerable researches, tell Your Honour of a case

that grapples - - -

DEANE J:	I am not surprised, yes.
MR HAYES:	- - - with the problem, it is a matter of, as

Your Honour says, looking at the facts in every case, which inevitably these matters come down to,

and what we are hampered by here is the failure by

the Court of Appeal to address the facts applicable
to the principle, although there was substantial

arguments before the court on the facts, and

Mr Justice Palmer had made some conclusions on the

facts very adverse to my clients, which were a

matter of considerable contest before the Court of

Appeal.

Now, taking the Court if I might then to

paragraph 4 of our outline where arguments that I

have been addressing are summarized. The judgment

of the Court of Appeal wrongly failed to construe

the deed of release in accordance with the prima

facie canon of construction applicable to such

deeds of release, that general words of release are

qualified by reference to the particular matters

which the recital showed to be the occasion of the

deed.

And that in construing the deed of release of

fiduciary duty, the court ignored the requirements

for the recitals to identify the breach of trust

being released or to set out the circumstances

under which that breach took place. The court

erroneously applied the principles in Coldelfa by

construing the deeds of release by reference to the

plain words of the deed on the known and admitted

facts, or alternatively on the wider surrounding
circumstances.	We would respectfully submit to the

Court that deeds of release, and as a principle,

deeds of release of the breach of fiduciary duty

may well fall into a special category of

construction in so far as one can admit evidence of

surrounding circumstances, but bear in mind here,

we are looking at - - -

GAUDRON J:	Why would that be so? Was not the situation in equity that equity did look to extrinsic materials
with respect to deeds of release?

MR HAYES:  Yes, Your Honour. In Grant v John Grant, the

third replication was based on a claim that

whatever the literal wording of the release was,

the parties had not intended to affect that

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release. That was equity being brought in aid of

the beneficiary seeking to be relieved of the legal

construction given to the deed.

Now, yes, in those circumstances, when equity

is sought to be applied, equity always did look at

the surrounding circumstances for that purpose, but

we, Your Honour, have here sought to say, our

replications if you like are, that on the proper

construction on this deed of release, looking at

its recitals and the four corners of the release,

it is constrained by the subject-matter which are
the money claims identified, making no reference to

the fiduciary duty claims.

GAUDRON J: It does make reference to litigation being

terminated.

MR HAYES: 

It does, Your Honour, and we would say that must

be taken as a reference to the litigation involving
a licence fee, because the licence fee claim was

brought against BRACS alone, the pre-trial

discovery proceedings were against a number of

parties of which BRACS was one, BTI was one, and BI

was another. So, we would say, Your Honour, that

that is to be taken as a reference to that
litigation.

The other thing that Mr Justice Meagher did

was to look at statements of subjective intention

from, for example, the solicitor's -

Mr Justice Meagher looked at extrinsic evidence

such as letters written by the solicitor then

acting for BCL as to what that solicitor understood

was being released, for example, and we would say

on no view is such evidence admissible, and so we

say in all the circumstances the court erroneously

failed to construe the release by reference to the

recitals and did not limit it as the parties can be

taken to have intended.	And so we set out in
paragraph 5 reasons why this matter warrants
special leave.	We say that the errors in the

judgment should be corrected, they are going to
have wide application to many releases which are a

common form of contract. The question of the place for Codelfa in the scheme of releases of claims for breach of trust is a matter that warrants

consideration. The proposition put by Underhill is

a matter of some importance which, if adopted by

the High Court, would have far-reaching

application, and we submit that as a matter of

policy there should be special principles of

construction of a deed of release of a claim for
breach of trust of fiduciary duty consistent with
the burden on a trustee to show that they obtained

the fully informed consent of the beneficiary to a

release of a claim of breach of trust. The

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alternative could be conducive to fraud on the part

of trustees.

DEANE J:  Mr Hayes, Mr Justice Meagher's judgment does not

seem to contain any reference to the argument based on the nature of the claim. Was it advanced in the

Court of Appeal?

MR HAYES:  I did not argue that but the notice of appeal and

the written submissions do contain that argument,

Your Honour. I took the liberty of ascertaining

that yesterday when I was preparing for this

application.

MASON CJ:  What about the judgment of

Mr Acting Justice Palmer, does that deal with that

question?

MR HAYES:  Yes, Your Honour.

MASON CJ: That indicates that the matter was raised, and if

you are right about the argument, the notice of

appeal, then it would seem to suggest that it was

carried forward - - -

MR HAYES: I argued the matter before Mr Justice Palmer, and

I can speak from my knowledge there, but of the

Court of Appeal, I am going on the records that

were handed to me.

DEANE J: It is strange that it is not dealt with, because

it is obviously, if it was put, the central feature

of the case, I would have thought.

MR HAYES:  One does not know what emphasis emerged in

argument. That is the difficulty with not being

there. But Mr Justice Meagher's judgment is very

simple because he took the view that "all claims"

meant all claims, and that was the end of the
matter and His Honour really did not go beyond that

in his reasoning. In our respectful submission,

there is more to it than that.

MASON J: Well, he did go a little beyond that, did he not?

If you look at page 77 of the application book

where he sought to demonstrate that clause 4.1

related to what he called "category (c) claims" and

unless category (c) claims were included within the

reach of clause 4.1 you could not properly give

effect to all the language of the clause.

MR HAYES:  He did that, Your Honour, as support for his construction that "all claims" - - -

MASON CJ: Yes.

Keydata 13 10/12/92

MR HAYES:  - - - meant all claims. But on that point,

Your Honour, category (c) are the fiduciary duty claims as defined in the judgment, the logic being,

that as the fiduciary duty claims are against more

than Burencar or BRACS, and as the other claims
were only against BRACS, it can be taken that the

parties intended that releases of claims of this

sort were included because there was no other

identifiable claim of that description.

Now, that is an error because, as you can see

from the recitals to the deed of release and the

letter and the letter agreement, there were claims

which BCL had against not only BRACS but also BTI,

for the money claims, the licence fees, and so that

is a mistake of fact demonstrable from the

recitals. The parties would not be able to resile

from the recitals as to the facts and one fact

there is that BCL had a claim against, not only

BRACS, but BTI. So, Your Honour, we would

respectfully submit that the passage that

Your Honour has just referred me to, it is true,

does not take the matter beyond the simplistic way

I put Mr Justice Meagher's judgment, but - - -

MASON CJ:	You say reveals another error.
MR HAYES:	Reveals another error, yes, Your Honour. And

also, he then goes on to say, "Well look, in any

event, there are external circumstances that

support the view I have", but because His Honour

had such a strongly held view as to the correctness

of his construction that "all claims" meant all
claims, he but touched on that, and if I may say
so, also, Your Honour, the expression "all

indebtedness and other claims" is not an expression

free of need to resolve ambiguities in, because, we

would say, the indebtedness might well colour the

other claims.

The expression "all indebtedness and other

claims" is something different just from "all

claims". The "all indebtedness", we would say,

especially when you look at the recitals and the

four corners of the deed, may well be taken to be a

limitation on the sorts of claims being released.

And it would be an extraordinary result if the

parties were to be taken to have effected this

release of a breach of trust claim is not

mentioned, and it did not seek to stop action

against the solicitors and the accountants which

was foreshadowed because the pre-trial discovery

indicated a possible action against them and they,

of course, are not releasing anybody. If the

object of this release is said to be to clear the

books for Burencar (In Liquidation), so that it

knew exactly how much it had for the creditors, it

Keydata 14 10/12/92

did not achieve that result at all and, indeed, as

has happened we have gone on with the action

against the accountants and solicitors, and one or

other of those who have joined Burencar as a party.

So that, Your Honour, we would say, is another

factor which rather tends to suggest that

Mr Justice Meagher jumped to a conclusion in his

reasoning, and he is wrong on what he did do, and

more wrong for what he did not do.

Unless there are other matters - - -

MASON CJ: Yes, thank you, Mr Hayes. Yes Mr Conti?

MR CONTI:  Your Honours, the issues that are sought to be

raised are, we would submit, somewhat academic, and

this is not an appropriate vehicle, and the reason

appears on page 59 of the appeal book. His Honour

allowed into evidence a bulk of material antecedent

to the execution of the deed of release for two

reasons: one, because our submission was to the

equitable rule referred to in Grant enabled him to

ascertain the true intention of both parties, and

what they had in mind when they referred to the
word "other claims", and the significance of the
discontinuance of proceedings.

He also allowed it on another basis, and that is that we sought alternatively rectification, and

Mr Justice Palmer held that if he had not found in

our favour as a matter of construction, he would

have ordered rectification.

Now, before the Court of Appeal, we argued

alternatively that the Court of Appeal should make

an order for rectification if they were against us

on construction, but the Court of Appeal found it

unnecessary to deal with that matter, but we would

be seeking to, in any event, support the result

thus far obtained by reference to what appears on

page 59 and our submission is that the creditors

who are waiting for, and have been waiting for some

considerable time, a distribution should not be

delayed so that this particular point, we submit

to be academic, would be run. Inevitably, the

applicant has lost - - -

MASON CJ:  It is only academic if you succeed in the claim for rectification.

MR CONTI: That is so, but thus far we have, and we would be

wanting to argue rectification if we are unable to

on any final appeal.

The next matter we put to you is this, that this is is not a case of an extraordinary result.

Keydata 15 10/12/92

Commercially, it was a result that was one that is

supportable on the merits. As appears on pages 16

and 17 of the application book, what was at the
commercial heart of the transaction which was

entered into was that my client, with certain of the industrial property of Budget, and Mr Hayes' client with other industrial property of Budget, were seeking to realize those assets for millions

of dollars in favour of a car manufacturer,

promoter, venturer, and that the co-operation of

both was necessary.

The advantage which Mr Hayes' client obtained

from that transaction was clearly made conditional

upon the entry into mutual releases as appears from

the letter. They got something out of the deal, as

we did, depend on mutual co-operation. So that in

terms of merit, what they now seek to do is to say,
"We got those millions of dollars by you co-
operating and selling your industrial property and
we doing the same, but now we want to take from you

the proceeds of sale of your industrial property by

this cause of action."

But, in any event, Your Honours, we submit

that there is simply no foundation in Grant for a

four corners rule. At page 126 of the judgment,

there is recognition expressly made, half-way down

the page, to the principle that parties can upon a:

solemn composition for peace -

it is about half-way down the page.

MASON CJ:  What page is this?

MR CONTI: At page 126. There is a reference to

Salkeld v Vernon and below that reference there

appears a recognition of the principle:

upon a particular and solemn composition for

peace persons expressly agree to release

uncertain demands.

Now, this case was not even one of uncertain

demands. The demands were certain. And what the

supreme court has held thus far is, it cannot be an
infringement of any principle in John Grant that

one can have regard to the objective framework

leading to the execution of a deed by ascertaining

what were the claims then existing. Not some

future uncertain demands, but the claims then

existing.	And here, the claims then existing were
clear.

If I could just take you to the deed. Apart

from those - this is at page 94. Apart from those

Keydata 16 10/12/92

referred to in the recital A - that is management

fees, and apart from those referred to in

recital B, which were licence fees or service

fees - they were so treated synominously - there

was thirdly a reference to a deed of release by

incorporation in virtue of the letter of 8 February

1990, which you have been taken to, and I will take

you to again in a moment.

If you move over to clause 3, there is a

heading - Litigation:

BCL agrees to discontinue legal proceedings

commenced against BRACS.

Now, there were two sets of legal proceedings on

foot. There were those relating to the licence
fees but, more importantly, legal proceedings for
pre-trial discovery to which was attached a

statement of claim for breach of promoters'

fiduciary duty and which, as indicated in

Mr Justice Palmer's judgment, pleaded a cause of

action for all intents and purposes identical to

that which they wish to now promote, and which they

put before the Court for the purpose of the

application for leave to proceed against the

liquidator.

So that it was entirely legitimate, surely,

under any principle. I speak now about the

principle in Farrant and I speak about the wider
principle in Grant, perhaps, that one is entitled

to ascertain, "What was the legal proceedings to be

discontinued?" And one then ask oneself the

question, "Well, if it included legal proceedings

in the form of pre-trial discovery with a statement

of claim formulated identical to what is now sought

to be promoted against us, why would it not follow

logically from that also that 4.1 was intended to

deal with claims, the subject to those

proceedings?" What the courts have done below,

have said, "We are entitled to see what were the

certain demands", not just "uncertain demands", but

the certain demands known to both parties which

they must have had in mind.

What Mr Justice Meagher said was, "Look, the only matter they could have had in mind, taking

into account the fact that the management fee issue
or the service fee issue has been expressly dealt

with in the deed of release, is the promoters' claim and if you ignore that circumstance then clause 3 and clause 4.1 are otiose.". Moreover,

you will see that consistent with what is the

letter of release of 8 February which commences at

page 99, the release relates to BRACS, BTI and BI.

Keydata 17 10/12/92

In relation to the claim for management fees,

that is a claim involving, as recital A says,

"BRACS and BCL"; in relation to recital B, service fees involving BRACS and BCS and BCL; then we come

to C which refers to:

a conditional agreement with BRACS, BTI and

BI.

This is constituted by the letter of 8 February and

what were BI and BTI to be released from if it was

not - since they are not involved in the management

fee situation and the service fee situation, what

were they to be released from? So what

Mr Justice Meagher said, we submit correctly, was

that if any meaning was to be given to clause 3 and

clause 4.1 it had to cover a known certain demand.

Your Honours, we submit that also, as I say, the principles of equity, the recitation which

commences at the foot of page 124 of Grant v

John Grant and which continues through page 125

evinces a clear postulation of equitable principle

that you are entitled to have regard to what the

parties mutually had in mind when they enter into a

release.

So, Your Honours, in our submission, there has

been no fundamental error shown. And we would

submit, Your Honours, that Farrant cannot be - it

cannot be right that it is authority for a

proposition, as is contended for here, that the

fiduciary - in order to get a release, even when

the fiduciary relationship has ceased, even when it has ceased and, of course, here it had long ceased.

As Mr Justice Palmer pointed out, Mr Hayes' client had a Queen's Counsel who was chairman of director, it had a highly competent board who considered all

these matters, and that was part of the evidence

for rectification. It cannot be right that in

those circumstances you have still got to somehow

put out a dictionary of all claims with great care

in relation to a post or finished fiduciary

relationship in order to get an effective release.

DEANE J: That depends on the circumstances though. I mean,

the fact that the fiduciary relationship had ceased

to exist would be irrelevant if it were argued that

a general release included a fiduciary claim which

was not known.

MR CONTI: Perhaps, Your Honour, not known, yes.

DEANE J: There, I would have thought there is a great deal

to be said for the proposition in Underhill.

Keydata 18 10/12/92

MR CONTI: Yes, I put it too highly. But, obviously, where

it is known is here, then the principle cannot have

the space that is sought to be put forward.

Your Honours, we would respectfully submit

that in all respects the judgments below are

correct.

MASON CJ: Thank you, Mr Conti. Yes, Mr Hayes.

MR HAYES:  As to rectification, Your Honours, we argued

before the Court of Appeal that the throw-away

line, which is really what it is at page 79 of the

application book in Mr Justice Palmer's judgment

that he would award rectification in any event, was

patently not correct. Rectification is not

available to those who have specifically chosen a

form of words but say they were mistaken as to the

effect of such words.

So, there is not a killer point waiting for

us, at least necessarily, if we are able to obtain
leave and succeed on appeal, and that is possibly a
matter for another day.

DEANE J:  You would really have to order rectification of

the agreement of 8 February.

MR HAYES:  You would, Your Honour, yes.

DEANE J: Because the deed just carries over the

phraseology.

MR HAYES: Precisely, and the large bulk of the evidence

that is sought to be relief upon to support the

rectification is what happened after 8 February,

and that itself was a matter of substantial
argument before the Court of Appeal and not

referred to in the judgments.

Now, as to, Your Honours, the delay to

creditors, apart from the fact they might lose, the

fact of the matter is that no distribution could be
made until the proceedings brought by the

accountants and solicitors and the current

proceeding were resolved in any event. So, this

proceeding is not itself holding up anything.

As to what my learned friend says about Grant

v John Grant, Grant v John Grant, whatever else is

says - because it is not an easy judgment to read
in many respects - stands for the proposition
supporting a long line of English authorities that

says you read the words of a release, albeit they

might be widely expressed, by reference to the

antecedent words, the recitals and the four corners

of the contract to ascertain what the parties

Keydata 19 10/12/92

intended to effect a release of. That is what

Grant v John Grant says. That is what

Mr Justice Palmer said it said.	Mr Justice Meagher
did not take that step.	He was, at least in

written form, plainly in error. Whether he went

through that thought process, we do not know but,

we submit, he obviously did not because he

misconstrued the deed.

Thereafter, Your Honours, I addressed

arguments that were opposed to the remainder of the arguments I understood my learned friend to put and

unless there are other matters that I have not

addressed that the Court would like to hear me on,

I repeat my earlier submissions.

MASON CJ:  Thank you, Mr Hayes.

Although the questions of principle sought to

be raised by the applicant might, in an appropriate

case, warrant the grant of special leave to appeal,
we do not consider that the applicant's prospects
of success in the proposed appeal, which relates to
the construction of a particular clause in a deed
of release, are sufficiently strong to warrant the

grant of special leave.

In reaching that conclusion, we have taken

account of the facts that at the time of the
execution of the deed the existence of the claim

for breach of fiduciary duty against Burencar Pty

Limited was known to the parties and that that

company was in liquidation.	The application is
therefore refused.

MR CONTI:	We would ask for costs, Your Honour.
MASON CJ:	You do not oppose an order for costs? The

application is refused with costs.

AT 10.30 AM THE MATTER WAS ADJOURNED SINE DIE

Keydata 20 10/12/92