Lehman Brothers Holdings Inc v City of Swan & Ors [2010] HCATrans 7

[2010] HCATrans 7

2010] HCATrans 007

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S1 of 2010

B e t w e e n -

LEHMAN BROTHERS HOLDINGS INC

Appellant

and

CITY OF SWAN

First Respondent

PARKES SHIRE COUNCIL

Second Respondent

WINGECARRIBEE SHIRE COUNCIL

Third Respondent

LEHMAN BROTHERS AUSTRALIA LIMITED (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

Fourth Respondent

NEIL SINGLETON

Fifth Respondent

STEPHEN PARBERY

Sixth Respondent

LEHMAN BROTHERS ASIA HOLDINGS LIMITED (IN LIQUIDATION)

Seventh Respondent

Office of the Registry
  Sydney  No S362 of 2009

B e t w e e n -

LEHMAN BROTHERS ASIA HOLDINGS LIMITED (IN LIQUIDATION)

Appellant

and

CITY OF SWAN

First Respondent

PARKES SHIRE COUNCIL

Second Respondent

WINGECARRIBEE SHIRE COUNCIL

Third Respondent

LEHMAN BROTHERS AUSTRALIA LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

Fourth Respondent

NEIL SINGLETON

Fifth Respondent

STEPHEN PARBERY

Sixth Respondent

LEHMAN BROTHERS HOLDINGS INC

Seventh Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 10 FEBRUARY 2010, AT 10.19 AM

(Continued from 9/2/10)

Copyright in the High Court of Australia

__________________

FRENCH CJ:   Yes, Mr Hutley.

MR HUTLEY:   Your Honours will find before you, I hope, a document entitled “Addendum to the first and third respondents’ written submissions” to take up the point that your Honour Justice Gummow asked us to address shortly in writing.  We have also arranged your Honours to have the Butterworths, Australian Corporations Law:  Principles and Practice as at 1991 dealing with committees of inspection in liquidation.  I will not take your Honours to them, just for your Honours’ convenience because it showed – I am sorry, it is the current one, I do apologise.  It is called 1991; it is the current one.

Just to make the point if your Honours peruse that the contrast between committees of inspection and their powers in liquidation, compared to the creditors committee in an administration and the very narrow scope of its role reflecting, what we say, is the contemplated structure of the conduct of administration.  I will not take your Honours any further with that.

Your Honours, I reached yesterday Division 5 and particularly section 439A.  It was referring to the report called for under section 439A(4) and its relationship to the duties of the administrators identified in 438A.  Now, to the extent that there was a possibility of a claim against the company by third parties, whether for contribution or indemnity of the nature contemplated in the submissions of our learned friend, Mr Bathurst, one might accept that could be described as part of the affairs of the company and that the powers under sections 438B and 438C, together with the management by the administrator, could assist in addressing those potential contingent claims for contribution, as your Honour Justice Hayne described them.  One might accept that.

HAYNE J:   The contingent claims would be matters to take to account in determining the solvency of the entity, would they not?

MR HUTLEY:   Quite; I accept that.  One might also accept that there would be the possibility of utilising sections 596A and 596B of the Act which deal with the examination of persons in the first instance through order of the court.  Section 596A deals with officers; section 596B deals with other people who broadly have taken part or been concerned in examinable affairs of the corporation or may be able to give information about examinable affairs.  “Examinable affairs” your Honours will find defined in section 9, and also an administrator is an eligible applicant. 

One has to then dive over to section 53.  Section 53(b) identifies a liability as part of the examinable affairs.  So there is in effect a route by which one could conceive that an administrator might by activating powers which we would say are outside the ordinary course of the administration because of the time constraints deal with, in effect, this contingent liability. However, there is no provision which would appear to allow the administrator to do that which they really need to do; that is to investigate the quality of the claim of the creditor upon the third party.

That reflects, we say in substance, the concern of this section with the affairs of the company is centrally concerned with just that.  Section 439C of the Act identifies what the creditors might resolve at this meeting which is required to be called, and 493C reflects the normal outcomes contemplated by section 435C(2) of an administration.  So, in effect, what can be resolved upon is that there be an execution of:

a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice –

the administration should end or be wound up.  Importantly, the resolution to enter into a deed of company arrangement may be put and resolved on even if there has been no proposed deed by the administrator, in the sense no foreshadowing it in the notice provisions.  So, in effect, it can evolve or be proposed at the meeting of creditors, or any deed of company arrangement or resolution for such can differ from that which was proposed.  In other words, the deed which voted on and passed in this case could have been proposed in substantial part for the first time at the meeting of creditors.

Now assuming our learned friends’ constructions – and there a number of them, but taking them all – we say it is an extraordinary matter that creditors of a company could find themselves bound in law by a deed which foreclosed reliance upon claims – and presumably will come to its securities they held over other companies, or other persons for that matter – not the subject of any investigation or report by the administrator, nor the subject of communication to them.

Our learned friends would say it is in a sense a question of, as it were, caveat creditor, because you know of this possibility you have just got to turn up at the meeting, come what may, because it could affect other things that you have, or alternatively they are adequately protected because they could move the court for the relief under one of the two sections to which they have drawn attention, and that deals with it.

We say this, that if this was truly part of the intent of the legislature, having regard to the legislative history of these provisions, we say it just passes belief that these possibilities, or some consideration of the implications of it, would not have found mention in such extensive considerations that took place with the Harmer Report and the other matters to which you were taken.  That is why we say it is sort of a Holmesian moment about the dog in the night.  Our construction is perfectly consonant with the legislative history that no one has addressed these fundamental problems which would arrive, were one able to, as it were, redevelop the world concerning claims against third parties.

Can I now turn to Division 6.  That commences at 440A.  That deals with the “Protection of company’s property during the administration”.  During the course of the administration the winding‑up of a company can only take place if the court considers it to be in the interests of the creditors and that is section 440A.  Further, during the course of the administration, except in most cases with the consent of the administrator and invariably with the leave of the court, firstly, charges on property of the company are unenforceable – that is section 440B – although this is significantly qualified by sections 441A to E and I will not trouble your Honours with the detail of that.

Secondly, liens or pledges of company property are unenforceable, and that is section 440BA.  Distress for rent against the company is prohibited.  That is 440BB.  Property used or occupied by the company is irrecoverable by its owner or lessor.  That is 440C.  Again, the scope of this is qualified though not to the same extent as charges by sections 441F to J.

GUMMOW J: Have there been any cases considering any application of 51(xxxi) of the Constitution to these provisions?

MR HUTLEY:   No, your Honour.  No, is the short answer.

HEYDON J:   There may have been a passing reference in some of the discussion of section 51(xxxi) but I think you are correct; there is no actual decision on whether these provisions are constitutionally valid.

MR HUTLEY:   Yes.

FRENCH CJ:   There have been some cases, I think, under Part 6 in relation to compulsory acquisition of dissenting shareholders’ shares by 90 per cent acquirers but they have not got beyond the level of the Court of Appeal, I think in Queensland, two decisions there.

MR HUTLEY:   There has been consideration in respect of Division 5.1 as to whether that has a 51(xxxi) ‑ ‑ ‑

GUMMOW J:   But not Division 6?

MR HUTLEY:   But not Division 6.

GUMMOW J:   Part 5.3.

MR HUTLEY:   That was passed upon at first instance by his Honour Justice Finkelstein in relation to the scheme there under proposal.  One of the matters advanced was that if section 411 authorised an arrangement which released third parties’ claims, to use the broad and imprecise term that your Honour Justice Hayne is concerned by, but your Honours understand what I am referring to, a point was taken by Mr Gleeson that that was a constitutional expropriation and that was not accepted by his Honour but the detail of this has just not come under the consideration of any court.

To return to the scheme, legal proceedings cannot be commenced or proceeded with.  That is section 440D.  No enforcement process can be commenced or proceeded with.  That is section 440F.  The position of officers of a court in relation to steps associated with the attachment or execution of judgment – property or the execution of judgments – and the proceeds of any such execution involving the property of the company is effectively halted in favour of the company.  That is section 440G.  I will not take your Honours through the detail of these matters, but that is in substance what they seek to do.

Can I now come to section 440J?  Under section 440J, “except with the leave of the Court” the commencement of proceedings in relation to a guarantee of a company liability against a director of the company, or that person’s spouse or relative – I think close relative I think it is described, or relative, yes sorry relative – cannot take place.  Further, the enforcement of any such guarantee is precluded.  Now, the purpose of this provision can be seen from the explanatory memorandum at paragraphs 529 to 531, volume 2 of the Lehman Inc supplementary materials tab 14 and broadly its aim ‑ ‑ ‑

GUMMOW J:   What paragraphs again?

MR HUTLEY:   I am sorry paragraphs 529 to 531.  Does your Honour have that?  May I tell your Honour broadly is its aim.  Broadly its aim is to remove as a disincentive to directors utilising Part 5.3A, ie that the appointment of an administrator would precipitate proceedings on the guarantee.  It was obviously perceived, because these were amendments to the division, rather than the original inception – I think these were amendments.  I think there was an amendment to it, but anyway it does not matter. 

There was a perception that if directors knew that to take this step was likely to bring down claims upon themselves, their spouses or relatives that would be a disincentive to its use, so it had a very specific aim.  It also explains why it has no, as it were, analogue when one comes to the deed of company arrangement provision because it is not relevant then because once it is in administration, whether a deed of company arrangement is adopted or not is except so far as a director or one of those persons is a creditor of a company and they have the rights of creditors, the fate of the company is effectively taken out of their control.

GUMMOW J:   This is point two in your hand‑up this morning?

MR HUTLEY:   Yes.

HAYNE J:   This, in circumstances where administration can be begun, not only in case of insolvency, but where it is – what is the expression – likely to become?

MR HUTLEY:   Yes, and one of the principal - and, in fact, it would be fair to say it would have been anticipated the major circumstance of it taking place is at the instigation of the management, rather than in a situation where it is in receivership or one of the other circumstances is contemplated.  It is a sort of statutory recognition of the ‑ ‑ ‑

HAYNE J:   Directors can act in anticipation of insolvency with a view to the objectives identified in 435A, preservation of the company or its business to the extent possible.

MR HUTLEY:   And of course sought to remove, as it were, in a most immediately impinging conflict which is likely to be confronted by directors.

HAYNE J:   Just so.

MR HUTLEY:   The provisions of this division obviously significantly interfere with the powers and rights of secured creditors of the company.  It is noteworthy that with the limited exception with respect to guarantees which we have referred to, no interference occurs with respect to securities afforded by third parties to creditors of the company for obligations of the company let alone securities provided for claims against third parties in respect of losses which possess whatever is the requisite characteristic advanced by our learned friends to be the subject of a deed of company arrangement.

This is perfectly explicable on our construction, namely, they can never, except consensually, be the subject of a deed of company arrangement and therefore there is no occasion for interfering with the realisation or enforcement of such securities.  Interference with those rights is the subject of further provision in Division 8, sections 442B and following, which essentially deals with what the administrator has to do in respect of those securities during these suspensory periods.

The decisions which have addressed the circumstances in which the court will allow extensions of time for the periods contemplated by the division – and we have referred to those in our written submissions – have stressed that one of the reasons that the court should be loath to allow extensions is because of the extraordinary suspensory effects that take place under this division upon securities against the company. 

So in other words, because of what might be called the extraordinary interference with creditors of the company’s entitlements to avail themselves of securities that militates against departures from the strict timetables, without good cause but of course they accept that it depends on the circumstances of the case.

Could I then take your Honours to Division 10 commencing at 444A.  Now, this division takes up the consequences of a resolution by a creditors’ meeting under section 436C(a).  A “deed of company arrangement” is defined in section 9 to mean:

a deed of company arrangement executed under part 5.3A or such deed as varied and in force from time to time.

The definition shows that, we say as a matter of construction, nothing can be taken from the use of the word “arrangement” in the noun phrase “deed of company arrangement” which, as the Court accepted in the Mulcon Case, is an allusion to another structure but in effect juridically, we submit, is effectively a tag.  It is no different to if they had called it a Part 5.3AD, it is just a title.  Now, execution of the deed is provided for under 444B and particularly subsection (6) which provides in terms that:

When executed by both the company and the deed’s proposed administrator, the instrument becomes a deed of company arrangement. 

Now, I will just perhaps take your Honours back a little to explain how that instrument comes about.  Under section 439C(a) the resolution must specify the deed of company arrangement to be executed.  That would seem to require some specific identification of at least the details of the proposed deed either in the terms of the resolution or by reference to some document or proposal which in turn identifies the details of the deed.  Some indication of this can be seen if your Honours go to 439A(4)(c) as to what – if it is an administrator proposed deed – has to be in the notice. 

Now, under section 444A(1) the section is engaged once the resolution has been made, and the administrator comes under certain duties.  The administrator is required under subsection (3) to “prepare an instrument setting out the terms of the deed”.  That would appear to require the instrument to incorporate, no doubt in a form sufficient to satisfy the notion of “terms”, the provisions incorporated in the resolution.  The section provides that the deed must contain various matters and these are identified in subsection (4).  These matters must appear in the deed – and we say that is not, for example, to be left to the management of the administrator or further resolution by creditors. 

Importantly, under section 444A(4)(b), “the property of the company . . .  available to pay creditors’ claims” has to be identified, and “creditors’ claims” there means claims on the company.  That is all it can mean, and I do not think there is any dispute about that ‑ ‑ ‑

GUMMOW J:   Your point is, is it not, that if the construction urged against you were correct, one would expect 444A(4) to include a paragraph dealing with the third party situation?

MR HUTLEY:   Yes.

GUMMOW J:   And it does not.

MR HUTLEY:   It does not, and there are analogues further on which hearken back to this, which constrain and control aspects of it in ways which are specific to claims upon the company – and I will come to those in a moment – but leave an enormous hole, if our learned friends are correct, complete the whim of the meeting to deal in a contrary way with respect to claims against third parties which we say is beyond ironic, if that was the intent of the legislature.

FRENCH CJ:   The provisions of section 444A are enlivened upon a resolution which may refer to no more than the – looking at 439A(4)(c):

a statement setting out details of the proposed deed.

MR HUTLEY:   Yes, but as your Honour would appreciate, the resolution could propose a deed which is not ‑ ‑ ‑

FRENCH CJ:   Yes, I know, indeed, but I am just looking at the minimum.

MR HUTLEY:   Yes.

FRENCH CJ:   You might have no more than a statement setting out details of the deed ‑ ‑ ‑

MR HUTLEY:   Precisely.

FRENCH CJ:   Then the obligation falls upon the administrator to provide or prepare an instrument meeting these requirements.

MR HUTLEY:   And we say which then has a character which, if properly described as terms, so they are obviously contemplating putting in a form which can meaningfully then be binding on someone because there may be, in effect, aspirational or quite vague descriptions, potentially, or uncertain provisions.

HAYNE J:   Under which element in 444A(4) is a transaction of the kind contemplated by 444D(4) brought?  Section 444D(4) contemplates a creditor swapping debt for equity, does it not?

MR HUTLEY:   Yes.

HAYNE J:   Common form arrangement.

MR HUTLEY:   Yes.

HAYNE J:   How, if at all, is that contemplation of 444D(4) reflected in 444A(4)?

MR HUTLEY:   In terms not.  I accept that, your Honour.  All I am saying, and I am not saying these are determinative.

FRENCH CJ:   They are not exhaustive.  They are the minimum requirements.

MR HUTLEY:   They are the minimum.  But what we say is, and again it comes back to the fact that, much to take up the point remarked upon by his Honour Justice Gummow, the issues which arise if one moves outside the company are many and complex.  There are a number of provisions here in 444A(4) which are protective of creditors vis-à-vis the company.  There is a complete absence in respect of the analogous subject matter dealing with claims against third parties.

We do not say that these are exhaustive.  What we say the point of significance is is that the legislature has thought with respect to various subject matters it is important that the deed address them…..claims on the company.  Your Honour sees the point. 

Now, if I can return to 444, the point we refer to also with respect to 444A(4)(b) is that there still is an issue, at least as between ourselves and Lehman Australia that claims in 444D(1) is claims on the company and we say textual reasons in 444A(4) mean that that is just an untenable position and that is why I need to take your Honours in a little detail through it.

The first point is (b), “creditors’ claims” can only mean claims on the company.  Can I jump down to deal with this point to (i) and it says:

the day (not later than the day when the administration began) on or before which claims must have arisen if they are to be admissible under the deed.

That must be claims on the company.  That is the reference and 444D(1) refers back to, as your Honours are no doubt aware, 444A(4)(i) – therefore we say that that ends any real debate that claims in 444D(1) are claims on the company.  I would return then to 444A(4)(c) which provides:

the nature and duration of any moratorium period for which the deed provides –

That is required to be in the deed, and, secondly -

(d)      to what extent the company is to be released from its debts –

Each of those sections, and I will come to them in a little while, particularly 444E, dealing with, in effect, moratoriums and 444H which deals with releases which in effect reflect the concerns in 444C and D are specifically limited to claims on the company.  Section 444B applies to an instrument which is prepared under section 444A, so in effect the steps, resolution, referring to details, incorporation into an instrument pursuant to 444A, then 444B becomes engaged:

The company must execute the instrument –

must –

within:

(a)      15 business days -

of the creditor’s meeting, subject to extension of the Court:

(5)The proposed administrator of the deed must execute the instrument before, or as soon as practicable after, the company –

Pending execution, the creditors who would be bound by it must not act inconsistently with it.

So in effect it has an interim binding effect.  Now, before one comes to the critical 444D it is important to note the following provisions which surround it and we say assist in an understanding as to its meaning.  Firstly, section 444E, which I indicated.  That provides for matters prior to the termination of the deed, firstly, a person bound by the deed cannot pursue an application to wind up the company or commence or pursue litigation:

except:

(c)      with the leave of the Court –

So in other words there is no absolute moratorium provided for quoad the company, the subject of the deed.  No such limitation – if our learned friends are right – in respect of claims against third parties.  Under 444G your Honours will note that:

A deed of company arrangement also binds:

(a)      the company; and

(b)      its officers and members; and

(c)      the deed’s administrator -

without any qualification. 

GUMMOW J:   Sorry, 444?

MR HUTLEY:   Section 444G.  Then one comes to section 444H which your Honours were taken to and it says:

A deed of company arrangement releases the company from a debt only in so far as:

(a)      the deed provides for the release; and

(b)      the creditor concerned is bound by the deed.

Now, that is a specific direction to incorporate a matter.  True it is it relates to debts, but there will be many situations in our learned friends’ formulations where the claims on third parties will be claims for debts.  Guarantee is perhaps the classic variety, which has to be in the deed, but for some reason – some unexplained reason – does not have to be there if it is against a third party.  Section 444J deals with the provision that:

Section 444H does not affect a creditor’s rights under a guarantee or indemnity.

Now, we accept our learned friends’ submissions that the object of this provision was to make clear that guarantees were not affected solely by the release of the underlying debt owed by the company and, therefore, does not in terms address the question whether a deed can effect the compulsory release, or other limitation upon, a guarantee or other security of a third party. 

However, again we point out that, as it were, it reflects a conscious direction by the legislature the specifics of a problem associated between creditor and company and does not take up other issues which one would have thought would deal, but I say no more on that now.

HAYNE J:   Can I interrupt you at this point to see if I understand where we have got to so far.  One:  the compromise of a claim that is contemplated by Part 5.3A is and only is a compromise of a claim against the company which is the subject of the proposed deed.  Step one?

MR HUTLEY:   Step one.

HAYNE J:   Step two:  do you accept that the terms and content of the compromise are not expressly confined or prescribed by the Act?

MR HUTLEY:   Quite.  The way in which that compromise could affect, to take the example your Honour took me to about capital, are many and varied.

HAYNE J:   Debt for equity or it could be moratorium; it could be compromise.

MR HUTLEY:   Many and various.

HAYNE J:   But the step that you say ought to be taken as a matter of construction is that the terms on which creditors compromise their claims against the company cannot include giving up a claim against another even if that claim is one that if made would or may yield a claim against the company.  Is that the essence of the point?

MR HUTLEY:   Yes, your Honour.

HAYNE J:   That is the field for debate, is it not?

MR HUTLEY:   Your Honour, the field for debate is slightly broader – and I will come to that – because I think that clearly encapsulates the position of my learned friend Mr Bathurst on behalf of Lehman Inc, although there is some uncertainty – and I will come to that.  When one gets to the position as I understand it advanced at least by my learned friend, Mr Coles – and when one reads the submissions of my learned friend, Mr Williams, I think they hint at the same position.  Mr Coles takes a much more expansive attitude.  As we read it his position is anything which a deed incorporates to get the deal done binds the creditor.

HAYNE J:   That may be a proposition of such breadth and generality that it may require some refinement of consideration before it is accepted.

MR HUTLEY:   Your Honour, in one way – and I will come to it in due course – there is a, in effect, purity in my learned friend, Mr Coles’ approach which overcomes – and we say it is unacceptable for the reasons that it is so extraordinary, et cetera, but my learned friend, Mr Bathurst’s principle - and I think also the primary position of my learned friend, Mr Williams, runs the intractable – the textual difficulty that one has to in effect import some form of ellipsis or identify an ellipsis in 444D(1) and insert it between “so far as” and “concerns”.

HAYNE J:   I think that an answer that might be made to that, which I understood Mr Bathurst to be making, was that in 444D(1) no ellipsis or other variation is to be made to the language.  Rather 444D(1) is simply saying who is bound.  Creditors are bound.  Who are creditors - those who have claims against the company.  You have to deal with the fact that that class of persons identified only in that way may include persons who have continued to deal with the company after a critical date.

MR HUTLEY:   My learned friend’s submissions in writing, I think, say that the work is done in “so far as concerns”.  That is what the written submissions indicate and that is what my learned friend indicated.  I know there was a possibility raised that Brash’s construction – and it was not addressing the point – is that one possible reason for the words “so far as concerns” was this.  We would say that, even accepting that that was a reason, the choice of terminology reflected what we say was the common assumption at the date of enactment, namely the Buildmat position, that it could not go beyond it so “so far as concerns”, in effect, was constraining in a way which was obvious and serving the purpose in Brash’s.

HAYNE J:   But the Buildmat understanding which builds on Isles and what Justice Isaacs says in Isles is looking to a court saying to itself, “Who do I have in front of me that I am dealing with?  I am dealing with creditors of a company.  I can, by making an order, effect a certain statutory consequence because I am dealing with creditors, but I cannot deal with third parties who are not creditors.  I cannot deal with the company that stood off in the Justice McClelland case”.

MR HUTLEY:   In my respectful submission, it goes beyond that and the assumption was that you could only deal in qua creditors, that means qua their position as a claimant on the company.  It has moved beyond that but, in our respectful submission, that was the clear understanding of the jurisprudence.  It may now be wrong and, in effect, that assumption underlay the whole of the Harmer Report.

HAYNE J:   Yes.  I am not seeking to challenge that debate.  I recognise that there is a challenge made or I think there is a challenge made but for the moment I am not ‑ ‑ ‑

MR HUTLEY:   Well, I think Mr Bathurst, in effect, accepted the understanding ‑ ‑ ‑

HAYNE J:   Yes.  I am not concerned with that at the moment.  What I am concerned to invite your attention to is whether the Act is to be approached on a footing that those who are bound are creditors, those who have claims as understood in the liquidation provision of what a claim is, but the Act is silent as to the terms on which the compromise is made.  You say the silence reveals that you cannot include a term that you will give up some other claim.  Is that the essence of the point you make?

MR HUTLEY:   Well, your Honour, what we say it is not – we would put it this way.  There is an issue as to – at a theoretical level – if you have a creditor of a company, what rights of that creditor can you impact upon?  I use the word “rights” in a broad sense.  That, we say, is something which has to have a bright line answer or it has to have an answer which is addressed by the legislature in a sensible fashion in respect of schemes of arrangement because one has to have an ex ante identification of the scope of operation of the scheme, otherwise one is plunged into a position of hopeless uncertainty.

HAYNE J:   Accept the force of all that, that you must deal only with claims of creditors, but the question is on what terms can you deal with it.

MR HUTLEY:   I understand that.  But we say – no, what we say is the legislature addressed the scope of the terms in the words of “so far as concerns”.

Those words are delimiting words, and they are not just purely temporal delimiting words.  They are delimiting because they serve to identify and qualify the subject of the antecedent clause – binds how?  So far as concerns creditors - we say the same meaning as “to the extent of”.

HAYNE J:   How then do you accommodate D(4), which is the debt equity swap provision contemplation?

MR HUTLEY:   Because all it says is the debt equity swap is the equity, the debt for which you get equity has to be claims on the company and it cannot, for example, be debt against a third party.  You cannot in effect say, “I will give you more equity in this company for taking away claims against X, Y and Z”, because ex hypothesi you cannot take it.  We say the structural features – I think I have answered your Honour’s question, the way we put it.

GUMMOW J:   You link 444D with 444G.

MR HUTLEY:   Yes, just by contrast.

GUMMOW J:   Are there any other binding provisions.

MR HUTLEY:   No, that is it.  In effect, what it says is – one could obviously have contractual binding if everybody signed up - set that aside.  Other than that, what we say is there is a resolution identifying scheme, instrument including terms, execution of instrument, legal force given to it, to the extent to which the legislation specifies upon the people it specifies with the limitations it specifies, critically 444D(1).

GUMMOW J:   But 444D(4) ‑ ‑ ‑

MR HUTLEY:   In the sense was there ex excessio cautela in one sense because there was a suggestion that one could not issue capital whilst there was a scheme, whilst there was administration.  In effect, it was really just saying the parties - you can impose upon creditors of the company that they become in effect joint venturers, venturers or shareholders in a company as part of a scheme.

HAYNE J:   It deals explicitly with 231, which says in effect you become a member only voluntarily.

MR HUTLEY:   Yes, exactly.

HAYNE J:   And D(4) is saying you can become a member compulsorily.

MR HUTLEY:   Exactly, but we say but only in return for your claims upon the company.  We say that is perfectly consistent with what one would expect, having regard to the scheme.

FRENCH CJ:   The term “so far as concerns” in 444D(1) is able to be read, is it, as a reference back to the terms of the deed of company arrangement, that is to say, so far as it concerns?

MR HUTLEY:   That is the ellipsis point between “so far as it”.  That is one way of possibly construing it, and then you ask the question what is the content of that.  As I understand, we would say it concerns the claims on the company that deals with them.  We say its more natural meaning is to the extent of, for the reasons we have indicated.  My learned friend, Mr Bathurst, would say - and it is a problem for him, is because the “it” then becomes the terms, and the terms concern not necessarily by reference to antecedent factual situations, but by virtue of the bargain imposed.

That, as I understand, is the weight – I will come to develop this a little further in a moment – of the position taken by Mr Coles principally.  You can put anything in there because, by definition, once you have put it in the deed and it affects what the claimant on the company is getting for their claim on the company it concerns, I think that is how they seek to put it. 

KIEFEL J:   Mr Coles’ argument would have the subsection addressed to creditors to say, “Your claim on the company is subject to the terms of the deed of company arrangement”?

MR HUTLEY:   Yes, and whatever those terms are and if, in effect, you want ‑ ‑ ‑

KIEFEL J:   It just turns on what an arrangement means.

MR HUTLEY:   If you want your creditor’s pet poodle and that is the terms upon which you put the money in, Mr Coles would say, by demanding the pet poodle it concerns that claim and it is in.  Now, you may, in effect, have to go off and have a pretty good case to set it aside, but he says that, in effect, the bargain produces the concerning, as we understand it.

FRENCH CJ:   But the question of if leaves the contested construction open, does it not?  I mean all it does is to say that the binding effect is that of terms which answer the description “concerns claims”.

MR HUTLEY:   Precisely and that is why we say that one – I mean, we say the ordinary and immediate meaning that one takes from it is our construction because it is delimiting and it is directing it to a topic by reference to which the delimitation takes place, accepting our construction of claims.  Then as the judges in the Full Court accepted there is a possibility of ambiguity here and then their Honours in one or other ways generally, essentially consistently went through and identified because of the structural aspects and all the other matters that we have referred to, the better meaning and the clearer meaning is what we are advancing. 

GUMMOW J:   Just a minute.  Sections 444D and 444D(2) and (3) ‑ ‑ ‑

MR HUTLEY:   I am about to come to those, your Honour.

GUMMOW J:   ‑ ‑ ‑ would suggest that were it not for those provisions the deed might have that effect.

MR HUTLEY:   On securities over the company?

GUMMOW J:   Yes.

MR HUTLEY:   Your Honour, I am just about to come ‑ ‑ ‑

GUMMOW J:   Is this phrase “secured creditor” limited in some way?

MR HUTLEY:   No, your Honour, it is not defined.  But traditionally, in respect of insolvencies in the matter a secured creditor of a company is a creditor who has security over the company in some way, or its assets.  A creditor of a company, for example, which has a guarantee, the benefit of a guarantee, is not and has never been considered a secured creditor of a company.  It is a creditor of the company who has security.

GUMMOW J:   I realise that.  It is not saying secured creditor of whom.

MR HUTLEY:   Can I take your Honour through that?  I am just about to come to those sections.  Can I take your Honour to subsection (2).  There were some other sections, I think, I will come back to, before we go to D.  It says:

Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security, except so far as:

(a)the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or

(b)the Court orders under subsection 444F(2).

If we could go to 444F, your Honours.  Now, 444F deals with the application – a meeting is convened, a company is executed.

(2)Subject to subsection 441A(3) –

as you do –

the Court may order a secured creditor of the company not to realise or otherwise deal with the security, except as permitted by the order.

and (3) where the court made the order and then it goes on.  If one goes back to 444D(1), your Honours will see that it says:

A deed of company arrangement binds all creditors of the company –

The reference to “secured creditor” in (2) is to the creditors of the company.  So, in effect, as is often the point, one has not used the word “of the company” again in D(2) because there is no need, having regard to the fact that it is clear in referring back to a sub specie of the class “creditors of the company” referred to in (1).  That is a structural aspect which finds reflection in other provisions which I have written down here which I will find in a moment. 

A similar usage appears in – I will find it, your Honour, in another portion of the legislation.  So what we say is that when one reads 444D(1) together, plus D(2) and F(2), it is quite clear that secured creditor is secured creditor of the company.  That is the usual usage of the concept “secured creditor” and we give your Honour a reference to Harvey v Commercial Bank of Australia in this Court where a secured creditor of a company is, in effect, a creditor of the company who has security over the company.

GUMMOW J:   What is the citation?

MR HUTLEY:   It is 58 CLR 382, the relevant passage is at 389 to 90.

GUMMOW J:   This is in point 5 of your hand-up.

MR HUTLEY:   Yes.

HAYNE J:   And is to be read in the light of provisions like 554D and following that in Subdivision C of Division 6 of Part 5.6 about secured creditors of insolvent companies.

MR HUTLEY:   Precisely, your Honour.  So the structure is in D(2), there is, in effect, a privileged position of secured creditors of the company.  They are only bound if they vote in favour of it.  Our learned friend’s case must be that creditors who have been silly enough to obtain securities from a third party can be bound irrespective of whether they consent and they are left to, in effect, running the gauntlet of an application to the court and proving, satisfying one or other of the requirements. 

Now, there is a point, we say, at which one is really attributing a rationality to the legislature, allowing for the possibility of an ambiguity in 444D(1).  But all the provisions we have taken you through show a structure which has at its heart a contemplation which we say is only consistent with our construction.  One has to attribute a perversity to the legislature to leave, in respect of anyone who is dealing with third parties, to firstly the need to approach a court to protect their positions, and secondly, to have to satisfy to a court one or other of the provisions which - could I take your Honours to shortly under 445D in the first instance.

Under section 445D the Court is given power terminate a deed if satisfied of a number of matters.  Subsections (1)(a) to (c) concern misinformation or omission of information that acts which either bore or may have borne upon the consideration of the administrator or creditors of the proposed deed of company arrangement.  Section 445D(1)(d) deals with a breach of the deed and section 445D(1)(e) means:

effect cannot be given to the deed without injustice or undue delay; or

(f)the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:

(i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or

(ii)contrary to the interests of the creditors of the company as a whole; or

(g)the deed should be terminated for some other reason.

These are no doubt important protective provisions - I do not for a moment suggest they are not - but each of them involve discretionary judgments, judgments which are of the nature of evaluative judgments about which minds could often reasonably differ.  Creditors who are in the position of claimants on third parties have to move, if our learned friends are right, and run the gauntlet to protect their property of being firstly in a position to prove facts sufficient at the time called upon to do it that would justify a finding by the Court.  One should not minimise, as your Honours in your experiences elsewhere particularly would know, the forensic realities of dealing with these sorts of applications and the problems of proof.

You will have to attribute to the legislature an intent to leave these people and these claims in that position with respect to the whole genus of the fact that you happen to have a claim or a right against the third party.  There you are at their utter mercy.  That points up the fourth, with respect, of the observations of Justice Rares about the principles of construction dealing with a misappropriation of properties in our respectful submission.

FRENCH CJ:   Appropriation, perhaps.

MR HUTLEY:   Misappropriation, extinction – losing – can I use it – losing property.  In our respectful submission the force of that principle whence one goes through the structure of it becomes ever stronger when one is left, as our learned friends are, pointing to what might be called vague hints on the basis of interpretation of bits of materials in the supporting materials as a basis for giving what we say is an exorbitant right but a right, if to be allowed, would be a right which the legislature would attend to and ensure was the subject of specific provision and appropriate protections.

KIEFEL J:   Is it beyond question that the creditors would bear the onus of showing that the provisions of the deed were unfair?

MR HUTLEY:   I think it is, your Honour.  It is an application, and I think the authorities are of one, that in the first instance it bears upon the creditors to satisfy the court of the matters – the objecting creditors of these matters in 445D(1).

HEYDON J:   Presumably, this would take some time and in the meantime the administrators are carrying out their duties.

MR HUTLEY:   Exactly, your Honour.

HEYDON J:   You would need to get an interlocutory injunction, presumably, to hold the status quo?

MR HUTLEY:   Could, with an undertaking as to damages, of course, your Honour, with all the potentially oppressive matters attended.  When one reads the materials one of the things that has been contemplated to be done here is to be dealing with what might be called trading failures, businesses, big, small, but average size which happen all the time.  To protect one’s position one has to, in effect, run the very significant risk of throwing good money after bad on an undertaking as to damages without any protections at all or any certainty or times.  We say it is an uncommercial construction in that respect.

Your Honour’s observation is exactly the sort of things that a statute dealing with commercial realities would address. This would have been exactly the sorts of things which would have been debated in the Harmer Report, if it was contemplated. The other section to which you were taken of this defensive variety is section 600A. Section 600A whilst no doubt an important ‑ ‑ ‑

GUMMOW J:   The reasons that you have just been discussing with Justice Heydon help explain 442D(2), do they not?

MR HUTLEY:   Yes, I agree, with respect. Exactly. I just should mention 600A. Section 600A, your Honours were taken to by my learned friend, Mr Bathurst, which is a provision which deals with the court’s powers in what might be described as a limited circumstance.

GUMMOW J:   It also helps explain D(3), does it not, when you read D(3) with F(4)?

MR HUTLEY:   I accept that, your Honour.

GUMMOW J:   Again, you could have lessor/lessee situations that could get tied up in an application under this other provision.

MR HUTLEY:   Yes. The last provision I should take you to and then I just want to make some general provisions on the broader question, if I can, shortly – back to 444D(1). Section 600A your Honours were taken to. This is a provision which applies in what might be called a number but limited circumstances. That is the first point to be made. One has to satisfy for its engagement each of (a), (b) and (c). As to the class of creditors’ point we would say that that is really not sustainable because that class of creditors is clearly a reference back to the class which is identified is a class in respect of the – under 600A(1)(a)(ii) dealing with the 5.1 body.

We accept the point that your Honour Justice Hayne observed to our friend that one could deal with it but it does not address really the substance of our point because it is dealing with something which may in point of fact be relevant to our case but not in point of general principle relevant to the construction of the division as a whole.

Now, we have indicated what our submission is that “so far as” means to the extent of, that is only for those.  We have dealt with the appellant in Lehman Australia’s submissions in our written submissions at paragraphs 37 to 62.  If we assume that “claims” is as we have submitted we submit that our learned friends are, in a sense, driven to the proposition that there is an ellipsis between “so far as” and “concerns” and it would appear to be “it” being the deed of company arrangement or the terms of the deed of company arrangement as a matter of the ordinary English.  It would appear, therefore, they are driven to the proposition that it is to the DOCA – the deed of company arrangement – or its terms that one must then look and those terms, they say, bind so far as they concern claims on the company and no further.

The deed of company arrangement which purports to affect a claim by a creditor of the company on a third party raises the question again, does that provision concern a claim by the creditor of the company?  One answer and our answer would be, well it does not.  It concerns another claim.  However, the argument might be put and this is we understand what our learned friend, Mr Coles, put that all provisions of a deed of company arrangement which affect the entitlement of a creditor with a claim upon the company might be said to concern the claim of the creditor against a company in the sense that they may at least commercially affect that claim against the company produced by the operation of the deed.

…..assume that creditor A of the company requires a deed to contain a provision releasing cause of actions by creditor B against creditor A as the price of creditor A, paying X dollars into the company for distribution under the DOCA to creditor B, or partially to creditor B in satisfaction of creditor B’s claim on the company.

As we understand the position advanced by Lehman Australia the provisions of the deed of company concerning the payment by creditor A and the release required of creditor B of its claim on creditor A concern the claim on creditor B on the company, in that the provisions have a relation to that claim, being that they are the price of the contribution of the X dollars and affect the value of creditor B’s claim on the company in the administration.  That is, as we understand, how broadly it is put. 

Now, those terms concern in that sense the claim of creditor B, irrespective of any antecedent relationship between the claim of B on A and the claim of B on the company.  However, we say that such a construction is so exorbitant and out of keeping with the structure of Part 5.3A that it would only be adopted if compelling and, of course, it has a meaning completely at odds with the broadest view of Part 5.1 advanced in the United Kingdom provisions decisions and in Opes Prime.  As we say it would raise real questions as to the principles of expropriation.

Now, the position taken by Lehman Inc and Lehman Asia is somewhat more difficult to understand.  Each formulate criteria which are somewhat variable, both as between themselves internally and internally, but which concentrate on some nexus between the claims on the company and the claims on the third party.

Now, both Lehman Asia and Lehman Inc accept that the word “claim” is limited to claims on the company.  That was accepted by Lehman Asia in their submissions at paragraphs 43 and 59 and Lehman Inc, although it is not clear from the written submissions, was accepted by our learned friend, Mr Bathurst. 

The immediate problem, we say, that arises for the various constructions advanced by Lehman Inc and Lehman Asia is that they do not point to any textual matter which can delimit the connection in the way advanced.  They fail to deal with what is the ellipsis.  The formulation, we say, lies in an uncertain assertion as to the content and constraints of this.  Then one asks what are the precise metes and bounds of the nexus advanced by the appellants.  Firstly, does it involve all claims for common loss?  Secondly, does it arise for claims arising out of related facts and some common loss?  Thirdly, does the claims which could give rise for claim contributions such as equitable contribution, and what about defences to equitable contributions which could often arise such as lack of clean hands? 

How are they dealt with in this construction? Are they to be statutory claims to contribution or indemnity, or a combination of all of the above? For example, is there to be an exception with respect to claims involving securities, and if not, why not? Are the claims which have a statutory basis to be excluded, such as section 6 of the Law Reform (Miscellaneous Provisions) Act, and I will come to that to deal with the specific point raised by Mr Coles in due course. 

How, for example, does one deal now in Australia with the consequences of the raft of provisions which deal with what is called proportionate liability?  I am not sure whether your Honours have had the pleasure of descending into that morass yet, but this is a series of provisions which seek to, in effect, attribute entitlement proportionate to one’s assessed blame with respect to wrongs and, in effect, remove consequent rights to contribution.  Are claims of that variety to be within or without the purview of it, and if that is the case one will have a complete, we submit, shemozzle as to the extent of the operation of these provisions.

The position taken by Lehman Asia at least in their written submissions at paragraph 44 suggest that the broadest of constructions might be available, that is, that the deed of company arrangement provides for a regime of provisions which relate to the claim but draws back and refers to what it calls a group of company with interlocking claims against them.  This appears to be what they say is the touchstone and we say there is simply no textual basis for that. 

The position advanced by Lehman Inc through my learned friend Mr Bathurst is that the deed is capable of dealing with claims, which to use the words in paragraph 3, are intrinsically bound up with creditor’s “claims against the company”.  Standing back for a moment, how does one put that into the language of an instrument ex ante?

HAYNE J:   By defining claim as appears at 476, and using that term as the term that engages provisions like 11.1 is, I suspect, the answer that is made, Mr Hutley.

MR HUTLEY:   Quite, and then one asks - the question is, “What are you voting for?”  I mean, what has been communicated?

HAYNE J:   That brings us to 435A, and objects.  Is an object of this part to confront creditors with an immediate choice between continue to liquidate or compromise on terms in circumstances which, by necessity, are to a large extent, and I try to put it as neutrally as I may, to a large extent are unknown and unknowable.

MR HUTLEY:   Unknown and unknowable, quoad the company.

HAYNE J:   Yes.

MR HUTLEY:   Quoad the company.  We say yes, and it is so limited but it does not go on to the unknown and unknowable of every other company.  Can I say there is sort of a nasty, brutish and short element to this structure and for very good reason, with the protection at the back.  That is reflected in all the structures and we say it is just clear to demonstration, so understood, that no one ever contemplated it would go the way our learned friends, in one or other of their manifestations, are driven.

KIEFEL J:   In principle, though, do you say that there is an objection to there being a settlement of the claim against a company, the company in question, within the deed of company arrangement?

MR HUTLEY:   A claim on the company, no.  I can accept that there can be a release.  The creditors are on notice under this provision is, to the extent you have a claim in the broad companies law sense of claim, upon the company you can be affected by these resolutions.

KIEFEL J:   But you would deny the ability for there to be a settlement within the arrangement as amongst creditors, creditors inter se of that company.

MR HUTLEY:   Their claims upon one another, yes.  Their claims upon one another is a matter for them, and we do not have that here because ‑ ‑ ‑

KIEFEL J:   So you say there has to be a contractual element then?

MR HUTLEY:   Yes consensual, contractual element, and here – the possible beneficiaries of this release is any company which Lehman Inc ever holds a share in.  Any company which Lehman Inc directly or indirectly holds capital in.  It is not limited or intended to in any way be limited to Lehman companies, which happen to be also creditors of Lehman Australia.  It is the full panoply of the whole Lehman group, wherever it may be, and your Honours heard about special purpose vehicles, and God only knows where they are.

To return to the position of Lehman Inc they say intrinsically bound up with.  At paragraph 42 of their submissions they submit that the “sufficient connection…is a matter of fact” in each case and then goes onto deal with the position here.  Of course it may be accepted that many claims have the characteristics to a greater or lesser extent.  How is the line to be determined other than a formulation such as your Honour Justice Hayne observed which of course will inform one precisely of nothing.  Therefore, in a sense, to determine whether you are, one, bound; and, secondly, oppressed one will have to have a hearing of the matter to find, in effect, if the intrinsic characteristic is satisfied because what happens, for example, if there is a claim for equitable contribution and it is found at the end of the day there would be a prohibition on it because there was a lack of clean hands as between the co‑contributors.

Would that mean that the release did not exist or did exist?  In our respectful submission the problems inherent in such approach denies the possibility.  Finally, in respect of the construction question, two points.  I wish to deal with the use of extrinsic materials and insurance claims before we come to my learned friend, Mr Coles’ point.  Lehman Asia particularly, in paragraphs 10 to 26 of their submissions place reliance upon extrinsic material such as the explanatory memorandum to the Bill introducing Part 5.3 and the Harmer Report.  In answer to that reliance the first point is obvious.  Reliance on such material is no substitute for the starting point which is the proper construction of the text of the provisions themselves and it cannot displace what we say is the clear meaning of the text understood in its context.

The Court of course recently deal with that in Northern Territory of Australia v Collins and Another (2008) 235 CLR 619 at page 642 in Justice Crennan’s judgment. The secondary material referred to by the appellants relies on general statements such as the need for flexibility and a constructive and creative approach to corporate insolvency. These somewhat vague statements whilst helpful are helpful within a context of the limits which the statute imposes. That is to be contrasted with the detailed description of the intent of specific provisions dealing with the release of company’s debts. That is Harmer Report, paragraphs 116 and 120 and the explanatory memorandum at 592. I will not take your Honours to them. Secured creditors in the Harmer Report at 118 and 119 and explanatory memorandum at 586 and 588 and the moratorium against claims, which is dealt with in the explanatory memorandum at 587. Can I deal next with insurance claims?

GUMMOW J:   What do you say about section 435A, the object provision?

MR HUTLEY:   We say that our submissions are wholly consistent with that.  We say the object is to provide for the business property and affairs of the insolvent company, not the business property and affairs of other companies and other persons.  This in effect deals and deals explicitly – this agreement - if right, with the business property and affairs of a myriad of companies, potentially, throughout the Lehman Group.

That was its expressed object, and I will come to the severance point if your Honours wish to deal with it, given my learned friend…..but as Justice Perram, I think, observed and Justice Rares, the price for the provisions, in effect, deferring Lehman Group to the $43 million or whatever it is, was these releases and these controls.  That is what was important to them.  It was the central matter that they sought.  So what the deed was seeking to do was to deal with the business property and affairs of a series of companies throughout the world.  That, we say, is beyond the scope, purpose and object and simply outside the scheme.

Now, could I deal shortly with the insurance claims. The provisions of the deed are at application book 478, 485 and 487 and they purported to prevent creditors from taking any step in relation to insurance claims, including seeking leave to pursue any statutory charge on insurance moneys. Now, as your Honours are aware, under section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) and cognate provisions in the Northern Territory and the Australian Capital Territory, upon the occurrence of events giving rise to liability, a charge falls on the assets of insurance companies – and let it be assumed for the moment that charge is limited to assets within New South Wales – in favour of the claimant, person who has a cause of action.

That cause of action, that charge as this Court held in the Medical Defence Case is, in effect, a security interest conferred upon claimants against the proceeds or the assets of the insurer, and there are various protections in existence to prevent, for example, arrangements between the insured and the insurer to settle claims to the disadvantage of claimants. 

Now, that applies to claims in this case – take example.  If the Lehman Australia has insurance and there was a claim by someone, the person who had the first cause of action would have a charge to secure its claim. Similarly, if there was an insurance policy in favour of an American company, one of the American group, and the insurer had assets within New South Wales, there would be a charge on those assets in favour of a claimant against that organisation. 

We say that is a security interest.  We say it is a right, it is a very valuable right.  It is a right against a third party conferred by statute on people who happen to be, for argument’s sake, creditors of Lehman Australia.  Our point and our short point is that cannot be challenged under these deeds for the same reason.  We have a security interest, we have a right.  We have a right to be enforced against a third party ‑ ‑ ‑

GUMMOW J:   What provision of a deed would purport to do so?

MR HUTLEY:   Your Honour has to firstly go to the definition of “insurance claim”:

“Insurance Claim” means any claim for indemnity or other relief in relation to any insurance policy which insures or otherwise provides benefits to the Company or any Lehman Entity –

So it is an insurance policy in favour of Lehman Australia or Lehman entity –

in connection with any Claim or any claim –

and that is held to include a claim on Lehman entity –

including any claim under any statute, for the proceeds of, or a charge over the proceeds of, such insurance policy, but excluding any claim for indemnity under any insurance policy held by LB Asia.

Then, in effect, one has ‑ ‑ ‑

FRENCH CJ:   You have to read the construction then adopted by the Full Court.

MR HUTLEY:   Quite, yes and the construction is not in dispute.  Then, in effect, if one goes to clause 7, it says:

The Deed Administrators shall:

(a)realise and get in all the Insurance Proceeds and the Deed Administrators shall have the sole conduct and control of any Insurance Claim –

So, in effect, what it purports to it binding upon someone who has a right under section 6 is that that has been taken from them under that term. That is what it purports to do. Then, in effect, clause 9.2 has a moratorium, if your Honours go to that:

The moratoriums referred to in clauses 9.1(b) and 9.1(e) include any application to a court by any Litigation Creditor for leave to proceed or any proceeding for a charge in respect of any Insurance Claim.

KIEFEL J:   Are you saying anything about clause 8.3 in section 562 of the Act?

MR HUTLEY:   Your Honour, insofar as the funds come into the company, pursuant to the ordinary course of the company’s pursuit of the administration, we have no difficulty with that clause.  That is, in effect, as between claimants, because if the moneys come in to the extent that a charge has been – for example, we went to court, somebody went to court, did not get leave to proceed because the company was adequately dealing with it quoad the insurer, if the money then came in we would accept we would be bound in respect of that, because it would be money within the company.  But our position is that if our proposition is right what is the warrant under this statute for, in effect, taking away a security interest conferred by a statute on third parties?

GUMMOW J:  There would be a section 109 operation of the Constitution, would there not? There would have to be.

MR HUTLEY:   Yes, section 109 ‑ ‑ ‑

GUMMOW J:  You would have to say that section 444D insofar as it authorised these provisions of the deed then took force from section 109 to drown section 6 of the State Act.

MR HUTLEY:   Yes, your Honour.  There is a whole ‑ ‑ ‑

GUMMOW J:   It is not impossible, that is what you would have to say.

MR HUTLEY:  Your Honour, there is and one day your Honours will be entertained with it, a number of section 109 questions lurking around about the inter‑reaction between section 6 and the insolvency provisions of this legislation.

Your Honour, that is one of them.  There are others which have never entertained the Court.  But what we say is, our answer is, it does not concern a claim on the company.  This is a claim, a right we are given, a charge, which is measure by the claim to an extent because the insurer has defences which would be available to the company, for example, but it is a statutory right we have, which this Court has described as a charge.  Now a charge of the peculiar variety, and we have referred in our submissions to the consideration of this by this Court in the Medical Defence Case, but I do not need to take your Honours to it.  That is that point.

Finally, can I say a little bit about Opes Prime.  Our first proposition is one is really concerned with the understanding at the time in 1992, and I think that has been sufficiently addressed in the written submissions and in debate with the Court, to the extent that we say that the Re Buildmat understanding was that, and I will say no more.  We say for that reason, your Honours, firstly, would never come to consideration of the correctness of Opes Prime and do not need to.  But even if Opes Prime be correct, we say that the structural differences between 411 and 413 and Part 5.1 and Part 5.3A are so vast, that no assistance can really be obtained on this question from that.

The first point to be made is the language in 411, is language, in a sense, of ancient lineage, and its meaning your Honours have to give, having regard to that history and that context, whereas the lineage of Part 5.3A begins in 1992, that is the first point.  Secondly, the structural aspects of 411 and particularly the question of firstly controlled by the Court and, secondly, of how interests of parties are protected are vital.  The drafting problems which I have adverted to are the drafting problems in a scheme which are dealt with by experienced judges everyday in settling schemes.  It is their job, or part of the function of experienced judges to in effect debate the precise terms of schemes before any question arises as to whether the membership will be creditors or the membership will be given an opportunity to consider them.  That is the first protection, as to the certainty about which provisions - that provisions must have before consideration.

Secondly, the position of the creditors, to the extent that they have incommensurable interests, are protected by the requirement that classes be utilised.  One of the ironies of this case is that this case could have been simply – one wonders why we are here because if Re Opes Prime is correct one could have immediately proceeded to a scheme to try to do this, but of course the consequence of that would have been that there would have had to be a separate class being a separate class involving those with claims upon the third parties, almost inevitably.  It may be that that would - certainly there would have been a class which separated out the Lehman interest.

That, of course, would lead to inevitable doom for any scheme because one of the aspects of the class rules is that once a class is identified it is able to vote in its own self‑interest completely.  There are, of course, higher majority requirements before somebody is bound than required under this – under this legislation – and such protections.  We say that for that reason no real assistance can be obtained from 411.

Now, if it necessary to consider the correctness of Opes Prime we have made short submissions in our written submissions as to why we say it was wrongly decided but our principal position is that your Honours should not address that question because your Honours do not need to, and to be properly addressed it would involve a much deeper analysis than has taken place in the written submissions or before your Honours orally.  Now, the only point remaining, as your Honour looks up at the time, is whether I am to deal with Mr Coles’ points.

FRENCH CJ:   Well, perhaps before you address us on that, I might ask Mr Coles whether he presses paragraph 54 of his submissions in the light of your objection.

MR COLES:   .....

FRENCH CJ:   I am sorry?

MR COLES:   …..

HEYDON J:   Mr Coles, are you proposing to propound a new question 9 and to amend the process in this Court so as to accommodate your desire?

MR COLES:   …..

FRENCH CJ:   Perhaps if you could come to the podium, Mr Coles.

MR COLES:   Can I state the position shortly, as we would see it.  The Court, in our respectful submission, cannot answer a question whether the deed is void and of no effect by reason of the presence in the deed of clauses held not to be valid or binding without, in our respectful submission, considering the provision which the deed itself makes for that possibility.  In our respectful submission, that does not call into play any need to identify a new question 9, it is the matter of how one approaches the answer to question 7.2.

HEYDON J:   Do you not need special leave to cross-appeal?

MR COLES:   It is our submission not because it is covered by, in our respectful submission, existing grounds of appeal which contend for a different answer to question 7.2.

HEYDON J:   But those who are appealing are not taking this point.

MR COLES:   They are not, no, they are not.

HEYDON J:   You are, three respondents?

MR COLES:   I am the fourth, fifth and sixth respondents in each matter, your Honour.

FRENCH CJ:   Thank you, Mr Coles.

MR COLES:   That is the only matter I wish to draw to the Court’s attention.

HEYDON J:   Just my personal opinion, which of course is not necessarily shared by anyone else, is that Mr Hutley ought not to be expected to put any submissions against what you have put and your submissions are doomed to fail in the absence of any attempt to amend the process.

MR COLES:   Your Honour, the fact remains we have not sought special leave.  We have drawn the clause to the attention of the Court.  If the Court is confident that it may proceed to resolve the issues in the appeal, including the question 7.2 without the clause, then there is nothing I can or should add to that state of affairs.  May it please the Court.

FRENCH CJ:   Thank you, Mr Coles.  Just bear with us for a moment. 

Mr Coles, we will not entertain that point, and we will not therefore need to call on Mr Hutley to deal with it.

MR COLES:   May it please the Court.  Those are our submissions then, your Honour.

FRENCH CJ:   Yes, thank you.  Mr Peters, did you have anything to add to your written submissions?

MR PETERS:   Only something to subtract, if your Honour pleases.

FRENCH CJ:   Yes?

MR PETERS:   Could I take the Court to our submissions at paragraph 14?  There is a reference in paragraph 14 to footnote 15 in the third line.  That reference should not be included and we do not seek to rely on the report of the Parliamentary Joint Committee.  One other matter, with the Court’s leave, Justice Kiefel asked a question about onus under section 445D.  There is a case holding, as one would expect, that the applicant does bear the onus.  It is Bidald Consulting v Miles Special Builders 226 ALR 510. If the Court pleases.

FRENCH CJ:   Thank you, Mr Peters.  Yes, Mr Bathurst.

MR BATHURST:   Early on in his submissions, my learned friend, Mr Hutley, referred to what he described as the inchoate nature of the claims as being a reason that this type of proposal should not be entertained.  It is a very inchoate nature and uncertainty which make it desirable for creditors to have the opportunity to deal with it.  He also said towards the conclusion of his submissions that claims of third parties did not fall within section 435A:

The object of this Part is to provide for the business, property and affairs of an insolvent company -

In the present case, in our respectful submission, they claim you do.  They arise, with respect, to the same facts, the same transactions, and the same amounts of claims, and I have said what I wanted to say about contribution.  What the deed does to deal with that is firstly provide for a moratorium which is binding on all creditors including Lehman entities to the extent that they are creditors and then provides for a release of the Lehman entity claims.  Whilst the deed does not provide for a release of any claims the Lehman entities may have against the company, that does not matter because the effect of the release of the creditor’s claims and the third party claims will mean there is no opportunity to make any claims for contribution.

In that way the scheme, in our respectful submission, does fall, at least within the object clause, in section 435A.  We accept that this structure – whether one calls it “brutish” or otherwise – was designed to be implemented speedily but that does not deny the fact that the Court has power to extend the time for the convening of a meeting, and often does so particularly where there is uncertainly in relation to claims.  We have given you a reference in our written submissions to the decision of Justice Barrett in these proceedings where he extended the time for convening the meeting.  The meeting was held, as a matter of fact, some eight months after the administrator was appointed.

Speed is desirable, but if the administrator needs more time to investigate and put a proposal, then the Court will, if satisfied it is appropriate, give that time.  My learned friend placed a lot of emphasis on the position of secured creditors.  It has been no part of our case to say that a deed can override express provisions in the legislation.  Indeed, cases such as Gee v Schmutter to which I referred the Court in‑chief, make that clear and it was pointed out in the context of Part 5.1 in Opes Prime.  But, if one analyses it in the present case, the rights of secured creditors, if there were any, under section 439C, 441D, 441H, and section 441JA, I think is the third one, only arise during the period of administration which of course predates the deed of company arrangements.  They are in effect, in our respectful submission, irrelevant to the question in issue here.

So far as 444D and F are concerned, if as a matter of fact the arrangement, or any arrangement, abrogated the rights of secured creditors conferred by those sections, then the deed would be liable to be set aside as being in conflict with the provisions of the Act.  As a matter of fact, in the present case it does not do so and the problem simply does not arise, and the fact that one cannot provide in deeds, inconsistent with the Act, takes, in our respectful submission, a great deal of force away from Mr Hutley’s contentions, so far as construction is concerned.  Further, the fact that a deed of arrangement is a defined term does not alter the fact, in our respectful submission, that the deed is an arrangement between debtors and creditors having statutory force in exactly the same way as a deed of arrangement, under Part X of the Bankruptcy Act, was a deed between debtors and creditors having the same force.  One cannot get away from the fact one is dealing with an arrangement, and we submit that the statutory definition does not affect that position.

My learned friend placed some emphasis on section 444A(4).  He accepted that that did not set out all matters that could be included in the deed, and indeed it is fairly apparent in our respectful submission that it does not do so.  One notable absence in 444A(4) is a requirement that would commonly be found in deeds of a method of valuing claims.  That is a matter that is left to the creditors.  All, in our respectful submission, 444A(4) is doing is inserting material and requiring insertion of material that generally speaking, will be common to all deeds.  It does not in any way limit, we would submit, the power of creditors to put in other matters, if they consider it appropriate, and which are not in conflict with the Act.

HAYNE J:   But it is said against you that the binding so far as language of section 444D(1) limits what the statute permits creditors to be required to give up to their claims.  That is the essence of the case against you.

MR BATHURST:   I accept that.

HAYNE J:   What answer do you make to it?

MR BATHURST:   We make this answer:  We say that the words “so far as concerns” relates back to the deed of company arrangement.  We say concerns means relates to.  It is a construction equally open in our respectful submission as to the extent of, and we say that in the present case, because of what I have described as the interlocking nature of the claims and because of the claims for contribution, in the present case whatever be the ultimate bright line, if the releases in this case fall within those words.  That is the nub of the issue.

I have said all I wanted to say about sections 444E and section 444H in‑chief and I will not repeat what I said previously.  Section 444G my learned friend refers to.  That, in our respectful submission, was inserted to overcome what was demonstrated to be a problem in schemes of arrangement by Justice McClelland in Glendale, namely, the scheme administrator was not bound by the scheme.  What it deals with is persons who are, generally speaking, required to be bound to enable the deed to operate effectively.

It was not our case below and it is not our case in this Court that the capacity, if I could call it that, of Part 5.1 to effect third party releases was generally known in 1992.  Our proposition was that if as a matter of fact it can be done under Part 5.1, then Part 5.3A should be construed liberally to give the same result.  As a matter of fact the position in 1992 seemed to be this, the only case that dealt directly with the issue was Buildmat, where Justice Needham in reliance on a decision of the New South Wales Court of Appeal in Bridges v Hershon provided that such a clause could not operate because the scheme affected creditors only in their capacity as creditors.

Whilst one hesitates to differ from a judge with the experience of Justice Needham in this area, Bridges v Hershon in fact did not go that far.  Bridges v Hershon involved a scheme of arrangement which had previously been approved by Mr Justice Jacobs, as his Honour then was.  The scheme involved the issue of shares to various persons to enable them to take the benefit of the tax losses in the company.  After the scheme had been approved a person who at the time was a well‑known litigant in New South Wales a Mr Boris…… came along and objected to it.  The Court found that as a matter of construction of the scheme it was not bound.

In the course of the case Justice Asprey, with whom the President agreed, indicated some reservation that a scheme could deal with third parties coming in as the unit holders were but did not decide the question and certainly did not go as far as Justice Needham seemed to attribute.

GUMMOW J:   I know, that is why Justice Needham said compare Bridges v Hershon.

MR BATHURST:   I accept that, yes.

GUMMOW J:   He just did not want people to think he had overlooked it.

MR BATHURST:   I accept that also.

GUMMOW J:   Which is what wise judges do.

MR BATHURST:   I also accept that.  In the South Australia decision which we have made available a copy to your Honours and I do not wish to take you to it - that is A & C Constructions the Chief Justice Dr Bray and Justice Wells did not have the same reservations, although Justice Bright seemed to take the same view as Justice Asprey tentatively expressed in Bridges v Hershon.

FRENCH CJ:   This is in [1970] SASR 565.

MR BATHURST:   Yes, at page 569 is the relevant passage from the judgment of the Chief Justice.  I will not read it to your Honours.  The issue in Glendale and in Buka Minerals, to which your Honour Justice Gummow referred yesterday, was whether outsiders could be bound – what were described as outsiders, that is persons neither members or creditors, could be bound by a deed in the absence of a deed poll indicating they would be bound by its terms.  His Honour held no and, with the greatest respect that was correct, and since that time, of course, third parties have been bound by the use of a deed poll.

We have put in our written submissions why we submit the Full Court was correct in Opes Prime.  We do not need it because the analogy with the bankruptcy deed of arrangements is an even closer one and I have said what I want to say about that there.  That is all I want to say in reply, except to do one thing, I gave the Court yesterday a decision of the Chancellor in Perpetual Trustee Company Limited v BNY Corporate Trustee Services.

GUMMOW J:   Has not that gone to the Court of Appeal?

MR BATHURST:   That was what I was about to say, I probably should not have because it went to the Court of Appeal.  The Court of Appeal has delivered judgment affirming it.  We have given your Honours this morning a copy of that judgment.  The Court of Appeal refused leave to appeal to the Supreme Court.  We have not been able to find out in the time whether the Supreme Court has given leave or not.

HAYNE J:   I thought there – I may be quite mistaken – I thought there had been an indication that leave would not be sought but that may be quite ‑ ‑ ‑

MR BATHURST:   No, that is in the other Lehman case, the UK, the trust case.  That is correct, it is that case.

HAYNE J:   I see.  That one.

MR BATHURST:   I just do not know about this one, but your Honours have the judgment of the Court of Appeal.  They are our submissions, if your Honours please.

FRENCH CJ:   Thank you, Mr Bathurst.  Mr Williams?

MR WILLIAMS:   Can I just correct a factual matter that was put by my learned friend Mr Hutley yesterday.  In somewhat pejorative and colourful terms he described what had occurred as a clan of Lehman entities operating so as to force their will on other creditors who had claims of $650 million in return for a contribution of $40 million.

At 341 of the appeal books, your Honours will see that Lehman Asia is the largest creditor in this company of $140 million, based on the figures as ascertained at that date.  Your Honours will see from page 344 that the $650 million figure which has been referred to is a notional figure – it is actually $625, at page 344.  That involves 308 potential claimants having potential claims based upon the model of $625 million, and your Honours will see from the same page that in fact, only 48 of the potential claimants had made claims, at least at the date of that report.

Finally, your Honours may have the impression that the dissenting creditors constitute the bulk of the potential claimants.  In fact, they constitute approximately 23 per cent by value and 18 per cent by number.  The calculations are set out in our defence which is at page 52 of the appeal books and which works upon the figures contained in the reports.

FRENCH CJ:   That percentage is of the dissenting creditors, is it?

MR WILLIAMS:   Of what are called in the claim “the litigation creditors”.

FRENCH CJ:   I am sorry, yes, I see.  That is the percentage that the dissenting creditors are of the litigation creditors?

MR WILLIAMS:   Yes.  I appreciate that these matters are not central to the legal question, but there has been a factual discussion that we submit does not put things in their correct context.  Finally, in that regard, of course both the appellants are themselves the subject of external administration.  What this is ultimately about is the extent to which those external administrations can make returns to the creditors in those other jurisdictions.

Secondly, can I deal with a point my learned friend made about the structure of the division.  It was submitted that the structure did not contemplate arrangements of the type with which we are concerned, that is, ones that contained a third party release, or as we alternatively describe it in our appeal documents, related entity releases, because that is really what we are talking about in the context of these proceedings.  The submission we make about that is that one is not really searching for a specific legislative intent as to whether or not to include third party releases within the scope of permissible arrangements.  Rather, here what we have is a legislative intent not to fetter the nature of arrangements which might result from the operation of the part.

In that regard, although it is a statement from another jurisdiction, may we just draw your Honour’s attention to the quote which we have set out in paragraph 25c of our submissions, that is from the Metcalfe decision from the Court of Appeal for Ontario, referring to the Canadian equivalent of Part 5.1:

“Parliament wisely avoided attempting to anticipate the myriad of business deals that could evolve from the fertile and creative minds of negotiators restructuring their financial affairs.  It left the shape and details of those deals to be worked out within the framework of the comprehensive and flexible concepts of a ‘compromise’ and ‘arrangement’.”

We would submit that statement is equally applicable here, save of course that one is not talking about compromises as well.

When one is dealing with a legislative process which did not seek to examine particular types of provisions which might be included in a commercial arrangement, such as could be included in a deed of arrangement, nor a legislature which attempted to define, confine or circumscribe the types of arrangements that could be made under the new streamlined procedure, it is unsurprising that there is a silence in the legislation as to matters such as third party releases.  If the legislative scheme is as we have described it, it would be unusual to find specific reference to a feature such a third party release.

GUMMOW J:   Is this in reply?

MR WILLIAMS:   It was in connection with the structure point, but perhaps I have said enough about it.  Thirdly, in relation to section 444D, the submission that we would make about it is this; so far as concerns either deals – I am sorry, I will put it this way – the first submission we would make is that “so far as concerns” is dealing with the identity of the creditors identified in a temporal sense.  If that is the case we have a deed of company arrangement and therefore it binds the creditors.  That is the first submission.  The alternate submission is that if the phrase “so far as concerns” is supposed to in some way confine the types of permissible arrangements it is an undemanding test, and we set out what we say about that undemanding test in paragraphs 43 to 45 of our written submissions.

Finally, there was some discussion yesterday about whether there might be a deficiency in the factual matters with which the Court is concerned in dealing with the questions which have been posed and answered.  The course that seems to be the appropriate one, if the Court comes to that view, is that described in Bass v Permanent Trustee Company Limited and Others, particularly at paragraphs 38 and 59; that is, one either answers the question with such qualifications as are necessary, or if it is on proper analysis incapable of a proper answer on the material that

accompanies that question, the answers to the questions are set aside with an answer inappropriate to answer.  May it please the Court.

FRENCH CJ:   Thank you, Mr Williams.  The Court will now adjourn until 2 pm in courtroom number two.

AT 12.25 PM THE MATTER WAS ADJOURNED