Lehman Brothers Holdings Inc v City of Swan & Ors

[2009] HCATrans 323

[2009] HCATrans 323

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S285 of 2009

B e t w e e n -

LEHMAN BROTHERS HOLDINGS INC

Applicant

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 S286 of 2009

B e t w e e n -

LEHMAN BROTHERS ASIA HOLDINGS LIMITED (IN LIQUIDATION)

Applicant

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 HOLDINGS INC

Seventh Respondent

Applications for special leave to appeal

FRENCH CJ
GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 DECEMBER 2009, AT 10.29 AM

Copyright in the High Court of Australia

__________________

MR T.F. BATHURST, QC:   May it please the Court, in the first of the matters I appear with my learned friend, MR A.J. PAYNE, SC, for the applicant, Lehman Brothers Holdings, which is the seventh respondent in the second matter.  (instructed by Jones Day)

MR N.C. HUTLEY, SC:   If your Honour pleases, I appear with my learned friends, MR A.P. COLEMAN and MR D.R. SULAN, for the first to third respondents in both applications.  (instructed by Piper Alderman)

MR B.A.J. COLES, QC:   If your Honour pleases, in each of the applications I appear with my learned friend,  MR P. KULEVSKI, for the fourth, fifth and sixth respondents in both matters.  (instructed by Clayton Utz)

MR D.L. WILLIAMS, SC:   If your Honours please, I appear with my learned friend, MR M.J. STEELE, for Lehman Brothers Asia Holdings Limited (in Liquidation) in each of the matters.  (instructed by DibbsBarker Lawyers)

FRENCH CJ:   Yes.  Thank you.  The Court would be assisted if it heard first in opposition to the grant of special leave, Mr Hutley.

MR HUTLEY:   Your Honour, the applications by Lehman Brothers Holdings Inc and Lehman Brothers Asia Holdings Limited (in Liquidation) each essentially raise one point which, in our respectful submission, might be of interest to this Court, that is, whether a deed of company arrangement can bind creditors of the subject company so far as concerns rights of action against third parties or claims against third parties.  The other questions which are sought to be exposed in the application for special leave, in effect, are dependent cascading questions on that, and if that is not a question which would entertain your Honours, in our respectful submission, none of the others would. 

Now, that point focuses upon the meaning of section 444D of the Act in Part 5.3A, which your Honours no doubt have, and particularly 444D(1), namely:

A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before –

a date which is a date specified in 444A(4)(i) of the Act.  Now, it does no longer appear to be controversial that claims in that subsection refers to claims on the company.  Now, in the arguments which have been advanced in writing by our learned friends, there does not seem to be any debate about the, in effect, exercise undertaken by the Full Court as a matter of law insofar as it dealt with an approach to statutory construction.  The contentions seemed to be that the Full Court arrived at a wrong conclusion in relation to that question.

In our respectful submission, beyond what we submit is the obvious force of the simple words of 444D(1) themselves, namely so far as concern claims, claims upon the company, which would limit the operation of the binding effect of such a deed to such claims, other textual and other matters relevant to construction powerfully support the construction arrived at by the Full Court.  Firstly, and in our respectful submission, not to be underestimated, is the complete absence of any reference throughout Part 5.3A, a very what one might call detailed series of provisions, of any suggestion of a capacity to control claims possessed by creditors of the company against third parties, and in fact the presence of various sections which, if such an exorbitant power were sought to be conferred, one would imagine some reference, directly or indirectly, would be made to such a capacity. 

If I could take your Honours shortly to some of those sections which were all referred to in the judgments in the Full Court, and I will not take you to the passages in the judgment because it is quicker to take your Honours to the sections.  Section 444A is a provision which specifies, inter alia, that which is required to be present in a document which by operation of the division can become a deed of company arrangement, and that is in subsection (4).

Importantly, one notes 444C and 444D, that is the deed must contain, specify the nature and duration of any moratorium provision for which the deed provides, and secondly, 444D to what extent the company is released from its debts.  Those provisions, each of them find analogues which deal in detail with those matters, and your Honours will find those at 444 – one of the happy things about these – 444H with respect to releases and 444E with respect to the moratorium.

Section 444E provides a prohibition, in effect, on any person the subject of a creditor where a company is the subject of a deed bringing claims against the company, except by leave of the Court.  One of the consequences of a construction such as advanced by our learned friends is no such protection would exist with respect to claims by creditors against third parties, namely, as these deeds purported to do, one could absolutely bar any application against claims against third parties by creditors which the legislature has specifically precluded from being done in respect of claims on the company.

Now, we say that is a telling indication that it would be beyond strange for the legislature to, in effect, protect creditors in their claims upon the company the subject of the very deed by protecting them in allowing them to, in effect, attack the company through litigation, yet give no such protection in respect of attacks upon third parties where one has such claim. 

Next, under 444H, where a release of a claim upon the company is to be effected by the deed, it is provided that:

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. 

That is done for the reason which I will develop in a moment, associated with the fact that deeds operate from the time of execution and even if later set aside, to the extent that an act has been done under the deed, that act is valid.  We say it is, and as the Full Court observed, highly telling that no such requirement is made if our learned friends’ construction is involved in respect of release of claims by creditors against third parties, such that, for example, if the deed purported to authorise an administrator to release a third party, in the event, for example, that the third party contributed money into the arrangement, and if that release was issued on receipt of that money, that release would be effective irrespective of whether the deed was ultimately set aside for other reasons and that would be by virtue of 444H, which provides that the termination of avoidance in whole or in part of a deed of company arrangement does not affect the previous operation of the deed.

One of the reasons why 444H is there is that in the effect that the deed is found not to bind creditors because it is set aside, no release can be operative.  In other words, one of the extraordinary, and we say results of a construction such as advanced by our learned friends, is that creditors insofar as they have claims not upon the company but upon third persons, the legislature has determined not to protect them in the manner which it has determined to protect them in respect upon claims of the company, at least insofar as moratorium and releases are concerned.

GUMMOW J:   What is the significance of 445D(1)(e)?  If this went ahead, would your clients be able to approach the Court relying on a provision like that?

MR HUTLEY:   Your Honour, the proceedings were originally commenced as proceedings seeking to set aside the deed, inter alia, on those bases, but the important point ‑ ‑ ‑

HAYNE J:   …..unfairly prejudicial.

MR HUTLEY:   Yes.  The point of course being, your Honour, is that until that suit is heard and determined, the deed is operative.  It is operative from the moment of execution.  The point is that under 445H whatever is done under the deed, pending the determination of whether it is valid or invalid, is itself valid.

HAYNE J:   That is a view that depends upon the construction of 445H.

MR HUTLEY:   I understand that, your Honour.  But what we say is that the structure of the division has specifically addressed, particularly in 444A, what has to be in the deed, through 444E what the effect of the moratorium is, through 444H how it releases to appear and what its operation is, and we say it is passing extraordinary to imagine that the legislature would allow that structure to be in place with respect to claims upon the company with absolutely no provision of an equally protective variety for claims not upon the company but on third persons, and this is a fortiori depending upon the construction which our learned friends advance.

For example, my learned friend, Mr Bathurst’s client, says that for a claim to be a third party claim which can be encapsulated within a deed of arrangement it has to be one which effects or is connected with – and your Honours will see that from paragraph 29 in their argument, application book 181 ‑ ‑ ‑

HAYNE J:   As to that point, are you familiar with the decision of the English Court of Appeal in November last and paragraph 65 of that decision?

MR HUTLEY:   Yes, but, your Honour ‑ ‑ ‑

HAYNE J:   It was under, of course, the equivalent of a section 411 scheme, I understand that, but ‑ ‑ ‑

MR HUTLEY:   I accept that, your Honour.

HAYNE J:   Your argument is an argument, is it not, that denies the validity of the reasoning adopted in the English court when translated to the DOCA provisions of the Australian Act?

MR HUTLEY:   No, your Honour.

HAYNE J:   No?

MR HUTLEY:   Your Honour, the English case, in our respectful submission, turned upon a question of construction of what is an arrangement or ‑ ‑ ‑

HAYNE J:   I understand that.  That is why I direct you particularly to paragraph 65 and the proposition that an arrangement between a company and its creditors must mean an arrangement which deals with their rights inter se as debtor and creditor.  That formulation does not prevent the inclusion in the scheme of the release of contractual rights or rights of action against related third parties necessary in order to give effect to the arrangement proposed.  That is the proposition ‑ ‑ ‑

MR HUTLEY:   That is what I took it to be, your Honour.  We say that is textually – that was available as a matter of construction on the word “arrangement”.  What we say it is not textually available on so far as concerns, and therefore we say we do not deny it, or do not need to deny it.  Thirdly, we say this.  The other indicia in the division make the construction so extraordinary that, in effect, one would have to presume a perversity that to protect claims upon the company more than you protect claims against third parties.  That seems to be the logic of our learned friend’s submission.

GUMMOW J:   Mr Hutley, you may be right about all of this.

MR HUTLEY:   I hear that.  I know what is coming next, your Honour.  I thought three was supposed to be here for a reason.  This is all being denied.

GUMMOW J:   Is there not a question of some public importance?

MR HUTLEY:   Your Honour, what we say is this.  There was an interesting question before the Full Court.  We say that the Full Court has exposed in conventional fashion in great detail the reasoning and argument.  We say that once that is exposed, that the argument available leads to such perverse results, or potentially perverse results, that it is not one where there would be sufficient prospects that your Honours, or a majority of your Honours, would come to the conclusion that the appeal would be successful.  I can put it no higher than that, your Honour.

FRENCH CJ:   You are allowing for the possibility of outriders.

MR HUTLEY:   Your Honour, I would not presume unanimity.  Your Honour, I can put it no higher than that.  I accept that there was an important question before the Full Court.  It has been fully exposed.  The importance of the exposure has displayed the, in effect, deliberateness of the legislature in isolating claims against the company in a circumstance where – for my learned friend’s argument to succeed they have to say that there is some policy reason why there has been a decision by the legislature to, in effect, prejudice, as it were, claims against third parties.  No ground has been brought to that, other than, as it were, the Opes Prime point, and the Opes Prime point, we say ‑ ‑ ‑

GUMMOW J:   This is the decision of Justice Finkelstein, is it?

MR HUTLEY:   Yes, and then the Full Court upholding it.  That is really about Part 5.1 in the ambit of the scheme which was the subject, of course, of the Court of Appeal decision in England.  That may be an important question.  For the argument, as we understand it, if our learned friend is to be right, one has to assume Opes Prime is correct.  There is a real issue as to whether Opes Prime is correct.  This is not a vehicle for this Court to determine that question, because in a sense it would be – as we understand the argument is ‑ ‑ ‑

GUMMOW J:   Wait a minute.  What would you say about Opes Prime – about this argument, Mr Williams’ argument, put it on the table?

MR HUTLEY:   Well, we would have to, in effect, join issue with it.  But in a sense, your Honour, to have a full investigation of the construction and the history of schemes of arrangement, ie, Part 5.1, really in a sense, on the possibility that that might be of relevance to this construction question, runs the real risk that one – the Court, as we would say, will come to the conclusion firstly that it is not relevant; secondly, because of the different language.  That is the first point, we would say.  So it is not really a vehicle where this Court could have confidence that they will, as it were, fully investigate and come to a view about the appropriateness of Opes Prime.

Strictly speaking, the Opes Prime point was only relevant to this question at first instance.  Was, at the time that Part 5.3A introduced, was it understood that schemes of arrangement could result in the release of third party claims?  We would say the answer to that is a resounding no, because, as your Honour Justice Hayne has observed, that question is really only now being worked out in Australia in Opes Prime in 2008, 2009, and in England – well, the Court of Appeal at a broad level finally in the Lehman Brothers and before that in that other decision relating to insurance policies.  That appears from Justice Perram’s judgment.  The real question about Opes Prime was what was the understanding of the ambit of schemes of arrangement at the time of introduction of the division which is now Part 5.3A.

When one goes through the statutory materials, and they are referred to and I am not going to take your Honours to them, the extraordinary thing about it is – the reports, is not one person, not one part of this report ever addresses this question:  will this provision, or this scheme if introduced, allow of release of third party claims?  These are thoroughgoing reports and if anybody thought that that was possible, it passes belief that there was not at least a paragraph dealing with the implications of that and the implications of that for the statutory structure which was to be put in place.

Therefore, we will say that the Opes Prime issue, if we are forced to argue it we will argue it, and of course we will argue it, but we say the likelihood of your Honours getting to a point where your Honours have to finally determine whether the true ambit of Part 5.1 is remote, and then one is really going to be sent back to, in effect, a short construction question about 444D in the scope of this scheme and in our respectful submission, the Full Court has dealt with that in a way which your Honours would not feel confident that there were sufficient prospects of success to take it on special leave.

HAYNE J:   Was there any application in the proceedings which we are presently concerned that was rooted in 445G, voiding or validating particular provisions of the deed?

MR HUTLEY:   Yes, your Honour, because ‑ ‑ ‑

HAYNE J:   So there was 445D in play, namely oppressive, unfairly prejudicial, discriminatory notions, but there was also in play avoidance or valid – I assume only avoidance of particular provisions of the deed, was there?

MR HUTLEY:   There was a question not of avoidance – I do not think there was actually strictly an application – I will stand to be corrected – of avoidance of these particular provisions in point of fact alone.  There was determination as to whether they were valid or not, and that was the power question.  Beyond that, I think the application – and I stand to be corrected was ‑ ‑ ‑

HAYNE J:   Are we relying on G?

MR HUTLEY:   The claim did not rely on G, your Honour.  It was relying to set aside the deed in toto at our application.  We were not, in effect, saying that we will take the deed stripped of these.  We want the deed set aside.  Your Honour, I do not need to go into the detail but, for example, amongst the respondents, Mr Bathurst’s client, if the releases go, then they do not want the deed.  I am not exactly sure – and the likelihood is if the releases go the deeds will go in toto, I think, although some may disagree.

HAYNE J:   Perhaps brings to a sharper point the commercial question underpinning the construction questions, which is what can creditors give up?  I understand the construction point is where you say that question is entirely determined.

MR HUTLEY:   I understand that.  In one sense, as it were and, in effect, the Part 5.1 point can be shown up this way.  There is nothing to determine, to prevent a company in liquidation putting together a scheme.  That is what happened in Opes Prime.  There would be nothing to prevent, except for the fact for a point I am coming to, this company to put up as a scheme of arrangement precisely that which was the subject of the deed of arrangement.  The only problem, of course, would be is that the people for whom I act would be a separate class.  That is undoubted.  The deed would never get up, and that is undoubted.

That is one of the points referred to, of course, by her Honour Justice Stone in saying that the supposed syllogism, the extent of 5.1 must equal the extent of 5.3, she said was a false inference for, inter alia, that very reason, namely the protections afforded to classes under 5.1 who act solely in their self‑interest.

Your Honour, there is just one other point, which is just a procedural variety, as it were – or not procedural.  As we understand it, now Lehman Australia wishes to seek special leave.  That is the company in liquidation.  We see no utility in your Honours having a third set of applicants before

you, particularly a company in liquidation which, as we understand it, would be seeking to advance a point seeking to bring ‑ ‑ ‑

GUMMOW J:   Is this Mr Coles’ client?

MR HUTLEY:   Mr Coles’ client.  He is the liquidator acting for unsecured creditors.

FRENCH CJ:   He has headed his submissions “Reasons special leave should not be granted”, but I think the substance tells a different story.

MR HUTLEY:   Yes, I think something went on – being a respondent, there was a sort of a kind of standard form somewhere.  Our concern is this is a liquidator who is now running a company in liquidation - where unsecured creditor - who seems to, in effect, be seeking to seek special leave to have the company taken out of liquidation to create a scheme which, we say, prefers the position of various creditors which we think is an extraordinary position for a liquidator to be taking.  So we submit that special leave should not be granted to them.  They, in our respectful submission, should properly merely submit to whatever determination of the Court is made.

Secondly, when one reads from their argument at application book 205, paragraph 15, they seem to contend to challenge that it was appropriate to have separate questions at all because the case was not right.  Now, in our respectful submission, there is no challenge – they do not seem to be seeking special leave from the order of Justice Rares for there to be separate questions and it would be most unfortunate for this Court to be vexed with an argument that, in effect, they should not determine any of these questions because it is not an appropriate vehicle.

So, in our respectful submission, if your Honours were minded otherwise to grant special leave and were minded to allow Lehman Australia to seek special leave, it should be on the basis that they are not going to contend that the separate questions were not appropriate questions to be determined.  Those are our submissions, if your Honours please.

FRENCH CJ:   Thank you, Mr Hutley.  We might just hear from you, Mr Coles, on the procedural question which Mr Hutley raised.

MR COLES:   Your Honours, Lehman Australia - the present liquidators have not as yet filed any application before the Court for special leave.  We circulated a draft form in aid of the intimation we have put in our written submissions to the effect that if your Honours granted special leave to the parties who have sought it, then it might be appropriate to consider the position of Lehman Brothers, since we are on the side of the existing applicants, and if only to regularise the position so far as orders of submissions, addresses and other procedural matters, it would seem appropriate that we declare our position and become appellants.  That, of course, requires a grant of special leave.  We circulated a document which we have not, of course, filed or given to your Honours.  It was indicated that there did not seem to be any ‑ ‑ ‑

GUMMOW J:   That was not the song you were singing when it came before me for directions, this matter.

MR COLES:   No, that is right.  Well, I did not raise the point with your Honour then, but we were not proposing in the light of Mr Hutley’s hostility to oblige your Honours in view of the state of the list today to entertain, as it were, on the run a special leave application even though, as I say, we have prepared and circulated one.  If your Honours are willing to do so, then we would seek leave to file it in Court now.  But, as I say, if it is contentious, although not contentious, as we understand it, so far as Mr Bathurst or I think – not contentious so far as ‑ ‑ ‑f

HAYNE J:   To achieve what, Mr Coles?  You spoke about order of argument and statement of position, but those surely are matters that can be accommodated within the present procedural structure.  What is the advantage of you putting on a leave application?

MR COLES:   If your Honours do not discern any then ‑ ‑ ‑

HAYNE J:   Well, it is not for me to discern any, it is for you to tell me.

MR COLES:   Only, your Honour, that we will be appellants, that we will proceed in that regular way.  That when issues as to, for example, costs arise they will not be cluttered by the fact that successful or unsuccessful parties were on different sides of the record.  It was purely, if I may say so, your Honour, in recognition of an appropriateness of having all sides of the dispute divided on one side or another.  But, as I say, I put it no more highly than that, your Honours.  If your Honours are prepared to entertain the application, we will seek your Honours leave now to file it.  Can I make it very clear that it is not intended to seek as a separate question for argument or to invite your Honours’ attention to challenge the underlying decision granting the – or deciding to treat these matters as separate questions. 

That seems a concern.  Mr Hutley has a ground of opposition and it is not a matter on the basis of which the fourth, fifth and sixth respondents would wish to trouble the Court.  If that was our learned friend’s only or principal objection, then let me assure – I am sure it was not – but let me assure him he has nothing to be concerned about in that regard.  That is all I wanted to say about that, if your Honours please.

FRENCH CJ:   Thank you, Mr Coles.  There will be a grant of special leave in each of these matters.  The estimates of time, I would imagine a day and a half, Mr Bathurst?

MR BATHURST:   It would certainly be completed within that time.  I would have said a day but it may go to a second day, your Honour.

FRENCH CJ:   Does anybody have any different views?  The parties should be ready for the February sittings of the Court.  Thank you.  We will adjourn briefly to reconstitute for the next application.

AT 11.02 AM THE MATTERS WERE CONCLUDED