Longhurst Racing Pty Ltd v Team Dynamik Racing Pty Ltd & Ors

[2008] HCATrans 76

[2008] HCATrans 076

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B50 of 2007

B e t w e e n -

LONGHURST RACING PTY LTD

Applicant

and

TEAM DYNAMIK RACING PTY LTD

First Respondent

ANTHONY LAWRENCE LONGHURST

Second Respondent

KAREN NARELLE LONGHURST

Third Respondent

Application for special leave to appeal

KIRBY J
HAYNE J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 8 FEBRUARY 2008, AT 10.56 AM

Copyright in the High Court of Australia

MR R.G. BAIN, QC:   May it please the Court, I appear for the applicant with my learned friend, MS M.A. HOCH.  (instructed by Worcester & Co)

MR A.J.H. MORRIS, QC:   May it please the Court, I appear for the respondents with MR V.G. BRENNAN.  (instructed by Hopgood Ganim Lawyers)

KIRBY J:   Yes, thank you, Mr Bain.

MR BAIN:   As your Honours have read, this matter concerned what the courts below have determined to be an intention by the parties to mortgage two licences.  Each of those licences was purely contractual.  It was in each case a licence by which the respondent was to raise and conduct and to present a team, one of a limited number of teams, to compete in a motor racing competition.

As the licence itself said and was noted in the courts below, each of those licences was an essentially personal obligation and each of them was prospective and each of them was quite onerous because it did involve not only the obvious outlay and capital commitment and ongoing commitment on a weekly basis during the season to find and to present a team, but it also included the risk of having to pay substantial liquidated damages by the licensee to the licensor, of course, in the event of any failure to comply with quite elaborate regulations and contractual requirements.

Now, there is no challenge proposed by this application to the essential findings which were in fact the primary and substantial contest below that what the applicant here contended to have been a sale of those two licences was intended by the parties in substance to be a mortgage of them, a security interest over them.  The parties did not in terms use the word, I think, “mortgage” but there was sufficient of their dealings and some written component, a memorandum of understanding that your Honours may have seen in the judgment, that the court below was satisfied that mortgage was the appropriate description of the intended outcome.

The essential challenge which is sought to be raised by this application is that, having dealt with the party’s intention so that it may be taken that their intention and what they understood indeed their bargain to be was the creation of a security interest, a mortgage over these licences, the court then lost sight of the essential question of what was the nature of the property, the subject of the mortgage, and the contention, as your Honours have read, is put – I think there are five questions distilled but they are aspects of one essential proposition fundamentally, perhaps two – what was important, in our respectful submission, was that the essential nature of the property, the subject of the mortgage, ultimately had to be considered.

When that is done, the inevitable outcome, in our respectful submission, is that it ought be concluded that the property, the licence, was not assignable, was not susceptible of being mortgaged and, on that basis, if we need to extend it that the party’s intention to create a mortgage fails and that the objective legal outcome is that there was in fact a conveyance of these licences to the applicant.

HAYNE J:   How does any of that sit with clause 12 of the licence at pages 55 and 56 of the application book which regulates sale and sub‑licence of rights?

MR BAIN:   We understand, your Honour, and indeed it featured in some of the judicial discussions below and the several judgements of the members of the Court of Appeal, that the Teams Licence Agreement to which your Honour Justice Hayne draws attention uses language of sale, it uses language of sub-licence, but we would invite your Honours to look at starting with 12.1, which your Honours see replicated at page 55, that “The rights and obligations created by this Agreement are specific and personal”.  May I pause on that in answer to your Honour Justice Hayne and generally to note that the recitation there is not only of personal rights but also a comprehension of personal obligations. 

It then goes on in an elaborate prescription, as your Honours see, in 12.6.  May I pause on that to invite your Honours to take up instead a reference to the appeal book and in answer to this question the Teams’ Licence Agreement?  Regrettably it was not put in the application book but we have sent through to your Honours a full copy of the Teams’ Licence, or one of the Teams’ Licence Agreements, in concern here.  I trust that your Honours have a copy of that?

We have also sent through a document apprehended by the TLA, as it is called, which is headed simply “SCHEDULE TWO” and “Deed of Accession”.  While your Honours are looking at papers perhaps your Honours could also have that to hand.  This bears directly on your Honour Justice Hayne’s question of me.  When your Honours look at that for the reason that it perhaps takes your Honours a little further than the excerpted passages from section 12 of the TLA, your Honours will see that there is a prohibition primarily in 12.3, “No Team can sell its Rights or Sub‑licence” – and may we pause to interpolate, whatever the particular language adopted by the licensor and licensee here, our submission is that it is still a matter of the proper construction of what these fully written – because there is an entire agreement clause here – contractual stipulations mean rather than what the licensor and the licensee choose to call it.

Going on, there is a prohibition in 12.3 of the alienation that the bundle of rights and obligations to the contract, the chose in action, which is the property said to be the subject of the mortgage.

HAYNE J:   There is a conditional prohibition.

MR BAIN:   I thank your Honour and your Honour has immediately anticipated what I was about to say and perhaps I should have said it slightly more quickly, except with the approval of the TEGA Board in accordance with clause 12.6.  When we go to clause 12.6 your Honours will see that it is there that one finds the reference to Schedule Two.  Your Honours see that at page 26 of the document, 12.6(a)(iv), and that is the contractual basis and the identification within the licence of the Deed of Accession.

So the answer to your Honour Justice Hayne’s question, in our respectful submission, is that 12.1, 2, 3, the whole of chapter 12, if I can call it that, that was relied upon by their Honours in the Court of Appeal and perhaps less directly but by his Honour Justice Muir, was in general terms and that – and I will come back to that – but section 12 of the TLA is not a facilitation of assignment, it is not a facilitation of transfer.  What it does is prohibit both of those things and says instead it will comprehend the substitution of a fresh set of personal rights and obligations in the terms of the Deed of Accession for that which is to be “sold”.

KIEFEL J:   You say that is the conclusion that you would seek to draw, but how does the Deed of Accession affect the fresh contract rather than as evidencing what has been required before?

MR BAIN:   In our respectful submission, your Honour, it is because we start with the proposition that the original licensee, the person who asks TEGA and also AVESCO, as it is called, to enter into a new arrangement, accepts that the licensee will be entirely discharged from a date.  So there ceases to be contractual relations for personal rights and the personal obligations between the licensee, if I may call it the original licensee, and the racing competition authorities and in substitution there is the erection of a fresh set of personal contractual rights and obligations between the proposed licensee and the racing authorities.  That is plain from the terms of the Deed of Accession.

So taking from your Honour’s question, what do we make of the TLA, it simply becomes incorporated by convenience in a new contract and, on the terms of that, it continues but it continues between entirely different parties and, prospectively, there is a complete divide, a novation, which is, of course, then the other major point.

KIEFEL J:   Are you saying that the original agreement, the TLA, however, once a Deed of Accession came into place, that no rights were maintained against that, that is, the assignor?

MR BAIN:   Yes, your Honour, that is precisely what we say and we should take your Honours in that regard to clause 4, which is at the top of the third page of the Deed of Accession, bearing in mind at the risk of repetition that this is the only means in an entirely written contract whereby any change in the original contract may be made effectively.  It is mandated that the new proposed licensee shall enter into this.  But your Honours see, in answer to your Honour Justice Kiefel’s question, there is “releases and forever discharges the Transferor to the extent specified in the Agreement”.  When we go through that we find that the answer is, as I have submitted to your Honour, it is complete. 

May we pause to interpolate because, as your Honour Justice Hayne has directed attention to wider provisions of section 12 of the TLA, there is the prospect of what it calls sub-licensing, there may be in different circumstances continuing obligations as regards a sub-licensor, original licensee and a sub-licensee, but we are not remotely concerned with that here and will not be on any appeal for two reasons, either or both of two reasons.

The first is that the court’s conclusion as regards a mortgage was only relevant to the question of a conveyance, to use the old language, a mortgage by complete transfer subject to the equity of redemption which the court did one way or another find to exist.  The second is that in any event there is a separate form, which is provided in the TLA, comprehend the circumstances of sub-licensing.

So focussing if we may appropriately on just the question of what the TLA would call “sale” because that is what is necessary to demonstrate an assignment sufficient to inform and ground the supposed mortgage, and we pause to observe that our learned friends effectively concede that assignability would be a major issue and would be a matter of substance, having regard to this Deed of Accession, there is no continuity, no continuation of any rights or any obligations on the part of the original licensee competitor in the race series, holder of a licence.  I am sorry for the lengthy answer but that is the answer to your Honour Justice Kiefel’s question.

KIRBY J:   If we look at this matter from the point of view of this Court, the agreement between the parties here is a very special one and on one view the issues of general principle which you seek to propound would not arise if a view was taken of clause 12 which was similar to that taken in the Court of Appeal.  Can you suggest anything about the case that makes it a matter of general importance for the law of this country that would warrant our getting into what seems to be a very special and somewhat peculiar series of documents between these parties?

MR BAIN:   Yes, we can say that, your Honour.  We acknowledge, of course, that this dealing is between private parties on private paper but that said, it is about the issue that we are concerned with at least here in contradistinction to their earlier very private fight about whether they intended something or other.  This residual issue is about contractual rights, purely contractual rights, a chose in action as the subject matter, the mortgage.  One therefore must look to what is the articulation of those contractual rights in the written instrument.  That is a matter of general application.  One must look to the articulation of those rights and proper legal outcome rather than any superadded intentions of the parties.  That is a matter of general application.

In looking at clause 12, one of course does not do so and your Honour does not suggest that it is to be done, of course, other than conventionally on the basis of the instrument as a whole, and when we do that exercise we find that there is a particular stipulation which would be common to many instruments, licences of all sorts, licences in sporting competitions, perhaps licences in business relating to personal performance as guests or.....perhaps even in employment ‑ ‑ ‑

KIRBY J:   You could look at the agreement as a whole but you cannot then erase, you cannot rub out, the word “assignee”.  “Assignee”, it is repeated ‑ ‑ ‑

MR BAIN:   No.  I beg your Honour’s pardon, I spoke across your Honour, I apologise.

KIRBY J:   So that is the difficulty that I have in looking at it as a whole.  It is a word that has been used in the document and has to be given force and effect.

MR BAIN:   As our written reply mentions, if I may respectfully remind your Honours, the submissions that we have made concerning the fundamental necessity to look first at what the rights in truth are in law and, secondly, that all of the intentions of the parties, which was fundamental to the court’s decision below, also intrudes on the point that your Honour is exploring here.

It is because if the rights said to be the subject matter of the mortgage, the bundle of contractual rights and obligations, are called something or given a tag – I do not say it at all off-handedly – or a heading by the drafter of the instrument, nonetheless there remains the necessity properly to construe the instrument and if, in truth, what they are speaking about as sale and with that assignment, the word that your Honour says we cannot erase and we do not seek to, the submission in short is to say, that is simply casual and erroneous reference, the correct reference would be the erection of new rights.  I have not a single word to transliterate, perhaps I could, I have not thought of it.  But what one does is – and conscious still of the question being what is the general application – one must look at what are the rights in question.

In this sense, clause 12, what is the right to substitute one person for another as one of the limited number of competitors.  I use “substitute” as a deliberately neutral word.  It may be that the word “transfer” or the word “assign” properly construed has to be substituted with the phrase “enter into fresh relations” or new licensee or the like.  But the answer to your Honour, in our respectful submission, is the particular language employed by parties or the draftsman on behalf of the race authorities here cannot govern the matter.  As our written reply notes, that in itself raises an important and also potentially general question of principle.

Now, I have not lost sight of the overall question, what is special?  I think I had got to the point in saying, your Honours, that understood as a licence, it is not necessarily a licence particular to any particular calling or undertaking or competition, and the question of personal obligations, personal character, I should distinguish, personal character, and particularly obligations that are also assumed and bound up in this and the question of assignability are matters of potential general significance.  I see our time is out, your Honours.

KIRBY J:   I think you have got a few minutes.  I do not know that you have – I do not wish to encourage you to use them if you have finished.

MR BAIN:   Your Honour is most kind, and I am told I misunderstood the signal here, so I shall use the time.  I think I have sufficiently – I will not say disposed – answered your Honour’s question of the general significance.  In summary then it comes down to, although it arises in evidently particular circumstances with particular dealing, the notion of the assignability of a licence such as to be a subject matter of a security interest put that way is generically of potential general significance.  This was not also we set out a unique dealing.  If we confine it even to the industry or undertaking from which ‑ ‑ ‑

KIRBY J:   I think you have made these points.  You are just repeating things now, I think.

MR BAIN:   I suspect I am, thank you, your Honour.  The consequence of the recognition that there has been too little interest applied to the actual

terms of the TLA itself – I said I would come back to – are in the Court of Appeal’s respective judgments, which I tell your Honours, at paragraph 5 of her Honour the President’s judgment at page 30, paragraph 26 at page 34 and paragraph 58 at page 42.

I mention that because I said I would come back to it and because it is, with respect, important to take in, with great respect to their Honours, how little was said, indeed we would respectfully submit nothing that is compelling or nothing at all as the case may be, as to why clause 12 or any part of it ought be regarded as making the TLA assignable when one takes in what it is that the TLA itself requires as the only way in which there may be a substitution of one licensee for another.  Beyond that I suspect I would be entirely repetitive and unless your Honours have a particular query those are the submissions for the applicant.

KIRBY J:   Thank you very much, Mr  Bain.  I should have said that the Court has been informed by the Registrar that the second and third respondents submit to the orders of the Court save as to costs.  Mr Morris, the Court does not need your assistance on this occasion.

MR MORRIS:   Thank you, your Honours.

KIRBY J:   In the very particular facts of the agreements between the parties we are not convinced that the applicant has shown reasonable prospects of success were special leave granted.  Nor are we persuaded that the propounded questions of general importance would necessarily arise or that error in the courts below or injustice to the applicant has been shown warranting the intervention of this court.  Special leave is therefore refused and the applicant must pay the respondent’s costs.

AT 11.16 AM THE MATTER WAS CONCLUDED