Morgan & Ors v McMillan Investment Holdings Pty Ltd & Anor

[2023] HCATrans 122

[2023] HCATrans 122

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S20 of 2023

B e t w e e n -

JOHN MAXWELL MORGAN

First Applicant

SYDNEY ALLEN PRINTERS PTY LTD (IN LIQUIDATION)

Second Applicant

SYDNEY ALLEN MANUFACTURING PTY LTD (IN LIQUIDATION)

Third Applicant

and

MCMILLAN INVESTMENT HOLDINGS PTY LTD

First Respondent

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Second Respondent

Application for special leave to appeal

KIEFEL CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON FRIDAY, 15 SEPTEMBER 2023, AT 9.30 AM

Copyright in the High Court of Australia

____________________

KIEFEL CJ:   In accordance with the protocol for remote hearings, I will announce the appearances for the parties.

MR M.R. PESMAN, SC appears with MR M.L. ROSE for the applicants.  (instructed by ERA Legal)

MR B.W. WALKER, SC appears with MR J.T. SVEHLA for the first respondent.  
(instructed by Somerset Ryckmans)

KIEFEL CJ:   There is a submitting appearance for the second respondent.  Yes, Mr Pesman.

MR PESMAN:   May it please your Honours.  The essential reason why special leave ought to be granted in this matter underlies both of the questions identified at page 108 of the application book.  That essential reason is that the effect of the reasons of the majority, particularly the reasons of his Honour Justice Beach, is to limit the availability of pooling in a manner not justified either generally or specifically by the Corporations Act. 

There are, in essence, three limits arising from those reasons.  The first – and it is impossible, indeed unlawful, so far as Justice Beach is concerned – is that companies in liquidation can be parties to a joint business scheme or undertaking.  Second, the finding that a company in liquidation is not using property in connection with the business in seeking to recover the sale proceeds of that business.  To expand that point slightly, contrary to the reasons of the majority, there was no bright line division between the ordinary trading activities of the company and the sale of that company’s business.

Third – and this affects both of those first two points – is the effect of the deregistration of SAM, bearing in mind that that question is to be addressed after the re-registration of SAM because of the sequence of his Honour Justice Rares’ orders.  Now, I will return to those three points shortly, but I want to start by identifying why we say this is a matter of general importance.

As your Honours know, the pooling regime was introduced – Division 8 was introduced in 2007.  The effect of that regime and, in this context herHonour Justice Markovic picks up some observations of Justice Barrett in Lombe at paragraph 187, the effect of which is, in a pooling, all of the assets of the company and the group are to be treated as all of their assets.  And, similarly, all of the liabilities are treated to be as all of their liabilities.

Now that has obvious efficiency and fairness benefits for the creditors of the joint group.   And that fairness aspect is emphasised by the requirements for pooling which contain a specific obligation on the judge hearing the application to conclude that the pooling is otherwise just and equitable.  In the present case, related to that last point, his Honour Justice Rares at paragraphs 100 and following, at about page 35 of the application book, made two important findings.  The first, that it was:

as plain as a pikestaff that –

the “affairs” of SAP and SAM:

were intermingled.

And second, that the case for pooling was “compelling”.  So, necessarily, his Honour had concluded that it was “just and equitable” that SAP and SAM be treated as a pooled group.  Now, what arises from that are four propositions which form part of the general threshold considerations for a special leave application.  First, we say that it is in the interests of justice in this particular case that the decision of the Full Court be reversed in the interests of the creditors, including, as it happens, the Commonwealth through the FEG scheme.

Second, this is an application involving a small number of uncomplicated facts, none of which are in dispute.  And that is to be contrasted, for example, with the position confronting Justice Barrett in Lombe, where your Honours will recall that the group had 40 companies in it, not all of which were in liquidation.  Third, to pick up an observation your Honour Justice Gageler has made in this context, we have what is referred to as the two‑two split, and, moreover, we have a two‑two split involving four separate judgments.  An odd feature of those judgments is that they are all brief, and all of the judges that have considered the question seem to have considered the answer to be obvious, but they have come to two very different conclusions.

Finally, we say we have a question of – we say it is a question of principle, but at least it is an important question of approach.  So, we say this is a matter in which manifestly the, as it were, threshold criteria are satisfied.  Could I then go directly to the language of the critical provision, which is section 597E, and that is at page 118 of the ‑ ‑ ‑ 

KIEFEL CJ:   Mr Pesman, your case really is that there is some uncertainty about the application of this provision, rather than that there is a point of principle, is that correct?

MR PESMAN:   It is more – yes, but it is, with respect, Chief Justice, slightly more than that in the sense that the way the majority approached the facts of this case is of wider application, because they have the . . . . . effect that if certain criteria exist, the pooling regime cannot apply, not only that it did not apply in this particular circumstance.

KIEFEL CJ:   It cannot apply in the context of a liquidation – an asset arising in the course of the liquidation.

MR PESMAN:  For example, yes.  We say there are three points, but that is certainly one of them.  Could I just pick up on that point by way of example before I get to the detail?  One can test it this way, by saying – well, as your Honours know, section 493 says that the liquidator can decide to continue to trade if it is expedient to do so.  One can have a situation where two companies both go into a liquidation in the course of a property development.  It would be expedient to buy the block next door to maximise the value of the development to sell the business.  And on this construction, that asset could not ever be the source of a pooling application.  We say that that conclusion is plainly wrong.

Sorry, your Honours, if I could then return to the text of 579.  It is only subsection (iv) with which we are concerned.  With respect, the drafting is not remarkable for its clarity, but we can at least draw these conclusions, applying SAP and SAM into each of the integers in that provision.  It would be necessary for the gateway to be satisfied for each – or one or both of SAP and SAM to own particular properties.  So, only one needs to own it, but, in this context, they both do because it is the joint chose in action.

The second element is that, although not completely clear, it is to be accepted that the phrase “for use” qualifies both “is” and “was used”.  So, that is to be read as the property is for use or was for use by either or both of SAP and SAM.  Pausing there, “for use” in that context must mean able to be used but not necessarily presently being used.  That is consistent with, as your Honours know, the findings in Lombe repeated by her Honour Justice Markovic that something can be used by being held.  The next element is ‑ ‑ ‑

KIEFEL CJ:   Just on that question, will you be contending for the approach of Justice Markovic in relation to carrying on a business?

MR PESMAN:   Yes.  To a degree, I accept that the submissions are not necessarily more sophisticated than saying that Justice Markovic was correct for the reasons her Honour gave, but some aspects of that submission require expansion.  The point I had reached – and it is relevant directed at the question your Honour the Chief Justice just asked me – is how one is to approach the expression:

in connection with a business, a scheme, or an undertaking, carried on jointly –

As your Honours know, Justice Markovic analysed that question through the prism of the close analogue of bankruptcy cases.  The approach being at least urged in submissions by the respondents are cases from other areas of law.  But we say her Honour’s approach is correct and the close analogue is bankruptcy.

Related to that is that the prefacing words “in connection with” are words of wide if imprecise character, and they are wider than it simply being limited to carrying on a business.  And that carrying on a business is the case in most of the authorities relied on by the respondents.  Indeed, in relation to that, your Honours know that Justice Yates at 65 regarded the words “in connection with” as being activities that were:

ancillary or incidental –

to the carrying on of the business.  Can I then turn directly to what we say are the impermissible effects of the reasons of the majority?  The first of those is the effect of liquidation of a joint business.  The starting point for that consideration is that on any view SAP and SAM were engaged in a joint printing business, at least up until the date of liquidation.  Related to that, they are in the very common position of one company being the asset‑holding company, the other company being the trading company.  Your Honours are familiar with that structure of operation.

It is perhaps best to do this by specific reference to the reasons.  The way his Honour Justice Beach dealt with this matter commences at page 72 of the application book and, more particularly, at paragraph 137, immediately after his Honour’s identification of:

here lies the difficulty.

The difficulty is not that identified by his Honour, the difficulty is this – the finding at 138 is that after the sale:

it was incapable of being particular property that is or was used or for use in connection with the printing business –

and that was because by then no such joint business was being conducted.  That then feeds into what his Honour found at 142 and 148, which is that:

Until SAM was deregistered . . . Messrs Morgan and Davis . . . carried on two separate and stand‑alone liquidations in accordance with the statutory provisions –

That much is correct, and:

There accordingly could be no alleged joint undertaking carried on by SAP and SAM.

That is then compounded by what his Honour finds at 148, that:

After 1 July 2016 –

and that is the date of completion of the sale, and I will come back to that:

there was not and could not legally be a single business, scheme or undertaking carried on jointly –

Now, that is a contestable proposition, and your Honours will observe that his Honour has not explained why that is correct.  We say it cannot possibly be correct because the two – it elides two distinct concepts.  The first concept is that, obviously, liquidations are to be conducted separately between the two companies – that much is obvious – and the assets are distributed to the creditors of each company. 

It does not follow from that conclusion that they cannot continue to conduct a joint business.  As much is obvious when, if one considers – indeed in the facts of this case – and pausing there, your Honours know that the companies were – their business was sold by the companies as a going concern – if it had been expedient for the liquidator to continue to trade those businesses to maximise the sale proceeds it is, with great respect, a nonsense to say that those companies are not lawfully able to carry on that business jointly. 

Once that conclusion is accepted, it must follow that there was a particular property for the purposes of the gateway.  That is essentially the way her Honour Justice Markovic analyses it at paragraph 249 at page 100, and we say her Honour was plainly and obviously correct.  So, that first point is a clog on the ability to pool companies when that is beneficial, with no justification in the Corporations Act.  

The second aspect is the way the majority analysed the carrying on of business.  The short point we make is that business in this context and, in particular, the expression “in connection with a business” in this context, is that the sale of the operation is part of the carrying on of that business and, necessarily, proceedings to recover that sale price is part of that continuum.  That is, there is no bright line dividing line where on liquidation the business ceased, and a new business started.  It is the same business in a different aspect or, as her Honour Justice Markovic describes it, a business carrying on a different nature.  It is for that reason that we say the bankruptcy cases are far closer, and it for that reason we say that the getting in of the debts and the paying of the creditors is part of that continuum.

Once it is accepted that it is part of that continuum, each of the majority are, with respect, incorrect to say there is no business of repetitive character or any of those other definitions, and that is because this, of itself, is the continuing of that business.  That is, an action to recover the diverted proceeds of sale is a continuum of the existing business, and that is not a future or new or different business.  Again, that is a proposition with wider implications than just this case.

Just in relation to that, there is one aspect of Justice Beach’s reasons which is contestable at a factual level relevant to this, which is his Honour’s conclusion that the cause of action we have did not arise until completion of the sale on about 1 July 2016.  As your Honours know, the sale contract was 4 May, and the diverted proceeds were paid to the McMillan Group Services on 5 May 2016.  That is when the cause of action arose, and to the extent relevant as at that date, SAM was in liquidation, but SAP was not, because SAP’s liquidation did not take place until 13 May 2016.  Now, that is a minor point, but it demonstrates the artificiality of the division approach favoured by the majority.

GAGELER J:   Does that necessitate another ground of appeal?

MR PESMAN:   I say it falls within ground A, but having said that, the way the argument has developed and having seen the respondents’

submissions, I accept that there may be cause to revisit that ground to make that more specific.

GAGELER J:   Thank you.

MR PESMAN:   That finally leads then to the second complaint, which is the effect of reinstatement.  The short point here is that the combined effect of his Honour making the reinstatement order prior to the pooling order and 601AH(5) of the Corporations Act, is that whether or not it is an instant or an hour or a year, the fact of the matter is the way that provision works is at the instant at which that company was reinstated it had continued in existence for the entire period.  But in any event, and related to that, it is plain that between July 2016 and its deregistration in 2018, SAP and SAM both had, for use, the cause of action, and it is plain that after that instant on 2 December 2021 they both had it again.

It rather engages in an exercise in question begging to say, well, they cannot have been carrying on business in that instant in circumstances where they have that asset, it is available for use, and they have it the moment the company is reinstated.  It does not change the position to say that you have to wait a week or a month or a year for that fact to be true.  The way 601AH(5) operates is that is true at that instant, and what is important is not the temporal connection between those events, what is important is that the reinstatement happens before the pooling order, and that is plain on the face of his Honour Justice Rares’ orders.

Now, one accepts that – I have 20 minutes, but we do not fundamentally regard this as a complex problem, but we do regard it as an important one.  May it please the Court.

KIEFEL CJ:   Yes, thank you, Mr Pesman.  Yes, Mr Walker.

MR WALKER:   May it please your Honours.  The requirements, more or less accepted in common by the parties before you of subparagraph 579E(1)(b)(iv), is that they be identified as the so‑called “gateway” to the exercise of the subsequent judgments and discretions for a pooling order what the business, scheme or undertaking is in connection with the particular property was held, and being held as one that was used or was for use in that business, scheme or undertaking.  Significantly for companies in liquidation, that is a connection, and “a business, scheme, or undertaking”, which requires identification of the business, scheme or undertaking being carried on jointly by the putative companies in the group.  Now, in this case, the highest the notion of being “for use” in such a business, scheme or undertaking is the enforcement of a supposed right, the chose in action.  That is, of course, quite simply the getting in of assets which is a central function and aim of liquidation.

It cannot be distinguished from the pursuit of the liquidator’s duties for the statutory scheme in insolvency, the getting‑in of the asset by enforcement of the chose in action from this notion of carrying on a business, scheme or undertaking which consists of nothing more than enforcing a chose in action.  It is then a wholly artificial, and in this case, a factually unsubstantiated, difference.  There is, in truth, simply a declared intention by each of the liquidators to pursue this supposed chose in action, the value of which, of course, can only be determined by action.  That is, getting in the asset in the liquidations.

There are two liquidations.  As our friend correctly accepts, the liquidations are not, obviously, before a pooling order, carried on – in any sense of this word – “jointly”.  They are several statutory obligations, which require the choses in action to be enforced severally, notwithstanding, and partly, at least, because it is said to be a joint chose in action.

KIEFEL CJ:   What do you say, Mr Walker, about Mr Pesman’s point that it would appear that, from the differences of approach here, that this Court might be – it might be correct for this Court to clarify the question for liquidators?

MR WALKER:   Your Honours, I am bound to accept that this Court’s apical function requires it to use its numbers and its position in the hierarchy to establish what the law is, but it is not true that what my friend beguilingly calls the “two‑two” question presents that as a task or function for this Court, routinely or really at all.  The fact is, the relevant numbers are two‑one.  That is, the law is as the majority in the Full Court has determined it.

That law is not to be doubted, because that majority was produced in a successful appeal.  In other words, one does not count ever, in terms of stare decisis, what the trial judge found on appeal revealed to have been in error.  That is the first answer.  There is no two-two requiring certainty to be given of a kind which only this Court can bring.  Now, it has to be said that in matters of statutory interpretation and in the integrally related question of the application of the statute to particular facts, uncertainty exists while ever there is abroad respectable differences of a view reaching opposite conclusions and that has not been resolved.  That is a paradigm for this Court to grant special leave.

This Court does not grant special leave in order, so to speak, to add an imprimatur to the majority holding in the Full Court.  Or, to put it another way, the reason your Honours might consider special leave is if there is a sufficient prospect that the majority in the Full Court have made a mistake and it has sufficiently general implications travelling beyond the facts of this case for the Court to consider it.  We do not suggest this is a visitorial case, and neither does my friend. 

So, in our submission, this is not a case of uncertainty to which this Court can bring certainty, whoever is going to win.  It would be different if you had a sequence of cases, particularly if you had arguably different outcomes in Full Courts or Courts of Appeal around the country.  There is nothing like that in this case at all.

The first point we want to make about the application of 579E(1)(b)(iv) is that, of course, it cannot be said that the liquidations are an undertaking being carried on jointly and that there is no true substantial difference between that proposition and the proposition that there is a chose in action which, it can now be seen after the reinstatement, is said to be the subject of a common ambition by each of the separate liquidators to pursue.  That does not make it anything other than the carrying‑on of the two liquidations.  Or, to put it another way, the business, scheme or undertaking carried on jointly cannot possibly be in this statutory context – which is a gateway provision for the grouping in a liquidation – the carrying‑on of two liquidations.  That is, a liquidation of each of two companies in a group.

In our submission, one can add for good measure, with respect to the supposed public importance or prospects of success on that first ground, that there is, with respect, no substance in Justice Markovic’s reference to some elementary questions of interpreting “carrying on business” for the purposes of bankruptcy provisions, none of which, of course, relevantly had the important collocation of identifying particular property for use in connection with a business, scheme or undertaking carried on jointly by companies in a putative group.

There is simply no resemblance at all, for the reasons we have put in writing, between the context and purpose of those provisions in the bankruptcy legislation and the reference to carrying on a business jointly in this provision.  In particular, it cannot be said from any of those cases that any light is cast upon what it means for property to be used or “for use” in such an endeavour.  So, one could put to one side that there is any significant doctrinal question arising from the use of cognate provisions in what might be very generally called – because of insolvency – cognate legislative schemes, but no such matter arises here.

The third reason why the first ground does not have sufficient prospects and is not presented in this case as an appropriate vehicle is that, in any event, there is simply no factual foundation for what Justice Yates identified as being a new case – that is, travelling beyond that which was established at the trial.  There was, as his Honour held in his paragraph [73] that we quote from in our paragraph 9 at page 130 of the book, simply no case supported by evidence concerning the notion of an enterprise undertaking business carried on jointly to realise these supposed choses in action.

The same point is made powerfully by reference to the skeleton chronology by Justice Beach in his paragraph [147] from which we quote in our paragraph 3 at the book page 127.  It cannot be said that there was at any point, factually, any such joint use contemplated or in operation – “in operation” is surely common ground, but one cannot point to any evidence of it being in contemplation.  It is for those reasons that something which is, of course, of importance – pooling provisions – simply finds no footing factually in either the way this case was run at factual level at trial, the evidence referred to in the appeal by way of re‑hearing on appeal and, in particular, by reference to anything that answers the plain words of the gateway provisions.

Coming then to the second question concerning subsection 601AH(5).  Of course, that is an important provision.  Every part of the carpentry of these provisions concerning re‑instatement is important, bearing in mind the artificial legal personality destroyed and then restored upon de‑registration and subsequent re‑instatement.  It is familiar that there are deeming provisions to provide for the continuity of certain matters of status.  None of that, with respect, calls for this Court’s particular attention.  There are not general questions of doctrine arising from such legislative schemes and the aspect involving deeming provisions.

What is plain from the provisions in question here – and what does not seem to be sought to be argued differently by our friends – is that the deeming says nothing about deeming things to have been done or facts to be true of particular assets putatively within the grasp of one or other or both of the liquidators.  It is for those reasons, in our submission, that the self‑evidently important provisions of 601AH(5) are not presented in a case that has any usefulness to cast any light upon any supposedly differing views as to its interpretation.

In fact, no such differing views have been identified in the special leave application concerning 601AH(5).  It is not suggested that there is any error in the understanding by the majority of how those provisions work.  It is, in our submission – perhaps by implication – an argument advanced to the effect that, upon the deeming, one can take as existing the carrying‑on of an undertaking which, in fact, was not carried on.  It is for those reasons, in our submission, that there is nothing extra, let alone to enhance the claim for special leave, in the so‑called “second ground”.

May it please the Court.

KIEFEL CJ:   Yes, thank you, Mr Walker.  Do you have anything by way of reply, Mr Pesman?

MR PESMAN:   Three sentences, your Honour.  The first is that the fact that the liquidations are separate does not lead, necessarily or at all, to the conclusion that the businesses are separate.  That is, whether or not the companies are in liquidation does not inform the question of whether or not the business is conducted jointly.  Second, the fact that the business was sold by the liquidators is not conceptually different, in this context, to had the businesses being sold by the directors, and the directors were the persons making the decision to commence the proceedings to recover the misallocated purchase price.

Further, and finally, the submissions in relation to the lack of evidence are only correct if the underlying premise is correct, which is that the chose in actions are new and somehow separate business.  If that anterior question is answered in the way that we contend it is, then the no evidence point falls away.

May it please your Honours.

GAGELER J:   May I ask a question, Mr Pesman, to be clear about the extent to which any issues of the fact might be in contention?  In response to paragraph 3 of Mr Walker’s submissions, you said in your reply that the applicants are content for the Court to proceed on the basis of the facts there identified.  From your submissions in‑chief, I understand that the only question of fact that you would wish to agitate on an appeal is as to the timing at which the chose in action arose.  Is that correct?

MR PESMAN:   Yes, your Honour.

GAGELER J:   Thank you. 

KIEFEL CJ:   The Court will adjourn to consider the course that it will take.

AT 10.03 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.07 AM:

KIEFEL CJ:   There will be a grant of special leave in this matter.  What is your estimate, Mr Pesman – something less than a day?

MR PESMAN:   I would have thought between two hours and half a day, no more than that.

KIEFEL CJ:   No more than half a day, Mr Walker?

MR WALKER:   Yes.

KIEFEL CJ:   Thank you, gentlemen.

MR PESMAN:   May it please the Court.

KIEFEL CJ:   The Court will now adjourn until 10.30 am.

AT 10.07 AM THE MATTER WAS CONCLUDED