Pyramid Building Society v Terry

[1996] HCATrans 318

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry  
  Melbourne  No M29 of 1996

B e t w e e n -

PYRAMID BUILDING SOCIETY (in liquidation)

Appellant

and

BRUCE MITCHELL TERRY and JUDITH WENDY TERRY

Respondents

TOOHEY J

GAUDRON J
McHUGH J
GUMMOW J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 11 OCTOBER 1996, AT 10.15 AM

Copyright in the High Court of Australia

MR C.L. PANNAM, QC:   If the Court pleases, I appear with my learned friend, MR J.B.R. BEACH, for the applicant.  (instructed by Holding Redlich)

MR P.G. NASH, QC:   If the Court pleases, I appear with my learned friend, MR M.A. SCARFO, for the respondent.  (instructed by Di Mauro Davis Zucco)

TOOHEY J:   Thank you.  Dr Pannam?

MR PANNAM:   If the Court pleases, we hand to the Court copies of the outline of the submission that we have prepared. 

TOOHEY J:   Thank you.

MR PANNAM:   I should say that there are two documents annexed to that outline.  One for convenience, but although it appears in one of the judgments of the judges of the Court of Appeal, there is section 82 of the Bankruptcy Act with the modifications that are made by rule 84.  The other annexure is simply to trace through the history of section 243 back to the original form that it took in the 1966 Act based upon the Clyne Report and the contrast between that and its current form.

TOOHEY J:   Just give us a moment, please, to look at the outline.

KIRBY J:   Has this changed in any substantial way from the application submissions?

MR PANNAM:   I think not.

TOOHEY J:   Dr Pannam.

MR PANNAM:   If the Court pleases, the relatively short point that arises on this appeal is the point that was left open by this Court five years ago in Gye v McIntyre, that is to say the impact that rule 84 of the Bankruptcy Rules has in relation to the notion of approvable debt for the purposes of a composition under Part X of the Bankruptcy Act.  The factual vehicle that carries the point really is quite a dramatic one in the sense that reduced to its essence it is this:  in 1988 Mr and Mrs Terry through an associated company wanted to engage in some property development, the erection of an office building on a suburban piece of land.  For that purpose the company entered into a borrowing of some $2.704 million on an interest only basis that was to be repayable towards the end of 1993.

Interest was maintained in terms of the obligation to pay it on that loan right through the period of the term of the loan and the default only took place when it came to the repayment of principal which fell due towards the end of 1993.

It was an associated guarantee which they both had given to secure the company’s indebtedness in respect of the borrowing and in November of 1992, after notice had been given, a resolution was accepted by their then creditors in relation to a composition.  The composition was in essence this:  there were unsecured debts owed by Mr Terry at the time of some $101,000; by Mrs Terry of some $61,000 and the creditors - there was a narrow band of creditors - agreed to accept in composition of that indebtedness of some $162,000 the sum of $10,000.  From that the rather dramatic consequence was said to follow, namely that there was a release in respect of the contingent liability that they both had under the guarantee in respect of the original borrowing.

KIRBY J:   Justice Brooking said that that would not strike ordinary businessmen and businesswomen as an entirely fair result.

MR PANNAM:   Yes, I think he said that at pages 95 to 96 and I think the same view is expressed by Justice Tadgell at 119 and, on the face of it, it seems odd, and in our respectful submission, it not only is odd but it is not a proper interpretation of the relevant provisions of the legislation.  The critical provision, of course, if I can go to it straight away, is section 240(1) which is said to achieve the result that the Terry’s contend for.

GUMMOW J:   It depends on what “provable debts” was.

MR PANNAM:   Yes, and that, of course, then goes back to section 82, or perhaps there is an intervening link.  One should first go to section 243(1) which specifically incorporates, among other sections of the sections that relate to general sequestration orders, section 82.  One then goes to 82 which deals with the concept of provable debt.  If one goes to that section, one finds a definition in the widest of terms:

Subject to this Division, all debts and liabilities -

and then underscoring the width of that -

present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his bankruptcy.

Now, if the case stopped there and section 82 was imported into Part X relevantly for a composition agreement, that would be the end of the matter and, indeed, it is common ground that up until the enactment of the Bankruptcy Rules of 1968 after the new Act of 1966, that would have been the position.  It will be our submission that the kind of historical analysis that was engaged in by both Justice Brooking and Justice Tadgell in the court below and appears to be part of the submission that has been foreshadowed in opposition to this appeal, is really quite irrelevant, because two things are conceded at the outset.

The first is that from 1825 in England right until the end of the 19th century, there was a pattern of amendment to the bankruptcy legislation that widened the notion of provable debt to cover every conceivable form of liability, and one can understand the social policy behind that.

If there was a general sequestration order that resulted in bankruptcy, then the whole object was to get rid of everything and start again after a period of time.  So that it is not really in issue, and we do not contest the historical analysis that leads to the conclusion that section 82 is in dramatically wide terms.  But what we say happened in 1966 with the enactment of a new Bankruptcy Act was that, so far as compositions were concerned, there was a new flexibility, or possibility of flexibility, introduced into the legislation.

Can I take the Court to section 243 of the Act in order to show the change that was made in the 1966 Act?  Although I refer to the section that deals with compositions, there are similar sections - section 231(2) and section 237(2), in almost identical terms - that deal with the companion deeds of assignment and deeds of arrangement.

TOOHEY J:   Dr Pannam, do we know anything from the second reading speech, or any of the preliminary material, that shows why section 243 is framed in the way that it is?

MR PANNAM:   No, all there is in the Clyne Committee report is a rather Delphic reference to the section 243 in the following terms - it is brief, I will read it:

The general provisions of the Bill that, in the Committee’s view should apply in relation to compositions are those that relate to proof of debts, the distribution of property and the powers, duties and control of trustees.  However, the provision relating to the order of priority of debts are not, in the Committee’s view, consistent with the concept of composition.

One other sentence -

Minority creditors unreasonably deprived of their priority will be able to apply to the Court to set the composition aside.

Now, a minority creditor can hardly cover the situation that has arisen in the present case.  The side note to that paragraph is clause 243 and the reference, with respect, just does not seem to be in relation to what is contained in the section, either then - because, if one goes to that document that I handed to the Court together with the outline of argument, we have set out at the top of that page - it is the interleaved, single page that begins with:

Section 243 of the Bill that is annexed to the Clyne Committee report.

and the critical words are that:

Subject to this section, the provision of sections eighty‑two to one hundred and seven (inclusive) and sections one hundred and forty to one hundred and forty‑eight (inclusive) of this Act apply -

and then the critical words -

so far as they are capable of application and are not inconsistent with this Part and subject to such modifications and adaptions (if any) -

So, as it stood in the sidelined reference to the Bill, it referred to “subject to such modifications and adaptations, if any”.  That found its way, as the right-hand part of this page shows, into the original form of the 1966 Act in section 243, but in 1987, by Act No 119 of that year, on the left-hand side of the page, the width of the present section took its form, and that is there were “prescribed modifications” and then at the bottom there is an expansion of the notion of modification adaptations to now:

“modifications” includes additions, omissions and substitutions -

and -

“prescribed” means prescribed by this Act or by rules under this Act.

And I think the rule-making power is to be found in section 315.

TOOHEY J:   But the words in the Bill, annexed to the committee report, the reference to “capable of application and are not inconsistent with this part” apparently did not find their way into the section.

MR PANNAM:   No, they were left out, and subject, so it was qualified.  The point we make is that in its initial form you had those words taken out and only modifications and adaptations and then that was widened.  As part of the legislative history, your Honours will see, under section 243(1) as it presently forms, that Act that is referred to achieves the change in form that there appears and now the modifications can be “additions, omissions and substitutions”.  So that, in our respectful submission ‑ ‑ ‑

TOOHEY J:   Not only that, they could be inconsistent with the Act, on one reading.

MR PANNAM:   Yes, indeed, and, of course, that may give rise to other problems that do not concern the Court at the moment, but it has become rather a fashion in Commonwealth legislative drafting as, I think, Justice Brooking, in his judgment, points out below, it is not an uncommon feature of some Commonwealth legislation that is presently in force.  But, at all events, it is clear that in terms of the legislative provision itself, a rule‑making power is given to modify, by addition, so you can modify it, add to it, omit things from it or substitute things in it.  Now, the submission that we make is that what was clearly indicated by the form of section 243 as it was, back in 1966, and it is now, is that, in relation to compositions and deeds of arrangement and deeds of assignment, there was to be an opportunity to change the meaning of section 82, amongst other things, in relation to the width of the concept of a provable debt, and it is our submission that that was done, and clearly done, by rule 84.

KIRBY J:   What was the purpose behind reserving that right to change?

MR PANNAM:   In our respectful submission, the policy reason that one can identify, just by looking at the alteration, and not having any further assistance, was that, instead of compositions and other arrangements giving rise to a complete obliteration of all present or future obligation, an opportunity was given to people to compose the then current liabilities that they faced, leaving for another day two kinds of matters that were dealt with in rule 84, that I will come to in a moment. 

One of those was a series of commercial contracts that the person concerned was involved in, that were currently being observed, but at some time in the future may be subject of a breach, and, as I will take the Court to, that was dealt with, and it was said that can be put to one side, and was put to one side, under rule 84.  Or, we would say, where there are contingent liabilities, such as the contingent liability that was facing the Terrys in this case, that that could be left to another day.  The flexibility that was involved in section 243, it is submitted, is that you could have a composition that did not deal with the entirety of the your then obligation, present or future or contingent, but rather you could deal with the people who were the persons who were pressing you at that time.  They could be dealt with, and then, leaving over for a subsequent occasion, other matters when they fell to hand.

GUMMOW J:   Now, if you could just stop for a minute.  If one takes someone in the position of the Terrys here with this contingency; they could not have presented a creditor’s petition, could they, because they would not have answered section 44?

MR PANNAM:   Just so.  They could not vote at a meeting, 198(1).

GUMMOW J:   Yes.  On the other hand there were acts of bankruptcy with the signing of the authority under section 188, and the holding of a meeting?

MR PANNAM:   Yes.  That could have been treated as an act of bankruptcy if the proposal had not been adopted by the then creditors.

GUMMOW J:   If they had moved to get the composition set aside, though, under 239, the idea is, as I understand it, that the Court can take hold of the matter and seek restraint with the same swoop, as it were, but they could not have activated the sequestration provisions, because they would not have been petitioning creditors even then.

MR PANNAM:   They may not have even been creditors for the purpose of section 239.  That is a debateable question.

GUMMOW J:   Yes.

MR PANNAM:   Section 239 accesses the right to set aside a composition by reference to a characterisation of the applicant being a creditor, and it is a nice question as to whether the Society would have been a creditor.  Far more importantly than that, and we will come to this shortly, that is not much of a panacea for a person in the Society’s position as the reported cases, one of which I will refer to, shows.  First of all, it is an expensive process.

GUMMOW J:   Yes.

MR PANNAM:   It is one that the Federal Court judges have said involves giving great weight to the fact that a majority of creditors have agreed to it.  The parties to the litigation are numerous.  There would have to be, presumably, the trustee; there would be the other contingent creditors who would have an interest; there would be those who voted for the composition; those who voted against the composition, so that a reference to section 239 and the possibility that it may have solved the problem is really a bit too much of a simplistic answer, in our respectful submission, because of the expense and complexity of the proceedings that are involved and, in any event, there is the uncertainty that I referred to before‑ ‑ ‑

GUMMOW J:   As to whether the Society would have been a creditor?

MR PANNAM:   Yes, just so, so there is not much nourishment for the Society‑ ‑ ‑

GUMMOW J:   It would be odd if they were a creditor to get a sequestration order under the mechanism of section 239, not a creditor for the purposes of section ‑ ‑ ‑

MR PANNAM:   Section 198(1) to vote.

GUMMOW J:   And to present a petition under section 44.

MR PANNAM:   Yes, that is so.  If I could next move, and I will come back to those various points shortly, but could I move now just to have a look at the changes that were made, and could I take the Court to the other two page addendum to the outline of argument in order to show what happened to section 82 as a result of the exercise of the combination of the rule‑making power under section 243(1).

Your Honours will see that, first of all, the dramatically wide definition is at least the subject of some surgery, and you have left out after the broad phrase, “debts and liabilities”, the words, “present or future, certain or contingent”.  So, they go, and then it goes on to leave out other words.  But, perhaps of more importance, if one picks up in subsection (8) the definition of “liability”, can I first draw to the Court’s attention the form of (8)(b) which was excised for the purposes of Part X compositions by rule 84.  That referred to:

an obligation or possible obligation to pay money or money’s worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt;

What is submitted was the effect of that was what I put before, namely, that if the person involved had on foot a current set of commercial arrangements that were not in breach, no‑one was pressing, but may in the future have given rise to breach, that was put to one side and taken out of the notion of a proval debt.  So, that contract simply continued on, and if and when a liability under it arose, that was not a liability that was subject to the release in section 241.  But, of more importance is perhaps the next one - (c), which has become (b):

an express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of, money or money’s worth, whether the payment is:

(i)   in respect of an amount - fixed or unliquidated;

(iii) in respect of the manner of valuation - capable of being ascertained by fix rules or only as a matter of opinion.

But, having left out the words that appear in section 82:

(ii)  in respect of time - present or future, or certain or dependant on a contingency;

So that this is the mirror in the definition of liability to that which was taken out of section 82(1) by the rule.

TOOHEY J:   Except that I take it you would want to read the word “present”, in a sense, back into section 82.  I do not mean as a matter of a precise choice of words but the concept of “present”, you would argue remains even though it has been excised from sections 82(1) and 82(8)(b)(ii), because otherwise you would not be left with any.

MR PANNAM:   Indeed.  So what we would say is that a present liability would encompass two types of liability.  The first is one in respect of which there was an immediate obligation to make a payment or to meet some other obligation or, secondly, where there was an obligation in place but it was to be satisfied at a point of time in the future.  So that both of those would fall within the category of the present liability.

We will come back to perhaps some of the difficulties of construction in relation to (8)(b) that was at the heart of Justice Tadgell’s reasoning shortly, but can I put first of all the general submission that we make in support of the construction for which we contend, which is in essence that contingent indebtedness is no longer an indebtedness which is properly described as a provable debt for the purposes of section 82 as modified by rule 84.

GUMMOW J:   In that provision as rewritten in subsection (8), liability, (a) is still there and that would include what?

MR PANNAM:   Wages ‑ ‑ ‑

GUMMOW J:   Quantum meruit, for example, would it?

MR PANNAM:   Wages for people who are employed by the person involved or moneys due to contractors, things of that sort.

GUMMOW J:   On a quantum meruit?

MR PANNAM:   Presumably.

GUMMOW J:   Because one has to read all that with subsection (4) where is where I have a little difficulty:

The trustee shall make an estimate of the value of a debt or liability -

which brings in what we have been talking about -

provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value.

I can see that the quantum meruit might not bear a certain value, but why were the words “by reason of its being subject to a contingency” left in if they have got no work to do under (a)?

MR PANNAM:   That of course is one of the arguments that will be put against us and was relied upon by Justice McDonald in the court below and was at the heart of the Court of Appeal’s reasoning in New South Wales in Gye v Davies.  The short answer to it is that you get it back to front if you use those provisions between subsection (4) and subsection (7) to interpret the effect of the changes made in section 82(1).  There is a short answer to it, and that is in 243(4) which solves the problem at once.  That provides:

If, after taking into account the prescribed modifications and the provisions of subsection (2) -

so you take into account the changes, and subsection (2) is the mandate that it is the change definition that constitutes the definition of provable debt -

a provision specified in subsection (1) or (3) is incapable of application in relation to a composition, or the trustee of a composition, as the case requires, or is inconsistent with this Part, that provision does not so have application.

GUMMOW J:   The question is, what is the provision then mean?

MR PANNAM:   It clearly embraces what was left of section 82, we would submit, and if it does, as we submit it does, then section 243 requires it simply to be ignored in its reference to a contingency.  That is the answer we make to it.  Indeed, Justice Tadgell in the court below was unable to give any precise meaning to - I withdraw that, I will put that another way - no, in fact I will just put the way I originally put it.  The short answer is to be found in that subsection.

GUMMOW J:   Would the rewriting provision under which this was done, would the rewriting provision have enabled surgery that was other than surgery, chopping words out?  In other words, if one looks at 82(4), they needed to keep the words “by reason of” “any other reason” being quantum meruits and so forth for (a), but they could not do it.  Is that why they left it in because, otherwise, they would have had to rewrite (4)?

MR PANNAM:   It is a very lazy way of approaching the matter ‑ ‑ ‑

GUMMOW J:   They were lazy.

MR PANNAM:   Section 243 is a quite extraordinary provision perhaps in many respects in any event and, in particular, the subsection to which reference is currently being made, but it is perfectly clear that surgery is not the limitation of what you can do under section 243.  You can remake, because as I indicated at the outset, modification can include addition, an omission, that is the surgery, and the substitution, which is after you have cut something out then put something else in.  So that the modification addition, omission and substitution language is language of the widest import, we would say, and ‑ ‑ ‑

TOOHEY J:   I must say, I would not have thought it was, Dr Pannam.  I concede that it has got a fairly wide sweep, but it would hardly warrant a complete rewriting of section 82 and the other sections to which it refers.

MR PANNAM:   The answer to the question might have to be found in what particular rewriting exercise was being engaged in.

TOOHEY J:   Well certainly.  Really the point is whether at a certain stage you have gone beyond modification.

KIRBY J:   I think that Justice Toohey’s point is a good one because, both for reasons of language and for reasons of constitutional theory, the Parliament has made this provision and the rule maker can only modify or adapt it; it cannot, as it were, completely remove that which Parliament has made, but can modify or adapt it.  I think that that is as it ought to be construed in order to keep the rule maker in his or her proper place and respecting Parliament.

MR PANNAM:   We embrace that, if we may say so with respect, because the modification can take effect - to put it another way, you modify by either adding, omitting or substituting, but then there is a line to be drawn somewhere between what is a modification and what is an entire rewriting of the provision, but what is clearly contemplated is that section 82 can be modified in relation to compositions and the rule maker has modified it by restricting the width of the scope of the definition of provable debt in section 82 in the ways that we have indicated.

KIRBY J:   And done so in a way which, as you have acknowledged, runs counter to 100 years of legislation to enlarge the pool.

MR PANNAM:   Yes that is so, because, truth to tell, the kind of problem that is involved in the present case is really a problem that has only clearly emerged, at least so far as the reported authorities are concerned, in the last few years, although theoretically it was possible, and indeed I think there is a case in the nineteenth century that our learned friends refer to that in fact dealt with a guarantee, these sorts of problems are not much dealt with in the authorities, but our essential submission is that, in 1966 what was introduced into the Act was a new flexibility in relation to the way in which compositions could be concluded, and one of those ways that the rule maker took into account was that you can have a composition, and a composition would only compose your existing obligations and not contingent obligations and not actions for damages in respect of current contracts that were in force, but not the subject of breach and that was done in the parts of the modification achieved by the rules to which we have referred.

Now, put it another way perhaps.  If one turns the problem around the other way and says this:  if the contention that has found favour against us in various courts, including the court below, be correct, what is the object of the exercise of the rule-making power in rule 84, if all that has happened is you have a change of language achieved in section 82 which is really just simply a draftsman’s exercise to excise language that need not be there, but to produce no identifiably different result?  Why not just leave section 82 in the form that it was?

The very fact that the exercise is engaged in is, in our respectful submission, an invitation to compare what was there before and what is there now.  We make that submission notwithstanding the observations that the presiding Judge has made in the Maroudas Case when your Honour referred to it perhaps not being a proper approach to look at the “semantic differences” between the section as it stood before the exercise of the rule‑making power.  In our respectful submission, it is a perfectly legitimate exercise to say, “Look at the section as it was.  Look at what’s happened by way of the change,” and by the comparison see if a change has been effected, because the argument against us‑ ‑ ‑

GUMMOW J:   I do not think his Honour was saying that one does not sit down and look at the Act as it is and work it out.

KIRBY J:   It was simply that phrase “semantic difference” that excited, I think, some interest of the judges in Court of Appeal.

TOOHEY J:   It almost the character of holy writ, it seems.

KIRBY J:   The real problem here, in a sense, is the fact that you were excluded from voting.  If the pool had been kept large but you had had your vote then the problem would not have arisen because you would have voted against it.

MR PANNAM:   Just so.

KIRBY J:   It is really something of a misfortune that we are being, as it were, invited to read down the pool which runs against 100 years of legislative history simply because you could not get your vote which was apparently a deliberate decision of the Parliament.

MR PANNAM:   It is not so much that.  If this decision was to stand, if one looks at it in terms of its impact on the commercial community, it does open up some fairly horrific scenarios by having some friendly creditors agree to a composition.  It is a rather neat way of getting out of a lot of contingent liability to banks and other financial institutions that, although are not currently the subject of any default that could trigger a demand, in the future might, as in this case, subject the persons to millions of dollars in terms of liability.  They just disappear.

KIRBY J:   In those awful scenarios that you are raising there would be remedies in the Federal Court.  You did not challenge, as I understand it, the propriety or the nature of the composition that had been made with the other private creditors.  You did not challenge that in this case.

MR PANNAM:   No, there was no challenge, but as I was indicating before, perhaps - there is one of the cases that I would desire to refer to and it is in our learned friend’s list of authorities.  It is a case called Re Burns 39 FCR‑ ‑ ‑

KIRBY J:   I did not want to take you off the course of your argument, Dr Pannam.

MR PANNAM:   No, your Honour, it is convenient to deal with it now.  That shows the kind of complexity and expense that is involved in these kinds of applications.  I do not want to detain the Court too long with it.  It was an attack on the bona fides of the persons who were entering into the composition, but I do want to take the Court over to page 493 to 494, where there is a consideration by Justice Hill in the Federal Court of how the discretion was to be exercised and after identifying the benefit of a public examination in bankruptcy as against other matters on 493, on page 494, his Honour points out, at about line 7:

In my view it cannot be said that there is some respect in whether the creditors may be better off if the composition is set aside.  I should also say that although the amount offered in the composition was not large, the return to creditors could not be said to be so small as to be unreasonable. 

Case cited:

Where the required majority in number and value of creditors vote in favour of a composition, the court will be slow to interfere with the business judgment of creditors.

Now, if that is the approach, that the rights of the holder of the guarantee are, first of all, to be remitted to the discretion of a court and not to exist independently as a matter of obligation, and if that discretion is going to be exercised at the forefront of the court’s mind that kind of principle, then, in our respectful submission, it is not at all certain.  Take the present case.  What would we have said to the Federal Court in the present case?  We cannot vote so we cannot complain about that because the statute says we cannot.  Is the primary obligation being met?  Yes, it is.  Are you owed any money?  No, you are not.  There would then have to be some investigation of a detailed kind as to the then present condition of the company with a view to valuing its assets and seeing what its business activities were to make a judgment whether or not a year down the track it could pay the debt and, hence, the liability would either fall to be enforced or not.  Now, it would be, in our respectful submission‑ ‑ ‑

KIRBY J:   I am sure you could have made something of the sort of arguments that Justice Brooking mentions at the end of his reasons.  You could have jumped up and down and talked about unfairness and ‑ ‑ ‑

MR PANNAM:   Yes, indeed.  And no doubt they could have been put in an attractive way.  But in our respectful submission, what you would nevertheless still have is you would have the holder of the guarantee stripped of a right and remitted to a discretion - the discretion of the court - which, consistently with the kind of principle that Justice Hill has stated, would pay great attention to the judgment of the then present creditors and ‑ ‑ ‑

KIRBY J:   The real solution to this problem is to address the Federal Parliament to change the voting power.

MR PANNAM:   If I may say so, with respect, and not flippantly, your Honour, the real solution to this problem is for this Court to interpret properly the provisions of section 82, as modified by rule 84.

TOOHEY J:   It is a narrow question of interpretation.

MR PANNAM:   It is.

TOOHEY J:   The problem, approaching it on the footing of what did the section provide before, what does it - not what does it provide now, but what changes have been made, is that you run into the difficulty that you want to, as it were, overlook the elimination of the word “present” where it appears twice in the amended section 82.  When I say “overlook” it, it is a difficulty for your argument because, in a sense, you accept that a present obligation is within section 82 as modified.

MR PANNAM:   The short answer we would make to that, your Honour, is this - I am sorry.

TOOHEY J:   If you meet that difficulty, then we look at the words as they stand, I suppose.

MR PANNAM:   The short answer to that is there is no work to be done by the continuation to use the word “present” in section 82(1) once you have taken out “contingent” and “future” liabilities.  “Present” is involved in the width of language that remains, namely, “all debts and liabilities”.

TOOHEY J:   Yes, I understand that.

MR PANNAM:   That is the short point I think that we would rely ‑ ‑ ‑

GAUDRON J:   And the present nature of them is, and always has been, encompassed in the ordinary meaning of the words “debt” and “liability”.

MR PANNAM:   In our respectful submission, yes.  It would not be proper to describe an amount of money payable on a contingency as a present debt ‑ I beg the question ‑ as a debt ‑ ‑ ‑

GAUDRON J:   As a debt.  Unless you add a contingent debt to the meaning of the word “debt”.

MR PANNAM:   Yes.

GUMMOW J:   And, on the other hand, a present debt may not have a certain value ‑ ‑ ‑

MR PANNAM:   No.

GUMMOW J:   ‑ ‑ ‑  which is why one needs ‑ present liability, I should say, may not have a certain value, which is why one still needs 82(4).

MR PANNAM:   Yes, to do the calculation.

GUMMOW J:   Yes.

MR PANNAM:   Yes.  Now, can I deal with the companion problem that we have to face in relation to subsection (8), where, I think, the only judge who has looked at the matter has rested on these words; that is Justice Tadgell, in the court below.  In (c), you are left with the words:

an express or implied engagement, agreement or undertaking to pay ‑

Now, just pausing at that point, we would say that the liability, contingent as it was at the time under the guarantee was not an engagement to pay at all, because that refers, we would say to a present payment.  Now, the critical words then are, a different language:

or capable of resulting in the payment of, money or money’s worth ‑

Now, our argument involves, and I will identify it at once, the proposition that that is simply using different language, a statement of a present liability that is payable at a future time.  In other words, there is an ambiguity.  The ambiguity, if I can reveal it for argument is this:  do the words mean, “or capable, subject to a contingency, of resulting in the payment of money”, or, do they simply mean, “or capable of resulting in the payment of money”?

The latter would mean, and have room for operation, in the sense that there was a present liability but, it only had to be met at a future time.  That is, its capacity to result in the payment of, and, we stress that the words used are not “subject to a contingency”, they are not used there; indeed, the old subsection (c)(ii) was taken out.  That is of importance for this reason.  One of the few places I want to refer to is the decision of the House of Lords that Justice Tadgell referred to and relied upon below, and it is a brief passage.  It is the decision of Hardy v Fothergill.  If I could take the Court to that judgment. 

The facts were simple.  There was a lease between a landlord and a tenant.  The tenant assigned to assignee and the assignee gave a covenant to the lessee to indemnify the lessee in respect of any claims that might thereafter be made by the landlord.  What happened was that the assignee went bankrupt eight years before the term expired, and then, after the expiry of the term, the landlord sued the lessee and the lessee claimed an indemnity, and the question was whether that claim under the indemnity was barred by the then provisions of the Bankruptcy Act.

There is only one paragraph that the learned judge below referred to and relied upon as supporting his interpretation of (8)(b), and it is at page 361 of the speech of the Earl of Selborne, and there, at the paragraph at the bottom of page 360, going over to the end of the paragraph on page 361. 

A contract to indemnify against the non‑performance of covenants in a lease, such as covenants to pay rent, or to keep the demised premises in repair, or to deliver them up in a proper state at the end of the term is, to all intents and purposes -

and then the words that were used -

“an obligation or possibility of an obligation to pay money or money’s worth” -

Just pausing at that point, it was in the English legislation that was then in force which is set out on page 360 but has been taken out of our Act by the operation of the rule because it was found in (8)(b) which has now gone.  Then his Lordship continued, again quoting from the section:

“an engagement to pay, or capable of resulting in the payment of, money or money’s worth,” if the contingency against which the indemnity is provided should occur.

If I can just, before coming back to the paragraph, go to the section in England as it then stood under the Act of 1869 which is set out on page 360, the first point to be made is in the paragraph that second appears on that page.  His Lordship sets out the definition:

“all debts and liabilities, present or future, certain or contingent -

that language in part has gone in our Act, “present or future, certain or contingent”.  Then if one reads down:

“liability” is for the purposes of the Act defined as including “any obligation or possibility of an obligation to pay money -

that has gone because (8)(b) has now been excised.  If one goes down towards the end:

and generally any express or implied engagement, agreement, or undertaking to pay, or capable of resulting in the payment of money or money’s worth, whether such payment be, as respects amount, fixed or unliquidated; as respects time, present or future, certain or dependent on any one contingency -

and so on.  That has gone too; that has been taken out by the excision of (c)(ii).

So that Justice Tadgell seized upon this passage and said, “My interpretation of (8)(b) is supported by what the Earl of Selborne said at that passage at page 361”.  But, in our respectful submission, there were three elements in the definition that his Lordship was considering that have been deliberately taken out of the provisions in our section 82 as modified by rule 84.  So that in so far as his Honour relied on that authority, we say that that was inappropriate and furthermore there is also the “if” part of the proposition.  It only becomes in his Lordship’s view within those phrases if the contingency should occur.  The two phrases are set out and then there is the “if the contingency occurs”, so it only happens once it occurs.

But, in our respectful submission, there is no support there for the construction that Justice Tadgell adopted but we still have to face the resolution of what we say is the ambiguity in (b) in relation to the words “or capable of resulting in the payment of”.  His Honour would have it, agreed with by Justice McDonald, that of course a liability under a guarantee is a liability under an express agreement that is capable of resulting in the payment of money.  That is the short point that is relied upon against us.  First of all, we say that ignores the deletion of the old (c)(ii) which took contingencies out.

Secondly, we say his Honour came to that conclusion without construing first clause 1.  Indeed, his Honour eschewed any attempt to construe 82(1) and said he need not do that, found that all very difficult and did not express a view on it, but instead went to the definition of “liability” to solve the problem.  In our respectful submission, his Honour should have addressed the question of construction of what “all debts and liabilities” meant because that would bear upon, if our argument is right, how you construe (8)(b).

We ultimately say and repeat the submission we put before that the words are ambiguous.  They can either mean what his Honour said, or they can mean “or capable subject to a contingency resulting in the payment of money or moneys worth”.  I am sorry, they can mean that, which was his Honour’s view, or they can mean simply, it is a present obligation but it has the capacity of maturing in the future to produce the payment of money or moneys worth.  So that the argument is, although the language is different, precisely the same argument arises in relation to section 82(1) we would say.

Your Honours, although that has not been done in any very logical way, what we had attempted to do, in our submission, was to identify really the five points that had been put against us in the various authorities that have recently dealt with the point without - and I do not want to take the Court to the authorities because the reasoning is not lengthy and the points are clear enough, and these appear at pages 3 and following of the outline where we attempt to summarise the five points that have been put against us.

The first really is the approach that you do not compare what was before with what comes later after the exercise of the rule-making power, and we say of course that is a legitimate approach.  The second seizes upon the argued width of the phrase that is left in the section, namely, debts and liabilities, and the conclusion is reached that it means exactly the same thing as it meant without the words excised.  We say, prima facie, that is odd, and to ‑ ‑ ‑

KIRBY J:   But would not the word “debt”, if we had never had the provisions that have been deleted, would that not ordinarily include a contingent debt?

MR PANNAM:   No, in our respectful submission, not, and that indeed was ‑ ‑ ‑

KIRBY J:   You say, by its nature “debt” means a presently owed debt.

MR PANNAM:   A present debt, and indeed that would flow in the face of the legislative history of the relationship between the courts and the legislature in England in the 19th century where every little extension was found not to go far enough by the courts until ultimately section 82 or section 33 of the 1869 Act found its ultimate form, and it was to cover these very things, in our respectful submission.  So that it would be, on the face of it, an odd exercise if all of this fuss that the rule maker engaged in in the surgery to 82(1), to use your Honour’s phrase, was to produce simply the same result as if it had never been engaged in; it is odd, to say the least.

The third point is one we have already dealt with which is relied upon and in particular recently by the Court of Appeal of New South Wales in Gye v Davies, which is to stress the role to be played in subsections (4) to (7).  I have already dealt with that, and the short point is either right or wrong.  It is cured by section 243(4), we say.  You first construe, and then after having construed the section, you then see whether what is left can have any effective operation.

The fourth point is really the Court of Appeal’s point that seized upon subsection (8), and we have already dealt with that, although in passing we should say that Justice Brooking, although he in the end agreed that the appeal should be upheld, he did not express any dissent from the views of the primary judge and said he based his approach on the need for comity in relation to the bankruptcy statute, having regard to the decisions of the Federal Court that was cited and the very recent decision of the New South Wales Court of Appeal.

Then the fifth point that we have identified is the one that has already been the subject of submission and that is the point that arises in relation to, “Oh well, you could have gone off under section 239 and persuaded the Federal Court that this ought to be set aside”, and for the reasons we have already assigned, we submit that that is not an effective answer for the submissions we make.  So that, your Honours, that is the essence of the submissions we have to make in support of the present appeal.

TOOHEY J:   Thank you, Dr Pannam.  Mr Nash.

MR NASH:   If the Court pleases.  If I may hand to the Court copies of our outline of argument.

KIRBY J:   Is it appropriate to start the problem of construction with a contemplation of the apparent injustice of the consequence for the appellant, so that we approach the statute assuming the Parliament would not wish to inflict such an injustice upon a citizen or a corporation?

MR NASH:   Well, we would say, your Honour, with respect, that it was appropriate to look at the start looking at the words of the Act as a whole, then to look at the history of the legislation and then, if there is an ambiguity at the end, to consider what Parliament would have intended.

TOOHEY J:   Just give us a moment, Mr Nash, please.  Yes, Mr Nash.

MR NASH:   If the Court pleases.  The first four points in the outline really deal with the question of interpretation looking at the section from different points of view.  If we may mention them, and then go back to a global analysis of the Act as a whole, we say that on a literal reading no distinction is drawn between present and future, certain and contingent debts.  Contingent debt is provable.

GUMMOW J:   Why is that?  Contingent debt is simply not a debt.  There is no action in debt that can be sustained, no cause of action known to the common law.  It is not talking about future property.

MR NASH:   With respect, your Honour, in the ‑ ‑ ‑

GUMMOW J:   That is why they had liabilities.

MR NASH:   One has to place this in the context of what we would say is the Flint v Barnard rule, which we will come to.  Secondly, we say it comes within liability.  It is straight within what the Earl of Selborne said in Hardy v Fothergill.  Thirdly, if there is an ambiguity, one has to look at the section as a whole.  Fourthly, that one has to look at the Act as a whole to see whether our learned friend’s approach involves an inconsistency with the provisions of the Act, and we say that to exclude future and contingent debts is inconsistent with the provisions of the Act.  In support of that, if we may, if I can take the Court through sections that our learned friends have not dealt with in the Act.  Section 5 ‑ ‑ ‑

TOOHEY J:   I am not quite sure where that submission is taking us when you speak of inconsistency.  Do you mean only for the purposes of interpretation, or do you mean anything more sinister than that?

MR NASH:   Perhaps I can go, first, your Honour, to section 315, which takes us out of order, but both for interpretation and for questions of validity, I think ‑ ‑ ‑

TOOHEY J:   Are those questions being raised?

MR NASH:   It depends upon whether our learned friend’s interpretation is correct, your Honour, and we say that the Court should interpret the rule‑making power as having been exercised within power and, therefore, validity is not per se in issue.  We say either we are right or the rule is invalid.  Therefore, the ambiguity, if any, should be construed in our favour.

TOOHEY J:   But that is simply an argument towards interpretation.

MR NASH:   Yes, your Honour.

TOOHEY J:   Yes, as long as we understand that.

MR NASH:   Yes.

MR NASH:   Yes, your Honour.

TOOHEY J:   Yes, so long as we understand that.

GAUDRON J:   But you do go so far as to say invalidity, do you, if your interpretation is not accepted?

MR NASH:   Yes, your Honour.

TOOHEY J:   Well, that is not how I understood your answer to me a moment ago.  I thought it was the potential for invalidity which you were using as an argument as to a proper interpretation.  If the Court is against you on the interpretation, are you asking us to say anything about the - - -

MR NASH:   No, we are not asking the Court to rule on invalidity as such, no.  We say it is a consequence, but it is not a consequence of which we are seeking a ruling at this stage.

TOOHEY J:   No, I understand that.

MR NASH:   Section 315:  our learned friends pointed out that section 243 had been amended to delete the reference to consistency with the Act, but under section 315:

The Governor-General may make rules or regulations not inconsistent with this Act, prescribing all matters that by this Act are required or permitted to be prescribed -

and that, of course, includes the power of prescription under section 243.  Section 243 does not extend or alter anything.  Our learned friend spoke as though section 243 did the work that rule 84 in fact does.  Section 243(1) applies a whole plethora of sections to compositions, deeds of arrangement and deeds of assignment and says they:

apply, with the prescribed modifications (if any), in relation to a composition under this Part - - -

TOOHEY J:   I take it you are submission then is that in relation to section 243 the modifications contemplated by that section are modifications made in exercise of the rule-making power under 315?

MR NASH:   Yes, that is the only capacity for the Governor-General to make the rules.

TOOHEY J:   That might explain why the reference to inconsistency in the Clyne Report did not find its way into section 243 itself.

MR NASH:   It is not necessary here, your Honour, because it is in section 315.  Subsection (2) says:

In the application of the provisions of this Act specified in subsection (1) in relation to a composition, a reference to a provable debt shall be read as a reference to a provable debt within the meaning of this Part.

Surprisingly, there is a definition of “provable debt” within the meaning of this Part in section 187(2):

In this Part -

encompasses the whole of Part X -

a reference, in relation to a deed or a composition, to a provable debt shall be read as a reference to a debt or liability that would have been a provable debt in the debtor’s bankruptcy if the debtor had become a bankrupt on the day on which he executed the deed or on which the special resolution accepting the composition was passed, as the case may be. 

So we have a specific definition of “provable debt”.  It is a definition of “provable debt” which picks up specifically the whole of the definition in section 82.  To say, as our learned friends say, that the rule-making power under 315 combined with the capacity to modify under section 243 has the effect of deleting effectively section 187(2) and substituting a new definition is, we say, a remarkable proposition, particularly when one takes into account two factors.  The modification power in section 243 does not extend to section 187.  There is no power to modify any of the provisions of Part X itself and section 315 contemplates rules, including modifications as prescribed, which are consistent with the Act.  Then, if we look at section 198, subsection (2) clearly contemplates that a contingent creditor is a creditor within Part X.

TOOHEY J:   I am sorry, what section was that?

MR NASH:   Section 198, I am sorry, your Honour.

TOOHEY J:   No, no, I just missed that. 

MR NASH:   I think I was looking at my notes, your Honour, and mumbled.  Section 198(1) says:

[Every creditor entitled].....to vote -

Subsection (2) says:

A creditor is not entitled to vote in respect of an unliquidated or contingent debt or a debt the value of which is not ascertained.

The legislature clearly contemplated that a contingent creditor was a creditor within section 198(1), otherwise part of 198(2) is otiose.  Subsection (3) contemplates that creditors who have a future debt are creditors, and that they may vote if the debt is certain.  That is of significance because if the draftsman in drafting rule 84 contemplated excluding contingent debts, it must equally be accepted that he contemplated excluding future debts.

GAUDRON J:   Well, I do not think that follows, Mr Nash.  To the extent that a liability may result in a future debt, liability is included.

MR NASH:   Yes, your Honour, I accept that.  I was looking merely at the question that our learned friends put in relation to 84(1), or section 82(1) as modified, and going back to the propositions that have been put, and that were put by the - I think by the learned trial judge in this case - that contingent and future debts disappeared from the definition in section 82(1).

TOOHEY J:   Your argument then, I take it, would have to go along these lines, that section 243 contemplates prescribed modifications to a range of sections, including section 82.  That must be read, nevertheless, along with section 187(1), which speaks of the definition, or the meaning of ‑ ‑ ‑

MR NASH:   Section 187(2), your Honour.

TOOHEY J:   Section 187(2), I beg your pardon, which says that:

a reference.....to a provable debt shall be read as a reference to a debt -

and so on.  Then the next question is:  then what sort of modification could section 243 contemplate in relation to section 82, having regard to section 187?  I suppose there is possibly some work for it to do in so far as section 82 has particular provisions as to what shall be provable in bankruptcy.  I may not be making myself very clear, but if section 243 in its reference to section 82 must be read along with section 187(2), then what sort of modifications could be made to that section - that is section 82 - under section 243 that would not run up against section 187(2)?

MR NASH:   With respect, your Honour, we have not been able to come up with a formula, but our submission is that when one looks at 243 it is not looking at modification to particular sections; it is looking at a range of sections.  It is looking at the whole of sections 82 to 107 and the whole of 140 to 147.

TOOHEY J:   That takes in Division 1 of Part VI.

MR NASH:   Yes.

TOOHEY J:   In other words, the range of sections within that division are the sections to which section 243 initially applies.

MR NASH:   Yes, and it does not contemplate modification to any particular section; it takes into account the nature of compositions and says there may be something in that division that needs modification.  It does not necessarily contemplate that section 82 of itself should be modified.  This is one of the points our learned friends made, that section 243 contemplated a particular modification of section 82.  One looks at the sections dealing with the whole of Division 1 of Part VI and says, “Right, that division applies.  There may be something in there that we haven’t thought about that is inappropriate for compositions that needs qualification; therefore there is a need to have power to modify”.  But we say it could not have contemplated in view of the specific provision in 187(2) that the substance of what was a provable debt should be changed.  That leaves the question:  what is the effect of the amendment?

We say that the effect of the amendment is a tidying up exercise.  For whatever reason, there is no material to indicate why it was carried out, but it was a tidying up exercise.  What it did was, it changed words which, in fact, in substance had been in the legislation since 1869.  There had been slight modifications, but if one looks at the 1869 Act, section 31 of that Act contained subsections (1), (2), (4), (5), (6), (7) and (8) of the 1966 Act.  The 1869 Act was the accumulation of amendments, choppings, changes.  All of those provisions were effectively in the same form in section 31 of the 1869 Act.  It may well be that a draftsman thought it was time to tidy up.

TOOHEY J:   Pretty bold way of doing it, would it not?

MR NASH:   With respect, your Honour, one has to bear in mind that the draftsman probably, one has to assume, the draftsman was aware of the decision of the House of Lords and what Lord Selborne had had to say.  One also has, if one can go back to the issue that was raised by your Honour the presiding Judge in Morris v Maroudas, section 15AC of the Acts Interpretation Act 1901 effectively says that because the words of the section have been changed one should not assume that there has been a decision to change the meaning of the legislation.

TOOHEY J:   Mr Nash, I take it you have not been able to find anything in the contemporary material that throws light as to why, is it rule 84, was used in this way?

MR NASH:   We have gone so far as to make an FOI application to try to chase everything.  The best we have been able to achieve is word of mouth that says, the rules were brought in so the Act could come into operation.  Totally useless.  We have, however, amongst our material, to which I wish to take the Court, the ‑ ‑ ‑

TOOHEY J:   So, in other words, it is not a situation in which rule 84 was apparently used to meet some problem that had arisen because of the contemporaneity between the rules and the ‑ ‑ ‑

MR NASH:   If it was, your Honour, it has been lost in history.  There are no drafts available, there is no report, no recommendation, and there is nothing to indicate why rule 84 was enacted or passed.  The problem is that, in our submission, it is, if our learned friends are correct, inconsistent with the Act, but if it has the meaning that your Honour the presiding Judge suggested it might have, and I think it went no further than that. in Morris v Maroudas ‑ ‑ ‑

TOOHEY J:   I certainly intended not to go further than that.

MR NASH:   Yes, then it has not changed, it is not inconsistent.  If one looks at section 82, perhaps our learned friends’ version attached to their outline is of assistance here:

Subject to this Division, all debts and liabilities.....to which a bankrupt was subject at the date of the bankruptcy.....are provable in his bankruptcy.

If that expression includes - and I appreciate that your Honour Justice Gummow has a problem with this and I want to come to it in a moment - contingent and future debts and liabilities then, in substance, there is no change in section 82(1).  If one looks at subsection (8), it is our submission that everything within the original paragraph (b) fell within the original paragraph (c), and if one looks at subparagraph (2), the deletion of that is consistent with the assumption, for whatever reason, that there was no longer any need to spell out “present” and “future”, “certain” or “contingent”.

If, as always happens in these cases, one answers questions from the Bench and goes sideways, but if I can divert from where I was about to take the Court, that is, to the explanatory material, and take the Court to the case of Flint v Barnard (1888) 22 QBD 90. At page 92 at about point 2, Lord Esher made a statement which, we say, is still relevant to the interpretation of bankruptcy legislation:

It seems to me that the House of Lords, in Hardy v Fothergill, has laid down a rule of interpretation, or rather a rule of conduct, for the Court where it has to construe the Bankruptcy Act.  It is true that the remarks of the Lord Chancellor relate to the Bankruptcy Act, 1869, but they are equally applicable to the later Act, and may be paraphrased by saying that since the statute 6 Geo. 4, c. 16, till the year 1883, the legislature has been engaged in the effort to exhaust every conceivable possibility of liability under which a bankrupt might be, to make it provable in bankruptcy against his estate and relieve the bankrupt for the future from any liability in respect thereof.  If I had to apply that rule of interpretation to s. 18, sub-s. 8, of the Bankruptcy Act, 1883, if it stood alone, I should say that this subsection was open to an interpretation which would make the relief to the debtor complete instead of partial.

He then goes on to say that apart from anything else, he then reads the rest of the legislation and says that the debtor, who had entered into a composition with his creditors, was released from all debts, from which he would be released by an order of discharge in bankruptcy.  But, it is the principle ‑ it is the enunciation of a principle there, that, for the moment, we draw attention to.

KIRBY J:   I think Dr Pannam agreed that that was the history of the legislation.  The question is, why, construing the Act as a whole, does one, if that be the theory of the Act, to exclude the contingent debtor from voting?

MR NASH:   That has been the history since 1869, your Honour.  The contingent creditor ‑ ‑ ‑

KIRBY J:   Contingent creditor, I meant.

MR NASH:   Under the 1869 Act, section 16(3) and section 126, had the combined effect of excluding him from voting ‑ ‑ ‑

KIRBY J:   So, you grab his money, but you do not let him vote on how it is to be disposed of.  It does not seem very just.

MR NASH:   With respect, your Honour, in every case there has been the power to set aside and, despite what our learned friends say we say that that is one of the reasons for the power to set aside.  A future debtor, if one looks, your Honour - a future creditor cannot vote unless the sum is certain, and there is a very obvious reason for this.  Until one can fix a value, how can one determine the voting power?  With a contingent debt, one does not have just a question of estimating values by removing by capitalisation, or whatever, by interest rates, relation to interest rates, actuarial calculations.  One has to say, “What are the chances of Phar Lap winning the Melbourne Cup?”

KIRBY J:   But that will be so immediately after the composition, and if - I repeat, you have grabbed his money, but you do not give him a chance to have a vote.  I mean, that may be the theory of the Act, and you say it is the history of the Act, but it does not seem very rational.

MR NASH:   One point that I would wish to make:  in our friend’s outline there is a suggestion that this composition was - in fact, the words he used was “engineered” - that this was a device.  There is no evidence of this and, in fact, if one looks at the decision of the learned primary judge, one finds that interest continued to be paid by the companies - by something better - after the date of the composition until the projected roll-over date, at which the roll over did not take place.

TOOHEY J:   I did not understand Dr Pannam’s observation to relate to this particular case, but rather to point to some of the problems that arise from a contrary interpretation.

KIRBY J:   It might have just slipped in a little bit.

MR NASH:   Well, it is just a little bit of colour.  The words, your Honour, are:

just as in this case, to engineer a position -

and at the top of the next page:

The respondents in the present case have attempted to utilize such a mechanism.

TOOHEY J:   I am sorry, I was unduly charitable.

MR NASH:   I am sure that Dr Pannam did put it in accidentally, but there is absolutely no evidence to support this.  What we have here is a clash between legal statutory interpretation, analysis of the section as a whole, analysis of the Act as a whole and analysis of the history, as against Dr Pannam’s outrage that there was a small composition and this huge debt was wiped out.

Now that immediately distracts the mind from the issue which is to interpret the legislation.  I accept what your Honour says, with respect, that it seems outrageous that this is what the legislator intended, if the respondents are guilty of fraud, but if the respondents are guilty of fraud, that composition can be set aside at any time.  Since Dr Pannam is prepared to put that in his outline of argument, one has to ask, “Why, since the debt matured, have no steps been taken under the power to set aside for fraud?”, because the application to set aside for fraud can be made at any time.

KIRBY J:   It is a difficult thing:  first of all there are professional and legal inhibitions on alleging fraud; it is a difficult thing to assert it and a hard thing to prove it and the onus is heavy.  So that, the suggestion is that this is not the way the statute is supposed to work in its totality.

MR NASH:   In which case, of course, your Honour, there are, in the outline of argument, statements which are totally irrelevant to the issue before the Court and I ‑ ‑ ‑

KIRBY J:   It would not be the first time we have received statements that are totally irrelevant.

TOOHEY J:   I suppose it ought to be borne in mind too that section 239(2) empowers the Court, for reasons wider than fraud, to set aside a composition.

MR NASH:   Yes, your Honour.

TOOHEY J:   That the terms of the composition are unreasonable or not calculated to benefit the creditors or for any other reason, so it is a fairly wide power.

KIRBY J:   And it cannot be said that this appellant is of a kind that could not have sought that remedy if it had wanted it.

MR NASH:   Well it probably had access to good professional advise, your Honour, and even to good accounting advice.

KIRBY J:   I am just very affected by those statements at the end of Justice Brooking’s judgment and it may be that they just have to be put out of mind, because that is the history and language of the Act, but his Honour puts it very succinctly and powerfully.

MR NASH:   The same situation prevailed in relation to the 1883 Act, which specifically provided section 15 and clause 9 to the first schedule.  I do not want to take the Court to it, because all they say is “contingent creditors cannot vote”.

GUMMOW J:   Why does one not read 243(2) first before one reads 243(1)?  In other words, you get 187(2) which tells you what a provable debt is, then you go to 243(2) which I guess picks up 187(2) and, having done that, why do you not then start off applying 243(1) to both sections?

MR NASH:   Because there is no power to modify section 187(2).  With respect, your Honour, one has power to modify another part, but part of that other part, if I can put it that way, has already been incorporated into Part X and we say when the legislature has effectively incorporated section 82 in so far as it defines a provable debt, there is no power under 243(1) to change because that would be inconsistent with the Act and inconsistent with Part X as a whole.

GUMMOW J:   That use of the word “inconsistent” then turns in upon itself, does it not?

MR NASH:   With respect, no, your Honour, because one has to assume that the legislature intended - I am sorry, I will put it a slightly different way.  If what your Honour is putting to me is correct, then section 187(2) has no function to serve because 243 does it.

GUMMOW J:   Yes, it does, because there may be no prescription.

MR NASH:   In which case section 82 applies, your Honour.  Section 82 would apply in the absent.  If one takes section 243 by itself, then section 82 applies.

GUMMOW J:   Yes.

MR NASH:   But the legislature went further and spelled it out in 187(2), which was not subject to modification.  One cannot assume that that 187(2) was put in there for no reason whatsoever.  I know what your Honour is going to say, “Can one say that rule 84 was passed for no reason whatsoever?”.  But we say there is a difference between the rule‑making power and ‑ ‑ ‑

GUMMOW J:   That does not answer the question if it was beyond power.  If 84 was beyond power, so be it.  The question I thought you were saying was that if it went beyond power it had this meaning.

MR NASH:   No, we say that it does not change the - it makes no substantive change to the definition of “provable debt”.  It is to be construed if possible as within power.  If one takes what I put to your Honour previously as the Flint v Barnard rule and applies it to the definition of “debtor” ‑ ‑ ‑

GUMMOW J:   I do not know if it is a rule, Mr Nash.

MR NASH:   Perhaps I am indulging in the sort of hyperbole that is unnecessary, your Honour.  Really in relation to what I say is the straight statutory interpretation point, we say:  one, section 187(2) answers it; two, if one looks at the part as a whole, it is clear that provable debts include contingent and future debts, that if one looks at the section as a whole, part of section 82(4) as modified is otiose because there is nothing for it to do.  If contingent debts were out and the draftsman intended contingent debts to be out, he would have redrafted, had he had power to do it, subsections (4) to (7) in fact.  So we say that that of itself is an indication that contingent debts and liabilities are not excluded or, alternatively, that liabilities include contingent liabilities on the reasoning which was accepted by Justice Brooking below.

GUMMOW J:   Would these submissions have significance for rules 82 and 83?

MR NASH:   The situation is identical, your Honour.

GUMMOW J:   Yes, that is what I was wondering.

MR NASH:   In fact, if one looks at the ‑ ‑ ‑

GUMMOW J:   That is to say the deeds of arrangement and deeds of assignment.

MR NASH:   Yes.  If one looks at the injustices or difficulties that arise - if one takes a deed of assignment, which is a document under which the creditor disposes of all his divisible property, if a contingent creditor is not allowed to prove in that deed of assignment, then two things happen.  One, if the contingency occurs within the six month period and the contingent creditor becomes a present creditor and he petitions, the deed of assignment - and the same point applies to compositions, but compositions are different because one does not have the whole of the assets being handed over - one has the situation that the deed of assignment or the composition has no effect.

That cannot be the intention of the legislature, that under a deed of assignment the contingent creditor, if the contingency happens early enough, can set aside the deed of assignment not by reason of his voting power but by the reason of effectively starting bankruptcy proceedings for a new debt or that, if it takes place at a later stage, the creditor should be chasing a man of straw and the debtor who has parted with all his divisible property is faced with a new liability.  It is contrary to the whole thrust of the bankruptcy legislation and we say it is contrary to the reasoning of the Clyne Committee.

KIRBY J:   Do we need to read the whole of the Clyne Committee report, we having received all 90 pages of it?

MR NASH:   No.  But I was sure that if we only handed particular pages, your Honour, that someone would say, “What does the next paragraph say?”  With respect, your Honour, if we can go first to page 16 of the report, to paragraph 35?

TOOHEY J:   Can we take it, Mr Nash, that the paragraphs mentioned in paragraph 10 of your submission are the only paragraphs we need go to?

MR NASH:   They are the only ones, yes, your Honour.

TOOHEY J:   Thank you.

MR NASH:   If I can go to paragraph 35 and, at about point 9 under letter (d), the committee, having said that it recommends a number of changes which were, in the opinion of the committee, of substantial assistance to ensuring that a bankrupt is given an opportunity to make a fresh start, paragraph (d):

the encouragement to debtors and creditors to adopt arrangements outside bankruptcy provided by the new Part X -

We say that the interpretation of rule 84 does not encourage, but discourages.  If I can go to paragraph 283 on page 65:

The principal consequences of a composition are as follows:-

(a)  A composition secures a release to the debtor from his liabilities, provided he complies with the terms of the composition.

(b)  A composition does not operate to vest the property of the debtor in a trustee -

he remains the legal owner -

(c)  A composition, like a scheme of arrangement , is binding on all creditors if it has been approved by the creditors at two meetings in the manner described in the case of a scheme of arrangement.

That is the old provision.  Paragraph 291; the committee proposes a new Part X:

shortly be described as a modified bankruptcy system providing for three distinct procedures that may be used for winding up, or arranging, the affairs of an insolvent debtor as an alternative to bankruptcy.

Paragraph 295 says what a composition is:

the creditors.....

(a) agree to accept payment of the debts due to them by instalments; or

(b) agree to accept.....less than the full amount of those debts ‑

Then paragraph 317, a recommendation:

that the trustee, a creditor or the debtor should be able to apply to the Court for an order ‑

setting aside.  Then paragraph 340, on page 75 ‑ ‑ ‑

KIRBY J:   Prompted by Justice Toohey’s comments, I looked again at the section, and it is in very wide terms, section 239.

MR NASH:   Yes, your Honour.

KIRBY J:   Have you any comment on what was relied on in Justice Hill’s statement in the case that Dr Pannam mentioned, because the words, just taken in their terms, could hardly be in more wide words:  it is “unreasonable”, or “for any other reason”?

MR NASH:   I am sorry, your Honour, I cannot really assist the Court on that.  

KIRBY J:   Yes.

MR NASH:   But, 340:

The general provisions of the Bill that, in the Committee’s view should apply in relation to compositions are those that relate to proof of debts, the distribution of property and the powers, duties and control of trustees.

and that is where one gets, as Dr Pannam said, the adoption; the provision in section 243 adopting those provisions.  The only thing to be excluded is the provision in relation to priority of debts.  And, at paragraph 394, there is a summary of the committee’s major recommendations.  Now, what is remarkable, if our learned friends are correct, is that nowhere in the committee report, nowhere in the second reading speech, is there any suggestion that the law relating to contingent creditors, or the right of contingent creditors to prove, in a composition, is to be changed.

There is no suggestion anywhere that - and this is a significant change because they have been there since 1869, they have not been able to vote since 1869.  They are now being removed from compositions - not a mention anywhere.  That has to be relevant to any interpretation of an ambiguity in the drafting of rule 84.

KIRBY J:   The Australian Law Reform Commission has been examining bankruptcy law.  Is there any treatment by that commission of the question of contingent debtors or anything that would throw light?  I feel bound to ask these questions.

MR NASH:   Well, I feel bound to answer your Honour honestly and amongst the things we have looked at was not that question.  I am unable to help the Court.

KIRBY J:   Well, I might just have a little peek.

GUMMOW J:   The Harmer Report was very detailed.

MR NASH:   Yes, your Honour.  My learned junior has just reminded me that I should have drawn the Court’s attention to paragraph 337 of the Clyne Committee’s report:

A composition will operate to release the debtor from all debts provable under the composition, except such as the debtor would not be released from by his discharge from bankruptcy.

And that is debts provable under the composition, of course, but one has to take into account that one at that stage is talking in terms of legislation that has section 187(2), and with respect to what your Honour Justice Gummow said earlier, we say that to start with 243(1), with respect, rather than 187(2) is to put the cart in the leading role.  Section 187(2) is a substantive provision in Part X.

GUMMOW J:   Well, it is a definition.

MR NASH:   It is a definition, and 243 does not say anything about changing definitions or amending Part X and, once one gets to 187(2), incorporates debts provable in bankruptcy, section 243 can do what it likes, but it cannot affect what has gone before.

There are a number of other authorities that we have listed in our outline, but we say that, in one way or another, the substance of them has been canvassed although not necessarily the precise words used.  There is nothing to indicate that the intention of the legislature, in enacting the 1966 Act, was to depart from the situation where the effects of compositions and the effects of bankruptcy were parallel.  In fact, everything indicates the contrary.

GUMMOW J:   There was a definition back in section 5 of provable debt, was there not?

MR NASH:   Yes, your Honour, but if one looks at it, it is one of those non‑definition definitions.

GUMMOW J:   In this sense.  That would direct one to section 82 in the ordinary case.

MR NASH:   Yes, your Honour.

GUMMOW J:   And then there is a particular provision 187.

MR NASH:   If it was contemplated that 82 should be altered in a substantive fashion so as to change what was a provable debt, then we say that 187(2) would not have been enacted in that form.  It is unnecessary.  Propositions 11 and 12 in our outline, with respect, are propositions that we say are, in one sense, self-evident.  The amended section, if it is ambiguous, should be interpreted so as to promote the object underlying the Act and in the light of the Act’s history.  The authorities cited there in the legislation support that proposition, and there is nothing to indicate an intention to reverse 100 years of legislative history, and we would ask the Court not to be distracted by unfortunate remarks about engineering and the like.

This in fact is a matter that will have great significance.  If our argument is wrong, then there must be a number of compositions and deeds of assignment and deeds of arrangement in this country into which debtors have entered in good faith, have arranged their affairs accordingly, and now they may have to worry about what contingent creditors will come out of the woodwork, because even if the contingent creditor has - well, it depends on the circumstances.

I was going to say things that I cannot justify but, we would ask the Court to look at the legislation and interpret it and if the amount which has been made available for the debtor’s creditors is insufficient, the debtor’s creditors, including the contingent creditor, on our analysis, are all entitled to go to the Federal Court and say, “This is outrageous.  I didn’t have a vote.  Set the composition aside.

KIRBY J:   They do not even have to do that.  They do not have to say it is outrageous.  They just have to say, “This is unreasonable.”

MR NASH:   They only have to say it is unreasonable, your Honour.

KIRBY J:   Or for any other reason it ought to be set aside.

MR NASH:   There is a contingent debt of two million which will or will not mature in 12 months time, or six months time; the composition should be set aside and no composition should be permitted until that time has elapsed.

KIRBY J:   Is section 239 basically in the same terms as has been the history of the legislation since 1869?

MR NASH:   The wording is slightly different, your Honour, but we say there is no substantive difference whatsoever.

TOOHEY J:   There are some decisions of the Federal Court, I think, on the operation of that section.

MR NASH:   Yes.

GUMMOW J:   :   There is quite a few.

MR NASH:   If the Court pleases, they are the submissions on behalf of the respondents.

TOOHEY J:   Yes, thank you, Mr Nash.  Dr Pannam?

MR PANNAM:   If the Court pleases, my learned junior will reply.

TOOHEY J:   Mr Beach?

MR BEACH:   Could I first take the Court back to section 187.  In our submission, section 187 is no more than a definitional section and the usual principles apply that definitions are to be applied “unless the contrary intention appears” from other express provisions in the Act.  Now, section 187(1) contains those words, likewise the definitional section in section 5(1) also contains those words.  In my submission, although words do not expressly appear in subsection (2), nevertheless, it should be treated in a similar fashion.

GUMMOW J:   Sorry, in subsection (2) of section - - -?

MR BEACH:   Section 187.

TOOHEY J:   I had a quick look at the definition section in section 1 to see whether any of these particular expressions were given meaning by that section to see how one might work as against the other, but on a quick glance I could not see any that fell within the general definition provision.

MR BEACH:   No.  The second point to make about section 187(2) is, of course, that that appeared when the 1966 Act was introduced.  That applied up until rule 84 was introduced under the statutory provision of section 243.  When one considers the sense of the matter, it is quite clear that until there was some form of modification under section 243, that would have been the particular position applicable.  So there is nothing inconsistent with saying that that subsection did have meaning and operation at the time that the Act was introduced, but later, when rule 84 was introduced to modify section 82, by reason of the provision of section 243, section 187(2) had no further work to play.  We would make the same submission in relation to section 243(2) which provides in a similar way - or picks up what is expressed in s187(2).

GUMMOW J:   You say that section 187(2) would still have had work to do before the prescription of the modification?

MR BEACH:   Yes, for two years between 1966 and 1968, but once the modification was made under the authority of section 243(1) to modify section 82, then that necessarily, or by implication, had to modify section 187(2).

TOOHEY J:   There is a problem with that, though, is there not, Mr Beach, because section 187 is simply not one of the sections mentioned in section 243(1)?

MR BEACH:   Yes, but one has the legislature saying, “For the purposes of compositions we authorise amendments to be made to section 82 by the prescribed modifications”.  So there is nothing inconsistent with a prescribed modification being made in accordance with that statutory authority.  Rule 84 is perfectly consistent with section 243 and although section 187(2) had work to do up to a particular point in time, nevertheless the legislature clearly recognised that at some particular stage if a prescribed modification was made there would be an alteration to that position.  That is what 243(1) clearly recognises, because it specifically refers to section 82 in the opening line of section 243(1).

GUMMOW J:   What is the connection between 243(2) and 187(2)?

MR BEACH:   Well, subsection (2) begs a question, because it refers to “a provable debt within the meaning of this Part.”  Now, our submission is that might change.  At the time of the 1966 Act, it was as stated in section 187(2), but when a prescribed modification was made in 1968, under section 243(1), it changed, and subsection (2) would pick up the meaning for the two years between 1966 and 1968, and then would pick up the modified meaning from 1968 forward.

GUMMOW J:   But it is said that 243(2), I think - it said 243(2) controls 243(1) as it were.

MR BEACH:   Well, in our submission, we would not put it quite like that.  Subsection (2) really begs the question because it says:

a reference to a provable debt shall be read as a reference to a provable debt within the meaning of this Part.

So, it does not give any content to what that means, and you have got to look elsewhere for the content.   The content of the expression “provable debt” between 1966 and 1968 was as dealt with in section 187(2).  But once the prescribed modification was introduced, it changed in accordance with what was authorised under section 243(1).

GUMMOW J:   Well, that is saying that subsection (2) does not control (1).

MR BEACH:   Yes.  The second point to make about the matter is that if the respondents’ contention that section 187(2) is set in cement and continues to operate now, then that would give no content to the authority given to modify section 82, as provided in section 243(1).  My learned friends quite frankly conceded that they could not give the Court an example of the room for operation of section 243(1) by reference to section 82, and we say that that is a clear indication that section 187(2) did not continue on to the present day without reference to the modifications under 243.

It has been asserted that rule 84 might be, in some sense, inconsistent with the Act but, in my submission, that is not correct and the proposition is really circular, but if the legislature has, itself, recognised that prescribed modifications could be made to the regime applying to compositions and if this is a prescribed modification as defined, then there is no inconsistency between rule 84 and what the statute provides.

The third point of statutory construction advanced by the respondents related to section 198(2).  Again, when the 1966 Act was introduced but before the modification was made under section 243, section 198(2) may have had some work to do.  It no longer has any work to do on our argument, but it may have had some work to do originally, and we say that section 198(2) does not indicate that the construction that we contend for should be rejected.  Can I move on to a number of other discrete topics?

GUMMOW J:   What do you say is the present operation of 198(2) when rule 84 applies?

MR BEACH:   Well, section 198(2) probably has little operation in relation to contingent liabilities.  It is there but, if a contingent liability is not a provable debt, then we would have no right to vote in any event, so there does not need to be a statutory prohibition saying that we do not have the right; we would not have the right to vote under our construction argument on rule 84, but it may have had some work to do before the rule was introduced.

KIRBY J:   Given its history and its terms and its generality and its continuance, that is an odd result.

MR BEACH:   Well, it is not an odd result, in our submission, if one considers section 243, because section 243(1) authorises modifications to be made and what the effect of our argument is is to render otiose.

KIRBY J:   But that is to that section; that is not to section 198.

MR BEACH:   No, but it is a reference to section 82, and if the argument is that we do not have a provable debt, then we have no right to vote.  That is consistent with section 198(2), because it says the same thing; we do not have the right to vote.  It is just a provision that really does not take the matter any further.

KIRBY J:   We have a choice of constructions here and the one that you argue for seems to fly in the face of the generality and continuance of the language of section 198, which has a very long history.  Why should we choose your construction when, on the side of the other, the terms of the section, its long history and its apparent generality and its specificity in dealing with contingent debts?

MR BEACH:   I am not putting an argument inconsistent with the operation of section 198(2).  I am agreeing that because we do not have approvable debt, we cannot vote.

GUMMOW J:   No, but, would there not be, under the revised section 82, as a consequence of rule 84, present debts not bearing a certain a value, which were valued under 82(4) as liabilities, but which would not have attracted a vote under 198(2)?

MR BEACH:   Yes.  I am only focusing on the argument applicable to a contingent liability.

GUMMOW J:   Yes, I know, but that is not the total area covered by 198(2).

MR BEACH:   No, I accept that 198(2) still has operation to play in relation to debts or liabilities that fall within section 198(2), other than contingent liabilities, because ‑ ‑ ‑

GUMMOW J:   Yes, that is what I was asking.

MR BEACH:   Yes, that is how I put the argument.

GUMMOW J:   I thought you were putting 198(2) in the ash can but not really.

MR BEACH:   Only for contingent liabilities ‑ ‑ ‑

GUMMOW J:   Yes.

MR BEACH:  ‑ ‑ ‑ because it is all I need to do.  I am really putting the ‑ ‑ ‑

GUMMOW J:   It is all you need to do, but we have got to try and construe it.

MR BEACH:   I suppose I am really saying that rule 84, and our construction of what “provable debt” means for a composition, is not inconsistent with section 198(2) to the extent that it applies to contingent liabilities.  The next argument that was put by the respondents was to the effect that, if contingent liabilities are now removed from the definition of a provable debt, that future liabilities are also excluded.  Now, we do not put the argument in those terms and it, of course, requires one to consider what a future liability is.  We say that, consistently with section 82(8), that a present liability which requires payment at a certain time in the future, would be covered as a liability under section 82(8).

Some might consider that to be in fact a future liability and, of course, Justice Heerey in the Wills’ Case so held in relation to the first part of an instalment of $50,000 under a sale contract, but as Justice Powell pointed out in Gye v Davies (1995) 37 NSWLR 421, and we would, with respect, adopt what his Honour said. The passage begins at line G on page 429 and goes to line B on page 430. His Honour discusses what Justice Heerey said in Wills and Justice Heerey’s categorisation of:

the sum of $50,000 as “a future debt because it was not payable under 30 June 1992” -

and Justice Powell said:

With respect, while it might have been legitimate to describe the sum of $70,000 as a contingent debt, it was, in my view, not correct to describe the sum of $50,000 as a future debt - on the contrary, so it seems to me, the true analysis was that it was a present debt albeit not payable until some time in the future - or, as the Latinists among us would have it, debitum in praesenti, solvendum in futuro.

I will not say any more about that.  We say that if a future liability is as Justice Heerey described it to be, then we would say that that has not been excluded as a liability under section 82(8)(b) in its modified form.  So we, with respect, do not accept what our learned friends have said about that matter.  My learned friends put the contention that the effect of the amendment was a tidying up exercise to merely make grammatical changes without any substantive effects.  In my submission, it is not a proper tenet of statutory construction to construe a change, whether it be by an Act or by rules merely to give it that limited effect of form rather than any substantive effect.

My learned friends referred in part to the history of the English position and my learned leader has already said that we accept what the history is but say that is not really to the point in the present case.  The passage read from Flint v Barnard is not really on point because it dealt with, effectively, section 82 as unmodified rather than section 82 as modified by rule 84 which is what needs to be construed, in our submission.

Reference was made to the Clyne Committee report.  We say that whatever is said in the Clyne Committee report is not relevant because on any view of the matter section 243 when it was enacted clearly permitted prescribed modifications, and ultimately the substantive change was made by whoever drafted and introduced rule 84, and of course, the Clyne Committee was not the personal body that drafted or had anything to do with the implementation of rule 84.  So, whatever the Clyne Committee had to say at an earlier stage in 1962 we would say is not really to the point.

GUMMOW J:   It is really a question of what preceded the 1987 amending Act, is it not?  Do we know?  What stimulated that legislation?

MR BEACH:   I am not in a position to answer that.  I do not know.  In terms of the Clyne Committee report, however, there are some indications that, in our submission, would assist our construction approach.  If one goes back to paragraph 295 of the report.  The first to a composition being an arrangement between creditors who:

agree to accept payment of the debts due to them -

Now, on any view of the matter, a contingent creditor under an instrument of guarantee would not, at the time of the composition, have a debt due to them that could be dealt with by the payment of instalments.  So, although that is a rather tenuous indication, it is some indication that what the committee had in mind was something a little bit different to a contingent creditor who may not have a present debt owed to it until 12 months later when the principal debtor defaults.  The other provision referred to of paragraph 337, which refers to:

all debts provable under the composition -

really begs the question.  It does not give any content to what is meant by that expression so, in our submission, that really does not take the point further.

TOOHEY J:   The point that was being made, perhaps, was that nothing in the report differentiates composition from - at least in respect of provable debts, appears to differentiate compositions from the ordinary operation of section 82.

MR BEACH:   That would be so, subject to what was said in paragraph 340, which referred to minority creditors, and it is not quite clear what was really meant in that context.  But our primary submission is that whatever was contemplated or not contemplated by the Clyne Committee really does not change the clear and unambiguous language of section 243 and, of course, says nothing about the intention of the promulgator of the present rule 84.

Now, there is some reference in the second reading speech to the provisions of Part X being designed to be flexible.  I do not state the proposition any more highly than that.  The relevant passages - and if I could just give your Honours the ‑ ‑ ‑

TOOHEY J:   Just give us the references, Mr Beach, thank you.

MR BEACH:   Yes, pages 1717, 1719 and 1720.  And given that there is clear and unambiguous language, and no indication by any other legislative language used or anything else, there is nothing to dictate that the construction that we contend for should be rejected in accordance with some purposive approach.  There is no real operation for the purposive approach where there is clear and unambiguous language, there is nothing inconsistent with the construction that we have put, and there is nothing in the committee report, or the second reading speech, that indicates that the legislature, or ultimately the promulgator of rule 84, had anything else in mind other than what we are putting on the construction issue.

Now, my learned friends again referred to the so-called rights that we have under section 239 of the Act.  As my learned leader has already submitted, I will not repeat what he has said, except to say this, that there is an argument that we are not a creditor who can apply, but the only right we have is a right to apply; one could not state it any more highly than that.  In my submission ‑ ‑ ‑

KIRBY J:   I found that very beguiling when Dr Pannam was putting it to me because he put it so persuasively but, when I actually looked at the section, it is in the widest possible terms.

MR BEACH:   Well, that is a two-edged sword for the respondents, because the wider it is, it is equally open to say the more likely it is that we will not be able to get any relief as the other way; it leaves such a wide and broad discretion that who can say with any degree of certainty in a particular case or class of case that we would be entitled to any ‑ ‑ ‑

TOOHEY J:   But you are talking about standing at the moment, are you, rather than the operation of the provision itself?

MR BEACH:   Yes, I did refer to standing and I was going to move on to the operation, but there is an argument that we are not a creditor at all.

TOOHEY J:   That is what I understood you to be saying.

MR BEACH:   Yes, and we put that submission.  The second proposition is that if we are, it is no right at all than the wider the discretionary exercise is by the Court the less certain and the less it can be said that we have some clear right to obtain relief from the Federal Court in these circumstances.

Finally, if the Court pleases, my learned friend concluded by referring to an in terrorem argument about all the debtors who may be potentially affected by whatever decision is reached by the Court, and particularly one that the appellant seeks.  It is equally open, of course, for the appellant to say that there are lots of creditors who are also equally affected by what the current regime is and how it has been applied by the Federal Court and by the State Supreme Courts.  If the Court pleases.

KIRBY J: May I just ask this: no one at any stage in this litigation has raised the question, as I understand, of the constitutional power of the Parliament to confer upon the executive a power to modify in that way to make laws, given that the power is conferred by the Constitution on the Parliament and not on the executive, that point has not been raised?

MR BEACH:   Nobody has raised that point or the point that there has been an inappropriate delegation of the legislative power.

KIRBY J:   It is not just inappropriate delegation, it is the power of the Parliament to confer upon something other than the Parliament the power to make laws.  That has not been raised?

MR BEACH:   It has not.

TOOHEY J:   Thank you, Mr Beach.  The Court will consider - I am sorry, Mr Nash.

MR NASH:   Would your Honour permit me to mention a factual matter?

TOOHEY J:   Yes.

MR NASH:   If the Court pleases.  The Act came into force on 4 March 1968.

KIRBY J:   As you rose to your feet - I did ask you this, but if I could just - what was your answer to the standing point that the section 239 talks of “a creditor may” and, on your argument, they are not a creditor, they are just a contingent creditor?

MR NASH:   No, on our argument they are a creditor because they have a provable debt within section 187(2) and, therefore, Pyramid is a creditor who would have standing.  Our contention is based exactly on that, your Honour.

KIRBY J:   I see.

McHUGH J:   But what about the context?  Section 238, for example, talks about the “resolution of a meeting of the debtor’s creditors”.

KIRBY J:   And the heading is “Special Provisions applicable to Compositions”, so it may be interpreted as the creditors within the composition.

MR NASH:   My interpretation, your Honour, was that it affected all creditors, in fact, within section 187(2).

TOOHEY J:   Even one who has not accepted the composition?

MR NASH:   Yes, your Honour.

GUMMOW J:   But under 238(1) that still does not exhaust the possibilities, does it?

MR NASH:   It is “binding on all the creditors” and that means all persons who have a provable debt.  That means all persons who have a provable debt within section 187(2).

TOOHEY J:   It would also mean that someone who has not accepted the composition but is bound by it by force of section 238, if a creditor, can apply under section 239.

MR NASH:   Yes, your Honour.

TOOHEY J:   You had better sit down quickly, Mr Nash.

MR NASH:   If your Honour pleases.

TOOHEY J:   The Court will consider its decision in this matter and the Court will now adjourn.

AT 12.34 PM THE MATTER WAS ADJOURNED