Selig and Anor v Wealthsure Pty Ltd and Ors

[2014] HCATrans 251

[2014] HCATrans 251

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A11 of 2014

B e t w e e n -

RONALD SELIG

First Applicant

JANNA SELIG

Second Applicant

and

WEALTHSURE PTY LTD (ABN 3097405108)

First Respondent

DAVID BERTRAM

Second Respondent

RICHARD WILLIAM SPENCER

Third Respondent

SILVANA PEROVICH

Fourth Respondent

PETER MAURICE TOWNLEY

Fifth Respondent

MARK RICHARD NORTON

Sixth Respondent

NEOVEST LIMITED (IN LIQUIDATION) ACN 104 915 906

Seventh Respondent

NORTON CAPITAL PTY LTD (DEREGISTERED) ACN 086 207 169

Eighth Respondent

DANIEL GEOFFREY LILLEY

Ninth Respondent

DAMIEN BERNARD GREER

Tenth Respondent

ROBERT NOEL GALLAGHER

Eleventh Respondent

STEVEN JAMES DICKENS

Twelfth Respondent

MICHAEL JOSEPH CROUCH

Thirteenth Respondent

Application for special leave to appeal

FRENCH CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 14 NOVEMBER 2014, AT 9.53 AM

Copyright in the High Court of Australia

____________________

MR P.A. HEYWOOD‑SMITH, QC:   If it please your Honours, I appear with my learned friend, MR D.G.M. RIGGALL, for the applicants.  (instructed by Radbone and Associates)

MR R.J. WHITINGTON, QC:   If your Honour pleases, I appear with MR T.W. COX, SC, for the respondent.  (instructed by Cosoff Cudmore Knox)

FRENCH CJ:   Mr Heywood‑Smith, it might be helpful to us if you focused on why there should be a grant of special leave in relation to the QBE matter and then we might hear from the respondents in relation to the statutory construction question.

MR HEYWOOD‑SMITH:   If the Court pleases.  The Court should have received a chronology…..QBE matter.  I hope the Court has that, and if I could just briefly address that, or speak…..chronology.  The Court will be aware that his Honour Justice Lander handed down his reasons and made orders…..instance on 18 April 2013.  A notice of application for special leave was served – was issued in June and served in early July.

Mr Bertram was made bankrupt on 12 June and on 10 July both the applicant and the respondents…..the trustee make an election under section 60(3) of the Bankruptcy Act as to whether it should continue – or he should continue with the appeal on behalf of Mr Bertram.  On 16 July the respondent paid the balance of moneys that were due after the sum of 500,000 had been paid out of court and it did so…..from the applicant that it do so.

The trustee made a determination – made an election – on 24 July to discontinue the appeal, having heard submissions from QBE and having noted that QBE was not, at that stage, prepared to indemnify the trustee for the costs – the full costs associated with the appeal.  There then commenced a time limitation period under section 178 within which…..could apply to the court for a review of the decision of the trustee and that 60‑day period happened to end on 23 September 2013.  The appeal in the matter was due to be heard on 3 October, some week or so later.  On the day after – I should say that during the 60 days, although invited to do so, QBE had not sought to review the decision of the trustee to elect.

On 24 September, the day after the 60‑day period had elapsed, QBE offered the trustee an indemnity as to costs.  The trustee, in the meantime, was concerned at the requests being made upon him by both sides to ‑ in respect of discontinuance and filing a notice of discontinuance and sought directions from the Federal Circuit Court.  In fact, the application for such directions was taken out on 11 September – that is at application book 530.

The matter came before the Federal Circuit Court on 26 September, and on 2 October, the day before commencement of the appeal, the Federal Circuit Court made an order that unless QBE made an application to the court to intervene that the trustee should file a notice of discontinuance.  When the matter came before the Full Court on the morning of 3 October, QBE had an application under rule 9.19 but it invited the Full Court not to deal with that application and to let it lie on the file and that is what the Full Court did.

FRENCH CJ:   Then it was dealt with by Justice White, I think, was it not, at 144 and 145 of the judgment?

MR HEYWOOD‑SMITH:   Yes, it was and in our submission wrongly because ‑ ‑ ‑

FRENCH CJ:   What is the consequence of this?  What relief do you actually seek on the appeal to this Court?  I am just looking at your notice of appeal at page 443 in volume 2.

MR HEYWOOD‑SMITH:   The effect is, of course, that Mr Bertram was not an appellant and the orders made by Justice Lander in respect of Mr Bertram would stand.  That has particular consequences to the applicant because the insurance policy in this matter is limited to…..including costs.  As the trustee in bankruptcy had noted, at the stage of inclusion at first instance, the respondent had allegedly spent some $1.35 million in costs and, obviously, there was likely to be a deficiency in the amount.  So it was a matter of some importance to the applicant.

If Mr Bertram’s appeal fails, then the judgment of 1.7 million stands against him and the trustee in bankruptcy having assigned its rights to the Seligs, the Seligs can call upon QBE to satisfy the judgment at that stage and the costs would be fixed.  There would be no question of ongoing costs further diminishing the $3 million limit.

GAGELER J:   Would this problem have been cured had QBE persisted with its application on 3 October 2013?

MR HEYWOOD‑SMITH:   No, in our submission, it would not.  In our submission, the situation is this.  The Bankruptcy Act sets out a particular

rule for addressing the question as to whether or not proceedings will continue.  Those rules by section 60(3) call for an election by the trustee and then by section 178 a capacity to review.  Once the 60 day limit had passed and the capacity to review has expired, then the election by the trustee is fixed, it is final and there are no further proceedings upon which QBE under the terms of its policy – clause 5.2 of its policy – could elect to take up the conduct because there are no proceedings to conduct. 

Now, what the applicant here says is that QBE made an election, made a clear election…..made a decision not to indemnify the trustee.  The trustee, as Judge Burnett in the Federal Circuit Court found, was entitled to take that into account in making his election.  QBE then had the right within the 60 days ‑ as an interested person there was no question that it would be an interested person to the party for the purposes of section 178 to apply to review it. 

It did not, and as Justice Gray in the case that we have referred to of Lofthouse indicates, the trustee has obligations to take into account the rights and liabilities of third parties in making his decision and extending beyond rights solely of the bankrupt.  So we say that at the end of the 60 days the proceedings ended.  Anything done thereafter, any application by QBE to the Full Federal Court was bound to fail.  The application was never ultimately heard.  We say it would be bound to fail simply on the statutory construction of the Bankruptcy Act.

FRENCH CJ:   What decision is it that you are appealing?

MR HEYWOOD‑SMITH:   The decision of the Full Federal Court to uphold the appeal by Mr Bertram and to reduce the award of damages against the…..something in the order of 900,000.  That is the ‑ ‑ ‑

FRENCH CJ:   On the basis that Mr Bertram should never have been there.

MR HEYWOOD‑SMITH:   On the basis that he was no longer a party to the appeal.  Now, the point does not appear to have been addressed by any court that we can see and, in our submission, it is a significant issue ‑ ‑ ‑

FRENCH CJ:   All right, we will hear from Mr Whitington now, thanks, Mr Heywood‑Smith.

MR WHITINGTON:   If the Court pleases.  Does the Court wish me to address the bankruptcy issue?

FRENCH CJ:   Yes, let us start with the statutory construction question.  Your answer to that seems to be that the issue is moot?

MR WHITINGTON:   Yes, we do say that.  We say that this is not a suitable vehicle because the applicant’s entitlement to judgment has been fully satisfied.  The applicant may have been entitled to apportionable judgments against the respondents for lesser amounts or for an unapportioned judgment for a greater amount, but they were alternative and inconsistent rights to relief.  That was a matter recognised by the Full Court of the Federal Court in ABN AMRO at paragraph 1610 and we say that cannot be doubted.

Now, the Full Court…..there be judgment against the respondents for the lesser apportioned amounts.  The applicants then entered judgment.  Now, we do not criticise that.  The applicants were perfectly entitled to enter judgment in order, amongst other things, to found an application to this Court for special leave and, if granted, to appeal.  But the applicants went further and they pursued and obtained satisfaction of the judgment entered, and it is our short submission that upon recovery the applicant’s rights of action on either of the alternative rights of action were extinguished.  For that we rely on the judgment of Chief Justice Jordan in the Full Court in O’Connor v S.P. Bray.  Can I just invite the Court to go that?  It is in the bundle we provided in tab 3.

FRENCH CJ:   Yes.

MR WHITINGTON:   I have got to be quick about this obviously, but it is at page 255 of the report at about point 7 on the page.  The Chief Justice says this:

This brings us to the final point, arising under the second plea which is based on s. 63 of the Workers’ Compensation Act, 1926.

I should tell the Court that in a later case, in the High Court Latter’s Case, the interpretation adopted in the Court of Appeal in O’Connor in relation to section 63…..and that then became the subject of – that was applied then in the same year in the High Court in O’Connor on appeal, but that consideration of the proper interpretation of section 63 and what the word “option” meant does not affect the point that we take.  If the Court would then come to page 256 at about point 7 on the page there is this passage:

It was contended on behalf of the defendant that the case was one in which the plaintiff, having been originally in possession of two alternative rights, obtained complete satisfaction of one of them, and that it necessarily followed from the fact that the rights were alternative, that the other was no longer available ‑

Then the contrary argument was put ‑

it was contended that the case was one of election, and that the plaintiff had not exercised a concluded election by taking benefits under the Workers’ Compensation Act, because he did not know, until after he had exhausted his remedies under the –

I will pause there again to say that later in Latter’s Case the High Court interpreted section 63 and the word “option” as requiring knowledge on the part of the worker of his alternative rights.  Chief Justice Jordan goes on to address the first proposition…..:

As a general rule, if a legal right has once accrued it continues to exist and may be enforced unless and until it is fully satisfied –

and if I could count down about 10 lines below the authorities, he says this ‑

There are, however, special cases in which a right may become barred otherwise than by satisfaction, release, or lapse of time.  Instances of this occur where something has happened which gives rise to the existence of two alternative rights.  In such cases, if one of the alternative rights is fully satisfied, the other ceases to be available.  This necessarily follows from the fact that the rights are alternative . . . As a general rule, in order that this result may be produced, one of the alternative rights must have been satisfied.  Merely to take some step towards obtaining the benefit of one of them is not necessarily irrevocable if the step stops short of obtaining satisfaction.

That is why we say that the applicants here were perfectly entitled to have the lesser judgment, the apportioned judgment entered, but when they went further and had that judgment fully satisfied all rights under either alternative right of action were extinguished.  At the top of page 258 the Chief Justice points out that, “It is necessary, also ‑ ‑ ‑

FRENCH CJ:   It sounds to me like that is the kind of argument you might run on an appeal rather than going to a question of whether special leave should be granted.

MR WHITINGTON:   Well, we understand that point can be put against us.  We understand it is a point of substance.  Nonetheless, we do say it is a short point and it does arise here.  It is a clear case where the applicants have chosen to take the judgment, the lesser judgment, and in those circumstances we say, as Chief Justice Jordan says at page 258, line 4, cadit quaestio, the discussion ends there, that is the end of the matter.  Now, we cannot ‑ ‑ ‑

GAGELER J:   So this is an argument that an appeal would be incompetent, as I take it.

MR WHITINGTON:   Or moot, yes.  We say that the appeal would be moot so, in effect, incompetent, yes.  There would be nothing for the Court ‑ ‑ ‑

GAGELER J:   There has been an election as between inconsistent rights in your submission.

MR WHITINGTON:   Well, Chief Justice Jordan chooses to say it goes further than election because, of course, election does raise factual issues about knowledge and so on.  It is more a case of satisfaction of one of two mutually inconsistent rights and when there has been satisfaction of a judgment, here in full, then all rights are extinguished.

FRENCH CJ:   Yes, anything further, Mr Whitington?

MR WHITINGTON:   Well, does the Court want to hear me on the Corporations Act provisions?  We appreciate…..

FRENCH CJ:   On the merits?

MR WHITINGTON:   It is very hard to avoid the merits but we say when ‑ ‑ ‑

FRENCH CJ:   Well, you have two conflicting Full Court decisions.

MR WHITINGTON:   The second of them, ABN AMRO, does not address the two critical provisions in Division 2A, subsection 1041L(2) and subsection 1041L(3).  It, with great respect to the Court, misapprehends or it goes to the wrong provision in the explanatory memorandum which makes clear the intent ‑ ‑ ‑

FRENCH CJ:   Anyway, the question of substance is whether or not these provisions defining apportionable claims are confined to one cause of action or pick up other causes of action based on the same facts.

MR WHITINGTON:   That is the ultimate question, yes.

FRENCH CJ:   That is an important question, is it not?

MR WHITINGTON:   We cannot deny that.  We say it is an important question.  All we can say here, standing here as we are on special leave, is that the majority judgment in this case – in Wealthsure – sets out the matter very clearly, very persuasively, and more than that is plainly…..

FRENCH CJ:   Well, you think they got it right.  I have heard that argument before.  It is not much of an argument on special leave where a question of this importance is concerned.

MR WHITINGTON:   Well, that is the argument we really seek to put against special leave on that point so we have two ‑ ‑ ‑

FRENCH CJ:   Yes, okay.  Can you move then to the QBE question?

MR WHITINGTON:   We say that does not justify any grant for a number of reasons.  First, the matter arose only incidentally at the beginning of the appeal.  It was not the subject of any considered debate or argument.  This Court will not have the benefit of any considered reasons by the Full Court along the lines of the arguments my learned friend now wants to argue.  We observe that the argument in reply seems to say that the relevant consideration is in the Federal Circuit Court judges’ deliberations but, of course, that is not a decision under appeal.

Moreover, we have trouble identifying the order that my learned friend seeks to overturn on appeal.  He has now articulated today as the order allowing judgment for the lesser amount against Mr Bertram, but that really does seem to us to be drawing a long bow from the bankruptcy question.  Furthermore, the Court will appreciate that really what Mr Bertram – I withdraw that – what the applicants are seeking to do is to claim, seize and not relinquish a judgment against Mr Bertram of an unapportioned higher amount and then seek to have recourse through the Bankruptcy Act to Mr Bertram’s insurance policy held with QBE but, at the same time, deny to QBE their contractual right to defend the claim.

My learned friend relies on section 60(2) of the Bankruptcy Act but that only affects an automatic stay in relation to actions brought by the bankrupt.  Here, the action was brought against the bankrupt and the appeal represents a continuation of that action so it was not stayed by section 60(2) and the action continued and QBE was perfectly entitled under its contract to conduct the defence.  If that becomes an issue at play, this Court then will be herein determining arguments about the terms of…..insurance policy which may be singular in its operation and application.

So we say there are any number of reasons why this is simply not a fit matter but, as I say, not the least because it was raised as a kind of side wind on the appeal…..deliberation and adjudication by the court below.  What is more, the trustee went to the Federal Circuit Court to seek a direction and the direction was simply that QBE bring an application in the Full Court appeal that it be allowed to conduct the appeal and, in that event, the trustee was not bound to pursue his…..further.  That was exactly what

QBE did – it complied with that direction, or intimation or whatever it was of the Federal Circuit Court judge.  If the Court pleases.

FRENCH CJ:   Yes, thank you.  Mr Heywood‑Smith, we might hear you in reply just on the QBE question.

MR HEYWOOD-SMITH:   If the Court pleases.  The applicant was, in our submission, precluded from the whole argument issued by the Full Court indicating that…..Mr Whitington’s invitation to let the application lie, and that being acceded to by the Full Federal Court.  The Full Court was apprised by the applicant of the matters that we have agitated with this Court today, but chose…..determination at the time but to leave the application of Mr Whitington’s…..Now, if the Court goes to page 537 of the application book, the Court will see the orders that Judge Burnett made.

FRENCH CJ:   Sorry, what page was that?

MR HEYWOOD-SMITH:   Page 537.

FRENCH CJ:   Thank you.

MR HEYWOOD-SMITH:   The order made was that QBE should make an application before commencement of the appeal to be joined; they did not.  The application that was made was not to be joined.  It was an application under rule 9.09, which is conveniently set out, if the Court pleases, in the decision of Judge Burnett which appears behind, I think, tab 20 in our materials; paragraph 26.

GAGELER J:   I am sorry, what paragraph was that?

MR HEYWOOD-SMITH:   Paragraph 26 of Judge Burnett’s reasons.  In our submission, that rule had no application because bankrupts’ interest in this case had not passed to QBE as trustee.  There is no basis upon which that application could have succeeded, but the Full Court simply chose to let the application lie at Mr Whitington’s invitation.  In our submission, the applicant was seriously prejudiced by this approach.

FRENCH CJ:   Well, are you putting this as a question of some principle, or is it just a question of how the court dealt with, essentially, a matter of procedure?

MR HEYWOOD-SMITH:   No, we are putting it as a matter of real principle that ‑ ‑ ‑

FRENCH CJ:   What is the principle?

MR HEYWOOD-SMITH:   The principle is that the Bankruptcy Act has a particular process for addressing bankruptcies and proceedings which are put and the question is whether or not these proceedings, so far as Mr Bertram is concerned, on the expiration of the 60‑day…..The matter of principle is the insurance company, QBE, seems to be suggesting that by a term of its policy which gives it a right to take over the control of a proceeding, it is in some way confusing that clause with a right to substitute as – and put itself in the feet of the insured in circumstances where it has not otherwise paid out a claim and subrogated to the insured.

So it is a matter of some principle, we say, between the operation of the Act and the maintenance of proceedings and the terms of an insurance policy and the extent to which they will enable the insurer to, in our submission, actually go behind the Act which sets out a regime bringing finality for all parties, not only the bankrupt, but for persons who are litigating with the bankrupt.  The insurance company in this case seeks to go behind that, in our submission.  It is a matter of some principle.  Our learned friend ‑ ‑ ‑

FRENCH CJ:   Yes, all right, thank you.

There will be a grant of special leave confined to grounds 2 and 3 set out in the draft notice of appeal at page 443 of the application book, the Court being of the view that this is not a suitable vehicle to agitate the issues sought to be agitated in the other grounds in relation to QBE.  Now, time estimates, Mr Heywood–Smith?  A day would suffice, I think?

MR HEYWOOD-SMITH:   I would anticipate a day would suffice.

FRENCH CJ:   Yes.  Mr Whitington?

MR WHITINGTON:   Likewise, your Honours, but I take it that we will be entitled to present an argument or prosecute an argument perhaps against the appeal, that the appeal is moot, for the reasons we have advanced today.  I do not know that that really needs ‑ ‑ ‑

FRENCH CJ:   Well, you can run any argument that would fairly lead to a dismissal of the appeal.

MR WHITINGTON:   Yes, and I ‑ ‑ ‑

FRENCH CJ:   I mean, if you are going to – I suppose it might be appropriate to – I am not sure whether it quite fits within the scope of notice of contention, but it might be appropriate ‑ ‑ ‑

MR WHITINGTON:   I was thinking that it did not, your Honour, but ‑ ‑ ‑

FRENCH CJ:   I am sorry?

MR WHITINGTON:   I was thinking it may not fit within a notice of contention.  That is really why I raised it.

FRENCH CJ:   Yes.

GAGELER J:   Well, it may be that you need to put on a motion.

MR WHITINGTON:   We will give consideration to that, yes.  Thank you.

FRENCH CJ:   Yes, I think that is probably right, because it does not really arise out of the grounds and it is a separate point, but again it is not a point upon which you would support the decision below; it is rather a point for saying that the appeal – that the relief claim should not be granted.

MR WHITINGTON:   Thank you, your Honours.

FRENCH CJ:   Yes, all right.  Now, there is a timetable for filing of submissions which was made available to your instructing solicitors.  Yes, call the next matter.

AT 10.24 AM THE MATTER WAS CONCLUDED