Star & Anor v O'Brien

[1997] HCATrans 110

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S217 of 1996

B e t w e e n -

JOHN EDWARD STAR in his capacity as Official Liquidator of Genoa Resources & Investment Limited (in Liquidation)

First Applicant

GENOA RESOURCES & INVESTMENT LIMITED (in Liquidation)

Second Applicant

and

JOHN WILLIAM O’BRIEN in his capacity as Official Liquidator of BCC Australia Limited (in Liquidation)

Respondent

Application for special leave to appeal

DAWSON J
TOOHEY J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 APRIL 1997, AT 11.13 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR I.M. JACKMAN, for the applicants.  (instructed by Kemp Strang & Chippindall)

MR D.M.J. BENNETT, QC:   If the Court pleases, I appear with my learned friend, MR D.J. FAGAN, for the respondent.  (instructed by Holman Webb)

DAWSON J:   Mr Jackson.

MR JACKSON:   Your Honours, the issue in this case is whether, in successful preference cases, the Liquidator is entitled to interest or an amount representing interest from the date of the Liquidator’s appointment, as we would contend, or on the other hand, the date on which the Liquidator notifies the creditor of the Liquidator’s election to recover the preference, as the majority in the Court of Appeal held.  Your Honours, that is the issue.  The issue is of importance, in our submission, because, first, although there has been some legislative changes, the decision will continue to apply in company cases.

DAWSON J:   That is section 588FF, is it, of the Corporations Law?

MR JACKSON:   Yes.

DAWSON J:   It is in different terms, but you say that does not make any ‑ ‑ ‑

MR JACKSON: It does not make any difference, in our submission, your Honour. The decision, in any event, remains applicable in bankruptcy cases because the previous law, the law at the time of this case, picked up the bankruptcy law. Also the approach taken by the majority, in our submission, seems, if I may say so with respect, inconsistent with two things at least, the first being the approach adopted in this Court as to the rationale for the award of interest - and I will come back to that in just a moment, your Honour - and secondly, the practice adopted in other classes of case such as, to take but one example, rescission, where an election to avoid occurs, as is almost always the case, some time after the payment of money and interest is awarded ‑ and this is indeed before the existence of provisions like section 94 of the New South Wales Supreme Court Act ‑ from the time of the payment of money as distinct from the time of communication of the election to rescind.

Could I come back to the question of this Court’s approach in relation to interest on damages.  The leading decision is Haines v Bendall 172 CLR 60, the relevant passage from which appears, your Honours, in the book of authorities at page 31. The pages are numbered in the bottom right corner. It is at page 66 of the original report and your Honours will see, in the joint judgment of four members of the Court, the paragraph commencing about point 4, “An award of interest up to the date of judgment” et cetera, but the particular passage to which I wish to refer your Honour commences about point 5 where the members of the Court adopt what was said by the Privy Council in Thompson v Faraonio:

that “[t]he reason for awarding interest is to compensate the plaintiff for having been kept out of money which theoretically was due to him at the date of his accident” -

and your Honours will see that elaborated upon a little through that passage.  Now, your Honours, the terms of section 451(1) said that in the event of the company being wound up, the payment was “void as against the liquidator”, and that means, of course, that from that point the Liquidator was entitled to be paid that money.

Your Honours, the most fleet footed and conscientious Liquidator or, indeed, trustee in bankruptcy, is unlikely to be able to make demand for reimbursement of preferential payments on the day of his or her appointment.  There will be a need to identify what the affairs of the company or bankrupt have been and often to take advice about them.  If I could just say I will not elaborate upon that except to say one further thing, that in the more complicated windings up it may well have been that the preferred creditor and the debtor have been at some pains to mask, as it were, the potentially preferential quality of the payment in question.

KIRBY J:   But the Liquidator may never make demand and it is at his option but he may never do so and this is the problem of fixing it back before his demand, that he may never make it.

MR JACKSON:   Your Honour, the same situation would obtain where a person had an entitlement to rescind the contract by reason of misrepresentation and at some point - nothing is ever done, so that the action ceases to be maintainable.  Now, your Honour, the payment was in the position of being liable to be set aside by order of the court at any time up to the time when, by the expiration of the period fixed by the statutes of limitation, the claim can no longer be maintained.  But if the proceedings are brought, then of course they operate retrospectively in that sense and the repayment is with interest from the time of the actual payment.

Your Honours, could I say also that the approach taken by the majority in postponing the date for commencement of interest until the time when the demand is made does, in our submission, give a premium to conduct of the kind to which I referred a moment ago, that is conduct which may mask the fact that a payment has a potentially preferential quality.

Your Honours, I said also that the approach taken was not consistent, in our submission, with other types of case where there is an election to avoid.  In the case of rescission for misrepresentation one sees, for example, if I could give your Honours two examples, in the order made in this Court in Alati v Kruger 94 CLR 216 at page 230 - I will give your Honours a copy of that in just a moment, if I may -provided for there to be interest from the date of the payments which had been set aside. So, too, one sees in a much earlier decision in the decision of Mr Justice Long in Nixon v Furphy (1926) 26 SR(NSW) 409 at page 417, an attractively named case, where that course was adopted. Could I give your Honours copies of the relevant parts of those cases.

KIRBY J:   It is a slightly thin read, given that you have got to look at the particular legislation, the particular purpose and whether the judges specifically directed their minds to the issues that are now being addressed to us.

MR JACKSON:   I am not suggesting that the issues were ones dealt with at length in either of those cases although, in respect of one matter, at page ‑ ‑ ‑

KIRBY J:   You say it shows the instinctual response of judges making orders to do what is right.

MR JACKSON:   What we would seek to say is that if your Honours were to look at the various matters which we set out in the several paragraphs of argument indicating various other types of cases and various grounds set out in our written submissions, one sees that in fact the course adopted by the courts in this case is really the atypical rather than the typical approach and it creates a kind of salient, as it were, in the line of the approach taken in relation to the award of damages.

TOOHEY J:   Mr Jackson, what is the closest analogy to which you can point in relation to this sort of situation?

MR JACKSON:   The class of case, I suppose, is that to which I was referring, of cases where a transaction takes place which is one which will not be affected unless there is an election or an order setting it aside.  Now, that very commonly happens in cases of rescission for misrepresentation.  Under the general law, that is an easy example.  One sees also - and in cases of that kind the person has been kept out of their money from an earlier time, in effect.  The money should have been repaid but it does not become repayable unless there is an election so to do.

TOOHEY J:   I was not really thinking of that sort of case in which you have two parties, one seeking relief against the other, but whether there is anything analogous to the situation here, of the winding up of a company and disposition with its assets.

MR JACKSON:   Could I perhaps take your Honour to our summary of argument at page 93, paragraph 17.  If one takes the case of someone who pays a judgment prior to the resolution of the appeal and the appeal is successful, then the money comes back with interest.  In cases of that kind there is an obligation to pay the money but then it becomes an obligation to pay it back, the obligation being, in effect, backdated, so that it alters the quality of the originally existing determination or obligation.

Your Honours, could we refer also particularly to paragraph 14 on the same page in relation to the application of statutes of limitation where the cause of action for the recovery of the preference would arise on the date of the Liquidator’s appointment but the present decision has created the situation where the cause of action for interest or the right to obtain interest ‑ for that purpose the cause of action is treated as accruing on the date of the demand.  Now, your Honours, that is why we seek to say, if one goes through the various matters which we have set out in those paragraphs, that what has happened is that the judgment in this case - and I should say in the decision of the Full Court of the Federal Court to which I will come in a moment - has created a bump in the line of authority ‑ ‑ ‑

KIRBY J:   It is not until you make the demand that you have a right in law to get the money.  I mean you have the theoretical right but it is only when you make the demand or the election that you are entitled from that point to get the funds in, is that correct?

MR JACKSON:   Your Honour, that is true but, with respect, it does not quite state the full situation.

KIRBY J:   If the interest attaches to that right, then it would seem from that moment, rather than back, that you are entitled to interest.

MR JACKSON:   Your Honour, that, in our submission, is the fundamental error in the decision of the two majority judges because what they seem to leave out of account ‑ and I have referred particularly to what was said by Justice Cole at the bottom of page 82 ‑ what they leave out of account is that the striking down to which he refers ‑ if I could just use that by way of direct example ‑ your Honours will see the last two lines on page 82 ‑ the striking down to which he refers does not occur by the - I am sorry, your Honours, may I put it slightly differently.  What his Honour does not take into account sufficiently, in our submission, is that it is the statute that says it is void.  It is not the action of the Liquidator that says it is void.  Your Honours, what happens is that from the moment of appointment of the Liquidator the right of the creditor to hold on to the money is a right which has been defeated.  Now, it may be that the Liquidator does not at any point claim the money and the issue in the end goes away.  But from the moment of appointment of the Liquidator the money is being held by the creditor in circumstances where the statute says, that money is prima facie to be money which is to be given to the ‑ ‑ ‑

KIRBY J:   But until that election the possessor of the fund is entitled to have it on investment for its purposes and does not have to put it in a separate fund.  It is on notice.  There is a risk, but the risk may never come to fruit.

DAWSON J:   In other words, the payment has been effective at that point.

MR JACKSON:   Yes, your Honour.  The payment has been effective until the appointment of the Liquidator.  Once the Liquidator has been appointed, though, your Honour, what has happened has been that the payment is liable to be refunded.

DAWSON J:   Yes.  But it still remains effective until there is an order for it, or at least until he takes action to recover it.  I mean, it is a situation in which you cannot get an entirely satisfactory answer because there are competing considerations and no doubt what you say is correct from one point of view; what the majority said is correct from another point of view.  But really, one cannot say that the court below was wrong in what it decided.

MR JACKSON:   What we would seek to say is that whilst recognising that there are two views on the question, the issue is one on which, of the two views, the better view is that for which we contend and, because the issue is one which is of general application, it is appropriate for the Court to resolve which of the two views is the better one.

DAWSON J:   If the Court came to the conclusion that the decision below was correct, it would be resolved.

MR JACKSON:   Of course, your Honour.  But if one were of the view that the issue is one which is debatable, and sufficiently arguable, I mean to say by that, then it would be appropriate, in our submission, for the Court to enter upon a consideration of the matter. 

I was going to say one further thing, your Honours.  Your Honours will see in the decision of the Full Court of the Federal Court in Ferrier v Civil Aviation Authority 55 FCR 28 - that is page 49 in the bundle the case commences - and your Honours will see particularly at pages 59 and 60 of the bundle, the issue is discussed. Also, your Honours will see, so far as the present issue is concerned, all that is said by the court is in the first few lines at the top of page 93:

We also accept that in the ordinary course interest should be allowed only from the date of demand by the Liquidators -

But there is no separate reasoning by that court in relation to that issue.  That was a matter for which I suspect I must claim some responsibility in the sense of then being one of the people arguing.

DAWSON J:   Thank you, Mr Jackson.  We do not need to trouble you, Mr Bennett.

There is insufficient reason to doubt the correctness of the decision below to warrant the granting of special leave.  Special leave is accordingly refused.

MR BENNETT:   I ask for costs, if the Court pleases.

DAWSON J:   Mr Jackson?  It is refused with costs.

AT 11.30 AM THE MATTER WAS CONCLUDED