Swiss Partners & Ors v Jeffcott Holdings Ltd (In Liq)

[1999] HCATrans 474

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A36 of 1999

B e t w e e n -

SWISS PARTNERS PTY LTD, CRAIG PETER BALL and MICHAEL ANDREW WHITING

Applicants

and

JEFFCOTT HOLDINGS LIMITED (IN LIQUIDATION)

Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 DECEMBER 1999, AT 3.58 AM

Copyright in the High Court of Australia

MR J.H. KARKAR, QC:   If the Court pleases, I appear with my learned friend, MR N. LUCARELLI, QC, for the applicant. (instructed by Johnson Winter & Slattery)

MR T.A. GRAY, QC:   If it please the Court, I appear for the respondent. (instructed by Minter Ellison)

GLEESON CJ:   Mr Karkar, I understand this case raises a very similar issue to that raised by a case of Duke in respect to which - special leave.  Could you just state very briefly why the issues are the same?

MR KARKAR:   Yes, your Honour.  Your Honours in the Duke Case granted special leave in respect of one issue only, and it was whether a company that allots shares in its capital, as the consideration for the acquisition of other shares in a takeover or of assets generally, does suffer loss by the allotment should the assets that it acquires prove to be less than what it contemplated should there be less value than it is contemplated.  This case is almost identical, your Honours, with the Duke Case and indeed it is complementary to the Duke Case because, whilst in the Duke Case the consideration for the takeover was the allotment of shares and the payment of cash, in this case the consideration was purely allotment of shares and options in return for the acquisition of shares and options in the - - -

GLEESON CJ:   But Duke was an action for professional negligence against auditors.  What was the nature of this action?

MR KARKAR:   It is a professional negligence action against stockbrokers who prepared a 3J(3) Report.  In that sense it is very similar to the Duke Case.

GLEESON CJ:   And they followed Duke in this case?

MR KARKAR:   They did, yes.

GLEESON CJ:   We will hear what Mr Gray has to say, Mr Karkar.  Yes, Mr Gray.

MR GRAY:   If the Court pleases, we accept there is a substantive point of principle involved in this matter.  Each of the courts below so identified it.  The courts below declined to deal with the matter as a strike out and refused leave to appeal in that respect, because they viewed that procedure as being inappropriate to handle the substantive point, essentially because there would not be the clarity of facts that would follow a trial.    Our position is this, that the point is indeed similar to the Duke Case.  In fact, if my friend

is right, and the Duke Case decides the point, there is no need for a second vehicle.

If the Court pleases, my instructions are that we do not oppose special leave in the sense that a substantive point arises; the issue we see is one of whether this is a suitable vehicle or not.

GLEESON CJ:   Now, why is it not a suitable vehicle?

MR GRAY:   If the Court pleases, the only basis for it not being a suitable vehicle is that the matter has come up on a strike out to pleading issue where the facts had not been found.

GLEESON CJ:   But they had been assumed?

MR GRAY:   Yes, they are taken to be assumed, and that always has a certain open-endedness about it.  But, apart from that, it does raise, in the substantive sense, the same issues in the Duke Case.

GLEESON CJ:   And if we were to grant special leave, would it be appropriate to list it for hearing at the same time as the Duke Case?

MR GRAY:   Yes, we would suggest that would be so, if the Court pleases.

GLEESON CJ:   And would it be reasonable to assume that it would probably add half a day to the length of time in the hearing of the Duke Case?

MR GRAY:   At most.

GLEESON CJ:   All right, thank you, Mr Gray.  Mr Karkar, what do you say about that suitable vehicle question?

MR KARKAR:   Well, your Honour, this is in the nature of a demurrer really.  The question is whether one paragraph in the statement of claim that pleads loss and damage is tenable in law, and it is a stronger case really from the point of view of deciding the question than, say, Esanda was, and Esanda was decided on a strike out and, of course, some of the seminal judgments of this Court were decided on strike outs or similar procedures.  We would submit that there are no facts or circumstances that need to be considered, save the question of the allotment of the shares.

CALLINAN J:   Free from factual complexity in a way in which the former Chief Justice Sir Anthony Mason said provided a very suitable vehicle…..Is that what you say?

MR KARKAR:   Yes.  That is what we say.  Your Honours, it is truly akin to a demurrer.  The other matter that we would advance as to the suitability of the vehicle is the fact that the case concerns a share swap and, therefore, it would provide the Court with the full spectrum of the facts that occur on acquisitions of shares and takeovers.

GLEESON CJ:   Mr Karkar, was this the only loss suffered?

MR KARKAR:   The only other loss that is claimed now, your Honours, is the fees for preparation of the report, which we understand is in the sum of $20,000.  The statement of claim has been amended after the judgment of Mr Justice Duggan, to clearly articulate the nature of the loss, and there are two items of loss:  it is this one, and the other one, your Honours, is the amount of the fees paid to Swiss Partners for the preparation of the 3J(3) Report.

GLEESON CJ:   But, was it amended before the decision of the Court of Appeal?

MR KARKAR:   Yes.

GLEESON CJ:   So the decision of the Court of Appeal refusing leave to appeal was on the basis of the amended statement of claim, was it?

MR KARKAR:   Yes.  I stand corrected.  The decision of the Court of Appeal went on the basis of the original statement of claim, but that ought not to matter in the circumstances of this case, because ‑ ‑ ‑

GLEESON CJ:   Does that mean the High Court would be deciding the case on the basis of a statement of claim that is no longer the statement of claim in the action?

MR KARKAR:   It is substantially in the same form, your Honours, save that it is now clear that the claim for loss is principally, if not exclusively, the claim for the share loss.

CALLINAN J:   Well, is there any difference in substance at all and if so, what is it?

MR KARKAR:   The only difference, your Honours, is that in the earlier statement of claim there was a claim for loss of opportunity, which has now been dropped, so that the crucial issue remains precisely the same.  That is to say, the crucial issue upon which the strike out was taken out, remains exactly the same.

GLEESON CJ:   But the matter that would go to the High Court, if special leave were granted, concerns an unsuccessful application to strike out part or the whole of the statement of claim, which?

MR KARKAR:   Part, your Honour; paragraph 95, which is the claim for loss and damage.

GLEESON CJ:   That is clear, is it?  The application in question was an application to strike out paragraph 95 of the statement of claim?

MR KARKAR:   The application was, your Honour, to dismiss the claim, in so far as it relied upon paragraph 95 to grant loss and damage.

GLEESON CJ:   Where is the application?

MR KARKAR:   I regret to say, I do not believe it is in the book.

GLEESON CJ:   You see, what is going to the High Court, as I understand it, is an appeal, or what would go to the High Court would be an appeal against the refusal of the Master to grant that application.

MR KARKAR:   It is an appeal against the refusal of the Full Court to grant leave to appeal from the judgment of Mr Justice Duggan.

GLEESON CJ:   Who, in turn, dismissed an appeal from a refusal ‑ ‑ ‑

MR KARKAR:   Of the Master.

GLEESON CJ:- - - to grant that application?

MR KARKAR:   Yes, your Honour.

GLEESON CJ:   So what the High Court would have before it, is the original application?

MR KARKAR:   That is so, your Honour.

GLEESON CJ:   Well now, what is the original application?

MR KARKAR:   The original application is that any claim based ‑ ‑ ‑

GLEESON CJ:   Where is it?

MR KARKAR:   It is on page 7A of the book, your Honours.

CALLINAN J:   And paragraph 95, I think, is at page 3 of the - - -

MR KARKAR:   That is correct, your Honour; it appears on page 3 and it appears ‑ ‑ ‑

CALLINAN J:   Again on page 7.

MR KARKAR:   Page 7.

GLEESON CJ:   Is Judge Burley the Master?

MR KARKAR:   Yes.

GLEESON CJ:   This is most frustrating; I am missing from my copy of the application book, the page on which the application appears.  I have page 1, followed by page 3, followed by page 5 ‑ ‑ ‑

MR KARKAR:   I had thought that that was rectified, your Honours.  We regret that.

GLEESON CJ:   Can I give you the pages that have been handed to me, and ask you to show me the application?

MR KARKAR:   Yes.

GLEESON CJ:   I just want to be sure, Mr Karkar, that if the matter goes to the High Court, it does not fizz out.

MR KARKAR:   We are in complete agreement, your Honour.  Your Honours, the application itself, as such, is not in the book, or, what is in the book is a quotation from it in the judgment of ‑ ‑ ‑

GLEESON CJ:   Well, I have in front of me, on the bottom of page 7 of the application book, the words:

The application before Judge Burley sought a number of orders, the following being of relevance to the present appeal:

There is then a colon, and then there is nothing else in the application book, but I am told it is in those pages.

MR KARKAR:   It is in those pages; it is on page 7A.

GLEESON CJ:   Thank you.

MR KARKAR:   I regret that, your Honour; I asked for it to be rectified.

GLEESON CJ:   It is all right, thank you.  Well now, can you tell me, in the amended statement of claim is the relevant paragraph still paragraph 95?

MR KARKAR:   It is still paragraph 95, although it has been amended, your Honour, and we delivered the amended paragraph to your Honours in a white book, which contained our authorities and it was in the last tab of your Honours’ book.  We have copies here.

GLEESON CJ:   Yes, I have that.  I am afraid I cannot see underlined any amendment to paragraph 95.

MR KARKAR:   It was not underlined, your Honour, regrettably.

GLEESON CJ:   How do I tell what are the amendments to paragraph 95?

MR KARKAR:   Your Honours, paragraph 95.1 is wholly new, and it articulates in clearer terms, we submit, the way in which the damages are claimed.

CALLINAN J:   Mr Karkar, what I have got here on page 50 in item 11 in the white book - is that what you wanted us to look at as the amended statement of claim?

MR KARKAR:   On page 50 of the application book?

CALLINAN J:   No, no, page 50 of the white book, item 11, is the statement of claim.

MR KARKAR:   Yes, that is the one.

CALLINAN J:   Page 50 contains paragraph 95.  Now paragraph 95.1, it seems to me, is identical, unless I have misread it, with paragraph 95.1, which was before his Honour Justice Duggan, and it appears at page 7 of the book.

MR KARKAR:   The reading at page 50, under tab 11, is the original ‑ ‑ ‑

CALLINAN J:   It is the original one.

MR KARKAR:   - - - and the amendment is under tab 12.

CALLINAN J:   Tab 12.

GLEESON CJ:   Mr Karkar, how can we responsibly send to the Full Court of the High Court what is a pleading summons or an appeal in relation to a pleading summons, where the relevant part of the pleading has been amended since the decision under appeal?  Now it may be true that the decisions under appeal would have been have been exactly the same, even if the amendment had been made before those decisions, but, technically, what the High Court will be solemnly deciding is whether or not something which is no longer part of a pleading should be struck out.

CALLINAN J:   Mr Karkar, say that the appeal in Duke were to succeed, your case would then proceed upon the basis of your amended pleading before a judge in the trial division of South Australia, would it not, on the basis of the decision in Duke on appeal and on the basis of your new pleading, is that right?

MR KARKAR:   That is so.  Your Honours, might I just first of all respond to what your Honour the Chief Justice said and I will come to your Honour Justice Callinan’s question.  Your Honour, we would be content if the Court were to proceed on the basis of the original statement of claim.

GLEESON CJ:   But it is not the original statement of claim.  The only thing in issue then would be costs.  How can the High Court decide an appeal relating to a pleading summons where the pleading has been amended since the decision under appeal was made?

MR KARKAR:   Your Honour, in so far as we applied to strike out the original pleading, that application was unsuccessful.  Accordingly, the pleading stands as it was prior to the dismissal of the application.

GLEESON CJ:   I thought you told me it had been amended.  I understand you say that the amendment is one that has the same vice as the one that you tried to strike out, I understand that, but what will be before the High Court will be the one you tried to strike out, which is no longer the pleading.

MR KARKAR:   What we have applied to do, your Honour, is, in fact, to dismiss the claim on the basis of the pleading as it then stood.

GLEESON CJ:   And the pleading has been amended.

MR KARKAR:   And the pleading has been amended.

GLEESON CJ:   Now, I know that you say that that does not diminish the force of your argument, but does that not mean that you have got to go back and try and get the amended statement of claim dismissed - - -?

MR KARKAR:   Your Honours, that will just mean further ‑ ‑ ‑

GLEESON CJ:   Yes, but it is an illustration of the problem of putting before the Full Court of the High Court for decision a matter by way of pleading summons as distinct from what Duke is, that is to say, an appeal in a substantive piece of litigation.

MR KARKAR:   Except that this is not a pleading summons in the usual sense, your Honour, it is really a determination of a question of law as to whether the claim whether in the original paragraph 95, or the present 95, is tenable in law.  It is truly akin to a demurrer, and it would be a pity if the Court did not have before it a case such as this, at the same time as Duke, to enable the Court to have, effectively, a full spectrum of the factual situations that arise in takeovers.

To respond to what your Honour Justice Callinan put to me, we do not want to find ourselves in the position that your Honours decide Duke on the basis that it was, say, an offer which was based on cash and shares, and then we come back to strike out the statement of claim later on to find that Mr Gray, says, “Well, your Honours’ decision is distinguishable on that basis, because this case was a share swap.”  We would submit that your Honours would be assisted in having a case such as this before your Honours, because it does raise the share swap issue.  And, as far as the former matter of the pleading is concerned, I do not understand my learned friend, Mr Gray, really has raised a point concerning that.  The question is simply whether paragraph 95 raises a tenable claim in law for loss and damage and whether that be the original paragraph or this paragraph, it matters not.  We would submit that your Honours could deal with the question on the basis of the amended paragraph.

CALLINAN J:   Do you say that the only difference is that in Duke, instead of money, and some other form of property changing hands, in respect of an issue and allotment of shares, this was shares that changed hands?  Is that the only difference?

MR KARKAR:   That is the substantial difference; that is the only difference between the two cases.  In Duke the consideration was $1.20 plus the allotment of certain shares; here, your Honours, was one share allotted for one share acquired, and, in our respectful submission, it would be of assistance to your Honour to have that factual consideration before your Honours when deciding the issue of principle, which, as my learned friend would concede, is a very important issue of principle.

CALLINAN J:   Would it have to go back, however, to the Supreme Court for an assessment of damages or an assessment of loss?

MR KARKAR:   It would not have to go back at all, if your Honours determine that we are right on the question of law.

CALLINAN J:   But if the other side ‑ ‑ ‑

MR KARKAR:   If we lose, then the trial would proceed.

CALLINAN J:   You have a trial, yes.

MR KARKAR:   But if we win, your Honours, that is the end of the matter.

CALLINAN J:   That is the end of the matter.

MR KARKAR:   And that is a substantial reason, in our respectful submission, why this is an appropriate vehicle for the determination of the issue.

GLEESON CJ:   Yes, thank you, Mr Karkar.

Mr Karkar, we are not disposed to grant special leave to appeal in this matter, at least at this stage, because of the pleading complication that has been referred to.  Is there any point in our keeping your position open, however, by simply adjourning this application to await the outcome of Duke.

MR KARKAR:   Yes, we would - - -

GLEESON CJ:   Are you happy with that, Mr Gray?

MR GRAY:   Yes, we are happy with that, if the Court pleases.

GLEESON CJ:   Well then, we will indicate that we are not prepared today to make an order granting special leave to appeal because the situation in relation to the pleadings in the matter makes it an unsuitable vehicle for raising the issue which was originally in contemplation.  But in order to protect the position of the applicant, we will stand over this application until after the Court has given its decision in the matter of Duke, and when that has happened, if it is necessary, either party can restore this application to the list on seven days’ notice to the other party.  We will reserve the costs of today.

AT 4.20 PM THE MATTER WAS CONCLUDED