Tanning Research Laboratories Inc v O'Brien

[1989] HCATrans 207

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S35 of 1989

B e t w e e n -

TANNING RESEARCH LABORATORIES

INC.

Appellant

and

J. O'BRIEN

Respondent

Tanning(2)

BRENNAN J

DEANE J
DAWSON J

TOOHEY J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 14 SEPTEMBER 1989, AT 9.36 AM

(Continued from 13/9/89)

Copyright in the High Court of Australia

ClT 2 / 1 /FK 72 14/9/89

BRENNAN J:	Yes, Mr Campbell.
MR CAMPBELL:	Your Honours, yesterday I was looking at the

ambit of the expressions that were used by His Honour

Mr Justice Dixon in BLAIR V CURRAN concerning what

had been necessarily decided by a previous decision

or what was cardinal to it, and was proposing to take

Your Honours to some cases which showed how far back beyond the ultimate decision it was possible to take that proposition. And, if I could take Your Honours to REG V HARTINGTON MIDDLE QUARTER, 119 ER, 288;

the judgment begins at 292.

It was a case concerning the settlement of

people for the purpose of formal relief or some

similar relief. Beginning from the foot of 292 in

the judgment of Mr Justice Coleridge:

In October 1849, two justices removed two

children of tender age, John and William

Gould, from the now respondent township of

Levenshulme to the now appellant township

of Hartington Middle Quarter. In the order

they were described as the lawful children

of William and Esther Gould. They were at

the time unemancipated, and were adjudged
to be settled in the appellant township in

right of their father's settlement therein.

They were received; and the order was never

appealed against -

although, in fact, there was a mistake of some sort.

Then, skipping down to over the next paragraph:

The order of 1849 was a judgment in rem,

conclusive against all the world, as to

the then settlement of the two children .....

This will not be disputed; and it is unnecessary

to cite any authority for what stands on a

principle so sound and so often recognised.

And the same rule will hold in respect of the settlement of any one deriving from either

of them, so long as that one of them retains

the adjudged settlement. If John or William should

marry, and have issue, and die without having

acquired a settlement elsewhere, it could not be
disputed, irmnediately after the death, that the

settlement of his widow and unemancipated

children, after proof of her marriage and their

legitimacy, was in the appellant township;
for that on which their settlement would, under

these circumstances, depend was the very point

decided by the competent tribunal in 1849.

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MR CAMPBELL (continuing):

Indeed, under the circumstances, the decision

on their settlement was legally involved in

the judgment of 1849: it is therefore

res judicata.

He talks about the mistake and then skipping to the

next paragraph:

The present case, however, is not precisely in

its facts the one just supposed. The order

now under consideration adjudicates on a

settlement not derived from that of William or

his brother John, but dependent on the same two

facts on which their's depended, and which must

have been decided by the Court when it adjudicated

on their's, namely, the settlement of William

the elder, and his marriage with Esther the

present pauper. They must be taken to be

settled with the appellants on a judicial

finding that the father was settled there,

and was married to Esther before their birth:
and she will be settled there also, on a

finding of the same two facts, there being no

evidence of any subsequently acquired settlement.

So, that is an example of there being an

estoppel arising from a judgment that concerns a

matter which is relevant to a fact in issue in

the present proceedings. Reading from the bottom

paragraph on that page:

Now, it cannot be said that the facts we are

considering were merely collateral to the

decision in the former case. The question

then was, where two unemancipated children

were settled: and it was answered by shewing

that they were the legitimate issue of

William and Esther, that is, that these two were lawfully married, and the children born

now appellants. Strike either of those after, and that William was settled with the	facts out, and there is no ground for the
decision: these facts therefore were necessarily
and directly matter of inquiry. The question
now is, where is Esther settled: and this is answered by shewing the same two facts, the
marriage of Esther and William, and the
settlement of William, the two facts already
decided.
And so we say that that illustrates the

way that a finding of indebtedness at one time for

$179,000 can give rise to an estoppel of that

fact in later proceedings that concern indebtedness

as at date of winding up.

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MR CAMPBEI.L (continuing): Your Honours, we have set out in the outline	of submis'sions various passages which provide
other illustrations of a similar proposition,
and we shall not take the Court to them. We could
just take them as read for the purpose of today.
It is not, I think, in contention that if there
be an issue estoppel then the liquidator is
bound by it, but although that is something which
is not, as I think, in contention- it has not
been in contention in the courts below -it is,
we would submit, instructive to look at the
reason why that is correct, because it casts some
light on the earlier question that concerns the
ARBITRATION (FOREIGH AWARDS AND AGREEMENTS) ACT,
and it goes to the circumstances in which it
is possible for someone in the position of a liquidator to go behind the judgment.

I took Your Honours yesterday to Mr Justice Powell's

decision in QUATROVISION and there is another

decision which, although in terms it concerns

estoppel by representation bears on this question.

It is a recent decision IN RE EXCHANGE

SECURITIES AND COMM)DITIES LIMITED, ( 1988) 1 CH 46.

It concerned the liquidation of a company that had

been set up to engage in speculative trading

activities on behalf of members of the public and

the company sent out to certain of its investors

statements which suggested that their investments

were going very satisfactorily and that they had made

substantial profits and those statements turned out

to be incorrect and there was a suggestion that in

reliance on those statements the investors had left

their investments with the company and therefore

there was the basis for an estoppel.

(Continued on page 77)

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MR CAMPBELL (continuing):  The question arose as to whether

the investors were entitled to prove in the
liquidation for the amount concerning which they

could make good an estoppel and it was held that

it was not possible for them to do so. At page 59

in the judgment of Mr Justice Harman, he set out

a passage from the judgment of Lord Justice James

in EX PARTE KIBBLE where he said:

"It is the settled rule of the Court of

Bankruptcy, [and, of course, that also applies

now in liquidations] on which we have always

acted, that the Court of Bankruptcy can inquire
into the consideration for a judgment debt.

There are obviously strong reasons for this, because the object of the bankruptcy laws is

to procure the distribution of a debtor's

goods among his just creditors. If a judgment

were conclusive, a man might allow any number

of judgments to be obtained by default against

him by his friends or relations without any

debt being due on them at all; it is therefore

necessary that the consideration of the judgment

should be liable to investigation."

That observation seems to me apt and relevant

to this case. As Mr Joffe observed, if it were

not so, a debtor instead of suffering ten

judgments by his friends and relations

immediately before he went into bankruptcy could create ten estoppels against himself

by representatiions and thereby cause his

estate to be heavily depleted ..... As it seems
to me, James L.J. 's observatiions must apply

to estoppels as well as to judgments,

remembering, of course, that judgments raise

estoppels per rem judicatam and that they are

said to be conclusive in that way. They are

not conclusive, it is clear beyond any doubt,
in bankruptcy nor are they conclusive in

liquidations of companies, as Mr Stewart

conceded. (Continued on page 78)

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MR CAMPBELL (continuing):

It seems to me that the logic of that is inexorably what Mr Joffe asserted - that is that estoppels are not conclusive in

liquidations or in bankruptcies either.

The reason in all cases is the same,

that the person sought to be estopped is

not the person who made the representation

and is therefore not bound by it; that is

that the trustee or liquidator is not the

person who suffered the judgment or made

the representations, and is not the person

who gave the covenant, to use the instances

from the other earlier cases. Thus in all

these cases there is nothing which binds the liquidator or trustee in bankruptcy.

The reason why, Mr Joffee submitted, estoppels are relevant and applicable in

cases such as HARRIS V TRUMAN and

BLOOMENTHAL V FORD is that in those cases

the liquidator is trying to recover money

for the statutory estate, as it is called.

There are no special rules that apply to

getting in the assets. The rules apply to

dealing with the assets after they have been

got in under the statutory scheme. If an

estoppel were allowed to operate or a

judgment or other binding obligation allowed to operate against the liquidator or trustee in bankruptcy, he would be prevented from

exercising his statutory duty to consider

the true liabilities of his debtor. In

getting in assets for the estate he is not

under any different position to an assignee

or person entitled to sue on behalf of an

assignor in the case of a trustee in

bankruptcy (a person entitled to sue on

behalf of in the case of a liquidator) who

stands in the shoes of the person from whom

he obtained the claim. In such cases

estoppels can and do operate.

So that, we say, is a recognition by His Lordship of

the distinction which we were submitting was the
governing distinction concerning the arbitration point

in the case between whether the liquidator is seeking to

get in the assets and whether he is exercising his

independent statutory discretion. The way in which an

estoppel could be binding against the liquidator here is
in accordance with the principle that the circumstances

in which it is justifiable for a liquidator or a

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trustee in bankruptcy to go behind a judgment are

where there is fraud, collusion, or other

circumstance which shows that there has been a

miscarriage of justice.

That particular idea is one which was stated

by Lord Justice Buckley in RE VAN LAUN.

Unfortunately this case was not on the list, but

the passage is short, (1907) 2 KB, at page 31.

(Continued on page 80)

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MR CAMPBELL (continuing): If I could read it to Your Honours;

picking it up from the middle of the page:

Whether the creditor alleges that there

has resulted, and that he relies upon an

account stated, or a covenant entered into

by the debtor, or a judgment which he has

obtained, the principle, I apprehend, is exactly the same, and is this - that the

trustee is not the person who has stated the

account, is not the covenantor, is not the

judgment debtor, but is entitled to say,

"It is my business to see that those who

seek to rank against this estate are persons

who are really creditors of that estate."
If there be a judgment it is not necessary
to shew fraud or collusion. It is sufficient,
in the language of Lord Esher, to shew
miscarriage of justice - that is to say,

that for some good reason there ought not to have

been a judgment. Exactly the same, I think, is

true of an account stated or of a covenant.

So that the position of a liquidator, in being bound by an issue estoppel, is different to that of, what

one might call, conventional privies of someone

who is bound by an estoppel, someone like an

assigne~ because it is in the limited circumstance
that there is not fraud, collusion or other

miscarriage of justice that the estoppel operates,

and it is because of the estoppel working that way

that we submit that it is possible for us both

to succeed on the arbitration point, and also to

succeed on the issue estoppel point.

If I could mention at this stage some

additional matters concerning the arbitration point.

First, that the way in which parties are named in

litigation taken by or against a company in liquidation

or concerning a company in liquidation is significant.

When a liquidator is seeking to get in the assets of

the company, the proceedings are taken in the name

of the company; it is Hawaiian Pacific Pty Ltd in

liquidation against debtor. When, on the other hand,

there is an appeal against the lodgment of a proof of

debt, or a decision on a proof of debt, the proceedings

are taken against the liquidator in his own name; it

is Tanning Research against O'Brien, and that

difference is a procedural difference which reflects

the underlying reality of what the parties are doing. Also, yesterday I submitted, as an aid to

construction of section 7, that it was unlikely

that Parliament intended to overthrow the system of

proof of debt that was well established, and in aid

of that general submission, could I point out the sort

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of consequences that would flow if, in a

liquidation, it were necessary for any claims

concerning international contracts to be

arbitrated rather than to go through a

conventional system of lodgment of proof of debt.

The very aim of the system of proof of debt is to

have an administrative system which is quicker and

cheaper than conventional litigation to work out

what is owed by a company and, in most situations

where a company is in liquidation, there is

ex hypothesi a shortage of cash and it would be a

situation that would often impose difficulties on a

liquidator if he were not able to use the

administrative route for determining the liabilities

of the company and were, in effect, compelled to

litigate, probably overseas or possibly overseas,

at what would necessarily be more expense, and

we would submit that it is possible to take into

account the undesirability of that situation
obtaining in deciding whether, by the general words

in section 7(4) the federal Parliament intended to

abolis~ by implication, the application of the system

of proofs of debt and appeals to the court

administering the liquidation, so far as these

arbitration clauses were concerned.

BRENNAN J:  Are proceedings by way of appeal against rejection

of a proof of debt adversarial proceedings, with all

the incidence of an adversary proceeding?

(Continued on page 82)

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MR CAMPBELL:  They do not have all the incidents of adversary

proceedings.	They are proceedings where there is a
plaintiff and defendant.	They are proceedings where

it would be within the inherent jurisdiction of the

court to, for instance, order discovery if it were

appropriate but the role that the liquidator plays

is, in some ways, more closely analagous to that of

counsel assisting some sort of investigative tribunal

than to a party who is in there to fight for and

preserve his own interest. He has no interest of

his own to fight for and preserve, save that of

ensuring that the job that the court has given him

is correctly done by making sure that the proofs of

debt are admitted for the correct amount.

BRENNAN J:	Does he not stand in the position of the defender of the interests of the general body of creditors
against the particular creditor?  A dual function,
in other words; partly adjudicative and administrative,
as you say, partly in an adversary situation.
MR CAMPBELL:	Yes, but he owes a duty not only to the general -

or rather, it is not as though he owes his duty to the

general body of creditors minus the plaintiff. He owes

a duty to all the creditors whoever they may be to

ensure that the debts of the company are admitted in

the correct amount and he is not in a position where

he can know whether he owes a duty to the plaintiff
or not because it is going to depend on the decision
of the court as to whether the plaintiff ought be

admitted as a creditor or not.

BRENNAN J:  But in the issue that is for the court's

determination on appeal from his rejection of a proof
of debt, does he not stand in the position of being

the adversary to the claim in respect of the proof

of debt rejected and, if that is so, is his position

not one of a person who claims by or through the

company in respect to that issue?

MR CAMPBELL:	His position is not a conventionally adversary ~ourt that will appropriately test but, as I have
one.	He has an obligation to put material before the

already submitted, he is bound by EX PARTE JAMES

the way he conducts his litigatiion and, in accordance

with that, it would probably not be an appropriate

exercise of his discretion to, for instance, take

minute objections to evidence; that the function of

the court is to ensure that, as best it can, the

right result is arrived at and there would be

circumstances in which the liquidator would be

entitled himself to be satisfied on less than

admissible evidence and, if less than admissible
evidence if capable of rationally satisfying, then

he ought not object to evidence which is rationally

probative in an appeal from his decision. So, in

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those ways, he is considerably less than the

ordinary person in an adversary litigation.

As I am reminded, as part of his overall

responsibilities, he would have to be very careful

about how he financed his litigation; that he would have to be able to justify how much he spent on the litigation by reference to the overall interests of the body of creditors.

(Continued on page 84)

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MR CAMPBELL (continuing): And that is the sort of constraint

that a conventional adversary litigant is not

under.

GAUDRON J:  On that issue, Mr Campbell, one of the matters

that is concerning me is whether the liquidator

can be said to claim through or under a party

when -although in one sense he derives his title

or rights or obligations from the party to the

agreement, but when there is a supervening

matter under which he claims, being a matter

independent of the party to the agreement, namely

the order of the court for liquidation.

MR CAMPBELL:  Indeed. we would submit that that is a powerful

consideration, that it is a way in which his

title is, as it were, mediated through the court.

His right to carry out the functions that he is

carrying out is something that is essentially

given to him by the court and he ought properly
be regarded as carrying out the function that the
court has given him, rather than as exercising the

rights of the company. That is its proper

characterization.

GAUDRON J:	Do you have any authority in an analogous area for that or do you know of any authority in an
analogous area? I thought, for example, there had been a decision of this Court as to the meaning
of "under an enactment" where there were two enactments, a State one and a Connnonwealth one in
relation to a AD(JR) matter.
MR CAMPBELL:	I cannot point Your Honours to such an authority,

I am sorry.

DEANE J: Is there not an essential inconsistency between your

argument on a stay and your argument on an es~oppel?

MR CAMPBELL:  I would submit not an essential inconsistency.

DEA.NE J:	How do you claim that the liquiclator is· es topped as a
result of a dispute which was determined under the arbitration clause· and to which, as I follow,
you say he was not a party, it was the company?

MR CAMPBELL:  Yes. The way in which that estoppel arises

is different to the conventional way that an

issue estoppel arises as between someone, a

simple assignee for instance. It must arise only

by the application of the principles in RE VAN LAUN

about the circumstances in which he is justified in

going behind a judgment. What our submission is, is

that true it is,he has this independent statutory

function to perform, but in the proper exercise of

that independent statutory function he does not

have complete carte blanche about what he is going to

admit and reject and that the proper exercise

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of his functions is that he ought admit a proof

save where there is fraud, collusion, default

judgment, other miscarriage of justice, which we s·ay are not exhibited here. And so it is - - -

DEANE J:	I still do not follow how you can say he is
estopped.  I could follow how you could say he
should take account of the fact, if it be the
fact, that the company was estopped, but it seems
to me that if one were to accept your argument
on the stay in terms, not of the meaning of matter
but of the overall logical argument, it is quite destructive of your argument that the liquidator
himself is estopped.

(Continued on page 86)

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MR CAMPBELL: It may well be the case that that is so. If the

argument that I put on an issue estoppel is to

succeed it must be accepted that a person who is

in the position of a liquidator is a privy within

the meaning of the IN RE VAN LAUN principles. I

have not put that clearly. It must be accepted

that a person who is in the position that IN

RE VAN LAUN says a liquidator is in, is a privy.

That when he has that sort of constraint on the proper exercise of his function then that counts

as being a privy.

If the Court is of the view that that does not

count as being a privy, then our issue estoppel
argument goes.

DEANE J:  If it emerged that the arbitrator's decision

was the result of collusion between the two

companies	your argument must be that the liquidator
is estopped.

MR CAMPBELL:  No.

DEANE J: Well then, if that is so, it is not an estoppel.

I mean, there is no such thing as almost an

estoppel.

MR CAMPBELL:  It would be necessary for us to say that one

needs to look to the facts of the particular

circumstances to decide who is a privy and,

therefore, bound by the estoppel and that if one

finds there is a situation where there is no

fraud, collusion, other miscarriage of justice,

then the liquidator is a privy and only then is he

a privy. That is what we must say to be able to

succeed on the issue estoppel point.

'

DEANE J: What, you do not take the middle ground that,

while there is no estoppel, the liquidator's starting
point should be that there was an estoppel against

the company?

MR CAMPBELL: That is something that would be relevant to the

proper exercise of his discretions and it may be

that that is the proper way for a Court finding

facts to go about the task of finding facts on an

appeal from the liquidator's decision. But I

feel rather constrained, in this Court, by it not

having been put that way below.

DEANE J:	I understand what you say, Mr Campbell, thank you.
MR CAMPBELL:	Your Honours, also on the arbitration point,

could I refer Your Honours to a decision in
FLAKT, (1979) 2 NSWLR 243. It is a decision of

His Honour Mr Justice McLelland and the passage I

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propose to take Your Honours to has been followed

by Mr Justice Foster in ELDERS V DRAVO, (1984)

59 ALR 206 at page 210; . and by Mr Justice Beaumont

in the ALLERGAN case, (1985) ATPR 47,173. The

passage on which we rely is at page 250 of the

New South Wales Law Reports where, the first

complete paragraph on the page, His Honour said:

(Continued on page 88)

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MR CAMPBELL (continuing):

The plaintiff contends that the word

"mat t er" in s . 7 ( 2 ) ( b) denotes the

ultimate subiect matter at issue between

the parties,'which is said to be how
much is the defendant entitled to be paid
for the work it has done, and further
contends that there could no "settlement"
within the meaning of the section without

a complete resolution of that issue, which

it is said, is not possible under the

a rb it ration agreement, because of the claims

foreshadowed by the defendant as alternatives

to primary contentions, for rectification

of the accepted purchase order and for

breach of an alleged duty by the plaintiff
to draw attention to material changes in

the scope of work that would arise out of

the purchase order. Such claims for

rectification or for breach of duty, it

is said, are not capable of being

determined by arbitration under the

arbitration agreement.

It is also contended:

it is premature .....

In my opinion, the word "matter" in

s. 7(2)(b) denotes any claim for relief of

a kind proper for determination in a court.

It does not include every issue which would,

or might, arise for decision in the course of the determination of such a claim. The use of the word "settlement" provides

support for the view. "Settlement" is an

apt term to be used in relation to a claim

for relief - it is less apt in relation to

a mere issue. Furthermore, it is significant

that, if the prescribed conditions are

fulfilled, a stay is mandatory, notwithstanding

the governing law of the arbitration agreement
is that of a country not a party to the

Convention; and that, under the law of that

country, a stay of proceedings on the basis

of an agreement to arbitrate may be

discretionary, as it is under the law of

New Zealand. In such circumstances, I would

not, in the absence of compelling language,

attribute to Parliament an intention to

require that proceedings be stayed, unless

the claim made in those proceedings was

capable of resolution by arbitration.

Although it is legitimate to look at the

terms of the Convention to resolve any

ambiguity of expression in the Act, and one

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finds the expressions "subject matter" and

"matter" used in Art. II, sub-arts. 1 and 3

respectively of the Convention, each of

these expressions seems to be there used in

a fairly loose way, to which the way in which

"matter" is used s. 7(2)(b) has no necessary

relationship. Section 7(2) by no means reflects

the exact language of the Convention, but

there is nothing in the Convention which

suggests thats. 7(2) does not, on the view

of its effect which I have expressed,

operate to fulfil Australia's relevant

obligation under Art II.

So we say that if that view of what counts as a "matter"

is the correct view, then the question that is for

the claim for relief in these proceedings is the claim
that was initially set out in the summons at page 1

of the appeal book:

An order that the decision of the

defendant to reject the plaintiff proof
of debt be reversed -

or the order in somewhat more refined form that was

sought in the statement of claim that was filed where,

on page 7 of the appeal book, it was claimed:

A declaration that the plaintiff is

entitled to prove in the liquidation

..... for the Australian dollar equivalent

..... of $US179,000.

If that be the relief, then that is not a claim for

relief that an arbitrator would be able to give,

nobNithstanding that it is going to involve an issue

of how much is owing. If I could now move, Your Honours,

to the ANSHUN point, and if I could deal with it

briefly at this stage .

BRENNAN J:  Well, are you proposing to split an argument?

MR CAMPBELL:  It may be better, Your Honour, if I were to hear

what my learned friend had to say on that point.

BRENNAN J:  If you think it is necessary to do it that way,

but would it not be better to hear you now?

MR CAMPBELL:  I can outline to Your Honours the broad way in which

we would seek to put it, but I would want the opportunity

to meet anything which my learned friend put on it.

BRENNAN J:	But you could do that in re9ly.
MR CAMPBELL:	If I have a reply, then I am content with that.

BRENNAN J:  Yes. Well, then, in that event put the argument now

and then you can deal with any problems raised by Mr Rares m reply.

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MR CAMPBELL: 

Your Honours, the portions of the judgments that

deal with ANSHUN estoppel, if I could just give you a
reference to it, the trial judge at 224 to 226;

Mr Justice Kirby at 253 to 271; Mr Justice Mahoney at 291 to 309; Mr Justice McHugh at 320.

The first submission that we make is that the

sort of principle that was contained in ANSHUN, the

principle derived from HENDERSON V HENDERSON, is a

principle which only deals with cause of action

estoppel, with res judicata strictly so-called.

DEANE J:	Do you see this point as arising before or subsequent
to the stay point?  I know you have dealt with the stay
point first but if you lose on this point, does the stay point arise?

MR CAMPBELL: It would not, I do not think, because

DEANE J: It is a bit chicken and eggish, in one sense, but

MR CAMPBELL:  Yes, but if we were to lose on this point so that

we could not bring litigation, I suppose we would be

in the situation where we could lodge a proof of debt

but then whether we could bring an appeal to the co ur t

would depend upon that appeal to the ourt countea as

litigation within the meaning of the ANSHUN principle

and that is tied up with the arbitration point in an

intimate fashion because there the C)Urt is exercising

a special jurisdiction that it has over - where it is

the court itself that is winding up the company. It
is almost as though the rourt is in an administrative

capacity in winding up the company and so it is

difficult to separate the questions for the purpose
of saying whether if we lose on the ANSHUN point, we

lose on the stay point.

GAUDRON J:  I am sorry, I am really not too sure that I am

following all of this but, ultimately, were the

issues between the parties these: whether or not

admitted or otherwise, the liquidator was required	in valuing the debt for the purposes of being
to treat that as a debt which had passed into
judgment and therefore one which was not to be
devalued by considerations of the £TATUTE OF
LIMITATIONS and, if he was not entitled to treat it as such, whether he - well, if it was not a
debt which had passed into judgment, whether he was
entitled to disregard it entirely by reason of the
ANSHUN-ish type issue?

MR CAMPBELL:  The latter, Your Honour. No one says - - -

GAUDRON J:	But is not - there is a form of - yes.
MR CAMPBELL:	Nobody said that this debt has become a judgment

debt.

C 1 T 13 /1 / SH 90 14/9/89

Tanning( 2)
GAUDRON J: Well, how else could the real issue be expressed?

It is a question of by what considerations the debt

might be devalued, is not it, or valued or devalued?

MR CAMPBELL:  Yes. The liquidator was taking the view, "There

is no real debt here at all" and he was seeking to run

again some of the matters that had been the basis of

the Florida arbitration.

(Continued on page 92)

C1Tl3/2/SH	91	14/9/89
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GAUDRON J:  That does not quite square which what is in the

rejection of the proof. The rejection seems to

suggest - I think it is page 188 - that,

(l)(a) this is not to be treated as a judgment debt;

it is not a judgment debt; it is not to be treated

as a judgment debt, therefore, what follows from that

presumably, although it is unexpressed, is that I can

devalue it by considerations applicable to the

STATUTE OF LIMITATIONS that would be applied if it

were arbitrated under the agreement.

MR CAMPBELL:	Yes.
GAUDRON J:	And, then, as though it says, but I do not even have

to do that because, by reason of an ANSHUN estoppel

you have lost any right to claim at all.

MR CAMPBELL:  Yes.

GAUDRON J: It seems to be, if those are the issues, this is a

very funny way of framing the litigation that has taken

place by reference to the stay.

MR CAMPBELL:	I do not dissent from the fact that the litigation is framed a funny way, but the essence of what the
liquidator is saying in ground (l)(b) is that we had
the chance to seek a positive order in the Florida
arbitration concerning the amount that was owed; we
did not, therefore we cannot come to court now to have the court say how much was owed.

GAUDRON J: Could I take you a bit further? Is it not only

(2)(b) at page 188 and (3) which raise the question of
indebtedness, they being questions that would only

fall for decision if (l)(a) and (b) are not as

contended by the arbitrator?

MR CAMPBELL:	By the liquidator, yes.
GAUDRON J:	By the liquidator.

MR CAMPBELL:  Yes~ He does not need to get into the facts if

we are not allowed to raise the facts.

GAUDRON J: Well, you see - I know this is not the way the

litigation has been conducted, but it seems to me that

it might be said that at least at the stage that the application was made for a stay, the proceedings did

not involve a determination of a matter capable of

settlement by arbitration. They might, in the future,

involve that matter, but at that stage they did not.

MR CAMPBELL: 

Yes, the grounds of rejection involved questions of

estoppel which were matters not themselves capable of
of settlement by arbitration, but the litigation would

still have to take its origin from its own initiating

process.

ClT14/l/FK	92	14/9/89
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GAUDRON J: This perhaps goes back to your point about the

conditions that would have been appropriate, that

is to sa;r; the issues raised by l(a) and (b) might well have been - t h1

rejection might well have been susceptible of

decision by the court and staying any decision
by the court of that part of the matter involving

a debt, pending the termination of those matters

and thereafter if the matter arose permanently.

I am sorry, I have perhaps distracted you because

it has not been approached on this basis elsewhere,

but I find it odd if the issues are as you have

asserted to them, that one is worrying about an

arbitration of a point that might not arise.

MR CAMPBELL: -Yes, what the matters that Your Honour has

pointed out show is how the question that is

involved in the relief that is sought does go well

beyond the question of what is the debt owed and

obviously cannot be within the scope of the

arbitration clause or be a matter, the settlement of

which can be determined by the arbitration.	I
am not sure that I am dealing adequately with Your Honours - - -

BRENNAN J: What is the issue which you say lies outside

the scope of the arbitration clause?

MR CAMPBELL:  Yes, l(a) and (b) raised the questions of

failure to submit to arbitration and issue estoppel

orANSHUN estoppel and - - -

BRENNANJ: Well if they succeed, what is the value of the debt?

MR CAMPBELL:  If they succeed then the value of the debt will

be zero.

BRENNAN J: ~H how is it that falls outside the arbitration

clause?

MR CAMPBELL: Just considering the arbitration clause with

that in mind, I do not think I can make that

submission, because the arbitration clause on

172 is quite broad. The point that we make concerning

ANSHUN- estoppel first is that it is a kind of

estoppel which is directed essentially to res judicata

in its true sense, that is to cause an action

estoppel, and not to issue estoppel. We set out in the outline of submissions various references

from CARL ZEISS and from HOYSTEAD, which tend in

that direction. We also rely on the judgment of

Your Honour Justice Brennan in ANSHUN. There is a

passage which runs from 611 to about half-way

down 615, which explains in considerable detail the

way in which HENDERSON V HENDERSON is limited to

res judicata. It explains how there is no

CIT15/l/CM	93	14/9/89
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discretionary power to relieve against the sort

of estoppel that it involved in HENDERSON V HENDERSOtT,

and says that it applies only to stop litigating clauses

of action that have merged in the decree.

(Continued on page 95)

CIT15/2/CM 94 14/9/89

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BRENNAN J: That is the minority view, is it not?

MR CAMPBELL:  The passage, in the majority judgment

or the joint judgment on this

point is at pages - 598 through to 599 where,

after Their Honours had said out the passage so

often quoted from HENDERSON V HENDERSON and

referred to it having been affirmed on four

occasions by the judicial committee, they said

in the final paragraph:

Although it has been said that the principle

operates so as to extend the doctrines

of issue estoppel as well as res judicata,

its application to cases of issue estoppel is

to be treated with caution. Lord Wilberforce

in CARL ZEISS observed that HENDERSON V

HENDERSON was an instance of res judicata.

Lord Reid in the same case noted that

confusion had been introduced by applying

to issue estoppel without modification rules

designed to deal with res judicata.

And Their Honours are not there deciding that

the principle can extend to cases of issue estoppel.

They note it has been so asserted and note that

this is an area where caution is needed. They do

not say, nor did the case call for them to say,

on which particular side of that fence they were

coming down.

BRENNAN J:	But in the anterior paragraph, after the reference to the cases in the judicial committee, Their Honours
say:

In two of these cases the principle was applied so as to shut out litigation of

an issue which could and should have been

litigated.

MR CAMPBELL:	Yes.
BRENNAN J:	As I read the majority judgment, the proposition as

advanced is that there is a discretion and that was

the proposition which I was concerned to reject in

what is, on this point, a dissenting judgment.

MR CAMPBELL: There is another passage in the joint judgment,

however, a couple of pages over, beginning at the

foot of page 601, where Their Honours say:

However in YAT TUNG the adoption of the principle

in HENDERSON V HENDERSON was taken too far.

C1T16/l/DR	95	14/9/89
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Lord Kilbrandon spoke of it becoming "an abuse

of process to raise in subsequent proceedings

matters which could and therefore should have

been litigated in earlier proceedings". As

we have seen, this statement is not supported

by authority.

And, as we read it, that is a rejection of that,

the "could and therefore should", as being an

appropriate test for the application of HENDERSON

authority. Yet, back on page 598, Their Honours

note that the board applied the doctrine to

issue estoppel in terms of it being an issue which

could and therefore should have been litigated.

So, reading those passages together, we do not take

way in which they do it by reference to a formula which the three judges in the joint

the joint judgment as approving the application of describes the

the doctrine to issue estoppel at all. It notes the

judgment later say is an unacceptable test.

So, we submit that, as ANSHUN leaves the law

in Australia, the way is still open for the views

which Your Honour Justice Brennan expressed in

that case to be adopted.

(Continued on page 97)

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MR CAMPBELL (continuing):  Your Honour concluded the passage

which explained the way in which the HENDERSON rule
was essentially an application of true res judicata -

I am sorry, it was not at the conclusion, it was towards

the end of page 614, by saying:

Whatever effect be attributed to HENDERSON V

HENDERSON in estopping a party from litigating

a particular issue, I do not think that

HENDERSON V HENDERSON has hitherto been

understood in this Court as applying to shut

out a party from litigating a cause of action

which has not merged in a judgment.

If that be the true principle, then we say there is

just no question of a HENDERSON estoppel here. There

is no way that the issues in the Florida arbitration

could have resulted in a true res judicata on the

question of how much was owed by the Australian

company to the American company.

If that submission be wrong, then we say that

there is nothing in the judgment in ANSHUN which

licenses the extension of the doctrine to compel the

bringing of a cross claim. What ANSHUN was concerned

with was the failure to raise a defence that was open;

to raise the defence of indemnity to the claim for

contribution that had been brought. There is nothing

in ANSHUN which permits the extension of the reasons

why a person could be shut out from raising as a new
cause of action something which he ought previously

have raised as a defence to the circumstances of this

case.

If that submission be wrong, then we say that

the approach that was taken by the judges who formed

the majority on this view below is correct; namely, that it was not unreasonable not to have raised the

cross claim. It is to be recalled that the Florida

arbitration took place in a forum of the liquidator's

choosing and also that the Florida arbitration took

place under circumstances where the common ground

was that at least there was a very real argument

about whether the Florida limitations statute would

mean that any claim for the debt was barred. Under

those circumstances, it would not only be reasonable
for someone in the situation of Tanning Research to
not positively cross claim for the amount of the debt
but if there was another jurisdiction where they could

recover the debt without having to run the ambit of the

Florida limitations statute, then they would be

positively crazy to bring the claim in the Florida

arbitration proceedings.

We also rely upon the other matters that are referred

to in the written submissions; namely, that they

would have to lodge a proof of debt with the liquidator

C1T17/1/SH	97	14/9/89
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in any event. It was also relevant that they were

unable to compel the evidence that they needed.

There is evidence in the appeal book, at pages 88

to 89 from Mr Upchurch to the effect that while

they had invited one of their relevant witnesses,

Mr Cleary, to come and had offered to pay his

expenses, but they really did not know until the

day of the hearing whether he was going to turn up.

(Continued on page 99)

ClT17/2/SH	98	14/9/89
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MR CAMPBELL (continuing):  Mr Cleary was making himself scarce,

not talking to them, had his own attorney dealing with

the matter. It is recognized that situations concerning

availability of evidence and concerning the personal situation of the party to the litigation are reasons

that it is appropriate to take into account in

deciding whether or not to bring litigation and which
the Court can look to in deciding whether it was

reasonable to bring that particular litigation.

DEANE J:  What would you say the position would have been if

the result of the arbitration had been different

and the finding had been that Hawaiian was entitled to

claim damages but thedamages would not exceed the amount

owing to your client and, therefore, its claim failed

by reason of the doctrine of recoupment which was an

issue that your client raised in the arbitration?

MR CAMPBELL:  Yes. We would submit that, under those

circumstances, it is still reasonable for our client

not to have positively sought the relief that it sought

concerning the debt because the recoupment - - -

DEANE J:  But you would not know, having relied on the debt, how

much of the debt had been exhausted in barring the

claim for damages. You see, the way your client

relied on it - and I gather it is a permissible way -

is saying, "You don't have to get into the details of

quantification because whatever be the amount they

are entitled to as damages, they owe us more".

MR CAMPBELL:	Yes.
DEANE J:	Now, that was an issue that was raised and your client

relied on the indebtedness.

MR CAMPBELL:	Yes.
DEANE J:	Is not that relevant to whether it was a reasonable

approach to leave the other question in abeyance as

distinct from the apparent approach that you could not

obtain any surplus because of applicable limitation

law?

MR CAMPBELL:  It is relevant, but the impact of the Florida

litigation statute on recoupment needs to be borne 1n

mind in assessing the reasonableness and under the

Florida limitation statutes it is possible to raise a

defence of recoupment, although a positive claim would

be statute barred, and that provides a very material

distinction, we would submit. There was also the

problem on which we rely that it was believed that it

was necessary to seek leave of the New South Wales

court to be able to bring the positive cross claim.

As events have transpired, it is clear that that belief

was ill-founded but, none t~e less, that is what they

C1Tl8/l/HS	99	14/9/89
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believed at the time, and we say that, under

those circumstances, it was reasonable not to have

raised the cross claim.

If I could give Your Honours some references

briefly; first of all, the sort of circumstances that

one can look to as being reasonable are referred to in ANSHUN at page 600 by way of just example, where

it is said that evidence of breach of warranty might

not be available at the time a purchaser could be

sued for the goods. There is also a list which is

containedinCROMWELL V COUNTY OF SAC, at page 356 of

the report that is in the bundle, which looks to
things like smallness of amount or property in issue,

difficulty in obtaining evidence, expense of the

litigation and his own situation at the time, and

that list of factors in CROMWELL V COUNTY OF SAC

has been referred to in passing in the joint judgment

in ANSHUN at page 603 towards the top of the page.

(Continued on page 101)

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MR CAMPBELL (continuing):  I should also give Your Honours

a reference to CHAMBERLAIN V DEPUTY COMMISSIONER

OF TAXATION at page 509, where the joint

judgment of this Court there did say that

Henderson was concerned with the implications of

res judicata in its strict sense.

BRENNAN J: What is the reference to CHAMBERLAIN?

MR CAMPBELL: It is 164 CLR, Your Honour, and the relevant

passage is at 509. So we say that that is an

instance of the majority in that court, in effect,

going in the direction that Your Honour Justice Brennan

indicated in ANSHUN.	I am sorry, Your Honour; I have
misread that.

BRENNAN J: Perhaps your junior could look at it?

MR CAMPBELL:  Yes, Your Honour. The restatement of judgments

which is referred	to in the written submissions is
conta:ined in the bundle at page 339.	Could I also

indicate there is a typographical error in the outline

where it refers to the restatement of judgments, it

should be paragraph 22; it should be paragraphs (b),

(d) and (f), and on that question of the position

being the same in the United States, could I also add a

reference to PACE V PERK, which is in the bundle at

page 200, the passage at 209-10. And, finally on the

ANSHUN point, if I could refer Your Honours to the

decision of the Privy Council in DUEDU V YIBOE,

(1961) 1 WLR 1040, where there was an action where

the defendant had sued the plaintiff for trespass
to land; it lost because the land was held to belong
to the plaintiff, but he did not cross claim and

Their Lordships, towards the end of the judgment,

regarded as just elementary that he was entitled to

bring a fresh action to obtain a declaration concerning

his title.

Over at 1046, they said:

The ownership of the land was decided in

favour of the plaintiff and should have

settled his title to the land. If he had

counterclaimed he should have obtained a

declaration of his title. Not having

counterclaimed he was forced to get over his

procedural difficulty by instituting fresh

proceedings founded upon the judgment he had

earlier obtained in order to obtain the relief

which he seeks, that is to say, a declaration

of his title to the land.	To this relief he
is plainly entitled.

Now, of course, the question of HENDERSON estoppel

was not raised, but it would be surprising if

Their Lordships spoke in those terms if there were any

doubt about the entitlement to raise the cross :laim

of that kind. If the Court pleases.

C1Tl9/l/FK	101	14/9/89
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BRENNAN J:	Thank you, Mr Campbell.	Mr Rares?

MR RARES:	Your Honours, can I hand up an outline of argument and some materials, being copies of two texts which
are referred to in the outline.  Your Honours, the
outline is, I must apologize, longer than the three pages that Your Honours usually like, but
unfortunately, because of the complexity of the
matter, it was a bit difficult to digest it.

Perhaps, while that is being done, I could just

go through some of the facts of the case, Your Honours,
so that Your Honours will appreciate the context in

which this litigation arises.

(Continued on page 103)

ClT19/2/FK	102	14/9/89
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MR RARES (continuing):  The proof of debt claimed, as appears

in the appeal book at page 179, firstly, $US280,205

is the amount to be admitted to proof and, secondly,
as an alternative, the estoppel based on the $179,000

finding, and the litigation has been conducted up to

now but not in this Court, on the two issues; namely,

quantum of the debt because the plaintiff claimed and

set out to prove before Mr Justice Cohen how much

was owed and sought to claim an amount in excess of

$A300,000 was owed and, in the alternative, sought to

say	we were estopped from denying that anything other
than the $179,000 was owed.	So that, that is how it

arose and that was what was litigated. This Court

has not been concerned with adjudicating on the

quantum aspect but it should be noted, Your Honours,

that Mr Justice Cohen found that only $55,000 should

be admitted to proof and it has been agreed between

the parties that that sum is the sub~ect of two errors

which would reduce it by about $5800 in addition, if

one just simply restored Mr Justice Cohen's order of

admitting an amount to proof.

Perhaps, now that Your Honours have the outline,

should I let Your Honours read it to yourselves?

BRENNAN J: Yes, if you would, Mr Rares. Yes, Mr Rares. It

probably will not be necessary for you to take us to
the passages in the judgments which you recite here
because we are already, to an extent, familiar with
those judgments and your references will allow us to

read them for ourselves in due course.

MR RARES:  If Your Honours please. I should say in relation

to the section 78B of the JUDICIARY ACT point that my

instructing solicitor has received written notification
from the Attorneys of Queensland, South Australia,

Western Australian and the Northern Territory and the

Commonwealth that they do not wish to intervene; oral

advice from the Attorneys of Tasmania and New South

Wales that they do not wish to intervene and informal

advice from a solicitor from the Victorian Crown

Solicitor that their advice to their Attorney-General

will be not to intervene but that advice was given
last week and, as yet, they have not come back to us

because they say they have not been able to speak to

their Attorney about - - -

BRENNAN J:	When was the 78B notice served?
MR RARES:	I think, Your Honour, it was served on 1 September.

We were given notice of the hearing, I think, the week before. All of the Attorneys had been served

with 78B notices when the matter was before

Mr Justice Cohen and the Court of Appeal.

TOOHEY J: Was it precisely the same point that was the subject

of the notice at each stage of the proceedings?

C1T20/1/SH	103	14/9/89
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MR RARES:  Yes, Your Honour, and nobody has intervened as

yet.

BRENNAN J:	Yes, Mr Rares.
MR RARES:	Your Honours, the purpose of the convention is

a very material matter for Your Honours to consider
in deciding how to construe it and whether a

liquidator would be precluded from being able to

raise a point such as this in the way that

Mr Justice Cohen and Mr Justice Mahoney have sought

to do and my friend has sought to elaborate.

The Supreme Court of the United States, in the two cases of MITSUBISHI MOTORS, which is the

more recent one and in SCHERK V ALBERTO CULVER have

expressed in very, very strong terms that international
trade will be interfered with and the object of the
convention will be undermined if courts of the

United States apply their own domestic policy

considerations towards arbitration.

(Continued on page 105)

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MR RARES (continuing): Indeed, in the most recent case

that we have cited at DE QUIJAS, Their Honours

in the majority overrule an earlier decision and

made reference to the traditional judicial

hostility to arbitration as being something that

congress, in acting the convention and giving force
of law to that in the United States, had sought to

overcome as well as by their own arbitration Act. There are a couple of important passages in

SCHERK's case, and I appreciate, Your Honours, the

shortness of time, but there they set out some of

the material in the convention debates, both in the

judgment of the court and the judgment of
Justice Douglas who dissented with some concurrence.

One of the matters that comes out of that, if I

could take Your Honours to it, it is in the bundle

at number 1. Your Honours, the passages on which

we rely start at page 516 of the report, and that

is the opinion of the court, and run through to

page 520. I will not read all of it, Your Honours,

but, at the bottom of page 516, Their Honours say:

A parochial refusal by the courts of one country

to enforce an international arbitration agreement

would not only frustrate these purposes -

fostering international trade -

but would invite unseemly and mutually

destructive jockeying by the parties to

secure tactical litigation advantages.

Your Honours might well feel that that is

precisely what Tanning Research has done in this

case. Now, Their Honours have said then, just

down below from that:

Whatever recognition the courts of this

country might ultimately have granted to the
order of the foreign court, the dicey atmosphere

of such a legal no-man's-land would surely

damage the fabric of international commerce

and trade, and imperil the willingness and

ability of businessmen to enter into

international commercial agreements.

On the next page, Your Honour, at about point 2,

just after the citation:

In the context of an international contract,

however, these advantages become chimerical

since, as indicated above, an opposing party may

by speedy resort to a foreign court block or

hinder access to the American court of the

purchaser's choice.

C1T21/1/DR	105	14/9/89
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Two Terms ago in THE BREMEN V ZAPATA OFF-SHORE CO.,

407 U.S. 1, we rejected the doctrine that a

forum-selection clause of a contract, although

voluntarily adopted by the parties, will not be
respected in a suit brought in the United States

"'unless the selected state would provide a

more convenient forum than the state in which

suit is brought.'" Rather, we concluded that a

"forum clause should control absent a strong

showing that it should be set aside." We

noted that "much uncertainty and possibly great

inconvenience to both parties could arise if a

suit could be maintained in any jurisdiction in

which an accident might occur or if jurisdiction
were left to any place (where personal or in rem

jurisdiction might be established). The

elimination of all such uncertainties by
agreeing in advance on a forum acceptable to

both parties is an indispensable element in

international trade, connnerce, and contracting."

We rely on that. The next part of the judgment:

An agreement to arbitrate before a specified

tribunal is, in effect, a specialized kind of

forum-selection clause that posits not only the situs of suit but also the procedure to

be used in resolving the dispute. The

invalidation of such an agreement in the case

before us would not only allow the respondent

to repudiate its solemn promise but would,

as well, reflect a "parochial concept that all

disputes must be resolved under our laws and

in our courts ..... We cannot have trade and

connnerce in world markets and international

waters exclusively on our terms, governed by

our laws, and resolved in our courts."

They then uphold the appeal and order arbitration.

But the footnote at page 520 sets out part of the

convention adoption procedures and the second

paragraph of that: 

The goal of the Convention, and the principal

purpose underlying American adoption and
implementation of it, was to encourage the
recognition and enforcement of connnercial

arbitration agreements in international

contracts and to unify the standards by which

agreements to arbitrate are observed and arbitral

awards are enforced in the signatory countries.

Then, at the foot of the page:

In their discussion of this Article, the delegates to the Convention voiced frequent

ClT21/2/DR	106	14/9/89
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concern that courts of signatory countries in

which an agreement to arbitrate isS)ught to be

enforced should not be permitted to decline
enforcement of such agreements on the basis of
parochial views of their desirability or in a
matter that would diminish the mutually binding

nature of the agreements.

Justice Douglas takes that up at page 530 of the

T21 report in footnote 10, where His Honour says:

When Art. II(3) was being discussed, the Israeli delegate pointed out that while a court could,

under the draft Convention as it then stood,

refuse enforcement of an award which was
incompatible with public policy, "'the court had
to refer parties to arbitration whether or not
such reference was lawful or incompatible with
public policy.'" The German delegate observed

that this difficulty arose from the omission

in Art. II(3) '"of any words which would relate

the arbitral agreement to an arbitral award

capable of enforcement under the convention.'"

Haight continues:

"When the German proposal was put to a vote, it

failed to obtain a two-thirds majority and the

Article was thus adopted without any words

linking agreements to the awards enforceable

under the Convention. Nor was this omission

corrected in the Report of the Drafting

Committee.

His Honour then goes on to say, in the next paragraph:

"As the applicable law is not indicated, courts

may under this wording be allowed some latitude:

they may find an agreement incapable of

performance if it offends the law or the public

policy of the forum. Apart from this limited

opening, the Conference appeared unwilling to

qualify the broad undertaking not only to

recognize but also to give effect to arbitral

agreements."

We say that that is an important consideration

when you are considering how an international

convention should be construed with all the differing

laws of bankruptcy, of all the differing trading

states and all the differing local and commercial

considerations that different countries might bring to bear. I mean, Your Honours have been treated to an elaborate dissertation about the law of

Australia and England on what happens to the position

of liquidator in a winding up in these cases. But

other countries, no doubt, have different laws and

ClT22/l/DR	107	14/9/89
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different considerations apply and if a convention

of this kind - - -

GAUDRON J:  Why do we have to construe the articles of the

convention? Why do we need to look at the articles

of the convention?

MR RARES:  Because, Your Honours, the Court has to decide

whether the dispute falls under one of those articles

for the purpose of section 7(1).

GAUDRON J:	But that is not an issue, is it?
MR RARES:	No, well, yes and no because, as I understand my

friend to be saying, he says that this is not a

matter that falls within section 7(2). I say that

what the Court must do is construe section 7(2)

against the articles in the convention so that

when the Parliament is talking about a matter it is

not, in our submission, using the term in the

sense of domestic law but seeking to give force

of law to the obligation Australia has undertaken

in acceding to and in ratifying	entry into
the convention.	It is for that reason that it is
relevant to -

GAUDRON J: Well, which article do you rely on?

MR RARES: Article ri Your Honour. There was a discussion

with my friend yesterday on it. In my submission,

the way that - - -

GAUDRON J: Article II(3)?

MR RARES:  And (1). You see, in Article II(l), the obligation

is for:

Each Contracting State shall recognize an

agreement in writing under which the parties

undertake to submit to arbitration all or any

differences which have arisen -

in their relationship -	concerning a subject matter capable of settlement
by arbitration.

Now, we say that is what one looks to and, in this

case, it is the debt, or the existence of the debt,

or whether it is enforceable.

GAUDRON J: You say every issue raised by the refusal to admit,

or the notice refusing admission of the debt, or

refusing admission of the proof of the debt, is a

matter capable of resolution by arbitration?

ClT22/2/DR 108 14/9/89

Tanning(2)	(Continued on page 108A)
MR RARES:	Every issue in substance raised by the refusal

of the proof of debt - or the rejection of the proof

of debt is - - -

GAUDRON J:  - - - a matter capable of. Do you go further and

say it is a matter which was the subject of the

agreement?

MR RARES:  Yes.

GAUDRON J: Yes, and that is every question that might arise

regardless of indebtedness. That is to say, any

question that impinges on the valuation of the debt?

MR RARES:  Yes, Your Honour, that is so.

GAUDRON J: That it is both capable and was referred.

(Continued on page 109)

ClT22/3/DR	108A	14/9/89
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MR RARES:  For-this reason. when you look at

section l0A(l) of the CO1:1PANIES ACT it refers to

admitting something to proof against the company,

that is quantifying what the liability of the

company is to the creditor who claims to prove

and how you ascertain that liability is, according

to the agreement these parties made, by arbitration

and as was pointed out yesterday, the agreement

itself contemplated there would be liquidation of

one or other of the parties and that would be in

fact an event of default entitling a termination. So that it cannot be said that these parties did

not think about whether a liquidator would be

coming into the matter, or whether insolvency

would arise and yet there was no exception to

the arbitration clause saying, except for matters
which relate to establishment of indebtedness or

the party going into liquidation to the other and

we say that when you look at article II(l) and

then go to article II(3), the matter that is referred
to there is exactly the same as II(l) because it

says:

The court of a Contracting State, when seized

of an action in a matter

and then, if you leave out the words

in respect of which the parties have made

an agreement within the meaning of this article -

that must refer back to II(l) -

shall, at the request of one of the parties,

refer the parties to arbitration -

and we say that is the intent that the Parliament

sought to give effect to when they ratified this

convention and set out the procedure in the Act,

and that one would construe that favourably and

Your Honours have adopted a similar approach in	relation to the decision Your Honours gave in
QUEENSLAND V THE COMMONWEALTH just recently, which
I referred to in the submissions, and a like approach
has been taken by the English Court of Appeal in
a case called THE DEICHLAND, which I referred to
at the end of paragraph 3 of the submissions, relating not to this convention, but to a convention about the arrest of ships and Their Lordships were at pains to say English domestic admiralty law is very special about the arrest of ships.

The convention had a provision in it saying that

if an action was taken against a ship-owner in personam,

that that action had to be taken in the domestic courts

CIT23/l/CM	109	14/9/89
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of the ship-owner. The plaintiffs arrested a ship

and cormnenced an action in rem against the ship
and said convention did not apply because there was

no defendent, they just sued the ship and therefore

you did not have to take any notice of the fact

that the owners had a real interest in defending

the case. The Court of Appeal said you cannot

interpret international conventions on that basis.

You have to look at what the purpose of them is.

Obviously the purpose is to make sure that the people with a real interest in the ship are able

to defend it in their own State, therefore that is

how the convention should be construed.

That appears in the passages that I referred to

in the submissions. Lord Justice Neill at

(198.9) 3 WLR 487. His Lordship at C to D says:

I have come to the conclusion that the right

approach when one is considering the effect

of the purpose or purposes of the convention.	of an international convention is to take account inter alia, to regulate the circumstances in
which a person domiciled in one contracting
state might be brought before the courts of
another contracting state "in civil and
cormnercial matters."

And therefore he said that you give it a broad

construction and Sir Denys Buckley also spoke

in similar terms at page 501, opposite letter F to G:

The function of the Act of 1982 is to implement

the 1968 Convention in the United Kingdom,
that is, to give it the force of law in the

United Kingdom. So this appeal, in my judgment,

depends primarily not upon the Act of 1982 or the 1968 Convention and in particular of article

2 of it.

GAUDRON J: At what point of the proceedings, Mr Rares, did

you ask for a stay of the entire proceedings?

(Continued on page 111)

CIT23/2/CM	110	14/9/89
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MR RARES:	Yes.	We asked for a stay in the month before the

matter had been listed for hearing.

GAUDRON J:  How was it that on your view the questions of

issue estoppel and ANSHUN estoppel arose? How could

they arise without the stay matter, on your view,

being determined?

MR RARES:  What procedurally happened, Your Honour, was that

we gave notice that we sought to amend during the

January vacation. The matter came before a vacation

judge who adjourned - and this is my recollection -

the matter to the hearing which was in the first

week of term. I then applied to Mr Justice Cohen

to amend to raise the stay point. His Honour granted leave to amend and it was decided that it was best to hear all of the issues together.

GAUDRON J: Well, then, I wonder to what extent - was that by

consent?

MR RARES:  Your Honour, it was because witnesses had come from

overseas and there were questions of law. If the

ANSHUN point was right - - -

GAUDRON J:  On your view, though, the ANSHUN point itself had

to be determined in arbitration.

MR RARES:  I follow what you mean, yes. No, I spoke too

broadly, Your Honour. The ANSHUN point did not have

to be determined in arbitration because the ANSHUN

point determined whether there was a cause of action.

GAUDRON J:  And, if the ANSHUN point did not have to be

determined in arbitration, then for the same reasons
the issue estoppel point did not have to be determined

in arbitration, is that not right?

MR RARES:  No, that is different because that, in our submission,

depended on the evidence that was - you see, part of

the evidence that would need to be decided by the -

I am sorry, I withdraw that.

We said that the failure to cross claim concluded

them. We said that arose in the American law and the

Australian law.

GAUDRON J:  Yes, and did not have to be decided by the

arbitrator, in arbitration proceedings and,

presumably, could not be determined in arbitration

proceedings.

MR RARES:  Your Honour is testing my memory and I really

cannot recall - - -

GAUDRON J:  No, I am really testing the consistency with your

submissions today which, as I understood them, was

C1T24/1/SH	111	14/9/89
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every aspect had to be determined pursuant to the

arbitration agreement and, therefore, there should

have been a stay of the entire proceedings.

MR RARES:	Your Honour, I really have difficulty in recalling precisely what terms Mr Justice Cohen allowed the
matter to go forward to hearing in light of allowing
the amendment and, obviously, that would be important
in answering Your Honour on that.  The issue
Your Honour is raising, of course, has not been
raised in the courts below as an issue and I would
want to take on board or seek to be able to find out
exactly how it is that we did it in front of
Mr Justice Cohen but I think, to the extent
that we litigated the ANSHUN point and the issue
estoppel point up to now - - -

GAUDRON J: It must be on the basis that those points do not

have to be decided by arbitration.

MR RARES:	Well, on that basis or on the basis that there has been a submission to the jurisdiction by both parties
of that issue.

GAUDRON J: It seems so to me.

MR RARES:  Yes, I follow what Your Honour means and I think

that must - - -

GAUDRON J:  And, if not, a waiver of rights under 7(2)(b).

I am sorry, I just do not understand what has happened

in these proceedings at all or how the issues that

are raised on the appeal relate to what happened.

MR RARES:  Perhaps I can help by going through the evidence in - - -

GAUDRON J:  No, it is not necessary. Your point today is

still that the ANSHUN estoppel could only be

determined in the arbitration proceedings.

(Continued on page 113)

C1T24/2/SH	112	14/9/89
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MR RARES:	Can I just think about that for a moment? One of the issues that actually was litigated was
the quantification of the debt and Mr Justice Cohen
decided that issue subject to whether he should
grant a stay or not.
GAUDRON J:	I could understand why you would say that

should be in an arbitration proceeding and must be.

MR RARES:  Yes., N'.ow as to whether there is an estoppel

which - whether the issue estoppel point arises, we say

that that is a matter that is capable of being

referred to arbitration because the arbitrators can

decide whether or not they should have brought a

referred to arbitration but we can elect to separate

cross claim or not and whether or not they are estopped.

that from the other matters and not have that

determined by an arbitrator but to have it determined

by a court.

GAUDRON J:	And you made that election, you say?
MR RARES:	Well, that is the point I am not clear on.
GAUDRON J:	Presumably, you could make the same election

with respect to the issue estoppel.

MR RARES:	Yes, and certainly one would have to say that the matter having then gone to the Court of Appeal and
been litigated as a full appeal without dealing with
the stay point is a preliminary point, people might tend to be bound but the difficulty is - - -
GAUDRON J:	I mean, it does not really affect the - well, it

broad way you have put it, then it would be no part

does affect what you would ask this Court to do.

of this Court's function to determine any question of

issue estoppel or ANSHUN estoppel on it.

MR RARES:	On that way, yes.
GAUDRON J:	And it could be no part of this Court's function.
MR RARES:	On that basis, that is correct but if the Court

were against us on that -

GAUDRON J:  But, if you waived it then, ultimately, the only

point you can make, in what I will call the

arbitration point, must be that any question that

necessarily arises as to the quantum of debt - - -

MR RARES; Or existence; that was an issue.

C1T25/l/JH	113	14/9/89
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GAUDRON J:	- - - existence, yes.
MR RARES:	The arbitration was to do with - - -
GAUDRON J:	Existence or quantum independent of considerations

of 2stoppel and you would say also independent of

questions of STATUTE OF LIMITATIONS, or not, or

you would say also the STATUTE OF LIMITATIONS is

necessarily to be decided in the arbitration?

MR RARES:  The limitations question is a matter for the

arbitration.

GAUDRON J:	It not having been waived?
MR RARES:	No.
BRENNAN J:	Mr Rares, is it right to say that the application

which was made for the stay is to be found in

Daragraph 4. of the amended defence on page 10 Ed is that the scope of it?

MR RARES:  Your Honours, there was a notice of motion that

preceded that in seeking leave but that is not
reproduced in the appeal book but it is in essentially

the same terms, Your Honour.

BRENNAN J:  So, we can take that as the terms of the

application that was made by you pursuant to

section 7(2)?

MR RARES:	I am sorry, I did not catch what Your Honour said.
BRENNAN J:	Can we take it that that paragraph 4 on page 10

constitutes the application made for the purposes

of section 7(2) of the ARBITRATION (FOREIGN AWARDS

AND AGREEMENTS) ACT?

MR RARES:  Yes, Your Honour. If I may, can I just take

Your Honours to a bit of what happened in the

evidence in the trial and the arbitration,, just

running sequentially through the appeal book rather

than going backwards and forwards? (Continued on page 115)

ClT25/2/JH	114	14/9/89
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BRENNAN J:	For what purpose is this, Mr Rares?
MR RARES:	To show Your Honours what issues there were and it

goes to questions of reasonableness which my friend

raised about the ANSHUN point, and it goes to

questions of conditions. There was one issue

raised as to whether, if there were a stay there should

be some conditions imposed. The rules of the

American Arbitration Association were before

Mr Justice Cohen and Mr Upchurch was cross-examined

by me on them, and I can hand them up, Your Honours,

but they essentially provide that the American

Arbitration Association decides where the locale

of the arbitration is to be and the parties can nominate a venue and, if they do not agree, the

arbitrators decide. We say that is what should

apply.

It is not to be ignored that, in this case - and

the evidence shows this - Tanning Research, firstl½

applied for the proceedings to be removed from the

court in Florida and sent to arbitration and, secondly,

chose the venue.

BRENNAN J:  Are we going to look at these facts for these

purposes, or do you wish to proceed with your outline

of argument?

MR RARES:  Well, Justice Gaudron. was inquiring about the facts

and I did not know whether that - - -

GAUDRON J:  Yes. I am sorry, it was not really the facts.

I am more concerned about whether there was any waiver

of your - - -

MR RARES:  I am sorry. Then, perhaps I should proceed through

the outline. Your Honours, Justice Deane was asking

yesterday what the American courts' approaches to

bankruptcy positions were. I have prepared a short

precis of how we see it and there are two cases which

are not in the bundle because they only came to

attention in the last day or two. Perhaps I could hand

up that precis, and I would not seek to take Your Honours

in any detail through it. Your Honours, there are

two authorities; the MOR-BEN appeal, which supports

our view of the construction of the convention
because the American Bankruptcy Appellate Panel of

the Ninth Circuit upheld the trial ~udge in MOR-BEN

and said that the convention and SCHERK and the like

should not be interfered with by domestic American
bankruptcy law and that the arbitration that the parties

had agreed to in their agreement should be allowed to

go ahead~

There is a case of JAMES P. CORCORAN V AIG MULTI-LINE SYNDICATE INCORPORATED. The copy is

Tann1ng(2) ClT2()/l/HS 115 14/9/89

unfortunately from a fax which comes out of the latest

loose part of the New York Supplement, I am told,

539 New York Supplement 630, in which a New York

judge distinguished the KNICKERBOCKER case to which

my learned friend referred yesterday, which is

number 20 in the bundle, saying that that did not
refer to the convention, it did not refer to the
United States' obligations, and - indeed, it was

decided quite a number of years before the convention -

and she would apply the convention and hold the parties

to their arbitration agreement, notwithstanding the

New York peculiarities of liquidation of insurance

companies. Perhaps I could hand those decisions up,

Your Honours, without going to them in any detail.

Could I also deal, while I am on this point,

with the cases my friend did refer to yesterday in

support of his thesis on American bankruptcy law.

There is the CUNARD case, which is tab 8 of the agreed

bundle, 773 Fed Rep, 2d Series 452. That case

does not refer to the convention. It just does not

deal with the convention, SCHERK, or at that time, I

think, MITSUBISHI had been decided. It had been

decided on 2 July, that is after argument and before

decision, and we say that that just does not refer

to 9 United States Code 201, which is the provision

of the American arbitration law which is equivalent

to the Act in this case.

It refers to section 8 of that code on page 454, which is page 138(a) of the bundle, about three-

quarters of the way down the first column.

(Continued on page 117)

ClT26/2/HS	116	MR RARES	lt+/9/89
Tanning(2)

MR RARES:	Likewise the same vice is to be seen in the VICTRIX case, which does refer to it, but in a passing type
of way; that is number 21 in the bundle, and it is
significant because it really makes clear that it is
not deciding this point at all. If Your Honours
would go to page 712 of 825 F 2d which is page 235
of the bundle, what the proceedings before the
Second Circuit Court of Appeals were, were to do with
the enforcement of an award that had been made in
arbitration.  So the first point of distinction is
that they were not at the stage of enforcing the
agreement to arbitrate, they were dealing with
other policy considerations.

Page 235 of the bundle, first column, about

two-thirds of the way down, just above that there
are the procedural motions in which VICTRIX move
to confirm the award under the convention and the

relevant part of the United States Arbitration Act,

and to enforce a British judgment. But, what happened
was:

The District Court ruled in favour of Salen, vacating the attachment and awarding Salen

attorney's fees under New York law for

wrongful attachment. Judge Carter did not

decide whether to enforce the London

arbitration award or the British judgment,

deferring decision on these matters to the

Swedish bankruptcy court.

Likewise Their Honours do not decide that issue.	Now,
whether they are entitled to or not is a separate
question, but we would say that such a refusal is
somewhat remarkable in light of the decisions in
MITSUBISHI and SCHERI<, but none the less they did not.

Now, Your Honours, we would then say that there

is an inconsistency in paragraph 5 of the outline

between the ARBITRATION (FOREIGN AWARDS) ACT and the

entitled to invoke the provisions of the federal Act	COMPANIES ACT to the extent that a liquidator is not
because a federal A~t is designed to enable parties to international agreements to be held tc them.
A company cannot come along and do any of these acts
because it is under the control of the liquidator
so that there is nobody who, on behalf of the
company, if. it is not the liquidator, who can seek
after the company goes into liquidation, to enforce the rights guaranteed by the convention, and we say that to the extent that the COMPANIES ACT shuts the liquidator out from doing that, because he is not in
a position to exercise on behalf of the company, as
he ordinarily would, its rights under an international
arbitration agreement, then there is an inconsistency
and that is to be discerned from applying the test

ClT27/l/FK	117	14/9/89
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which has been adopted on a number of occasions,

and in the judgment of the court in DAO V

AUSTRALIAN POSTAL COMMISSION, in the passage that

I have referred to - unless Your Honours wish me to

I will not read it to Your Honours.

BRENNAN J:  I do not think it is necessary. You say you have

given us the reference to the specific passage.

MR RARES: We say that it does raise the inconsistency, right up

to the threshold, because what the liquidator is doing is admitting something to proof against the

company. In other words, the company is having something

done to its property, its assets and its liabilities,

by the action of the liquidator.

(Continued on page 119)

ClT27/2/FK	118	14/9/89
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MR RARES (continuing): It is something that is derived

under the international arbitration agreement and

yet the company is, if the argument my friend is

putting and Mr Justice Mahoney and Mr Justice Cohen

put is right, sterilized from ever doing anything

when it is attacked by a creditor seeking to put a

proof of debt in and in circumstances, perhaps, such

as this.

My friend is quite happy to say, "Well, when

the company is the plaintiff, the company can do

anything it likes but when the company is the

defendant, it is sterili ed". Well, if it is

sterilized by the COMPANIES CODE, then there is

the inconsistency.

Lord Hailsham makes it clear in a case that

I refer to a little bit later in paragraph 9(a) what

a liquidator does when he acts on behalf of a company.

It is the company acting through the liquidator when

something is done just as the company acts through

its directors when it is functioning normally. The

liquidator is there to exercise all the powers of

the company and if he cannot invoke the rights that

the Parliament gave to parties to agreements, who

can? Your Honours, the passage I read from SCHERK's

case is apposite there.

I refer to an anomaly in paragraph 6 but one

thing that needs to be considered and, perhaps, the

VICTRIX case illustrates it in a way, is people

agree to international arbitration clauses for,

obviously, commercially sensible reasons.	Suppose
you had a situation such as this:	a Liberian ship

owner, a Panamanian time charterer; bills of lading

issued to American cargo interests for delivery to Australian consignees; the bills of lading and the

charter-party have both got international arbitration

in London clauses. If the owners go into liquidation

and the liquidator seeks to say that he wants to

parties to be thought to have consented because of	exercise liens on the freight or the like, are the	the accident of the liquidation of one of the parties,
to have their dispute determined by the Supreme Court
of Liberia, whatever system of law that applies, when
they especially selected and agreed in the various
commercial documents to have a London arbitrator?
As Your Honours would appreciate, businessmen select
arbitration and specialized arbitration panels for
their expertize in particular areas. I mean, the
international SOYA BEAN cases that frequently come
up to the courts on appeals in respect of arbitrations are good examples; that where you market a specialized
field, you go to the arbitrators; they can deal with
things quickly and all the parties are happy to have
that determined by an arbitrator. But, if you have an

C1T28/l/SH	119	14/9/89
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accident and one goes into liquidation, why should

the parties who have been thought to agree to go into
the domestic court and put in a proof of debt or
whatever the bankruptcy procedure happens to be of
the party who goes into liquidation? That is why

we say the convention is in mandatory terms. It

says whenever you have an international arbitration

agreement and a party wanting to invoke it, then it must go to the arbitrators if the parties want that

to happen.

The next point that I seek to make in the

submissions is in paragraph 7. We say that section 7(4)
does cover the liquidator in the capacity in which he
sought to invoke the reference. Now, Justice Gaudron

mentioned yesterday that there may be two different

points of time at which one is looking when one is

considering the functions of the liquidator; first,

when he is actually considering whether to reject or

not the proof of debt and, secondly, what

he is doing when he is the respondent to an appeal

from that rejection. We would adopt that approach

if the primary approach we are putting is incorrect;

that, at the time the liquidator is dealing with an

appeal, he is acting as a company or as the agent of

a company or by or through the company. At that time,

he is asserting not the independent rights that he

might have in considering to reject or not but the

company's rights.

(Continued on page 121)

ClT28/2/SH	120	14/9/89
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MR RARES (continuing):  The learned authors of Mustill &

Boyd, second edition have said since 1854 when the COMMON LAW

PROCEDUru; ACT was amended in England, people

claiming as the assigns of bankrupts were able to take advantage of the equivalent of section 7(4);

that is a passage that appears at page 471-2 of

the second edition; I think there may be copies of

those pages

BRENNAN J:	What is the authority you are referring to?
MR RARES:	The book is Commercial Arbitration by

Sir Michael Mustill and Stewart Boyd, second edition,

page 471-2 and the learned authors say that a

trustee in bankruptcy is such a person notwithstanding

the cases my friend referred to	and they
refer.	to PIERCY V YOUNG, 14 Ch D 200, a case my friend

discussed yesterday. In our submission, what happened in that case was the Court of Appeal peremptorily said to the party seeking to raise this

point and relying on the cases my friend relied on,
they did not want to hear the other side on that

point and they proceeded to deal with the appeal.

So, we would submit that the interpretation that

Mustill and Boyd place on this is correct.

They also deal with the equivalent in the English Act but it may be that there are special

statutory provisions there but, at page 153, they say:

The winding-up of a company does not

discharge an arbitration agreement to which

it is a party, nor revoke the authority

of an arbitrator appointed by it, unless

and until the agreement is disclaimed by

the liquidator with the leave of the Court.

And, Russell is to similar effect saying that a

liquidator is, for the purposes of the English

equivalent of that clause, a party claiming through

or under a person.

Your Honours, there are a number of cases which I have set out in paragraph 7; again, if I am not

trespassing on the Court's goodwill, there is a precis

that we made of those cases which would relieve me of

troubling Your Honours with them, which I have managed

to lose and, if I can as well, there is another precis

that I have done of the position of the liquidator

of a company in a winding-up. The highest authority in the'through or under'category is the Full Circuit Court of Appeals in J.J. RYAN V RHONE-POULENC, where the

court, similarly to the English and New Zealand cases,
held that a parent or a subsidiary could take
advantage of an arbitration contract entered into

with the child or the parent not being the party.

ClT29/l/JH	121	14/9/89
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Your Honours, one of the cases I referred to in

the position as to a liquidator in paragraph 8

is the decision in CRAVEN V BLACKPOOL GREYHOUND

STADIUM, and that was a case where a creditor

put in a proof of debt which was rejected and then

sought to cormnence proceedings.

(Continued on page 122)

ClT29/2/JH	122	14/9/89
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MR RARES (continuing): And it was held that having been

rejected the rejection operated as an estoppel	almost per rem judicatn:n and his rights errerge and
he had the option of starting proceedings and
getting leave from the court to proceed or
putting in a proo£ Having done one and not
taken his appeal further, he was held to be shut
out and that would indicate that what has happened
is that the rights of the company have been dealt
with by the liquidator as agent in rejecting the
proof of debt. What he has done is, he said, "The company will not admit your claim" and if he does not go to the court and say the liquidator and, by reference, the company is wrong
in refusing to admit my claim to the distribution
of the assets that are available, he has accepted
being shut out.
Now there is a similar position in bankruptcy under an analogous case and I refer to a case where
Mr Justice Lowe before the CRAVEN case and without being referred to the bankruptcy case I referred to
came to a contrary view, but did not really examine what happened when a proof was rejected,but we say it must be that when the liquidator rejects a proof
the creditor cannot come back and start proceedings
at some later stage or if the company comes out of liquidation, that has got to be the end of the matter.

As to the form of the procedure which takes place

in winding-up proceedings, to which my friend referred,

we say that the fact that the liquidator, say, becomes

a party personally in proceedings does not mean that
he is not acting for the company. For example where

the liquidator takes misfeasance proceedings against the directors, the procedure is that he takes those

proceedings in his own name. However, this Court

has held that it is a mere irregularity in a

bankruptcy _ pe·tition, founded on a bankruptcy notice,

where the liquidator recovered judgment against

a defaulting director, on a misfeasance summons

commenced in his own name. It was just an irregularity

that the bankruptcy _petition was presented in the

liquidator's name and not the company's name, as

the petitioning creditor. And that was a case I

refer to in paragraph 9(a) of the submissions

GROWDEN V WILTSHIRE, where the five Justices who comprised

the Court just said that that was a simple error, it

is obvious the liquidator represents the company, albeit

that he took the proceedings in his own name, but that

was just a mere irregularity and the petitition was
well founded, subject to amendment to change it to the

company's name. That is 52 CLR 286. It is a very

brief report but it is clear from the statement of the

CIT30/l/CM	123	14/9/89
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facts that the misfeasance summons was taken out

on page 287 by the liquidator in his own official
name and in relation to the winding up of

COO-EE PICTURES the court very quickly dealt with the objection and went to the substance of what

was happening and we say that likewise here the

substance of what is happening is the liquidator

is, when he is resisting an appeal or when he is

considering whether to admit something to proof,

acting as the agent of the company, appointed by the

court to administer its affairs and he has a fiduciary

duty and he has got certain controls on the way he

acts, just as directors have got controls on the

way they act. They have fiduciary duties to the

company. The liquidator has his own particular

fiduciary duties that result from his position

of power and one of his duties is to consider the

best interests of all of the creditors of a company

when he makes these decisions, but t_o put him into a

position of being a judge, in our submission, is to

misconceive his function. He is appointed to act

as the agent of the company for the winding up of its

affairs, under the supervision of the court, so that

people who are dissatisfied with his decisions, people

who want to have things done within the winding up,can

come to the court and ask for such relief as is

necessary and he can be controlled by the court.

(Continued on page 125)

CIT30/2/CM	124	14/9/89
Tanning(2)

MR RARES (continuing): So, too, can directors; so, too, can

other fiduciaries; trustees, executives, everybody else

who performs fiduciary functions and we say that merely

because he performs fiduciary functions does not mean

that he is not able to act and is not, in fact, acting

as the agent of a company in the winding up.

The other curious feature of the liquidator's

functions is in rule 161 of the Companies Rules which

gives him the right to appeal against his own admission

if he later finds that there were grounds that he

should not have admitted something to proof.	So
that it is a pretty curious situation where the

supposed judge is able to appeal against his own

decision and go actively to the court and say, "Well,

I made a mistake and I want it all corrected" and we

say that that also indicates that he is really acting

as the agent of a company and can correct things by

going to the court on his behalf.

The decision cited at the bottom of paragraph 9(b)

of my submissions IN RE BIRD's STORES is another decision
of Justice Lowe which Mr Justice Cohen relied on and

Mr Justice Cohen, with his considerable experience of winding up matters, also said that this was the case;

that when you had a proof of debt rejected, you had
a real fight going on in the court on an appeal.

There was a moving party and there was a substantial dispute which was fully litigated and that is what

really happens and it is drawing a procedural but

not a substantive distinction to say that the form

of the procedure, that the liquidator and not the

company is the defendant, is something that affects

the real substance of the thing and, indeed, the
reason the liquidator is the defendant in these things

we would say is because all actions against the company

is astayed by section 230(3) of the old Act and the

modern equivalent. So that people need to bring

actions against somebody that they can lawfully

bring and that is why the Code, or the Act and the

Rule, provide a mechanism for appealing which does	not involve an attack on the automatic stay and that
is one reason why that procedure has been adopted.
It is a matter of convenience and not of substance.
Likewise, Mr Justice Mahoney says the reason the dispute is not capable of being referred to
arbitration is because you are really dealing with
an appeal from a liquidator's decision. In our
submission, that would defeat the evident intent
of the Federal Act. Now, in paragraph 9(d), I have
referred to GOVERNMENT OF INDIA V TAYLOR and that is
an important decision because Your Honours will
recall that that was a decision where the House of
Lords said you could not seek to enforce foreign
revenue statutes in courts of the United Kingdom.
One thing that was done in that decision was to

C 1T31 /1 / SH	125	14/9/89
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attack the liquidator for having rejected a proof

of debt and, at page 509, Viscount Simmons with

whom Lord Moreton and Lord Reid concurred, dealt

the this.	He was dealing with the winding up of
the company at the bottom of 508.	His Lordship
said:

My Lords, I have no hesitation in adopting the former of these meanings. I conceive that it is the duty of the

liquidator to discharge out of the assets

in his hands those claims which are

legally enforceable, and to hand over any

surolus to the contributories. I find no

wor~s which vest in him a discretion to

meet claims which are not legally

enforceable. It will be remembered that,

so far as is relevant for this purpose, the

law is the same whether the winding up is

voluntary or by the court, whether the

company is solvent or insolvent, and that

an additional purpose of a winding up is to

secure that creditors who have enforceable

claims shall be treated equally, subject

only to the priorities for which the statute

provides. It would be a strange result if it

were found that the statute introduced a new

category of creditors to compete with those

who alone, apart from it, could enforce their

claims.

It was urged upon your Lordships that

in certain other sections of the Act, notably

sections 278 annd 283, "liabilities" must

include obligations not enforceable in this
country. That may well be, but, though I

accept the proposition that a word should be

used in the same sense throughout a statute,

it is by no means a universal rule and I am

not pressed by it in construing a section of

an Act so long and complex as the COMPANIES

ACT, 1948, where a word may be and, in the

case of "liabilities" in fact is, used in

many different contexts.

I am, on the other hand, satisfied that

the case of a statute-barred debt presents a
very close analogy annd that in concluding that

the present claim cannot be admitted

your Lordships are assisted by such cases as

IN RE LORILLARD and IN RE ART REPRODUCTION CO.

LTD., which were in my opinion rightly decided.

They were rejections of statute-barred debts.

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MR RARES (continuing): If the liquidator is entitled to say and

gets statute barred in Florida which is the place

of payment - - -

GAUDRON J: Well, are you?

MR RARES:	Yes.
GAUDRON J:	Or are you entitled to say that is whether or not it is statute barred has to be determined?

MR RARES:  I am so sorry, Your Honour. Your Honour is quite

right but that is a legitimate contention

for the liquidator and my friend seeks to expose

him to some criticism and say that conditions

should be imposed on him to say that he should not

take this point, a point, one might say, which

was the subject-matter of arbitration and

which comes from a creditor who never put a proof

of debt in for four years after this company was
liquidated; who never sought to prove its claim

against my client until these proceedings were

commenced and, yet, who went through the whole

exercise of an arbitration in which it

fought out the very same issue, fully and completely.

$0 that it would be, in our submission, quite,

quite wrong for the Court to say that a condition

should be imposed on this liquidator not to be able

to defend the assets of the company having been

put to full proof in Florida once and then having

to meet a new claim, a claim that was a double-barrelled
claim, both on the estoppel and the quantum,and
existence of the debt, and then we say that it would

not be improper for the liquidator to say, "Well,

I can take advantage of the forum's provisions".

Unless it be thought that EX PARTE JAMES was

not referred to the House of Lords, Lord Keith,

in his speech at page 512, referred to it and

then dismissed it by saying - at page 512 at about

point 8, he said:

I was impressed for a time by the reference

made by counsel for the appellant to the rule

of IN RE CONDON, EX PARTE JAMES. Counsel

stressed that he could not appeal to the rule

as directly applicable, for it applied only

to an officer of the court, which the liquidator

in a voluntary winding up was not. But as I

understood him, the suggestion was that the

court, in a compulsory winding up, would direct

a liquidator to pay the tax on the ground of

honesty and fair dealing and it would be
impossible to follow one line in a winding up
by the court and another in a voluntary

winding up, a view, I may observe, taken in

another connexion by Wynn-Parry J. The rule,

ClT32/l/DR	127	14/9/89
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however, which at best is exercised as a

discretionary power by the court, appears to

have been exercised only in cases where

there has been some form of enrichment of the
assets of a bankrupt or insolvent company at

the expense of the person seeking recoupment. No case has been brought to our notice of the

application of the rule where there has been

no enrichment of one party with corresponding

loss te the other.

Then His Lordship goes on to hold that the same

cases of statute-barred debts that Lord Viscount Simonds

referred to are proper considerations for a liquidator.

Now, in POZNIAK V SMITH, this Court considered what

conditions one could apply on a remitter from this

Court to a supreme court of a State and the majority

judgment - 151 CLR 38 - said that those conditions

would be procedural only - relating to procedural

matters. Now, admittedly, the section is a little

different but, in our submission, the substance

remains the same.

At page 44, perhaps I should take Your Honours -

the section is set out in the joint judgment at

page 41 towards the bottom of the page, but there

is a remitter power:

subject to any directions of the High Court.

Previous provision of the JUDICIARY ACT, since repealed, talked about conditions and Justice Mason,

in his judgment, discusses it in this POZNIAK V SMITH.

Majority say, at page 44 at about point 7:

It was suggested in argument that the power

to remit an action to another court carries
with it a power to give directions as to the

law which is to be applied by the receiving

court, and that in the present case if the

remitter were to be made in favour of the

Queensland in the disposition of the matter.	Supreme Court of New South Wales, that Court could be required to apply the law of	Such a construction of s. 44 cannot be
countenanced. The phrase "subject to any
directions of the High Court" controls the
statement in the section which immediately
follows it, namely, "further proceedings in the
matter shall be as directed by the court to
which it is remitted". Clearly, in our
opinion, the power in this Court to give
directions is confined to matters of procedure.
The substantive rights of the parties will be determined by the law of the forum.

ClT32/2/DR	128	14/9/89
Tanning(2)

MR RARES (continuing):  And, Justice Mason came to a similar

conclusion that discussed the High Court Procedure

Act at page 55 at about point 6 which talked

about conditions being able to be imposed. He was

prepared to assume that you might be able to give

judgment in a different State after hearing the

case in one State and keep applying the law of the

place of the hearing but, we say, that the conditions

that one would apply are procedural conditions

only to make sure that the arbitration actually gets under way. And then, as in this case, the

arbitration rules of the American Arbitration

Association are to be followed; perhaps I should hand those up to Your Honours so that Your Honours have them.

The relevant rules as to locale is rule 11

on page 6 and Your Honours can see they are very
comprehensive rules; it is a matter for the

arbitrators to decide where the case will be heard,

that is what the parties agreed and that is what
they were to be held to and it would be improper,

and Mr Justice Kirby demonstrated that in his

judgment, to impose conditions which effectively

rewrote the contract or changed the rights of the

parties under the contract. Their rights are to have

the arbitration under those rules; if the
arbitrators say, "We want to sit in Florida", they

may be free to do so.

Now, my friend referred this morning to

the liquidator's position being such that he would not be bound by an issue estoppel and he sought to

say that because of that you could see the difference

in his position under the COMPANIES ACT when he is dealing with proofs of debt. In the court below it

was conceded that the liquidator were to privy

both for and against having judgments enforced by him

and against him where the company's rights were

involved and this is a new point. But, the grounds

on which one can go behind judgments are, in effect,	the same grounds upon which a party can move to have
judgments set aside·and they are that there was collusion or fraud - set aside under separate
proceedings - in seeking to defraud the creditors by
coming to some arrangement or some great injustice
which could not otherwise be remedied. Now,
Your Honours, I have not had an opportunity because
we have not had any warning that my friend would quite
take this particular attack but, in our submission, the liquidator, or the trustee, in those circumstance~
is exercising a right which is different but which is
separate and independent to rejecting a proof of
debt; he can reject a proof of debt and if he does and his decision is challenged he can go behind it
in the proceedings but he goes behind it on behalf of
and for the benefit of the company because the company
is the one that receives that benefit. If the company

ClT33/l/JH	129	14/9/89
Tanning(2)

by breach of some of its duties or the like has public or a fraud on creditors or a fraud on third
entered into some fraudulent schem~ well a court
can unravel all species of fraud if one settles on
the judgment of Lord Hardwicke in EARL OF CHESTERFIELD

parties is a matter which can be dealt with. But, it

is for the benefit of the company because the company

was not - he is simply saying the position should be as it was and if another party to a fraudulent

judgment, for example, fraudulently obtained

judgment says, "Well, I want to assert it to estop

you, the company, from - you and I were particeps

criminis in committing a fraud on the public or on

creditors", the liquidator is entitled to say,

"Well, the company really was not party to that

fraud" and we can go behind that.

(Continued on page 131)

ClT33/2/JH	130	14/9/89
Tanning(2)

MR RARES (continuing):  The other party would be seeking to

enforce a fraud because liquidation and b~nkruptcy

stems from an old equitable jurisJiction. The

Chancellor could look at the conscience of the

party seeking to enforce whatever right it was that

was claimed as a right that can be asserted

by he who is on the receiving end of that assertion,

and, in this particular case, it is the liquidator.

But, in our submission, that does not arise -

that particular function of the liquidator does not

arise in this case. It may be a different thing to

say that a liquidator could force an arbitration of
whether a judgment had been procured by fraud,

because that may be a different right that is being

asserted, but where the liquidator is just dealing

with, in the ordinary course of saying is there a debt or

is there not, on ordinary principles, we say that

he is just acting as the agent of the company in the

ordinary way and his decision is one that affects the

company because he is acting as the agent.

Now, Your Honours, could I pass then and skip

over section B of my submissions to deal with the

ANSHUN point first because if the ANSHUN point is good,section B does not arise.

GAUDRON J:  And your cross appeal depends on your having waived

your right to apply - to raise this point you must
have waived your right under 7(2)~ is that right?

For you to bring your cross appeal in this Court

to say that this Court can decide this, in which

event the matter is determined in your favour

conclusively without need for arbitration.

DAWSON J:  Maybe you do not succeed on your first point.

GAUDRON J: Yes.

MR RARES:  Yes. Maybe we do not succeed on the first point and

the other thing is - - -

GAUDRON J: Well, I am sorry; if you do succeed on your first

point you - ·- -

MR RARES:	If I succeed on the first point, Your Honour is saying,
if I want to press this point, I am waiving the right to arbitration, is that right - - -?
GAUDRON J:	Yes.
MR RARES:	Well, we say, no; this is a point that determines whether the whole procedure can be brought. Section 7(2)
depends on their being proceedings taken in a court
involving the subject-matter of an arbitration agreement: If we win on the ANSHUN point, the ruling of the Court would be that proceedings were not properly brought, either because of - - -

ClT34/l/FK	131	14/9/89
Tanning(2)

DAWSON J:	What you are really saying is there is no matter?
MR RARES:	Yes.  So I am trying to get it both ways, but, in my submission - - -

GAUDRON J: Yes, well you see, if it is no matter - that is where

my difficulty is: if it is no matter, then I do not

see the distinction between it and issue estoppel.

I am sorry - I do not disturb you; you might like to

think about it later, but I do - if there is no
matter I cannot see the distinction and I do not

understand you to have put one forward.

MR RARES:	May I think about it, Your Honour, because it is an
important point, but I suppose we are here to meet
a whole case that has been put and fought up to now and, while I recognize there may appear to be a limited
inconsistency - - -
GAUDRON J:	You th,;lnk about it~- and. my other problem, in fairness

to you, if you do put it on waiver, is that I do not

know that that effects a mandatory duty of the Court,

but I put that to you - you might wish to think about

that at the same time.

MR RARES:	I think that the mandatory duty, in fairness to
Your Honour, arises when a party requests the stay.

GAUDRON J: Yes.

MR RARES:	If he is taken to have waived the request - -
GAUDRON J:	You are only taken to have waived - I do not know

whether you are entitled to say, "In so far as I am

entitled" - I am sorry, now I will put it like this:

it is not clear to me that under 7(2) you can blow

hot and cold; that you can waive one bit and not

another bit. That really is the point; because of the mandatory nature, but do not deal with it now.

(Continued on page 133)

ClT34/2/FK	132	14/9/89
Tanning(2)
MR RARES:	If Your Honour please.	Could I deal with that

perahps in writing shortly after?

BRENNAN J:  Yes. Well, at all events you will need to develop

your points on section C in order to understand what

it is that may be the subject of any possible - - -

MR RARES:  Precisely, Your Honour. I have to say I need leave

to cross appeal, as I have sought to set out, but
one of the important facts is that Mr Justice Kirby,
with whom Mr Justice McHugh agreed, said that the test

in ANSHUN was circular and unhelpful and we say it is

not. It applies directly to this case.

DEANE J:	But if you get leave, what order do you say the points
arise in logically?
MR RARES:	The ANSHUN point arises first because, if we are right,

my friend cannot get an issue estoppel because he could

never have brought the proof of debt proceedings in the

first place.

DEANE J:	No, I was thinking of the ANSHUN point in relation to the stay point.
MR RARES:	Well, if the ANSHUN point is right, then we would say

that -

GAUDRON J:	The summons should have been dismissed.
MR RARES:	The summons should have been dismissed, because there

would be nothing to refer. Once the Court decided that

there was an estoppel of the ANSHUN kind there would be

nothing left to refer.

DEANE J:  Though Mr Justice Kirby seemed to think it was

unnecessary to deal with the ANSHUN point once the

stay point succeeded.

MR RARES:  The Court of Appeal went to great diversity on all

of that.

for the reason Mr Justice Mahoney gave, among other We say that the ANSHUN point should succeed

things, but I see what Your Honour means. Well,

it may have been that His Honour was aware of the

differences in approach that the other members of the

court had taken to the different issues, so that it

was important for him to deal with the ANSHUN point to see whether he could agree with Mr Justice Mahoney and they could make an order together, both of them being

in favour of allowing the appeal, but for somewhat

diametrically opposed reasons.

BRENNAN J:	Do you not have to come to grips with the problem of whether or not there was a cause of action vested in Tanning against the company and if there was, then,
there being a proof of debt lodged in respect of it and that being rejected, the question of whether there

ClT35/l/HS	133	14/9/89
Tanning(2)

was a cause of action enforceable by action 1s

either a matter or it is not.

MR RARES:  Yes. We would adopt, with respect, that.

BRENNAN J:  If it is a matter, then you put it on the basis

of the stay. If it is not a matter -

MR RARES:	Then we put it on the ANSHUN basis.
BRENNAN J:	Then you put it on the ANSHUN basis.
MR RARES:	Yes, Your Honour.
BRENNAN J:	But, do you say then that the test of whether it

is a matter or not is whether, even if it is a cause

of action, it is not enforceable, because that is

the ANSHUN point, is it not?

MR RARES:	The effect of the ANSHUN point is, and I appreciate transit in rem judicatum is that the party who should have raised the cause of action in the first case is not allowed to raise it in the second.	that it is not expressed in terms of passing per of action because it is somehow subsumed in the
judgment in the way that all causes of action and
all defences merge in a judgment per rem judicatum, I do not think that the Court dealt with in ANSHUN, but it would seem to be important from a policy
point of view that the Court say that the real effect of an ANSHUN-type estoppel is that there is no longer a cause of action, whether it be because it is not
available to the party because of the operation of
the principle in ANSHUN or not available because it passed into the judgment that went before may not matter in substance because it is the fact of the
cause of action having been taken away from the
party by what happened in the earlier proceedings
that is important.

(Continued on page 135)

ClT35/2/HS	134	14/9/89
Tanning(2)

MR RARES (continuing):  The substance of that is the same

whether it be an estoppel per rem judicatum or an

ANSHUN-type estoppel as distinct from the issue estoppel category of estoppel.

GAUDRON J: 

What is the distinction?

MR RARES: 

The issue estoppel deals with, I suppose, ra1s1ng

something that was absolutely necessary to be found
in the earlier proceedings and seeking to contradict

that.

GAUDRON J: 

So, it is closer to what you would call res judicata

estoppel?

MR RARES:  That one is not. ANSHUN is closer to res judicata

estoppel because ANSHUN really says the party has lost

his right to bring this cause of action at all whereas tte

issue estoppel says that you cannot contradict some

fact found in the earlier proceedings which is a

necessary fact in the second cause of action.

ANSHUN is saying you lose your right to go court at

all over this whereas the issue estoppel is saying

because something was decided in that way you cannot

contravert a particular issue that was thus decided.

BRENNAN J:  You are restricting the issue estoppel to evidence,

and the ANSHUN estoppel to a cause of action.

MR RARES:  Yes. Well, the issue estoppel to a fundamental fact

that may make up a cause of action.

BRENNAN J: Yes. It may be that those are the constituent

elements in the cause of action; that is, matters of

evidence.

MR RARES:  Yes, but we say the ANSHUN estoppel goes more

broadly and blocks out the whole cause of action.

DAWSON J: It is a great subtlety but, really, in the end it

is a question of whether there is a debt or not and

either the issue estoppel or the ANSHUN point will

determine that and why should that not go to arbitration

if anything is to go to arbitration at all?

MR RARES:  The ANSHUN point says that there is no cause of

action and it - - -

DAWSON J: All right. The arbitrators can decide that and

for that reason, there is no debt.

MR RARES:  But we say that that was fully litigated in the

arbitration - - -

DAWSON J: Well, it may be the arbitrators could decide that.

C1T36/1/SH	135	14/9/89
Tanning(2)

MR RARES:  - - - and that it would be vexing us with a second

cause of action based on something that these people

deliberately set about trying to bifurcate.

DAWSON J: Well, either you want to go to arbitration or you

do not and, if you go to arbitration, all the matters

that are to be raised in relation to the existence of

the debt can be raised there.

MR RARES:	Your Honour, I would prefer to put it the way that
DAWSON J:	I know why you would prefer it but it does seem to

me it is an unnecessary subtlety in the circumstances.

MR RARES: If the real position is that this was fully fought

out in the arbitration as we say it was and as we say
the evidence clearly shows, why should this party be

allowed to just bring proceedings? Why should not the

Court say, "No, this is an abuse" or "This is wrong.

You have had your chance.	You deliberately chose not
to do this.	Now, do not come back to court and do not

take this other party through any more litigation or

proceedings. You cannot go back and arbitrate.

There has to be a stop to this" and we say that that is where it is proper for the Court to say, "Well - - -

DAWSON J:  One good reason is ANSHUN may not be good law in

Florida for all I know.

MR RARES:  Well, the judge found that the same principles apply

and, indeed, in ANSHUN; the Court relied on a decision
which we say is very materially similar in FIRST
NATIONAL BANK V BROWN, where the American principle
is you cannot split your cause of action. If you
have an affirmative defence, it is no good going
and fighting that defence on the merits in a full

hearing and then coming away and saying, "Well, I

won" or "I partly won on that defence" or "I got

something I wanted out of that defence but then I

can go back and start an action for the rest".

They say, "Well, litigation has got to end somewhere.
You fought the whole issue out.	You should have
counter-claimed, you did not".

(Continued on page 137)

ClT36/2/SH	136	14/9/89
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DAWSON J:  But your point is that where there is a dispute

as to a debt, that dispute is to be determined in

a particular place by a particular tribunal

according to the law that applies in that place.

MR RARES:  But in front of that point, if there is any real

dispute -

DEANE J:  But your real problem is that you are presuming

you win. That is not what is involved. The

question is - take the case where the only defence
to the debts owing for goods sold under the licence

agreement was the ANSHUN point and where it failed,

why was not the party entitled to claim that debt,

assumption that you succeed, and on the assumption you succeed,you take the issue whether you should succeed

entitled to have the issue determined in arbitration?

away from the arbitration clause.

MR RARES:  Yes, but in these particular proceedings the

appellant plaintiff made an issue in the case that

we are estopped by the issue estoppel.

DEANE J:  That might be so, but unless you can define the

relevant matter in a way that does not include the

ANSHUN point or the estoppel point, there is no way

under section 7(2) that the whole of that matter does
not go to arbitration, if you be right in the rest

of the argument - - -

MR RARES:	Yes, I see what Your Honour is saying.
DEANE J:	- - - because what it says is, the least that can go

is so much of the proceedings as involves the

determination of that matter.

MR RARES:  Well, if Your Honour went to section 7(5), if the

ANSHUN point is right, may it be argued that the

arbitration agreement with respect to this matter is

incapable of being performed as there really is
nothing to refer.	There is a decision in the

Supreme Court of New South Wales that you can get

an injunction to restrain a reference, or arbitrators

proceeding on a reference where there was nothing to

refer and, if my ANSHUN point is good, there is

nothing to refer.

DEANE J:  I think the problem is out in the open. There 1s

not much more to be said.

MR RARES:  Yes. I have to address Your Honours in case I lose

on the stay point anyway.

DEANE J:  But, I mean, assume in your favour that the relevant

matter is, is there an enforceable indebtedness in

respect of goods supplied under the licence agreement;

ClT37/l/HS	137	14/9/89
Tanning(2)

if so, how much. Now, if that is the matter, it

would encompass the estoppel and the ANSHUN point.

MR RARES:  Unless Your Honours come to the view that the

difference was not bona fide; in other words,

that the creditor was not really able to raise the

dispute or difference.

DEANE J:	I think we all follow the way you put that.
MR RARES:	The decision I was referring to was a decision

of Mr Justice Helsham's of STOLTENBERG V DORING,

(1983) 1 NSWLR 121, granting an injunction where

His Honour refused to follow the House of Lords

in the BREMER VULKAN case and said you can interfere

in equity to restrain people from being sent to a

futile arbitration.

BRENNAN J:  Subject to that, if we had a situation which was

not merely an ANSHUN situation but an actual transit per rem judicatum situation where the previous award

had found that there was nothing owing, your

argument would be, based solely upon that judgment,

that there should be a stay.

(Continued on page 139)

ClT37/2/HS	138	14/9/89
Tanning(2)

MR RARES:	Based solely on that judgment there should be - - -?
BRENNAN J:	Based solely on the judgment that you have just

referred to.

MR RARES:  My argument would be the summons should be dismissed,

as my first alternative.

BRENNAN J:  Only on the footing that sending it to arbitration

would be futile?

MR RARES:  Yes, that is so; on that footing. There is no

bona fide dispute and it would be futile.

Your Honours, on the ANSHUN point, the evidence is

that at page 42 of the book, the affirmative defence,

paragraph 9 is pleaded, that the:

Petitioner is indebted to Respondent

Tanning Research under the License Agreement in an amount exceeding $350,000 -

US, and the claims are:

barred under the doctrine of recoupment.

I should say that Mr O'Brien was a party to the

arbitration, as we understand it, by reason of that

having been put in issue by the appellant in its

defence, paragraphs 2 and 3; and having been proved

by the amended complaint in the Florida court which

is that annexure that is in the loose pages, 40A to 40M,

of the book.

Now, after that defence was put on the American

Arbitration Association wrote to the parties and

asked what did it mean? That is page 53. They said:

It is unclear whether Paragraph Number 9

of the Affirmative Defenses represents a

counterclaim in the amount of $350,000. Will

Mr Robbins clarify -

Tanning's co-lawyer with Mr Upchurch -

Page 54:  Mr Robbins writes back:

Paragraph 9 of the Affirmative Defenses, "recoupment," is not intended to be a

separate, independent claim by these

Respondents. This defense asserts only

that the amount owed to Tanning Research

under the License Agreement, or about

$350,000, should be offset against any

recovery by Claimant; The doctrine of

"recoupment" is well-established under

the law.

ClT38/l/PLC	139	14/9/89
Tanning(2)

So they are not expressing any doubts about its

effect and operation.

In light of the financial status of Claimant -

that is Tanning -

(which is in liquidation in Australia), these

Respondents are not pursuing in this proceeding a counterclaim seeking monetary

award for the amount due it over and above any -

claim.

Mr Upchurch, at page 58, says he wanted to have an option. Paragraph 10:

Tanning Research did not assert a counterclaim for recovery of the debt because Counsel engaged in the proceedings took the view that HTPL was

in liquidation in Australia, and jurisdiction

of the winding up of HTPL vested soley in the

Supreme Court of New South Wales.

And I cross-examined him on that.as will appear.

It was considered that it would be inappropriate

for Tanning Research to assert a claim, at

least in the absence of leave to do so .....

It was therefore determined to await the outcome

of the Arbitration proceedings on the plaintiff's

claims while reserving the option to file a

Proof of Debt -

so, it is very clear what they are doing. They are

trying to split their case and they are trying to

keep every option open. And as will appear, I

asked him, "Well, wouldn't it have been a simple

thing to go and ask the Supreme Court for some
permission, particularly when you were being sued

for an indeterminately large amount?" and he was not

prepared to concede on that.

At page 64, paragraph 25, he says:

Although the issue was raised only by way
of defense, both parties actively and vigorously litigated the issue of how

much money was due from HTPL to Tanning Research.

Tanning Research claimed and still contends -

and that is important when one considers my friend's

submission never mentioned any of this -

that it is and was owed an amount in excess

of U.S.DLR 300,000 while HTPL contended that

some or all of this amount was not due.

ClT38/2/PLC	140	14/9/89
Tanning(2)

All of the relevant accounting records were introduced in the Arbitration proceeding,

as was the testimony of both of the

officers of HTPL, HTPL's Accountant, the

relevant officers of Tanning Research,

and Tanning Research's Controller.

DEANE J:	But does all this really go further than showing that
the existence and the amount of the indebtedness was thoroughly fought out on the recoupment issue?
MR RARES:	On to this extent: Justice Kirby, in the Court of

Appeal said that it was reasonable for them, in

light of all of this - and some of the other material

I want to take Your Honours to - notwithstanding that

they knew all about the risks, it was reasonable for

them not to have brought the counter claim.	Now, I
have to get over that finding.

T38	DEANE J:	Except, I do not see that you are really going to get
over it by referring us to what people said about it.
The plain fact of it is the question was raised; it was litigated. They deliberately held back from making
a formal claim because, rightly or wrongly, they thought
it would be in their interests to make it in New South
Wales. Well now, it is really not going to take that very far, is it, if we examine people's subjective explanations and so on?

MR RARES: It is not but the judgment I am appealing against

of Mr Justice Kirby's examines that and he was agreed

with by Mr Justice McHugh.

DEANE J: Well then, do not let me stop you.

MR RARES:  That is what the cross appeal is, Your Honour. I

mean, I accept what Your Honour says. That is the

submission I want to make good but I think I need to

attack the factual foundation of the President's

findings on that issue. I will not take very much longer.

DEANE J: All I was suggesting was whether or not it was

reasonable falls to be determined by the general
structure, not by what people say about what they

thought.

MR RARES:  That is the approach, we would submit, is the

correct approach but it is not the approach that is

in the judgment under appeal.	It is Mr Justice Mahoney's
approach.

Now, Your Honours, I will not take long on this,

I appreciate the time but I will give Your Honours

the references to the evidence rather than taking

Your Honours all the way through it: at 84J to SSC,

85L to 85N; 87J is an important statement:

ClT39/l/PLC	141	14/9/89
Tanning(2)

Were you aware that Tanning Research could have approached the Supreme Court of New

South Wales and sought its leave to bring that

counterclaim? Yes, although it seems to me

that Tanning Research could validly exercise

its option to participate in the winding up

proceedings, prove its debt within the

jurisdiction of this Court - and that was the election that was made.

We say that that was giving up their rights. And

then through from there to 89 my friend made plain
his submissions about how reasonable this was and

this is what the present - there were witnesses

that they could not get and the like. Now, I

cross-examined him about that on this point there

but it is quite a fatuous reason, we would submit,

because they had the burden of proving in their

affirmative defence the matters that would make it

good. If they failed on that, that would operate as

an estoppel per rem judicatam.

So, once they had taken up the cudgels they

were not in a position to say, "Well, it was reasonable

not to bring the cross claim because we might not be

able to call the witnesses." They had the burden

in their defence. If they had a judgment against

them on that issue in their defence they would be

T39 estopped per rem judicatam.

So that it is no excus~ at all to say that they

had difficulties with witnesses and, indeed, the

cross-examination shows that they did not, they called
all the relevant witnesses and the issue was fully
fought out. At page 91C there is a reference to

the Florida law fixing the locale according to those

rules that I took Your Honours to. Then there is a

discussion at page 131 which goes to what the meaning

of 'failed to timely pay'was, and that goes from

about B across to 132H.

There is also some references to the issue

that was before the arbitrators and, indeed,

before Mr Justice Cohen. Your Honours will see in

Mr Justice Cohen's judgment, towards the end,

there is a discussion he has as to when his finding

the actual moneys owed. But what happened was,

there were invoices sent to different companies

apart from us but put on our bill; payments by other
people which may or may not have been due to us
and Tanning was accounting for them in one way,

we were accounting - we said they should be accounted

in a different. There were all sorts of issues as
to :ow much money was reslly-owed; how many goods

were delivered and all of that fought out in this

arbitration and that was not completely refought in

front of Mr Justice Cohen. So that is the factual basis.

ClT40/l/PLC	142	14/9/89
Tanning(2)

Now, when one looks at the award -

one of the issues that was fought in the arbitration
was whether there was a statute bar - I should

refer Your Honours to one more thing and that is

the post-trial brief,which should have been part

of the papers, of Tanning Research which said -

I do not know what page it is, Your Honours. It

was annexed to Mr Upchurch's affidavit. It is

simply headed:

Legal Memorandum and Statement of Authorities

Submitted on Behalf of Respondents

Ronald J. Rice and Tanning Research

Laboratories, Inc.

document. Issue II A says:

I do not know if that came up in the loose material.

HTPL failed to pay its substantial and

long past-due indebtedness to Tanning

Research.

And then there is some discussion about something else.

Issue D:

HTPL's Claims are barred by Recoupment.

If HTPL were entitled to recover any damages,

Tanning Research would be entitled to recoup

or set off the substantial indebtedness of HTPL to Tanning Research under the License

Agreement. This recoupment claim is not

barred under the statute of limitations.

Now, one of the issues in the arbitration was that invoices were sent from 1974 onwards, and that

partly appears in Mr Durden's affidavit and partly

from the invoices that were before Mr Justice Cohen,
and it was said that they were not paid. Florida

law provides for a five-year limitation period so

that the last invoices and last bills that were sent

from Tanning in its proof were dated 30 November 1978.

The arbitration was not commenced until 1984.

BRENNAN J: Could you describe the document again, please, to

which you have been referring?

MR RARES:  It is headed "Legal Memorandum and Statement

of Authorities". It has got a facing page, if I can

hold it up like that.

BRENNAN J: Yes, and what page?

MR RARES:  It is the second page and I referred Your Honours to

II A, the first sentence and D, the whole of that

particular last sentence.

ClT40/2/PLC	143	14/9/89
Tanning(2)

BRENNAN J:	Thank you.
MR RARES:	So that it was plainly an issue before the arbitrators,

T40 this question of statute barring. Now, the last

invoice that Tanning relied on was dated the end of

November 1978. The arbitration was not commenced

until 1984 which meant more than five years had gone

by. In the materials, Your Honours - I think it

is number 23 or thereabouts, the Florida Limitation

Act - numbered 30 at page 349 of the bundle and

it is paragraph 95.11(2)(b) of the Florida statute

that sets a five-year limitation period on these
sort of claims.

So that if it were the case that the debt became due when the invoice was sent, the last invoice to

go was sent more than five years before the arbitration

and there was an issue in the arbitration as to whether

that was barred. But when Your Honours come then to

look at the award and work out what it means, while

we submit the primary meaning that one would give

it would be the meaning that was raised yesterday
by Justice Deane with my friend, that it could mean

that a number of separate sums aggregated to 179,000

had not been paid on particular dates but

that payments had been made of those later so that -

the example, I think Your Honour used was, "You're

late paying $10,000 instalments nine times. That

would make you $90,000 in the aggregate." Now,
we say that is the primary construction one could put

on that.

But suppose the arbitrators came to the view

that this was statute barred and suppose they said,

"That's why it was waived, this debt, because Tanning

never bothered to collect it''.	It would be a perfectly
rational sensible thing for them to do.	They have

taken the view that the debt is statute barred - the

reason it was statute barred was because Tanning

waived its right, it decided it did not want to collect

it for the very reasons that are set out in the

second paragraph of the award, that they were selling

to other people. That was part of the case.

Now, if that was what they conclude - and it is a curious thing that you waive this $179,000 in some way but it would be perfectly legitimate for them to have found it was statute barred which would pose no issue

estoppel. We submit that what it clearly does show

is that there was a detailed consideration of all

of the issues. My friend, having thrown it all up

in front of the arbitrators, came out with the result

that there was no damages awarded and nothing was

found for them and that came out from the final

judgment confirming it. "The defendants did not seek	importantly and none of the parties were awarded any
monetary damages."

ClT41/l/PLC	144	14/9/89
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not possibly be reasonable for a party who fights Now, we say that ANSBUN - that it just could

the whole of the issue on the merits out not to

seek, in those proceedings, a cross claim and to

say to itself, "We'll see how we go there and decide

what we are going to do about bringing a cross claim

later". That would mean litigation would be

infinitely multiplied and people would be subjected

to two sets of litigation and not one on exactly

the same issue, exactly the same questions, and

that just cannot be reasonable.

That is exactly what happened in HENDERSON V

HENDERSON.	The plaintiff in the English proceedings
was the defendant in the bill in Newfoundland.	He
was sued.	He could have raised the counter-claims

he sought to raise in his bill in England in the

Newfoundland proceedings but he did not.	Judgment
went against him in Newfoundland.	He then went to

England, began his proceedings there and the

Vice Chancellor stayed his bill or dismissed his bill

for want of equity because he said, "You should have
gone over there and defended it with these allegations.

These were your defences and they were your counteI-

claims and they should have been raised." Now, that

is what happened in HENDERSON V HENDERSON, factually,

and that is what happened in this case, factually;

exactly the same thing.

BRENNAN J:  I suppose there is another approach to it, is there,

and that is that if the facts which give rise to the

cause of action which Hawaaian now seeks to litigate -

MR RARES: Tanning, Your Honour.

BRENNAN J:  - - - which Tanning now seeks to litigate gives

rise to the defence of recoupment as a positive

defence then, on the strictest view, it is a case

of the cause of action founded upon those facts or

all causes of action founded upon those facts

merging in the judgment. (Continued on page 146)

ClT41/2/PLC	145	14/9/89
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MR RARES:  Exactly, Your Honour, with respect, that is

quite right. But, the majority deal with it in

ANSHUN, if I can take Your Honours to that,
at page - well, we say it comes within the could
and should, of course - but, at page 600, there is

an instructive passage in the judgment in the

middle of the page under the citation from the

ALR's:

If a defendant did elect in the first

action to raise a plea which did not

traverse the allegation of the other party - and that is what this case is -

and which could have been pleaded as a

counterclaim or set-off he would be bound

by a general adverse decision -

and authority is cited for that. Now, we do not have

a general adverse decision in this case, obviously;

we have a decision that we should get our licence

back .and that there were no subsi_st:ingbreaches that

prevented that happening. But, -the decision

Their Honours cite BROWN V FIRST NATIONAL BANK, is

very instructive - I know the time, Your Honour,

perhaps I should not take time to read it but I have

referred to the passages in paragraph 5 on page 9
of my submissions and I would also refer Your Honours

to the case - that is case number 18 in the bundle -

the case which is number 24, MITCHELL V INTERMEDIATE

CREDIT BANK of Columbia, is a similar case which

goes through a very detailed review of the American

position. While Your Honours have the bundle, can

I refer you to number 34, which is the American

Jurisprudence, second edition, material.

Mr Justice Cohen relied on one paragraph of that in

his judgment at the end on this issue and that was

the paragraph that is set out in the ANSHUN case at

paragraph 433. We say the relevant paragraphs for present

purposes are 434, Partial Interposition of Seto££,

and 435 and particularly, which is on page 394, the

second sentence:

In this respect, it is generally held that

a subsequent independent action for

affirmative relief is barred by a judgment

in a prior action in which the matter

forming the basis for the claim for relief

was interposed as a defense. This rule

prevails where the matter, which was

interposed as a defense without seeking

affirmative relief, might have been asserted

as a counterclaim. In the case of the

successful assertion of the defence in the

prior action, this result has been reached,

C1T42/1/JH	146	14/9/89
Tanning(2)

on analogy to the rule relating to the
splitting of causes of action, which
precludes relitigation of the same
cause of action where the plaintiff is

successful in the first action although

all the relief to which he is entitled is

neither requested nor granted in the

earlier action. In the case of the

unsuccessful assertion of the defense in

the prior action, the result has been

reached where the same matter is

interposed as a basis for the maintenance of an independent cause of action, or for the interposition of a counterclaim in a

subsequent action, upon application of the

rule that material facts or questions which

were in issue in a former action, and were

there judicially determined by a court of

competent jurisdiction, are conclusively

settled by a judgment.

Well, maybe we fall a little bit within the - - -

GAUDRON J:  I am sorry, can I just get this clear in my mind?

At this point, we are applying American law on the assumption that American law would govern this issue?

MR RARES:	This material was material before the trial judge as evidence of American law; it is a question of fact
what is or is not American law.  We say the principles
are the same both in America and here and I am seeking to make that good, with respect, to this
particular matter.

But, it really depends on which is the proper

law to be applied. I think, for the purpose of the

ANSHUN point that the proper law is the law here

because the second action is brought here. But, it

may be that you need to decide as a matter of fact what the law in America is, whether that cause_ of

action went there as well. But, the trial judge said

the law is the same in both countries and I realize

that I am not being helpful by saying I was trying

to put this forward as showing Your Honours that that

is both a practical and sensible course and it is one

that, we submit, is consistent with the law here

and there is no adversity.

ClT42/2/JH	147	14/9/89
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MR RARES (continuing):  CROMWELL V COUNTY OF SAC to which

my friend referred in the Supreme Court of'the

United States, which was Cited by the majority in

ANSHUN as well, is case number 4 in the bundle.

Can I give Your Honours a reference to pages 357 poin+- 9 to 358 point 7 of that decision where HENDEP .. SON V HF.NDERSON

applied and where Mr Justice Fields says that the

principle is that you cannot go piecemeal into

litigation. In other words, you cannot litigage a

bit here and a bit there of the very same issue and

we say that is the principle here. I think,

Your Honours, I have dealt with the matters of fact

and given the time, unless Your Honours would find it

helpful, I do not want to go through why

Mr Justice Kirby's approach is wrong on che facts - I

think it is covered in the submissions on pages 8 and 9 -

unless Your Honours would be assisted by anything I

could say.

BRENNAN J:  Mr Rares, how much longer do you think your argument

ought to take?

MR RARES: I think I can try and do it within about 20 minutes,

Your Honour. I am sorry that it has gone on.

BRENNAN J: No, not at all. Thank you very much.

Mr Campbell, do you have any estimate of your time

in reply?

MR CAMPBELL:	At the moment I am under 10 minutes.
BRENNAN J:	The Court will adjourn until 2 o'clock.

AT 12.57 PM LUNCHEON ADJOURNMENT

CIT43/l/CM	148	14/9/89
Tanning(2)
UPON RESUMING AT 2.04 PM:

BRENNAN J:	Yes, Mr Rares.
MR RARES:	If Your Honours please. Your Honours, on the

question that Justice Gaudron was raising particularly

about how we were putting the stay case in light of

the two estoppel cases, I think the way it ran at the

trial, from discussing it with my instructing solicitor

who was also at the trial, was - and this may come out

of paragraph 4(c) of the defence - I think the view
was taken that if either of the estoppels were good,
then there was really nothing to refer to arbitration

and that the determination of the estoppel questions

really went to working out what the arbitrators had

done and what had happened in the arbitration, and what

effect was to be given to that and that may be the -

you see, in paragraph 4(c) of the defence, we alleged

that:

No award was made in the Arbitration

Proceedings which is enforceable under the

Act, or at all, such as would entitle the

Plaintiff to claim that Hawaiian Tropic

Pty Limited ..... is indebted to it in the

sum of US$179,000.00.

Now, if the judge found as a fact that there was no

estoppel constituted by the judgment, then there is nothing to refer. If he found as a fact that there was an estoppel, then there is, again, no matter and

it perhaps comes back to that bona fide test that

Your Honours and I discussed earlier, that if there

is a bona fide dispute, it goes because that is a

matter capable of being settled by arbitration but

if there is no real issue, no live issue between the

parties that they could bona fide have a contention

with one another about, then it does not. It is to be

~emenbered that the trial was run in the context

that both sides were running an estoppel point each

and the plaintiff wanted to run the whole of the debt

case all over again before Mr Justice Cohen and,

certainly, that was an issue that should have gone

to arbitration; there is no dispute that that is a

matter able to be resolved. But, I think the way

it came out, that the case has been run as it has,

and, I think that is the approach Justice Kirby took

in the Court of Appeal, that a finding in one or

other party's favour on the estoppel point would

mean that there was no real issue on the subject-matter

of that point and, therefore, there was nothing to be

made the subject of a stay. To the extent that the

construction of section 7 may be troubling, what

triggers that is the application of a party for a

C 1 T44/l /SH 149 14/9/89

Tanning(2)

matter being a matter under the Act to be sent

to arbitration and if the parties say, "Well, there

are matters or law" or "there is a matter of really

working out what our last arbitration did decide",

a court is an appropriate forum to do that.

In effect, one thing my friends were trying to

do in the courts below and here with the $US179,000

point is to enforce an award albeit not an award

made at their behest or on a claim that they made

and we can resist that by saying, "Well, that cannot

be enforced in this way". I do not know if that

clarifies it or makes it more obscure but I think

that is what happened, Your Honours.

We say that the Court can sever the ANSHUN and

issue estoppel points if it concludes that there is

no bona fide dispute between the parties on them and,

therefore, that there is nothing to refer.	In other
words, if - - -

(Continued on page 151)

C 1TL+4/2/SH	150	14/9/89
Tanning(2)
DEANE J:	But there obviously is a bona fide dispute.	Indeed,

three out of the four judges in the courts below

have said that neither point is any good.

MR RARES:	I do not know whether it is analogous to the sort of
thing you have when you have a strike-out application,
Your Honour, like in GENERAL STEEL INDUSTRIES. You
can  have very complicated questions of law about
which different lines may take different views, and
yet come to the conclusion in the end that there is
no real case.  But it may be a very lengthy and
difficult process.
DEANE J:	But does it not come down to a definition of what the

matter is?

MR RARES: It does.

DEANE J:  If the matter is the existence of an enforceable

debt against the company, it is obviously a very

real and very difficult dispute about the ANSHUN

and estoppel point.

MR RARES:	I think that probably the better view is that the arbitration clause does extend to determining disputes as to what the arbitrators in fact decided in the previous arbitration.
DEANE J:	Assuming that there is an area of genuine dispute

about it. It would be different if the award had

said Tanning's claim against Hawaiian for unpaid goods

is dismissed, and it is declared that Hawaiian owes it

nothing at all.

MR RARES:  Yes. I will accept that must be so. The obscurity

of the award is one of things that is causing the

real problem in the case. Well, Your Honours, we

would say - the way we seek our relief is to say,

firstly, the appellant is estopped under the ANSHUN

principle and if it is ruled that that is wrong, we seek a stay and a reference. Your Honours, we say - - -

DEANE J:  I do not want to add time, but can I just take that

up? Must not the logical way of dealing with it

be, though; is there an entitlement to a stay, and if
there is, to what does it extend; and if it extends

to the ANSHUN question, 7(2) requires that whatever

is involved in that matter be referred.

MR RARES:	I think that has a certain inescapability about it,
Your Honour, yes.  I think that is - - -

DEANE J,: Well, do not let me drive you to agreeing with something

that is wrong.

MR RARES: Well, I would like to keep my first option. I see the

force in what Your Honour has put, with respect.

ClT45/l/FK	151	14/9/89
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We say that, in the circumstances of this case,
there could just be nothing reasonable about not
bringing a counter-claim. If there were genuine
doubts about the law in Florida, then the place to
resolve it was in that arbitration because all those

points were run and were available - capable of being

run as defences as well as swords.

Your Honours, coming then to the issue estoppel

and, without reading at all - I rely on Mr Justice Mahoney'

judgment in the Court of Appeal as demonstrating the

correct approach. Coming to the issue estoppel case

we say that that is just hopeless, and that it would

involve Your Honours overruling BLAIR V CURRAN
to come to a decision in favour my friend.

Can I take Your Honours back to the passage because - I know Your Honours have been taken to it

once, but there is a question of some emphasis in it -

at 62 CLR 531 to 533.

(Continued on page 153)

ClT45/2/FK	152	14/9/89
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MR RARES (continuing): The fundamental thing that, we submit,

comes out of what Mr Justice Dixon says is that it

is the ultimate facts - at page 531 he begins:

The judicial determination directly

involving an issue of fact or of law

disposes once for all of the issues,

so that it cannot afterwards be raised

between the same parties or their privies.

The estoppel covers only those matters which

the prior judgment, decree or order

necessarily established -

and those words are important -

necessarily established as the legal

foundation or iustification of its

conclusion, wh~ther that conclusion is

that a money sum be recovered or that

the doing of an act be commanded or be

restrained or that rights be declared.

Then the famous distinction is made and His Honour

goes on:

Nothing but what is legally indispensable

to the conclusion is thus finally closed or

precluded. In matters of fact the issue-

estoppel is confined to those ultimate facts

which form the ingredients in the cause of

action, that is, the title -

for relief for the right claim, and what we seek to

draw from that, and from what follows in His Honour's

judgment, is that the title to the relief that my

client got in the arbitration and which was decided

was that there was no ground on which the licence

agreement could have been terminated when it was

terminated. Whether there were breaches before, or

not, the arbitrators necessarily found that there was

no matter that could be relied on to justify

termination of that agreement, so that the issue, or

the ultimate fact which formed the ingredients of the

right that was established was that we were entitled

to the licence. There was nothing that could stand in
our way and while - as I shall seek to draw from what
follows - it may have been necessary, or not, for the

arbitrators to discuss issues in the case. All that

was necessary to establish our right was to say there

was no ground on which our licence could have been

taken away from us, and once that ground work is

established everything else is ancillary or

collateral and it is not something that can give rise

to an issue estoppel for the reasons that His Honour

gives, because His Honour goes on, on page 532:

ClT46/l/HS	153	14/9/89
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Where the conclusion is against the existence of a right or claim which 1n point of law depends upon a number of

ingredients or ultimate facts the absence

of any one of which would be enough to

defeat the claim, the estoppel covers only

the actual ground upon which the existence

of the right was negatived. But in neither

case is the estoppel confined to the final

legal conclusion expressed in the judgment,

decree or order. In the phraseology of Coleridge J. in HARTINGTON the judicial

determineation concludes, not merely as to

the point actually decided, but as to a

matter which it was necessary to decide and

which was actually decided as the groundwork

of the decision itself, though not then

directly the point at issue. Matters

cardinal to the latter claim or contention

cannot be raised if to raise them is

necessarily to assert that the former

decision was erroneous.

In the phraseology of Lord Shaw, "a fact

fundamental to the decision arrived at" in the

former proceedings and "the legal quality of

the fact" must be taken as finally and

conclusively established (HOYSTEAD). But

matters of law or fact which are subsidiary

or collateral are not covered by the

estoppel. Findings, however deliberate and

formal, which concern only evidentiary facts

and not ultimate facts forming the very title

to rights give rise to no preclusion.

Decisions upon matters of law which amount to

no more than steps in a process of reasoning

tending to establish or support the

proposition upon which the rights depend do

not estop the parties if the same matters of

law arise in subsequent litigation.

So that the stepping stones are not what is necessary.

What is necessary is a finding that there was no breach

that can be relied on. That is our title to the relief.

It did not matter if we had made a thousand breaches. If they said, "Nothing extant at the time termination took place, therefore termination cannot occur", that

is the decision that is relevant and one of the reasons

why that is so is when one comes to consider the

consequence of an adverse finding against the

successful party in the steps leading up to the

ultimate finding, an adverse finding of fact or law.

The successful party cannot appeal. Suppose the

arbitrators were totally wrong about us being in breach.

Would it matter? We still are entitled to the

licence back.

154

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MR RARES (continuing):	We cannot go to a court and say

they misconducted themselves by saying we were in

breach because the court would just look at the

person saying that and say, "Well, you got your

licence back, what does it matter?". And, that test

and that approach is an approach that this Court has adopted and which Lord Denning espoused in a

case but perhaps I can take Your Honours to a case

which I did not put on the list but it is in a

volume I gave Your Honours in another authority.

It is JAMES V THE COMMONWEALTH, (1935) 52 CLR 570 -

one of the many - and the facts are set out in the

headnote:

The plaintiff, who carried on the business

of selling dried fruit inter-State, brought

an action against the Commonwealth for the

purpose of having the DRIED FRUITS ACT

1982-1935 declared invalid as being

inconsistent with section 92 of the

CONSTITUTION which, he claimed, bound the

Commonwealth as well as the States. The

defendant took out a summons to have the
action dismissed as vexatious and

oppressive on the ground that the question

raised in the action had previously been

litigated between the same parties in

JAMES V THE COMMONWEALTH ..... and decided

against the plaintiff. The defendant also

demurred to the statement of claim.

Held:-

(1) That the action should not be

dismissed as being vexatious and
oppressive, as in the prior case the Court,
although it ruled that section 92 did not
bind the Commonwealth, decided the case in

the plaintiff's favour on other grounds.

And, Nr Justice Rich dealt with the matter at page 584

at about point 5 where he said:

He there attacked the validity of the

legislation on the same ground, namely,

inconsistency with section 92. His action

succeeded on another ground. Although the
Court ruled that he was wrong upon his
first ground he is not estopped, because the

decision passed in his favour. He could not

appeal from the Court's ruling. It was so

to speak a ruling in the air so far as he
was concerned. It is now said, however,

that he should not be allowed to

re-litigate the question.

And, we say that that principle applies here and

Mr Justice Dixon spoke to like effect at the bottom

of page 590, where His Honour said at about point 9:

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It is said on the part of the Connnonwealth in support of the application to stay this action that the plaintiff is seeking to

re-litigate a question decided against him

and therefore that his proceeding is an

abuse of process and oppressive and should

be stopped in limine. In one sense it is

true that the question was decided against

him. He submitted the contention to the Court which announced an opinion that he was wrong; but that opinion was not

translated into a decree or order and

could not be, because upon an independent
contention he succeeded. There was no

judgment from which he could seek special

leave to appeal, none which estopped him.

And, similarly, Lord Denning said in PENN-TEXAS
CORPORATION V MURAT ANSTALT, (1964) 2 QB 647 at
660 point 5, in paragraph 4 on page 6 of our

submissions:

The first question is whether it is open

to the English company to raise this point

at all. Mr Parker says it is res judicata

by reason of the second point decided in -

round one of that case.

Mr Caplan says it is not. He took this

instance: Suppose that the master had

proceeded on the same lines of reasoning

as the Court of Appeal and had made no

order against the English company. The

master would have ruled, in the course of

his judgment, that there was power in the

court to order a limited company to

produce documents. Would the English

company, in a subsequent case, be bound by

the master's ruling? Clearly not. The English company would not be bound by a	ruling from which they could not appeal.	I think that Mr Caplan is right. In my
opinion a previous judgment between the same parties is only conclusive on matters which
were essential and necessary to the decision.
It is not conclusive on other matters which
came incidentally into consideration in the
course of the reasoning: see the DUCHESS OF
KINGSTON's CASE and REG V HUTCHINGS. One of
the tests in seeing whether a matter was necessary to the decision, or only incidental
to it, is to ask:  Could the party have
appealed from it? If he could have appealed
and did not, he is bound by it -

and reference is given.

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If he could not have appealed from it

(because it did not affect the order

made), then it is only an incidental
matter, not essential to the decision,

and he is not bound: see CONCHA V CONCHA.

Now, we say that it did not matter was the

arbitrator said about breaches by my client because

what they said was Tanning had no right to terminate;

that was the ground of the decision. Tanning can

never come back and say, "There was something else

we can think of now that gave us a right back then to

terminate".	What they said was, "Nothing permits of
a	termination"; that was the right that was

established.

(Continued on page 158)

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MR RARES (continuing): The other matters were incidental.

There were evidentiary facts. Whatever those
somewhat vague expressions may mean, they cannot
be used to found an estoppel against Hawaiian

because they were saying there was no basis on which

that material could be used to deny Hawaiian its

right. It cannot be turned around on Hawaiian to

say "You were in breach, therefore you suffer a

penalty for that", when the arbitrators say,

"Whatever this breach was it was waived", and

that raises a very important question as to what

this award means. How do you waive a breach about

payment of money, particularly over many years? But whatever it was, it was waived, therefore you do not

have to worry about that breach. It is just something

that is by the by and - - -

TOOHEY J: It is read:ing the a-ward in a rather limited way though, is it

not? I m2Stl., the award is not expressed to be in

terms Lhat whatever breach there may have been, it

had been waived.	The breaches were expressly found to
be a failure to pay $179,000	and incurring
liquidation under Australian law.

MR RARES:  Certainly those were expressed steps in the reasoning.

Just like, if a judge said, of a party, in a case	in coming to a decision on the facts, "Well, I did
not like his dem:anour - and I thought he was lying,
but I find in his favour". It is a nasty finding to
have made about you, but it does not determine the
title to the relief. The title to the relief is there
is nothing that stands in our way. Not that there were
two matters which we say are waived, because that
cannot give us the relief. The relief has to be that
the licence was improperly terminated. There was no
good ground and in a case like SHEPHERD V FELT AND TEXTIIBS which say you can rely on any breach which becomes known to you after you actually terminate, would mean
that that finding would encompass all matters that
could have been relied on by Tanning, but there was
just nothing that they could rely on, even though
the arbitrators specified too, they could not, in subsequent proceedings, come back and say, 11Well
we have thought of some other reason why we could
terminate and be estopped per rem -·j'udicatam· --
on that and those findings were not necessary to come
to the conclusion that there was no breach. It was
up to Tanning to prove that he had a ground to
terminate. That was what it failed to do and the
arbitrators negatived any suggestion that it had a
ground and as Mr Justice Dixon says, however solemn
the findings might be, 1'towever they might appear
at what gives you the title to the relief you claim, to be woven into the judgment, you have got to look
and the title to the relief claimed by a party who

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is told an agreement was improperly terminated must

be t.here -cwas no good ground to terminate.

And it matters not that the court then goes into

an elaborate discussion as to all the possibilities

that may have arisen and all the naughtiness the

plaintiff might have gone into if he, in the end,

is held to have succeeded. And that, in our submission,

is really something that flows directly and

necessarily from what Mr Justice Dixon says, when he

talks about the very important step of looking solely

to what the fact is that establishes the title to

the ultimate relief cla:im:d.	He must get to that point
and -

BRENNAN J:	You have got to that point.
MR RARES:	I am sorry, Your Honour. The~ Your Honours, the

next thing is when you look at this award, what does

it mean and there has been a diversity of views

about that. I made a suggestion earlier that it may

well have been the intention of the arbitrators to

say that the waiver amounted to having given up

all right to be paid by letting the statute

run and they could not then, having done that,

put themselves out of being able to recover the

debt, turn around and say, "Well, we can terminate",

because that would necessarily involve a waiver

of the right.

(Continued on page 160)

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MR RARES (continuing): Then, there is the aggregation point

that Mr Justice Deane made, which we adopt, with

respect, and which we have put below.

DEANE J:  Yes, except the references to the extent to which

the precise amount was litigated seem to leave a lot

less force in that point than it would have been if

it was just a - - -

MR RARES:  Yes and no, but it was dealing with amounts over

different periods and dealing with payments and there

were issues as to who the parties getting the money

were and, indeed - - -

DEANE J:  Do not let me divert you, Mr Rares. I am just trying

to make it your point instead of my point.

MR RARES:  Very well, Your Honour. Well, I am happy to have

that position adopted and we have argued that below.

Your Honours, then, the second clause in this

award is curious too because it finds that there is

an improper sale within the licence area and an

improper termination. Thel reinstate the licence

and then they say that we 'failed to prove any resulting

damages which were approximately caused by the breach

and, therefore, the claimant's claim for damages is
denied." Does that mean resulting after the waiver

of the $US179,000, because you do have a clear case

where they say in the award, there is a sale in breach

of the licence by other people or by this company, so

of the profit on those sales and yet they say, 1 'Any there must have been some damage; namely, the loss

resulting damage". Again, it starts coming back to

what Mr Justice Dixon said, you just cannot get

estoppels out of these things because you really

do not know what they did and the ultimate fact

you needed to get to was no breach.

Again, Your Honours, the statement in the award

was that it was made in full settlement of all the
claims submitted to the arbitration.	Now, the only

claim that Tanning made so far as money was concerned was,

"If you find Hawaiian entitled to damages, our

damages are enough to set off wholly what Hawaiian is found to owe 11 • How can that be turned around

and said to us, "We are estopped from saying how

much was owed" when that was not a matter that they

found or, in the way they structured their award,

had to find? It was an entirely irrelevant matter

to the subject of the award that they made so, again,

how can that estop us by an issue estoppel?

It did not matter if the sum involved was

$179,000, $10,000, $50,000, the sum did not matter
because they did not have to make a finding to decide

the issue in the case as to how much was owed and,

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again, we say the law wi 11 have to be changed in

order to get this estoppel off the ground and,

in our submission, it just must fail for the
reasons that I have sought to give and the

reasons that the learned trial judge gave and

Mr Justice Mahoney and Mr Justice Kirby gave on

it.

Mr Justice McHugh's judgment really does not

elaborate as to how he gets to his result. He just

says he thinks there is an estoppel and he says, at

page 321F:

A finding that Hawaiian was indebted

to the respondent for a sum which exceeded

Hawaiian's claim was central to the

recoupment claim.

But the recoupment claim was not adjudicated upon

and issue estoppels arise out of matters that have

been adjudicated upon. The arbitrator said, "We

are not adjudicating that matter" so it would be

like a judge giving a great burst in a judgment

on an obiter finding of fact that had absolutely

nothing to do with the case.

(Continued on page 162)

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MR RARES (continuing): Again, one would approach with great

caution, the elucidation of some estoppel out of the

language that has been used in the circumstances,

particularly in circumstances where the issue was

deliberately eschewed by Tanning. Tanning did not

want this sum to be conclusively settled or found. What it wanted was just to have a set off and then

to go away and prove in the liquidation.

Your Honours, in relation to that last matter, there is a case of SEABOARD COAST LINE RAILROAD CO V

INDUSTRIAL CONTRACTING CO, 260 Southern Reporter,

2d at page 860, it is number 10 in the bundle.	We
would refer Your Honours to page 864, column 2
point 7, on something that needs to be decided.
I do not think I need to read	that to Your Honours.

It would be a remarkable estoppel in this case if

a party, who said, "I don't want this finding",

turns around and says, "Now, you, the other party,

who I have taken all the way through this arbitration
saying, 'I don't want this finding', you are bound
by this finding that I have never sought." It just

would make estoppels turn on their head.

Your Honours, can I give Your Honours a couple

of references in relation to the conditions on

which a stay might be granted which I overlooked

before. We would say that it would not be a proper

exercise of discretion to impose a condition that

would prevent us pleading the time bar or a

sufficient reason to refuse to enforce the arbitration

agreement by putting such a condition on any stay.

There are a number of authorities that relate to

that; probably the best authority is THE SENNAR (NO.2)

(1985) 1 WLR 490 at page 500H to 501C per

Lord Brandon of Oakbrook There are a number of

cases which say that that is not a good reason for

refusing to send matters off to arbitration.

Two other references: W. BRUCE LD. VJ. STRONG,

(1951) 2 KB 447; and THE MERAK, (1965) P 223 .-

I am sorry, on the estoppel point there is one

other note I forgot to refer to in support of the

submission I was putting that not only must the

issue be litigated but it must also be actually

decided. There is a decision in the reference

materials called CITY OF GAINESVILLE which seems to

have got general approval. It is number 6 in the

book.

In discussing ANSHUN, of course, my friend

did not direct himself to the test in the majority
judgment at the bottom of page 602 which is the
reasonableness test. I think,unless there is

anything·r ·cari assist Your Honours with - - -

BRENNAN J:	Thank you, Mr Rares.	Mr Campbell.
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MR CAMPBELL:. Might I make a series of brief points.

First, my learned friend sought to rely upon the

SCHERK and the MITSUBISHI cases in the United States.

They were both cases where the issue was different

to the essential issue in this case. The essential

issue in each of those cases was to do with what

was an inherently arbitrable issue.

(Continued on page 164)

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MR CAMPBELL (continuing): There had been previous decisions

that statutes which created rights along the lines

of the Sherman Act created rights which could not

be litigated upon in private arbitration. What

the SCHERK case decided was that an allegation of

breach of the Securities Industry Act was inherently

arbitral. What MITSUBISHI decided was that an

allegation of breach of the Sherman Act was

inherently arbitral. That has just got nothing

to do with the present case.

We say that there is no question here that

involves section 109 of the CONSTITUTION. The

question that is before the Court is a question of the construction of section 7of the Act. We

say that it is of the nature of the liquidator's

functionsthat he just does not fall within

section 7 on its true construction. There is no

room for inconsistency in that particular - - -

DEANE J:	Mr Campbell, would there be any relevant
difference if the liquidator had been appointed in a voluntary winding-up? The proof of debt
would be the same, would it not? I do not remember
the appellate procedures and so on.  Do not take time
now,, I can look it up myself.
MR CAMPBELL:	There would still be the procedures for appeal

to the court.

DEANE J: That would mean then that on your argument any

company could avoid the arbitration obligation by

simply going into voluntary liquidation, appointing

a liquidator even though it was quite solvent. Perhaps,

Mr Campbell, if what I have said is wrong, you might

give us a little note simply pointing out it is wrong,

in case I do not find out that it was wrong.

MR CAMPBELL:  I shall, Your Honour, yes.

BRENNAN J: And within seven days.

MR CAMPBELL:  Yes. Next, Your Honours, it was stated by my

learned friend that international arbitration clauses

can arise in circumstances where you have complex

transactions involving entities from different countries,

and he suggests that it could not be intended that
the parties have consented to their dispute being

settled by the court of the State of incorporation of

one of those pirties that happens to go into liquidation.

But the SALEN cases in the United States, concerning

the Swedish liquidation, show just what the courts

are quite prepared to act in aid of the Swedish

winding up and, s5m.:U.A.r.J y, my learned friend relied

in his written submissions on the fact that there is

a territorial limit on the stay of actions as

suggesting that it could not have been intended that the

proof of debt procedure should not be gone through when

a company goes into liquidation.

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MR CAMPBELL (continuing): Again we say that the fact that

courts are regularly willing to act in aid of

foreign bankruptcies, foreign winding-ups, and

that the procedure whereby a court acts in aid of

a foreign liquidation is something that has been

common for centuries, is a way in which the practical

effect of a stay of proceedings is often extended.

True it is that the legal effect of the order does not

go beyond the jurisdiction of the court that makes it

but its practical operation is very much extended

by virtue of the international comity that is

involved in acting in aid.

Next, Your Honours, there was a reference to the case of PIERCY V YOUNG. That was a situation

which, we submit, is in our favour. It was a case

where an appellant had taken four points. One of

those points was that a person administering an

insolvency did not claim through or under the

person who was insolvent. The Court said, "We don't

wish to hear opposing counsel on that point". They

heard opposing counsel on other points and decided

against opposing counsel on those other points and

the other points were ones which went far more to

the merits of the action than any question concerning

standing of parties. Under those circumstances

it cannot be said that PIERCY V YOUNG is a decision

against the proposition that we have been putting

arising from STURGIS and from PENNELL V WALKER.

The thrust of one submission that my learned

friend made was that a liquidator ought be treated

as being just like any other fiduciary, but that
ignores the extent of control that the Court has

over him. It ignores the fact that he is appointed

by the Court, and if one reads through the sections

that were listed at the outset of our outline of

submissions in a sequential order, it really brings

home the way in which it is the court's show, any

liquidation, it is the court that is running it.

(Continued on page 166)

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MR CAMPBELL (continuing):  And, indeed, the very fact that

actions against the company are stayed is a good

indication that the court does not regard the

liquidator when he is sued in connection with these

proofs of debt as being the company. It is not as
though there is need for the usual permission to

bring an action against the company in liquidation

to appeal against a debt. Next, Your Honours,

some reliance was placed on POZNIAK V SMITH.	We say
there that the statute that was involved was

completely different; the statute that was there

involved said that subject to such conditions as the

High Court imposes, the court will proceed in

accordance with directions of the court to which the
matter is remitted. That must mean that the
conditions that the High Court imposes are the kind
of things which could modify the directions that the

other court could impose, those other directions are

necessarily procedural, therefore, what the High

Court can do is necessarily procedural. That method

of argumentation simply does not apply to section 7
of the ARBITRATION ACT.

In the submission that were made after lunch concerning issue estoppel, the judgment in

JAMES V THE COMMONWEALTH does not show, in our

submission, that the ability to appeal from a

decision is the test of whether or not there can be

an issue estoppel concerning the matter which has

been decided. The matter was put somewhat differently

in the joint judgment of Justices Evatt and McTiernan

at page 593 a~ the foot of the page, where they say that:

Although the Court expressed the view that the

a Full Bench of Justices, it was deemed judgment of Higgins J that, in the absence of

Connnonwealth Legislature was unaffected by the

undesirable to permit any reconsideration of

the pronouncement in McARTHUR's case that the

Connnonwealth was not bound by section 92. (Continued on page 167)

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MR CAMPBELL (continuing): Also, Your Honours, the true

position concerning the role that an ability to

appeal from a decision has in this area of the

law has been stated by the Court of Appeal in

England recently in the case of IN RE NORWAY'S

APPLICATION (No.2), (1988) 3 WLR 603. There are

passages at 623 to 624, 632 and 650 from the three

judges who sat in that case who rejected the

suggestion that ability to appeal from a decision

was the essential test. They said that it was a

useful rule of thumb but the real test was whether

the previous finding was essential and necessary

to the decision. There is discussion there of

circumstances in which it could be possible for

there to be an issue estoppel concerning a matter

from which there was not an appeal.

BRENNAN J:  On that argument, would you be able to show more

than that there was some breach consisting of

non-payment which was the subject of an estoppel?

MR CAMPBELL:  We could go further than that, Your Honour,

because we would submit that the form of the

award is something which is most important.	As
Your Honour will recall that Mr Justice Dixon in

JAMES V COMMONWEALTH said that one of the reasons

why there was no issue estoppel was that the decision was not translated into a decree or order.

(Continued on page 168)

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MR CAMPBELL (continuing): That is the exact opposite of

the situation here where the award,on its face,

says what the amount of the indebtedness was,

and that is something which has been translated

into what is the arbitral equivalent of a

decree of order. It is like a declaration of the
amount that was owing and there can be an issue

estoppel concerning that.

I should mention, Your Honours, that the

NORWAY case went on appeal to the House of Lords

which is reported in (1989) 2 WLR 458, but the point. They decided the case on a different basis.

My learned friend suggested that there was

something that was wrong and that the Court ought

to try to strike down in the fact that Tanning

had sought not to arbitrate in the Flordia

proceedings the amount that was owed but rather to prove in the liquidation, but the case that

my learned friend relied on of CRAVEN V BLACKPOOK

GREYHOUND STADIUM provides a good illustration

as to why that is a perfectly appropriate thing

to do. That was a case, Your Honours, that
concerned a voluntary liquidation at a time when

the law in England was that there was no stay

of actions arising from a voluntary liquidation.

A person who had submitted a proof of debt to the

company and did not like the liquidator's decision

concerning it then began a separate proceeding

in the court to recover the self-same amount that

he had tried to orove for. The court held

in effect, "You've got alternative remedies. You've

got to make your election." Here, what Tanning did

was that it did make its election. It wanted to

prove it did not want to arbitrate this auestion

and where there are these alternative remedies then

it is perfectly within its rights to make that

election. Those are our submissions, if the Court

pleases.

BRENNAN J:  Thank you, Mr Campbell. The Court will consider

its judgment in this matter: the apnlication for

special leave to cross-appeal and,contingently,

on the decision of that matter, the cross-appeal.

AT 2.54 PM THE MATTER WAS ADJOURNED SINE DIE

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