Webb Distributors (Aust) Pty Ltd & Ors v State of Victoria

[1992] HCATrans 249

..

.

• ~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M34 of 1992

B e t w e e n -

WEBB DISTRIBUTORS CAUST} PTY	LTD, SUSAN INNESS and SARZANA
NOMINEES PTY LTD

Applicants

and

STATE OF VICTORIA

First Respondent

fill!1

ANTHONY GEORGE HODGSON

Second Respondent

Application for special leave

to appeal

Webb 1 28/8/92

MASON CJ DAWSON J

TOOHEY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 28 AUGUST 1992, AT 11,06 AM

Copyright in the High Court of Australia

MR P.R. HAYES, QC:  May it please the Court, I appear with

MR M.C. HINES for the applicants. (instructed by Gadens Ridgeway)

MR R.A. FINKELSTEIN, QC, Acting Solicitor-General for Victoria: May it please the Court, I appear with

my learned friend, MR D.J. O'Callaahan, for the	first respondent. {instructed by the Victorian
Government Solicitor)

MR S.P. WHELAN:	If it please the Court, I appear on behalf of the second respondent. (instructed by
Madgwicks)
MASON CJ:	Mr Hayes.
MR	HAYES: If Your Honour pleases. Might I hand to the

Court an outline of the submi.ss-ions-~ we make.

The Court would know that the_a~plica~ts_represent

a body of non-withdrawable sharenolaers in three

Pyramid building societies: Pyramid, Countrywide

and Geelong. There are about 10,000 such
non-withdrawable shareholders. The

non-withdrawable shareholders' rights, as

determined by the rules of the relevant societies,

have the effect that they get paid last or after

the payment of creditors. Many of the

non-withdrawable shareholders allege that they were

j	defrauded or misled in - - -
MASON CJ:	Mr Hayes, we are familiar with the facts, the circumstances in which question arises and at this
stage I do not think you need direct any argument
to the question whether the case is sufficiently important, or the question is sufficiently important to attract a grant of special leave to appeal. But I suppose there are two matters to
which you ought to direct particular attention.
One is whether the propositions you want to put are
sufficiently arguable, and secondly, is it a
determination from which an appeal would lie to
this Court?
MR HAYESa	As to the second question, Your Honour, the Full Court of the Victorian Supreme Court was
troubled with the nature of the application and by consent of the parties, treated it as a matter of
final determination, thus, what this appeal seeks to be from are final determinations of·the
Victorian Full Supreme Court determining in a way
that is binding on the parties whom I represent and
the other parties here specific matters. So, in my
submission, that being so, this is an appropriate -
there is a basis for an appeal from these final
determinations.

Webb	2	28/8/92
MASON CJ:	There is another question related to that.	You

are seeking to bring to the Court questions which

exist almost as abstract questions at the present

time, unrelated to any findings of fact, at all.

Now, is that an appropriate question to attract a

grant of spec~al leave?

MR HAYES:  It is, in my respectful submission, for two

reasons: one, because the Full Court of the

Supreme Court was able to sufficiently ascertain

the facts to feel able to make determinations

which, as they stand, affect, in a binding way, the

parties whom I represent. So, there are

determinations which albeit attenuated by some

doubt as to the width because of the, perhaps

nevertheless determinations which stand in the way of maintaining a range of claims. And, secondly, Your Honours, the affidavit material from the	problems with what the facts are that underlie, are instance did set out a number of facts from which
the nature of the potential claims that
non-withdrawable shareholders had could be
determined. So that one knows that a
non-withdrawable shareholder might have a claim for
decease, for negligence, for a breach of the Trade
Practices Act. In that statements were made to
induce persons to purchase these shares as distinct
from making deposits to the effect that you are the
same as a depositor and, indeed, more elaborate
statements than that were made according to that
background material. So, for those reasons,
Your Honour, we would submit that the answer to Your Honour's question is, yes, this is an
appropriate matter to seek to bring before the
High Court on appeal.

DAWSON J: You say there was an order of the Full Court and

that bring you within section 73 of the

Constitution?

MR HAYES: Yes, Your Honour, we do.

DAWSON J: The effect of the order was what?

MR HAYES:  The effect of the order was to determine

questions of law finally, and those of the

questions of law posed by the, perhaps not totally

perfectly drafted questions, but to determine those

questions of law, namely that a non-withdrawable

· shareholder cannot maintain a claim for damages

against these societies - - -

DAWSON J: Even though that is, in effect, an answer to a

question raised by the Liquidator?

Webb 3 28/8/92

MR HAYES: That is how it started off, Your Honour. That is

what caused the Full Court to obtain the consent of

the parties to treat the matter as not just an

advisory opinion, but as a matter that finally and conclusively determined the rights of the parties.

DAWSON J:  In effect, it is the equivalent of a declaration.

MR HAYES: It is, Your Honour, yes.

DAWSON J: Yes .

MASON CJ: Yes, Mr Hayes.

MR HAYES:	Now, as to the argument, Your Honours, of the substance of the matter, the judgment of
Mr Justice Tadgell traced through the history of
the rule in Houldsworth's case and Re Addlestone, and although casting some doubts on the reason of
some of Their Lordships in Houldsworth, determined
operation of section 360(l)(e) of the Companies it as applicable, in particular because of the saying that a claim for damages would be inconsistent with more than 100 years of learning of limited liability.

Now, Your Honours, we say that what

Mr Justice Tadgell a.mounted to deciding was that section 360(l)(e) of the Companies Code is a

statutory prohibition against a shareholder

maintaining a claim for damages arising from the

alleged misrepresentation as to the nature of the

rights that that shareholder was acquiring, and we

look at section 360(l)(e) and submit that, on its

face, it contains no such prohibition. No case

applying that section is cited in the judgment of

the Full Court as being a precedent for the

application of that section, although

Mr Justice Tadgell relies on Re Addlestone, which

was based on an earlier version of subsection (k) of

that section of the Companies Code, but no other

reported decision that would support the, we would

say, drastic consequence of const~ix_ig_ ...

subsection 360(l)(e) as profiIJ5nlng a person from

maintaining a claim for damages seeking to be a

creditor of the particular company.

So the short point on that, Your Honour, is a

matter of construction of section 360(l)(e), and in

the absence of any authority one way or the other

as to its meaning, it is a matter of interpreting

the section and no doubt looking at it in the

context of the notion of limited liability that

section 360 introduces.

Webb 4 28/8/92

MASON CJ: But is it really a question of construction of

that provision? Is not the contrary view rather

based on what might be described as fundamental
principle of the general law relating to

corporations and the aubscription of capital to

corporations. So that if there is an obligation to

contribute capital, whether that obligation is in

future or has been dischar·ged by the payment of the
subscription, it is impermissible to allow the
shareholder to recover it back in the form of

damages when the complaint by the shareholder is

that the loss that he has suffered is the

contribution he has made to the company's capital.

So that the damages, in effect, are a claim for

recoupment of the capital otherwise than by way of

reduction of capital?

MR HAYES:  That is what Mr Justice Tadgell decided and I had

thought, reading his judgment, that his principal	justification for that principle was
section 360(l)(e), but he would say that is consistent with the body of learning that
Your Honour has just referred me to. Now, we have
two ans~er~. to that principally. One is that there
is no principle of law, certainly binding on this
Court, but nor should it be a principle of this circumstances from claiming damages, and the second
argument, Your Honour, is that the cases which
traced the history of the matter can be showed vo
either be wrong or based on outmoded principles
from the 19th century, and, having been decided
before a number of more modern legal principles, including the decision in Salomon v Salomon and the introduction of legislation such as the Trade Practices Act.

MASON CJ:· Why does the Trade Practices Act affect it? What

is the difference between a claim for damages in

deceit and a claim for damages under the Trade

Practices Act?

MR HAYESt In nature, certainly in damages recoverable, very

little. One has its origin, however, in statute,

and the question is whether or not the apparently

unfettered words of the Trade Practices Act are

fettered by reference to this principle although

not stated in the Act. Now, in England, where

there is a Misrepresentations Act, the

Misrepresentations Act, is taken to apply to give a

remedy by a shareholder - - -

MASON CJ: In circumstances such as these?

MR HAYES:  In circumstances such as these, and there are

some academic debate on the matter in the text that

I will take Your Honours to shortly, suggesting

Webb 5 28/8/92

that hopefully it is not a question pf the courts

in England being taken to treat the

Misrepresentati~ns Act as an implied revocation of the principle, but rather a recognition that the

principle is not a good principle and is no longer

the law. So the question on the Trade - - -

MASON CJ: But that question remains to be definitively

determined in England at the present time.

MR HAYES:  It does, and it has not arisen at all in

Australia, as far as we can tell from our researches, and Mr Justice Tadgell referred to

appears from Mr Justice Brennan about not wanting a	Parkdale v Puxu in his judgment where the passage
section 52 remedy to fly in the face of the clear
intendment of patent legislation but in this case,
we are submitting that there is no authority
directly, certainly, touching on the question of
whether the Trade Practices Act has effected a
we would submit, primarily reflects, as has been revolution in this principle or whether it, just as
suggested in some academic circles in England that
Houldsworth's case is not any longer good law in
England.

Now, they are the themes that I wish to

briefly develop before Your Honours. Houldsworth's

case and Re Addlestone that followed it - - -

MASON CJ:  Now, Mr Hayes, I do not think there is any need

for you to take us to the materials that you say

support what you put to the Court so far. We are

prepared to assume that what you have told us is correct, that this is the approach that has been

taken in England and that there is debate about the

proper view that ought to be taken about the legal

. effect of the Misrepresentation Act. I do not

think there is any occasion to take us to the

detail of the academic debate in England.

MR HAYES:  Thank you, Your Honour. Well, Your Honour, then dealing with some specific matters that are touched

on in the outline which I handed to the Court a

short moment ago. Paragraph land 2 are

pass
introductory and I over those. is classic demonstration of the dramatic way the

principle that we are seeking to overcome acts
unfairly and I have made that point to Your Honour.

we make the point at the bottom of page 2 over to

page 3 that the rule can logically be disregarded

if one regards the liability to contribute and the

would regard the right of ·a shareholder against a	right to damages as being separate, just as one
company for, say, damages arising from a motor

Webb 6 28/8/92

vehicle collision, as being separate from his

liability to contribute.

Then we mention, Your Honour, two other

English cases which were decided before Addlestone

and not followed in Addlestone, in which

shareholders were able to pursue claims for damages notwithstanding being shareholders. Neither of the

cases, Hudford or Appleyard, were mentioned in

Mr Justice Tadgell's judgment. We mention, at the bottom of page 3, our argument on the construction

of section 360(l)(e). We point out, Your Honour,

that although there was a section like that

existing at the time of Addlestone, it is not the

basis of the decision. Addlestone considered a

clause. like subclause (k).

Then, Your Honour, we make the point in

paragraph (d) on page 4, that as framed the order

on - even assuming against us this argument, the

order of the determination of the Full Court goes

further than it should, even accepting the

correctness of the principle, because it would, on
one view of the order made extend to persons who

had purchased shares in one society by way of

transfer from another society and we would submit

that clearly the principle does not so extend, and
I understand from an affidavit that the State of

Victoria has filed that it accepted that if that is what the Full Court's determination extends to,

that should be corrected. But I think my learned

friend's primary position would be that, properly

understood, the order does not go so far. We

submit that it does and it is certainly a matter

that needs to be clarified and that even if the

Court is against us on other matters, the very

least tbat should happen is that that particular

anomaly should be corrected.

MASON CJ:  But if that was all that remained, you could go

back to the Full Court and have it correct, could

you not?

MR HAYES:  I am not saying, Your Honour, that that-would be

a basis for giving us carte blanche leave. All I

am saying is that matter could be readily attended

to, whether back at the Full Court or by consent

before Your Honours, but we submit that it is one
of the errors and we just make that 'point to the

Court. Our learned friend relies on

section 360(l)(k) of the Companies Code, but in our

submission, if we are right in our submission that

these are not claims qua member and/or if we are

right in saying that a difference should be drawn

between the liability to contribute and the right

to damages, as we have previously submitted, that

section would not by itself stand in the way of the

Webb 7 28/8/92

argument we would wish to put, although it may be

seen as being supportive of the principle that we

have to try and overcome. If we have overcome it

successfully for the Court's satisfaction at this
stage, then that section alone cannot make the

difference.

The Trade Practices Act point I have rneationed

to the Court. The other question that is live is

as to section 82(2) of the Bankruptcy Act; the

question being whether or not even if the

principles of limited liability, if I can use that

shorthand expression, stand in the way of the claim, nevertheless a person claiming to be a

creditor could not put in a proof of debt relying on the wording in the Bankruptcy Act which limits

claims that can be made for unliquidated damages,

to matters that arise by reason of contract, breach

of trust and the like, and the argument we put

there, Your Honour, is that they are wide words and

that if one is claiming deceit, for example, you

are, on at least one jurisprudential basis of	analysing that remedy, suing on an implied
condition in the contract but, in any event, it is
the contract that is the centrepiece of one's
complaint and therefore we would submit that the
words "by reason of" which are wide words, are
applicable to not only claims in deceit, but claims
in negligence, claims under the Trade Practices
Act.

That point did not have to be decided by the

Victorian Full Supreme Court because of the view they took as to the application of the general

principle and we would respectfully submit that

that is one question where one would need to know a

little bit more precisely about what was being

claimed for damages before determining the question

of what a particular claim was, whereas the

principle matter that I have been addressing the

Court on does not depend on any additional

knowledge of the facts, but can be determined on

the basic facts that appear in the Liquidator's

affidavit, namely that, for the sake of argument,

you had the shareholders who were misled into

purchasing their shares and who wished to maintain

a claim for deceit, negligence, Trade Practices Act

or like remedies.

MASON CJ: Yes. Well, if the Court took the matter on, it

would be a question whether the principle on which

the Full Court decided the case was a principle

that stood or not. In other words, was that bar -

or did that bar exist.

MR HAYES: That is true.

Webb	28/8/92
MASON CJ:	That is the only question the Court would be

concerned with.

MR HAYES:  Yes and, Your Honour, if it could be shown that

the bankruptcy proof of debt provision stands in

the way of these claims in any event, it would be a

good reason to be merciful to us now. But we

submit that it is arguable that section 82(2), in

talking about "by reason of" a contract would

extend to a claim of deceit, as I have indicated;

would extend to claims for misleading conduct,

negligence and the like, that are sufficiently

connected with the contract. There are a great

many cases dealing with the matter, Your Honours,

with a number of indications one way or the other.

There is some indication, Your Honour, of an

equitable principle saying that a proof of debt

will lie in a claim for damages for fraud in

equity. But whatever the correctness of those

principles, Your Honour, and there are inconsistent

decisions, it is a matter which could well do with determination by the High Court as the authorities are disparate throughout Australia and England on

the matter, and it is one of the matters of some

importance that we would submit needs to be

determined.

So, unless there are other specific matters

which I have not answered to Your Honours'

satisfaction, they are the bases upon which we

would urge the Court to accept that we have a

sufficiently arguable appeal and, coupled with the

obvious public importance of the matter, warrants

granting special leave to appeal.

MASON CJ: Yes, thank you, Mr Hayes. Yes, Mr Finkelstein.

MR FINKELSTEIN:  May it please the Court, can I deal with

the two quasi preliminary points that were raised

by the Court with my learned friend; that is,

whether there is something against which an appeal

can be brought to this Court, and the fact that

this case deals with lots of cases where the facts
have not been fully disclosed.

So far as the appeal point is concerned, what

happened before the Full Court when the matter was
on appeal before it, the same point occurred and

all of the parties made it quite clear to the

Full Court that, whatever was necessary to have an appropriate order which was capable of being

appealed, would be done by the parties. In fact,

we went to the extent of preparing amended

applications so as to have before the trial

judgment and n,. the Full Court applications for

declaratory relief. As appears from the judgments

of the Full Court, the Full Court was prepared to

Webb

deal with it by consent without formally amending
the documents, but by consent that there was a
properly constituted appeal before it.

We do not want the case to go off on that point. That is to say, what we offered and what

everybody was content to do before the Full Court,
presumably still stands. If it requires changing

the paperwork to change the questions from advisory question to applications for declarations, I assume

the same pos·ition would still prevail so that to

the extent that the Court is able to disregard that

an an issue, although I do not agree with my

learned friend, Mr Hayes, about too many things, I

do agree with him on that.

Secondly, on the question of the case

involving issues which come up without facts being

fully explored: everybody perceived the position

to be that because there were, at least so far as

my learned friend, Mr Hayes, is concerned, his

representative - parties representing some 3000

people, many of whom had common problems, it was

thought appropriate for the case to proceed on the

basis that, for the purposes of argument, they each

had a properly constituted cause of action, either

in deceit or for negligent misstatement, or had the

facts which would found an action under the Trade

Practices Act.

So that that was assumed and it was thought

better for all concerned to do that because if that

assumption was made, the way in which the State was

arguing against their entitlement to prove in the

liquidations, did not require any further facts,

other than the assumption that they had a cause of

action of one sort of another. So that we think

that it was reasonable for the Full Court, and it

was·well able to deal with at least all of the

issues that the Full Court did deal with, on that

assumption, that is that each of the applicants had

a properly constituted cause of action and again we

think that the High Court would not be troubled in

answering the questions, making the same

assumption. So, again, however the case is going

to be disposed of, we do not want it to be disposed

of on that point if that can be avoided.

Now, can I come to the substantial argument

and could I hand to the Court and to our friends a

copy of an outline. We, in fact, pick up something

that was raised by Your Honour the Chief Justice in

point l of our outline, Houldsworth, and it is not

only Houldsworth, is good law for the two

propositions for which we contend and they are set

out: protecting the capital, and it is inconsistent

Webb 10

with a contributory to take away from the capital
of a company.

It is not only Houldsworth that stands for that proposition, but when the House of Lords

decided in Oakes v Turquand, confirmed in Tennent v

City of Glasgow Bank that after liquidation has

intervened, a contributory of a company cannot
rescind the contract pursuant to which he acquired

by subscription his shares, the foundation for the

rule was that foundations for the bar to rescission

was that rights of third parties creditors have
intervened by reason of the liquidation and it

would be inequitable and unjust in those

circumstances to allow a contributory to compete

with and take away from what would otherwise go to

the contributories on dissolution and winding-up of

the company.

So, it is not only Houldsworth that makes good

the principles for which we contend there, but a

line of decisions in the House of Lords, a

principle which we say has never been

doubted.

MASON CJ: That is slightly different, is it not, because

there you are concerned with rescission and
rescission giving rise to a claim for recoupment of
the capital actually subscribed, or alternatively,

eliminating the liability to subscribe directly.

MR FINKELSTEIN: Yes, to the disadvantage of creditors.

MASON CJ: Certainly, to the disadvantage of creditors. But

here, of course, the claim is for damages.

MR FINKELSTEINz ~But if it is a claim made by a member

arising out of his membership, if I could put it

that way, it still works to the disadvantage of

creditors - - -

MASON CJ: Yes.
MR FINKELSTEINz	- - - in exactly the same way as a

rescission would operate to the disadvantage of

creditors. Houldsworth is correct because it

supports the two principles which we have set out

and it is, as at least two of Their Lordships in

Houldsworth said, conduct which is inconsistent

with the contract that a member has with other

members and with his company, that is that the

capital of the company is going to be applied in a

particular way. So, our first contention is that

Houldsworth, which is correct in principle, which

has not been dissented from in a court ever, which has been applied to limited liability companies as well as unlimited liability companies - because

Webb 11

Houldsworth was a case which dealt with unlimited

liability companies - been applied in Australia; it

has been applied by the Court of Appeal in England,

it has been applied by decisions in Canada, without

question. Pe~haps it is true to ~ay, without a

great deal of detailed discussion on the principle,

but at least without question, and has been

accepted for over 100 years as correctly stating a

principle. No sufficient foundation is shown that

the principle is in doubt, and it is not sufficient

to come along and say it is wrong and not do any

more than that.

So our first ground for resisting the

application is that Houldsworth is right and the

principle bars any claim for damages, or any claim made by a member against his company when it is in

liquidation.

DAWSON J: Why is that right? Assume that the member, for

you say he could not sue, presumably - putting	instance, is injured negligently by the company;
aside the bankruptcy.

MR FINKELSTEIN:  No, I do not mean it as widely as that. I

mean it in the sense of a claim in his capacity as

a member where he is, in effect, seeking to recover

back his capital. In Addlestone Linoleum, in the

Court of - - -

DAWSON J:  Why is he seeking to do that if he is claiming

damages for deceit?

MR FINKELSTEIN:  Because what he is saying is he was

deceived into subscribing for the shares; that is

to say, paying the price of those shares on

subscription. He wants to get damages for that.

It is an indirect means of getting his capital

back, and that is precisely how it was put by the

Court of Appeal and by Mr Justice Kay, as the first

instance judge in Addlestone's case. It was an

indirect means of doing something which cannot be

done directly.

MASON CJ: I must say, I can see some force in that argument

otherwise than in the case of deceit. It seems to

go a very long way indeed to deny the member his

right to sue or an entitlement to sue in respect of

damage that he suffers when he has been induced to

enter into the contract of membership by a

fraudulent misrepresentation.

MR FINKELSTEIN:  I suppose the answer might be, at the end

of the day, you will have two groups of innocent

people, one of whom is going to miss out. The

creditors are just as innocent in relation to that particular conduct but would have to bear the

Webb 12

obligation to pay, and it is going to be, in either
case, deciding which innocent person is going to

have to bear the loss, because you are going to

throw the burden on to the creditors. These are

rules which generally come up in the case of

insolvencies. So, if it is going to be unfair to

one, one could point to equal unfairness somewhere

else.

The second point that we want to make is that

so far as the applicants and those who they
represent are concerned, even if Houldsworth is

wholly set aside and the principles, for which it

has stood for 100 years, are said to be completely

erroneous and should not bind or govern anybody,

the case is hopeless, in the sense that they will

not have a provable claim come what may.

Can I refer first to the Bankruptcy Act? The

proofs are governed by the Bankruptcy Act,

section 82(1) and 82(2). If, by reason of the

conduct complained about by the applicants, they have a claim, subsection (1), so far as they are

concerned, only entitle them to prove if they have

a claim in debt because subsection (2) takes out of

subsection (1) unliquidated damages of a certain

class. It is, in our submission, clear that for

the purposes of submitting a proof under

subsection (1) the non-withdrawable shareholders do not have any debt, whether it is contingent, future

or otherwise "by reason of an obligation", that is

to say an existing obligation arising before

bankruptcy. That is the requirement of

section 82(1). Absent a debt from an existing

obligation there is no provable claim, and we would

say there is nothing that can be point to which can

be described as a debt, that is a sum certain due

to a non-withdrawable shareholder. They would have

to found their claim to prove under subsection (2).

MASON CJ: What is the meaning and scope of the words "by

reason of"?

MR FINKELSTEIN& The history of the Bankruptcy Act - and if

I could hand to the Court a folder which gives the

statutory history of the English legislation and

the Australian legislation was modelled on it -

makes it quite clear that the words "by reason of"

mean and are intended to mean, damages arising out

of breach of contract.

I think that the first document in the bundle

that the Court has, is the 1861 English

Bankruptcy Act and, if the Court looks at

section 153 - I should say, before 1861 it was not

permissible to prove for damages at all. Proofs

in bankruptcy were limited to debt and in 1826

Webb 13 MR FINKELSTEIN, QC 28/8/92

debts included contingent debts for the first time•

in 1861, for the first time, proof in damages was '

permitted:

be liable, by reason of any contract or	If bankrupt shall at any time of adjudication
promise, to a demand in the nature of liquidated damages -

MASON CJ: And has this expression "by reason of" been used

consistently since that time?

MR FINKELSTEIN:	Yes.
MASON CJ:	Down to the present statute.
MR FINKELSTEIN:	Down to the present statute. And the

second document in the bundle is from a text by

William Griffith, which was a commentary on the

1861 Act, and at page 111, which is, I think, the

second page of the photocopy, there is a commentary

under section 153:

In order to render a person liable to a demand

in the nature of damages on a contract the

contract must have been broken, so that under

this section the contract must have been

broken at the time of adjudication.

So the textbook writers, immediately after the

passing of the Act, had no doubt that it was a

claim that was arising from a breach of the

contract. And an early case is helpful on the same

point, and I think it is probably the third

document in the bundle. The case is Johnson v

Skafte, number four. The. question that arose in that case is really not relevantJ the question was

whether contract or promise in the Bankruptcy Act

included implied contract, and the Court of Appeal

said, no. But if I could ask the Court to look at

page 705 in the judgment of Mr Justice Hayes, first	two lines of His Lordship's judgment:	Section 153 was chiefly passed with reference
to mercantile contracts.

Showing examples of cases where damages for breach

were not provable and presumably because of the

increase in the number of mercantile contracts and
probably many examples of such contracts having

been breached, the section was introduced as a remedy of what was perceived to be a mischief.

MASON CJ: Does this construction of the provision still

hold good, that it excludes claims arising under an

implied contract or for breach of an implied

contract?

Webb 14 MR FINKELSTEIN, QC 28/8/92

MR FINKELSTEIN:  I think that there are cases, at least

indirectly, which go the other way.

MASON CJ: Yes, I would have thought that is a surprising

construction.

MR FINKELSTEIN:  Yes. In fact it is likely that, on a

proper view, the word "promise" was intended to

cover perhaps implied contracts or what the law,

for a time, called quasi contracts, because

otherwise why have a distinction between contract and promise, if it gives rise to legal rights and if it is a promise it is likely to be supported by

consideration, at least in what was the learning last century. So I think to the extent that the

case suggests that implied contract as though it is

probably wrong, but it does show the reason for the

introduction of the provision. And then later on,
in 1883, the words, "all breach of trust" were

added, but the commentaries and the textbook

writers at that time made it clear, by reference to

past cases, that that was declaratory of the law;

it did not add, because breaches of trust gave

right to claim for equitable damages and was

regarded as dead and regarded as provable before

the 1861 amendments.

So that, in our submission, it is quite clear,

when on has regard to that history, that no proof

in relation to a claim otherwise than for breach of

contract, could be made if the claim is for

unliquidated damages, and we would say that in the
case of a claim of deceit or for negligent
misstatement or for statutory cause of actions such

as the Trade Practices Act or the Fair Trading Act,

that those are claims which do not arise from a

breach of the provision of the contract; they are
claims in damages simpliciter, and they are barred

from proof by reason of section 82(2).

MASON CJ: This point was argued before the Full Court.

MR FINKELSTEINa Yes, it was.

MASON CJ: But Mr Justice Tadgell found it unnecessary to

deal with the question.

~

MR FINKELSTEINa That is correct. So far as law on the

where Mr Justice Giles, on the question whether or not a proof of debt could be made in respect of the claim for damages under the Trade Practices Act,

point is concerned, the only case that we were able
to discover, which supports our contention, is a

decision which is on our list of authorities,

held that it could not; that it did not fall. I am

sorry, I said the Trade Practices Act; it was the

Webb 15 MR FINKELSTEIN, QC 28/8/92

State Fair Trading Act, but the provisions are

identical. His Honour held that it was not capable

of being proved; it did not fall within

section 82(2). The relevant 9art, on the last page

of the decision, page 731, about the middle of the

page, the paragraph which begins with the word:

First, it was said that the claim was by

reason of the contract or promise because the
representations were made in order to bring

about the contract for the sale of the goods

by the plaintiff to the first defendant and

the promise by the first defendant to pay for

connection between the representations and the sale of the goods was such that the plaintiff's claim in reliance upon the Fair	the goods. I am unable to accept that the claim was by reason of the making of the
representations.

And that is true, and we would say obviously true,

because what the legislation proscribes is conduct,

that is the making of statements which are false or

misleading. The remedy which the statute gives is ·

a statutory cause of action in respect of that

conduct, called shorthand misleading conduct. So

that the claim is not a claim arising from a

contract; it is not by reason of a contract. The
claim is a claim arising by representations or

other conduct, which gives a statutory right of

damages. We would say, in any event, even if the

claim is not barred from proof by section 82(2) of

the Bankruptcy Act, it is barred because of

section 360(l)(k) of the Companies Code.

MASON CJ: Or otherwise?

MR FINKELSTEIN, Correct. It is the or otherwise, and the

words "or otherwise" - when I said that Addelstone

Linoleum also supported the application of

Houldsworth to limited liability companies,

Addelstone Linoleum also looked at whether or not a

claim in damages, as a consequence of false

statements made which led to the acquisition of

shares, was barred by section 360(l)(k) or its

English equivalent.

DAWSON J:  Why is it a sum due to him in his capacity as a member?

MR FINKELSTEIN: For exactly the same reason I answered

Your Honour earlier. It was said by the

Court of Appeal and by Mr Justice Kay as an

indirect means of getting back the capital

subscribed, and therefore it was in his character

as a member and the court of Appeal and

Webb 16 MR FINKELSTEIN, QC 28/8/92

Mr Justice Kay at first instance said, the vice is

just as bad if you do it indirectly.

MASON CJ: But is it a sum due? It ·is unascertained; all

that there is, is a chose in action.

MR FINKELSTEIN:  Yes it is, but it does not say a debt due,

which, if one used the word debt, would have to be

an ascertained amount.

DAWSON J: If you carried it to its conclusion it must

eventually become a sum due, otherwise it would not

be provable at all.	I mean, it has to be
ascertained at some	point.

MR FINKELSTEIN:  Yes and no; you can prove for contingent

debts and the cases say that the type of

contingency is such as including one which may or

may not come about, in which case you may have to

value the debt to reduce it.

DAWSON J: That is what I mean; you have got to quantify it

at some time.

MR FINKELSTEIN: Sooner or later; that is true, but damages

claims or unliquidated claims are also claims

which, in certain circumstances, are capable of

proof and must be quantified, because you cannot

submit a proof for an unquantified amount. So that

either by a court or by filing a proof which the

Liquidator accepts or rejects in part, even in

unliquidated claims, you prove for a sum certain.

It might mean that the method of calculating that sum could be difficult, but it would still be

fairly described as a sum due if one accepts that

there is a distinction, and the section itself

draws a distinction between amounts due or sums due

and debts.

In. Addlestone, Mr Justice Kay - I think that

was also one of the cases on our list - 37 Ch

At page 198, where Mr Justice Kay's decision D 191, the second case on our list of authorities.	appears, the Court will see at the top of the page
the argument. The question was whether the
shareholders were making:

claims in the character of members of the

company, and the only question is whether such

claims are for sums due "by way of dividends,

profits, or otherwise.

And then, in the next paragraph, the last sentence of it, His Lordship says:

I confess it seems to me that the money so

claimed is not only claimed in the character

Webb 17 MR FINKELSTEIN, QC 28/8/92

of members but the claim is just as

unreasonable as if it were a claim of

dividends or profits, and that, accordingly,

it comes within the words "or otherwise,"
which I have read from section 38.

In our section 360 derived, not word for word, but it is section 38 - the Court of Appeal came to the

same result. Lord Justice Cotton at page 205, last

paragraph of His Lordship's judgment - he refers to it as the:

second question -

and it was the second question as argued. And

Lord Justice Lindley at page 206, at the top of the

page, where he says from about line four or five

on:

he must not directly or indirectly receive

back any part of it -

that is the capital -

and this appears to me to govern the present

case.

Lord Justice Lopes, last three lines:

I agree with the construction put by

Mr Justice Kay on section 38(7) of the

Companies Act, 1862.

I might also make passing reference to one other

case, because it is important in relation to the

Trade Practices Act point. The Full Court of the

Federal Court looked at the Trade Practices Act in

a case of Trade Practices Commission v Milreis. I

have got a copy of the case and if I could hand

that to the Court. It is a bundle of cases; I will

the bundle. At that time in the Federal Court,	not refer to any of the others, it is the second in
Mr Justice Brennan and Mr Justice Deane - I should
say that, when this case was decided, the
Trade Practices Act, and in particular section 87, was different to how it is now worded, but the
relevant section, that is 87(2), has not been
changed, or at least not relevantly changed. The
question was whether or not section 45 of the
Trade Practices Act was invalid. ·

The ground for invalidity was that it was

interconnected with section 87, so that the two
sections could not be treated as indivisible and

section 87 was invalid, therefore it brought down

section 45 with it, and the Court decided the point

by saying that there was not a sufficient

Webb 18 MR FINKELSTEIN, QC 28/8/92

connection between sections 45 and 87, so that even

if section 87 was invalid it would not bring down

section 45. So the court did not deal with the

validity, the constitutional validity of

section 87, but two members of the curt, Mr Justice

Brennan and Mr Justice Deane, did deal with the

operation of section 87, and what

Mr Justice Brennan said at 639 from line 22, on the

section 87 to grant relief:  power of a court exercising its jurisdiction under

On the other hand, a declaration of voidness

made in respect of a time when the contract

was in truth valid would be, to say the least,

a curial novelty.

We put that argument before the Full Court by

saying you would achieve by a side wind something,

but Mr Justice Brennan puts it as "a curial
novelty".

Section 87(2)(a) does not set the Court on a course of adventurous destruction. The

paragraph may be given its ordinary meaning,

and it will operate to confer a power to make

a declaration in accordance with the legal

validity of the contract determined in

accordance with the ordinary rule.

He says much the same thing again at page 640 at

about line 36:

Attributing to section 87(2)(a) the primary

meaning which it bears, viz, the conferring of

a power to make a declaration in accordance

with legal relationships (rather than a power

to alter legal relationships), the ordinary

operation of section 45(2) is not limited or

changed.

Mr Justice Deane had a similar view expressed at

page 645. He sets out reasons in the paragraph

which begins at line 21, but his conclusion is in

the last paragraph on the page:

the conferring upon a Court of a power to

declare a contract void does not carry with it
any inference that the Court is entitled to

declare or make void what is otherwise valid.

The point of taking the Court to that case is

really to go back to the section 82(1) point: there

can never be a debt in this case which is provable,

because there is a bar in law to the rescission of

the contract that Turquand's case says exists and

that Tennent v Glasgow Bank also say exists, the

Federal Court does not have the jurisdiction, in

Webb 19 MR FINKELSTEIN, QC 28/8/92

our respectful submission, to say, "We will set

aside the contract and give some restitutionary

relief, ie money back." That power ceased to exist

in the Federal Court after the liquidation of the

companies, because then a rule of law prevents

rescission. And if a rule of law prevents
rescission then, in our submission, section 87 of

the Trade Practices Act or its State counterparts

in the Fair Trading Acts, does not give a court the

power, unless it had said so specifically and

directly, to abrogate that sort of principle; it

could only act in accordance with the legal

relations of the parties as they subsist and after
liquidation, those legal relations are that a

contract for the subscription of shares cannot be

set aside.

So that really our case is that regardless of

what view this Court forms on Houldsworth and the

decision of the Full Court on the ability to, in

theory, make a claim for damages against your own

company1 even if you say that the Full Court is

arguably wrong on that, or wrong on that, so far as

the non-withdrawal of the shareholders are

concerned, it is of no comfort to them at all,
unless they are in a position to file a proof of
debt and, in our submission, section 82(1) does not

allow them to file a proof of debt - for a debt,

there is none and there can never be one;

section 82(2) they do not fit in with because they

do not have a claim for damages arising out of a

contract1 they have a claim for damages arising out

of conduct, which a statute says, gives rise to a

right to compensation1 they are barred by

section 360(l)(k) in any event. It is not just	Houldsworth, which the Court has to say is wrong;
the Court has to say that Houldsworth is wrong,
Addlestone is wrong, CCA is wrong - that is
Mr Justice Giles' decision - and also has to say
that section 82(2) and section 82(1) do not mean
what they say. So that our resistance to the application for special leave is that no matter what the merits of
a criticism of the Full Court of Victoria is
concerned, that non-withdrawal of shareholders
claims are hopeless.

MASON CJ: Now, Mr Finkelstein, what do you say about

paragraph 3(b) in Mr Hayes outline of submissions,

where he points to the possibility that some of

these claims are actually for breach of promise,

raising the well-known difficulty, is it a

representation or is it a warranty? As I

understand it the answer to the questions would
cover that situation, assuming some of the claims

are of that kind.

Webb 20 MR FINKELSTEIN, QC 28/8/92

MR FINKELSTEIN: Nothing was argued either at first instance

or the Court of Appeal in support of a contention

that the facts gave rise to quasi-contractual

claims, and if the facts allow contractual claims

then, as I read what the Full Court said, and as I

read what the trial judge has said, nothing that

they say was intended to impinge on that nor should

be.

MASON CJ:  No. The trouble is the answer to the question

seems to cover that in its scope.

MR FINKELSTEIN:  When the answer goes beyond what was argued

and sought by the parties, and if that is the

position, then we would agree that claims in

contract - I do not know if the Liquidator's

material ever analysed the possibility that there

were contractual claims and if there are potential

contractual claims then this should not be a bar to

it, because if there are then they are provable,

and I do not know whether anybody would suggest

otherwise.

MASON CJ: So you are saying that, from your side, the

answer to the question would not be regarded as

covering claims for breach of contract?

MR FINKELSTEIN: In contract, no, certainly not, and if that

requires rectification - and we accept that if you

perhaps just look at the question and answer

independently of the application and the evidence

and how it was argued, you may construe it as being

wider than was necessary, and perhaps covering

situations which were not intended to be covered by
the Full Court itself; that is really the fault of

the drawing of the question and I said to my

learned friend, Mr Hayes, earlier on, if it

requires rectification, we will consent to

rectifying the answers to the questions, either by

changing the question so that an appropriate yes/no

could be made, or giving a more expanded answer so

how the case was argued, but we do not seek to	it is clear what the position is, having regard to
suggest that claims in contract are not provable.
They may give rise to different arguments - - -

MASON CJ: Yes.

MR FINKELSTEIN:  - - - but to the extent that this case

which is presently before the Court is concerned,

that was and was only ever a claim in respect of

damages claims. Houldsworth may bar a case in

contract, it might or it might not; it has never

been the subject of argument or discussion, and the

answers to the questions should not be seen to

impinge on that. If the Court please.

Webb 21 MR FINKELSTEIN, QC 28/8/92

MASON CJ: Yes, thank you, Mr Finkelstein. Yes, Mr Hayes.

I am sorry, there is another respondent.

MR WHELAN:	We do not have any submissions we wish to make.
MR HAYES:	As to the first of my learned friend's points

about Houldsworth's case, there are leading

textbook writers who have doubted both the

correctness of the principle, its current standing
in the light of the Misrepresentations Act and

Professor Ford, for example, in the sixth edition,

does that. There are two cases that we mention in

our outline, Mudford and Appleyard, which are quite	inconsistent with Houldsworth and were not followed
by the Court of Appeal in a subsequent decision in
Addlestone, which we would submit are correct. And
therefore we would say that not only should
Houldsworth be limited to unlimited liability
companies, as some of the leading academic writers say, and not only is it not directly applicable to this case because it was not a company in
liquidation~ its correctness and current status are
to be doubted and warrant determination by the High
Court.

As to the question, Your Honour, of section 82

of the Bankruptcy Act, we would point out that the

words "breach of" do not precede the word

"contract" in section 82(2).

MASON CJ: But the difficulty is, "by reason of", is it not?

MR HAYES: 

Yes.

MASON CJ: 

If you are talking about actions in respect of

negligent misrepresentation, fraudulent
misrepresentation, Trade Practices Act, the cause

of action arises, not out of contract, but out of the misrepresentation or the conduct, as the case

may be.

MR HAYES: Well, possibly1 for example, Your Honour, in

Jack v Kipping, which was referred to in our submission, the Queens Bench Division considered

that a claim for fraudulent misrepresentation was

not a pe·rsonal tort but a breach of the obligation

arising out of the contract of sale, and

Jack v Kipping was applied with approval in

Tilley's case, Tilley v Bowman. So there are at

least two cases, Your Honour, which have considered
that a claim for deceit arises by reason of a

contract, and Re Giles is another case that we have

mentioned, to the same effect.

MASON CJ: Well, you wonder how the judge ultimately became

Lord Chancellor, Mr Hayes.

Webb 22 28/8/92

MR HAYES:  It might have had something to do with getting it

right, Your Honour.

MASON CJ: Possibly.

MR HAYES:  I am not sure that the Court has copies of

Re Giles and if it would assist the Court, there

are copies of that decision: a short judgment of Justice Field, Your Honour sees.

MASON CJ: Yes. But is this said to be a proposition of

general application in relation to causes of action

for fraudulent misrepresentation?

MR HAYES:  In the context, Your Honour, of whether it is a

claim arising - yes, we would say it was,

Your Honour, yes. I was hesitating and thinking of

whether it should be limited in some way perhaps to

the context of the Bankruptcy Act, but we would

submit it is a principle of general application.

MASON CJ:  It seems to me that if these cases are authority

for some such proposition, much may depend on the

circumstances of the particular case.

MR HAYES: 

I think I said something to similar effect when I

made my initial observations to the Court, that
where the Court can be confident of - - -

MASON CJ: Yes, but there, of course, we were then speaking

in the context of the other question, the

Houldsworth principle.

MR HAYES: Yes, Your Honour.

MASON CJ: And see, if it is really agreed by the parties

that the answers to the questions do not preclude a

·claim for breach of contract and you can establish

that in some of these cases what prima facie is a

fraudulent misrepresentation arises out of the

contract itself, then it seems to me that the

answers to the questions that have been given by

the Full Court do not preclude such a claim.

MR HAYES: Well, Your Honour, the Full Court has not dealt

with the proof of debt point under section 82(2).

MASON CJ: No.

MR HAYES:  Mr Finkelstein invites the Court to say, do not

be merciful to them on Houldsworth, because you are

going to have to be unmerciful when it comes to

whether they can put in a proof of debt, therefore

the whole procedure is futile. We say to the

Court,· look it probably is not the case; it may be

that the claims for deceit can be shown to arise by

reason of contract; it may be that claims can be

Webb 23 28/8/92

categorized as breach of promises, either part of

the contract. by which the shares were purchased or

collateral; it may be that the words "by reason

of", when properly analysed, extend to claims which

are not claims for breach of contract, but claims

which arise by reason of entering into a contract,

as Mr Justice Vincent found at first instance.

TOOHEY J: But that is not an exercise that you could invite

this Court to embark on, is it? I mean, say

special leave were granted and the appeal were

argued and in the end all that stood in your way

was the operation of section 82(2) of the

Bankruptcy Act, could this Court do more than express in general terms, that if any of the claims fell within section 82(2), that is, fell within the otherwise provision, they were not barred by the

Bankruptcy Act? And if that was all we could do,

well then, that is probably a matter of agreement

any how.

MR HAYES:  Attempting to answer Your Honour's question: stand here aggrieved by a determination that means
that none of these non-withdrawable shareholders we

can maintain a claim for damages, and the answer to

question (b) in the questions that were posed is

the question that in the first instance stands in

the way of any of those claims.

Another question that was asked by the

Liquidator, which Mr Justice Vincent answered in

the affirmative, was whether or not any such

claims, if successful, could be the subject of a proof of debt. The Full Court did not deal with

that matter. If the High Court was of the view

that the Full Court had erred in its determination

~hat claims were precluded because of the status of

the applicants as shareholders, then the court

would have overturned the reasons and the decision

of the Full Court and it would be a question of

whether it was practicable for the court, with the

cooperation of the parties, to go further in

relation to the proof of debt. What I endeavoured

to convey this morning was that it had seemed to us

in preparing this application that as to the

question of section 82(2), it depends a lot more on

the precise knowledge of the facts, than the

general question of principle as to the application
of Houldsworth's case, to use a shorthand

expression, and it might be more difficult to give

a definitive answer to extend to all the examples.

We also stand here trying to defend the notion

that we should not be granted leave, because if we

overturn the Houldsworth point, it might be futile

because of section 82(2). We say, the court cannot

determine that it would be futile: one, it does not

Webb 24 28/8/92

look on some of the authorities that it would be;

it certainly would not be in relation to a claim
that could be framed in contract. The fact that it

migh~ depend on facts which are not sufficiently

precisely put before the court, is a reason in that

instance to not preclude the appeal because of the

uncertainty of that question.

DAWSON J: What should you be asking us to do at the end of

the day?

MR HAYES:  You will be asking the Court, in the first

instance, to reverse the decision of the Full Court

in relation to question (b), which was the question

whether the shareholders are precluded from

maintaining a claim from damages. Question (a) is
the more difficult question of:

Whether unliquidated damages claims ••... are provable -

and, depending on whether the parties were able to

further define the facts, and we would endeavour to

do that, we would seek to have the Court answer

that question on those facts, but -

DAWSON J:  But you may not, so that what you would really be

certainly asking was to a different answer to

question (b) and you may not be asking for anything

more from us, is that right?

MR HAYES: Yes, Your Honour, that is so. we would endeavour

to have all the questions answered as - - -

MASON CJ:  I think your difficulty might then be, assume you

prevail upon us to deal with question (b), that

even though you want us to answer question (a), we

might, if we were to find in your favour on

question (b), then let the matter go back for

determination on question (a).

MR HAYES: Well, that would be an unfortunate, but not

uncommon, happening.

MASON CJ: Yes, well the point is that the Court regards it

as important that it should have the benefit of a
consideration of questions by courts below. The

Court is not a court of first instance.

MR HAYES:  We would understand that and, of course, the fact

is that the court below did not see it appropriate

to deal with this question.

MASON CJ: No, but can I ask you this question: what answer

would you be asking us to give to question (b)?

Webb 25 28/8/92

MR HAYES:  We would suggest that question (b) really would

have been better broken up into two parts, because

you have got a question of whether non-withdrawal

shareholders are precluded from rescinding and you

have got a question of whether they are precluded

from maintaining a claim for damages.

MASON CJ: Well, what you would have to ask us to do is to

give an answer to the question that really fell

into two parts.

MR HAYES:  The question can be answered as it stands,

because the two are linked and the answer, we would

submit, is, no, but we would submit that the

question would have been better broken into two

parts as there are two questions within it, and we

have to point out that it is that question that

slides over the difference between shares by way of

transfer and shares by way of prescription, but

Your Honours have heard the learned Solicitor

indicate that, for his part and for our part too,

we would co-operate in having the questions framed
in the appropriate way and it may be that even

question (b), Your Honours, needs slight amendment,

but not amendment that interferes with what was

decided below, and not so as to leave the Court

without the benefit of a decision of the court

below.

TOO0HEY J:	I suppose your difficulty is that while the matter presently stands as it does that, even with
the utmost co-operation from the respondent in relation to the bankruptcy question, the
Houldsworth principle is a bar to the matter
proceeding any further and unless you can upset that principle then the co-operation from the ~espondent does not avail you anything.

MR HAYES: That is so, Your Honour. The question as it is

currently answered, on one construction and the one

we would submit is the right one, means that both

claims for shares purchased by way of transfer and

shares purchased by way of prescription, those

persona do not have a claim for damages, because of

the Houldsworth principle.

TOOHEY J:  You would have to accept the possibility that if

special leave were granted, and if the Court were

with you on the Houldsworth principle, that in the

end all claims might be barred by the operation of

the Bankruptcy Act.

MR HAYES: That is a possibility, and can I say this

Your Honour: we would co-operate in endeavouring

to have the questions formulated in a way that were

answerable; we would urge the Court to do so,

because the logic that underlies this procedure

Webb 26 28/8/92

that has caused trouble, but the spirit in which

the application was made by the Liquidator was, "I

have got 10,000 potential claims from a lot of

people, a lot of whom are in circumstances of

ignorance and poverty; I do not want to have 10,000

proofs of debt; there does seem, from what I have

seen, to be sufficient in the complaints for me to

endeavour to streamline the procedure." So he ca.me

State and asked for that purpose, "We would like to to court and said to the court and he joined the

put in place a procedure to send out questionnaires

to the shareholders as to the circumstances of the

acquisition of their shares." That questionnaire

was the subject of some debate in settlement, but	it was agreed finally that the questionnaires would
go out.

After the questionnaires went out, the State

of Victoria got concerned about Victoria got

concerned about some of these questions. The

Liquidator then, in an endeavour to streamline the

matter, took out the summons seeking directions.

Mr Justice Vincent decided - the State decided to

appeal. The problem then developed that not only

was the procedure one which perhaps was only

seeking an advisory opinion and therefore needed to

be turned into something binding, but the arguments

developed with more sophistication as one has had

more rehearsals of the matter and to the point were

the questions do not fully meet the arguments that

are put.

MASON CJ: That rather suggests that if you get into a

situation in which you have to present your

arguments again on the bankruptcy issues before the

supreme court, you will be in better shape when you

get to argue them before this Court.

MR HAYES:  There is no doubt in that, Your Honour, and if

that is what the High Court, having heard the

matter, if it gets to that stage, decides, we will

have to bear it manfully, but the fact is that it

is not a reason not to grant leave on the

question (b), we would submit.

MASON CJ: Mr Hayes, there will be a grant of special leave

in this case, but you will appreciate that you may

be confronted with a situation where the Court will

deal only with this question, and that ultimately

you may be confronted with a situation in which the

Bankruptcy Act section 82 is a bar to your claims,

and that you_run that risk.

MR HAYES:  We appreciate that. Thank you, Your Honour.

Your Honours, we filed an affidavit with the Court

about a week ago seeking an order as to costs, but

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I might, if it is convenient to the Court, deal

with that now, or come back as the Court decides.

MASON CJ: What order for costs do you want?

MR HAYES:	We want an order, Your Honour, that the costs of the applicants for special leave be costs in the
winding up regardless of the outcome of the appeal. We had such an order, in effect, from
Mr Justice Fullagar of the supreme court who
ordered that the costs of my clients at the
Liquidator's proceeding - - -

MASON CJ: But do you need that order now? Could that not

await the hearing of the appeal?

MR HAYES: It could. The reason for asking for it now,

Your Honour, is that my clients are not people of

great means. This is one of two major pieces of

litigation that have arisen from the Pyramid

collapse. There is an action against certain

government ministers arising from some public

statements made.

MASON CJ: Mr Hayes, subject to what the respondents have to

say, the Court would be minded to make the order

you seek.

MR HAYES:	Thank you, Your Honour.
MASON CJ:	Mr Finkelstein, do you have anything to say on

this?

MR FINKELSTEIN:	No, Your Honour.
MR WHELAN:	Your Honour, the Liquidator does oppose such an

order for this reason: that this application began

as an application for directions by him. It has

become what is essentially a litigation between two

contending groups, and the Liquidator's submission

of coats in any litigation, and it is really a	is that both parties ought to run the normal risks
matter that ought to be determined on the appeal
rather than giving one particular group a safety net, so as to speak, in advance. That is the only
matter, Your Honour.

MASON CJ: Yes, thank you. Mr Hayes, the Court, unless you

have something further to say, thinks that the

answer to this question should be deferred until

the appeal is heard.

MR HAYES: Briefly if I might, Your Honour. The reason why

we would like an order now is because, (l) it is

quite likely that the Court, regardless of the

outcome of the appeal, will order both sides' costs

to be cost in the winding up, given that the origin

Webb 28 28/8/92

of the matter is questions arising for

determination in the liquidation notwithstanding

that it is now in an adversarial context.

Secondly, the supreme court granted such an order and was not able to continue the order because it

took the view that its power was limited to

proceedings before the supreme court, the judge

concerned saying that his heart was with the

application but his mind was elsewhere. And

thirdly, Your Honour, because you have got a large

group of people in poor and difficult

circumstances - - -

DAWSON J: But the amount involved is not relatively such a

large amount, is it?

MR HAYES:  The cost of this proceeding?

DAWSON J: Yes.

MR HAYES:  No, it is not relatively a lot in terms of either

the cost of these proceedings to date or in total.

DAWSON J:	It is not going to hold up the winding up, is it?
MR HAYES:	It is not going to hold up the winding up. It is

a case that my clients are proceeding with two lots

of proceedings at the one time. They have raised

moneys for those proceedings. They have been met

with the normal share of interlocutory

applications, including an application to strike

out the statement of claim in their action against

the ministers, which was unsuccessful, and they

have limited means raised for the proceedings and

difficulty in raising funding for the proceedings.

TOOHEY J:. But an order in the terms that you seek would not

provide any inunediate funding, would it?

MR HAYES: It would not provide funding, Your Honour. It is

not so much the cash flow, but the ability to meet

a potential liability into the future.

MASON CJ: Yes, well it can await the hearing of the appeal

in this case.

AT 12.29 PM THE MATTER WAS ADJOURNED SINE DIE

Webb 29 28/8/92