White Constructions (ACT) Pty Ltd (In Liq) v White & Ors

[2005] HCATrans 962

[2005] HCATrans 962

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S348 of 2005

B e t w e e n -

WHITE CONSTRUCTIONS (ACT) PTY LIMITED (IN LIQUIDATION)

Applicant

and

GEOFFREY BERNARD WHITE

First Respondent

TRAVERS WILLIAM DUNCAN

Second Respondent

JOHN WILLIAM SPINKS

Third Respondent

FRANK STRATTON McALARY

Fourth Respondent

MICHAEL FRANK McALARY

Fifth Respondent

WHITE CONSTRUCTIONS PTY LIMITED (FORMERLY KNOWN AS WHITE CONSTRUCTIONS LIMITED)

Sixth Respondent

EXXON COAL AUSTRALIA PTY LIMITED (FORMERLY KNOWN AS WHITE INDUSTRIES LIMITED)

Seventh Respondent

PDC CONSTRUCTIONS PTY LTD

Eighth Respondent

WHITE INDUSTRIES (QLD) PTY LIMITED

Ninth Respondent

WIL CIVIL AND MINING ENGINEERING PTY LIMITED (FORMERLY KNOWN AS KEATHSON (WA) PTY LTD AND AS WIL PLANT HIRE PTY LIMITED)

Tenth Respondent

WHITE CONSTRUCTIONS (NT) PTY LIMITED

Eleventh Respondent

PDC PLANT HIRE PTY LTD

Twelfth Respondent

WHITE CONSTRUCTIONS (NSW) PTY LTD

Thirteenth Respondent

WHITE PROPERTY DEVELOPMENTS PTY LIMITED

Fourteenth Respondent

WHITE INDUSTRIES AUSTRALIA LIMITED

Fifteenth Respondent

Application for special leave to appeal

GLEESON CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 NOVEMBER 2005, AT 10.48 AM

Copyright in the High Court of Australia

__________________

MR B.W. WALKER, SC:   If it please the Court, I appear with my learned friends, MR S.D. EPSTEIN, SC and MR M.J. LEEMING, for the applicant.  (instructed by Deacons)

MR B.W. RAYMENT, QC:   May it please your Honours, I appear with my learned friend, MR D.T. KELL, for the respondents.  (instructed by Malleson Stephen Jaques)

GLEESON CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, what has been winnowed out of many more issues raised at trial including issues at one stage or other sought unsuccessfully to be raised at trial and then going through the crucible in the Court of Appeal remains, in our submission, as a matter important to be determined in relation to the intersection of directors’ duties and the eventual insolvent winding up of a corporation.

GLEESON CJ:   What is your response to the first sentence in the reasons of Justice Ipp on page 257?  He begins his judgment by saying, “This appeal turns substantially on questions of fact.”

MR WALKER:   That in the Court of Appeal as to many but not all of the issues there canvassed that was true and decisive, but that that which survives, notwithstanding findings of fact in relation to the particular form, a reduced, that is, a subset of the form of claims made originally, that they no longer turn upon facts which are contested or which require anything other than inferences to be drawn from uncontested, or now incontestable, matters determined both at trial and in the Court of Appeal. 

So, yes, of course, there is at the heart of these allegations there are matters of fact and that many of the matters determined against us both at trial and in the Court of Appeal were determined not merely ultimately, but at the outset because of a factual conflict which we lost.

GLEESON CJ:   Well, on page 365 of the application book between lines 15 and 20 your opponents set out a number of what they say are concurrent findings of fact which would have a fairly damaging effect on the argument, even assuming it is otherwise available on the pleadings and the way the case was conducted, that you want to run.

MR WALKER:   We would say, no, they are not, either any one of those nor that combination, fatal to the claim we make which is a claim that seeks to steer between the unpleaded and unavailable negligence claim on the one hand and the fraud claim which has been determined against us irretrievably as a result of findings of fact.  In between that, of course, there is the discharge of duties for purposes alien to those for which they are granted and, in particular, the discharge of the duty in relation to stewarding the company’s money at important junctures where solvency is a contingent and/or questionable matter and that the payments in question are directed so as to work what is, to use a non-statutory expression, clearly a preference.

HEYDON J:   The trial judge found the company was not insolvent and the Court of Appeal said they would not concur or disagree with that conclusion, but they did make a finding supportive of a key element in his reasoning, namely, this policy within the group of companies.

MR WALKER:   I am bound to point out that under the heading, “The insolvency of White ACT”, starting at application book 290 in the reasons of Justice Ipp there then commence two and a half pages through to paragraph 149 where, as it were, as a fallback position there is an acceptance of the finding against us by the trial judge of this policy and practice found factually on the evidence – we do not seek to revisit that – to have been the regime in relation to the mutual debts and credits between the related companies in the group. 

So in relation to insolvency, our claim, as we now seek to reduce it so as to present a point for special leave as a subset of what has always been the issue, does not turn on there being actual insolvency as opposed to a state of affairs in relation to insolvency which meant that it was only the contingency of those controlling the companies desiring to have the debts repaid that in fact is shown to have determined that they were paid. 

The policy and practice is described in terms of no call for repayment unless the debtor company was in a position to pay it.  That, as your Honours understand, the October 1988 transaction amounted to assets held by the company pursuant to exactly the same policy and practice, namely, debts owed to it being realised and the process of that realisation, all done by journal entries of course, generating the funds by which the company was now in a position to pay and its controllers and the controllers of the creditor companies in the group were willing that it should be so. 

Now, that is why the question that the Chief Justice asks about the facts set out against us in the respondents’ submissions at page 365, about line 15 and following, is not fatal to our position because, for example, the notion that the “October 1988 transactions were within the ordinary authority of the accounting staff” does not remove that exercise from the ambit of the directors’ fiduciary duty to ensure that payments were being made for proper purposes consistently with their duties owed to the company.  There is no suggestion that the accounting staff were, as it were, off on a frolic of their own or that the management of this company on the all important question of corporate governance by the board and not by the staff had somehow shifted from the board so as to remove all the responsibility in law from the board.  That is the first of those facts. 

The second of the facts, “that they were usual and appropriate on sale of a subsidiary”, is a point why there ought to be special leave.  If this kind of approach, which plainly had the effect of leaving a $33 million trade creditor – that of course all lying in the future by way of judgment – by reason of the transaction which had already for some months been looking very, very bad – and I am of course constrained by findings of fact in relation to the directors’ knowledge and belief – then, in our submission, if that is usual and appropriate, then as a matter of corporate governance this Court ought to look at it to see whether or not that falls within the ambit of a proper and usual, ordinary, to be expected discharge of a director’s duty in relation to the disposition of company’s property when it is on the brink of insolvency and kept from falling over only by the kind of arrangement which, in the twinkling of an eye, is mutually undone or reversed so as to cause money to flow, but in preferential directions. 

As to the third, the practice of charging management fees, that in itself does not answer the question in relation to the October 1988 transactions.  That the directors did not believe that ADC had a valid, let alone a substantial, claim we are of course stuck with in relation to a finding of fact.  What is clear and is uncontested – there had after all been a notice of termination of the very contract in question served – that they knew that there was dispute. 

In our submission, for those reasons, though there are findings of fact which means that the issue presented at this Court of course is a subset in conceptual terms of those which have been raised in the courts below, it is nonetheless, first, well within the pleading and, second, one which raises in a way which will not involve the raking over of detailed evidence, let alone testimony.  The possibility of becoming unavailable is a point by reason of factual matters. 

Your Honours, there is then the second aspect of why this is a matter of general importance in relation to this area of the law.  As your Honours appreciate by way, as it were, of the final shot against our appeal in the court below, it has been held that in any event the company loses nothing.  It is only the major creditor unpaid who loses because that creditor does not have a company with any funds to repay it. 

Now, in our submission, that paraphrase, and that is a paraphrase, of the reasoning against us on this point raises a very serious and important matter as to whether it could possibly be right that the legal entity to whom the fiduciary duty is owed, namely, the company, has been misunderstood by generations of the judicial decision-makers to which we give reference in our written submission has therefore been also the plaintiff in such cases. 

It is a truism that creditors lose when a company does not have as much money as it might otherwise have and does not have enough left to pay all of them all that is owed.  That has never, in our submission, hitherto been treated as an indication that there lacks an essential element in a cause of action by the company for breach of the duty, namely, that the company has lost.  That alone, in our submission, is an aspect of this case that leaves the reasoning of the Court of Appeal as reasoning which, in our submission, would endanger proper conduct of corporate administration, particularly

when companies are teetering on the edge of insolvency in such a way that this Court should intervene so as to correct that fundamental error. 

Your Honours, those are the reasons why, in our submission, there ought to be a grant of special leave, notwithstanding the transformation by way of truncation that has occurred by reason of findings of fact behind which we cannot go at both levels below.  May it please the Court.

GLEESON CJ:   We do not need to hear you, Mr Rayment.

We think that having regard to the way in which the case was pleaded and conducted and the concurrent findings of fact made by the primary judge in the Court of Appeal the case does not raise an issue suitable to a grant of special leave and, in addition, there are insufficient prospects of success of an appeal to warrant a grant of special leave and the application is dismissed with costs.

We will adjourn for a short time to reconstitute.

AT 11.00 AM THE MATTER WAS CONCLUDED