Willmott Growers Group Inc v Willmott Forests Ltd (Receivers and Managers Appointed) (In Liquidation) and Ors

[2013] HCATrans 106

[2013] HCATrans 106

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne       No M99 of 2012

B e t w e e n -

WILLMOTT GROWERS GROUP INC

Applicant

and

WILLMOTT FORESTS LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) IN ITS CAPACITY AS MANAGER OF THE UNREGISTERED MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 2

First Respondent

CRAIG DAVID CROSBIE AS LIQUIDATOR OF WILLMOTT FORESTS LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 063 263 650)

Second Respondent

IAN MENZIES CARSON AS LIQUIDATOR OF WILLMOTT FORESTS LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 063 263 650)

Third Respondent

WILLMOTT ACTION GROUP INC

Fourth Respondent

Application for special leave to appeal

KIEFEL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 MAY 2013, AT 1.44 PM

Copyright in the High Court of Australia

____________________

MR G.T. BIGMORE, QC:   If it please the Court, I appear with MR S.G. HOPPER and MR M.P. KENNEDY, for the applicant.  (instructed by Mills Oakley Lawyers)

MR P.D. CRUTCHFIELD, SC:   If the Court pleases, I appear with MR R.C. CRAIG, for the first to third respondents.  (instructed by Arnold Bloch Leibler)

KIEFEL J:   Yes, Mr Bigmore.

MR BIGMORE:   Thank you, your Honours.  This application concerns the disclaimer power that has long been conferred by statute upon liquidators and also trustees in bankruptcy.  The Court of Appeal considered section 568 and section 568D particularly of the Corporations Act.  In our submission, the Court of Appeal misconstrued the section and applied it inappropriately, so that an important question has arisen. 

We have identified in our written submissions the special leave point, and particularly if we could say this in expanding our written submissions.  The Court of Appeal failed to deal properly with the Bastable and Dekala decisions, particularly the old decision of Bastable, where legislation in effectively same terms as section 568 was considered, where the accrued rights of a purchaser under a contract for the sale of an interest in land, in that case a leasehold interest in land, were preserved and the liquidator by the disclaimer in that case had tried to destroy the accrued purchaser’s lien that was found to survive the attempted disclaimer.

So we say the Court of Appeal erred at two levels.  The first level is in its approach to section 568 itself.  The section, as your Honours know, provides that the liquidator may disclaim property of the company that consists of – and we say the appropriate paragraph in this case is (a), “land burdened with onerous covenants”, namely, the reversion.  My learned friends focused and the Court of Appeal focused on paragraph (f), “a contract”, and it was common ground throughout that a lease may be regarded as a contract in that sense.  That concession was informed by subsection (1A) of section 568 which provides that:

A liquidator cannot disclaim a contract (other than an unprofitable contract or a lease of land) except with leave of the Court.

That tends to indicate that paragraph (f) by referring to a contract includes a reference to a lease.  There was no mention at first instance of Progressive Mailing House v Tabali and on appeal our submission was that it was irrelevant to the decision in point to this particular case.  We do not challenge this Court’s decision in Progressive Mailing House v Tabali.  We draw attention to the fact that, as Justice Deane said, a lease is:

both an executory contract and an executed demise.

What we point out of course, your Honours, is that in this case the executed demise – and this was a lease where the rent had all been paid in advance, very simple form of lease much like the Blackacre that was considered by Justice Deane in Progressive Mailing House.  This was a case where the accrued right or the demise ought not to have been destroyed by the disclaimer consistent with the decision in Bastable. 

Now, the Court of Appeal at paragraph 56 of the reasons for judgment said that reference to Bastable and Dekala was either irrelevant or particularly unhelpful, and that is at page 40 of the application book.  Our learned friends in paragraph 22 of their written submissions at page 132 of the application book take the same point.  They go further and say:

The application of –

Bastable and Dekala –

in the context of a contract for lease would be inconsistent not only with Hindcastle –

and I will come to that in a moment –

but also with the principles in Progressive Mailing and Apriaden.

Apriaden was a Victorian Court of Appeal application of Progressive Mailing v Tabali.

KIEFEL J:   Did the Court of Appeal tie this view of what they described as contractualisation of leases into the terms of section 568(1A)?  That is, I think it was mentioned in the decision of Justice Chesterman in Re Real Investments that the draftsman might have had a view that contract and lease of land were – a lease of land was there being described as a contract and no more.

MR BIGMORE:   Yes, we accepted that at first instance and the argument on appeal focused more on Progressive Mailing House v Tabali, but at first instance we accepted that a lease might be included within the expression “contract” in paragraph (f).  But, when one analyses the various paragraphs of subsection (1) of section 568 which were the same provisions effectively considered in Bastable, the focus of the legislation is on the property of the company.

KIEFEL J:   You say it is not the contract that is being disclaimed?

MR BIGMORE:   No, the reference to property of the company including a contract – whether it be a contract or a lease it makes no difference to our argument – it means the leasehold interest, because the property of the company if the company is the lessor is the reversion.  The property of the company if the company is the lessee is the leasehold interest.  Now, a disclaimer of the reversion would cause the compliant tenant no harm because the property would achieve to the Crown or the tenancy would still survive, so the demise would be extant.  My learned friend’s argument, and which seemed to find favour with the Court of Appeal, was that disclaimer is tantamount to repudiation and acceptance forced upon the people in our position by statute.

With respect, that analogy is inapt because the statute, when one looks at 568(1) with 568D, strives to protect the position of persons like the lessees in this case with accrued rights.  Whether the Court of Appeal had said that what was disclaimed by the – or what the liquidator sought to disclaim in this case, or sought leave to disclaim effectively in this case, was the whole of the contract or the whole of the lease meant that the rights of the tenant would fall.  With respect, they erred because they should have focused more on the reference to the property of the company.  The property of the company is the reversion.  Another paragraph of section 568(1) refers to:

property that is unsaleable or is not readily saleable –

Those words are quite apt because what a liquidator or trustee in bankruptcy is obliged to do is to sell – realise the property of the company or bankrupt as quickly and efficiently as possible with a view to maximising the distribution to the creditors.  Often one comes across cases, more with a trustee in bankruptcy, I suppose, than a liquidator, where there is a life interest or a remainder. 

If the remainder is in respect of a situation where the life tenant might live for many, many years, the creditors may not be well served by having to wait and see whatever is available dissipated in costs and expenses over many years waiting for the life to fall or, alternatively, the life interest may not be saleable because the remainderman is not interested and there is nobody else in the market. 

So property which is unsaleable may be disclaimed, and that is why the disclaimer power exists and has existed for many, many years.  It was not introduced to enable a liquidator or trustee in bankruptcy to turn property that was unsaleable into property that is saleable, a windfall gain, if you like.

KIEFEL J:   I think you put it in this way, to improve the asset position of the company?

MR BIGMORE:   Yes.

KIEFEL J:   In your submissions you have pointed out I think that this is the only occasion on which this view of the disclaimer power has been taken.

MR BIGMORE:   Apart from an unopposed application before a master in Queensland, I think it was.

KIEFEL J:   With that in mind, we might call upon the respondent.

MR BIGMORE:   If your Honour pleases.

KIEFEL J:   Mr Crutchfield, why does this not raise a question of temporal importance?

MR CRUTCHFIELD:   Well, your Honour, because all we are dealing with at this point is the question of the proper construction of the statute and whether or not there is power to ‑ ‑ ‑

KIEFEL J:   But the nature of the power to disclaim is a matter of general importance, is it not?

MR CRUTCHFIELD:   Well, I have to answer that question ‑ ‑ ‑

KIEFEL J:   The nature and extent of it, yes.

MR CRUTCHFIELD:   Yes, but the real question, in our submission, your Honours ‑ ‑ ‑

KIEFEL J:   And this is a fairly novel approach, it must be said.

MR CRUTCHFIELD:   Well, we say it is not, your Honour, with the greatest of respect.  Just because this has not happened very often does mean that the power does not exist.  Ordinarily one would have a situation where the company in liquidation will have leased the property and be receiving income from the lease of the property and there would be no reason to disclaim the contract. 

We say the point is so clear from the structure of these sections that the decision is not attended with sufficient doubt to warrant a grant of special leave.  We say that because the upshot of our friend’s construction of these provisions is they in effect say that when one looks at section 568(1), a liquidator has to choose the subparagraph in subsection (1) that does the least damage to a third party.  The upshot of their submissions ‑ ‑ ‑

KIEFEL J:   No, I think he is also saying that they have to get it right.  I think the applicant’s submission is that it is not just a choice so much to be made between two equal positions.  In this case (a) was the only correct decision and the only correct selection.

MR CRUTCHFIELD:   That is right, they say that as a matter of statutory – that is what they seem to say.  That just simply flies in the face of (f) and they eschew any notion that they are wanting to say that Progressive Mailing v Tabali is wrong.

KEANE J:   But that is a case where you had a repudiation by one side, an acceptance of the repudiation by the other, so the parties brought the thing to an end.

MR CRUTCHFIELD:   Yes.

KEANE J:   There is a question, I would think – there is at least a question as to whether a unilateral power of disclaimer is a substitute for that, or a proxy.

MR CRUTCHFIELD:   Well, we submit that on the proper construction of these sections, that question is clear, that there is power, and one can see that from, for example, sections 568B and 568E which are the provisions that allow applications to be made to set disclaimers aside either before or after they take effect.  The language that is used is a person who has, or claims to have, an interest in disclaimed property, so relevantly here, a tenant. 

Where, we ask rhetorically, does one get out of this statute a restriction on the types of property that can be disclaimed?  The sections are clearly not directed at just in personam rights.  They can affect rights in rem and at the stage when an application is made to set aside a disclaimer under, say, 568B, if it is an ordinary commercial lease for five years and rent is being paid, and the liquidator for some reason want to disclaim that sort of lease, one could well envisage a court saying no.

But their case, your Honours, is a trustee in bankruptcy – it is worse in bankruptcy because, as your Honours know, a trustee in bankruptcy is personally liable, but it works for a liquidator as well.  The liquidator owns a valuable property in Eagle Street in Brisbane and company has rented it – Peppercorn for 50 years.  Our friends’ construction of the statute is that the liquidator has to throw the baby out with the bathwater, has to disclaim the interest in the land under A and cannot disclaim the lease, cannot disclaim the contract. 

We say there is simply no warrant for that.  There is no warrant for the restriction that our friends say ought to be built into this section because once you accept that a lease is a contract, which we all accept, where is the warrant in these sections for saying that a disclaimer which, as Justice Redlich held, correctly, we submit, operates as a statutory repudiation and acceptance?  That is the whole structure of these sections.

KEANE J:   I can see why it operates as a repudiation.  It is the acceptance that I am struggling with.

MR CRUTCHFIELD:   Well, every time there is – put the lease to one side, your Honour, just take an ordinary contract.  The disclaimer of that contract does operate as a kind of statutory repudiation and acceptance and ‑ ‑ ‑

KEANE J:   And it operates in futuro?

MR CRUTCHFIELD:   Yes, and leaves the person on the other side of the contract with a claim against the company in damages.  That is 568D(2).

KEANE J:   For the future, does it abrogate accrued contractual rights?

MR CRUTCHFIELD:   No.

KEANE J:   Well, in this case you have got Mr Bigmore’s client who is paid for its lease and obtained the demise.

MR CRUTCHFIELD:   Yes.

KEANE J:   So why has it not got an accrued right to this land for the term of the lease?

MR CRUTCHFIELD:   Well, the answer is for the reasons that the Court of Appeal said and it arises out of section 568D, that is, as Justice Hayne said in the Crimmins Case, there is a liability here.  The Court of Appeal picked up what Justice Hayne said in Crimmins and what I think Chief Justice Barwick had said in Tickle about what a liability is.

KEANE J:   This is the liability to allow quiet enjoyment.

MR CRUTCHFIELD:   Yes, precisely.

KEANE J:   But even that – the obligation to allow quiet enjoyment is to really speak of an incident of the estate.

MR CRUTCHFIELD:   Yes.

KEANE J:   The correlative incident of the entitlement of the lessee to an estate in land, so that this disclaimer is operating and the question is how far does it go?

MR CRUTCHFIELD:   Yes.

KEANE J:   Does it go so far that it operates as an expropriation of someone else’s property, someone else’s property rights that have accrued?

MR CRUTCHFIELD:   Well, the relevant rights, we submit, have not accrued because they are prospective.  It is the right for quiet enjoyment for the next 40 years in my example.

KEANE J:   It is a right for quiet enjoyment for the next 40 years, but only because the person who is owed the obligation of quiet enjoyment has this estate in the land.

MR CRUTCHFIELD:   But, your Honour, that is where we say the case does not warrant special leave, because they are not saying Tabali is wrong.  They are not saying that the view that leases, at leases of this kind, are contractual and the interest in the property rises no higher than the interest in the contract.  That is why the Bastable Case is completely irrelevant. 

We are not talking about a situation where the land has been sold to a third party and then the liquidator comes in and says, “Well, I want the land back”, because the property’s equity passed, the liquidator takes subject to the equities.  But leases – the interest of the lessee is whatever the contract is and if the contract goes, the rest goes.

KIEFEL J:   Is it possible that section 568(1A) when it refers to a lease of land is talking about the company as lessee?

MR CRUTCHFIELD:   Under the old provisions, historically one could have made that argument more forcefully, your Honour.  It used to be the case that these sections when it referred to “or a lease of land” in (1A), it seemed to be that it was a reference to a lessee.  That seems to be the case.  But those sections have gone now and in answer to your Honour Justice Kiefel’s question about how (1A) and the fact that it is a contract – a lease is a contract that fits into the section – the Court of Appeal dealt with that in a couple of paragraphs, starting at paragraph 49.  This is in the decision of the Chief Justice and Justice Sifris.  They quoted from the decision of – the speech of Lord Nicholls, last paragraph:

Disclaimer also operates to determine the tenant’s interest in the property, namely the lease… The leasehold estate ceases to exist.  I can see no reason to question that this is the effect of disclaimer when the only parties involved are the landlord and the tenant.

Then their Honours say that:

Although his Lordship was dealing with a contractual disclaimer by the liquidator of a lessee, we do not understand his Lordship to suggest that the same consequences – determination of the leasehold interest – would not apply in the case of the liquidation of the landlord.

KIEFEL J:   It is more consonant with a lesser effect upon a party, is it not, if the landlord is not the company?  Because if the company is disclaiming the lease of which it is lessee, the landlord then stands in the position of a creditor of the company in relation to the rent.  But, if the company is on the other side of the coin, you have got problems with interests in land.

MR CRUTCHFIELD:   Well, is not a problem, we submit, with an interest in land because a lease is a species of personal property.  It is not real property, we all know that.

KEANE J:   But it is an interest in land.

MR CRUTCHFIELD:   Yes, but it is an interest in land that arises out of and under the contract and if the contract goes, the interest in the land goes.  The oddity about our friends’ construction of these sections also is, if one looks at section 568(9), they can disclaim – effectively disclaim.  They can seek an order from the court discharging the contract, and the landlord cannot.  So I am sitting there in Eagle Street with my 40 year Peppercorn lease of an extremely valuable property, I am a trustee in bankruptcy and I will be gone by the time the lease comes to an end, and I am trying to wind up the estate. 

If they are right, that is the outcome, unless I disclaim and give up the Eagle Street property.  That cannot be right, we respectfully submit, and these sections came in with a contract, Tabali and the cases like – the contractualisation of leases occurred well before 1992 which is when these provisions came in, and became effective in July 1993 or June 1993, I think.

There is the definition of “property” as well, your Honours, in the chapeau in subsection (1).  As we know, it means any legal or equitable estate in real or personal property.  The heading “Disclaimer of Onerous Property” and ‑ ‑ ‑

KEANE J:   Yes, that is your property.  That is the property of the company.

MR CRUTCHFIELD:   Yes.

KEANE J:   What we are struggling with is whether that actually goes so far as to allow the company, or the liquidator of the company, to disclaim someone else’s property.

MR CRUTCHFIELD:   Yes, but it is someone else’s property that exists only because that person is on the other side of a contract.

KEANE J:   Well, on the other side of an executed contract.

MR CRUTCHFIELD:   Yes, that is true, but where does one stop?  Why does it only apply to land?  What about interests in other personal property?

KEANE J:   Well, where does one stop?  Does one stop at an executed contract for sale?

MR CRUTCHFIELD:   Well, no, and that is, we submit, clearly distinguishable because you can only disclaim what you can claim.  That is, you can only disclaim what is property in your hands – here the contract – whereas in the Bastable example our friends give, an equitable interest has been created in somebody else arising out of and separate from that contract of sale, and the liquidator then gets appointed. 

The liquidator takes subject to the equities.  It is not part of the estate anymore.  That is the distinction and we submit it is an important one.  This is just a first gateway so, if I respectfully say, the almost scaremongering in our friends’ submissions about what this is going to do for tenants all around the country is, we submit, just that because these provisions have all these protections built into them.

KIEFEL J:   In relation to an insolvent company?

MR CRUTCHFIELD:   Well, if you take my five year lease – you are a tenant with a five year lease from an insolvent company, go along to court and say, “I want to disclaim”, one could readily envisage that the court is going to look askance and say, “When are you going to throw the tenant out?  It is going to take you five years to wind up this liquidation anyway”.

KIEFEL J:   What do the lessees claim here?

MR CRUTCHFIELD:   Twenty‑five years.

KEANE J:   For which they have paid?

MR CRUTCHFIELD:   Yes.

KEANE J:   So if this works, your side gets the money in the box?

MR CRUTCHFIELD:   No, they are left with a claim – well, first they have got a right to contest the disclaimer.  They have got a right under these sections - under sections 568B and 568E, they can do that.  Then if the court allows the disclaimer to occur, they are left with an unsecured claim against the company, just like everybody else who deals with an insolvent entity and does not happen to have a priority entitlement. 

What this is all about, of course, as your Honours know, is the growers have their interest in the trees, your Honours – they claim an interest in the trees because the banks want to sell the land free of the encumbrances of the managed investment schemes.  So that is what this litigation is about, which is another reason, of course, this sort of situation does not come up that often.  It is in that sense not an ordinary lease.  As the Court of Appeal pointed out, they do not even refer to themselves as lessees; they are growers.

On your Honour Justice Keane’s point about whether it is an accrued liability or not, the right to quiet enjoyment, as Justice Redlich pointed out,

that was conceded by our friends below in the argument in the Court of Appeal.  If your Honours go to page 47, paragraph 78:

During oral argument on the appeal the respondents resiled from the contention that the covenant to provide quiet enjoyment was not a liability and conceded that her Honour had been in error in concluding otherwise.  Rather it was maintained that it was unnecessary to terminate the leasehold estate as the liability to provide quiet enjoyment occasioned no inconvenience to the liquidator or creditors.

That concession, with respect, was properly made.  It is manifest, we submit, that it is a continuing liability, liability in the sense of a continuing legal duty or obligation to provide the quiet enjoyment.  I ask rhetorically how would a trustee in bankruptcy ever wind up an estate?  You take my example.  It cannot be the way this – we submit Parliament has made it crystal clear.  If the Court pleases.

KIEFEL J:   You would probably have to agree, would you not, that Parliament could not authorise by legislation legislation which gives a power to effectively acquire someone else’s property?  You would have to read the legislation in light of that principle.

MR CRUTCHFIELD:   Yes.  If the Court pleases.

KIEFEL J:   We need not trouble you further, Mr Bigmore.  There will be a grant of special leave in this matter.  Time estimates – would it go more than half a day?

MR BIGMORE:   We would think so, your Honours.

KIEFEL J:   So allow a day?

MR BIGMORE:   In the Court of Appeal we came back after lunch, but only just I think, and I would be reasonably confident of half a day, certainly a morning.

KIEFEL J:   All right, we will allow half a day for the matter.

MR BIGMORE:   Thank you, your Honours.

KIEFEL J:   Do you agree with that, Mr Crutchfield?

MR CRUTCHFIELD:   I do, your Honour.

KIEFEL J:   Thank you.  Would the parties ensure that they obtain a list of the directions for the times by which matters have to be – submissions made and filed with the Court and of course those time limits must be adhered to.

MR CRUTCHFIELD:   Thank you, your Honours.

MR BIGMORE:   If the Court pleases.

AT 2.12 PM THE MATTER WAS CONCLUDED