Yang & Ors v Nashco Pty Ltd

[2023] HCATrans 16

[2023] HCATrans 016

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S127 of 2022

B e t w e e n -

TUN YANG

First Applicant

YINGJIA FU

Second Applicant

YIHIM ZHENG

Third Applicant

LUI YIN KO

Fourth Applicant

and

NASHCO PTY LTD

Respondent

Application for special leave to appeal

EDELMAN J
STEWARD J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON FRIDAY, 17 FEBRUARY 2023, AT 1.30 PM

Copyright in the High Court of Australia

____________________

EDELMAN J:   In accordance with the protocol for remote hearings, I will announce the appearances for the parties.

MR B.W. WALKER, SC appears with MR A.J. MACAULEY for the applicants.  (instructed by Du & Associates Lawyers)

MR G.K.J. RICH, SC appears with MR J. SLEIGHT for the respondent.  (instructed by Neville Hourn & Borg Legal)

EDELMAN J:   Yes, Mr Walker.

MR WALKER:   May it please your Honours.  We submit that this case arising from a fairly typical commercial dealing of customer, supplier and guarantor gives rise to an opportunity for the Court to look at, what would appear for the first time, at certain matters that are fundamental to the issues of contract and property comprised in the interpretation of the guarantee, the consideration of the supply contracts and, in particular, the assignment, which is contemplated by the expressions in the guarantee.

Could I remind you of the critical expressions – they are found in a number of places, but in the book at page 71, paragraph 14 sets out the relevant words.  Your Honours are familiar from the exchanged argument on the special leave application with the need that arises to understand the meaning and extent of the word “seller” throughout.  “Assigns” or “assignment” comes in because of the extended expression:

A G Brewer & K M Brewer T/A Nashco and its successors and assigns –

then, compendiously, by the usual device described as constituting “the Seller”.  Now, in our submission, the significance of the case, lifting it beyond disputed interpretation of a particular, perhaps not completely artful document is this:  the fundamental problem arises, even before we get to conflicting authorities, concerning

the operation of contractual doctrines of privity which, in our submission, have been wrongly shunted to one side in the reasoning against us on the one hand, and on the other hand, the really critical question of understanding how a guarantee can possibly be extended beyond the description contained in the terms of the guarantee by its reference to a supply obligation.

As your Honours know, the facts present this as an ideal vehicle to test the capacity – regardless, apparently, of privity – for someone to be held to a contractual promise to guarantee liabilities owed to somebody who did not exist and who certainly was not within the express description of a contractual party in the guarantee itself.

EDELMAN J:   Mr Walker, there is no issue in this case, is there, about the operation of all of those legal provisions derived from section 25(6) of the Judicature Act concerning assignment.  That is law that is well and truly water under the bridge, is it not?

MR WALKER:   Yes.

EDELMAN J:   And there is no dispute that the effect of such a legal assignment operates in ways that common law privity of contract would not operate; in other words, it is a statutory exception to privity in that sense.

MR WALKER:   Yes, but it is machinery in the sense that it does not abolish doctrine, it simply means, reflected in particular in the nomenclature of parties to litigation, that there can be the avoidance of the security of using an assignor’s name – section 12, plainly, is exactly as your Honour has described it.  Our point is that it is of very considerable doctrinal importance.  We do not think this Court has looked at it and this case provides an opportunity to see whether there is some substantive effect on privity beyond the capacity now for the assignee to sue in the assignee’s name on a chose in action assigned to it being a contractual right.

Hitherto, it really has not been thought that those very valuable – I do not mean they are trivial, these very important machinery provisions worked any substantive effect on doctrines of contract.  In particular, if privity is understood as meaning those persons who have given promises and are bound by them – and who are bound, I stress, by them – then nothing in those provisions overcomes the impossibility – we understand accepted by our friends in this case – of assigning the burden of a contract, the obligations of a contract.  If privity were, as it were, reversed or eliminated as a requirement by reason of the machinery provisions about assignments then, in our submission, one might expect that there would be nothing in the proposition that you cannot assign the burden of a contract.

A chose in action, which is the form of property which gives rise to the possibility of assignment in appropriate cases is, obviously enough, a claim to enforce a contract.  A claim to enforce a contract, not a position of having it enforced against you.  That is why matters of contract turn via their characterisation of choses in action into property which is then able to be assigned.  So, this case, in our submission, does present – both neatly and completely, so far as the facts are concerned – a real test of what might be a shadowy proposition that these machinery provisions permitting assignees to sue in their name somehow should be understood as affecting privity.  That is the first point.

EDELMAN J:   Would that be so if you are wrong about your construction of “seller”, so that if ‑ ‑ ‑

MR WALKER:   No, no, it does not depend.  We have two strings to our bow – they are separate.  The construction of “seller” is what might be called a relatively mundane way of achieving the outcome for which we contend.  But we would not be urging on your Honours special leave if that were the only point.  The construction of “seller”, obviously – one might embark upon an argument that says that it ought to be understood as if those using the words were fully apprised of, and correctly understanding, doctrines concerning assignment.  That would be a rash way in which to embark on interpreting this particular document and probably many similar documents.

So, no, this does not depend upon us persuading your Honours that read commercially, in any event, the contended for effect held against us in the Court of Appeal is not commercial reasonable.  We do say that the special leave point, which does arise and does involve need to interpret the contract, of course, arises because the facts in this case show that none of the money in question – sought under this purported obligation under the guarantee – arose from supply by Nashco, or to put it another way, that all the indebtedness that has been created by supplies by Nashco had been paid for.  Meaning, of course – bearing in mind that the supply contract as to its obligation is, obviously, not the object of any assignment – it does not fall within the ambit of the relationship conveyed by the one word, “assigns”, in the phrase in question – when one bears in mind that all the supplies for which the purported guarantee obligation is said to be enforceable, all those supplies were under different arrangements – obviously, because of privity between different parties – from those which are within the ambit of the description of the guaranteed obligation in the instrument in question.

EDELMAN J:   Is that not the very question of construction that the Court of Appeal answered?

MR WALKER:   No.  One cannot read “assigns” as if it included the notion of assigning the burden of a supply contract.  So, there is no question of assignment when it comes to, at the request of the guarantor, supplying and continuing to supply goods.  Once one understands that, one asks – as the Victorian Full Court asked in Yusef – whether or not words that might at first be apt to expand following so-called assignment, the ambit of an obligation – and the assignment in that case was pursuant to statutory provisions in a Court order – whether that could possibly be held to be within a guarantee where, as a matter a privity, there had never been a promise by the guarantor to the person seeking to enforce those new obligations.

EDELMAN J:   I suppose there are two separate questions.  One question is:  is it possible to assign a burden?  To which one might think that the answer is plainly not, that what is assigned at the relative rights – one party’s rights, not one party’s obligations.  But a separate question is:  what are those rights as a matter of construction?  And that as a matter of construction, those rights – construction of the guarantee instrument – may include the supplies by both Nashco and its predecessor; the partnership.

MR WALKER:   And the short answer is – I am so sorry, your Honour.

EDELMAN J:   I just said the partnership.

MR WALKER:   The short answer is no, and the elaboration of that is, in our submission, a demonstration of why special leave should be granted.  This is not a case of a contract for the benefit of third parties.  It is not a Trident v McNiece analysis that advances the conclusion.  And, in particular, it is not suggested that there was any agency or trusteeship – some of the other devices that Trident has raised for consideration – with respect to the yet‑to‑be‑formed corporation.

The obligation of supply obviously was not assigned.  Clearly enough, the principal debt, had there been any, could have been assigned and the guarantee obligation as well.  That is not this case.  It may be that is all the drafter had in mind.  That did not happen.  It is because the critical and, for their own business purposes, obviously important step of incorporating the business – because of that critical change, because of the history whereby the partnership was no longer owed any money, on account of supply, that the question of privity is front and centre. 

That does not, in our submission, cease to be of importance either because of the machinery provisions concerning assignees suing in their own name or, importantly, by reason of identifying a third party – that is, a party outside the contract – as somebody whose supply might give rise to guaranteed obligations.  The guarantee is a promise to someone to stand surety for an obligation and, in our submission, it is not possible to see here assigned the burden of a supply contract so that debts arising from supply by someone who has not been assigned supply contracts burdens, but who has made their own new contractual dealings by which they are obliged to supply and become entitled to a price.

It is for those reasons, in our submission, that the bland word “assigns” in this portmanteau definition that one sees in the instrument could never have been understood as within the four walls of the requisite privity, and given the ban or the absurdity of assigning a burden which is, of course, not property, in light of all of that, matters of interpretation are not capable of rising higher than the source.  The source is the law of property, including the adjunct law of assignments and assignability, which includes choses in action being the claim to enforce a contract.

It is for those reasons, in our submission, that this is a case which is an ideal vehicle to test the notion that words as simple or bland as this can create an obligation to guarantee debts which were never debts owed to the creditor, the putative assignor.  I stress it would have been different had there been such debts and they had been assigned and the guarantee rights had been assigned.  We do not dispute that.  It may be that that is an understanding, as I say, of how the drafting fell out.

Can I move, if I may, given the time, to the point concerning authority.  With great respect, the decision in Yusef [1991] 2 VR 17 cannot be, as it were, sidelined so as to avoid a clash that ought to be resolved by this Court by any distinguishing. In particular, can I draw to attention that in the detailed facts which include the different terms, the different commercial risk allocation that one found between the defunct club terms and the terms, which, by a statutory form of succession, became available for the new club to impose.

At page 36 in Justice Cummins’ reasons, his Honour, particularly about line 20 or so, makes it clear that it is not upon the detail of the contracts – which did differ, as his Honour pointed out, highlighting the injustice of holding someone to the liability.  In our submission, those are matters which simply turn upon what we have called – I hope not too tersely – privity; that is, identifying the person with whom dealing has produced, pursuant to a contract with a principal creditor, the indebtedness which then falls – again, pursuant to a contract in which privity is controlling – to a promise to guarantee that.

For the reasons put by the Full Court in Yusef, one simply cannot treat an assignment as expanding beyond the limits of that privity, either of those descriptions; that is, the person whose supply gives rise to the indebtedness, or the person who is entitled to enforce the guarantee.  I stress this is not saying the guarantee could not have been assigned in this case, but it would only bite upon obligations falling within its description, and they were obligations owed to the partnership.

EDELMAN J:   Could you just point to the paragraph where Justice Mitchelmore treats the question of whether or not the obligations bit as a question of assignment, rather than as a question of construction of the contract itself?

MR WALKER:   I think her Honour is addressing those points in dismissing the arguments.  I think, it is some numbered points, as her Honour puts them – in the passage commencing in the book at 56, perhaps paragraph 52 and following.  One sees in 52 itself that one of arguments we had made, and would still seek to make, is that Goodman, the English case does not assist because it is not about assignment, which rather highlights that her Honour regards that however instructive it may be that assignment is the hallmark of the matter in this case. 

All of the succeeding passages, though obviously intertwined both interpretation and doctrine about assignments – see, for example, paragraph 56 – but if you read on in to 57 and following, those are considerations which show that her Honour was regarding this as a matter that could be determined by reference to the effect of the assignment – the supposed assignment. 

I need to be precise.  We are not talking here about assignment, we are – one needs to distinguish between that nebulous notion of the assignment of a business and the more precise notion, impossible in law, of the assignment of the burden of a supply obligation.

EDELMAN J:   On the last part of that, if one looks at the last sentence of paragraph 51, surely what her Honour is saying is that it is only the rights, it is not the obligations that are being assigned but just as a matter of construction of what it is that is being assigned, Nashco contains no more than what the Nashco partnership had.  In other words, it all falls to a construction of both the guarantee contract and what the Nashco partnership intended to be the suppliers of goods.

MR WALKER:   That, with respect, treats Nashco as, in some non‑assignment sense, a successor of the Nashco partnership with respect to the supply of goods.  And the supply of goods cannot be severed from an obligation – that they did not succeed to any obligation any more than the absurdity of assigning an obligation is in question in this case.  In our submission, that last sentence rather has her Honour assuming the conclusion of the interpretive argument.

My, in effect, contemplating the notion that the same – the notion of purchase of the same goods supplied in accordance with the same arrangements somehow means the new parties’ – different parties – discrete arrangements are to be seen somehow in law, apparently by reason of the use of the word “assignee” or “assigns”, as constituting the same transaction and thus falling within both the limits of privity and the meaning of the defined term.  That is, in our submission, a route of reasoning which gives plainly insufficient attention to the problem of privity and does not, with respect, emerge from some supposed possibility of an interpretation of these terms avoiding the application of those limits imposed by privity.  No interpretation can do that.  It will be a purported contractual obligation, rather than a real one, were it to do so.

May it please your Honours.

EDELMAN J:   The Court will adjourn briefly to consider what course it will take.

AT 1.52 PM SHORT ADJOURNMENT

UPON RESUMING AT 1.59 PM:

EDELMAN J:   Mr Rich, the Court does not need to hear from you.

An appeal in this matter would turn upon questions of construction of a bespoke guarantee and an agreement for the supply of goods, and the appeal would have insufficient prospects of success to warrant the grant of special leave to appeal.  Accordingly, the application is dismissed with costs.

The Court will adjourn until 2.30 pm.

AT 1.59 PM THE MATTER WAS CONCLUDED