Sabri v Equus Financial Service & Anor M82/1994 [1995] HCATrans 82 (17 March 1995)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M81 of 1994

B e t w e e n -

JAMES LYFTI SABRI

Applicant

and

EQUUS FINANCIAL SERVICES LIMITED and TIM ARTHUR JONAS

Respondents

Office of the Registry

Melbourne No M82 of 1994

B e t w e e n -

RHONDA SABRI

Applicant

and

EQUUS FINANCIAL SERVICES LIMITED and TIM ARTHUR JONAS

Respondents

Applications for special leave to appeal

MASON CJ

DEANE J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 17 MARCH 1995, AT 9.53 AM

Copyright in the High Court of Australia

________________________

MR G.R. RITTER, QC: May it please the Court, I appear with my learned friend, MS J. DAVIES, for the applicant for leave. (instructed by D.E.. Phillips)

MR W.T. HOUGHTON: If the Court pleases, I appear on behalf of the first respondent. (instructed by Gadens Ridgeway)

MR RITTER: What makes this case the perfect vehicle for determination of the issue we seek to put is that the Full Court of the Federal Court based its decision entirely on the, what we might call, late September certificate. A prima facie certificate was given purportedly under the provisions of a guarantee which resulted in the Full Court concluding that an amount was owing or payable by the applicants to the respondents of an amount greater than that which the respondents had been admitted to vote on at a meeting of creditors which sanctioned the Part X scheme.

Essentially what we say about it is this is an ideal case in the sense that at least here the Full Court has based its decision entirely upon the existence and terms of the certificate, and we say that - - -

GAUDRON J: But that is not entirely correct, is it, Mr Ritter? There was the discretionary aspect of material omission.

MR RITTER: Indeed. We say that that is answered by the matters that we put for the purposes of the appeal, rather than for the purpose of the application today. We say we cannot make a special leave point out of that, but we say as to that that you have the distinction between - you have the single judge concluding that they were not material omissions; the Full Court saying they were, with no reasons to support the distinction that was drawn. So that in answer to that we say that we cannot point to that aspect - - -

GAUDRON J: No, but it does alter the perfect nature of the vehicle, does it not, because unless you can move that finding as well there is no result in the case.

MR RITTER: We have no difficulty in dealing with that, but we say that that is not a matter that would justify special leave on our application. We can indicate how we can deal with it in any event. Could I just say this, that there is one very important aspect of that point, and that is this: there are two applications before the Court, the first in relation to Mr Sabri and the second in relation to Mrs. In relation to Mrs Sabri, there was no suggestion at any stage that she omitted any material particular of anything, and yet the Full Court drew no distinction in her case between the two, and having concluded that there was a debt of substantial order, that is of an amount greater than Equus had been admitted to vote in, made no distinction in relation to that secondary aspect, the aspect that there had been allegedly omission of material particulars. So that when we come to that in her case, that is not a problem. But we say that even in relation to the others, it is not a problem because the three elements of the material particulars - and I better not dwell too long - but the three elements were first, the mere existence of a petition. We say that has no effect whatever. The second is that there might have been, in that petition, ultimately an order for costs made which might introduce new creditors. That is all the more reason why the creditors would vote in favour of the scheme, rather than against it.

DEANE J: But how could the existence of a petition not be material, with doctrines of relation back and everything else applicable?

MR RITTER: That does not become a problem if the Part X scheme is adopted. There is no problem with relation back.

DEANE J: But that is quite a circular argument, is it not?

MR RITTER: It is in both senses from either aspect.

DEANE J: You say it is not material to the question whether the scheme be adopted for the reason that if the scheme is adopted, relation back will be gone and it will be no longer material.

MR RITTER: Yes, I suppose if it was put the other way, perhaps creditors might have thought, with the benefit of the relation back provision, we might join in a petition if there is one around. But equally, presumably - - -

DEANE J: I would have thought it was about the most material thing to a scheme of arrangement, apart from what the assets are.

MR RITTER: Purely on this basis of relation back, that is if others might see the benefit of an earlier application by another person, because it is to be borne in mind that the petitioning creditor in this case voted entirely in favour of the Part X proposal, so it is purely the incidental benefit to others that they might have detected in some circumstances. But we do say that in most of these Part X cases you may well find the existence of a petition elsewhere. That is often one of the catalyst to bringing it on and one could almost automatically assume that it is to be there. To be told that such a petition existed would do no more than to remind most creditors of that which was obvious, one would have thought. Equally, there was no evidence that there was some sort of announcement to that effect.

So we accept that, but essentially we say that that is not a material omission at all and that was in fact the way that his Honour Mr Justice Olney decided that matter, without giving reasons, and without doing more than saying, "It is material." The Full Court took a different view and we would simply say that that is an issue that ought be considered in far more detail than a special leave application allows in relation to that. We say that it was not material. We say that Mr Justice Olney was right, and the mere fact that three Judges on appeal simply said the contrary without giving reasons, we say, offers no assistance - it does not detract from the view we put, other than on the one to three basis. There is no reasons put forward for that.

There is one other matter. There had been a debt assigned from Provident to a Mr Mazloum and that assignment took place well before the Part X scheme was even envisaged, let alone put before the creditors. That was said to be material in some way. We submit that that is not material and has no bearing at all. We submit that Mr Justice Olney was right and there was no basis for the Full Court simply concluding, "Oh, something else ought to have been said about that." The number of creditors, the amount of creditors did not alter one bit.

If I might now go to what we say about the certificate, because we do say that in relation to the certificate the respondent - what makes this case the perfect vehicle is that the decision of the Full Court, and particularly that of Mr Justice Jenkinson, was based entirely on what we call the late delivered certificate. The September 1993 certificate was produced well after application to set aside the scheme had been made, well after the scheme had been implemented, well after the trustee had been engaged, and well after the trustee in carrying out his tasks had expended substantial sums to his chagrin, because what occurs is that at the last moment along came Equus with a certificate which it could well have produced nigh on a year earlier, in December 1992, when the meeting was first held, but that was held back until the creditors met and until four meetings were held and until the deed was executed and until later proceedings were completed between Equus and the Sabris in the Supreme Court, and then three months after the deed was entered, application was made to set aside the deed, not on those grounds and not on that evidence, but then in September - - -

GAUDRON J: What is the point of principle that that gives rise to, in your submission?

MR RITTER: I am sorry, that does not give rise to any point of principle. What we are saying is once you have the singular certificate, the point of principle is this: first, as a matter of principle, and admittedly, one cannot expect the discretion to be utterly fettered, but as a matter of principle, the Full Court of the Federal Court has invariably said that lateness is to be deplored and that a late application by a creditor to set aside a scheme, as we say this constitutes, ought to be very very carefully guarded, and in this case we say that the discretion, if one follows the ordinary principles set out in the cases to which I will take the Court in a moment, if one follows the ordinary principles the discretion would be exercised one way, and one way only.

Here, of course, the Full Court expressed no reasons for exercising its discretion, given under section 222(4) by the word "may", but gave no reasons for not exercising its discretion to refuse to avoid the Part X scheme. The Full Court simply concluded, "There is a debt; therefore the scheme must be set aside." That omits the discretion it has but, more importantly, it omits the settled principles that come from what we say are the decided cases on the point in the Full Court. That is, we say, that the Full Court has indicated that, in those circumstances, there is a discretion to exercise; in this case no exercise took place. Secondly, when the discretion is considered, the next stage of that process is that it ordinarily be exercised in one particular way, namely, against the creditor who is late. And that is because the Part X provisions, the scheme of Part X, is a comprehensive scheme; it is a scheme which provides for meetings, for a chairman to determine the weight to be given to a vote; to determine whether a person is a creditor and in what particular amount. It does not oust the opportunity for a court to later look at that, that is Re McLean, but the scheme in general terms and that which ought to be adhered to is such as to say there ought to be expedition and the provisions of the Part X scheme should be followed.

The chairman has an important duty to carry out. The trustee becomes invested with all sorts of obligations. Other creditors enter into the scheme. For example, in this case, funds were provided to the trustee for the benefit of the creditors under the scheme. That has been frittered away whilst the respondent waited and then, at the last hour, produced the certificate. So that another creditor, whoever that might be that provides funds for the purpose of the scheme, seeking a benefit under it, that creditor is a new creditor who suffers. Worse still, the second respondent, the trustee himself suffers in this way, that he has undertaken the duty of a trustee; the provisions of Part X regulate his remuneration; he discloses his remuneration and then he undertakes that task, having the benefit of a vote in his favour, only to find that without indemnity or otherwise, he is, at the end of the road, thwarted by a certificate that is brought in, even though he had been asking for it since day one.

So we say that there are other interests that come into question here. The interests of those of other creditors, all creditors who voted either for or against the scheme, any new creditors and the trustee. And in each case one cannot simply, by virtue of an inter partes certificate, thwart that, we submit, and that is where we come to the point about saying that there are limits that have to be placed on the principle in Dobbs Case. Dobbs certainly says that in inter partes proceeding, if a bank sues a creditor on a guarantee and there is a conclusive evidence certificate - and we do not draw a distinction for these purposes between the two - we say that if there is such a certificate, then that is not to be regarded as ousting jurisdiction of the Court; that is merely to be regarded as something which inter partes is apt for consideration.

However, in the decision of Richard Walter v Deputy Commissioner to which we referred the Court, the interests of third parties became relevant. We cited a passage from Richard Walter, in fact in the judgment of his Honour the Chief Justice at page 5, I think it is, towards the foot. We submit that that is one instance of a recognition that the principle has limitations. And we also submit that the classic case of limitations is where the proceeding is not truly inter partes but where the proceeding in relation to which the certificate is relied upon is a proceeding in which the interests of other parties are both represented and affected. Represented by the trustee and anyone else who might intervene; affected are all those creditors who depended on the scheme and voted for or against it, who participated in that to the stage at which it was set aside.

The reason we also say, of course, that the certificate should not be resorted to is it does not stand any higher than a default judgment or a consent judgment, that of course in the interests of all other creditors the Court should hesitate and look at the evidence which stands against the prima facie certificate in the interests of others and therefore it should not treat itself as shut out by the certificate, shut out by the principle in Dobbs which was relied on by the Full Court, both in the joint judgment of Mr Justice Sweeney and Mr Justice Ryan, and also in the judgment of Mr Justice Jenkinson, it should not see itself as shut out by that where there is other evidence. The other evidence in this case was admissions, because what the applicant had adduced in evidence before the court were inconsistent certificates issues by the applicant, one of which, that appearing at page 6 of the application book, that we submit constitutes an admission of a debt which was not sufficient, if that is the debt owed, that was not sufficient to produce any result other than that the proposal would have been acceded to.

I am mindful of the time I may or may not have in two applications, but I need to say this, that if one goes to paragraph 6, because our learned friends refer to an arithmetical error - - -

MASON CJ: Mr Ritter, I think you ought to proceed on the footing that we will allow you 20 minutes, because the two applications are the same. They raise the same points, therefore you are not entitled, as it were, to double up because you have two applications raising the same point.

MR RITTER: I was hoping I might have got 5 minutes to draw the distinction, but I shall not do that. I do not think I need that. The points we make are that, first, the court failed to exercise any discretion at all once it concluded, if it did, that the debt was of a particular order. As to that, we have cited the authorities, but they are three: the first we say that the court in not exercising its discretion, and not exercising its discretion against the applicant coming late, that that was against the tide of three decisions, the first being Farrow, at page 215. We submit that, first, delay itself is contrary to the scheme of the Act, and secondly, that in terms of discretion the discretion would be exercised against the creditor. That was a Full Court decision.

The second is Forshaw, which we have cited at page 342, and the third is Musolino, which we have cited at page 243. In each instance, it is our submission that the Full Court has indicated a consistent view in relation to the exercise of the discretion, in fact as to its manner. Now, discretions are not to be altogether compounded or confounded by judgments which fix them, but what we do say is that given the development of a clear position by the Full Court of the Federal Court, that this applicant was entitled to have some reason offered for an exercise of the discretion the other way, and that was not forthcoming.

The principle, of course, that a certificate should not abrogate the function of the court is important. In the case of Dobbs, whilst the reliance on a conclusive certificate was regarded as not ousting the jurisdiction of the court, once the court is seized of an issue - and the only question before the Federal Court was, "In what amount was Equus a creditor?", there was no dispute as to it being a creditor - but once the sole issue is in what amount, then the mere production of a certificate on the last day ousts entirely the jurisdiction of the court. We rely there - and I notice my time is up - entirely on what your Honour the Chief Justice said in Richard Walter by way of passing observation. That would be sufficient for our purposes, because that was the only issue before the Court. If the Court pleases.

MASON CJ: Thank you, Mr Ritter. The Court need not trouble you, Mr Houghton.

In the view of the Court, these are cases which turn very much on their own facts. We are not persuaded that the proposed appeals would raise an important question of general principle and, in any event, we consider that having regard to the facts, the cases are not suitable vehicles for determining such a question. The applications are therefore refused.

MR HOUGHTON: If the Court pleases, I seek an order for costs of the applications.

MASON CJ: You do not oppose that, Mr Ritter?

MR RITTER: No, I do not.

MASON CJ: The applications are refused with costs.

AT 10.17 AM THE MATTER WAS CONCLUDED