Pyramid Building Society (in liquidation) v Terry & Anor M14/1996 [1996] HCATrans 174 (16 April 1996)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M14 of 1996

B e t w e e n -

PYRAMID BUILDING SOCIETY (in liquidation)

Applicant

and

BRUCE MITCHELL TERRY and JUDITH WENDY TERRY

Respondents

Application for special leave to appeal

GAUDRON J

McHUGH J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON TUESDAY, 16 APRIL 1996, AT 2.52 PM

Copyright in the High Court of Australia

MR C.L. PANNAM, QC: If the Court pleases, I appear with my learned friend, MR J.B.R. BEACH, on behalf of the applicant. (instructed by Holding Redlich)

MR P.G. NASH, QC: If the Court pleases, I appear with my learned friend, MR M.A. SCARFO, for the respondents. (instructed by Di Mauro Davis Zucco)

GAUDRON J: We might hear you first, Mr Nash.

MR NASH: The argument for the respondents has been effectively, if the Court pleases, fully set out in the outline of argument, and I do not propose to take the Court through that in detail. Our submissions, basically, are that the objects of the bankruptcy legislation are, to quote Lord Fitzgerald in Hardy v Fothergill:

that all creditors should be entitled to come in and prove, and that the bankrupt should emerge from the bankruptcy freed from all his liabilities.

We say that the history of the bankruptcy legislation since 1869 reveals that the objects of the legislative provisions, in relation to compositions and schemes of arrangement, have parallelled those relating to bankruptcy; have operated to enable the debtor to emerge freed from all liabilities other than those, which the court has held, could not have a value placed upon them, and included as provable debts from which a debtor was released by a composition, the liability of a debtor as a surety even though that liability was not ascertained at the time of making the composition and not a debt in respect of which an adjudication in bankruptcy could have been made.

The contentions of the applicant are that the discharge granted to a debtor under a composition is intended to be quite different in ambit from the discharge given to a debtor as a result of a sequestration order.

GAUDRON J: Well, the contentions really are that a provable debt is differently defined.

MR NASH: Yes, your Honour, with respect - - -

GAUDRON J: And, in a sense, strictly that is true.

MR NASH: Yes, your Honour, but it also proceeds, we would say, on a strained interpretation of rule 84 and the amendments it makes to section 82. It stems from an assumption that the history of the legislation was intended to be reversed by an executive act. We cannot give the Court any indication as to how rule 84 came into existence, or precisely what the history relating to the - - -

GAUDRON J: The Act contemplated that that might be so, did it not?

MR NASH: Yes, your Honour, it does. But, with respect, we say if you look at section 82, as modified by rule 84; ignore what existed previously, and look at 82(1), it includes, prima facie, contingent debts, just as much as it includes present debts; future debts just as much as ascertained debts, and the approach that Justice Toohey took in Morris v Maroudas, and which is borne out by section 15AC of the Acts Interpretation Act, namely that one has to interpret the legislation as it stands, not start from an assumption that because the words have changed, the meaning is different, one then does not have the situation, as we put it - the development of the legislation has been changed by executive act.

We say that the legislation is not ambiguous. Subsection (1) may be ambiguous. Subsections (4) to (7) remain in their unaltered condition. They contemplate contingent debts, and if contingent debts are contemplated by subsections (4) to (7), then one has to look at section 81(1) with that in mind. The applicant's contentions in relation to this point depend upon ignoring subsections (4) to (7), and adopting as the premise the conclusion which is sought to be reached. One cannot ignore subsections (4) to (7) unless one first starts with the proposition that the modifications introduced by rule 84 do, in fact, exclude contingent debts - - -

GAUDRON J: Well, they were intended to effect some modifications, were they not?

MR NASH: Yes, your Honour. They were intended to achieve some modifications.

GAUDRON J: Is that not where you start?

MR NASH: With respect, your Honour, we would say, "No", and we would say, "No", for two reasons; one because of section 15AC, and secondly, because one should not start with the assumption - perhaps I have phrased that badly, your Honour. One should not start with the assumption: some modification is intended; I cannot find any modification other than this, therefore, this must be the modification intended, when - and we stress this, your Honour - one should first start by looking at the section as a whole, see that contingent debts are contemplated to be included, by virtue of subsections (4) to (7). If contingent debts are contemplated by those subsections, then subsection (1) does not delete them.

As I was saying, your Honour, basically one has to start with the assumption, as your Honour put it: some modification is intended; that modification is to delete contingent debts, therefore I do not have to look as subsections (4) to (7). They are not part of the section to be considered when construing subsection (1). That, we say, your Honour, is the error the learned trial judge made. It is the error in the argument put by the applicant, and it is, in our submission, a real case of hoisting oneself by one's own bootstraps.

We say also that if one looks at subsection (8), and this is the argument effective - I do not want to recite Mr Justice Tadgell's argument and reasoning in relation to Hardy v Fothergill, but we say that the surety is, "an express agreement capable of resulting in the payment of money". Now, we say that is the case, as a matter of literal interpretation. It is borne out by the history of the section generally, and it is borne out by Hardy v Fothergill. The applicant makes much of the proposition that the phrase in the statement quoted in the outline of argument from the Earl of Selborne:

if the contingency against which the indemnity is provided should occur -

indicate that his Lordship was talking about an engagement which did not arise until the contingency occurred. In our submission, on analysis of Hardy v Fothergill, that is not what his Lordship was saying. That phrase refers to a payment which does not result until the contingency occurs.

The interpretation put forward by the applicant, we say, is inconsistent with his Lordship's reference, later in the same paragraph, to the question of whether a particular liability is, or is not, capable of being fairly valued; is inconsistent with the way in which his Lordship, in fact, applied his analysis to the facts before him and, we say, is inconsistent with the actual determination in Hardy v Fothergill. More importantly, we say there is no uncertainty in the law as it stands at the present time. Two Courts of Appeal have unanimously, perhaps with Mr Justice Brooking coming along reluctantly, come to the same conclusion.

KIRBY J: I thought, in the Court of Appeal in New South Wales, even if I were reluctant, I really did it out of deference to the Federal Court's duty to administer the Bankruptcy Act. I think that was a similar thought in Justice Brooking's mind. I am not now saying what was in my mind; it is on the paper, but that is a consideration that goes to the relationship of State Full Courts and Courts of Appeal to the Federal Court, rather than the rightness of the decision.

MR NASH: With respect, your Honour did say that your Honour was following the Full Court of the Federal Court, but your Honour did also say, "Even if I thought they were wrong" - I am paraphrasing, your Honour, now - "which I do not - - -"

KIRBY J: Yes, it is one thing not to have formulated the conviction that they were wrong, but we have now got a number of decisions; Justice Toohey in the Federal Court, New South Wales Court of Appeal, Victorian Court of Appeal, with Justice Brooking expressing a doubt. The issue is one of some importance, and the result is a curious result. It seems to be, on the face of things, an unjust result.

MR NASH: With respect, your Honour, to say it is an unjust result, is to say - taking the facts of this particular case - that a large company, perhaps the largest company in liquidation in Australia, Pyramid Building Society, did not, or could not, make an application under section 239 to have the composition set aside. To say it is an unjust result, your Honour, ignores the fact that there were remedies available. If a contingent creditor, with the contingent debt of that size, had applied to the Federal Court to set aside the composition - we do not know the result - but to say that it is an unjust result is, apart from anything else, to - we hear a lot in this Court and in other courts about splitting the criminal process, dividing the criminal case. In the case of bankruptcy, winding up, status generally, we have a situation now where, because no application was made under section 239, some considerable time after the composition has been entered into, people have been paid, things have happened, and we have the Pyramid Building Society saying, "It isn't fair. We did not exercise our rights under section 239". In the outline of argument it is put, "We wouldn't have succeeded if we had made our application. We did not. Now it is unjust".

The arguments in relation to certainty, the arguments in relation to not splitting cases, we say, apply equally and strongly to a situation where one is dealing with status, and a composition - I concede it is not exactly the same as a sequestration order - does involve a quasi status. We say that the law, as it stands, is, clearly, not uncertain; that the decision is not attended with sufficient doubt and, when one looks at the way in which the amendment has been brought about, if two Courts of Appeal have both misconstrued the intention of the legislature or, to be more accurate, the intention of the executive by saying the executive did not intend to alter the whole ambit of bankruptcy legislation in relation to compositions, because it did not delete subsections (4) to (7) which would be appropriate to delete, because one could wonder, if we had a true separation of powers, whether it was appropriate for delegation to alter the whole ambit of the operation, or whether that delegation power should be construed more stringently. There is no uncertainty in the law. If two Courts of Appeal have both misconstrued, if Justice Toohey, Justice Heerey have misconstrued - - -

GAUDRON J: Justice Toohey did not, in fact, place an interpretation upon the provision.

MR NASH: With respect, your Honour, that is correct. There is an innuendo in what he says. There is an innuendo in what Justice Spender says, and in the case of Justice Northrop, one can only place an innuendo on an innuendo; no more, I concede that. But the New South Wales Court of Appeal and, with respect to your Honour Justice Kirby, all three members of that court did specifically say they did not consider Maroudas or Wills v Abram to be incorrectly decided. The other members of the court, I think, went further than your Honour in expressing - Mr Justice Cole in particular - their positive adherence to the view which they derived from Morris v Maroudas and Wills v Abram.

But we say that, in the state of the law as it is, there is not a special leave point. The law is certain. It is not attended with sufficient doubt, and those who say it is attended with sufficient doubt, in fact, have to say that, in construing section 82 as amended, one ignores section 15AC, one ignores subsections (4) to (7), and if one does that then one, of course, can, by a bootstraps argument, support the proposition that there is an error in the interpretation by the Court of Appeal. The outline of argument is there, the cases are there, I can reiterate what I have already said but, if the Court pleases, they are the submissions.

GAUDRON J: Thank you, Mr Nash.

There will be a grant of special leave in this case.

AT 3.12 PM THE MATTER WAS CONCLUDED