Sea Containers Ltd v ICT Pty Ltd & Ors S69/1995 [1996] HCATrans 98 (4 March 1996)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S69 of 1995

B e t w e e n -

SEA CONTAINERS LIMITED

Applicant

and

ICT PTY LIMITED

First Respondent

INCAT CHARTERING PTY LIMITED

Second Respondent

INCAT AUSTRALIA PTY LIMITED

Third Respondent

ROBERT FREDERICK CLIFFORD

Fourth Respondent

INCAT TASMANIA PTY LIMITED

Fifth Respondent

INCAT INVESTMENTS PTY LIMITED

Sixth Respondent

BUQUEBUS INTERNATIONAL LIMITED

Seventh Respondent

Office of the Registry

Sydney No S75 of 1995

B e t w e e n -

SEA CONTAINERS LIMITED

Applicant

and

STENA SEALINK LIMITED

Respondent

Applications for special leave to appeal

BRENNAN CJ

TOOHEY J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 4 MARCH 1996, AT 11.40 AM

Copyright in the High Court of Australia

_____________________

MR B.W. RAYMENT QC: May it please your Honours, I appear with my learned friend, MR G.J. NELL, for the applicants. (instructed by Norton Smith & Co)

MR A.R. EMMETT QC: May it please your Honours, I appear with friend, MR D.J. FAGAN, for the first to the sixth respondents in the first application. (instructed by Harris & Co)

MS C.A. NEEDHAM: I appear for the seventh respondent. (instructed by Michell Sillar)

MR R.B.S. MACFARLAN, QC: If the Court pleases, I appear for the respondent in application 75 of 1995, that is, Stena Sealink Limited. (instructed by Mallesons Stephen Jaques)

BRENNAN CJ: Yes, Mr Rayment.

MR RAYMENT: Your Honours, the point upon which we seek special leave to appeal is identified in the outline of argument. It is, in short, the question whether if A is under a contractual restraint in favour of B, and A transfers the means by which performance of that obligation would be effected - that is, his assets and employees - to C, a company under his control, equity would impose upon C obligations in the same terms as those which bound A in favour of B. The Court of Appeal dealt with that principal question in two ways. First of all, they overruled a whole series- - -

BRENNAN CJ: Well, before we get to that, let us see if we can establish what it is that you say one or other respondent is liable to your company for.

MR RAYMENT: Yes, your Honour.

BRENNAN CJ: What is it?

MR RAYMENT: Your Honour, we would submit that both Incat Tasmania, which became the builder of vessels, instead of the company formerly known by a longer version of that name - International Catamarans (Tasmania) Pty Limited, now known as ICT Pty Limited - and Incat Australia Pty Limited, which purported to sell vessel 033, to be manufactured by Incat Tasmania, and Incat Chartering Pty Limited, which became entitled to deal with vessel 031 by a transaction of May 1993, all three of them were subject to the same restraints in equity, as was International Catamarans (Tasmania) Pty Limited, if there had been no such internal transaction. And each is liable, in our respectful submission, to be restrained - - -

BRENNAN CJ: From doing what?

MR RAYMENT: From acting otherwise than in conformity with the commercial protection agreement.

BRENNAN CJ: And what was the breach?

MR RAYMENT: There were breaches, in our respectful submission, threatened for the future of clause 2 and clause 4.

BRENNAN CJ: So far as clause 2 is concerned, it is said to be invalid restraint of trade.

MR RAYMENT: So far as clause 2 is concerned - and only that clause - there was an issue before the Court of Appeal about restraint of trade - only that clause.

BRENNAN CJ: Leaving that aside, what is the breach that is said to be threatened for the future?

MR RAYMENT: To do the same again, your Honour.

BRENNAN CJ: What do you call the same?

MR RAYMENT: Well, that is to continue to - - -

BRENNAN CJ: Selling? Allowing a catamaran to operate between Holyhead and Dunleary

MR RAYMENT: No - but by way of illustration of the more general - speaking of injunctive relief, in our respectful submission, the threat was to do more of the same; that is, to sell more vessels which would trade against vessels already sold as Sea Containers. That was the purpose of apparently setting up International Catamarans (Tasmania)'s operation of employing the same men and using the same assets. Your Honours, what- - -

BRENNAN CJ: So, we have a question of whether clause 2 is an invalid restraint of trade.

MR RAYMENT: You do.

BRENNAN CJ: And in relation to clause 4?

MR RAYMENT: You have a question of construction of it, and you have a question of whether certain notices were or were not a compliance with the second and third sentences of it.

BRENNAN CJ: They do not sound like special leave questions, Mr Rayment.

MR RAYMENT: Well, your Honour, in our respectful submission, the special leave question identified in the application for special leave is the matter of substance upon which this Court might be prepared to grant special leave, that is, the question which I outlined - - -

BRENNAN CJ: Well, the value arises on a certain hypothesis.

MR RAYMENT: But it was dealt with, and it was settled for the law of New South Wales in the Court of Appeal's judgment. It was part of the ratio of that decision.

BRENNAN CJ: So far as this case being a vehicle for considering it is concerned, it turns upon the availability of any claim by your client under clauses 2 and 4.

MR RAYMENT: So far as the future is concerned, it does that.

BRENNAN CJ: Or the past.

MR RAYMENT: So far as clause 1 is concerned in relation to the question of damages, it does not.

BRENNAN CJ: Well, clause 1, there was a sale 10 days before the expiry of the term.

MR RAYMENT: Yes, but there were investigated before the trial judge, finally, only questions of liability, and there were at least two matters which are referred to in the Court of Appeal judgment; namely, the question of whether there would have been any sale at all, bearing in mind the deadlines which are referred to in - - -

BRENNAN CJ: That is a question of fact. That does not get you special leave.

MR RAYMENT: But the Court of Appeal took the view that those questions of fact had to be dealt with on the liability hearing. In our respectful submission, that was wrong in principle; liability and quantum were split in this case. The time to investigate quantum of damages was a subsequent hearing.

BRENNAN CJ: That might have been so, but does that give rise to a special leave point?

MR RAYMENT: Well, in our respectful submission, for the Court to say that these issues may not arise involves having a look at the way in which the trial judge dealt with the same issues than the way in which the Court of Appeal dealt with them. If you look at, for example, the factual question, his Honour's findings, which were necessary for the Gilford v Horne analysis which we put forward at the trial, were, with respect, primarily to some 1993 transactions. Could I just shortly illustrate to the Court how they arose?

In October 1992, two things happened relevantly; Incat - that is to say, Mr Clifford's group - approached Stena, the principal opponent of - the trade opponent of Sea Containers - seeking to interest them in the acquisition of vessels, drawing to their attention the Commercial Protection Agreement and saying that, "Subject to something to do with 100 nautical miles, we can sell to you, and we wish to," and inviting them to sea trials of a vessel that was to be trialed in December 1992.

In the same month, they applied to register Incat (Tasmania), the substitute builder, for bounty purposes, as the builder of vessels beyond June 1993. There were continued discussions with Stena and its agents, at the same time as discussions with my clients about vessel 033, in March 1993. My clients came to Australia to negotiate with them for the purchase of vessel 033. But what they did not say was that they were talking to Stena, or that they had been talking to Stena, and on 31 March 1993 - again, without telling my clients - they moved the manufacturing operation to Incat (Tasmania) Pty Limited, so making it the builder.

They entered into a series of transactions for the purpose, in our submission, put to the trial judge and accepted by him, of evading the obligations under the Commercial Protection Agreement.

BRENNAN CJ: What is the relevance of this, Mr Rayment, to the questions that this Court has to determine?

MR RAYMENT: Well, your Honours would need to look at what the Court of Appeal did to those findings.

McHUGH J: Well, I know. That just meets an almost insurmountable barrier to the ground of special leave. You want us to review 1500 pages of transcript and 3000 pages of documentary evidence, do you not? Or close enough to it.

MR RAYMENT: There is a substantial appeal book, and we do not hide that fact, your Honour.

BRENNAN CJ: Substantial. It will come down, ultimately, to the question whether or not clause 2 is in invalid restraint of trade, and the construction of clause 4.

MR RAYMENT: And clause 1, we would submit.

BRENNAN CJ: Well, clause 1, yes.

MR RAYMENT: It will come down ultimately to some construction questions, yes.

BRENNAN CJ: Which, with great respect, do not seem to me to even hit the deck so far as special leave is concerned.

MR RAYMENT: Well, your Honours, I certainly would not be putting forward the mere question of construction of clauses 1, 2 and 4 as special leave points, and I could not; it is a one off agreement that would never give rise to general questions such as this Court might consider. But the question, in our submission - - -

BRENNAN CJ: Well, then, leave 1 and 4 alone. I mean, you have not succeeded in the constructions of 1 and 4.

MR RAYMENT: We have at trial, but not in the Court of Appeal.

BRENNAN CJ: Now, in relation to clause 2 there is a question of law; namely, whether a clause of that kind is in invalid restraint of trade. But the propositions embraced by the Court of Appeal are simply soundly based, are they not?

MR RAYMENT: Well, we would respectfully submit not. Not when you look at the consideration which was obviously given for this restraint in clause 2 of the Commercial Protection Agreement.

BRENNAN CJ: Which was what?

MR RAYMENT: The true consideration was to turn Mr Clifford's operation from what he described as an A frame shed operation, which had not engaged substantially in interstate and international commerce, to a huge operation, employing hundreds of men, which sold vessels worth $US20 million odd all around the world. He was turned from a person in a very small way to a person in a very large way, and largely with the reputation that he gained through the use of the vessels totalling $US100 million in expenditure by Sea Containers.

BRENNAN CJ: That is simply saying that the prospects of a small manufacturer getting access to a large market is a sufficient consideration to justify those who control the large market in controlling the productivity of the small producer.

MR RAYMENT: I had not quite finished, your Honour.

BRENNAN CJ: I am sorry.

MR RAYMENT: What he did, in our submission, by selling those vessels to Sea Containers with that promise was he sold them something quite different from merely selling vessels without the benefit of any restraint on the sale of other vessels. He sold unique vessels. He sold to Sea Containers vessels that they could be sure would not be traded against within a corridor during their effective lifetimes, about 15 or so years. Now, he can choose, in our respectful submission, consistently with restraint of trade doctrine, to sell unique vessels for a higher price, as it would inevitably be, if he wishes to, without in any way being able to come to the Court later and say, "Well, I should not have agreed to that restraint."

In our submission, the approach of the Court of Appeal to the restraint of trade issue in this case gave insufficient weight - by far insufficient weight to the freedom of parties to the contract. If you wish to sell a unique asset and get more money, or obtain more interest in it, or encourage your buyer to come back to buy more in the same category on the basis that he will have a unique asset, you cannot come along later and say, "That is a restraint of trade that I should never have imposed upon them."

McHUGH J: The fact that the Court of Appeal failed to give sufficient weight is hardly a special leave question.

MR RAYMENT: How did they, your Honour? I am sorry, your Honour?

McHUGH J: The fact that the Court of Appeal you submit failed to give sufficient weight to various factors that you rely on is not a special leave question; it is just another decision. There is nothing special about it.

MR RAYMENT: It is, in our respectful submission, of importance as a restraint of trade case - this case - for the reason that I have put. If what was done in the Court of Appeal was to brush that aside and say, "Well, no, you had a liberty," the fact that he gave it up - the money - the fact that he voluntarily gave it up was to be put to nought, in our respectful submission that does merit attention in this Court, in what will, I think, be the first case since Buckley on the restrain of trade doctrine of common law.

But, your Honours, the real question that arises at the end of the day, if the findings of fact of the trial judge were right and they were based largely on matters of credibility - the real question which arises at the end of the day is one of piercing the corporate veil. The only area in which it was open to a judge to piece the corporation veil in this country consistently with existing authority was closed, in our submission, in the judgment of the Court of Appeal. It has been turned into a doctrine that depends upon notions of sham and nothing else.

If it is inequitable that a person should be entitled to disregard contractual obligations in this way, in our submission it has been the law and should be declared by this Court to be the law that a person participating in the transaction - a person within the group should be subject to the same restraint. But, your Honours, what I was about to say about the facts was this; if you get to the position that the facts were right, decided by Mr Justice O'Keefe, then the questions of construction in this case are short points.

If Mr Justice O'Keefe's findings were right - and, by the way, the basis upon which they were overruled in the Court of Appeal - the primary basis was this; they said both parties thought this agreement had expired. If your Honours would have a look at it, on page 1 of the application book it is plain, in our respectful submission, on its face, that clause 1 expires two years after a named date, but clause 2, on the face of it, must extend for the period of time identified in it. It must extend for so long as the vessel is used on the route, as the clause said.

Mr Clifford's evidence about this matter that he thought it was expiring was rejected by the judge. He was confronted with the terms of the agreement, he was confronted with the terms of his own correspondence, which clearly was on the basis that this document did not expire. When he wrote to Stena about it he did not say, "But our agreement is expiring mid-way through next year," he spoke as if the agreement were to continue. Your Honours can see that from the terms of the letter actually set out in the application book at page 23, between lines 40 and 45. There is his letter of 8 December 1992, said now to have been written at a time when he thought the agreement was coming to an end; but no such suggestion when he is trying to drum up a bit of business from Stena six months before that date.

But, your Honours, the Court of Appeal took the view - and they overruled a finding of credibility in relation to Mr Clifford in this matter - the Court of Appeal took the view, "Well, he thought it was coming to an end, so there was no intention to seek to get around it by what happened in March 1993." That, in our respectful submission, was impermissible, consistently with what this Court has said in Abalos.

Now, your Honours, then there are questions of breach of clauses 1, 2 and 4, which are within a narrow compass; the restraint of trade question being the only question of substance in the case. But in our submission it would be open to the Court to grant special leave, notwithstanding that short questions of construction are also thrown up by what we would respectfully submit is an important issue of law about the corporate veil. The short issues of construction - take clause 2 - are really whether clause 2 operates route by route, as my learned friend Mr Emmett put to the trial judge, it did; and as we put to the trial judge, it did.

If that question be right then, in our submission, the issue of breach of clause 2 - leave aside the question of Australian trade - the issue of breach of clause 2 is patent. The word "operating", in our submission to the trial judge - not joined in by Mr Emmett - but in our submission to the trial judge should be read as referring to the race, rather than to the person. It was, in our submission to the judge, encapsulated by the in rem argument which his Honour refers to and the Court of Appeal rejects. The Court of Appeal took the view that this was a restraint which was world wide in its operation, which was a view contrary to that contended for by both parties before the learned trial judge.

They took the view that clausedeg.2 prohibited a sale of a vessel for use anywhere in the world, so long as the buyer was himself trading against Sea Containers as an owner/operator in the circumstances mentioned in the clause. Now, that could not be right, in our submission. If you look at clause 6 of this short agreement, it shows clearly that what is intended to be prohibited by the Commercial Protection Agreement is something which is route by route. Clause 6 enables Incat to obtain the permission of Sea Containers, such permission not to be unreasonably withheld, for the building of a vessel which will not be used in competition with Sea Containers.

That shows, in our submission, that it is the use of the vessel which clause 2 and the agreement generally is directed to. In reading down clause 2 to a world-wide restraint would defeat, in our submission, the intention of both parties to this instrument, evident on its face. But, your Honours, if it were only the questions of construction, I could not speak special leave upon those. We would respectfully submit, though, if they are decided one way, and there is reason to think they might be - at least because the trial judge reached that conclusion - then there are thrown up, in our respectful submission, important issues for this Court's consideration.

BRENNAN CJ: Thank you, Mr Rayment. We need not trouble counsel for the respondent on the first appeal.

MR EMMETT: If it please your Honour.

BRENNAN CJ: The question of law which the applicants seek to raise in this appeal depends ultimately on the construction of the terms of a singular contract, on the reasonableness of a convenant in restraint of trade and on contested questions of fact. Those factors make it clear that this case is not a suitable vehicle for raising the chief question of law which the applicant seeks to raise. For that reason, special leave will be refused.

MR EMMETT: I am instructed to ask for an order of costs, may it please your Honours.

MS NEEDHAM: And also for the seventh respondent, your Honour.

BRENNAN CJ: You have nothing to say about that, Mr Rayment?

MR RAYMENT: No, your Honour.

BRENNAN CJ: It will be refused with costs. Mr Rayment, I take it that the second appeal follows automatically from the first?

MR RAYMENT: Yes, it does, your Honour.

MR MACFARLAN: And I would ask for costs in that matter, your Honour.

BRENNAN CJ: Special leave in that matter will also be refused with costs.

MR RAYMENT: If it please your Honour.

AT 12.02 PM THE MATTER WAS CONCLUDED