Wenkart v Pitman S160/1998 [1999] HCATrans 266 (6 August 1999)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S160 of 1998

B e t w e e n -

THOMAS RICHARD WENKART

Applicant

and

ALLAN PITMAN

Respondent

Office of the Registry

Sydney No S162 of 1998

B e t w e e n -

THOMAS RICHARD WENKART

Applicant

and

ALLAN PITMAN

First Respondent

GENNARO ABIGNANO and GENALLCO PTY LIMITED

Second Respondents

Office of the Registry

Sydney No S62 of 1999

B e t w e e n -

THOMAS RICHARD WENKART

Applicant

and

GENNARO ABIGNANO

First Respondent

GENALLCO PTY LIMITED

Second Respondent

Applications for special leave to appeal

GLEESON CJ

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 6 AUGUST 1999, AT 11.34 AM

Copyright in the High Court of Australia

____________________

MR B.W. RAYMENT, Q.C.: May it please your Honours, in each of those matters I appear with my learned friend, MR D.J. HAMMERSCHLAG for the applicant. (instructed by Solomon Garland Partners).

MR R.A. CONTI, Q.C.: May it please your Honours, I appear with my learned friend, MR A.J.L. OGBORNE, for the respondents (instructed by Bruce & Stewart).

GLEESON CJ: Mr Rayment, is it convenient to deal with matter No 7 at the same time as the two matters in matter No 6?

MR RAYMENT: Yes, I believe so, your Honour.

GLEESON CJ: Do you agree with that Mr Conti?

MR CONTI: Yes, your Honour.

GLEESON CJ: They seem to be related but I just do not know - - -

MR RAYMENT: They are closely related and, indeed, I think I can deal with the bankruptcy one quite shortly, depending upon how your Honours deal with what might be called the principal matter.

GLEESON CJ: All right.

MR RAYMENT: We have had handed up, for convenience, a new draft notice of appeal because I was not entirely satisfied with the way in which the grounds were formulated in the application books in the principal matter.

GLEESON CJ: Just give me a moment to take that on board, Mr Rayment. Yes.

MR RAYMENT: Your Honours, we submit that the order which was at the heart of the various proceedings in this case made by Mr Justice Hunter in September 1997, order 11 - - -

GLEESON CJ: That is the "leapfrog order".

MR RAYMENT: Yes, was always flawed. It was inconsistent, we would respectfully submit, with Wren v Mahony in this Court; Wren v Mahony rather than Rankin v Palmer directly because Wren v Mahony was a case between indemnifier and indemnified, where the indemnifier had no principal liability of his own to the creditor of the person indemnified, whereas Rankin v Palmer was different in that respect. Could I just very briefly take your Honours to Wren v Mahony. It is, for example, for convenience, in the bundle of cases starting in that bundle, at page - - -

CALLINAN J: Page 43.

MR RAYMENT: Yes, 43. The critical judgment is that of the Chief Justice with whom Justices Windeyer and Owen agreed, and the minority in the case did not deal with the questions I am about to go to.

Sir Garfield distinguished, if we can go straight to 225, which is 49 in the book, to the paragraph beginning about two-thirds of the way down that page. He distinguished between a situation where indemnifier merely promises an indemnity and the indemnifier makes a different promise, that is to pay the debt owed to the creditor of the person indemnified.

GLEESON CJ: That is the difference between an indemnity and a guarantee, is it?

MR RAYMENT: Well, perhaps. But, in any event, this case really stands for the proposition that unless the indemnity goes as far as to contain a promise for the payment of the debt in exoneration of the person indemnified, then it will only found an action for the money if the indemnified person has paid. That is really what is said for the first time at 225 and later in this judgment.

In that paragraph he said:

The deed set out in the petition contained no express promise by the appellant in terms to pay the amount of any tax which had become or might become due by the respondent to the Commissioner of Taxation.

GLEESON CJ: Mr Rayment, just where do we see the precise order that is the subject of this submission.

MR RAYMENT: At pages 68 and 69 in volume 1. It begins with a declaration at the foot of page 68 of a "liability to indemnify". For this purpose, in this respect, we say nothing about that. It is then order 11 which is in issue:

Upon the undertaking to the Court by ALAN PITMAN to pay to GENNARO ABIGNANO the amount of $1,307,537.10 without deduction therefrom, immediately upon payment of that amount by THOMAS RICHARD WENKART to ALAN PITMAN, and so long as he holds such sum or any part thereof to receive and hold the same on trust for GENNARO ABIGNANO, THE COURT ORDERS that THOMAS RICHARD WENKART pay ALAN PITMAN the amount of $1,307,537.10.

Your Honours, if I can go back to what Sir Garfield said about such a situation. Having made the distinction that I had mentioned on 225, his Honour then referred to what Sir Samuel Griffith had said in Rankin v Palmer, which was, as I say, a case where there was the difference that I had referred to, that is the person indemnifying had a principal liability. This is what he said:

"It is clear, however, that the plaintiff's only right is to indemnity, and the Court is bound to see that it does not prejudice the defendant by giving the plaintiff anything more. If the judgment stood in its present form, and the defendant paid the whole sum to the plaintiff, the plaintiff might not pay it to the creditors, in which event the defendant as principal might have to pay the money over again. Such a result would be manifestly unfair.

And your Honours will notice he says:

An undertaking by the plaintiff would not obviate this difficulty.

That is the very thing which apparently was thought to obviate the difficulty by Mr Justice Hunter. Then there was set out by Sir Samuel Griffith what had been said by Lord Justice Fletcher Moulton in Richardson's Case, and it is the last couple of lines of that quotation on page 226:

But I do not think that equity ever compelled a surety to pay money to the person to whom he was surety before the latter had actually paid. He might be ordered to set a fund aside, but I do not think that he could be ordered to pay.

And that is said in the context of an indemnity. The word "surety" is apparently used to include an indemnifier. Then just before parting with the case, could I go to the opposite page, 227. Halfway down the page his Honour emphasised that:

the distinction in my opinion is not between an indemnity against payment and an indemnity against a liability to pay.

That had been argued.

The distinction is between a promise to indemnify the promisee and a promise given to the promisee for the payment by the promisor of the debt in question.

GLEESON CJ: Does that mean that if you give an indemnity to somebody in respect of a liability, and the person to whom you give the indemnity is insolvent, the indemnity can never be of practical effect?

MR RAYMENT: Precisely. There can be an order made in equity to set aside a fund to answer the indemnity. But it is by a longstanding authority referred to in this Court in Wren v Mahony. Sir Garfield says he is - - -

GLEESON CJ: How was Wren v Mahony dealt with in the judgment in the court below?

MR RAYMENT: If your Honours would go to pages 219 to 220, it is dealt with by not being mentioned, we would respectfully submit. The case is mentioned later in the judgment, but the principle it establishes is just not mentioned. At 219, in volume 2, at the foot of the page, his Honour comes to the question of "leap frog orders". This is Mr Justice Powell, with whom the other two judges agreed, although Mr Justice Sheppard wrote a short separate judgment:

Although the authorities commonly referred to as establishing the power to make "leap frog orders" are, for the most part, limited to cases brought by guarantors against principal debtors.....such orders, or orders having a similar effect, have been made in other cases as, for example, at the suit of one co-surety against another (see, for example, Wolmershausen v Gullick) -

That had been referred to in Wren v Mahony. In each of these other cases, except the first In re National Financial Company; Ex parte Oriental Commercial Bank had been referred to in Wren v Mahony by Sir Garfield Barwick, or in Rankin v Palmer.

GLEESON CJ: But are those cases in parenthesis authority for the proposition for which they are cited?

MR RAYMENT: We would say, clearly not in each case, your Honour, for the reasons given in this Court in Wren v Mahony. They were all taken into account by their Honours, except the first, which is a very special case. The first In re National Financial Company; Ex parte Oriental Commercial Bank was concerned with a quite different sort of undertaking where there is, in effect, an undertaking which was in the nature of a direction to the person from whom there was an indemnity to pay the principal creditor. But the point is, this Court enunciated the propositions which it did enunciate in Wren v Mahony and they have been set to nought, in our respectful submission, by this judgment.

GLEESON CJ: Did Mr Justice Hunter refer to Wren v Mahony?

MR RAYMENT: No. Really, it all arose quite differently before his Honour. It all came up after his judgment on the short minutes the next day. It was really in the Court of Appeal that the matter was fully explored. You will find a reference, however, to Wren v Mahony at 228 in this judgment. But, your Honours, that is just, if I may say so, the first point in those grounds of appeal. The matter goes a lot further, in our submission.

Your Honours, what happened next was that no undertaking to the court of the kind referred by Mr Justice Hunter was actually given by Mr Pitman, at any rate in 1997. In 1997, he assigned, or purported to assign, the benefit of his judgment, including order 11, to Mr Conti's other client Abignano. So that the benefit of this judgment was purportedly assigned to Abignano and, at the same time, Abignano and Genallco, the persons who were owed the money by Pitman, released him from the liability to make any payment in consideration of the assignment. So that the case proceeded as a case for enforcement brought against my clients by Abignano and Genallco, hence the bankruptcy proceedings with those parties.

GLEESON CJ: Was that a timing problem that caused some difficulty before Justice Branson?

MR RAYMENT: Yes.

GLEESON CJ: Now, your Honours, my client took that before Mr Justice Hunter, having ascertained that about the assignment, seeking a stay. Mr Pitman then, in February 1998, that is after the assignment had been entered into, gave the undertaking that had been referred to in the order. Then Mr Justice Hunter construed his own earlier order, that is the one of September, at page 77 of the application book, in a way that could only be described as Delphic. He said it was put to him that it was not immediately operative, that is in September 1997, without an undertaking and he says he did not agree with that. But then he goes on to say that the undertaking would have to be given either at or before the time of the payment by Wenkart to Pitman. That is all to be found at pages 77 and 78. But it is a subsequent declaration of the judge. It is not something that was in his reasons for judgment, at the end of 1997.

Next, Justice Hunter, found in February that the orders that he had made were assignable by Pitman. If you have a look at those orders, we would respectfully submit, it could not possibly be so. If you go back to the orders, your Honours, at the top of page 69, they are plainly personal. X has to give an undertaking to the court that when he gets the money, he will pay it on to Y, and then X will be entitled to receive the money from Z. To assign that makes no sense at all. The person to whom it was assigned would not be the party giving the undertaking. But Justice Hunter held that it was assignable.

Your Honours, when these questions were looked at in the judgment, which we seek to bring here, in the Court of Appeal, the Court of Appeal said at page 218, first, they construe the order of Mr Justice Hunter of September 1997 in the light, not of the reasons for judgment of September, but in the light of what he said about it, Delphic, as it was in our submission, in the following year. That, we would respectfully submit, is contrary to principle, not that maybe by itself a special leave point, I do not suggest. But in principle, it cannot be right to construe an order made in September 1997 in the light of what the judge may say he meant to do by it in February 1998, and not unless that was in some way expressed or an ascertainable surrounding circumstance at the time the order was made, otherwise how could one be complying with it.

CALLINAN J: Where do you say he actually did that, Mr Rayment?

MR RAYMENT: Where did Mr Justice Hunter do that?

CALLINAN J: Yes.

MR RAYMENT: Really, where did Mr Justice Powell do it? Your Honours, it is at 218 about line 15. You need to start back on 216 where Mr Justice Hunter's judgment relevantly is set out. The Delphic remarks that I referred to are after line 20 on page 216. These occasion a difference of view between the Federal Court and the Supreme Court about what his Honour meant:

It is said that in the absence of the provision of the undertaking by Pitman, prior to the making of the order, that the order in paragraph 11 for Wenkart to Pay Pitman the subject sum was of no effect. I do not agree.

Stopping there, that is what Mr Justice Powell emphasised, and used it to construe the order. Going on, he then said that he thought the undertaking could be given later, in the next few lines. That was what Justice Branson said he really meant by it all.

If I can go back now to 218, at line 15, what his Honour Mr Justice Powell says about the matter is that:

This notwithstanding, the passage from his Honour's Judgment of 13 February 1988 which I have set out, indicates to me that his Honour did not consider the giving of the undertakings to be a condition precedent to the making the orders which he pronounced on 29 September 1997 or the coming into operation of those orders.....This being so -

so he builds on the subsequent judgment as a basis for the construction of it -

it seems to me that the orders came into operation upon their being pronounced on 29 September 1997 -

We would submit that process of reasoning cannot be right, although it would have been open to those affected by the relevant orders to apply to discharge the orders if the undertakings were not given.

Then, your Honours, he says at 219, that the fact that it would have been open to parties to discharge the orders if the undertaking had not been given meant that the order was operative earlier, and we would submit that does not follow. That would be a separate question, in our submission, but Mr Justice Powell puts the two together at line 20 on page 219. Then at 221, the point of real significance in our respectful submission in the judgment is the point at which his Honour discusses section 96 of the Supreme Court Act. His Honour says, section 96, which is set out on page 221 produced the consequence that the order made by Mr Justice Hunter of September, was assignable. The words in question are:

Any judgment or order of the court for the payment of money shall have the effect of a judgment at law.

Now, in our respectful submission, all that was designed to achieve was to take account of the fact that there was a change in the form of order he used to recover a sum of money at common law, in which case there would be a writ of fi fa, or all of the other garnishees, the other form of orders to enforce, but never contempt, or attachment or sequestration. The circumstance that now, from this date, from the Supreme Court Act onwards, there was going to be an order that X pay Y money, did not carry with it the possibility of a contempt order, in our respectful submission. That is all that did. But it has erected into a principle of law that affects any money judgment in the Supreme Court making them all judgment debts and making them all assignable.

GLEESON CJ: Mr Rayment, can I take you back to your first argument for a moment. The declaration at the bottom of 68 and the order at the top of 69, of course, follow the declarations and orders earlier made on 68.

MR RAYMENT: Yes, your Honour.

GLEESON CJ: So that by the time order 11 on the top of 69 has been made, orders 7 and 8 on page 68 have already been made.

MR RAYMENT: Yes.

GLEESON CJ: Is that a point of distinction from Wren v Mahony?

MR RAYMENT: We would submit not, that the same point of principle affects them all.

GLEESON CJ: What is the principle?

MR RAYMENT: The principle is that when you have a promise to indemnify, there will not be an order for payment against the indemnifier unless there has been payment by the party indemnified.

GLEESON CJ: This is an order for payment against the indemnifier immediately following an order for payment against the indemnified.

MR RAYMENT: Yes, but that is not enough, in our respectful submission. That is how Wren v Mahony really arose. There was a judgment of the Court ordering X to pay Y money, even though Y had not yet paid it to the person to whom it was bound to be paid, the Commissioner of Taxation. But, your Honours, we would submit that what appears on page 221, which is the subject matter of - - -

GLEESON CJ: I think you are probably entitled to another five minutes, Mr Rayment, because we are really dealing with more than one matter together.

MR RAYMENT: Thank you, your Honour. That deals with paragraphs 1 and 2 in the grounds and, really, I have dealt with paragraph 3 in the grounds. Your Honours, ground 4, really raises this question, is the release of Pitman not a complete answer to the whole problem in any event? Pitman was released from the liability that he had, that is the one that your Honour has referred to under the judgment, from any liability to pay. We would submit that whatever else may have been right in this case, it was not right to refuse to stay in light of the release, when the party indemnified has been released by the debtor.

So, your Honours, for those reasons, we ask your Honours, in the principal proceedings, for a grant of special leave to raise grounds 1, 2 3 and 4. I have not addressed, your Honours, because I do not wish to add anything to what is in the written submissions about a matter of practice and procedure that arose in the case on an amendment question.

Your Honours, so far as the bankruptcy proceedings are concerned, if your Honours grant special leave in the first matter, there is no need first to press your Honours with respect to the bankruptcy matter, because an issue will be before this Court which will ultimately determine the status of Dr Wenkart or may.

GLEESON CJ: I am not sure what you mean by that. You mean you do not need leave on the bankruptcy matter, if you go - - -

MR RAYMENT: If your Honours grant leave in the principal matter, we would submit that one course open to your Honours might be simply to adjourn the bankruptcy proceedings, because there is no need to bring it forward separately. On the other hand, if your Honours refuse leave in the first matters, then different considerations might well arise, especially if that was on some ground to do with the special nature of the questions involved. If this Court refused leave, but thought there was reason to doubt the correctness of what was held in the Supreme Court then, in our respectful submission, all the more reason why in the bankruptcy matter the same issue should not come forward.

GLEESON CJ: I understand that. But if leave were refused in relation to the principal proceedings, as you called them, on the ground that there are insufficient prospects of success of an appeal, then that would translate into - flow through into a refusal of leave in the bankruptcy case.

MR RAYMENT: Yes. Those are our submissions, your Honour.

GLEESON CJ: Thank you, Mr Rayment. Yes, Mr Conti.

MR CONTI: Your Honours, the critical part of the judgment in Wren v Mahony was isolated by Justice Powell in the judgment in the Court of Appeal, at page 229 of volume 2, and halfway down the page, after referring to Rankin v Palmer, Justice Powell cited three lines from the judgment of Justice Barwick, namely:

We are here not concerned with equitable rights which may become exercisable before payment is made by the person having the benefit of a promise of indemnity.

Then Justice Powell added to that basis for distinguishing Rankin v Palmer and Wren v Mahony by isolating that passage, lines 36 to 44. You may see on the sixth line there, there is a reference to "action at law". Wren v Mahony was a - as it were, its substratum was an action at law. At page 225 of the judgment in the High Court, at about point five of the page, there is a single sentence which illustrates that. The sentence reads:

So far as the recited judgment was concerned, the reasons for judgment of the Supreme Court in striking out the appellant's pleas in the common law action were not binding on the learned judge in Bankruptcy.

Then at the foot of the page, the Chief Justice refers to Rankin v Palmer and cites from it extensively over on to page 226. It is in that context where the three lines appear which I first took you to, namely:

We are here not concerned with equitable rights -

Your Honours, the principle in terms of equitable rights in this area of the law - and if I can use the word "indemnity" or "guarantee", as it were synonymously, because it seems that the same law applies to both - those principles we have set out in the judgment of the court which is referred to in these judgments below in Abigroup Ltd v Abignano [1992] FCA 567; (1992) 39 FCR 74. The court consisted of Justices Lockhart, Morling and Gummow. At page 83, on the fourth line, the judgment of the court commences:

It is well and long established in equity that a person entitled to an indemnity may obtain relief from the indemnifying party as soon as the person's liability to the third person arises and before he has made payment himself, except where the contract otherwise provides or certain exceptional circumstances exist -

and the English cases are there set out. Over on page 84 at about point 8 of the page, commencing with the sentence halfway down the last paragraph:

The orders of 14 September 1992 recognise the principle mentioned earlier with entitles the appellant to an order that the respondent pay directly to Sandtara the moneys due by the appellant to Sandtara.

Sandtara was further up the chain of the "leaping frog", your Honour. That was the passage which was cited in the judgment of the Full Court in this litigation, and with some emphasis.

Your Honours the principles of equity, if I can illustrate this way: let us assume parties A, B and C. A is the, for want of a better word, the creditor. B is the debtor. C is the guarantor. The principles of equity make it clear as appearing in the Federal Court judgment, and the case is there cited, that B could come to the court and seek an order; that C pay the sum that is, for want of a better word, crystallised to be himself or directly to A, equity allows either situation to occur and adapts this to the circumstance of a particular case which would be the more appropriate. The one exception in that particular scheme of things is that, if perchance C is also jointly liable to A with B. In other words, B has a liability. I suppose it really need not be strictly joined, it could be several. B has a liability to A. And just assuming that, although C has guaranteed B's performance, C is also liable to A. That was the circumstance in Rankin v Palmer. That is why Rankin v Palmer, as my learned friend quite rightly said, steps to one side. Rankin v Palmer is a case where money was owed on a share application. B was the allottee who was liable to pay and C had guaranteed that B would pay. But C guaranteed direct to A.

Your Honours, here the equitable principles still survive, of course, to the simple extent we have just explained. Sir Garfield Barwick, in his judgment, was saying, "Well, I am not considering equitable principles". He looked at the matter purely in terms of the law and applied principles according to law. That was the basis upon which Wren v Mahony was distinguished by Justice Powell in the leading judgment below.

Your Honours, so far as the other matter is concerned, in terms of the assignments affected, the effectiveness of the assignment was looked at thoroughly by Justice Hill in the judgment which appears in the bankruptcy application book, because Justice Hill was the judge below and the judgment which went to the Full Court was from his judgment. He looked at the question of the effectiveness of the assignment and with his Honour's customary supply of pertinent authority, he determined in the negative. The question he posed for himself is the heading on page 7 of the application book, namely, the heading, "Was the Assignment Ineffective?". He went through the cases, first of all as to going behind the judgment of debt, and he looked at Wren v Mahony. Then he looked on page 9 of the authority for equitable assignments, which your Honours may recall, Palette Shoes. Palette Shoes is referred to near the foot of page 9 of the application book. What his Honour considered was that the assignment in this particular situation in favour of my client was effective, at least in equity, so, therefore, one had this combination of equitable principles which, as it were, were recognised by the Federal Court when it came to write the judgment in the case which was further up the line, as it were.

So your Honours, we would submit that on the plain words of section 96, it fulfils the function here which was a requirement by Justice Hunter, and as has been said by Justice Hill when he looked at the matter by the Full Federal Court when they looked at the matter, and also the judge in the Court of Appeal, section 96 was usefully applied in a circumstance which, obviously for commercial reasons, was a very important circumstance.

Your Honours, the last matter we wish to mention is the matter of the release. The Pitman release took effect, as it were, on the predication of the assignment having been made. So that Mr Abignano as the assignee got himself into the more powerful position of being able to, as it were, sue as an assignee of the judgment. He did not find it, therefore, essential in his circumstances to have to invoke the equitable doctrines and seek to get his title necessarily that way. He acquired his title directly by the assignment, which Justice Hill held to be correct. So that, your Honours, in our submission, there is no new principle of law here involved. With respect, the principles are clear and this was an illustration of where they should be applied.

We would submit, if we may be permitted to do so, and if we understand the principle correctly, then the administration of justice of this appeal should not go forward. What is being sought to be exploited by the applicant for special leave, in our respectful submission, is something that, as it were, might fall out because of the way in which the order was framed, namely, Mr Pitman would be released provided that my client could maintain his rights against the real principle, bearing in mind Pitman was really merely an agent or an employee for Dr Wenkart. They are our submissions, your Honours.

GLEESON CJ: Thank you Mr Conti. Yes, Mr Rayment.

MR RAYMENT: Your Honours, reference was made to Mr Justice Hill's judgment at page 8 of the bankruptcy book. That, in our respectful submission, carries the matter no further. It may be the genesis of what was later said in the Court of Appeal about section 96. We submit it shows the importance of the issue that we would propound about section 96. If that section makes a judgment such as this assignable, we would submit, something very curious has happened. If it sets at nought, as Mr Justice Powell says, Wren v Mohany, that is really how he dealt with Wren v Mahony, to say that it was no longer applicable because of section 96, then that fact, unless it be clearly correct, we would submit, would merit the grant of special leave in this matter. The passage I just had in mind is at 230.

Now, having discussed section 96 and having discussed Wren v Mahony, his Honour concluded that because of what he had said about the nature of the assignability of the judgment, Wren v Mahony had nothing to say, as it were, about the matter. That, in our respectful submission, would be a matter proper for the grant of special leave to appeal. Those are our submissions.

GLEESON CJ: In the two matters which are listed together as matter No 6, that is Wenkart v Pitman and Wenkart v Pitman and Ors, the Court is of the view that there are insufficient prospects of success of an appeal to grant special leave to appeal, and on that ground the applications are refused.

In matter No 7, Wenkart v Abignano and Anor, as Mr Rayment QC has accepted correctly, a refusal of special leave to appeal in the matters No 6, on the ground on which leave was refused, must necessarily result in a refusal of special leave to appeal in that matter also.

Can you resist an order for costs?

MR RAYMENT: No, your Honour.

GLEESON CJ: In all of these of matters the applicant must pay the costs of the respondents. We will adjourn to reconstitute.

AT 12.12 PM THE MATTER WAS CONLCUDED