Porteous v Hancock Prospecting Pty Ltd P10/2000 [2000] HCATrans 548 (8 September 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P9 of 2000

B e t w e e n -

THE HANCOCK FAMILY MEMORIAL FOUNDATION LIMITED

HANCOCK PROSPECTING PTY LTD

Applicants

and

ROSEMARIE PORTEOUS

JOHANNA HANCOCK

Respondents

Office of the Registry

Perth No P10 of 2000

B e t w e e n -

HANCOCK PROSPECTING PTY LTD

Applicant

and

ROSEMARIE PORTEOUS

Respondent

Office of the Registry

Perth No P11 of 2000

B e t w e e n -

HANCOCK PROSPECTING PTY LTD

Applicant

and

ROSEMARIE PORTEOUS

Respondent

Office of the Registry

Perth No P12 of 2000

B e t w e e n -

THE HANCOCK FAMILY MEMORIAL FOUNDATION LIMITED

Applicant

and

BELLE ROSA HOLDINGS PTY LTD

THE COMMONWEALTH BANK OF AUSTRALIA

Respondents

Office of the Registry

Perth No P13 of 2000

B e t w e e n -

HANCOCK PROSPECTING PTY LTD

Applicant

and

BELLE ROSA HOLDINGS PTY LTD

ROSEMARIE PORTEOUS

Respondents

Office of the Registry

Perth No P14 of 2000

B e t w e e n -

HANCOCK FAMILY MEMORIAL FOUNDATION LTD

Applicant

and

JOHANNA LACSON NOMINEES PTY LTD

KAYE LORRAINE BURTON

Respondents

Applications for special leave to appeal

McHUGH J

GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 8 SEPTEMBER 2000, AT 11.33 AM

Copyright in the High Court of Australia

MR P.R. HAYES, QC: If it please the Court, I appear with my learned friend, MR M.J. COLLINS, for the applicants. (instructed by Mallesons Stephen Jaques)

MR D.G. COLLINS: If the Court pleases, I appear for the respondents. (instructed by Slater & Gordon)

McHUGH J: Now, Mr Hayes, before you begin and before your time starts to run against you, let me say at the outset that the Court is concerned at the statement of facts in the summary of argument filed by your client in this particular case. The statement of factual background in a summary of argument does not fulfil and will not fulfil its function unless it states concisely and comprehensively the facts found or acted upon and considered relevant by the court whose order is the subject of appeal.

In this particular case, in substance, the statement of factual background has stated the facts as the applicant would see them, rather than as they were found by the courts below and, indeed, the contrast between the findings of the trial judge and their basically concurrent finding by the Full Court is in striking contrast with the statement of facts found in the applicants' argument. There are two facts in particular which concern us. At page 303 of the book there is a statement at line 10:

They received moneys and property from the two companies knowing them to be the source of the funds and knowing the payments to have been made in breach of fiduciary duty.

Now, as far as I can see, no such finding was made by the trial judge and there was a statement that in each case Mrs Porteous pressured Mr Hancock to behave as he did. Again, I have not seen, or I do not recollect any finding to that fact. There is, it is true, a finding, I think, in respect of the Bentley car, that she had made persistent requests to him to buy the car. But if parties wish to challenge facts or if they assert that further facts should be found, the place to do it is in the statement of argument, it is not in the statement of facts. The form for the respondent's argument assumes that the respondent will not have to state any facts, will only challenge such facts as are stated in your statement or the applicants' statement which are in dispute.

Now, the statement of facts, it seems to us, has followed a form which is not uncommon, but as far as the members of the Court are concerned, it is a very unsatisfactory statement; and in future - you can make what comments you want to on it - what I said about the statement of facts should be adhered to by the profession generally.

MR HAYES: I fully accept what your Honour says. Your Honour sees that there was a late change of counsel.

McHUGH J: I see that. Yes, I see.

MR HAYES: I will endeavour to make up for the difficulties caused by that and I apologise.

McHUGH J: Yes, thank you, Mr Hayes.

MR HAYES: Your Honours, the first of those two points of fact that your Honour Justice McHugh correctly says is wrongly stated finds - - -

McHUGH J: I can understand you say, having regard to your case, that they knew the payments to have been made in breach of fiduciary duty, but there is no such finding by the trial judge. Indeed, the contrary, because he finds there is no breach of fiduciary duty.

MR HAYES: Certainly. What the trial judge finds as set out at page 49 of the application book in paragraph 158 - I am agreeing with your Honour but I am explaining what we can say about that particular matter - is that Mrs Porteous knew where the money was coming from and gave no value in respect of it.

McHUGH J: Yes. She was a volunteer, except her case was that it came from Mr Hancock.

MR HAYES: I understand that. She was a volunteer with notice of the trust into whose hands the payments may be traced. Now - - -

McHUGH J: That is in respect of some payments, but there was at least one payment, I think, early - I think it is at page 41 - very early in the piece, page 40 at the bottom, paragraph 118:

At this stage Mrs Porteous was still quite fresh on the scene, so to speak. She was not yet a director of HPPL. I am not persuaded she had any relevant knowledge.

That is in relation to 41 Philip Road.

MR HAYES: That is the earliest of the payment, I accept that, your Honour.

McHUGH J: Yes.

MR HAYES: Again, I apologise. Indeed, partly with that in mind but partly to demonstrate one of the points we want to make, can I hand to your Honour what my learned junior and I have put together as what we say is the ratio of what the Full Court has actually decided. Before I take the Court to that document, can I indicate the six principal points which we submit warrant special leave to appeal. The first is that the decision sought to be appealed from is inconsistent with direct authority on very approximate facts from the New South Wales Court of Appeal in Hannes v MJH Pty Ltd.

McHUGH J: Mr Hayes, can I put to you what seems to me the difficulty. At the trial, for forensic reasons which no doubt counsel then appearing thought were proper reasons, the case was conducted in a very different way from the way it was then sought to be conducted in the Full Court and, again, from the way that you seek to conduct it here today.

MR HAYES: Yes.

McHUGH J: I think that is the problem that you have to face up to.

MR HAYES: I do squarely and because, yes, those representing my clients' interests may well not have put the matter, certainly in the way I wish to put the matter or, indeed, may not have put the matter properly, if that turns out to be the case. But, nevertheless, I seek to rise above that as well and if your Honour will just give me a moment to state the six points.

McHUGH J: Yes.

MR HAYES: Because none of them are points inconsistent to the extent of any prejudice with anything that has happened to date. I will state the six points. The first point is there is a direct conflict now of authority between the New South Wales Court of Appeal decision in Hannes and this case. We have given the Court reference to Hannes, but there, there was a governing director of a family company, there were some other shareholders, there was a life governing share, there were payments made for non-company purposes and various breaches of fiduciary duty and equitable relief were found and, indeed, one of the fundamental premises on which the Western Australian Full Supreme Court decision is based, namely, the width of power available to the holder of the life governing share was directly contradicted by that decision qualified in terms of its inevitable need to be exercised in accordance with certain statutory and fiduciary duties.

McHUGH J: Yes, I know, and you have to develop your argument, but you have to come to grips, it seems to me, with the way the case was conducted at the trial. Basically, your case at the trial was that although the books of entry were correct in certain respects, those entries in the accounts which describe the impugned payments were not genuine or, at all events, did not accurately record the transactions that occurred. So the issues in the case seem to have been, was the money paid to Mr Hancock either as a loan or in repayment of a debt owing to him? Unless the respondent succeeded on that issue, it seemed to be taken for granted you would win the case, and that was the forensic tactic employed by counsel then representing your side.

Then there was as further issue: even if they were loans and repayment of debts, were they made for the benefit of the company? There seem to have been no issue at all at the trial about what the motivation was, and that is central to your argument here, as I understand it, the purpose of the payments. Your argument is even if they were for the benefit of the company, nevertheless, the purpose for which they were made was a breach of fiduciary duty. That does not seem to me an issue that was ever fought at the trial.

MR HAYES: They were matters that were squarely raised on the appeal and dealt with to a large extent by the appeal court.

McHUGH J: I am not sure about that.

MR HAYES: Nevertheless, can I state the next five of the deck chairs on "The Titanic" for your Honours.

McHUGH J: Yes.

MR HAYES: The second matter is that the judgment follows Daly's Case, Daly v The Sydney Stock Exchange.

McHUGH J: We only reached that - if you do not succeed on the breach of fiduciary duties point that does not arise.

MR HAYES: Correct.

GUMMOW J: Now, there may be a problem about Daly's Case.

MR HAYES: Yes.

GUMMOW J: It may really be resolved by ideas of waiver, release and election, I understand that, but you do not get to it on the way the Full Court framed its judgment, and they said so.

McHUGH J: Whether they are right or wrong about the application of Daly's Case does not matter unless you make out your case that these were breaches of fiduciary duty.

MR HAYES: I accept that.

GUMMOW J: When one says Daly's Case, it is really only the dictum of the Chief Justice in Daly's Case.

McHUGH J: Yes.

MR HAYES: It is, and we have said what the Privy Council said and so. But there is a point of importance there to be determined of the right case and we are hoping to persuade your Honours that this is the right case.

Now, my third point turns on this document, "The Ratio", and these are what Dr Collins and I distil are the findings or the ratio of the decision of the Full Court. Now, taking up the exchange I had with Justice McHugh at the beginning, point (g) we have generalised because we accept and we were going to point out to your Honour that the first of those payments were specifically found by Justice Anderson to not be so. We are talking in generality here in terms of what does this decision stand for. When you go through those facts and accepting them all for the moment because there are some fundamental matters which go to the correctness of some of those findings, a most extraordinarily dangerous precedent is created that the holder of a life governing share in these circumstances is basically being said to have had carte blanche to cause moneys to be advanced to him to make gifts to his wife for no obvious company purpose - indeed, quite obviously for the personal use of his wife - and whereby that governing director is in direct conflict of interest, where there is a plain breach of section 2294 of the Companies Law - - -

McHUGH J: But that depends. You see, the way the trial judge and the Court of Appeal looked at it was simply to say this: here he is, he has this life governing share , he could have had the money paid to him by way of dividends, but instead do it by way of loans, it was more beneficial to the company and he then gave the money to the respondents.

MR HAYES: Yes.

McHUGH J: If that so, subject to this question of purpose, no breach of fiduciary duty. But the problem from your point of view is the question of purpose does not seem to have ever been an issue.

MR HAYES: Your Honour, there was just no issue but that the purpose of these advances to Mrs Hancock as she then was were nothing to do with the company, no issue, they were all for private assets and use, no issue about that.

McHUGH J: Yes, but if it was Mr Hancock's money, he could do what he liked with it.

MR HAYES: Not if in doing so he put himself in conflict with his duties as a director of the company where there were some shareholders who were not under his control.

McHUGH J: Correct, but the way the case was conducted, it seems to me at the moment that it was accepted that there was no breach of fiduciary duty on his part if the payments were made by way of loan or in repayment of the $23 million debt owing to him and those payments were for the benefit of the company. The wider issue that you want to raise - and I can understand the force of why you would want to raise it - just never got its head in the door.

MR HAYES: My fourth reason is the main reason why that is so. Three days into the trial, the case having been previously conducted - and I have the defence that existed before here - - -

McHUGH J: I know, but on this point, counsel appearing for your side consented to the defence being amended.

MR HAYES: On the basis that leave was granted to amend the reply and the reply was going to be amended to challenge the value of the $20 million consideration involved in the sale of the life governing share, and that was going to become a discrete issue.

GUMMOW J: But the Full Court dealt with this amendment point, did it not?

MR HAYES: The matter was put before the Full Court.

GUMMOW J: Yes.

MR HAYES: But the Full Court upheld the procedure that was adopted by the trial judge. But what Mr Myers submitted to the Full Court, your Honour, was this, that "the life governor share was - - - "

McHUGH J: Where is this, Mr Hayes?

MR HAYES: I am just reading from Mr Myers' transcript, the transcript of what he said, your Honour, it is not in the application book. "The life governor share was sold for $20 million. The instant it was sold it ceased to have rights of a life governor and a new life governor's share sprang up, fully armed, as it were, from the dragon's teeth, the new life governor's share in Mr Hancock" and his Honour just did not refer to it. What Mr Myers was seeking to persuade the Full Court of was that without any need to amend anything, it was absolutely apparent on the existing material before the trial judge and before the Full Court that the sale of the life governing share for $20 million was a breach of fiduciary duty because the consideration was necessarily illusory, necessarily illusory because the instant it was sold it ceased to have the rights of the life governor and, indeed, it was immediately replaced by an equal life governor's share.

Now, to take up Justice McHugh's concern about the way the trial was conducted, with every mistake it seems that my clients' then lawyers made, if that turns out to be so - - -

GUMMOW J: We do not know that.

McHUGH J: We do not know that. I mean, counsel conduct cases for various forensic reasons, then appellate courts look at them in a different light, but when you are on the ground at the trial, it must have appeared the way to conduct the case, it seemed to be very much a factual case as perceived at the trial, counsel made a decision to conduct it in that fashion.

MR HAYES: The case was being conducted on the mutual basis that these were gifts by the company to Mrs Porteous. Three days into the trial - we have the defence here - I have the proposed amended defence and counterclaim, and in the defence and counterclaim it says, "At all material times, each of the directors and members of the plaintiffs accepted gifts, permitted the plaintiff to make payments on their behalf" and so on. What was sought to be said was that these were loans to Mr Hancock.

Now, that came in three days into the trial. That changed the dynamics. Counsel for my clients consented on condition that the reply be amended. The amendment to the reply that mattered was to bring in a challenge to the sale of the life governing share. That was not allowed and Justice Anderson said, in not allowing it, that it crossed the line between latitude and unfairness. Now, your Honours, in circumstances where a material amendment was made three days into a trial, where there is no suggestion that no witness was going to be lost by reason of the late amendment, in our respectful submission, it was a breach or a misapplication of JL Holdings to have not allowed the amendment in relation to the life governing share.

McHUGH J: Yes, I know, that is the way you seek to put it, but the case for the respondent is that the amendments only made plain what was already inherent in the pleadings. You were given leave to make amendments to the reply, but what you sought to add in relation to the overvaluation was seen by the judge as going beyond the amendments which were consequential upon the amendments to the defence and in those circumstances, he thought it would be unfair to let you raise it. That is a discretionary matter. Why should this Court get involved in a matter concerning an amendment of pleadings?

MR HAYES: For these reasons: we say look at what the actual ratio of this decision stands for and you will find that it stands for a principle inconsistent with existing equitable principles, inconsistent with other decisions, Hannes' Case, equal level courts across the nation.

McHUGH J: Not if you read the judgment in accordance with the material facts of it. In fact, it seems to me, having regard to the way it was conducted, it has practically no precedent value.

MR HAYES: Well, your Honour, the citers of the authority do not look into the way the trial was conducted and that it what was - - -

McHUGH J: No, but they should look at the material facts and you can see the material facts that brought about the court's decision in this particular case, and they do not result in any conflict with existing authority because of the way the case was conducted.

MR HAYES: Your Honour, the amendment that was allowed was to introduce for the first time an allegation that these advances were made to Mr Hancock as a loan. That was contradicted by material, the wills of Mr Hancock at that time, which clearly indicated an intention that these be advances to Mrs Porteous.

McHUGH J: That may have been part of the evidence, but it is certainly a novel principle that you cannot get an amendment because you happen to know or even have in your possession some documents which contradict what is in your amendment.

MR HAYES: Not some documents, your Honour. There were no documents the other way, and it is fundamental to the administration of justice, with the greatest of respect, that counsel should bring to the attention of the Court facts which directly contradict the underlying factual basis of the amendment.

McHUGH J: There may be some ethical rules that have been brought in recently about that but, hitherto, counsel's duty was to bring authorities, statutory enactments bearing on the point. I have never heard it said, subject to some new Bar rules, that counsel are under any obligation to bring facts to the attention of the Court.

MR HAYES: Not to mislead the court, which you can do quite easily if the facts are not put before the court, and here, your Honour, the finding as to the loans is a perverse misapplication of section 1305 of the Corporations Law anyway because what the books showed was that the amounts were recorded as loans to Mrs Porteous, but at year end, they were re-debited and credited so they were then credited to reduce to zero her loan account and debited either to Mr Hancock or some company.

McHUGH J: I know, but there was a system of accounts and Mrs Rinehart was dealt with in much the same way, was she not, in terms of loans?

MR HAYES: That is all just part of what the system was, your Honour. But the fact of the matter is that the accounts, being prima facie evidence, the only evidence otherwise being to the same effect, namely the wills, the accounts showed that these were advances made to Mrs Porteous.

Your Honour, I see that I am going through a red light.

McHUGH J: Yes.

MR HAYES: I will not be much longer because I have probably already crashed, but the fact is your Honour can understand how strongly my client feels about what appears to be, certainly to her, a great injustice by this, and when you stand back and look at the facts of the matter as we have set out in that "Ratio" document, it is a stark decision indeed. It looks at the matter entirely from the wrong perspective and it is not a proper case for the application of Daly, and if it is, that bit of the obiter of Chief Justice Gibbs - - -

McHUGH J: Brennan.

MR HAYES: Brennan, is it, sorry - - -

McHUGH J: Is it?

GUMMOW J: Yes, Justice Brennan. When I said "Chief Justice" I was wrong

MR HAYES: Justice Brennan, thank you, it contradicted by other authorities such as the Privy Council in Reid. What is more, you have one decision in Western Australia standing directly contradicting a decision of now an equivalent level court, the Full Court of Western Australia. In circumstances, your Honour, where those representing my clients sought to raise the issue of the life governing share sale and it is self-evidently one, we would say, based on illusory consideration, its very personal nature tells you that once it is sold, it loses its value, as shown by the fact that it was immediately replaced by another one.

There you have, effectively, a gift of $20 million, the clearest possible breach of fiduciary duty, and nothing in the way the trial was conducted would have stopped the court, either the Full Court or the High Court, if it gets there, from properly considering what the facts actually show. We have cited our submission, I think, it is - - -

McHUGH J: Yes, I know, but if you were going to get into purpose or motivation, you open up a whole factual vista, and that just was not done at the trial.

MR HAYES: It was not done at the trial materially because we were not allowed to raise the issue of the life governing share, three days into the trial, when the respondent to this application was given an indulgence to raise a new matter herself.

McHUGH J: That is arguable. I think your time has expired, Mr Hayes.

MR HAYES: Thank you, your Honour.

McHUGH J: Thank you. We need not hear you, Mr Collins.

MR COLLINS: If the Court pleases.

McHUGH J: By reason of the evidence of Mrs Porteous, the entries in the accounts of the applicants, the concurrent findings of fact by the trial judge in the Full Court and the conduct of the case by the applicants at the trial, there is no reason to doubt the correctness of the judgment of the Full Court that no breach of fiduciary duty occurred in this case.

It would only be if the applicants had established that there had been a breach of fiduciary duty that a question would arise whether the Full Court was right in concluding that the applicants could not obtain equitable relief unless the relevant transactions were set aside - which the applicants did not seek to do at the trial.

Given the conduct of the case by the applicants at the trial and the different case they sought to make on appeal, the detailed analysis of the case by the Full Court shows that it did not fail to perform its appellate function.

We also reject the claim that the trial judge should not have allowed the respondents to amend their defence or, alternatively, should have allowed the applicants to amend their reply. Counsel for the applicants consented to the amendment of the defence, and there was no error in the trial judge's exercise of discretion in refusing the totality of the amendment of the reply, which the applicants sought.

It will be necessary to dismiss this application, but before we do so it is necessary to repeat what we said at the outset of this case - that we have been concerned at the terms of the summary of argument filed by the applicants. It follows a pattern that is not uncommon. The statement of the factual background does not state all the facts found by the trial judge and the Full Court and which they considered to be relevant to the issues in the case. In substance, the statement of factual background in this case stated the facts as the applicants would see them and not as they were found by the courts below. Indeed, the contrast between the findings of the trial judge and the statement of facts in the summary of argument is rather striking.

The statement of factual background in the summary of argument will not fulfil its function unless it states concisely but comprehensively the facts found or acted upon and considered relevant by the court whose order is the subject of the appeal. In the case of a jury trial the statement of factual background should state the evidence as to every material fact that could support the jury's verdict. Indeed, the form provided for in the rules as to the respondent's summary of argument assumes that ordinarily the respondent will not state the facts of the case, but refer only to the facts stated by the applicant which are in dispute.

If the applicant disputes any finding of fact by the lower court or its relevance, the place to do it is the applicant's statement of argument, not the statement of factual background. Similarly, if the applicant wishes to assert that a fact should have been found, the place to do it is in the statement of argument.

Unless the applicant states candidly, concisely and comprehensively the material facts as found in the lower courts, whether they are favourable or unfavourable to the applicant, this Court is likely to be misled as to the issues really arising in the application for special leave to appeal. Similarly, if a special leave question does not arise, unless some issue of fact or law is first determined in the applicant's favour, it is misleading to state that special leave question without indicating that these anterior issues have first to be determined.

Our remarks concerning the summary of argument are meant to have general application. They are by no means confined to this particular case.

Having said that, we are of opinion that the application must be dismissed with costs. Mr Hayes, I think it follows that it must be dismissed with costs. Accordingly, the applications are dismissed with costs.

The Court will now adjourn to reconstitute.

AT 12.09 PM THE MATTER WAS CONCLUDED