Elfic Limited & Ors v Macks & Ors B50/2001 [2002] HCATrans 131 (19 March 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B50 of 2001

B e t w e e n -

ELFIC LIMITED

LENSWORTH PROPERTIES PTY LIMITED (IN LIQUIDATION)

GLENMORE PARK ESTATE LIMITED

FOSTER'S BREWING GROUP LIMITED

KINGLINGSTON PTY LTD

CALOUNDRA DOWNS PTY LTD

CABOOLTURE WATERS PTY LTD

MANGO HILL DEVELOPMENTS PTY LTD

JOHN FRANCIS O'GRADY

JOHN DANIEL CROSBY

Applicants

and

PETER IVAN MACKS & THE COMPANIES LISTED IN THE SCHEDULE

First Respondents

GORDIAN RUNOFF LIMITED

Second Respondent

COMMONWEALTH BANK OF AUSTRALIA

Third Respondent

Application for special leave to appeal

GAUDRON J

HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON TUESDAY, 19 MARCH 2002, AT 2.20 PM

Copyright in the High Court of Australia

__________________

MR P.A. KEANE, QC: If the Court please, I appear with my learned friend, MR J.D. McKENNA, for the applicants. (instructed by Clayton Utz)

MR E.J.P.F. LENNON, QC: May it please the Court, I appear for the first respondent with my learned friend, MR R.M. DERRINGTON. (instructed by Hunt & Hunt)

MR B.D. O'DONNELL, QC: May it please the Court, I appear for the second respondent. (instructed by Dibbs Barker Gosling)

MR D.C. ANDREWS, SC: May it please the Court, I appear for the third respondent. (instructed by AJ Mullumby Solicitor)

GAUDRON J: Thank you. The respondents, I think, have been told that we think you should be able to sort out between yourselves the use of one half an hour.

MR O'DONNELL: Yes, thank you, your Honour.

GAUDRON J: Thank you. Yes, Mr Keane.

MR KEANE: Thank you, your Honours. Your Honours, the questions in respect of which we submit special leave is warranted are set out at page 155 of the application book. Your Honours will see that they concern the proper construction of section 477(2)(c) of the Corporations Law, which has been re-enacted, and the law in relation to champerty, its continued operation, and the effect of orders made.

HAYNE J: Now, would we ever get to those questions in this litigation as presently constituted - a separate action seeking a bare declaration at the suit of a stranger to a set of agreements about whether the agreements are enforceable between other parties?

MR KEANE: Well, your Honour, the declaratory relief that we seek as to the unlawfulness of the arrangement is said not to be available because of views expressed in a decision of the Court of Appeal in Queensland in Interchase, a decision which is not itself without controversy. More importantly, your Honour, we are directly affected by the way in which these proceedings are being brought. We are directly affected - - -

GAUDRON J: Which proceedings are being brought?

MR KEANE: The principal proceedings, your Honour.

HAYNE J: Just so.

GAUDRON J: Just so, and you are affected as defendants - - -

MR KEANE: That is so.

GAUDRON J: - - - not as creditors of the company.

MR KEANE: Well, your Honour, in a way - - -

GAUDRON J: In a way, yes.

MR KEANE: In a way that is perhaps a little more substantial than that, your Honour, in the sense that we are a creditor, indeed, far and away the largest creditor, not just the largest single creditor, but the largest creditors of the Emanuel Group of companies - - -

GAUDRON J: You may be able to pay yourself if the proceeding succeeds.

MR KEANE: That is one of the points that we seek to rely on in support of the proposition that it is an appropriate case in which a declaration be made, in that it shows - - -

GAUDRON J: What declaration?

MR KEANE: Well, your Honour, a declaration that the agreement is unlawful.

GAUDRON J: What concern is it of yours?

MR KEANE: Because, your Honour, as a party who is owed 186 million out of $304 million in debt, any recovery to us will, to a large extent, go round and come back to us less the costs of the proceeding and the 35 per cent profit to go to GIO.

HAYNE J: What effect would the declaration have? Let it be assumed that you obtained the declaration, what then follows?

MR KEANE: Well, your Honour, those who have promoted the scheme and who have included in the scheme provisions which follow upon declarations as to unlawfulness, may take a course which does not involve its continued prosecution, the prosecution of the agreement.

GAUDRON J: Exactly.

HAYNE J: Or may not.

MR KEANE: Or may not.

HAYNE J: Therefore, why should a court make a declaration of that sort which the answer you gave seemed to assume would in no way bind the parties to the agreement, is that right?

MR KEANE: Your Honour, it would bind them in the sense that they were the parties to the decision making the declaration.

HAYNE J: But would it create some estoppel between them, whether res judicata issue estoppel?

MR KEANE: They would all be parties to it, yes.

HAYNE J: Well, are they? There is no lis between them.

GAUDRON J: That is a big question.

HAYNE J: There is no issue between them.

MR KEANE: No, that is true, there is no lis between them.

GAUDRON J: That seems to be the difficulty with these proceedings, that that was an issue that was never addressed at first instance, it was not addressed in the Court of Appeal and would inevitably be the first issue that would fall for consideration in this Court, and we would be without benefit of the views of any intermediate court. Let me tell you, an anterior question might well be whether the appellate powers of this Court were properly engaged.

MR KEANE: As to that, your Honour, there is an appeal from a decision of a superior court of record which, in our respectful submission, gives us a properly constituted appeal.

HAYNE J: We might be off into the joys of matter again, might we not, Mr Keane?

MR KEANE: Perhaps, your Honour, if your Honours are invited to and perhaps even if your Honours are not invited to. We can only deal with the matter on the basis of which your Honours are being asked to deal with it and, in particular - - -

GAUDRON J: No, but you are asking us to deal with it and you have to deal with the problems that lie in your way, it seems to me.

MR KEANE: And, your Honour, as to the suggestion that there is no utility in taking the matter up because the parties on the other side may - - -

GAUDRON J: The suggestion is that there is no lis.

HAYNE J: And no power to make the declaration which you seek, that however ample are the powers to grant declaration that this travels beyond them.

MR KEANE: In so far as that may be so, because the other parties may ignore the declaration, then the question is whether there should be an order restraining them from pursuing the agreement and prosecuting the action pursuant thereto.

GAUDRON J: That is an application you can make in the principal proceedings and it is not an application that you made at first instance.

MR KEANE: With respect, your Honour, we noticed that in our learned friends outline, and that, with respect, is not correct. If your Honours go to the reasons of the learned primary judge at page 11 of the application book - - -

GAUDRON J: Let us go to the application.

MR KEANE: It is relevantly excerpted at page 11, your Honour, in paragraph [9].

HAYNE J: Yes, and which limb of that - - -

MR KEANE:

(b) an injunction to restrain the defendants from performing the Funding Agreement - - -

GAUDRON J: That is one thing which you patently would not have standing to do. Let us leave that aside.

MR KEANE: Well, your Honour, we would submit we would because we are the party directly affected by the prosecution of the agreement, its prosecution - - -

GAUDRON J: You are not the party in any position to assert any rights or liabilities with respect to that agreement.

MR KEANE: Well, your Honour, as to that, the situation would then be this, that we never having been heard about whether this arrangement should be approved, we never having been heard on that point at all because the application was made ex parte, we then find ourselves in the situation where we are being sued pursuant to an agreement which - - -

GAUDRON J: Not pursuant to an agreement; you are being sued in proceedings for which the liquidator has raised funds by means of this agreement.

MR KEANE: And in respect of proceedings - - -

GAUDRON J: But you are not being sued pursuant to that agreement, by or under that agreement. You are being sued on the basis, as I understand it, that some of your transactions were said to constitute an undue preference and others were said to be fraudulent.

MR KEANE: But, your Honour, we are only being sued on the footing that the funding is available pursuant to the agreement.

GAUDRON J: Well, all right, so, so be it. That says nothing about the nature of the proceedings that are brought against you.

MR KEANE: And, your Honour, if the basis upon which we are being sued itself constitutes an abuse of the process - - -

HAYNE J: Then you may apply in the principal action. That I can understand, but this separate action for declaration is the way it has been chosen to cast it.

MR KEANE: That is the separate action for declaration and/or an injunction.

GAUDRON J: What, the injunction - again, the injunction?

MR KEANE: To restrain the prosecution of the action pursuant to the agreement.

GAUDRON J: Where is that?

HAYNE J: Where do we find that?

MR KEANE: At paragraph [11] it was said to be to restrain them from performing the funding agreement, the relevant performance being the support of the action. That is, with respect, what the agreement is for.

GAUDRON J: I do not know that that is right. Performance of the funding - well, there may be a term in there that the liquidator should sue your clients, but if there is, then that is for them to do. That is for the other parties to say whether I am bound or not bound.

MR KEANE: Your Honour, the effect of the funding agreement is set out at page 156, paragraph 4. The very essence of the funding agreement is to provide for us to be sued. That is why it exists.

GAUDRON J: Quite so.

MR KEANE: And, as we understand it, if the funding agreement is itself not enforceable, then we, as the parties who are obviously adversely affected by its performance, in our respectful submission, have standing to say that if it is unlawful, it should be stopped, and if it is an abuse, it should be stayed.

GAUDRON J: Exactly, in the principal proceedings. But you have brought separate proceedings seeking, primarily, declarations, also injunctive relief, which would involve your interference or your interposition in the contractual rights of other persons. I mean, so be it. One knows that certain agreements constitute criminal conspiracy and one could very likely obtain an injunction to prevent the performance of a criminal conspiracy. One can assume that, but that is not what you seek.

MR KEANE: Your Honour, we submit that the essence of this agreement - not something peripheral, but the essence of this agreement is to provide for the prosecution of proceedings against us in circumstances where that agreement, an agreement quite separate from the circumstances that give rise to the principal proceedings, but this agreement provides for the division of the spoils of the principal litigation, which are proceedings pursued in the name of the liquidator under his special statutory powers but - - -

HAYNE J: Well, you see, that raises another whole raft of problems about which I do not want to divert you but which need to be noted. If application were made in the principal action, some useful attention might then be given to, "What is the governing law of these windings-up? Is this a winding-up under the law of Queensland, under the law of South Australia? What is the relevant law that governs it? What is the law that governs this maintenance agreement or champertous agreement, so-called?" It is said to be the law of Victoria. It is said to be Victoria where the agreement is made, a State in which maintenance and champerty is no longer unlawful, perhaps not even tortious.

Now, those are questions that are properly to be raised and debated in the context of the more general submission, the continuation of this suit against us is either conduct of the liquidator warranting his removal - that is a question to be determined according to the law of the winding-up - or it is an abuse of process of this court, the court of Queensland, which again may raise a number of choice of law issues, none of which, as far as I can see, have ever been addressed in this litigation.

MR KEANE: Your Honour, they have been addressed in so far as it has been accepted that the proper law of the agreement is Victoria.

HAYNE J: But I cannot find from the record, for example, where these companies were wound up. Therefore, what law - - -

MR KEANE: Some in Queensland, some in South Australia - that is true.

HAYNE J: Yes, but the key difficulty, it seems to me at the moment, Mr Keane, is that you only get to the champerty of maintenance issues, 477 issues, if it is right to see this as a properly constituted action for declaration. But is that a wrong way to approach it?

MR KEANE: Or for injunction, your Honour.

HAYNE J: But injunction to restrain performance of the agreement.

MR KEANE: Your Honour, to say that it is not properly constituted because it might have been brought in the other proceedings, in our respectful submission, is to fail to appreciate that that does not of itself mean that this action is not properly constituted and, particularly so, since - - -

GAUDRON J: But it might suggest it is not a proper vehicle to raise the matters that you wish to raise.

MR KEANE: Your Honours, the matters which we wish to raise are discrete from the matters in issue in the main action, particularly in so far as they affect the parties to the arrangement that we seek to have restrained. GIO and the Bank are not parties in the principal proceedings.

GAUDRON J: No, so it does not matter.

MR KEANE: The lis that we have with them as a group of persons pursuing a common purpose, the lis we have with them, in our respectful submission, is different from the lis involving the principal proceedings and - - -

GAUDRON J: Well, it is a question whether you have a lis with them at all. That is the real issue.

HAYNE J: Could you tell me what your cause of action against them is?

MR KEANE: Well, your Honour, it is champerty.

HAYNE J: I thought reliance on the tort had been abandoned at some stage along the path of this - - -

MR KEANE: Your Honour, we do not seek to establish a tortious liability but we do say that the - - -

GAUDRON J: You want to restrain the commission of a tort.

MR KEANE: Or to stay the abuse of the process which is involved and, in our respectful submission, this is at least a respectable argument, to put it no higher, to restrain the abuse of process involved in the use of the Court's process to seek to venture a right of action from which one of the funders will take 35 per cent of the proceeds and the solicitor through which the funder acts, or his family company, will also take a piece of the action.

GAUDRON J: Let us assume that it is a champertous agreement. Let us make that assumption for the moment. It seems to me you are still facing considerable obstacles. In particular, one then has the choice of law problem. You concede it is the proper law of the contract. One then has a full faith and credit provision which one would assume would be to give effect to the proper law of the contract. None of these matters have been ventilated below.

MR KEANE: Because, your Honour, it has been accepted that if the proper law of the contract is Victorian, on the terms of the Victorian statute which renders these arrangements no longer criminal, it is affirmed that they remain unlawful.

GAUDRON J: But none of these issues have been addressed, have they, in the courts below?

MR KEANE: Well, your Honour, not to the detriment of our learned friends and not in a situation which renders the case an inappropriate vehicle, in our submission.

GAUDRON J: It seems to me to raise a lot of unventilated issues, none of which would arise - or most of which could be satisfactorily dealt with by an application in the principal proceedings.

MR KEANE: Even if it be accepted that it might have been done, that it has not been, in our respectful submission, does not alter the fact that this is a case in which this agreement is being effected in circumstances which, it is accepted by the Court of Appeal below, rightly, on all counts by all parties, this agreement is champertous unless it is authorised pursuant to 477(2)(c).

HAYNE J: Do you accept that if you obtain the declaration which you seek, there would be no bar presented by that declaration to the parties to the agreement continuing to perform it according to its tenor?

MR KEANE: They would then proceed at their own peril, of course. We accept what your Honour says, but of course they will proceed at their peril. The question is whether they would and the likelihood is they would not but - - -

GAUDRON J: I would have thought they were proceeding at their peril at the moment.

HAYNE J: In peril right now.

MR KEANE: Well, as to that, of course, they have the order of Justice Mansfield, obtained ex parte - - -

GAUDRON J: Well, it seems to me that there has been reading into that perhaps more than there should be. There may be much less than meets the eye to that order. It is authority to a liquidator to enter into arrangements that will be performed over a longer period of time than would normally be the case. It does not seem to me that it says anything about the legality of such an arrangement at all.

HAYNE J: But in a properly constituted action in which there is an opposite party, how could the leave given by the judge, ex parte, stand between those parties litigating afresh, if you like, or litigating for the first time, the issue of the lawfulness of what he has done?

MR KEANE: Quite, your Honour, and as to that, if we had been served, we would have been able to make the points we wish to make in the proceedings commenced by Mr Macks, which would have been, not the principal proceedings but the separate proceedings in which we should have been heard to start with, and there could not have been a suggestion that we were not acting appropriately - - -

GAUDRON J: That raises a number of issues that have not been decided in your favour or even considered.

MR KEANE: No, your Honour, but we are simply making the point that if Mr Macks could commence his proceedings by separate proceedings, we can challenge them in separate proceedings because we should have been heard in his proceedings.

GAUDRON J: He did not commence the proceedings by separate proceedings. He sought approval to enter into an arrangement. He commenced the proceedings in an ordinary manner by statement of claim, or what have you, against the others. You are confusing very many ideas, Mr Keane.

MR KEANE: Well, your Honour, section 477(6), which permits the exercise of the powers of a liquidator to be the subject of the control of the court. We invoke the court's control.

HAYNE J: No, are you invoking the supervising court? As I say, whose liquidation is this, South Australia's, Queensland's, what law? All these things are blissfully ignored below. It seems to me to be a rather startling piece of ignore.

MR KEANE: Your Honour, on any view, some of them are Queensland. I see our time is up. If your Honours please, those are our submissions.

GAUDRON J: Thank you. We need not trouble the respondents in this matter.

The applicants brought an action in the Supreme Court of Queensland seeking, among other relief, declaratory orders that certain agreements made between the respondents and to which none of the applicants was a party (1) are contrary to public policy and void; (2) were made by the first respondent as liquidator of those corporate respondents which are in liquidation without sufficient authority; and (3) were not made by the liquidator in good faith. The applicants' claims failed both at trial and in the Court of Appeal in Queensland.

Given that the applicants are not parties to the agreements, the validity of which they seek to challenge, an appeal to this Court against the refusal of the declarations that were sought at first instance would not enjoy sufficient prospects of success to warrant a grant of special leave. Moreover, the questions which the applicants seek to agitate about the construction and operation of sections 477(2)(c), 565, 588F and 588M of the Corporations Law would not fall for decision even if special leave to appeal were granted.

The power to grant declaratory orders is ample. Nonetheless, to grant at the suit of a stranger a bare declaration about the enforceability of rights and duties undertaken by others under agreements which those others have made would, in the circumstances of this case, travel beyond the limits of the power. A declaration, if made, would not bind the parties to the impugned agreement because there is no issue between them that would be litigated in or decided by the present proceedings. That being so, it would be wrong to make the declarations that are sought. Accordingly, special leave must be refused with costs.

MR O'DONNELL: May I raise one matter, your Honour? GIO's name has changed. It has changed to another name, but it is still the same - - -

GAUDRON J: I am sorry, yes, I forgot that. There is a motion, is there not, before - - -

MR O'DONNELL: Yes, a motion and an affidavit of Mr Jenvey, your Honour.

GAUDRON J: Yes. There are consent orders?

MR O'DONNELL: Yes, there are, signed on behalf of all parties, which I could hand up to your Honour.

GAUDRON J: Yes. No, I think we have those. There will be orders in accordance with the signed consent of the parties.

MR O'DONNELL: Thank you, your Honour.

GAUDRON J: Thank you. Otherwise, special leave is refused with costs. We will adjourn briefly to reconstitute.

AT 2.44 PM THE MATTER WAS CONCLUDED