Adsteam Marine Charters Pty Limited & Ors v Lumley General Insurance Limited & Ors S14/2002 [2002] HCATrans 301 (21 June 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S14 of 2002

B e t w e e n -

ADSTEAM MARINE CHARTERS PTY LIMITED

First Applicant

STIRLING MARINE CONSTRUCTIONS PTY LIMITED

Second Applicant

HOWARD SMITH INDUSTRIES PTY LIMITED

Third Applicant

and

LUMLEY GENERAL INSURANCE LIMITED

First Respondent

OCEANFAST MARINE PTY LIMITED

Second Respondent

OCEANFAST LIMITED

Third Respondent

ROSS STEWART NORGARD

Fourth Respondent

BRYAN KEVIN HUGHES

Fifth Respondent

Application for special leave to appeal

GLEESON CJ

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 21 JUNE 2002, AT 10.58 AM

Copyright in the High Court of Australia

__________________

MR G.C. LINDSAY, SC: May it please the Court, I appear for the applicants. (instructed by Freehills)

MR T.F. BATHURST, QC: If the Court pleases, I appear with my learned friend, MR M.A. JONES, for the first respondent. (instructed by Baker & McKenzie)

MR J.C. SHEAHAN, SC: May it please the Court, I appear for the second, third, fourth and fifth respondents. (instructed by Blake Dawson Waldron)

GLEESON CJ: Yes, Mr Lindsay.

MR LINDSAY: Your Honours, these proceedings raise for the first time in Australia and in the absence of any direct authority on point, the principles governing competing entitlements of the grantor and the grantee of a performance bond in circumstances in which the third party at whose request the bond was issued becomes insolvent. The central feature of the majority judgments in the court below, in our submission, was that even though no provision of the performance bonds and no provision of any contract provided for such a result, payments under the performance bonds should be characterised as payments made in partial discharge of a separate contractual liability and the approach adopted by the majority, in our submission, really proceeds on the basis of some form of presumption that payments under the bonds should be so characterised.

The applicants contend that the majority approach is based, not as it should be, on a construction of the bonds, but on some over-arching policy approach to the characterisation of payments under the bonds. The applicants contend that if the majority judgments stand, the effect of the approach adopted by their Honours would be to undermine the efficacy of performance bonds as autonomous obligations. That is because although a bond is expressed in absolute terms, it would have to be construed as subject to an unexpressed reservation or perhaps two unexpressed reservations, the first being that a payment under the bond operates as a discharge of any liability otherwise owed by the third party at whose request the bond was issued; and the second would be that in the event of the third party being insolvent, the grantee of the bond would to that extent be excluded from proof in the insolvent estate, even though the liability of the third party had not been fully discharged. The proceedings below proceed on the basis that there was no direct authority in point. Nobody could find anything and as far as I am aware nobody has found anything since that was directly in point, a point that was noted by Justice Beazley.

The applicants, on their primary case, contend that the judgments of the trial judge, Justice Austin, and the minority judge in the court below, Justice Beazley, are substantially correct. The majority judges, Justices Priestley and Giles, took a different view from the other judges for two reasons which, although differently expressed, amount, in our submission, to pretty much the same thing and that is the adoption of some form of presumption that a payment under a performance bond is to be treated as operating as a discharge of liability under a third party contract. The gravamen of that approach is found principally in the judgment of Justice Giles, first of all at page 131 of his Honour judgment at line 5 in paragraph 136 down to the end of paragraph 137. He starts by noting that the substance of the analysis was that because the contract underlying the bond was silent, the grantee or purchasers as they were sometimes called, could prove for the amount of its damage. His Honour then says at the beginning of paragraph 137:

Focussing on the liability of -

one of the companies -

I prefer a different emphasis.

In the middle of the paragraph he asks the question:

Why should the $5 million not go in partial satisfaction of Adsteam's claimed entitlement?

That question informs the approach that his Honour took and his answer to the question appears at page 134, paragraph 149, where at about line 49 and line 50 he says:

in my opinion the preferable view is that it -

the grantee -

received the money as if paid by -

the third party -

in partial satisfaction of its claim.

Now that preferable view, in our submission, finds no support in the contractual documents and amounts to something in the nature of a presumption. That is the gravamen of the judgment of Justice Giles.

I need to say something also about the approach taken by Justice Priestley who proceeded on a slightly different basis but one which ultimately, in our submission, amounts to pretty much the same thing. The case was conducted on the basis that the rule against double proofs applied so that either the grantor or the grantee, but not both, would be entitled to prove for amounts totalling the disputed $5 million.

There was not, as the judgments suggest, an acceptance, certainly not on our part, that the payments made under the bonds discharged the liabilities that the companies had to my clients the purchasers. That was a matter which appears to have occurred to their Honours by reference to Moule v Garrett upon their Honours' consideration of the case, rather than from argument. If one examines the approach adopted by Justice Priestley, which is articulated at pages 90 through to 92, in our submission, one gets to the same point of some form of presumption because in order to reach a determination that the payment under the bond in some way effected a discharge of liability, one needs to examine again the contract and the bond and one finds, in our submission, no support in either of those forms of document for any proposition that a payment was to operate in discharge.

McHUGH J: Yes, but that creates the problem for you, does it, about special leave. As Justice Priestley said, and it is surely right, the decision must always turn upon the court's view of the facts and the meaning of the documents and there is no point of principle involved in these cases, they are just questions of fact.

MR LINDSAY: In our submission, that is not so. We accept that one needs to construe the contract, the bond and the contracts. Now, it seems to be common ground in this case that when one does construe the bond and the contract, one finds no provision or reservation such as that upon which the court acted. So that our submission is that - - -

McHUGH J: That only means they got it wrong. That is not a ground for special leave.

MR LINDSAY: Your Honour, the question is, what are the principles to be applied? The principles to be applied do not involve, in our submission, the adoption of some form of presumption which is precisely what Justice Giles did. He approached the matter in the passage that I referred to at page 134 at lines 49 and 50 by saying:

the preferable view is that it received the money as if paid . . . in partial satisfaction -

Now, that is something which goes beyond the contracts. It is not a matter that arises from the construction of either the bonds or the contracts.

McHUGH J: Yes, but it is a view that the court imputes to the parties and in this particular case, the judge said "in my opinion the preferable view is", and it is a question of fact, again.

MR LINDSAY: Well, in our submission, that is not so and there is no foundation for imputing it and if that approach were to be adopted, imputing an intention rather than construing the documents in question, it would undermine the efficacy of these documents because one would need, upon receiving a performance bond, to be in a position to impute some intention by reference to matters that do not appear on the face of the bond. The whole purpose of a performance bond is that it can be taken as a cash equivalent. It can be read according to its terms and what this - - -

McHUGH J: It seems a fairly just result to me. What would happen if you had got the whole of the $15 million, would you still be claiming?

MR LINDSAY: Well, first of all, it does not arise on the facts. Secondly - - -

McHUGH J: I know it does not, but if you had been paid the whole of the $15 million in discharge of the performance bond?

MR LINDSAY: A question that then arise, if we received something in the nature of a windfall gain, the authorities provide that there would be an accounting. That accounting would take place between us and the companies so that there is no basis upon which we would, on that approach, obtain a windfall gain. But the fact of the matter is in this case we are out of pocket, there is no such thing as a windfall gain because there will be no complete return and so that the question that arises is, as a matter of policy and, in our submission, it is a matter of substantial significance is what is the proper approach to construction of a performance bond in particular. Can you take a performance bond at face value or is there some reservation that, though you get the money under the performance bond, in some circumstances - and you may be out of pocket - that money can be clawed back by the person who makes the payment under the bond.

Now, the approach that was adopted by the majority, in our submission, actually has that effect because you cannot look at the bond and construe it on its face. There is or may be some unexpressed reservation and the ultimate vice in that approach is these bonds are intended to be cash equivalents. So that the proceedings, in our submission, do raise a question of importance and they go beyond any factual aspect. The case was dealt with in terms of an agreed statement of facts and materials, so the primary facts are not in dispute. The question is, what is the legal consequence that flows from these documents? In our submission, that is a point that is not the subject of - - -

McHUGH J: But in Barclays Bank Lord Templeman who gave the leading speech did not refer to a single authority and Lord Justice Oliver's judgment in the Court of Appeal was very different from Lord Templeman in the Barclays Bank Case and it was Lord Justice Oliver's judgment that Justice Austin placed much reliance on.

MR LINDSAY: That case, in a sense, points up the differences between what the House of Lords dealt with and what we are dealing with because that case contained a bond with a reservation and that is the whole point, what approach do you adopt when there is no such reservation? So that the - - -

McHUGH J: That may be, it depends on all the facts and circumstances of the case.

MR LINDSAY: Well, in a sense, every case can be dealt with on that basis, your Honour, but the question is, what is the proper approach to construction, and in this particular case, if you look at the bond in the Barclays Case you see that there is a reservation and you can make your assessment based on the document. In the approach adopted by the majority here, you cannot do that, that is the vice. So the question is, as a matter of approach to the questions of construction, do you start with some form of presumption and, if so, what is it, and how is it derived? Now, that is really the gravamen of the case and, in our submission, to adopt the approach of the majority is to deface the currency, the currency of a performance bond. That is really the gravamen of the case.

We put a secondary submission which, in our submission, deals with the operation of the rule against double proofs. If that were the only aspect of the case, your Honours may well say that it would not be appropriate to grant special leave in respect of the secondary case. However, in our submission, the primary case certainly does raise those questions and the secondary case is interwoven with it to the extent that the Court would need to consider the content and operation of the rule against double proofs so that in those circumstances we would submit that special leave should be granted not only in respect of the primary case, but also the secondary case. Those are our submissions.

GLEESON CJ: We do not need to hear you, Mr Bathurst, nor Mr Sheahan.

As the judgment of Justice Priestley in the Court of Appeal makes clear, the decision of the majority in the Court of Appeal turned upon their appreciation of the facts and circumstances of the case and the true construction of the documents in question. The case does not raise an issue suitable to a grant of special leave to appeal, and the application is refused with costs.

We will adjourn for a short time to reconstitute.

AT 11.15 AM THE MATTER WAS CONCLUDED