Sons of Gwalia v Margaretic & Anor; ING Investment Management LLC v Margaretic & Anor [2006] HCATrans 321 (16 June 2006)

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Sons of Gwalia v Margaretic & Anor; ING Investment Management LLC v Margaretic & Anor [2006] HCATrans 321 (16 June 2006)

Last Updated: 20 June 2006

[2006] HCATrans 321

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S86 of 2006

B e t w e e n -

SONS OF GWALIA LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

Applicant

and

LUKA MARGARETIC

First Respondent

ING INVESTMENT MANAGEMENT LLC

Second Respondent

Office of the Registry
Sydney No S87 of 2006

B e t w e e n -

ING INVESTMENT MANAGEMENT LLC

Applicant

and

LUKA MARGARETIC

First Respondent

SONS OF GWALIA LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

Second Respondent

Applications for special leave to appeal

GUMMOW ACJ
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 JUNE 2006, AT 12.22 PM

Copyright in the High Court of Australia

__________________

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR K.J.M. de KERLOY, for the applicant in S86 and the second respondent in S87. (instructed by Freehills)

MR T.F. BATHURST, QC: If the Court pleases, I appear with MR P.D. CRUTCHFIELD for the second respondent in S86 and the applicant in S87. (instructed by Arnold Bloch Liebler)

GUMMOW ACJ: Yes, are you in effect an ally of Mr Jackson?

MR BATHURST: Yes.

MR B.A.J. COLES, QC: In each of the matters, if your Honours please, I appear with my learned friend, MS K.M. RICHARDSON, for the respondent. (instructed by Jackson McDonald)

GUMMOW ACJ: Yes, Mr Coles.

MR COLES: Our submission is that your Honours would not grant special leave in this case because the unanimous decision of the Full Court of the Federal Court upholding the decision of Justice Emmett is not shown to be attended by such error as would justify that grant. We put three matters shortly, your Honour. We say that plainly the single issue in the case is whether the provisions of section 563A of the Corporations Act operate so as to prevent the particular statutory claim made by the respondent in the present case - operate to make that claim one which can be classified or categorised as a claim to prove in the winding-up in that person’s capacity as a member of the company.

We make really three short points. The first is that in the case of an acquisition of shares, either on market or off market for that matter, but not by subscription, the shareholder’s loss relevantly is likely to be occasioned or indeed is occasioned at the moment of acquisition from the seller, not in consequence of any transaction then and immediately involving the company, that is to say, the gaining or retaining of registration as a member of the company – and you do not become a member of course until you are actually registered as such – is not an element of the cause of action, so that if liquidation supervened before registration, the loss would be the same and the same claimant would bring the same claim, even though not a member of the company.

Likewise if that same claimant, having acquired the shares, they having fallen in value, then disposed of those shares in order to realise or crystallise the loss and thereby ceased upon the registration of his transferring to be a member, the same would follow, and in neither case, and they are but two of several possible examples, in neither case would the status as a member of the company be a condition of the title to the cause of action to recover loss under the statutory causes of action which are contained, amongst other places, in the Corporations Act itself.

That brings us to our second point, if your Honours please, that if what I have just put is right – our first point – the next question is whether there is anything in this Court’s decision in Webb v State of Victoria which precludes that conclusion, the unanimous analyses of what – the analyses of the three justices of the Full Court plainly indicated – and in our respectful submission the contrary is not relevantly sustainable – that Webb’s Case was concerned with the circumstances that arise in connection with the allotment of shares to a subscriber and was not concerned and was not intending to decide any issue so far as the question of the transfer of shares by one member to another member post the original allotment stage.

If that is correct, your Honour, then in our respectful submission, there is nothing more than argument about what the effect of Webb’s Case was, and in our respectful submission, the Full Court - - -

GUMMOW ACJ: What about Soden?

MR COLES: Soden is available to support the reasoning that – it does not compel, but it much assists the reasoning process which the members of the Full Court came to. Your Honours will recall Justice Emmett was able to reach his conclusion without recourse to Soden and for our part we would make the same claim. Soden is a case of interest and in point, but its correctness or otherwise does not determine the outcome of these particular proceedings.

The third point, and our last point, your Honours, for present purposes, is we would say when you find provisions such as 563A in the Corporations Act in conjunction with other provisions which supply to persons, without any qualification or abridgment of their status, particular remedies such as a right to claim damages for misleading or deceptive conduct in connection with the dealings and securities or a right to claim, for example, as is sought here, a remedy in respect of non-compliance with the disclosure obligations to the stock exchange under section 674, when you find that there is a remedy in damages conferred upon a person and you find a person who fulfils the qualifications to attract that remedy, it would be seriously reading down the availability of that remedy if its practical efficacy were circumscribed by an inability to prove for the amount of the claim in the winding-up of the very enterprise whose conduct precipitated the loss between the buyer and seller of the shares in the first place.

So we would respectfully submit that 563A should not be construed in a way that would cut down or reduce the availability or effectiveness of what are essentially consumer protection remedies conferred by the same statute and elsewhere in favour of a person and not therefore, in our respectful submission, intended to become unavailable if that person, one of the very classes intended to be benefited by the protection provisions, happened to be a member of the company at the very time when the remedy was likely to be most needed; that is to say, at the onset of external administration. May it please the Court.

GUMMOW ACJ: Yes, Mr Jackson. Was there any agreement between you and Mr Bathurst?

MR BATHURST: It was agreed I think that I go first.

GUMMOW ACJ: Yes, very well.

MR BATHURST: To deal with the third point - - -

GUMMOW ACJ: What is the interrelation between S86 and S87? Why are you an appellant?

MR BATHURST: For two reasons. The first is that we were an appellant in the Federal Court separately to the liquidator. My client is a significant creditor of Sons of Gwalia. The second reason is that in the Federal Court some concern was expressed by one of the judges as to the administrator taking what was described as a non-neutral stance.

GUMMOW ACJ: Yes, I see.

MR BATHURST: They are the short reasons. So far as Mr Coles is concerned, his third point is in effect saying that Webb is wrong. The argument that Mr Coles put about consumer protection provision was the argument that appealed to Justice McHugh in dissent in Webb. The other Justices of course rejected - - -

GUMMOW ACJ: Well, only we can sort that out.

MR BATHURST: Precisely. If anything, it is ground for granting special leave. So far as his first point is concerned, in the present case the first respondent’s claim has the following features: firstly, a misrepresentation by the company inducing him to acquire shares and thereby entering into a statutory contract with the company; secondly, the loss he claimed is what he paid for the shares less the value of any benefits he obtained and perhaps any residual value for the shares; thirdly, any funds used in payment of damages lessens the amount available to what I might describe as ordinary creditors who advanced funds on the basis they were taking priority to members on a winding-up.

Viewed in that way the case, in our respectful submission, is indistinguishable from what was considered in Webb, namely – well, from what has been considered in the earlier cases such as Houldsworth, namely, a subscriber position. It can be best illustrated by considering the position with partly paid shares. If the distinction drawn by the Full Court in Soden is correct, a person induced to subscribe for partly paid shares by misrepresentation could not set off his claims against his liability, whilst a person induced by the same misrepresentation to acquire shares by transfer could do so. That demonstrates, in our respectful submission, with the greatest respect to the Full Court, a lack of logic in the distinction which has
been sought to be drawn by them, and with the greatest respect, by Lord Browne-Wilkinson in Soden.

In any event, we say, dealing with Mr Coles’ second point, Webb was binding on the Full Court. There is a joint book of authorities. Webb commences - - -

GUMMOW ACJ: I do not think you need to take us any further to Webb, Mr Bathurst.

MR BATHURST: If your Honour pleases. The.....submissions. They are our submissions if the Court pleases.

GUMMOW ACJ: Yes, Mr Jackson.

MR JACKSON: Your Honours, may I just say these things. The first, the central question is the meaning of the words in the relevant provision, and a claim by a person who is a member of the company for loss sustained by becoming a member of the company prima facie appears to be a claim in the person’s capacity as a member. Our learned friends say it may be that other persons have claims against the company arising from representations, but those persons might not be members. Your Honours, in that case section 563A might not postpone them, but so what? In the case of the ones who have become members, it does. The second thing, your Honours – that really relates to our learned friend’s first point.

As to the second point, your Honours, the decision in Soden which was adopted by the Full Court – and that appears in paragraph 51 at page 69 – does not sit very well with this Court’s decision in Webb where it was clear that the claims included claims for damages under the Trade Practices Act. I can give your Honours the references if necessary, pages 24 and 35 of the decision.

Your Honours, no doubt the expression adopted in Soden, it referred to the statutory contract, in other words, due to a member – “in the person’s capacity as a member” included moneys payable under the statutory contract, but why, your Honours, should it be limited to those sums? Your Honours, those are the points I seek to make.

GUMMOW ACJ: There will be a grant of special leave in these matters. I think there has to be a grant in both, is that right, gentlemen, if there is to be a grant? Yes, Mr Coles.

MR COLES: Sorry, I was merely going to say, your Honours’ granting special leave would be entitled to impose conditions. We would submit that as a term of a grant of special leave the respondent should be itself granted leave if it so desires to reargue the correctness of Webb in order to propound the minority view at that time of Justice McHugh.

GUMMOW ACJ: Well, you would have to seek leave for that.

MR COLES: Which we need leave for, and we suggest that we can overcome that by making it a term of the - - -

GUMMOW ACJ: Yes, you can put your opponents on notice of that and formulate your submissions accordingly.

MR COLES: The other matter, your Honours - - -

GUMMOW ACJ: That may make it a day and a half, perhaps a two-day case.

MR COLES: The other matter, your Honours, concerns costs, and we would ask for it to be a term of the grant of leave that past costs orders not be disturbed until the matter be approached on the basis that my client is in effect a representative in a test case.

MR JACKSON: Your Honour, so far as that position is concerned that is a matter, in our submission, really better left to the determination of the Court at the - - -

GUMMOW ACJ: I do not think we would take that step at this stage, Mr Coles. There are several matters to be sorted out though. In preparing submissions, counsel – I do not say this is determinative in any way, but it is useful for comparison to look at the provisions in the United States inserted by the Bankruptcy Reform Act 1978. This is a worldwide problem. There is a Bill – I am not sure whether it is yet in force as a statute – of Canada which received the Royal Assent in Canada on 25 November 2005 dealing with the revision of their bankruptcy legislation. It was Bill C-55 of 2005; counsel should be able to pick that up. There may have been reports preparatory to that which throw some light on this whole general problem.

Now, the other matter that arises is that the case should be dealt with as soon as possible. The Court would be able to take the matter – so this would require some telescoping of steps by those with the task of preparing the matter - the Court would be able to take it in Adelaide in August starting at 2.15 on 7 August and going over to the 8th. Would a day and a half be enough, gentlemen?

MR JACKSON: I think so, your Honour.

MR BATHURST: We would anticipate so.

MR COLES: We expect so.

GUMMOW ACJ: Very well. Now, if counsel has any difficulties in meeting that date, come back at 2 and tell us. We need to direct, however, forthwith I think that the 21-day period in rule 42.03 for the filing of the notice of appeal should be abbreviated to seven days and the 14 days for appearance thereafter in 42.06.01 should be abbreviated to seven to get the matter running. Solicitors can liaise with the Registrar to telescope any other steps that are necessary. How extensive was the appeal record in the Full Court?

MR BATHURST: About the same size as the application book. There was an agreed statement of facts and - - -

GUMMOW ACJ: So there is no great bulk?

MR BATHURST: No.

GUMMOW ACJ: Very well. There will be a grant, as indicated, and those special provisions will attend the grant and the matter will be fixed as indicated unless we hear to the contrary at 2.00 pm. We will now adjourn until 2.00 pm.

AT 12.38 PM THE MATTERS WERE CONCLUDED