Perera v Southern Wine Corporation Pty Ltd (In Liquidation) [2007] HCATrans 304 (15 June 2007)

Last Updated: 26 June 2007

[2007] HCATrans 304

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P2 of 2007

B e t w e e n -

RUAN PERERA

Applicant

and

SOUTHERN WINE CORPORATION PTY LTD (IN LIQUIDATION)

Respondent

Application for special leave to appeal

KIRBY J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 15 JUNE 2007, AT 2.03 PM

Copyright in the High Court of Australia

MR P.R. WHITFORD, SC: Your Honours, I appear with my learned friend, MR D.F.C. THOMAS, for the applicant. (instructed by DLA Phillips Fox)

MR N.W. McKERRACHER, QC: May it please the Court, I appear for the respondent. (instructed by Christensen Vaughan)

KIRBY J: Yes, Mr Whitford.

MR WHITFORD: Your Honours, this application raises the question of the proper construction of section 253E of the Corporations Act. That section is conveniently set out in the judgment of the Court of Appeal on page 22 of the application book in paragraph 1, if I could take your Honours to that. In particular, the issue focuses upon the central words in that section “interest in the resolution or matter other than as a member”.

KIRBY J: What is the purpose of the section?

MR WHITFORD: The purpose of the section, in our submission, is protective. It provides a restriction on the voting entitlement of a responsible entity where a responsible entity has taken up its entitlement to membership of the scheme for which it is responsible. The provisions in Chapter 5 which govern managed investment schemes provide for particular duties of a responsible entity in relation to the scheme they are responsible for and, in particular, duties to the members of the scheme. It also provides for an entitlement in the responsible entity to membership of the scheme itself. What section 253 is directed to is to protecting the interests of those other members by placing a restriction on the responsible entity so far as it is entitled to vote its interest in the scheme on matters that arise in which it has an interest, an interest otherwise than as a member, and it is that expression about which - - -

KIRBY J: You really have to say the interest of the liquidator in protecting the position of the creditors is an interest otherwise than as a member?

MR WHITFORD: That is so, your Honour.

KIRBY J: But, as against that, it is in the interest of the member to get the best possible price from the creditors, or to raise the highest amount, and therefore their interests really coincide.

MR WHITFORD: They may coincide but the section does not operate in a way that excludes coincidental interests, it merely imposes the prohibition whenever there is an interest in the resolution or matter that arises otherwise than by membership so there might be - - -

KIRBY J: May I ask what the purpose of the section is because, given that this is coincident interest, the question is, is the section designed to strike at what happened here and the Court of Appeal concluded not.

MR WHITFORD: They did and the learned trial judge reached the opposite decision.

KIRBY J: Justice Murray, yes.

MR WHITFORD: The Court of Appeal, the essence of their reasons and where we say the error is exposed, if I could take your Honours to that, appears principally in paragraph 25. In that section, his Honour the President, at paragraph 25 at the bottom of page 28 of the application book, characterised the interest as being:

The desire to maximise a unit holder’s return on the sale of its units seems to me necessarily to be an advantage or benefit, and hence an “interest”, that arises as a member regardless of whether the sale is for the benefit of its creditors in the case of an insolvent company or, in the case of a solvent company - - -

KIRBY J: So, essentially, their Honours seem to be thinking that the purpose of the section is to stop a member for outside interests cheating on the other members?

MR WHITFORD: They do not say that, with respect, your Honour.

KIRBY J: But is that not what they are really suggesting that is the purpose of the section and if that is the purpose of it, that is against you?

MR WHITFORD: If that is the purpose of it, that is against me. The way they characterise and construe the word “interest”, as it appears in that phrase, his Honour says that interest is “an advantage or benefit”. In our respectful submission, that is looking at the matter far too narrowly.

KIRBY J: In favour of granting special leave in this case is that this is a federal Act and it is a nationwide provision, it has not been considered before by this Court and, indeed, I think this is the first time an appellate court has considered it in Western Australia, and it is a civil case and our list is otherwise full of criminal cases, so they are good reasons. But as against that, Justice McHugh always used to say, and there was a lot of wisdom in it, that matters of statutory construction, by the time they get here, you can argue both ways and therefore we have a well-reasoned decision by Justice Steytler and you really have to show us that that is a wrong or less preferable interpretation for us to grant special leave, otherwise we would just leave it as what the Court of Appeal of Western Australia has said.

MR WHITFORD: With respect, your Honour, if I could add to the reasons why special leave might be granted in this case, this is a protective provision and notwithstanding what Justice McHugh said about being able to argue either side, the arguments on either side reflect a certain ambiguity in quite a tricky phrase in this section and, in our respectful submission, where there is ambiguity the matter needs to be construed to give the maximum possible protection.

KIRBY J: Why would Parliament provide in a case like this, why would it possibly provide that the liquidator was, for the purpose of the Corporations Act, representing another interest when he is only doing, in the case where there is a liquidation, what you would expect the liquidator to do, namely, to try and get the best price?

MR WHITFORD: That is in this case, your Honour. The restriction and, hence, the protection which the section provides is expressed in one sense in quite straightforward language. It is not hedged about or qualified in any way. So, depending on how one construes it, if this situation is covered by it, it is covered by it, but it is intended to cover not just this kind of situation but the sorts of resolutions that might be confronted in respect of which the section must apply could be very wide indeed. But this application throws up in a very neat and discreet way the question of the proper construction of the section; it is intended to be protective.

In the current commercial environment in this country we are seeing frequently failures of investment schemes and ventures. All too often the victims, at least so far as it is reported broadly, of those failures are retirees or what one might call mums and dads investors rather than sophisticated institutional investors. In those circumstances and against that background, in our submission, it is a matter of considerable public importance that this Court give guidance where, in our submission, appropriate guidance has not been given by the Court of Appeal.

KIRBY J: All we could do would be to give guidance in a case where it is the liquidator who has voted and the liquidator will always have both the interest and duty to protect the creditors and it just does not seem to be the type of interest, other than as a member, at which section 253E is targeted.

MR WHITFORD: If one has regard to the reasons of the President at paragraph 25 at approximately line 20 on page 29 of the application book, your Honour, his Honour said:

Its only interest in the resolution or matter was that of achieving the best price for its units. Whatever may have been its motive for doing that, this is an advantage or benefit that is capable of arising only in its capacity as a member.

In our respectful submission, to put it that way ignores the commercial and legal realities of the situation. Certainly the ability to sell one’s units is an incident of membership necessarily and the desire to maximise the price on the sale of units may be an incident of membership, but here, in the case of the liquidator, it is not a member who is in a position of being free to choose at any time when and how they might sell their units. There is a background to this which is the liquidator is being forced to sell these units.

There is, in our submission, a connection or a relationship between those facts and the resolution which provide the appropriate connection or constitute the interest otherwise than as a member which the section is designed to restrict and to offer protection. In our submission, what was done by the Court of Appeal, construing it the way that they did, ignores the realities of that alternative connection to the resolution - - -

CRENNAN J: But pressure on a member does not diminish their characteristics as a member whatever the pressure might be.

MR WHITFORD: No, it does not but what the section says is a responsible entity, as a price of its entitlement to become a member of the scheme for which it is responsible, may not vote its interest in the scheme where it has a connection to the resolution that arises otherwise than by membership or by mere membership. It does not mean that the interest in the resolution must be something separate from membership, it may be connected to membership and obviously, in this case, it is by the nature of the resolution, but there is in the facts here, the fact of the liquidation and the need to protect the interests of creditors, there is a compelling basis for the responsible entities to vote a particular way on the resolution and it is that tendency the section is intended to protect.

It may be that these facts are on the edge of what was intended if this situation was intended at all but, in our respectful submission, it one construes this section properly, then the present facts fall within the restriction and within the protection and the decision of the learned trial judge was right. The question is thrown up in a neat and discreet way which would enable this Court to consider it, give guidance on the interpretation of the section because, with respect to them, there is no illumination of the meaning of this phrase in the section in the judgment of the Court of Appeal.

KIRBY J: The section seems to be addressed to elicit external influences. That seems to be the mischief at which the section is addressed and that could not be alleged in the case of a liquidator. He is only doing what he is supposed to do.

MR WHITFORD: He is doing what he is supposed to do and that is precisely what gives rise to the interest otherwise than as a member.

KIRBY J: I understand the way you put it and that convinced Justice Murray and, if I can say so, you have very prudently put your arguments in a very attractive way but it is a question of whether in the end we would be doing you any favour by bringing it up and whether it is going to lead to a different result and in the case of a liquidator, which must be quite a common situation in the operation of the Corporations Act in this environment, that whether that is the mischief at which Parliament was addressing itself in section 253E.

MR WHITFORD: Whether your Honours are going to do me no favours by taking the matter up has to be put to one side when one considers - - -

KIRBY J: I know you want the favour anyway. You will take the risk. We had a litigant last fortnight who tried to buy their way into the Court. They offered to pay first instance the intermediate court, high costs in this Court; special leave refused.

MR WHITFORD: In our submission, whatever the outcome in relation to these particular facts, it is protective provision that has not been the subject of consideration. It arises in a way that allows your Honours to deal with it neatly and discreetly and, given the commercial landscape that I have described in this country, it is appropriate that there be clear guidance on these protective provisions. All too often it is said that we need more laws or new laws to protect against these commercial failures. On the other hand it is said sometimes that we have the laws but it is question of enforcement. Well, without clear guidance on the interpretation of provisions like this that are protective of investors and particularly investors who are perhaps less sophisticated than some - - -

KIRBY J: I am alert to that but if your theory of the section is right, then the section strikes at the voting of the liquidator representing the respondent in a way that prevents that person fulfilling their obligations in law in this context.

MR WHITFORD: With respect, it does not, your Honour. There is no inhibition on the liquidator selling the units. It would just be the fact that either the resolution would be passed without the liquidator’s participation in it in which case the same result would be achieved or, alternatively, the
liquidator could sell the units in accordance with the restrictions that presently exist in the constitution of the scheme which restrictions he, as a liquidator, sought to remove and frankly said so in the explanatory memorandum that accompanied the notice of meeting. It was said that this was advanced effectively for the interests of the creditors of the responsible entity. That is a relationship with the resolution that arises otherwise than by membership.

KIRBY J: I assume the explanatory memorandum in the Minister’s speech did not make reference to this particular problem?

MR WHITFORD: They did not, no. All that was said, and it is adverted to in I think the judgment of the trial judge – this is the substance of it – was that the price of the responsible entity being entitled to membership of a scheme is that its ability to vote will be subject to certain restrictions.

KIRBY J: Yes, I think we understand the issue. Is there anything else you want to add?

MR WHITFORD: I do not think I can say anything else without repeating myself, your Honour.

KIRBY J: Yes, thank you, that would not be your style I think, Mr Whitford.

MR WHITFORD: Thank you, your Honour.

KIRBY J: Mr McKerracher, we do not need your assistance on this application.

This application concerns the meaning of the word “interest” in section 253E of the Corporations Act 2001 (Cth). It arises out of the action of the respondent’s liquidator voting in a special resolution which would not have been carried without that vote and if the respondent had abstained from voting. Voting is prohibited if the respondent has an “interest” in the resolution otherwise than as a member.

At first instance in the Supreme Court of Western Australia Justice Murray upheld the applicant’s submission holding, in effect, that the interest of the liquidator was identified with the interest of the respondent’s creditors and thus fell within the prohibition contained in section 253E of the Act. The Court of Appeal of Western Australia unanimously upheld the respondent’s appeal and reversed Justice Murray’s orders. The reasons were given by Justice Steytler, the President, with whom Justices McLure and Pullin, Judges of Appeal, concurred. The President held that the respondent’s only interest was to get the best price for the units being sold and the contingent interests of creditors to the same end was immaterial to the prohibition in the section.

We do not consider that the Court of Appeal erred in its approach and interpretation. An appeal would not enjoy reasonable prospects of success. Special leave is therefore refused. The applicant must pay the respondent’s costs.

The Court will now adjourn in order to be reconstituted for the two succeeding applications.

AT 2.21 PM THE MATTER WAS CONCLUDED