Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth of Australia & Ors [2018] HCATrans 156 (17 August 2018)

Last Updated: 18 July 2019

[2018] HCATrans 156

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M43 of 2018

B e t w e e n -

CARTER HOLT HARVEY WOODPRODUCTS AUSTRALIA PTY LTD

Applicant

and

THE COMMONWEALTH OF AUSTRALIA

First Respondent

MATTHEW JAMES BYRNES IN THEIR CAPACITY AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF AMERIND PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) AND ANDREW STEWART REED HEWITT IN THEIR CAPACITY AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF AMERIND PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)

Second Respondent

BRENT MORGAN IN HIS CAPACITY AS LIQUIDATOR OF AMERIND PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)

Third Respondent

Application for special leave to appeal

GAGELER J
NETTLE J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 16 AUGUST 2018, AT 10.27 AM

Copyright in the High Court of Australia

____________________

MR D.J. WILLIAMS, QC: May it please the Court, I appear for the applicant. (instructed by Polczynski Robinson)

MR J.P. MOORE, QC: If the Court pleases, I appear on behalf of the first respondent. (instructed by King & Wood Mallesons)

GAGELER J: Thank you. I note that there are submitting appearances for the second and third respondents. Mr Moore, we would be assisted from hearing from you.

MR MOORE: Your Honours, the suggestion that is made by the applicant that there is inconsistency between the way in which the Court of Appeal of Victoria answered the question as to the application of statutory priority regime in insolvency when the company in question acted as trustee is inconsistent with the way the Full Court of the Federal Court answered the same question in Jones is correct. But the essential distinction gives rise to an issue that does not arise in this case. That is the Re Suco Gold versus Re Enhill question.

GAGELER J: At page 226 of the application book, in paragraph 286, there is what appears to be a declaration of the law to be applied by courts in Victoria. What do you say about that?

MR MOORE: That is a dicta to the effect that your Honour has mentioned about an issue that does not arise in this case. The distinction between Re Enhill and Re Suco Gold will only arise when there are either two or more trusts in issue or where there is one trust and nontrust creditor in issue. Neither situation occurs here and neither situation occurred in Jones.

EDELMAN J: Does not that submission depend upon your characterisation, quite succinctly at paragraph 17 on page 290 of the Court of Appeal’s reasoning, as being in essence that the realisation of the corporate trustee’s right of indemnity gives rise to proceeds in the insolvency legislation and governs the distribution of those proceeds?

MR MOORE: Yes.

EDELMAN J: If that is not correct, then is the applicant correct in its submission in relation to the first ground of appeal?

MR MOORE: Only if the Act is to be read as requiring the generation of what one might call proceeds. If the Act applies on its terms to property of the company and, as the applicant now concedes, in section 433 the right of indemnity is property of the company, then one just needs to ask whether that proprietary right is capable of generating a fund.

EDELMAN J: If the right of indemnity – as I understand the applicant’s essential submission, it is that the right of indemnity is property but where it is by way of exoneration the operation of that property power is only to make payments to creditors and the power itself is not subject to the insolvency regime.

MR MOORE: Well, if that were correct Octavo would be wrong because in Octavo this Court said the right of indemnity comes into the bankruptcy. The Court said that it is a beneficial proprietary right of the bankrupt, now the trustee in bankruptcy.

NETTLE J: What do you say about the Court of Appeal’s distinction between “bankruptcy” and “company insolvency”?

MR MOORE: Well, the court only addressed that distinction because of the way in Lane, a bankruptcy case, focused attention on this word “proceeds”, which appears in the bankruptcy legislation but not the Corporations Act. But the Court of Appeal in this case said there is no real distinction. If it matters that that word appears in a bankruptcy act – it does not appear here – but their reasoning was there is no distinction between the way “property” is defined in the Corporations Act and the way “property” is defined in the Bankruptcy Act.

So their Honours were not distinguishing between bankruptcy and insolvency and saying in both, just as in Octavo, the trustee’s right of indemnity, a species of property comes into the bankruptcy and falls into the hands of

EDELMAN J: You really have to say, do you not, that it is not so much the right of exoneration coming into the bankruptcy; it is the right of exoneration itself that has to be changed because the right of exoneration is to pay creditors equally. So when you say the right comes in, it is not just the right coming in and then being subject to the regime. The right itself has to change.

MR MOORE: Well, it only changes in the sense that it is realised, just as in Jones Chief Justice Allsop said that the right of exoneration itself can be utilised to generate a fund of money. It is turned into money

EDELMAN J: That is a right of contribution, though.

MR MOORE: No. His Honour was speaking of a right of exoneration being utilised by the trustee to realise a fund. One must always do things with rights and what the corporate trustee does in these cases is utilise the right to generate a fund of money. The question that divided Enhill and Re Suco Gold and the question that divided Jones and Amerind in this case is if that right generates a fund of money by being utilised, does it come with an inherent limitation - that is, it can only be used to pay trust creditors.

NETTLE J: I suppose it depends in part upon what can be used to generate. If it can only be used to generate to pay trust creditors, cadit quaestio.

MR MOORE: Well, yes, and Chief Justice Allsop said that that was so. It can only be used to pay trust creditors. But that does not mean that the Act does not bite.

NETTLE J: Well, that is the $64 question, is it not?

MR MOORE: Only in a case where it matters, and it does not matter in this case.

EDELMAN J: Well, it does to the extent that employees get priority.

MR MOORE: Yes, because of the terms of the Act.

EDELMAN J: Yes.

MR MOORE: Just to put the point in context of this case: if they are right, then in every case in which there is a floating charge, securing a debt that exhausts the assets, which happens in many insolvencies and will happen here if other secured creditors are able to take advantage of the floating charge, the insolvency pool will be scooped. The employees will not just share with every other trust creditor; they will get nothing. The floating charge holder, with a very large debt, in every case in which the company acted as trustee, will scoop the pool. That is the way the applicant wants the Act to be interpreted.

All of the Court of Appeal members and Chief Justice Allsop, and the other members in the Federal Court said that that was an outcome to be avoided – as a matter for Chief Justice Allsop and the Court of Appeal, as a matter of statutory construction. Outside of an insolvency, yes, the right of indemnity can only be used to pay trust creditors and outside of an insolvency to pay trust creditors equally.

But inside a statutory insolvency the policy of the Act is plainly to prevent floating charge holders scooping the pool and leaving absolutely nothing for employees. That is the consequence of the construction of the Act that is pressed by my learned friend and, for all of the reasons given by the Court of Appeal and by Chief Justice Allsop, that is a consequence that ought not be accepted.

NETTLE J: It assumes the floating charges to be treated alike with this right of indemnity.

MR MOORE: It assumes that whenever the holder of the right of an indemnity is a corporate trustee 433 does not apply at all. Section 433 will not bite.

EDELMAN J: Well, you start from the proposition that 433 already does not bite when you are dealing with trust property, subject to the right of indemnity question. Trust property is already taken out of the regime, is it not?

MR MOORE: Only if the trustee has no right of indemnity. The High Court said in Buckle it is not appropriate to focus on the question is this trust property, because when you have a trustee with its own proprietary beneficial right, to say this is just trust property

EDELMAN J: I appreciate that. The point is that putting aside the right of indemnity these policy concerns about some creditors scooping the pool and employees being left with nothing, those policy concerns just simply do not apply where you are dealing with trust property by itself. The question is whether the right of indemnity ameliorates that concern.

MR MOORE: The policy question can only arise when there is a right of indemnity. We are talking about a company, acting as trustee, and incurring debts to employees. The way my learned friend wants the Act to be read is to say whenever that happens the corporate trustee incurs debts to all these employees who work to produce floating assets in the lead up to a windingup, whenever that happens 433 is disengaged. It is not to be applied and if the floating charge holder has a very large debt it will scoop the pool.

EDELMAN J: I am not sure they go that far. I think there is a concession – or there may be something close to a concession – that where the right of indemnity is in the nature of a right of contribution then the scheme will operate upon it because then the assets are realised. They become the property of the trustee company in its personal capacity and then subject to the scheme.

MR MOORE: When your Honour says “right of contribution” I am used to the language of “right of recruitment”. So the trustee has already paid the debts

EDELMAN J: Yes.

MR MOORE: and seeks to be recouped out of the

EDELMAN J: Yes.

MR MOORE: Yes, of course, there are no employee debts in that situation. They have been paid by the trustee, with the trustee’s own money.

EDELMAN J: Yes.

MR MOORE: So the right of indemnity, by way of exoneration, simply is not engaged but neither is the policy situation which I am seeking to press upon the Court because the policy situation only arises when there are unpaid, validly incurred debts to employees and the trustee has no money of its own and seeks to be exonerated for that liability from the trust assets.

The consequence of the construction advanced by my friend, which is to say, “Yes, it is property of the company. Yes, it is property of the company within 433, the right of indemnity.” But, despite all of that, 433 simply does not apply, so a floating charge holder can scoop the pool and bring about the result where employees are left emptyhanded is not a construction that, even if open, we say, would be adopted by this Court because that is the very bias that legislation introduced over 100 years ago was designed to prevent, employees being left emptyhanded by floating charge holders scooping the pool.

Why should it matter that the company in question acted as trustee? Employees will be left emptyhanded if the construction of 433 that they want to adopt, which somehow disapplies it, even though there is property of the company whenever the company acted as trustee.

GAGELER J: Yes, thank you. Is there something more you wanted to say, Mr Moore?

MR MOORE: Your Honour, the questions as framed raise other issues that we say do not arise. Question 1, as framed, assumes that the Court of Appeal found that the property of the company was both a right of indemnity and this notion of underlying assets. As we have pointed out in our submission, the Court of Appeal did not find that the underlying assets were the property of the company. The Court of Appeal found only that the property of the company was the right of indemnity.

GAGELER J: Well, that depends on how you read a couple of paragraphs of the Court of Appeal’s judgment, does it not?

MR MOORE: Only to the extent that the Court of Appeal said that – and throughout the judgment the focus is on the right of indemnity. But on a couple of occasions the Court of Appeal said that the receivership surplus was not trust property. That is what appears to have given rise to some confusion on the part of the applicant who believes that that was a finding contrary to the conclusion below that there was no trust property. Everything that was left, when the receiver was appointed, was not held on trust.

EDELMAN J: Well, it seems to be also your characterisation, at paragraph 17 that I took you to where you say that it is the realisation of the right of indemnity that gives rise to proceeds and it is the proceeds that are governed then by the legislation.

MR MOORE: That is right, yes. We do say that. Once the right of indemnity is exercised, the money needs to be distributed according to the Act. Now, if Re Enhill is right, it is distributed to all creditors. But if Chief Justice Allsop is right, it is still retains its character as being for the use only of trust creditors. But it does not disengage the Act.

EDELMAN J: I may be missing something, but how does the exercise of a right of indemnity give rise to proceeds? If the right of indemnity is by way of exoneration and what the trustee is doing is taking trust assets and immediately discharging debts of the trust creditors, where are the proceeds it gives rise to?

MR MOORE: Most assets need to be converted.

EDELMAN J: But they remain trust property once they are converted?

MR MOORE: Yes.

EDELMAN J: Then the right of exoneration is to use that converted trust property and discharge debts, so where do the proceeds come from?

MR MOORE: It is the realisation of exercising the right of indemnity. It is simply another word for a fund of money generated through the use of the right of indemnity. If there is no right of indemnity, the trust property becomes a fund of money, but in that fund the trustee has absolutely no own beneficial proprietary interest at all. If there is a right of indemnity, the trust assets become a fund of money in which the trustee has its own beneficial proprietary interest and that is where the Act bites.

The Act bites because, as my learned friends concede, the right of indemnity itself is a form of property of the company within the meaning of section 433. The only question is should the proceeds be distributed according to that section? In other cases, there is another question: should the proceeds be distributed according to that section, but only to trust creditors or distributed to all creditors? But that question simply does not arise in this case. Those are my submissions.

GAGELER J: Thank you. There will be a grant of special leave to appeal on the grounds as framed.

AT 10.46 AM THE MATTER WAS CONCLUDED