Cameron v Cole

Federal Court of Australia|1998-07-23|Before: Finkelstein JJ, Beaumont J

INTRODUCTION This is an application for leave to appeal from an order of a Judge of the Court staying an order for the winding up of a corporation in the following circumstances. By its application under s 459P of the Corporations Law filed on 28 July 1997, the appellant claimed an order for the winding up of the respondent on the ground that the respondent had not complied with the requirements of a creditor's statutory demand for the payment of a debt in the sum of $3,220,056.67. On 15 October 1997, the learned primary Judge ordered, inter alia, that the respondent be wound up; but that this order "be stayed until 14 days after the High Court delivers judgment on the Appeal from BP Australia Limited v Amann Aviation (1996) 62 FCR 451". Leave was granted to the respondent "to move within the said 14 days, to vacate [the winding-up order] in the event that the Appeal… is upheld". In the BP Case, a Full Federal Court had held, in the context of the national jurisdiction cross-vesting scheme, that the States can vest federal courts with State jurisdiction and that the jurisdiction conferred by s 42(3) of the Corporations (New South Wales) Act 1990 (NSW) and each of the equivalent provisions in the legislation of the other States, to make examination orders, issue summonses and conduct and hear examinations under s 596A or 596B of the Corporations Law, was validly conferred on this Court. The appeal to the High Court was heard in April 1997. Judgment was given on 2 February 1998 (see Gould v Brown (1998) 72 ALJR 375). The High Court being equally divided, the decision of the Full Federal Court was affirmed by the operation of the Judiciary Act 1903, s 23(2)(a). On 13 February 1998, the respondent filed a writ and statement of claim in the High Court joining several defendants including the appellant. The other defendants were the State of New South Wales and the Commonwealth. (Subsequently, the respondent discontinued these proceedings as against those defendants.) In these proceedings, the respondent claims (1) declarations of invalidity in respect of s 42(3) of the Corporations (New South Wales) Act, s 56(2) of the Corporations Act 1989 and s 9(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987; (2) an order quashing the orders made by the primary Judge on 15 October 1997; and (3) a declaration that this Court lacks jurisdiction with respect to matters arising solely under the New South Wales Corporations Law. On the same day, 13 February 1998, the respondent filed a notice of motion in this Court seeking orders that the primary Judge's orders made on 15 October 1997 be stayed until 14 days after judgment is given in its High Court proceedings. On 11 March 1998, his Honour granted the stay sought for the reasons then given including reference to an undertaking given by the respondent to the Court that "steps would be taken to ensure that an appeal [to the Full Federal Court from the winding up order] or leave to appeal if the matter is to proceed directly to the High Court, be instituted". This is an application for leave to appeal from this stay order. It is common ground that the order is interlocutory, so that leave to appeal is required. Before going to his Honour's reasons for granting the stay, it should be noted that, notwithstanding the respondent's undertaking, no appeal to the Full Court has been lodged; and that by virtue of s 33(2) of the Federal Court of Australia Act 1976, no appeal lies to the High Court from a single Judge of this Court. Moreover, on the hearing of this application before us, the respondent filed a notice of motion for orders that it be released from its undertaking.

The reasons of the primary Judge His Honour, after observing that the respondent was "hopelessly insolvent", described the history of the litigation in this Court and in the High Court. Referring to Gould v Brown, his Honour said: "That decision, while no doubt a decision of the High Court and binding upon me, is not a binding precedent of authority in the High Court: Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336." Noting that the respondent has not sought to appeal from the winding up order, the primary Judge said: "I have, in discussion with the legal representative for the companies, referred to the decision of the High Court in Cameron and Cole (1944) 68 CLR 571 and the difficulty which might arise if my judgment, being a judgment of a superior court, unappealed, remained, notwithstanding that the High Court was prepared to make a declaration that the corporate scheme was invalid. There would have to be some further proceeding whether before a Full Court of this Court or directly to the High Court with leave before my judgment could be set aside directly. The companies seek to continue the stay which expires this afternoon on the basis that it would be able to proceed with its application to the High Court to deal with the constitutional issue. The ordinary case seeking a stay where matters are on appeal to the High Court requires an appeal court (ordinarily for the matter does not usually arise before a first instance judge) to consider, among other things the status of the argument which might be put to the High Court, the question whether the subject matter of the appeal might be lost if the stay was not granted and matters which go to prejudice generally. There is no doubt that the application has to be made in this Court rather than initially in the High Court: Jennings Constructions Limited v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681. Given that there was an equally divided High Court it is not difficult to say that the matter in the High Court is one of some complexity as to which the companies could not be said to have no chance of success. It is particularly obvious that once a liquidator is appointed the liquidator, generally speaking subject to statutory exception, assumes the powers of the former directors and is in a position, inter alia, to instruct the solicitor appearing in the High Court proceedings, inter alia, to discontinue them. That would have the consequence of totally frustrating the proceedings in the High Court." Observing that the liquidator had refused to undertake that the respondent's High Court proceedings could be continued, his Honour said: "However, an undertaking has been given by the companies that steps would be taken to ensure that an appeal [to the Full Court] or leave to appeal if the matter is to proceed directly to the High Court be instituted. So if the High Court is in a position ultimately to deal both with the summons by way of declaration and the leave to appeal in appeal proceedings which, if the High Court took the view that the corporate law scheme was invalid, really involve it in having to set aside the order which I have made." The primary Judge then granted the stay sought, reserving liberty to apply on 14 days' notice.

The decision of Kirby J on the appellant's application for security for costs in the High Court After the primary Judge gave his judgment, the appellant applied to the High Court for security for costs in the proceedings before it (see Merribee Pastoral Industries Pty Limited v Australia and New Zealand Banking Group Limited (1998) 155 ALR 1). After describing the litigious history, including the decision in Gould v Brown, and upon noting (at 4) the present matter did not concern him, Kirby J said (at 13): "Exercise of discretion Although I regard the case as finely balanced, I have ultimately concluded that security for costs should not be ordered. I take into account the admitted impecuniosity of the plaintiffs and the long course of the litigation in which the parties have been embroiled. I do not feel able to draw any inferences, in the evidence before me, that external funding of the litigation exists which would be likely to continue were security for costs to be ordered. The consideration critical to my decision is the obvious importance to the plaintiffs, and also to the public, of an early resolution of the constitutional questions left without effective answer by the decision of the Court in Gould v Brown. Those questions are bound to arise soon. In a case where cross-vested jurisdiction was assumed by the Federal Court, pursuant to the special scheme relating to corporations, it is likely to arise in a case such as the present where a corporation, despite its objections to jurisdiction, has been wound up. I would not be inclined to put in the way of the resolution of this important constitutional question which the plaintiffs are equipped and wish to argue against the Bank, an impediment requiring them to provide security for the costs of the Bank. Given that they admit to insolvency, such an order might effectively bar their access to this Court and to its resolution of the application of the Constitution which they invoke. As it seems to me, it is desirable that the challenge which they bring should be resolved quickly so that the many proceedings under way in courts throughout this country are relieved of the uncertainty which has been produced by the present state of authority, or lack thereof."

The application for leave to appeal On behalf of the appellant it is submitted that leave should be granted for the following reasons: · The order which his Honour made is ultimately futile for the purpose it was intended to achieve. There can be no realistic prospect that the High Court would fail to apply the reasoning in Cameron v Cole (above (at 599)) in dealing with the prayer contained in the High Court proceedings to quash the winding up order. All three members of the statutory minority in Gould v Brown (Gaudron, McHugh and Gummow JJ) concurred in the approach taken by Gummow J (at 433) in formulating orders which, because of the Cameron v Cole principle, made it inappropriate to answer questions 1 and 2. · The issues now raised are of general importance, having regard to the general availability of equivalent procedures to effectively frustrate this Court's jurisdiction to make effective and valid winding up orders (and many other types of orders under the Corporations Law) in corporations matters. · These proceedings are a wholly inappropriate vehicle for the resolution of the contentious constitutional issue which remains open for the High Court (but not this Court) to decide after Gould v Brown. The point will be resolved in appropriately constituted proceedings brought forward in an appropriate way. · There is no public interest in promoting these proceedings (effectively at the expense of the appellant and other creditors) as the vehicle in which to obtain a decision of the High Court that this Court does not have power under the Corporations Law to make the winding up order. · This Court should intervene to prevent its discretions and powers being used to undermine the operation of the rules and principles of stare decisis as applicable in this case. · The order sought to be appealed is effectively final in its operation in the sense that, unless leave is granted, it will not be possible or practicable to have the perceived errors reviewed and (if appropriate) corrected.

Should leave to appeal be granted? In my view, it is appropriate that leave be granted. Having had the benefit of a full argument, it appears that his Honour's judgment is attended by sufficient doubt to warrant its being reconsidered by a Full Court. Further, in my opinion, substantial injustice, both to the appellant and to other creditors, would result if leave were refused, supposing his Honour's decision to be wrong. Moreover, the matter raises questions of considerable general importance in this area (cf. Pegasus Leasing Ltd v Cadoroll Pty Limited, Full Federal Court, 20 February 1996, unreported).

It will be convenient to consider first the nature and apparent object of the power exercised in granting each of the stays here.

As has been seen, his Honour referred to Burgundy Royale in this connection. But, in my view, that case should be distinguished in the present circumstances. In Burgundy Royale it was held that, pending an appeal, the High Court has inherent jurisdiction, in extraordinary cases, to grant a stay to preserve the subject matter of litigation; and that, when an application for special leave to appeal is made to the High Court, a jurisdiction to stay may be exercised by the court below, and it is to that court, in which the matter is pending and which is familiar with the matter, that an application to stay should first be made.

In the present case a winding up order was made and its operation stayed temporarily on two occasions by the trial Judge. At the time of the first stay, the winding up order being final, an appeal lay as of right to the Full Federal Court, but not directly to the High Court, even by special leave. Yet no attempt was made then by the respondent to appeal to the Full Federal Court, or to seek an extension of time for that purpose. Nonetheless, such an appeal was then possible and a single Judge had the power, if it were appropriate, in the exercise of the Court's original jurisdiction, to order the stay of a final order, in this case the winding up order, pending the determination of an appeal from that order to the Full Court. (The Court had inherent jurisdiction to do this, as well as statutory power under s 23 Federal Court of Australia Act; see also O 37 r 10.)

At the time of the grant of the second stay, the time for appeal from the winding up order had expired; but this Court had the power, again if it were appropriate, to extend that time. By s 25(2) of the Federal Court of Australia Act, an application for an extension of time in which to appeal to the Full Court may be heard and determined by a Full Court or a single Judge. This is done in the exercise of the Court's appellate jurisdiction (see Thomas Borthwick & Sons (Pacific Holdings) Limited v Trade Practices Commission (1988) 18 FCR 424). Again, his Honour was not asked by the respondent to grant any such extension. This Court's appellate jurisdiction was not invoked by the respondent in any respect.

The stay granted by his Honour in October 1997 was ordered in the exercise of this Court's original jurisdiction. Its source was one or all of the following: the inherent jurisdiction; s 23; or O 37 r 10. The appellant did not seek to challenge the grant of that stay. Nor did the appellant challenge the reservation to the respondent to move to vacate the winding up order in the event that the appeal in Gould v Brown were allowed. Since the winding up order was final, and a formal order entered, the source of the power to make that reservation is not clear.

The second stay granted in March 1998 is, however, challenged. In form, it purported to be a variation of the earlier stay, so that the October stay, although not under appeal, is nonetheless material for our purposes. At least, it provides a context in which the later stay should be viewed. To that extent, it can throw light on the true aim or object of the stay under appeal. So viewed, it appears that the present stay was intended to preserve the subject matter of the litigation in this Court pending the resolution by the High Court of the challenge to the constitutional validity of the relevant provisions of the cross-vesting scheme, a challenge made in separate original proceedings in the High Court, and not by an appeal in this litigation either to the Full Federal Court, or on appeal from the Full Federal Court to the High Court by special leave.

(b) Was it appropriate to grant the stay under appeal?

There are limits on this Court's discretionary powers, whether under s 23, O 37 r 10 or in the exercise of its inherent jurisdiction: the exercise of any such power is conditioned by a requirement that the order be "appropriate". Section 23 empowers the Court to make orders of such kinds "as the Court thinks appropriate". Speaking of the power conferred by s 23, Brennan J has observed that the "Court's discretion… to mould relief is [not] at large. The relief which the Court is authorized to give does not extend beyond the grant of remedies appropriate to the protection and enforcement of the right or subject-matter in issue" (Jackson v Sterling Industries Limited (1987) 162 CLR 612 at 620-1). Was it appropriate to grant the stay under appeal?

There are several unusual features of this litigation which bear upon the present question whether it was appropriate to grant the stay:-

(1) The respondent was and still is "hopelessly insolvent". On any view, it cannot trade. As a general rule, a creditor who cannot obtain payment is, as between itself and the company that owed the debt, entitled to a winding up order as a matter of right (see IOC Australia Pty Limited v Mobil Oil Australia Limited (1975) 49 ALJR 176 per Gibbs J at 182). Moreover, the interests of the general body of creditors are entitled to be protected. There is no doubt that jurisdiction exists in some court to order the winding up of the respondent. The reality is that it is not at all significant whether the order is made by this Court or by a State court. To that extent, in practical terms, the validity of the cross-vesting legislation is of limited, temporary significance in the present context. In other words, all that a stay could preserve was the purely technical right to object to this Court, rather than a State court, exercising a power to wind up, where an application for winding up could not otherwise be resisted.

(2) If an appeal to the Full Federal Court against the winding up order had been instituted and, instead of applying to the High Court under s 40(1) of the Judiciary Act 1903 for removal of the appeal to the High Court, a stay had been sought from the trial Judge, the stay should, in my opinion, have been refused, on the ground that the appeal would be an abuse of process, as an attempt to re-agitate in this Court a question of law already determined by the Full Federal Court by a decision subsequently affirmed by an order of the High Court. Where issues have been litigated exhaustively in sample cases, it is an abuse of process for a litigant, who was not a party in one of the sample cases, to attempt to re-litigate the same, or substantially the same, issues on the same evidence (see, e.g., Ashmore v British Coal Corporation [1990] 2 QB 338; House of Spring Gardens Limited v Waite [1991] 1 QB 241 at 254-5). Even more fundamental considerations arise for Australian courts in the case of a decision of the High Court. In Ravenor Overseas Inc v Readhead (1998) 152 ALR 416, Brennan CJ, in refusing to state a case for the Full High Court on the constitutional question decided by the High Court in Li Chia Hsing v Rankin (1978) 141 CLR 182, and instead remitting the matter to this Court, said (at 416):

"At present prosecutions are pending in the Magistrates Court of Western Australia and, as the plaintiffs acknowledge, that court and the State Court of Criminal Appeal, if the matter should reach that court, are likely to take the view that they are bound by Li Chia Hsing. And so they should. Nothing is more important to the due administration of justice than that the courts of Australia should faithfully follow decisions of this court. This court has the responsibility of determining the law applicable throughout the Commonwealth. Nor should it be thought that, because some new argument can be devised contrary to a holding of this court, the authority of its decisions become problematic. Although the decisions of this court will, when this court deems it necessary, be revisited, there should be no qualification about the duty of other courts faithfully to apply the decisions of this court as they stand. Although in recent times rapidly changing social conditions and new insights into the Constitution have led to some notable instances where this court has revisited earlier decisions, it would be erroneous to assume that the corpus of jurisprudence laid down by this court over nearly a century does not have complete authority. The decisions of this court determine the law to be applied by courts throughout the Commonwealth."

It is true that Li was a majority decision, whereas in Gould the High Court was evenly divided, so that Gould is not a binding authority so far as the High Court is concerned. However, as the primary Judge here correctly observed, lower courts, including this Court, are bound: FCT v St Helens Farm (A.C.T.) Pty Ltd (1981) 146 CLR 336 at 369, 392; see generally Macadam and Pyke, Judicial Reasoning and the Doctrine of Precedent in Australia at 190-3; in any event, a court bound by a previous decision whose ratio is not discernible is nonetheless bound to apply that decision when (as here) the circumstances of the instant case "are not reasonably distinguishable from those which gave rise to the decision" (Re Tyler; Ex parte Foley (1994) 181 CLR 18 at 37). (3) The respondent did not act in the usual orthodox way, that is, by appealing to the Full Federal Court from the winding up order and then seeking a stay pending that appeal. Instead, soon after the High Court gave judgment in Gould v Brown, it chose to commence collateral proceedings in the original jurisdiction of the High Court by writ and statement seeking two different kinds of relief: (1) declarations of invalidity of provisions of the cross-vesting legislation; and (2) an order quashing the winding up and other orders made on 15 October 1997. As to relief (1), it may be assumed, for our purposes, that the respondent could claim such relief alone (see Toowoomba Foundry Pty Limited v The Commonwealth (1945) 71 CLR 545 per Latham CJ at 570). But the application for relief (2) suffers from major defects: for one thing, as a claim for relief in the nature of certiorari, the primary Judge, as a necessary party, should have been joined as a respondent party (see The Queen v Gray; Ex parte Marsh (1985) 157 CLR 351 per Deane J at 386). For another, the High Court Rules of Court require that an application for a writ of certiorari be made, in the first instance, to a Justice ex parte for an order nisi, and be supported by affidavit (O 55 r 1). Where an order nisi is refused, O 55 r 10, which empowers the direction of a stay, does not apply (see Re Marks and FIA (1981) 34 ALR 208). Mason J there said (at 212): "I acknowledge that there is some risk that the Federation will lose the right which it claims unless a stay is granted. I recognize also that so long as the Commission's orders remain on foot there is a likelihood that riggers engaged in work of this kind will consider that the FIA will gain representative rights in other projects and will consequently join that union in preference to the Federation, with consequential loss to the Federation. However, in assessing the detriment which the Federation may suffer I have to take into account several factors. They are:- (1) That the grant of a stay of an order in the exercise of the inherent jurisdiction is an exceptional course. (2) That the Federation failed to obtain an order nisi for prohibition. (3) That the right claimed by the Federation is but a right to represent six to eight employees of EPT only and to represent them in connection with their employment at this site when that employment will, in all probability endure for no more than 16 weeks. (4) That the prospects of the Federation succeeding in obtaining a writ of prohibition are not, in my opinion, strong. (5) That in the ordinary course of events, the Federation's application for prohibition will be heard by the Full Court at the beginning of March and that there are reasonable grounds for thinking that the court could give its decision promptly. If my expectation in this respect is misplaced the Full Court could, if so advised, then grant a stay. Taking all these circumstances into account I would refuse a stay. In addition there is a strong element of public interest in the work continuing." (4) It would follow that, even if the respondent had, instead of proceeding irregularly, proceeded to seek certiorari in a regular way, its prospects of obtaining from the High Court a stay at all, let alone an indefinite one, were, I respectfully suggest, negligible. By taking the course it did, the respondent can be in no better position than it could have been if it had sought an order nisi for certiorari and a stay from the High Court. The respondent should not be permitted to take advantage of its own default. Nor should it be able to achieve indirectly what it could not achieve directly (see Bank of NSW v The Commonwealth (1948) 76 CLR 1 per Dixon J at 350). In the circumstances, it was, in my respectful opinion, inappropriate that the stay be granted.

The respondent's undertaking to appeal It will be recalled that in his reasons, the primary Judge noted that the respondent gave an undertaking to the Court to appeal. The undertaking was not formally noted in the order made by the Court, although it is perhaps implicit in the stay order that its operation was conditional upon the undertaking being given and, possibly, performed. Order 37 r 5 of the Federal Court Rules provides as follows: "5 Where a person is entitled under a judgment subject to the fulfilment of a condition, and there is a failure to fulfil the condition, then, unless the Court otherwise orders - (a) he shall lose the benefit of the judgment; and (b) any other person interested may take any steps which - (i) are warranted by the judgment; or (ii) might have been taken if the judgment had not been pronounced or the order had not been made." It may be that the Rule goes no further than the Court's inherent jurisdiction in such circumstances. At all events, it appears that in deciding to grant the stay, his Honour was much influenced by the giving of the undertaking. Even if an interim stay were otherwise appropriate, the fact that the respondent's undertaking has not been performed is itself a reason for lifting the stay. As has been said, the respondent seeks to be released from the undertaking. No evidence or other explanation was led or given in support of this application. The respondent's insolvency is, however, a possible explanation. In the special circumstances, and in order to avoid doubt (see Spry Equitable Remedies at 656-7) it is, in my view, appropriate that the respondent now be released from its undertaking.

ORDERS PROPOSED I propose the following orders:

Leave to appeal granted.
Appeal allowed, with costs.
Lift the stay of proceedings granted on 11 March 1998.
Release the respondent from its undertaking to appeal given to the Court on 11 March 1998.

I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont

BETWEEN: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

BRANSON J: I have had the benefit of reading in draft the reasons for judgment of Beaumont J with which I am in general agreement. I wish to add only the following. In his ex tempore reasons for extending his earlier stay, the judge at first instance said: "I have, in discussion with the legal representative for the companies, referred to the decision of the High Court in Cameron v Cole (1944) 68 CLR 571 and the difficulty which might arise if my judgment, being a judgment of a superior court, unappealed, remained, notwithstanding that the High Court was prepared to make a declaration that the corporate scheme was invalid. There would have to be some further proceeding whether before a Full Court of this Court or directly to the High Court with leave before my judgment could be set aside directly." After considering the question of the utility of a stay and the Court's jurisdiction to order a stay, his Honour noted that the liquidator had declined to give an undertaking that, if a stay were not granted, he would allow the High Court proceeding to continue. His Honour then said:

"However, an undertaking has been given by the companies that steps would be taken to ensure them an appeal or leave to appeal if the matter is to proceed directly to the High Court be instituted." Counsel for the respondent before us, who did not appear as counsel before the judge at first instance, acknowledged that the order dated 11 March 1998 extending the stay was made on the undertaking of the respondent to which his Honour referred. He further acknowledged that such undertaking had not been met, and that the respondent is in contempt of the Court. However, he contended that the undertaking was not one which it was appropriate in the circumstances for the respondent to have given. Counsel was not able to offer any explanation to the Court for the respondent's failure promptly to approach the judge at first instance to seek to be released from the undertaking. As Beaumont J has noted, the respondent sought leave before this Court to file a notice of motion seeking an order releasing it from the undertaking given by it to the judge at first instance. Were this Court to make such an order, it would have the effect of leaving the respondent with the benefit of an order, the price of which, in effect, was the very undertaking from which it seeks to be released. In my view it would be inappropriate for such an order to be made. The undertaking given by the respondent to the judge at first instance is to be understood as an undertaking to seek an extension of time within which to seek leave to an appeal to the Full Court of this Court from his Honour's decision, and, should an extension of time be granted, to seek such leave, and should such leave be obtained, to lodge such an appeal. The respondent was obliged, in the circumstances, to honour its undertaking within a reasonable time from the date of his Honour's order. In my view such reasonable time has long expired. Thereafter, in my view, the appellant has been entitled to move either his Honour, or another judge, to have his Honour's order set aside.

In the circumstances, I agree that the appropriate course is for the orders of the Court to be those proposed by Beaumont J. I certify that this and the preceding two (2) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson

On Appeal from a Judge of the Federal Court of Australia

BETWEEN: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

REASONS FOR JUDGMENT FINKELSTEIN J: I agree with the judgment of Beaumont J but I will briefly state the main reasons that lead me to the conclusion that there should be leave to appeal and that the appeal should be allowed. For some time now it has been doubted whether even with the consent of the Commonwealth parliament a State parliament can confer state jurisdiction on a court established by the Commonwealth parliament under Chapter III of the Constitution. The answer to this difficult constitutional question is not without great practical significance for the regulation and administration of companies formed within Australia or who carry on business in this country. The desirability of there being a uniform set of laws throughout Australia regulating the affairs of companies has long been accepted. Such uniformity promotes commercial activity, brings about a reduction in business costs, produces efficient capital markets and results in investor confidence. Recognising this, in 1961 and 1962 the several States and Territories enacted uniform Companies Acts. However, by 1965 the authors of "Australian Company Law and Practice", Wallace J and Young QC (later to become the Chief Justice of Victoria) were able to say that departures from uniformity were numerous and while some could be explained by the drafting style of each State many were inexplicable. In 1979, at the insistence of the commercial community and of commentators and perhaps as a result of the report of the Senate Select Committee on Securities and Exchange (1974), the Commonwealth and the States agreed to enact co-operative companies legislation that would be and continue to be uniform throughout Australia. The agreement is set out in the schedule to the National Companies and Securities Act 1979 (Cth). In consequence of this agreement the Commonwealth enacted four main pieces of legislation namely the Companies Act 1981, the Companies (Acquisition of Shares) Act 1980, the Securities Industry Act 1980 and the Companies and Securities (Interpretation and Miscellaneous Provisions) Act 1980 and the several States and Territories enacted laws adopting each Commonwealth Act as a law of that State or Territory. On 1 January 1991 a new national scheme replaced the co-operative scheme laws. The Attorney-General for the Commonwealth described the new scheme as one that "will offer for the first time in the nation's history a single and truly national scheme that can guarantee a sound and well regulated environment for corporate activity. Without such legislation business in this country cannot prosper as it should and investors, both at home and abroad will lack the security and confidence that is essential to our future economic growth and well being." For constitutional reasons (see New South Wales v Commonwealth (1989-1990) 169 CLR 482) the national scheme laws comprised a Corporations Law that is enacted in s 82 of the Corporations Act 1989 (Cth) as amended by the Corporations Legislation Amendment Act 1990 (Cth) that applies as a law of the Australian Capital Territory and the several States and the Northern Territory have enacted legislation applying the Corporations Law as a law of that jurisdiction: in New South Wales see the Corporations (New South Wales) Act 1990. A central feature of the new scheme was its establishment of a system of vesting and cross-vesting of civil and criminal jurisdiction between state courts and federal courts in respect of matters arising under the Corporations Law: in New South Wales see Part 9 of the Corporations (New South Wales) Act 1990. The evident purpose was to ensure as far as possible that the Corporations Law was administered and enforced on a national basis in the same way as if the Law constituted a single law of the Commonwealth: Re Terranora Leisuretime Sales Pty Ltd (1991) 9 ACLC 1,111. Thus it was no longer necessary to commence or defend proceedings in any particular jurisdiction. They could be commenced in the most convenient jurisdiction and if not so commenced could be transferred to that jurisdiction for determination. It is by reason of these provisions that the Federal Court is given jurisdiction to wind up a company that is incorporated in a jurisdiction other than the Australian Capital Territory. And it is the constitutional validity of these provisions that remains in doubt notwithstanding the decision of the High Court in Gould v Brown (1998) 72 ALJR 375 that was handed down on 2 February 1998. The question that arose for consideration there was whether the Federal Court had jurisdiction to wind up a New South Wales company. Six Justices heard the case. Three of them (Brennan CJ and Toohey and Kirby JJ) held that provided the Commonwealth parliament agreed to the vesting of State jurisdiction in the Federal Court a State parliament could invest that jurisdiction in that court. Three Justices (McHugh, Gaudron and Gummow JJ) reached the opposite conclusion. Thus, by statutory majority (see s 23(2)(a) of the Judiciary Act 1903 (Cth)), the decision of the Full Court of the Federal Court in BP Australia Ltd v Amann Aviation Pty Ltd (1996) 62 FCR 451, where it had been decided that the Federal Court did have that power, was affirmed. It is inevitable that the High Court will be asked to reconsider the issues raised in Gould. Whether it will do so cannot be predicted but the possibility cannot be denied. In the meantime parties who have chosen to litigate claims arising under the Corporations Law in reliance on the validity of the vesting and cross-vesting provisions remain vulnerable to challenge as in this case. It is against this background that the stay order granted by Hill J must be considered. The purpose for making the order was to enable the respondent to challenge the jurisdiction of the Federal Court to make the winding up order. That challenge is being made in proceedings instituted in the original jurisdiction of the High Court where the respondent seeks not only a declaration that the Federal Court did not have that jurisdiction but also an order that the winding up order be quashed. The result of the stay is that the winding up of a hopelessly insolvent company has not commenced and its liquidator has not begun to investigate the affairs of the company with a view to ascertaining whether there are any assets to be recovered, whether officers of the company have been delinquent in their management of its affairs and whether proceedings should be instituted to recover any assets of or to seek compensation for any damage that may have been caused to the company. In the result there is a very real risk that the making of the order will significantly prejudice the creditors of this hopelessly insolvent company. If I might be permitted to say so this is a most unsatisfactory state of affairs. As I have said the learned trial judge made the stay order so that the respondent could challenge the winding up order. The liquidator who had been appointed to the respondent had been requested to but would not give an undertaking that the company would prosecute the proceeding in the High Court to have the order set aside. Accordingly, the learned trial judge left the company under the control of its directors so that the proceeding could be maintained. I do not doubt that the court had the power to grant a stay of the winding up order for that purpose for the reasons given by Beaumont J. However, it was not necessary for the trial judge to stay the winding up of the respondent to enable it, in an appropriately constituted proceeding, to challenge the jurisdiction of the Federal Court. It was within the power of the Court to direct the liquidator to institute an appeal from the winding up order or to prosecute the proceeding in the High Court to have the order quashed. Although not apparent from the report, Goldcel Nominees Pty Ltd (prov. Liq. appt.) v Network Finance Ltd [1983] 2 VR 257 is an example of a case that was instituted in consequence of a direction given to a liquidator by the Supreme Court of Victoria. No doubt such a direction would not be given in the absence of effective security being provided to the liquidator for his costs of the proceeding including any costs that the liquidator might be required to pay in the event that the proceeding failed. Here the parties who could have been asked to provide that security are the parties who are presently funding the proceeding in the High Court. If a direction to prosecute the case in the High Court had been given the winding up of the respondent could have proceeded in the usual way at least until the High Court determined the validity of the winding up order. No prejudice would have resulted to any party if that course had been adopted. In this connection I do not treat as relevant the possibility that in the course of the winding up a person might be required to repay money due to the respondent or return property belonging to the respondent or might be required to pay damages to which the respondent is entitled. Quite apart from this narrow basis for holding that the trial judge's discretion miscarried, it seems to me that there is a more fundamental objection to the making of the stay order. As a consequence of the decision in Gould (at first in the Full Court and now in the High Court) the Federal Court is obliged to proceed on the basis that the vesting and cross-vesting provisions are valid until the High Court holds to the contrary. Even if these provisions are ultimately declared to be unconstitutional any order made by the Federal Court in reliance on them is nevertheless a valid order unless set aside on appeal or quashed by direct review: Cameron v Cole (1943-1944) 68 CLR 571; Chicot County Drainage District v Baxter State Bank (1940) 308 US 371; Woods Bros Construction Co v Yankton County, South Dakota 54 F (2d) 304. Further, the steps taken and the relations brought about as a consequence of any order made by the Federal Court in the exercise of jurisdiction under these provisions, even if unconstitutional, will not be rendered ineffective. One reason for this is that an order of a superior court is valid until set aside and a declaration that a statute pursuant to which that order was made is unconstitutional will not affect the validity of the order made on reliance in that statute: see Oliver Field, "The Effect of an Unconstitutional Statute" (1935) esp ch 7. In addition the doctrine of res judicata will prevent the reopening of cases which have been based on an unconstitutional statute: see Chicot County at 375; Reference Re Language Rights under the Manitoba Act 1870 (1985) 19 DLR (4th) 1 at 29. This does not deny to a person who is a party to a proceeding the right directly, but not collaterally, to challenge an order made without jurisdiction: as to the distinction between a direct and a collateral attack see Restatement, Judgments, (2nd) at 140-143. In the case of a decision of a judge of a Federal Court sitting at first instance his or her decision may be appealed to a Full Court and then with leave to the High Court. In addition, the High Court has power to quash the decision or prohibit any step being taken consequent upon the decision in proceedings commenced in accordance with O 55 of the High Court Rules: Re Marks and Federated Ironworkers Association; Ex parte Australian Building Construction Employees and Builders Labourers Federation (1981) 34 ALR 208. Should the winding up order of Hill J have been stayed pending a challenge to that order (whether by way of appeal or other direct process) based upon the potential constitutional invalidity of the statute in pursuance of which that order was made? In my view no such stay should have been granted. Let me explain why I have arrived at this conclusion. The power to grant a stay is an extraordinary jurisdiction. It will only be exercised in exceptional circumstances: Gerah Imports v The Duke Group Ltd (in liquidation) (1994) 119 ALR 401 at 403; Federal Commission of Taxation v Meyer (1986) 64 ALR 325 at 327. Most usually those circumstances will exist where a party seeks to appeal a decision and the appeal will be rendered nugatory unless a stay is granted in the meantime: Wilson v Church (No. 2) (1879) 12 ChD 454 at 458. If the position were otherwise the right to appeal would be a barren right. Of course, this is not the only circumstance where a stay will be granted: see the examples cited in Halsbury's, "Laws of England" (4th ed) vol 37 para 445 fn 2. In a case where a stay is sought pending appeal or, as in this case, pending the hearing of an application to quash the winding up order, it is not sufficient merely to show that there is on foot some process that seeks to have the impugned order set aside or quashed. For one thing, it is necessary to show some prospect of success in the proceeding: Rahme v Commonwealth Bank of Australia (1993) 68 ALJR 53 at 54-5. Further, as Dawson J said in Gerah Imports, supra, at 403: "[T]here are other matters to be taken into consideration in the exercise of the discretion to grant a stay. The failure, if any, of the applicants to pursue such avenues as are available in the court below for obtaining a stay is of significance. Any loss which may be caused to interested parties by the granting of a stay must be taken into account. And the balance of convenience is always something to be considered." In the present case the challenge to the validity of the order of the Court is not a challenge on the merits. In substance the complaint is that the order should have been made by some other court; in this case the Supreme Court of New South Wales. In other words the respondent does not say, and indeed it could not say, that, if there was jurisdiction, the trial judge should not have made the winding up order. It should not be assumed that an order made by a superior court which, because of the absence of jurisdiction in that court, is an order that should have been made by another superior court will be quashed in proceedings under Order 55. An application for the issue of a prerogative writ is an application for the grant of a discretionary remedy. It seems to me that powerful reasons exist for declining to exercise the discretion to quash an order made in such circumstances bearing in mind also that the trial judge was bound to hold that he had jurisdiction to make the winding up order. The same considerations may lead the High Court to refuse leave to appeal from a decision made by the Federal Court when it is not sought to challenge the making of the order on some additional basis. (It is possible that leave to appeal will be granted in one case if that is necessary to enable the High Court to reconsider Gould.) Moreover, in the case of a winding up order the interests of creditors and contributories must be taken into account. Their interests will hardly ever be protected if the winding up order is stayed. There is no suggestion that they will be protected in this case. Even if this was an order that could not affect or potentially affect third parties I do not think that its operation should have been stayed. There is something very curious about staying the operation of an order that an appellate court has held is within jurisdiction and where the order is not otherwise contested on the merits. That is not to deny the significance of such an argument. It is merely to say that it is not an argument that, generally speaking, should persuade a court to stay the impugned order. Accordingly, I agree with the orders proposed by Beaumont J. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein

Associate: Dated: 23 July 1998 Counsel for the Appellant: J E Thomson

National Companies and Securities Act 1979(Cth)

Corporations Legislation Amendment Act 1990(Cth)

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