SPIGELMAN CJ
MASON P
YOUNG CJ in EQ
Friday 6 August, 2004
Judgment
1 SPIGELMAN CJ: In this matter I have had the advantage of reading in draft the judgment of Young CJ in Eq. I agree generally with his Honour's reasons. I make the following additional observations.
2 With respect to the application by the Medical Research and Compensation Foundation for judicial advice under s63 of the Trustee Act 1925, I would also decline to give advice but for different reasons.
3 The only matter upon which advice is sought relates to whether the Foundation is "entitled to refrain from applying for the appointment of a provisional liquidator" to the subsidiary companies. Counsel for the Foundation, Mr J Gleeson SC, could only point to one basis for any uncertainty with respect to the Foundation's position in this regard. That basis was the possibility that the Foundation may be exposed to liability in tort for failing to take steps to appoint a provisional liquidator. Mr Gleeson SC described any such proceedings as "speculative". I would describe them as far-fetched.
4 There may once have been a basis for apprehension as to just where the law of negligence was heading in Australia by reason of a process described by the late Professor P S Atiyah as "stretching the law". (P S Atiyah The Damages Lottery (1997) Hart Publishing, Oxford, Ch 2 and Ch 3). A series of decisions in the High Court and in this Court make it quite clear that this process is over. (Liftronic Pty Ltd v Unver (2001) 179 ALR 321; Derrick v Cheung (2001) 181 ALR 301; Agar v Hyde (2000) 201 CLR 552; Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254; Rosenberg v Percival (2001) 205 CLR 434; Ghantous v Hawkesbury Shire Council (2001) 206 CLR 512; Sullivan v Moody (2001) 207 CLR 562; Woods v Multi-Sport Holdings Pty Ltd (2002) 208 CLR 460; Graham Barclay Oysters Pty Ltd v Ryan (2003) 211 CLR 540; New South Wales v Lepore (2003) 212 CLR 511; Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 78 ALJR 628; Cole v South Tweed Heads Rugby League Football Club Ltd (2004) 207 ALR 52; Reynolds v Katoomba RSL All Services Club Ltd (2001) 53 NSWLR 43; Van Der Sluice v Display Craft Pty Ltd [2002] NSWCA 204; Richmond Valley Council v Standing (2002) Aust Torts Rep 81-679; University of Wollongong v Mitchell [2003] Aust Torts Rep 81-708; New South Wales v Paige (2003) Aust Torts Rep 81-676; Newcastle City Council v Shortland Management Services (2003) 57 NSWLR 173; New South Wales v Godfrey & Godfrey (2004) Aust Torts Rep 81-741; Amaca Pty Ltd v New South Wales [2004] NSWCA 124; Wyong Shire Council v Vairy [2004] NSWCA 247; Boyded Industries Pty Ltd v Canuto [2004] NSWCA 256.)
5 This development has of course not all been one way. In the context of liability for exposure to asbestos, the High Court imposed liability in a manner which may not have been predictable (Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1). However, crucial to the Court's judgment in that case was the control which the Stevedoring Industry Committee had with respect to the determination of circumstances that exposed a worker to the risk of injury. (See also Amaca Pty Ltd v New South Wales at [40]-[47].) In the present case, it cannot be said that such a consideration is of any, let alone of determinative, significance. The Foundation is a shareholder and has standing to apply for a winding up under s462 of the Corporations Act 2001 (Cth) as a contributory. It is, however, only one of a list of persons to have such standing.
6 One of the factors that has proven to be important in restraining the hitherto imperial march of the tort of negligence has been the development by the High Court of a doctrine in which the importance of coherence in the law, considered as a whole, has come to receive considerable emphasis. The tort of negligence has, on a number of occasions, not been permitted to extend so as to interfere with another area of the law which has developed a distinctive approach to balancing the conflicting interests that inevitably arise in the interaction of persons in disparate spheres of discourse. Questions of coherence have arisen in a number of cases in which the exercise of a statutory duty is alleged to have been negligent. It has also arisen in the interaction between negligent words causing mental harm and actions in defamation and in the sphere of negligent conduct creating a nuisance, where the law of nuisance would not permit recovery. (See Sullivan v Moody at [53]-[55]; New South Wales v Paige at [93], [101], [132], [154]-[155] and [174]-[177]; Tame v New South Wales (2002) 211 CLR 317 at [28], [58], [123], [323]; Newcastle City Council v Shortland Management Services at [86]-[89]; New South Wales v Godfrey at [71]-[80].
7 The Corporations Act 2001 and its predecessors contain elaborate provision for balancing the conflicting interests that arise between present and future creditors and between shareholders and creditors.
8 Issues of coherence between the law of negligence and the regulatory scheme of the Corporations Act 2001 can arise in a variety of contexts. Particularly relevant for present purposes is the introduction by the Corporate Law Reform Act 1992 (Cth) of Pt 5.3A headed "Administration of a company's affairs with a view to executing a deed of company arrangement". This scheme was introduced on the recommendation of the Australian Law Reform Commission: General Insolvency Inquiry vol 1, Australian Law Reform Commission Report No 45 (Canberra, AGPS, 1988), known as the "Harmer Report". The purpose of this scheme was to encourage attempts to preserve a company and avoid the economic and social costs of a winding up. The Australian Law Reform Commission considered that the earlier system known as "official management" was not adequate to avoid companies being placed in liquidation unnecessarily.
9 It appears to me to be quite inconsistent with the objectives of this legislative scheme to impose a duty on any of the persons who are given standing by the Corporations Act to make applications for the winding up of a company to exercise that statutory right on the basis of a duty said to exist to future creditors of the company. Indeed, by s440A of the Corporations Act, the Court is obliged to adjourn an application for a winding up order, and is not to appoint a provisional liquidator, in the case of a company under administration, if it is satisfied that it is in the interests of the creditors to remain under administration.
10 I realise that, in a sense, my analysis of the situation is such as to constitute, in substance, the giving of advice of the character sought by the Applicant. However, I believe the Court should leave the matter in this way.
11 An issue has arisen in the course of the submissions made by the Australian Securities & Investments Commission as to whether or not the applicant for advice is in truth a charitable trust, as stated in the Trust Deed under which it is constituted. ASIC has intervened at the behest of the Court, in order to ensure that there is some proper contradictor on the application before the Court. It does not have any interest in asserting the proposition which it raised for the attention of the Court. The evidence before the Court has been gathered on the part of the Applicant only. It is by no means clear that all relevant evidence is before the Court. In these circumstances, it is undesirable for the Court to proceed on a factual assumption and to give advice, in circumstances where such advice is unnecessary.
12 With respect to the Director's application under s1318(2) of the Corporations Act 2001 (Cth), the primary issue that was raised concerns the possibility that present creditors will receive a benefit at the expense of future creditors. The principle of equality between creditors has been accepted as a long-standing principle in corporations law. (See, for example, the observations in Ferrier & Knight v Civil Aviation Authority (1994) 55 FCR 28 at 42-43, observations not affected by the judgment of the High Court on appeal.)
13 It is a material consideration when exercising the power to excuse under s1318 that the consequences of the conduct may be to prefer one group of creditors to another group. Nevertheless, in the present case the countervailing considerations substantially outweigh the application of this principle.
14 First, it can be seen that the extent to which the group identified as "future creditors" are disadvantaged will be quite small on a per capita basis. On the evidence before the Court the expenditure of the subsidiaries is running at about $5 million a month. The amount that will be paid out pursuant to the s1318 order sought would be of the order of $30 million. This is to be contrasted with the estimates of the total present and future liabilities of the Foundation which range from about $1 billion to $1.5 billion, of which the overwhelming proportion concerns future liabilities.
15 Secondly, the body of future creditors may not receive any advantage from the only feasible alternative to a continuation of the status quo. The majority of persons identified as "future creditors" do not, on the submissions made to this Court, have a present right of action although, on an actuarial basis, it is certain that such causes of action will emerge in the future.
16 Mr Gleeson SC put before the Court the various submissions that had been made to the Jackson Inquiry and adopted their analysis that the appointment of a provisional liquidator would be such as to prevent the incurring of future liabilities, so that those presently entitled would be protected. Mr I Jackman SC, who appeared for ASIC, accepted this conclusion. On this basis the process of liquidation would ensure the very inequality which the written submissions of ASIC said the Court should take into account, i.e. present creditors would automatically be preferred to future creditors.
17 Mr Jackman SC suggested that perhaps a receiver could be appointed, a course which would not necessarily have that consequence. In addition to the reasons for rejecting the alternative identified by Young CJ in Equity, it is impossible to conceive a receiver accepting appointment in circumstances where the directors have been refused professional indemnity insurance. A receiver, it can be safely assumed, would also be unable to obtain such insurance.
18 The only practical alternative to the continuation of the control of the present directors is the commencement of a winding up and the appointment of a provisional liquidator.
19 Thirdly, there is a question of the balance of convenience between persons who have become or will, over the next few months become, entitled to receive payment and those, if any, who will be disadvantaged to some degree by what may appear to be, with the benefit of hindsight, some kind of preference. With respect to most asbestos induced illnesses the time between diagnosis and death is unfortunately quite short. The delays associated with the appointment of a provisional liquidator will inevitably be such that a number of persons who would otherwise receive awards, and therefore die with the knowledge that their families would be provided for, would die in a state of uncertainty as to that position.
20 Fourthly, the costs and delays associated with a provisional liquidation should be avoided. The directors are pursuing the issues that have arisen in the context of the Jackson Inquiry, and the possibility of action to recoup additional funds, in a manner which the evidence before the Court does not suggest is anything other than diligent. The material before the Court does not enable a comparison between the likely costs of a liquidation and the costs associated with the administration of the company. However, the experience of the Court strongly suggests that a liquidation is likely to be substantially more expensive. At the least, there would be substantial costs involved in a provisional liquidator becoming familiar with, and instructing such advisers as he or she may be minded to instruct, about the full range of issues which are presently under consideration in the Foundation.
21 Finally, the urgency associated with the current Inquiry process, and its consequences, strongly indicate that it is desirable that the status quo be maintained for the time being in the absence of any evidence or suggestion that the present directors are not pursuing the issues with diligence.
22 For the above reasons the Court should exercise the power to excuse under s1318(2). The issue is whether the power extends to future acts. Young CJ in Eq has concluded that it does not. His Honour proposes orders limited to the payment of debts until the date of the order. However, if the circumstances remain the same, the directors could proceed on the basis that retrospective relief would almost certainly be available in the future.
23 I have come to the same conclusion as Young CJ in Eq on the construction point. Subsection 1318(2) looks to the future in the sense that proceedings are only 'apprehended'. The Court is required to put itself in same position as it would have been if civil proceedings for negligence default, breach of trust or breach of duty had been brought.
24 Before making any order the Court is required to have regard to "all the circumstances of the case" and is specifically required to determine that the applicant for relief has acted honestly. This statutory requirement strongly indicates that the power is concerned with past conduct only. If this were not the case then the Court would need to speculate about future circumstances and the Applicant's future state of mind. Although it may generally be assumed that the circumstances or the state of mind will be the same in the future, it will often be difficult to frame an order excusing the liability contingent on circumstances not changing. Indeed it will not be possible to identify all relevant circumstances in advance.
25 As Young CJ in Eq notes, the terminology of s1318 is derived from s3 of the Judicial Trustees Act 1896 (Imp) now reflected in s85 of the New South Wales Trustee Act 1925. A trustee applicant for relief must, however, establish that he or she acted "reasonably" as well as "honestly." (The reference to "reasonably" was deleted by the 1981 Companies Code.)
26 Furthermore, a trustee must establish more than that he or she "ought fairly to be excused for the breach of trust". Section 85(2) of the Trustee Act 1925 also requires the trustee to establish that he or she "ought fairly to be excused… for omitting to obtain the direction of the Court …". This express reference to the possibility of obtaining judicial advice in advance encompasses an application under s63 of that Act. This indicates that, in the case of a trustee, the power to excuse cannot be used in the case of a prospective breach, as suggested in Re Tollemache [1903] Ch 457.
27 As the trustee provision was the model used by the drafter of corporations legislation, first in England and then in Australia, I think it likely that a similar effect was intended, i.e that the power to excuse does not extend to prospective breaches. If Parliament had intended that officers of a corporation and others involved in its affairs should be able to apply to a court for advice, it had before it a model for such a power in the very statute from which the predecessors of s1318 was drawn. It did not do so.
28 I am reinforced in this conclusion by the express provisions found elsewhere in the Corporations Act for some, but not all, of those who are entitled to apply for an order under s1318 by subss(4) and (5), to apply for directions from the Court with respect to future conduct. (See s424 for controllers, which by s9 includes receivers; s467D for administrators and s479(3) and s511 for liquidators, including provisional liquidators by s472.)
29 I agree with the orders proposed by Young CJ in Eq.
30 MASON P: I have had the benefit of reading in draft the judgment of Young CJ in Eq and the additional observations of the Chief Justice.
31 I agree with the orders proposed by Young CJ in Eq and generally with his reasons.
32 In particular, I agree that there are significant points of distinction between this case and Insurance Commissioner v Associated Dominions Assurance Society Pty Ltd (1953) 89 CLR 78. This said, the presently constituted proceedings are not a proper vehicle for resolving the question whether the two subsidiaries of the Medical Research and Compensation Foundation are presently technically insolvent.
33 If however, that were the case or if it were otherwise appropriate for the companies to be wound up on the just and equitable ground, this could have a disastrous impact in relation to asbestos victims yet to be inflicted or yet to disclose any manifestation of disease. Young CJ in Eq demonstrates why this group of claimants would be unable to prove in the liquidations of the subsidiaries. It would follow that those liquidations would produce very substantial surpluses of funds. Those assets would pass to the Foundation in circumstances that would not involve any breach on the Foundation's part of clause 4 of the Deed of Settlement of February 2001. On my reading of that Deed, the funds would then be wholly impressed with the charitable purpose stipulated in clause 3.1. That purpose has nothing to do with meeting the legal claims of tort victims.
34 This reinforces the conclusions of the Chief Justice at pars 13-22, being reasons with which I also agree.
35 YOUNG CJ in EQ: The plaintiffs seek two orders: (a) judicial advice under s 63 of the Trustee Act 1925; and (b) relief under s 1318(2) of the Corporations Act 2001.
36 I need to spend a little time tracing the background to the present problem.
37 The second plaintiff, Medical Research and Compensation Foundation (MRCF) is a company limited by guarantee. By deed of February 2001, James Hardie Industries Ltd (JHIL) established what that deed called "a charitable private fund for the purposes of medical research into asbestos related diseases". MRCF is the trustee of that fund.
38 The first plaintiffs are the current directors of MRCF. All except Mr Hutchinson were directors from its incorporation. The principal assets of MRCF are the whole of the shares in what the deed called the "Foundation Company", there are two corporations within this category, both formerly subsidiaries of JHIL. These are Amaca Pty Ltd, formerly James Hardie & Coy Pty Ltd (Amaca) and Amaba Pty Ltd, formerly Jsekarb Pty Ltd (Amaba).
39 Essentially, on the coming into operation of the deed, Amaca and Amaba ceased to be subsidiaries of JHIL and became subsidiaries of MRCF. The first set of plaintiffs are also the directors of Amaca and Amaba.
40 The establishment of MRCF and the fund it administers and the change of beneficial ownership of the shares in Amaca and Amaba were a result of a series of transactions that were entered into in February 2001. It is not necessary to go fully into the details of those transactions. It suffices to say that there was a deed of covenant and indemnity the same month between JHIL, Amaba and Amaca, that in consideration of JHIL paying seven figure sums of money to Amaba and Amaca on each 15 February between 2001 and 2042, Amaba and Amaca would not sue JHIL. The name of JHIL was changed at the same time to ABN 60 Pty Ltd.
41 A scheme of arrangement under s 411 of the Corporations Act was then put to the Court and approved by the Court whereby the control of the remaining companies in the James Hardie Group was effectively moved to James Hardie Industries NV of Amsterdam, The Netherlands, which became the holding company of ABN 60, formerly JHIL. There was some mention before us that this scheme of arrangement was predicated on there being available partly paid shares in ABN 60 which could be called up should there be a shortfall, but which partly paid shares or the liability to make them fully paid shares was later cancelled despite what had been told to the Court when the scheme of arrangement was approved. It is sufficient to record this allegation; it is unnecessary for me to delve into it.
42 Essentially then, on the coming into operation of the deed, Amaca and Amaba ceased to be subsidiaries of JHIL and became subsidiaries of MRCF. Amaca and Amaba are subject to numerous claims for injury and death caused by asbestos and it would appear they are regularly paying out substantial monies to meet judgments and settlements of claims against them.
43 Actuarial evidence suggests that whilst there are sufficient funds to pay all judgments that are obtained in the next year or so, the assets of Amaca and Amaba will be exhausted well before many of the asbestos related claims are formulated or adjudicated upon.
44 The essential problem is that if MRCF, Amaca and Amaba continue to authorise or pay current claims, this will make the pool of funds available to meet future claims rather diminished. However, if claims including judgments are not paid, then a person who has obtained a judgment could force Amaca and Amaba into liquidation. Alternatively, this can be anticipated and MRCF or Amaba and Amaca can move themselves into liquidation and appoint a provisional liquidator.
45 Superadded to all this is the fact that Her Excellency the Governor, on 27 February 2004, issued Letters Patent to David Francis Jackson QC under the authority of the Special Commissions of Inquiry Act 1983, to enquire into various matters concerning MRCF and the James Hardie Group including:
"4. The adequacy of current arrangements available to MRCF under the Corporations Act to assist MRCF to manage its liabilities, and whether reform is desirable to those arrangements to assist MRCF to manage its obligations to current and future claimants."