Tanning Research Laboratories Inc v O'Brien

Tanning Research Laboratories Inc v O'Brien - [1990] HCA 8 - HCA 1975 case summary — Zoe

[30]

I conceive that it is the duty of the liquidator to discharge out of the assets in his hands those claims which are legally enforceable, and to hand over any surplus to the contributories. I find no words which vest in him a discretion to meet claims which are not legally enforceable. It will be remembered that, so far as is relevant for this purpose, the law is the same whether the winding up is voluntary or by the court, whether the company is solvent or insolvent, and that an additional purpose of a winding up is to secure that creditors who have enforceable claims shall be treated equally, subject only to the priorities for which the statute provides. The principles which determine enforceability of the liability to which a proof of debt relates are, in the main, the same as the principles which would be applied in an action brought directly against the company to enforce that liability. Those principles include the law relating to the barring of actions by time: see, e.g., Motor Terms Co. Pty. Ltd. v. Liberty Insurance Ltd. [4] . But this general rule is qualified. As the parties whose interests are affected by admission of a proof of debt are the general body of creditors and the contributories rather than the company in liquidation, there are some liabilities which would be enforceable against the company but which a liquidator is not bound to admit to proof of debt lest the interests of creditors and contributories may be unjustly affected. A liquidator may properly reject a proof of debt if the liability, though enforceable against the company, is not a true liability of the company but is founded merely on some act or omission on the part of the company which unjustly prejudices the interests of the creditors or contributories in the assets available for distribution. In this respect, there is no reason to distinguish between the position of a liquidator and that of a trustee in bankruptcy: see Ayerst v. C. & K. (Construction) Ltd. [5] . In In re Van Laun; Ex parte Chatterton [6] , Buckley L.J. said: Whether the creditor alleges that there has resulted, and that he relies upon an account stated, or a covenant entered into by the debtor, or a judgment which he has obtained, the principle, I apprehend, is exactly the same, and is this - that the trustee is not the person who has stated the account, is not the covenantor, is not the judgment debtor, but is entitled to say, "It is my business to see that those who seek to rank against this estate are persons who are really creditors of that estate." If there be a judgment it is not necessary to shew fraud or collusion. It is sufficient, in the language of Lord Esher, to shew miscarriage of justice - that is to say, that for some good reason there ought not to have been a judgment. Exactly the same, I think, is true of an account stated or of a covenant. 1. (1957) 107 L.J. 601. 2. [1980] V.R. 669, at p. 696. 3. [1955] A.C. 491, at p. 509. 4. (1967) 116 C.L.R. 177. 5. [1976] A.C. 167. 6. [1907] 2 K.B. 23, at p. 31.

[38]

A liquidator who defends his rejection of a proof of debt on the ground that, under the general law, the liability to which the proof relates is not enforceable against the company takes his stand on a ground which is available to the company. A liquidator who resists a claim made by a creditor against the assets available for distribution on the ground that there is no liability under the general law thus stands in the same position vis-à-vis the creditor as does the company. If the creditor and the company are bound by an international arbitration agreement applicable to the claim, there is no reason why the claim should not be determined as between the creditor and the liquidator in the same way as it would have been determined had no winding up been commenced. To exclude from the scope of an international arbitration agreement binding on a company matters between the other party to that agreement and the company's liquidator would give such agreements an uncertain operation and would jeopardize orderly arrangements: see Scherk v. Alberto-Culver Co. [23] . But it is otherwise if the liquidator supports his rejection of a proof of debt in reliance on a ground which allows him, and him alone, to go behind the judgment, account stated, covenant or estoppel on which the company's liability is founded. The entitlement of a liquidator to go behind a judgment, account stated, covenant or estoppel is unaffected, either substantially or procedurally, by the existence of an international arbitration agreement binding on the company. To stay proceedings which involve only matters outside the scope of an international arbitration agreement would be to frustrate the provisions for winding up. Thus the application of s. 7(2) to proceedings for the reversal of a liquidator's rejection of a proof of debt must depend on the ground or grounds on which the liquidator seeks to support his rejection of the proof of debt. By attributing such a discriminatory operation to s. 7(2), conflict is avoided between the attainment of the objects of the Act and the procedures appropriate to a winding up.

[70]

It has been common ground throughout the proof of debt proceedings that cl. 10 is an arbitration agreement and that T.R.L., a party to that agreement, was, at the time the agreement was made, ordinarily resident in a Convention country. That being so and having regard to the mandatory terms of s. 7(2) - "the court shall stay the proceedings or so much of the proceedings as involves the determination of that matter" - the question of the application of s. 7(2) should have been determined prior to any hearing of T.R.L.'s claim to have the liquidator's decision reversed. However, presumably because it was perceived that, if either of the estoppels claimed by T.R.L. and the liquidator was made out, there would be no dispute to submit to arbitration, the matter proceeded to a hearing before Cohen J. in the Supreme Court of New South Wales. The question of the application of s. 7(2) of the Act was treated as but one issue in the case. Both T.R.L. and the liquidator acquiesced in this course. His Honour held that s. 7(2) of the Act had no application and that neither estoppel was made out. His Honour further held that the proof of debt should be allowed to the extent of $55,502.63. The liquidator appealed and T.R.L. cross-appealed to the Court of Appeal of the Supreme Court of New South Wales. In the Court of Appeal s. 7(2) was again treated as but one issue in the appeal, the other principal issues then argued being the estoppels claimed respectively by T.R.L. and the liquidator. In the judgment of Kirby P., with whose proposed orders McHugh J.A. agreed, neither estoppel was established but s. 7(2) of the Act applied to the proof of debt proceedings. In the result, the cross-appeal was dismissed, the appeal allowed, the judgment and orders of Cohen J. set aside and, in lieu thereof, it was ordered that the proceedings be stayed and "the determination of the matter of the amount, if any, by which [Hawaiian] is indebted to [T.R.L.] be referred to arbitration in accordance with the agreement of 24 June 1975". T.R.L. now appeals to this Court and the liquidator seeks special leave to cross-appeal. By the appeal and by the application for leave to cross-appeal, each of T.R.L. and the liquidator seeks to have the question of the admission of the proof of debt determined by reference to the different estoppels claimed to result from the award and subsequent judgment. Additionally, T.R.L. seeks by its appeal to have the other questions in issue between it and the liquidator determined in proof of debt proceedings rather than by way of arbitration under cl. 10.

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Judgment (89 paragraphs)

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