Coventry v Charter Pacific Corporation Ltd

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Gummow,Hayne,Callinan JJ,Kirby J
• Judgment Date: 15 November 2005
• Neutral Citation: 2005-1115 HCA A,[2005] HCA 67
• Court: High Court
• Docket Number: B68/2004
• Date: 15 November 2005

[2005] HCA 67

HIGH COURT OF AUSTRALIA

Gleeson CJ, Gummow, Kirby, Hayne AND Callinan JJ

B68/2004

Michael John Coventry and Lynette Helen Coventry (as Trustees of the Mike and Lyn Coventry Family Trust) & Anor

Appellants

and

Charter Pacific Corporation Limited & Anor

Respondents

Bankruptcy Act 1966 (Cth), ss 82(2), 86(1).

Corporations Law (Q), ss 995(2), 1005.

Coventry v Charter Pacific Corporation Limited

Bankruptcy — Provable debt — Appellants acted in breach of s 995(2) Corporations Law (Q) by engaging in misleading and deceptive conduct in securities dealings — Respondent thereby induced to enter contractual relations with a third party — Whether respondent's claim for unliquidated damages under s 1005 Corporations Law (Q) arose otherwise than by reason of a contract, promise or breach of trust — Whether, pursuant to s 82(2) Bankruptcy Act 1966 (Cth), the respondent's claim for unliquidated damages constituted a debt provable in the bankruptcy of appellants.

Words and phrases — ‘demand in the nature of unliquidated damages’, ‘provable debt’, ‘set-off’, ‘contract, promise or breach of trust’.

1 Gleeson CJ, Gummow, Hayne AND Callinan JJ. The issue to be decided in this appeal is whether a claim for unliquidated damages for contravention of a statutory prohibition is a debt provable in the bankruptcy of the person who contravened the prohibition and, by that conduct, induced the claimant to make a contract with a third party.

Gleeson CJ

2 In this case, the statutory prohibition, contained in s 995(2) of the Corporations Law of Queensland, prohibited misleading or deceptive conduct in connection with dealings in securities. The provision for an action for damages was s 1005 of the Corporations Law.

3 Satisfaction of the criteria for proof of a debt has a significance beyond the allowance of the proof in the administration of the sequestrated estate. As these reasons later demonstrate, the provisions for set-off engage those criteria. So also do those provisions dealing with the competence of proceedings against the person or property of the bankrupt, and with the consequences of discharge and release of the bankrupt.

4 If the claim for unliquidated damages made pursuant to the Corporations Law is a debt provable in that person's bankruptcy, discharge from bankruptcy operates to release that person from that claim1. If it is not a debt provable in the bankruptcy, discharge from bankruptcy does not operate to release the bankrupt from the claim and, subject to any question of limitation of actions, the claim can be pursued against the former bankrupt after discharge. Moreover, s 58(3) of the Bankruptcy Act 1966 (Cth) does not prevent the claimant, during the bankruptcy, from commencing a legal proceeding in respect of the claim or enforcing any remedy against the person or the property of the bankrupt in respect of that claim. The sub-section denies such competency to a creditor only in respect of ‘a provable debt’.

5 The central question in the appeal hinges on the meaning of s 82(2) of theBankruptcy Act 1966 and, in particular, what is meant by a demand in the nature of unliquidated damages arising otherwise than by reason of a contract or promise. That expression, used to identify an exception to the definition of debts provable in bankruptcy, has been held2 not to include a claim for unliquidated damages for fraudulent misrepresentation which induced the party misled to make a contract with the bankrupt (a ‘bilateral’ case). That is, such a claim for

damages has been held to be a debt provable in the bankruptcy, and a claim that was to be set off against a claim by the bankrupt estate. But a claim for unliquidated damages for fraudulent misrepresentations where the representations induced the claimant to make a contract with another (a ‘tripartite’ case) has been held3 not to be a claim provable in the bankruptcy. The bankrupt having made no contract with the party who claims damages from the bankrupt, the claim for damages for fraudulent misrepresentation has been held to be a demand arising otherwise than by reason of a contract or promise.

6 These reasons demonstrate that a statutory claim for unliquidated damages for misleading or deceptive conduct which induced the claimant to make a contract not with the bankrupt but with a third party is not a debt provable in bankruptcy. It is a demand in the nature of unliquidated damages arisingotherwise than by reason of a contract or promise4. The bankrupt is not discharged from liability. The claim may be pursued by the claimant during the bankruptcy and after discharge from bankruptcy. By contrast, a claim for unliquidated damages for misleading or deceptive conduct by the bankrupt, which induced the claimant to make a contract with the bankrupt, would be a debt provable in bankruptcy.

7 At once it must be said that to distinguish between a case where the bankrupt's conduct induced the claimant to make a contract with the bankrupt and the tripartite case where the conduct induced the claimant to make a contract with another is anomalous. But it is a particular example of anomalies of the kind identified by the Australian Law Reform Commission as long ago as 1988 in its General Insolvency Inquiry5. The Commission recommended changing the law governing both personal and corporate insolvency to remove anomalies of this kind. Amendments were made to Corporations legislation6. The Commission's recommendations about this aspect of personal insolvency law have not been carried into effect.

The facts

8 In 1992 and 1993, Mr Michael Coventry, one of the first appellants, and his brother, Mr Andrew Coventry, the second appellant, made representations to the first respondent (‘Charter Pacific’) which induced Charter Pacific to make a deed. The parties to the deed were Charter Pacific, Evtech Pty Ltd, Barry Tabe as trustee of the Tabe Trust, Michael John Coventry and Lynette Helen Coventry as trustees of the Mike and Lyn Coventry Family Trust and Belrida Enterprises Pty Ltd as trustee of the Quinn Family Trust. Andrew Coventry was not a party. By the deed, made on 24 March 1993, Charter Pacific agreed to buy some shares in Evtech from other parties to the deed and to lend money to Evtech. The representations made by the Coventry brothers were later found to have been misleading and deceptive. The money which Charter Pacific lent to Evtech under the deed was not repaid. Some further money which Charter Pacific lent to Evtech was likewise not repaid. The shares that Charter Pacific acquired proved ultimately to be worthless.

9 Both the brothers Coventry were made bankrupt in 1994 and both were discharged from bankruptcy in 1997.

The proceedings below and the appeal to this Court

10 In June 1994, Charter Pacific commenced an action in the Supreme Court of Queensland against a number of parties. Andrew Coventry was named as fifth defendant. Michael Coventry and Lynette Helen Coventry were sued ‘as trustees of the Mike and Lyn Coventry Family Trust’. It is convenient to refer to Michael and Lynette as the Coventry Trustees.

11 The action came to trial in 2000, that is to say after the discharges of Andrew and Michael Coventry from bankruptcy. The trial lasted 157 hearing days spread over a period of about 18 months.

12 As ultimately formulated in a further Amended Statement of Claim that was delivered during the trial of the action, Charter Pacific claimed against the Coventry Trustees and against Andrew Coventry damages for what were described as ‘misrepresentations, misleading and deceptive conduct and/or breaches of contract’. Various other claims were made against other parties to the proceeding but their detail need not be noticed.

13 Andrew Coventry and the Coventry Trustees denied the claims made. They denied that there had been any misrepresentation and denied that Charter Pacific had suffered loss. In addition, they alleged that the claims made against Michael Coventry (as one of the Coventry Trustees) and against AndrewCoventry were provable debts from which they had been discharged by operation of law pursuant to s 153(1) of the Bankruptcy Act 1966.

14 The primary judge (Fryberg J) held7 that Charter Pacific had made good its allegations of misleading or deceptive conduct contrary to s 995(2) of the Corporations Law. His Honour also held that Charter Pacific's claims against Michael Coventry (as trustee) and against Andrew Coventry for damages for that contravention were not claims for a debt provable in bankruptcy.

15 The Coventry Trustees and Andrew Coventry appealed to the Court of Appeal of Queensland. Their appeal was dismissed8. The Court of Appeal, following the decision of the Court of Appeal of Victoria in Aliferis v Kyriacou9, concluded10 that a claim arises by reason of a contract or promise only if a contract or promise is an essential element of the cause of action. Here, although Charter Pacific suffered the damage it claimed because it had performed its obligations under the deed (or its subsequent agreement to make further advances), the Court of Appeal held11 that a contract or promise was not an essential element of Charter Pacific's claim. Rather, the claim for damages for misleading or deceptive conduct was held to be founded upon conduct anterior to and separate from the making of the deed or subsequent agreement for further advances.

16 By special leave, the Coventry Trustees and Andrew Coventry appealed to this Court. Shortly before the date fixed for oral argument of the appeal, Michael Coventry was again made bankrupt. The Court was told that his trustee in bankruptcy was notified of the pendency of the appeal, and of the date fixed for oral argument, but when the appeal was called on for hearing there was no appearance for the Coventry Trustees or for Michael Coventry's trustee in bankruptcy. Provision...