Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd

[2008] FCA 686

FEDERAL COURT OF AUSTRALIA

Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd [2008] FCA 686

ALTINOVA NOMINEES PTY LIMITED v LEVERAGED CAPITAL PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED), LAURIE EMINI and GREEN FROG NOMINEES PTY LIMITED

NSD 654 OF 2008

LINDGREN J

16 MAY 2008

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 654 OF 2008

BETWEEN:

ALTINOVA NOMINEES PTY LIMITED
Applicant

AND:

LEVERAGED CAPITAL PTY LIMITED
(RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
First Respondent

LAURIE EMINI
Second Respondent

GREEN FROG NOMINEES PTY LIMITED
Third Respondent

JUDGE:	LINDGREN J
DATE OF ORDER:	9 MAY 2008
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.        Leave be granted to file the Application in Court.

2.        Direct that the Application be returnable instanter.

3.Order that, until 5:00 pm Tuesday 13 May 2008, the third respondent by itself its servants and agents be restrained from transferring, encumbering, disposing of or otherwise dealing with the 2,180,000 securities (being CXC CDIs or CXC shares) transferred by ANZ Nominees Pty Ltd to the third respondent on or about 27 March 2008.

4.Abridge the time for service of the Application, the supporting affidavits, and these orders to 5:00pm today.

5.Direct that it shall be sufficient service on the third respondent if serve is effected on the solicitors for Mr Emini and/or the registered office of the third respondent.

6.Proceeding stood over to 9:30 am Tuesday 13 May 2008 before the Corporations Duty Judge.

7.        Costs reserved.

8.        Direct that these orders may be entered forthwith.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 654 OF 2008

BETWEEN:

ALTINOVA NOMINEES PTY LIMITED
Applicant

AND:

LEVERAGED CAPITAL PTY LIMITED
(RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
First Respondent

LAURIE EMINI
Second Respondent

GREEN FROG NOMINEES PTY LIMITED
Third Respondent

JUDGE:	LINDGREN J
DATE:	16 MAY 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On Friday 9 May 2008, I granted an interlocutory injunction on the ex parte application of the applicant (Altinova).  By the injunction I ordered that, upon Altinova’s giving to the Court the usual undertaking as to damages, until 5.00 pm Tuesday 13 May 2008, the third respondent (Green Frog) by itself, its servants and agents be restrained from transferring, encumbering, disposing of or otherwise dealing with the 2,180,000 securities (being CXC CDIs or CXC shares – see below) transferred to it by ANZ Nominees Pty Ltd on or about 27 March 2008.  I will refer to the 2,180,000 securities as “the Securities”.  The proceeding was stood over to 9:30am on Tuesday 13 May 2008 before the Corporations Duty Judge.

2. At the hearing before me, I indicated that I thought that on the evidence there was a serious question to be tried as to whether Altinova would obtain final specific relief of a kind that would require the Securities to be transferred to it.  I also said that having regard in particular to the short duration of the interlocutory injunction, I thought that the balance of convenience favoured the granting of relief.  Finally, I indicated that I would prepare slightly more elaborate reasons why I granted the injunction.

3. Norman Alfred Seckold is the sole director and secretary of Altinova.  Mr Seckold swore an affidavit in support of the interlocutory application.

4. At all material times, Mr Lirim (Laurie) Emini was the Chief Executive Officer of Opes Prime Group Ltd .  Opes Prime owns a 100% interest in Opes Prime Stockbroking Ltd, which in turn owns a 100% interest in Green Frog.  Mr Emini owns a 50% interest in the first respondent (Leveraged Capital).  Mr Seckold, in his affidavit, does not appear to distinguish between Opes Prime Group Ltd and Opes Prime Stockbroking Ltd, and so I will use the term “Opes Prime” to refer to either of these companies. Mr Seckold’s affidavit refers to his having entered on behalf of Altinova, into a margin lending arrangement with the “Opes Prime Group”, although Opes Prime Stockbroking Ltd is referred to in some of the documents in evidence.

5. In December 2004, Mr Seckold, representing Altinova, had conversations with Mr Emini of Opes Prime with a view to the two companies entering into a margin lending arrangement.  An email dated 22 December 2004 from Mr Emini to Mr Seckold is headed “Proposed Equity Finance Transaction” and refers to a “loan amount”.

6. In a reply letter dated 23 December 2004 from Mr Seckold to Mr Emini, Mr Seckold gave details of securities (shares and options) that were held in a CHESS Account at Tricom.  Mr Seckold asserted that their value was $19.9 million; that he had uncommitted cash of $2.5 million available to exercise certain options that were included as part of the securities; and that he needed marginally less than $3.0 million to take up his full entitlement.  He stated “Clearly, the security coverage is strong.” 

7. In his affidavit, Mr Seckold stated that he believed that Altinova was entering into a margin lending arrangement with Opes Prime under which Opes Prime would advance money to Altinova, and Altinova would supply specified securities to Opes Prime as security for the advances.  Mr Seckold stated that he understood that the securities would be transferred to Opes Prime, but only as security.  He understood that Altinova would not lose all beneficial entitlement to the securities.  On the contrary, he understood that if and when Altinova repaid the loan, it was to be entitled to have them transferred back to it.

8. Following the discussions between Mr Emini and himself, Mr Seckold executed various documents, which he sent to Opes Prime.  He did not read them.  Mr Emini told him that the securities would be transferred to ANZ Nominees Ltd.  Mr Emini told him that “a loan document” would be sent to him, but to the best of Mr Seckold’s recollection, it did not arrive.  However, Mr Seckold states in his affidavit that “this conversation and Mr Emni’s reference to a loan document reinforced my view that this would be a margin lending arrangement.”

9. In his affidavit, Mr Seckold emphasised that he did not know that Opes Prime would be at liberty to “mortgage or re-mortgage or transfer ownership” of the securities to any other party.  Nor did he know anything of the relationship between Opes Prime and the ANZ Bank.

10. In about early June 2006, Mr Seckold heard that margin lenders like Opes Prime were lending out securities to hedge funds for on market short selling.  This concerned Mr Seckold.  He telephoned Mr Emini to express his concern and his opposition to the securities that he had furnished being used for short selling purposes.

11. Mr Emini’s response was to suggest that Mr Seckold (or, more precisely, Altinova) enter into a fresh arrangement – this time with Leveraged Capital.

12. On 16 June 2006, Altinova entered into a form of “Australian Master Securities Lending Agreement” (AMSLA) with Leveraged Capital.  By cl 2.1, Altinova agreed to lend securities to Leveraged Capital.

13. At the time when the AMSLA was executed, the amount that Altinova had borrowed was $4,050,040.88.  In addition to the AMSLA, Mr Seckold also on 16 June 2006 filled out a “collateral lodgement form”.  It stated:

    Please accept this authority to transfer the loan facility and the following holdings from my account to Opes Prime A/c at ANZ Nominees PDI 20005 Leveraged Capital at ANZ Nominees PID 20005.

    List of securities (Amount of Shares & ASX Code)

    ·  BSG 38,602,799
    ·  KMN 34,147,750

    The abbreviation “BSG” sands for Bolnisi Gold NL and “KMN” stands for Kings Minerals NL.

14. Mr Seckold stated that he signed and caused to be executed the documents of 16 June 2006 relying on his conversations with Mr Emini and believing, as a result, that the documents would achieve the result that Altinova would cease to be a client of Opes Prime and would become a client of Leveraged Capital, and that Altinova’s securities would never be lent out to short sellers.

15. In December 2007, as a result of a scheme of arrangement, Altinova came to hold in place of the BSG shares, 21,921,935 CXC CHESS depository interests in respect of Coeur D’Alene Mines Corporation (CXC CDIs).

16. On 6 March 2008, Altinova instructed Leveraged Capital to sell 200,000 CXC CDIs, leaving 21,721,935 CXC CDIs “as collateral”.

17. In March 2008, Mr Seckold caused Altinova to pay out the loan by paying $3,563,443.19.  The figure was supplied to him by Opes Prime’s Chief Operating Officer.  Altinova paid the amount to the “Opes Prime Group” by electronic transfer.

18. Shortly afterwards, according to Mr Seckold, “the Opes Prime Group” transferred the following shares to Altinova:

    (a)       34,147,750 KMN shares; and
    (b)       18,265,730 CXC CDIs.

    Those transfers were, however, only a partial response to Altinova’s request and entitlement.  The shares returned by close of business on 25 March 2008 meant that a balance of 3,456,205 CXC CDIs (21,721,935 CXC CDIs minus 18,265,730 CXC CDIs) remained unreturned.

19. Opes Prime and Leveraged Capital were placed into receivership and administration on 27 March 2008.  The receivers and managers (from Deloitte Touche Tohmatsu) were not, however, appointed in respect of Green Frog.  Apparently the administrators of Opes Prime are John Lindholm, Adrian Brown and Peter McCluskey of Ferrier Hodgson.

20. On 31 March 2008, Altinova’s solicitors demanded of the receivers and managers of Leveraged Capital that the outstanding securities be returned.

21. Mr Seckold stated that the Securities (2,180,000 CXC CDIs) have now been transferred to Green Frog by ANZ Nominees Pty Ltd.  Mr Emini is a director of both Leveraged Capital and Green Frog.  Mr Seckold has expressed his fear that Green Frog may transfer the Securities and that any claim that Altinova has against the Securities will be lost. 

22. The final relief sought by Altinova in its application is somewhat lengthy and complex.  It finds expression, in particular, in a series of declaratory orders that Altinova proposes.

23. Altinova’s case is that under the arrangement between Mr Seckold and Mr Emini, beneficial ownership of the shares remained in Altinova. Alternatively, it is put that Green Frog was affected by notice of the fact that the transfer of the shares to it was in breach of fiduciary obligations owed to Altinova by Leveraged Capital and Mr Emini. Again, it is put that Green Frog was affected by notice of the fact that Altinova had transferred the shares acting under a unilateral mistake, induced by Leveraged Capital and Mr Emini, as to the true nature of the transaction or transactions into which Altinova had entered. This last claim is a claim that Leveraged Capital and Mr Emini induced Altinova to believe that the transaction was a loan of money on the security of a transfer of shares, whereas in fact it was a loan of the shares. There is also a claim for relief under s 87 of the Trade Practices Act 1974 (Cth).

24. No doubt arguments will be able to be put against the legal construction of the events that is supported by Altinova.

25. Altinova’s solicitors sought an undertaking from Green Frog, through its solicitors, but that undertaking was not forthcoming.  A demand was made that by 10:00 am on 9 May 2008, Green Frog transfer the Securities to Altinova on the basis that Green Frog held them as trustee for Altinova and not for Leveraged Capital.

26. Copies of the application and associated documents were served on 8 May 2008 on Green Frog at its registered office at Level 17, 330 Collins Street, Melbourne.

27. On the untested evidence before me on the ex parte application, I was of the view that there was serious question to be tried as to whether Altinova would obtain final specific relief in relation to the Securities as a result of which they would be entitled to have the Securities transferred by Green Frog back to Altinova.  Having regard to the short period of the interlocutory injunction sought, it seemed to me that the balance of convenience favoured the granting of that relief.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated:        16 May 2008

Counsel for the First Applicant:	Mr M Slattery QC with Mr RJ Carruthers
Solicitor for the First Applicant:	Dibbs Abbott Stillman

Date of Hearing:	9 May 2008
Date of Judgment:	16 May 2008