Bell Group Ltd (In Liq) v Westpac Banking Corporation
[1996] FCA 473
•30 MAY 1996
CATCHWORDS
PROCEDURE - service out of the jurisdiction - application for leave - banks and directors - claims for breach of fiduciary duty and knowing participation therein - monies had and received - avoidance of settlements and fraudulent dispositions - whether prima facie case - whether abuse of process in issue of parallel proceedings in High Court of England subject to an undertaking not to pursue those proceedings - whether proceeding qualifies against each party sought to be served - whether exercise of discretion appropriate - whether leave should be granted - whether dispensations referrable to service should be granted
Bankruptcy Act 1966 (Cth), s120(1), s120(2), s121
Corporations Code, s451
Corporations Law, s46, s565
Federal Court of Australia Act 1976 (Cth), s51A
Rules of the Federal Court of Australia, O1 r4, O7 r2, r8, O8 r1, r1A, r2, r4
ANZ Executors & Trustee Company Ltd v Qintex Australia Ltd (1990) 2 ACSR 676
HM Attorney‑General v Arthur Anderson & Co (UK) (1988) [ECC] 224.
Australian Commercial Research & Development Ltd v ANZ McCaugan Merchant Bank Ltd (1989) 3 All ER 64
Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199
Baden Delvaux Lecuit v Societe Generale (1983) BCLC 325
Bank of Australasia v Hall (1907) 4 CLR 1514
BHP Petroleum Pty Ltd v Oil Basin Ltd (1985) VR 725
Buttigeig v Universal Terminal and Stevedoring Corporation (1972) VR 626
Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (Lindgren J, 20 April 1995, unreported)
Croft v King (1893) 1 QB 419
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642
Jeffree v NCSC (1990) WAR 183
Hymix v Garrity (1977) 13 ALR 321
Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722
Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267
MacLaine Watson & Co Private Ltd v Ving Chen [1983] 1 NSWLR 163 McHenry v Lewis (1883) 22 Ch 397
Merpro Montassa Ltd v Conoco Speciality Products Inc (1991) 28 FCR 387
Moore v Inglis (1976) 9 ALR 509
Murex Diagnostics Australia Pty Ltd v Chyrone Corporation (1995) 128 ALR 525
Muusers v State Government Insurance Office (Qld) (1980) 2 NSWLR 73
Norfolk Plumbing Supplies v Commonwealth Bank of Australia (1992) 6 ACSR 601
Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197
Peruvian Guano Company v Bockwoldt (1883) 23 Ch 225
Provident International Corp v International Leasing Corp (1969) 1 NSWR 424
R v Sinclair (1968) 3 All ER 241
Re Pheon Pty Ltd (1986) 11 ACLR 142
Rees v Bank of New South Wales (1964) 111 CLR 210
Richardson v Tiver (1960) VR 578
Russell Kinsela Pty Ltd v Kinsela (1983) 2 NSWLR 452
Sandell v Porter (1966) 115 CLR 666
Spiliada Maritim Corp v Cansulex Ltd (1987) AC 460
Re Timbatec Pty Ltd (1974) 24 FLR 30
Trade Practices Commission v The Gillette Company (No 1) (1993) 45 FCR 336
Tycoon Holdings Ltd v Trencor Jetco Inc (1992) 34 FCR 31 Victoria v Hanson (1960) VR 582
Voth v Manildra Flour Mills (1990) 171 CLR 538
Walker v Wimbourne (1976) 137 CLR 1
Western Australia v Vetter Trittler Pty Ltd (in liq) (1991) 28 FCR 102
Witted v Galbraith (1893) 1 QB 577
WSGAL Pty Ltd v Trade Practices Commission (1992) 30 FCR 472
THE BELL GROUP LIMITED (ACN 008 666 993) (IN LIQ) & ors v WESTPAC BANKING CORPORATION (ACN 007 457 141) & ors
NO WAG 3067 OF 1995
R D NICHOLSON J
PERTH
30 MAY 1996 and 19 JUNE 1996
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY )
GENERAL DIVISION ) NO WAG 3067 OF 1995
B E T W E E N: THE BELL GROUP LIMITED
(ACN 008 666 993) (IN LIQ)
First Applicant
THE BELL GROUP LIMITED (ACN 008 666 993) (IN LIQ) as trustee separately for each of DOLFINNE PTY LTD
(ACN 009 134 516) (IN LIQ)
INDUSTRIAL SECURITIES PTY LTD
(ACN 008 728 792) (IN LIQ)
MARANOA TRANSPORT PTY LTD
(ACN 009 668 393) (IN LIQ)
NEOMA INVESTMENTS PTY LTD
(ACN 009 234 842) (IN LIQ)
Second Applicant
and
BELL GROUP FINANCE PTY LTD
(ACN 009 165 182) (IN LIQ)
(RECEIVER AND MANAGER APPOINTED)
Third Applicant
and
BELL GROUP (UK) HOLDINGS LIMITED (IN LIQ) (IN ADMINISTRATIVE RECEIVERSHIP)
Fourth Applicant
and
BELL PUBLISHING GROUP PTY LTD
(ACN 008 704 452) (IN LIQ)
Fifth Applicant
and
BELL GROUP NV (IN LIQ)
Sixth Applicant
and
AMBASSADOR NOMINEES PTY LTD
(ACN 009 105 800) (IN LIQ)
BELCAP ENTERPRISES PTY LTD
(ACN 009 264 537) (IN LIQ)
BELL BROS PTY LTD
(ACN 008 672 375) (IN LIQ)
BELL EQUITY MANAGEMENT LIMITED
(ACN 009 210 208 (IN LIQ)
DOLFINNE PTY LTD
(ACN 009 134 516) (IN LIQ)
GREAT WESTERN TRANSPORT PTY LTD
(ACN 009 669 121) (IN LIQ)
HARLESDEN FINANCE PTY LTD
(ACN 009 227 561) (IN LIQ)
INDUSTRIAL SECURITIES PTY LTD
(ACN 008 728 792) (IN LIQ)
MARADOLF LIMITED
(ACN 005 482 806) (IN LIQ)
MARANOA TRANSPORT PTY LTD
(ACN 009 668 393) (IN LIQ)
WANSTEAD PTY LTD
(ACN 008 775 120) (IN LIQ)
WESTERN TRANSPORT PTY LTD
(ACN 009 666 308) (IN LIQ)
WIGMORES TRACTORS PTY LTD
(ACN 008 679 221) (IN LIQ)
W & J INVESTMENTS LIMITED
(ACN 000 068 888) (IN LIQ)
DOLFINNE SECURITIES PTY LTD
(ACN 009 218 142) (IN LIQ)
NEOMA INVESTMENTS PTY LTD
(ACN 009 234 842) (IN LIQ)
TBGL ENTERPRISES LIMITED
(ACN 008 669 216) (IN LIQ)
WANSTEAD SECURITIES PTY LTD
(ACN 009 218 160) (IN LIQ)
WAON INVESTMENTS PTY LIMITED
(ACN 008 937 166 (IN LIQ)
WESTERN INTERSTATE PTY LTD
(ACN 000 224 395) (PROVISIONAL LIQUIDATOR APPOINTED)
Seventh Applicants
and
GEOFFREY FRANK TOTTERDELL in his capacity as liquidator of the first applicant of the first, second, third, fifth, ninth, tenth, eleventh, thirteenth, fourteenth, sixteenth, seventeenth and nineteenth named seventh applicants
Eighth Applicant
and
ANTONY LESLIE JOHN WOODINGS in his capacity as liquidator of the third applicant and of the fifth applicant and of the fourth, sixth seventh, eighth, twelfth, fifteenth and eighteenth named seventh applicants
Ninth Applicant
and
TROIKA HOLDINGS BV in its capacity as liquidator of the sixth applicant
Tenth Applicant
and
JACQUELINE BARBARA STEPHENSON in her capacity as liquidator of the fourth applicant
Eleventh Applicant
and
WESTPAC BANKING CORPORATION
(ACN 007 457 141)
First Respondent
and
SOCIETE GENERALE AUSTRALIA LTD
(ACN 002 093 021)
NATIONAL AUSTRALIA BANK LIMITED
(ACN 004 044 937)
HONGKONGBANK OF AUSTRALIA LIMITED
(ACN 006 434 162)
STANDARD CHARTERED BANK AUSTRALIA LIMITED (ACN 008 262 897)
COMMONWEALTH BANK OF AUSTRALIA
(ACN 123 123 124)
Second Respondents
and
LLOYDS BANK PLC
BANCO ESPIRITO SANTO E COMERCIAL DE LISBOA
BANK FUR GEMEINWIRTSCHAFT AG
THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND
CAISSE NATIONALE DE CREDIT AGRICOLE CREDITANSTALT - BANKVEREIN
CREDIT LYONNAIS
DRESDNER BANK AG
KREDIETBANK NV
SKOPBANK
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
THE GULF BANK KSC
GENTRA LIMITED (FORMERLY ROYAL TRUST BANK)
BANQUE INDOSUEZ
Third Respondents
and
DAVID ROY ASPINALL, PETER ALEXANDER MITCHELL AND ANTONY GORDON OATES
Fourth Respondents
and
JOHN MICHAEL EDWARDS, ALAN GORDON BIRCHMORE, ALAN BOND and EQUITY TRUST (CURACAO) NV
Fifth Respondents
MINUTE OF ORDER
JUDGE MAKING ORDER: R D NICHOLSON J
DATE OF ORDER: 19 JUNE 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
Having regard to the applicants' undertaking given to this Court dated 1 May 1996, leave be granted to the applicants to serve the third respondents, the second and third named fourth respondents and the first and fourth named fifth respondents ("the foreign respondents") out of the jurisdiction.
In respect of the foreign respondents, that the requirements of any convention, which would, but for this order, be applicable to service of originating process on any of the foreign respondents pursuant to the terms of O8 r1 of the Federal Court Rules, be dispensed with.
In respect of the foreign respondents, that the requirements of Div2 and/or Div3 of the Federal Court Rules be dispensed with.
Subject to par5 below, in respect of all respondents (other than the second named fifth respondent)
(a)that the requirements to serve a complete copy of the affidavits of Mr Totterdell and Mr Woodings each sworn 17 December 1995 be dispensed with; and
(b)that service be effected by serving a copy of the third further amended application and a copy of the text of the affidavits of Mr Totterdell and Mr Woodings each sworn 17 December 1995 ("the originating process"), together with a copy of the affidavit of Mr Totterdell sworn 24 May 1996 and Mr Woodings sworn 27 May 1996, ("the amending affidavits"); and
(c)that service be effected by serving the originating process and amending affidavits in accordance with the Rules of this Court either personally or at the various addresses as set out in the third further amended application, or such other address at which the respondents may be located or otherwise in accordance with Rules of this Court.
The applicants will provide a complete copy of the affidavits of Mr Totterdell and Mr Woodings each sworn 17 December 1995 to each of the said respondents on request.
That each foreign respondent has 28 days from the date of service within which to enter an appearance.
That a copy of this order be served on each of the respondents referred to in par4 herein at the time of service of the originating process.
Costs be costs in the cause.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY )
GENERAL DIVISION ) NO WAG 3067 OF 1995
B E T W E E N: THE BELL GROUP LIMITED
(ACN 008 666 993) (IN LIQ)
First Applicant
THE BELL GROUP LIMITED
(ACN 008 666 993) (IN LIQ) as trustee separately for each of
DOLFINNE PTY LTD
(ACN 009 134 516) (IN LIQ)
INDUSTRIAL SECURITIES PTY LTD
(ACN 008 728 792) (IN LIQ)
MARANOA TRANSPORT PTY LTD
(ACN 009 668 393) (IN LIQ)
NEOMA INVESTMENTS PTY LTD
(ACN 009 234 842) (IN LIQ)
Second Applicant
and
BELL GROUP FINANCE PTY LTD
(ACN 009 165 182) (IN LIQ)
(RECEIVER AND MANAGER APPOINTED)
Third Applicant
and
BELL GROUP (UK) HOLDINGS LIMITED (IN LIQ) (IN ADMINISTRATIVE RECEIVERSHIP)
Fourth Applicant
and
BELL PUBLISHING GROUP PTY LTD
(ACN 008 704 452) (IN LIQ)
Fifth Applicant
and
BELL GROUP NV (IN LIQ)
Sixth Applicant
and
AMBASSADOR NOMINEES PTY LTD
(ACN 009 105 800) (IN LIQ)
BELCAP ENTERPRISES PTY LTD
(ACN 009 264 537) (IN LIQ)
BELL BROS PTY LTD
(ACN 008 672 375) (IN LIQ)
BELL EQUITY MANAGEMENT LIMITED
(ACN 009 210 208 (IN LIQ)
DOLFINNE PTY LTD
(ACN 009 134 516) (IN LIQ)
GREAT WESTERN TRANSPORT PTY LTD
(ACN 009 669 121) (IN LIQ)
HARLESDEN FINANCE PTY LTD
(ACN 009 227 561) (IN LIQ)
INDUSTRIAL SECURITIES PTY LTD
(ACN 008 728 792) (IN LIQ)
MARADOLF LIMITED
(ACN 005 482 806) (IN LIQ)
MARANOA TRANSPORT PTY LTD
(ACN 009 668 393) (IN LIQ)
WANSTEAD PTY LTD
(ACN 008 775 120) (IN LIQ)
WESTERN TRANSPORT PTY LTD
(ACN 009 666 308) (IN LIQ)
WIGMORES TRACTORS PTY LTD
(ACN 008 679 221) (IN LIQ)
W & J INVESTMENTS LIMITED
(ACN 000 068 888) (IN LIQ)
DOLFINNE SECURITIES PTY LTD
(ACN 009 218 142) (IN LIQ)
NEOMA INVESTMENTS PTY LTD
(ACN 009 234 842) (IN LIQ)
TBGL ENTERPRISES LIMITED
(ACN 008 669 216) (IN LIQ)
WANSTEAD SECURITIES PTY LTD
(ACN 009 218 160) (IN LIQ)
WAON INVESTMENTS PTY LIMITED
(ACN 008 937 166 (IN LIQ)
WESTERN INTERSTATE PTY LTD
(ACN 000 224 395) (PROVISIONAL LIQUIDATOR APPOINTED)
Seventh Applicants
and
GEOFFREY FRANK TOTTERDELL in his capacity as liquidator of the first applicant of the first, second, third, fifth, ninth, tenth, eleventh, thirteenth, fourteenth, sixteenth, seventeenth and nineteenth named seventh applicants
Eighth Applicant
and
ANTONY LESLIE JOHN WOODINGS in his capacity as liquidator of the third applicant and of the fifth applicant and of the fourth, sixth seventh, eighth,
twelfth, fifteenth and eighteenth named seventh applicants
Ninth Applicant
and
TROIKA HOLDINGS BV in its capacity as liquidator of the sixth applicant
Tenth Applicant
and
JACQUELINE BARBARA STEPHENSON in her capacity as liquidator of the fourth applicant
Eleventh Applicant
and
WESTPAC BANKING CORPORATION
(ACN 007 457 141)
First Respondent
and
SOCIETE GENERALE AUSTRALIA LTD
(ACN 002 093 021)
NATIONAL AUSTRALIA BANK LIMITED
(ACN 004 044 937)
HONGKONGBANK OF AUSTRALIA LIMITED
(ACN 006 434 162)
STANDARD CHARTERED BANK AUSTRALIA LIMITED (ACN 008 262 897)
COMMONWEALTH BANK OF AUSTRALIA
(ACN 123 123 124)
Second Respondents
and
LLOYDS BANK PLC
BANCO ESPIRITO SANTO E COMERCIAL DE LISBOA
BANK FUR GEMEINWIRTSCHAFT AG
THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND
CAISSE NATIONALE DE CREDIT AGRICOLE
CREDITANSTALT - BANKVEREIN
CREDIT LYONNAIS
DRESDNER BANK AG
KREDIETBANK NV
SKOPBANK
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
THE GULF BANK KSC
GENTRA LIMITED (FORMERLY ROYAL TRUST BANK)
BANQUE INDOSUEZ
Third Respondents
and
DAVID ROY ASPINALL, PETER ALEXANDER MITCHELL AND ANTONY GORDON OATES
Fourth Respondents
and
JOHN MICHAEL EDWARDS, ALAN GORDON BIRCHMORE, ALAN BOND and EQUITY TRUST (CURACAO) NV
Fifth Respondents
CORAM:R D NICHOLSON J
DATE:30 MAY 1996
PLACE:PERTH
REASONS FOR JUDGMENT
By an amended notice of motion the applicants seek leave to serve the third respondents, the second and third named fourth respondents and the first, second and fourth named fifth respondents out of the jurisdiction.
The applicants
From the affidavits later referred to, the status of the applicants and respondents appears as follows.
The first applicant ("TBGL") is the direct or indirect parent company of all the applicant companies and various other companies which are subsidiary companies of TBGL as the term is defined in s46 of the Corporations Law (the "Law") or related companies which together comprise The Bell Group Limited group of companies ("The Bell Group").
The third applicant ("BGF") was treasurer to The Bell Group's Australian operations in that it borrowed monies to finance
the conduct of those operations and lent them to companies within The Bell Group.
The fourth applicant ("BG (UK)") had been the holding company of the overseas operations of The Bell Group which had primarily been focused in England but by 31 December 1989 all offshore trading operations and investments of any substance had been realised.
The fifth applicant, ("BPG") was the holding company of the publishing division of The Bell Group.
The seventh applicants were all what is described as "subordinated creditor companies" within The Bell Group.
The respondents
The first and second respondents are together described as the "Australian Banks".
The third respondents are together described as "Lloyds Syndicate". Together, the Australian Banks and the Lloyds Syndicate are described as the "Banks".
The respondents beyond the jurisdiction with respect to whom leave is sought to serve the Application out of the jurisdiction are:
(a)Peter Alexander Mitchell ("Mitchell") and Anthony Gordon Oates ("Oates"), the second and third named fourth respondents, who were directors of the first, third, fifth and seventh applicants and other Bell Group subsidiaries;
(b)John Michael Edwards ("Edwards") and Alan Gordon Birchmore ("Birchmore"), the first and second named fifth respondents, who were directors of the fourth applicant, BG (UK);
(c)Equity Trust (Curacao) NV, the fourth named fifth respondent, which was a director of BG NV (but which acted at the behest of the fourth respondents who were accordingly de facto directors of the sixth applicant) ("BG NV");
(d)the third respondents as the Lloyds Syndicate.
The application is now discontinued in respect of Birchmore because, following the hearing of the amended motion, the applicants were able to serve him within the jurisdiction.
The relief sought - FCR O8 r2(c)
The principal causes of action relied upon in the application against the respondents are as follows.
Against the directors:
(a)breach of fiduciary duty,
Against the Banks:
(b)knowing participation in, and obtaining benefits from those breaches of duty;
(c)monies had and received (monies obtained under void or avoided instruments);
(d)voidable settlement under s120(1) and (2) of the Bankruptcy Act 1966 (Cth); and
(e)fraudulent disposition under s121 of the Bankruptcy Act (the Bankruptcy Act provisions being applicable by reason of s565 of the Corporations Law or s451 of the relevant Companies Code: see Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267, Re Pheon Pty Ltd (1986) 11 ACLR 142).
The relief claimed may be summarised as follows.
(a)Equitable compensation for breach of fiduciary duty against the fourth and fifth respondents.
(b)Declarations that instruments relating to the rearrangement with the Banks are not valid and binding or are void or have been avoided. Alternatively, insofar as those instruments are binding declarations they be set aside or held on trust for BGF and TBGL and/or other applicant companies.
(c)If the instruments are void or set aside, an order that the Banks pay to BGF, TBGL and other applicant companies, as monies had and received, certain sums obtained by the Banks as a result of the instruments.
(d)Declarations the Banks hold on constructive trust for BGF, TBGL and other applicant companies, and orders that they repay, sums knowingly obtained as a result of directors' breaches of fiduciary duty, alternatively equitable damages or compensation against the Banks for knowing participation in the breaches of duty.
(e)In the alternative to claims for particular amounts, an inquiry and account as to benefits obtained or loss caused and orders for payment of same.
(f)Avoidance of certain of the instruments pursuant to ss120(1) and/or (2) and/or 121 of the Bankruptcy Act and return of monies obtained pursuant to those instruments.
(g)Compound interest and interest pursuant to s51A of the Federal Court of Australia Act 1976 (Cth).
Leave application - principles
The application is brought pursuant to O8 of the Rules of the Federal Court of Australia ("FCR"). FCR O8 r1 sets out the cases where originating process may be served outside the Commonwealth. That rule is "subject to r2 and Div2 and 3 of this Order..." but the provisions of the Division have no relevant qualifying effect here. So far as is relevant FCR O8 r2 provides:
"(1) Service outside the Commonwealth of originating process is not valid under this Order unless -
(a)the service is in accordance with the prior leave of the Court given under sub‑rule (2);
(b)the Court confirms the service under sub‑rule (4); or
(c)the person served waives objection by entering an appearance.
(2)Where the Court is satisfied of the following matters -
(a)that the proceeding is a proceeding in which the Court has jurisdiction;
(b)that the proceeding is a proceeding to which r1 applies; and
(c)that the applicant has a prima facie case for the relief which he seeks,
the Court may, by order, grant leave to serve originating process outside the Commonwealth under this Order.
(3)The evidence on a motion for leave under sub-rule (2) shall include evidence showing in what country or place the person to be served is, or probably may be found, and whether that country is a convention country or a non-convention country."
The requirements to satisfy the court an applicant has a prima facie case for relief sought pursuant to FCR O8 r2(2)(c) will be met where, upon a broad examination, rather than an intense scrutiny, of the material placed before the Court, inferences are shown to be open which, if translated into findings of fact, would support the relief claimed: Western Australia v Vetter Trittler Pty Ltd (in liq) (1991) 28 FCR 102 at 110; Merpro Montassa Ltd v Conoco Speciality Products Inc (1991) 28 FCR 387 at 390; Tycoon Holdings Ltd v Trencor Jetco Inc (1992) 34 FCR 31 at 35-36; Trade Practices Commission v The Gillette Company (No 1) (1993) 45 FCR 336 at 371; Murex Diagnostics Australia Pty Ltd v Chyrone Corporation (1995) 128 ALR 525 at 535; WSGAL Pty Ltd v Trade Practices Commission (1992) 30 FCR 472 at 476; Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (Lindgren J, 20 April 1995, unreported) at 15‑16.
Generally speaking, the prima facie case requirement is satisfied if such a case is made out with respect to at least one cause of action for the relevant relief: Western Australia v Vetter Trittler (supra) at 100; Cell Tech (supra) at 17-18.
With respect to FCR O8 r1(g), a person is "properly joined" where there is a genuine case against that person and where, had the person been in the jurisdiction, the person would have
been properly sued with other respondents within the jurisdiction, eg, as where there was joint liability or some common question of law or fact that would arise in all the actions or where the relief claimed arises out of the same transaction or series of transactions (FCR O6 r2): Witted v Galbraith (1893) 1 QB 577; MacLaine Watson & Co Private Ltd v Ving Chen [1983] 1 NSWLR 163 at 167-168; Croft v King (1893) 1 QB 419 at 421; Buttigeig v Universal Terminal and Stevedoring Corporation (1972) VR 626; Richardson v Tiver (1960) VR 578 at 579.
With respect to FCR O8 r1(h), for property to be the subject matter of the proceedings, what must be in issue is a right or interest in the property: Victoria v Hanson (1960) VR 582 at 585; Muusers v State Government Insurance Office (Qld) (1980) 2 NSWLR 73 at 75-76; BHP Petroleum Pty Ltd v Oil Basin Ltd (1985) VR 725 at 735-738.
Prima facie case - Evidence: FCR O8 r2(c)
There is before the Court on behalf of the applicants a third further amended application. There is not yet a statement of claim.
The grounds upon which the claims are made against the fourth and fifth respondents is that they breached the duties previously referred to. The relief sought against the Banks is based upon what is said to be their knowing participation in the breaches by Westpac "and/or" the second and third respondents "and/or" knowing receipt of benefits by Westpac "and/or" the other Bank respondents as a result of those breaches.
The application is supported principally by an affidavit of Mr Totterdell the eighth applicant, sworn on 17 December 1995, as it is amended by his fourth affidavit sworn 24 May 1996, in his capacity as Liquidator of TBGL and other companies named in the title to this proceeding. He deposes that he was appointed a Liquidator on 24 July 1991 pursuant to TBGL's petition. He had previously been appointed provisional Liquidator on 18 April 1991. Upon such latter appointment he took control of all books, records, accounts and other material of TBGL and its subsidiaries. His affidavit evidence is based upon his knowledge gained in those capacities including his review of documents. The range of documents obtained by him in those capacities is set out in his affidavit.
Based on his investigations Mr Totterdell deposes that as at 31 December 1989 as a consequence of matters further particularised in his affidavit, BGF was either (i) a creditor directly of the only companies which had any assets in The Bell Group's Australian operations and (ii) a creditor of other companies (which had no other creditors apart from BGF) which in turn were creditors of the only companies which had any assets in The Bell Group's Australian operations. Accordingly, TBGL was either (1) a creditor or (2) the ultimate holding company (and thereby entitled to dividends) of the only companies in The Bell Group's Australian operations to hold assets of any substance.
So far as concerns arrangements with the Australian Banks, Mr Totterdell deposes that prior to January 1990 BGF dealt separately with the Australian Banks in relation to the provision of cash advance and bill facility agreements in to which BGF entered. Further, as at the end of 1989 all money advanced by each of the Australian Banks was repayable to each of the Banks on demand. Some demands had been made by various Banks which were unsatisfied, although his evidence is the demands were withdrawn at the time of the entry into what is later described as the 1990 Lloyds Agreement and the 1990 Australian Agreement. Furthermore, none of the monies advanced by each of the Banks pursuant to the Original Australian Facilities was secured in favour of the Australian Banks. Mr Totterdell's affidavit particularises the amounts repayable on demand by the Australian Banks as follows:
"Australian Bank Advance to BGF
Westpac$25 million
Soc Gen$30 million
NAB$24 million
HKBA$25 million
Standard Chartered $15 million
CBA$12.5 million
Total$131.5 million"
So far as concerns the Lloyds Syndicate, the evidence is that the sum of _60M had been advanced subject to certain Negative Pledge arrangements but Lloyds Syndicate held no security against the advance.
On the issue of insolvency as at 31 December 1979, the evidence of Mr Totterdell is that as a consequence of his investigation into and examination of the affairs of TBGL and The Bell Group and, subject to any further material coming to his attention which may cause him to amend, modify or qualify his view, it is his opinion that each of TBGL, The Bell Group as a whole and certain other companies were insolvent as at that date as well as thereafter during January and February 1990.
On the issue of director's knowledge of the state of insolvency, Mr Totterdells's affidavit evidence is that his examination has shown the management of the affairs of the TBGL and its subsidiaries was undertaken on a consolidated basis - that is to say, the cashflow of any company in The Bell Group was available to satisfy the cashflow needs of the group as a whole. Similarly, the evidence is the management of The Bell Group appears to have considered that the liabilities of any company in The Bell Group were capable of being satisfied by recourse to the assets of any other company in that group. After referring to cashflow estimates submitted by The Bell Group to the Banks, Mr Totterdell deposes the information so provided did not set out an accurate summary of the cashflow position of The Bell Group when assessed in the latter part of 1989 because the figures supplied in respect of a number of major items were not realistic estimates of the funds available from those sources having regard to the information available to the directors of the companies in The Bell Group during that time and before January 1990. In his affidavit he particularises the basis of this opinion in respect of some of the major items in the cashflow. The cumulation of that portion of his evidence is that an adjusted cashflow based on the information available to directors as at 31 December 1989 and thereafter during January and February 1990 would have showed a negative nett cashflow position of $51,644M in the year ending 30 June 1990 and $44,463M for the year ending 30 June 1991.
In his affidavit Mr Totterdell then sets out evidence on the examination which he made of the audited consolidated balance sheet of The Bell Group as at 30 June 1989. His opinion is that he examined the value ascribed in the consolidated balance sheet of TBGL to investments in Bell Resources Limited ("BRL"), J N Taylor Holdings Limited ("JNTH") and in Newspaper Mastheads. His evidence is that a proper valuation of those assets would have caused the consolidated balance sheet to appear to the directors of companies in The Bell Group as at 31 December 1989 and in January and February of 1990 to disclose a position where total liabilities exceeded total assets by $102.8M.
On the issue of the knowledge of insolvency by the common directors, there is evidence of the directorships of the persons against whom leave to serve is sought. There is evidence of the submission to the Banks by The Bell Group of material such as projected cashflows. The evidence is that the documents so submitted show:
(a)that the nett income of BPG would be inadequate for the companies in The Bell Group to service their continuing commitments on account of overheads and interest; and
(b)The Bell Group was dependent upon management fees from BRL and JNTH as well as dividends payable on the groups' shareholding in each of those companies and one other to service its cashflow requirements including its obligations to the Banks on account of interest.
In the opinion of Mr Totterdell the material which came into the public domain during and after September 1989 and prior to 28 February 1990 which concerned or reflected upon the reliability of various sources of cashflow identified in The Bell Group projected cashflow raised obvious questions which, if pursued, would have demonstrated that The Bell Group had negative cashflow for the years ending 30 June 1990 and 30 June 1991. In his affidavit Mr Totterdell sets out evidence of failure by two Banks to analyse The Bell Group projected cashflow and the nature of the information which came into the public domain.
Additionally, from a review of documents relating to the sale of the group's interest in Bryanston Insurance Co Ltd ("Bryanston") Mr Totterdell identifies concern expressed by the Banks about the "tightness" of The Bell Group cashflow and the capacity of the group to service its various obligations. In his opinion, these concerns raised on that occasion reinforced the other matters referred to and raised obvious questions as at 31 December 1989 and thereafter in January and February 1990 about the capacity of The Bell Group to continue to service its obligations. He is further of the opinion that if the Banks had addressed the obvious questions raised by the information each of them would have modified such views as they might otherwise have had as to the extent to which The Bell Group had positive shareholder funds. In this respect he refers to evidence of consideration given by a number of the Banks to the value of a number of the assets of The Bell Group.
Still in relation to issues about the knowledge of the Banks, Mr Totterdell deposes concerning the undertaking by the Banks of an examination of the available opinions for the recovery of monies lent to The Bell Group under the facilities which each of them had provided. He states the evidence supports the conclusion that one issue which impacted upon the assessment by some of the Banks of their position and the capacity of The Bell Group to repay its obligations to them was the consideration that the group's obligations to its convertible bond holders was subordinated, that is to say, the consideration that The Bell Group's other unsecured creditors were entitled to payment in priority to those bond holders.
In relation to the Lloyds Syndicate, Mr Totterdell's evidence is supported by reference to exhibits that there was sufficient information known or provided to each member of the Lloyds Syndicate by Lloyds or available from the public domain so as to apprise them with knowledge of, or put an honest and reasonable person in the circumstances of the Lloyds Syndicate on inquiry as to, solvency of The Bell Group or individual companies within The Bell Group including TBGL itself.
It is against that background that Mr Totterdell's affidavit turns to examine the arrangements with and between Banks in and post January 1990. There is evidence a security trust deed was entered into on 8 January 1990 between the Australian Banks and the Lloyds Syndicate. Westpac agreed to hold the benefit of the Trust Fund (as therein defined) upon trust for the Banks upon the terms thereof and upon the terms of an Inter-Creditor Agreement. This latter agreement bore the same date and was entered into between the Banks. Westpac was appointed as the Security Agent of the Banks to perform duties under the 1990 Australian Agreement and the 1990 Lloyds Agreement. The former of these was entered into on 26 January 1990 between BGF and West Australian Newspapers Limited ("WAN") as borrowers, TBGL as guarantor, the Australian Banks, and Westpac as Security Agent for the Australian Banks. By this agreement BGF agreed, inter alia, that its liabilities pursuant to the Original Australian Facilities should be governed in accordance with the terms and conditions of the appendix to the 1990 Australian Agreement.
That appendix was itself executed as a contract on the same date and described as the "Australian Banks' Facilities Agreement".
The 1990 Lloyds Agreement was entered into on 8 January 1990 between BGF, BG (UK), TBGL, the Lloyds Syndicate, Lloyds Bank PLC ("Lloyds") and Westpac as Security Agent. By that Agreement BG (UK) agreed that its liabilities pursuant to the "Original Lloyds Facilities" should be governed in accordance with the terms and conditions stipulated in the appendix to the Agreement ("the new Lloyd's Facility").
As a consequence of these agreements various companies of The Bell Group entered into a number of security instruments with Westpac as Security Agents for the Banks. One effect of these agreements and securities was to secure in favour of the Banks the only assets of any value in The Bell Group. There is also evidence of transfer forms to Westpac of BRL shares by various companies in The Bell Group which it held as Security Agent for the Banks. In an annexure to his affidavit Mr Totterdell particularises the extent of securities taken by the Banks in relation to The Bell Group assets.
His evidence is also that after January 1990 the Banks received interest on the monies advanced by them to various of The Bell Group companies so that they received such monies after a time when they were aware of the insolvency matters previously referred to.
There is then evidence of enforcement of the securities by Westpac by the appointment of Receivers on 18 April 1991 in respect of BGF and BPG and BG (UK). Enforcement of the securities also entailed the sale of shares in a company which owned the masthead to the West Australian Newspaper and the sale of shares in BRL. There is evidence that all of the proceeds of realisation of the assets subject to the securities, being approximately $286.2M, have been used to repay the debts owed to the Banks.
In further enforcement of the securities there is evidence that on or about 21 May 1992, Westpac in purported exercise of a power of sale under various share mortgages, sold various shares in The Bell Group netting $59,876,063.57.
There is further evidence in summary of the distribution of proceeds of sale of the BRL shares prepared by Mr Totterdell which indicates how BGF and TBGL would have enjoyed the fruits of the sale of the shares but for securities which Westpac had taken in 1990. From his investigation he deposes that, with the exception of the benefit of these proceedings, the applicants' had no assets with which to satisfy the claims of their respective creditors other than the Banks. It is therefore the applicant's case that, as a result of the web of group shareholdings and inter-company debt, had the applicants obtained those funds free of the rearrangement of the Banks, monies would have passed through various companies in The Bell Group (including TBGL) and would have been distributed rateably amongst those external creditors of The Bell Group whose claims were or were in effect unsubordinated. Thus, those external creditors of The Bell Group would have shared in the sale proceeds obtained by the Banks, representing as they did the value of the main assets of the group. The object of the proceedings is recovery of the total amount of the benefit said to have been improperly obtained by the Banks.
In a further affidavit sworn on 24 April 1996, Mr Totterdell provides, inter alia, further particulars of various matters deposed to by him in is first affidavit. He deposes that he has now been appointed the Official Liquidator of various subsidiaries of TBGL by the Court.
On the question of insolvency Mr Totterdell deposes that TBGL and various other companies and The Bell Group as a whole were insolvent during the calender year 1990 and that the BPG Group was insolvent or nearly insolvent or of doubtful solvency during the calender year 1990.
In this second affidavit Mr Totterdell also deposes, in compliance with FCR O8 r2(3) whether the country in which the persons in respect of whom leave is sought is a convention or non-convention country.
In a third affidavit sworn 26 April 1996, Mr Totterdell gives further particulars of the matters deposed to in his first affidavit or supplementary thereto.
There is also before the Court three affidavits by Antony Leslie John Woodings, Chartered Accountant and the Official Liquidator of BGF, appointed on 3 March 1993. The first affidavit was sworn on 17 December 1995 and the third affidavit was sworn on 27 May 1996. In those affidavits he deposes that he has been appointed or is seeking to be appointed the Official Liquidator of various subsidiaries of BGF. He states that he has read the affidavits of Mr Totterdell, sworn on 17 December 1995 and 24 May 1996 and insofar as they deal directly with BGF, Bell Equity Management Pty Ltd ("Bell Equity"), Industrial Securities Pty Ltd ("Industrial Securities"), BG (UK) and BG NV, he agrees with them and believes them to be true and correct.
Upon his appointment he also took control of all books, records, accounts and other material of BGF and its subsidiaries. He annexes a copy of a draft report prepared by him and under his supervision in relation to the solvency of BGF, Bell Equity, Industrial Securities, BG (UK) and BG NV.
Subject to further investigations being conducted by him he expresses the opinion that BGF, BG (UK), BG NV and Bell Equity were insolvent as at 31 December 1989 as well as thereafter during January and February 1990 and, in the case of BG NV, up to and including 31 July 1990.
In the case of Industrial Securities he is of the opinion that it was insolvent or nearly insolvent or of doubtful solvency as at 31 December 1989 as well as thereafter during January and February 1990.
In a second affidavit sworn on 26 April 1996, Mr Wooding deposes that his investigations are continuing and subject to the reservation of further investigation remains of the opinion that BG (UK), BG NV and Bell Equity were insolvent during the calender year 1990 and Industrial Securities was insolvent or nearly insolvent or of doubtful solvency during the calender year 1990.
An affidavit of Richard Andrew Wilson, a Chartered Accountant engaged as an assistant to Mr Totterdell, annexes a copy of a letter raising the possibility of a claim by BG (UK) for recovery of monies paid to purchase certain preference shares. The affidavit was sworn on 1 May 1996 and will be a matter for further investigation.
Prima facie case - application of law to evidence: FCR O8 r2(c)
The fiduciary duties of the directors which it asserted were breached include duties:
(a)to act bona fide in the best interests of the relevant company as a whole, including all its creditors: Walker v Wimbourne (1976) 137 CLR 1 at 7, Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at 729-733, Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642 at 725, Jeffree v NCSC (1990) WAR 183 at 194, Lyford at 283-285;
(b)to exercise their powers only in ways that were reasonably incidental to, and within the scope of carrying on, the business of the company: ANZ Executors & Trustee Company Ltd v Qintex Australia Ltd (1990) 2 ACSR 676 at 684-685;
(c)to exercise their powers only for permissible or proper purposes.
The first of these duties itself requires directors to act for proper purposes (Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199 at 217, Provident International Corp v International Leasing Corp (1969) 1 NSWR 424 at 436) and will be breached if the directors do not genuinely believe (as where no director could honestly believe) that the action taken is for the benefit of the company as a whole: Baden Delvaux Lecuit v Societe Generale (1983) BCLC 325 at 406, R v Sinclair (1968) 3 All ER 241.
On behalf of the applicant companies (apart from Maradolf Ltd) (all of which the applicants will contend were insolvent, nearly insolvent or of doubtful solvency) it is argued that the directors' duties were breached by their respective directors putting their assets (by guarantee and/or security and/or subordination) at risk of being applied in repayment of the debts owed to the Banks by other group companies (BGF and BG (UK)) which were themselves insolvent, nearly insolvent or of doubtful solvency.
It will be argued this conduct of the directors was plainly prejudicial to creditors (in some cases applicants had external creditors, in others, applicants owed money to other group companies which had external creditors) and the directors of each applicant company could not have held (and, so it will be contended, did not hold), a genuine belief that the rearrangement with the Banks was in the best interests of the company as a whole, including all of its creditors.
Furthermore, it is open to argument that by entering into, exercising rights under and receiving benefits as a result of the instruments involved in the rearrangement, knowing of the breaches of duty, the Banks participated in and benefited from those breaches. On the present evidence the case is the Banks obtained various rights, some of which were later exercised and which yielded approximately $282 million.
In addition, it is the applicants' case that the relevant instruments executed by each applicant company resulted from the directors' breaches and fiduciary duty and are voidable (if not void), have been avoided, or should be set aside: Russell Kinsela Pty Ltd v Kinsela (1983) 2 NSWLR 452 at 462-63 and the cases there cited. Accordingly, monies obtained by the Banks as a result of those instruments are monies had and received to the use of each company and should be repaid. Alternatively, the instruments so far as they subsist, should be held upon trust for the applicant companies.
There are alternative claims which will be argued on the part of BGF and TBGL. Based upon similar breaches of duty with the added factor that its directors caused it to participate in the rearrangement with the Banks knowing, intending and procuring that it would be, and was, completed on terms which resulted in assets (that is the BPG Group and certain BRL shares), to which BGF may otherwise (directly or indirectly) have had recourse for the satisfaction of its liabilities generally, being made available exclusively to the Banks. There are supplementary ways in which the attack is framed upon the instruments and claims against the Banks based on the participation by the other Bell Group companies and each subsidiary company.
The liquidators of the applicant companies seek to avoid mortgage debentures, share mortgages, guarantees and indemnities, deeds of subordination and other instruments pursuant to s121 of the Bankruptcy Act 1966 (Cth) as applied to Corporations and insofar as they involve a disposition of property which is intended to defraud creditors. Additionally, similar claims are made under s120(1) of that Act by the liquidators of TBGL and under s120(2) by the liquidators of BGF, W J Investments Pty Ltd and Wigmore Tractors Pty Ltd. The elements of those claims are summarised as follows in the case for the applicants:
(a)in each instance, there was a disposition of property;
(b)under s120(1) the disposition was within two years before the commencement of the winding up, and it was not made in good faith or for valuable consideration;
(c)under s120(2) the relevant company went into liquidation and the disposition occurred within 5 years before the order for winding up; and
(d)under s121, the disposition was with intent to defraud creditors, was not for valuable consideration, was not in favour of a person who acted in good faith, and the relevant disponor company went into liquidation.
In relation to the mortgage debentures, so far as they create floating charges which later crystallised on appointment of receivers, it will be argued for the applicants that the creation of the floating charge constituted a disposition of property. That will involve the applicants in distinguishing the decision of this Court in Lyford (supra) and the authorities there relied upon. The matter is clearly arguable and it is not necessary that the nature of the arguments be considered here.
For the applicants it will be contended that the insolvency of the relevant companies, together with the knowledge of the directors and Banks and the obvious effect of the rearrangement (which is said to be to advantage the Banks at the expense of other external creditors) point to an absence of good faith and valuable consideration and to an intent to defraud creditors.
To establish insolvency of a company under the law of Australia it is necessary to show in relation to a company that it is unable to pay its debts as they fall due out of its own money. The companies own money is not limited to its cash resources immediately available, but extends to monies which it can procure by realisation, sale, mortgage or pledge of its assets within a relatively short time: Sandell v Porter (1966) 115 CLR 666 at 670; Bank of Australasia v Hall (1907) 4 CLR 1514 at 1528.
The assets which the company may realise to meet its current liabilities are, however, only those assets which are available to inflate the cash resources of the business whilst the business is continued. Assets which are integral to the continued operation of the business, and without which the business could not continue, are not assets available to be realised to meet the current liabilities of the business: Re Timbatec Pty Ltd (1974) 24 FLR 30 at 36; Rees v Bank of New South Wales (1964) 111 CLR 210 at 218-219.
Monies obtainable by unsecured borrowing repayable on demand are not treated as the company's own money. Similarly, an undefined, voluntary and temporary forbearance of a debt due and payable is irrelevant if the company is otherwise unable to pay its debts when they fall due for payment: Lyford at 276; Norfolk Plumbing Supplies v Commonwealth Bank of Australia (1992) 6 ACSR 601 at 615.
A temporary lack of liquidity must be distinguished from an endemic shortage of working capital. Where a company has no ready money (in the sense described above) with which to pay creditors, vague expectations and prospects about the company returning to liquidity at some indeterminate point in the future cannot be relied upon to avoid the conclusion that the company is insolvent: Hymix v Garrity (1977) 13 ALR 321 at 328-330.
The applicants will argue that applying those principles to BGF, the position is as follows:
(a)In late 1989, BGF owed $131.5M to the Australian Banks, payable on demand. The debts had previously fallen due for repayment but, through the forbearances of the Australian Banks, the debts were either not demanded, or (in the case of some of the Banks) demands were made and then withdrawn;
(b)BGF had no cash resources to pay the $131.5M. Thus, in order to repay the debt, it would have had to realise its assets - ie its receivables from group companies. Those companies in turn would have had to realise their assets. As discussed above, the only assets in the group to which, ultimately, BGF could have had recourse in this way were the publishing assets, certain BRL shares, JNT shares and GFH shares. However, none of those assets could have been realised to enable BGF to pay the $131.5M because:
(i)virtually all were assets which were integral to the group's continued operation and without which the group, and all the companies in it, could not continue to trade or operate.
(ii)after the publication of the BCHL 1989 accounts, neither the GFH shares nor the JNT shares could have been pledged or sold to raise cash. The only shares which might have been capable of realisation were the BRL shares. They were suspended from listing at the time the Banks took security over substantially all of the assets of the group. Their last quoted prices before suspension was ordinary shares 36 cents, preference shares 33 cents and partly paid shares 2 cents. If those prices were used, the BRL shares were worth approximately $86M at the end of 1989, well below the level needed to repay the Australian Banks' debt, let alone the combined Australian Banks and Lloyds Syndicate debt, accordingly, in late 1989 BGF was not in a position to pay, out of its own money, the debts due to the Australian Banks on demand. The Australian Banks' temporary forbearances from calling in the debts are irrelevant. Had the Australian Banks not obtained security over all the assets of the group, demands would inexorably have been made and would inevitably have not been satisfied, leading to demand for payment by Lloyds Syndicate of its $130M loan.
TBGL was in the same position.
In addition, it will be contended that the BRL shareholders and the other applicant companies were insolvent.
Accordingly, it is sought to contend for the applicants in late 1989 none of the applicant companies could repay the principal sums, which they owed on demand (either to other internal group creditors or to external creditors) out of their own monies. Furthermore, they could not pay all of the interest due on those debts as and when it fell due, the interest due on external debt in the period 1 December 1989 to 30 December 1990 being approximately $95,952,085.
In the case for the applicants it will be submitted that the Bryanston proceeds of sale were not available and the income stream (management fees and dividends) from BRL, JNT and GFH could not be expected to materialise. BGP's assets could be sold without impact on the publishing business but, as the sale of most of those assets in February 1990 revealed, they could only raise about $25.8M. The only other significant source of cashflow was the BPG Group and its nett cashflow for 1989-90 which was projected in the September 1989 cashflow at about $29M. Accordingly, it will be contended that none of the Bell Group companies with external creditors had sufficient cashflow to pay its interest bill in the six to twelve months after 31 December 1989.
On the question of the knowledge of the respondent directors the contention will be that the directors of each applicant company must have been aware of the financial position of the company.
On the question of the knowledge of the Banks the contentions for the applicants will run as follows:
As is apparent from the evidence, including the instruments executed with the Banks in or after January 1990, the Banks knew:
(a)the corporate structure of the group;
(b)which companies within the group held the publishing assets;
(c)which companies within the group held the BRL shares and the shares in JNT;
(d)that all of the Australian Banks' debt was payable on demand, and that, but for the granting of security etc, demands would have been made;
(e)that Lloyds Syndicate would have demanded immediate repayment of the BG (UK) debt in the event that BGF's debt to the Australian Banks was demanded and unpaid for 14 days;
(f)that BGF had directly or indirectly lent money to the companies holding the australian assets, that such debt was repayable on demand and had the Australian Banks demanded immediate repayment of the debts due to them, BGF would have been compelled to call up its inter-company debt;
(g)that the only assets of any possible substance at the time were the assets in the BPG Group, Bryanston and the shares in BRL and JNT (this is also apparent from the 30 June 1989 accounts of TBGL);
(h)that TBGL was the guarantor of the BGF and BG (UK) debt;
(i)that most or all the applicant companies were creditors of various companies within the group, with no assets of any significant value or other than their receivables and investments in group companies, the value of which depended ultimately on the value of group assets.
2.The Banks also had the BGF accounts as at 30 June 1989 (draft or audited) and knew that BGF acted as a lender to the Australian operations and that its financial position ultimately relied upon its receivables, themselves dependent upon the value of group assets.
3.The Banks also knew from TBGL's 30 June 1989 accounts that TBGL was the holding company for the group and was a net creditor to the group and that accordingly its solvency depended entirely on the assets in the group.
4.The Banks also knew from cashflows produced by TBGL in September 1989 that the group was heavily reliant on income streams (dividends and management fees) from the BRL shares and its shares in JNT and GFH to finance the interest on external debt, ie to the Australian Banks and Lloyds Syndicate, and to the bondholders. Share sales would lead to a weakening of or loss of control over BRL and JNT and would jeopardise TBGL's hold on the management of those companies and, consequentially, the
flow of management fees from those companies to TBGL. Thus, the Banks knew or must be taken to have known that the ability of BGF, TBGL, BG NV and BG(UK) to service interest on their external debt depended upon the group retaining those shares and receiving management fees and dividends from BRL and JNT and dividends from GFH.5.The Banks also knew, or must be taken to have known, from the audit qualifications in TBGL's 1989 accounts (both as to TBGL and as to BCHL) and from the audit qualifications in BCHL's 1989 accounts (which were publicly available and widely reported), that by the end of 1989 the JNT shares and the GFH shares had no commercial value, and could not be expected to generate an income stream for The Bell Group in 1990.
6.Similarly, based on the accounts referred to above, the BRL accounts (draft or audited) for 1989, stock market prices and other information available in the public domain, particularly the financial press, the Banks knew or must be taken to have known by the end of 1989 that:
(a)BRL had not declared a final ordinary dividend for the year ended 30 June 1989 (and hence certain revenue was not available to TBGL in November 1989 as its cashflow had predicted);
(b)BRL could not be expected to declare an interim dividend in the year to 30 June 1990 given, inter alia, the uncertainty over the $1.2 billion deposit with BCHL;
(c)BRL's board had changed in december 1989 and it had ceased to be a board controlled by BCHL, thereby precluding the possibility of it continuing to pay TBGL substantial management fees as TBGL's cashflow forecast had predicted;
(d)BBHL was in receivership;
(e)BCHL had reported a loss for the year ended 30 June 1989 of $980.2M and negative shareholder funds and its auditors had qualified its accounts because of reservations as to its ability to continue as a going concern.
Accordingly, the Banks knew that the applicant companies were insolvent in that, not only could they not repay the principal amounts of the debts which were all due on demand, but they could not even continue to pay interest as it fell due."
In my opinion it is apparent from the nature of these submissions and the evidence relied upon in support of them, that the applicants' have a prima facie case for the relief which they seek.
Jurisdiction in this Court: FCR O8 r2(a)
The requirement of FCR O8 r2(a) is that the proceeding is a proceeding in which this Court has jurisdiction.
It is common ground that this Court presently has jurisdiction. However, in B P Australia Ltd v Amann Aviation
Pty Ltd, (Full Court of the Federal Court of Australia, decision reserved) an argument has been put to the Full Court of the Federal Court, which has reserved its decision, which, if accepted, would throw into doubt the jurisdiction of this Court.
Because of that possibility and because of the further possibility that a limitation period might expire in December 1995 or January 1996 before the jurisdictional issue could be resolved, the applicants commenced proceedings in the High Court of Justice in England against the same respondents upon the same claims. It is the case that not all the respondents can be served with the jurisdiction of this Court or within the jurisdiction of the English High Court of Justice.
Although the High Court of Australia in Voth v Manildra Flour Mills (1990) 171 CLR 538 held that the principles applicable to determining the appropriate forum for an action were those stated by Deane J in Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 247-8 and not those stated by the House of Lords in Spiliada Maritim Corp v Cansulex Ltd (1987) AC 460, their honours in Voth did accept that, in the application of the principles, the discussion of Lord Goff in Spiliada of "a legitimate personal or juridical advantage" provides a valuable assistance (at 565). Lord Goff (at 482) referred to a more generous limitation period as a legitimate advantage which a plaintiff was entitled to seek.
While the commencement of such proceedings in those circumstances, where the procedure and available remedies are the same, may be an abuse of process (McHenry v Lewis (1883) 22 Ch 397 at 400-408; Moore v Inglis (1976) 9 ALR 509 at 513‑4) it is not an abuse of process for a plaintiff to commence proceedings against the same respondents, upon the same cause of action in two different countries where there is a legitimate advantage to the plaintiff in that course: McHenry (supra) at 400-3, 407, 409; Peruvian Guano Company v Bockwoldt (1883) 23 Ch 225 at 230-2, 234. Furthermore, where proceedings in one court are open to challenge on jurisdictional or related grounds, and where the opportunity to resolve such issues before commencing proceedings in another court is constrained by the possible expiration of a limitation period, it is permissible for a plaintiff to commence proceedings against the same defendants, upon the same claim in different countries and the appropriate course would be to stay one of the actions until the jurisdictional issues in the other have been finally resolved: HM Attorney‑General v Arthur Anderson & Co (UK) (1988) [ECC] 224. Once such jurisdictional issue has been resolved and it is clear that the action may proceed in one court then it may be appropriate not merely to continue the stay of the other action but to require it to be discontinued or dismissed: Australian Commercial Research & Development Ltd v ANZ McCaugan Merchant Bank Ltd (1989) 3 All ER 64.
In these circumstances I do not consider it was an abuse of process for the applicants to commence two sets of proceedings. Their objects were the preserving of rights, namely the avoidance of limitation difficulties, and the attaining of one action in which all issues could be tried. These were legitimate advantages which the applicants were entitled to seek.
This Court is told that the applicants intention is to pursue the respondents in only one set of proceedings, preferably in Australia and in this Court. The Court is also told that in order to avoid having to repeatedly seek leave to renew the writ in the English proceedings (English O6 r8), the applicants propose to seek leave in England to serve out of jurisdiction the respondents who are foreign to it and then to stay the English action until further order, in order to allow time for possible jurisdictional issues (either with respect to the efficacy of an order for leave to serve out of the jurisdiction or otherwise) to be resolved in this Court. In addition, the applicants are prepared to undertake that none of them will, without the leave of this Court, pursue proceedings commenced in the High Court of Justice in England other than in accordance with those stated intentions.
In my opinion this Court has jurisdiction; it was not an abuse of process for the applicants to issue proceedings in the High Court of Justice in England; and, in the light of the undertaking proffered on behalf of the applicants, no discretionary or other factor arises against the applicants from the institution of the English proceedings.
Basis of qualification for leave: FCR O8 r2(b)
So far as concerns Mitchell and Oates, I accept that the submissions for the applicants that the proceedings with respect to them qualify pursuant to FCR O8 r1 in the following respects:
"(a) the proceeding by the first, second, third, fifth, sixth and seventh applicants is founded on causes of action (breaches of fiduciary duties as directors of TBGL, BGF and other Bell Group companies and, in the case of BG NV, as de facto directors) arising in the Commonwealth (all of the relevant applicants, other than BG NV, are Australian companies and Mitchell and Oates were in Australia when they caused the relevant applicant companies to execute all or virtually all of the instruments described in Schedule 1 hereto) (FCR O8 r1(a));
(b)the proceeding (breach of director's fiduciary duties, knowing participation in and obtaining benefits therefrom) affects the person to be served in respect of his conduct (breach of fiduciary duties) as an officer (director or de facto director) of corporations (the applicant companies other than BG (UK)) incorporated or (in the case of BG NV, which was managed in fact from Australia and which lent money to Australian companies, BGF and TBGL) carrying on business within the Commonwealth (FCR O8 r1(k)(iii));
(c)the proceeding (based on breaches of director's fiduciary duties)
(i)is for the rescission, dissolution or annulment of contracts (avoidance of instruments entered into as a result of those breaches of duty); or
(ii)otherwise affect those contracts (alternatively to avoidance, declarations are sought that the instruments are held on trust for the respective applicant companies);
and the contracts (see Schedule 1 hereto) were:
(iii)made in the Commonwealth; or
(iv)are governed by the law of the Commonwealth or of a State (FCR O8 r1(ab));
(d)the proceeding (based on breach of director's fiduciary duties) is for the setting aside of deeds, other instruments or contracts (the instruments entered into with the Banks) affecting property (assets, both tangible and intangible, of Bell Group companies) in the Commonwealth (FCR O8 r1(ae));
(e)the proceeding (breach of director's fiduciary duties and knowing participation in and obtaining benefits therefrom) is properly brought against a person to be served in the Commonwealth (Aspinall, a director or de facto director of all of the applicant companies other than BG (UK), Bond, a director of BG (UK), and the Australian Banks, respectively) and the person to be served outside the Commonwealth is properly joined (co-directors in breach of duty in which Banks participated and from which Banks benefited) as a party to the proceeding (FCR O8 r1(g));
(f)(problematically) the subject matter of the proceeding (as described in (e) above), so far as it concerns the person to be served is property in the Commonwealth (assets, both tangible and intangible, of Bell Group companies) (FCR O8 r1(h));
(g)the proceeding (as described in (e) above), so far as concerns the person to be served, falls partly within one of pars(a) to (m) of FCR O8 r1 and falls, as to the residue, within one or more of the others of those paragraphs (FCR O8 r1(n))."
With respect to Edwards, in relation to instruments executed by BG (UK) FCR O8 r1(ae) applies on the basis in par(d) immediately above. The matters set out in pars(e), (f) and (g) above equally applicable in support of the application of
FCR O8 r1(g), problematically (h), and (n).
With respect to the third respondents:
(a)the proceeding includes claims based on knowing participation in, and obtaining benefits from, breaches of fiduciary duty and the participation in benefits occurred and were obtained in Australia (FCR O8 r1(a)).
(b)FCR O8 r1(g), problematically (h), and (n) are applicable.
With respect to Equity Curacao, FCR O8 r1(ab), (k)(ii)(iii) and (g) are applicable.
In relation to the third respondents, the Lloyds Syndicate, FCR O8 r1(a)(ab)(v), (ae), (l), (g), problematically (h), and (n) are applicable.
Discretion: FCR 08 r2
With respect to the discretion implicit in FCR O8 rr1 and 2, Australia is the jurisdiction with which the causes of action have the closest connection and is the appropriate forum for the trial of the action (Oceanic Sun Line (supra); Voth (supra)) for the following reasons:
(a)the negotiations between the Australian Banks and The Bell Group were conducted in Australia, the instruments relating to Australian Banks were executed in Australia, the negotiations between The Bell Group and the Lloyds Syndicate were substantially conducted in Australia through Australian solicitors and an officer of Westpac in Australia and the instruments which benefited the Lloyds Syndicate were executed by their security agent (Westpac) and the applicant companies in Australia;
(b)the proceedings against the foreign respondents are inextricably bound up with the substantial proceedings against respondents to be served within Australia;
(c)the ultimate benefits realised by the Banks were realised in Australia as a result of the sale of assets in Australia by receivers and managers appointed in Australia by the Australian security agent for all of the Banks;
(d)the external creditors (other than some bondholders) who were prejudiced were creditors in Australia;
(e)the majority of the witnesses reside in Australia;
(f)the proceedings, in part, concern the application of Australian statutes;
(g)although proceedings against the respondents have been commenced in England, that was done as a precaution and the object of this application is to enable all issues to
be tried against all respondents in a single action in this Court.
Leave: FCR O8 r2
In my opinion the applicants have established that this is an appropriate case where leave should be given to serve originating process outside the Commonwealth on the parties concerned. I am therefore prepared to make orders accordingly, subject to the giving of the undertaking by the applicants in the terms discussed above.
I certify that this and the preceding 29 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.
Associate:
Date:30 May 1996
Supplemental Reasons
Following the delivery of the above reasons and prior to settlement of the orders to be made a written submission was received on behalf of the applicants in support of a request for leave to serve the third further amended application on various respondents at certain addresses out of the jurisdiction and also that the requirements of Divs2 and 3 of FCR O8 be dispensed with. Those divisions prescribe requirements for service out of the jurisdiction in a "convention country" and a "non-convention country" as those terms are defined in FCR O8 r1A(2). Some of the respondents to be served out of the jurisdiction are in convention countries of which English is not an official language and some are in non-convention countries. Divisions 2 and 3
require translation of the documents to be served in such countries.
Conventions entered into by the Australian Commonwealth with respect to service of documents abroad do not have legal effect other than pursuant to FCR O8. The adoption of those conventions is therefore subject to FCR O8 r4 which provides that the rules of the Federal Court generally apply to service outside Australia under FCR O8 as they apply to service inside Australia, subject to that order and any convention. The rules of the Federal Court which are thus made generally applicable to service outside Australia include rules as to the means of personal service (FCR O7 r2) and the power to dispense with compliance with any of the requirements of the rules (FCR O1 r8). The adoption of conventions is thus through FCR O8 r4 subject to the power to dispense with compliance conferred by FCR O1 r8.
On behalf of the applicants it is submitted that:
"Although some of the respondents to be served out of the jurisdiction reside in countries in which English is not an official language, it is appropriate to exercise the discretion to dispense with the requirement for translation of the documents to be served, as well as the manner by which they are to be served so that service may be effected personally pursuant to FCR O7 r2 for the following reasons:
(a)the litigation will be conducted in Australia in English;
(b)the number of documents to be served is very large and it would be extremely onerous to require translation into various languages when it is not clear that such translation is necessary in order to enable the respondents to understand the documents;
(c)with respect to the banks who comprised the Lloyds Syndicate (ie the third respondent), Lloyds Bank, which is in England, provided financial and other information to the third respondents in English;
(d)each of the relevant third respondents (except Skopbank which has not produced any documents to date) has produced documents in English showing a detailed consideration and appreciation of the transaction and/or the financial position of the Bell Group companies;
(e)each of the relevant third respondents entered into agreements in English;
(f)those agreements provided for the lending of a large sum of money, in the United Kingdom, to a company which was controlled by an Australian company;
(g)representative of each of the relevant third respondents attended syndicate meetings to discuss the proposed transaction and the financial position of the Bell Group
of companies, which syndicate meetings were conducted in English;(h)each of the relevant third respondents is represented by Australian solicitors, Parker & Parker, with respect to proceedings in the Supreme Court of Western Australia;
each of the relevant third respondents agreed to submit to the non-exclusive jurisdiction of the courts of England in relation to disputes arising out of or in connection with the Lloyds Supplemental Agreement No 2 at p33. Accordingly each of the relevant third respondents has been served with a copy (in English) of the writ issued by England in April 1996 which is in virtually identical terms to the third further amended application;
(j)Anthony Gordon Oates was a director of various Bell Group companies at all material times and conducted business in English;
(k)Equity Trust (Curacao) NV acted at the behest of the English speaking fourth respondents; and
(l)personal service will be an effective mans of notifying the respondents of the proceedings."
In my opinion, these considerations support the exercise of the discretion in the manner sought by the applicants and the orders will reflect dispensations so made appropriate.
I certify that this page and the preceding pages numbered 29 and 30 are a true copy of the Supplemental Reasons for Judgment of his Honour Justice R D Nicholson.
Associate:
Date:
APPEARANCES
Counsel for the Applicant: Mr C L Zelestis QC and
Mr G Murphy
Solicitors for the Applicant: Blake Dawson Waldron
Date of Hearing: 29 April 1996
Date of Judgments: (1) 30 May 1996
(2)19 June 1996
0
25
0