Forex Capital Trading Pty Ltd (in liq) v Invesus Group Ltd

[2025] NSWCA 64

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Forex Capital Trading Pty Ltd (in liq) v Invesus Group Ltd [2025] NSWCA 64

Hearing dates:

20 March 2025

Decision date:

14 April 2025

Before:

Mitchelmore JA at [1]
Kirk JA at [66]
Adamson JA at [67]

Decision:

(1) The appeal is dismissed.

(2) The appellant is to pay the respondent’s costs of the appeal.

Catchwords:

CONTRACTS — construction and interpretation — letter of comfort — where parent company undertook to pay “any debts” of subsidiary — where liquidators of subsidiary admitted proofs of debt in respect of undetermined civil claims — whether “any debts” in the letter of comfort includes liabilities accepted by liquidators

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth)

Corporations Act 2001 (Cth)

Cases Cited:

Australian Casualty Co Ltd v Federico (1986) 160 CLR 513; [1986] HCA 32

AZC20 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2023) 278 CLR 512; [2023] HCA 26

Duke Group Ltd (in liq) v Arthur Young (Reg) (No 4) (1991) 55 SASR 24

Duke Group Ltd (in liq) v Arthur Young (Reg) (No 2) (1991) 4 ACSR 355

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12

Ex parte Kemp; In re Fastnedge (1874) LR 9 Ch App 383

H Lundbeck A/S v Sandoz Pty Ltd; CNS Pharma Pty Ltd v Sandoz Pty Ltd (2022) 276 CLR 170; [2022] HCA 4

Hawkins v Bank of China (1992) 26 NSWLR 562

Intel Corporation v Unwired Group Ltd [2008] FCA 1927

Metal Manufactures Pty Ltd v Morton (2023) 275 CLR 100; [2023] HCA 1

Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297; (2011) 15 BPR 29,545

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Re HIH Casualty & General Insurance Ltd [2005] NSWSC 240; (2007) 190 FLR 398

Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 138; [1923] HCA 21

TheJ&P Marlow (No 2) Pty Ltd v Hayes (2023) 112 NSWLR 29; [2023] NSWCA 117

Wight v Eckhardt Marine GmbH [2004] 1 AC 147; [2003] UKPC 37

Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370

Zhong v Guan [2024] NSWCA 300

Zhu v Treasurer of New South Wales (2004) 218 CLR 530; [2004] HCA 56

Category:

Principal judgment

Parties:

Forex Capital Trading Pty Ltd (in liq) (Appellant)
Invesus Group Ltd (Respondent)

Representation:

Counsel:
RCA Higgins SC and AM Hochroth (Appellant)
MA Izzo SC and JS Burnett (Respondent)

Solicitors:
King & Wood Mallesons (Appellant)
Arnold Bloch Liebler (Respondent)

File Number(s):

2024/00307155

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity - Commercial List

Citation:

Forex Capital Trading Pty Ltd (in liquidation) v Invesus Group Limited [2024] NSWSC 867

Date of Decision:

19 July 2024

Before:

Ball J

File Number(s):

2022/240883

HEADNOTE

[This headnote is not to be read as part of the judgment]

Forex Capital Trading Pty Ltd (FXCT) operated a business providing foreign currency and derivative products to retail investors. Invesus Group Limited (IGL) was FXCT’s ultimate parent company.

On 12 March 2019, the Australian Securities and Investments Commission (ASIC) obtained ex parte freezing orders in the Federal Court against FXCT and its director, in the context of an investigation into suspected contraventions by FXCT of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). On 17 March 2019, before the next return date, IGL executed a letter of comfort in which it undertook to “provide to FXCT and its director(s) … financial support to the extent FXCT or its director(s) require such financial support to meet any debts, including judgment debts, incurred by FXCT or its director(s) … in respect of FXCT’s customers” (Letter of Comfort).

On 15 July 2020, ASIC commenced proceedings in the Federal Court against FXCT and Mr Yoshai, seeking declarations and pecuniary penalties in respect of alleged contraventions of the ASIC Act and the Corporations Act. On 20 April 2021, by consent, the Federal Court made the declarations and other orders that ASIC sought, including that FXCT pay a pecuniary penalty of $20 million. On 27 June 2021, it was resolved that FXCT be wound up voluntarily, and liquidators were appointed. On 7 December 2021, the Federal Court ordered that FXCT be wound up in insolvency.

The liquidators conducted an investigation into the affairs of FXCT and the potential claims of former customers for loss or damage arising out of the conduct of FXCT and its representatives between 1 January 2017 and 1 April 2019. As a result of that investigation, the liquidators believed that FXCT’s former customers had good claims against FXCT for unconscionable conduct and misleading or deceptive conduct. On 17 May 2022, the liquidators obtained orders from the Federal Court under the Corporations Act permitting an expedited process for the admission of proofs of debt from former customers, by which customers could submit claims for the whole of their trading losses during a given period which the liquidators could admit at 85% of their value.

Pursuant to this process, the liquidators accepted proofs of debt from former customers, 85% of the total value of which was $43,645,127.26. The liquidators made a demand of IGL for that amount pursuant to the Letter of Comfort. IGL refused on the basis that the admitted proofs of debt were not “debts” under the Letter of Comfort. FXCT, under the control of its liquidators, commenced proceedings against IGL for damages for breach of the Letter of Comfort. The primary judge dismissed the proceedings.

By its single ground of appeal, FXCT contended that the phrase “any debts” in the Letter of Comfort included any acceptance of liability to a former customer in respect of a claim the subject of ASIC’s investigation in a specified amount, whether by the company or by a liquidator of the company.

The Court held (Mitchelmore JA, Kirk JA and Adamson JA agreeing at [66] and [67]), dismissing the appeal:

1. The liquidators’ admission of proofs of debt, being a determination of the rights of FXCT’s former customers to participate in the distribution of the company’s assets, did not amount to an ascertainment of FXCT’s liability to those former customers. For the reasons the primary judge gave, nothing was incurred by the company as a consequence of the liquidators’ acceptance that there was a liability, or its admission to proof: at [49].

2. The inclusive description of “any debts” in the Letter of Comfort by reference to judgment debts and settlements did not support FXCT’s contention as, unlike judgments and settlements, the liquidators’ determination of customer claims did not affect the independent existence of those claims: at [54].

3. There is nothing in the text of the Letter of Comfort to suggest that IGL was undertaking to be bound by a liquidator’s opinion about FXCT’s liabilities: at [55].

4. Even if the adjudication process were to result in the ascertainment of FXCT’s liabilities, it did not do so in a manner that was binding on FXCT so as to fall within the scope of IGL’s undertaking in the Letter of Comfort: at [61].

JUDGMENT

1. MITCHELMORE JA: This appeal concerns the proper construction of a letter of comfort dated 17 March 2019 (Letter of Comfort) that the respondent, Invesus Group Ltd (IGL), executed as a deed poll in favour of the appellant, Forex Capital Trading Pty Ltd (in liq) (FXCT), and its directors.

2. The question arises in the context of a claim for damages brought by FXCT against IGL for breach of the Letter of Comfort. The damages claim relates to proofs of debt that former customers of FXCT submitted to the liquidators with respect to their net trading losses in a specified period, pursuant to a process approved by the Federal Court of Australia. The liquidators of FXCT made a demand under the Letter of Comfort for payment of $43,645,127.26, comprising 85 per cent of the total amount of the proofs of debt which they admitted under the court-approved process. IGL denied any obligation to pay that sum.

3. The primary judge, Ball J, dismissed FXCT’s claim: Forex Capital Trading Pty Ltd (in liquidation) v Invesus Group Limited [2024] NSWSC 867. His Honour concluded that, on its proper construction, the Letter of Comfort did not apply to proofs of debt admitted in the liquidation.

4. By its single ground of appeal, FXCT contended that the primary judge erred in finding that the admitted proofs of debt did not fall within the terms of the Letter of Comfort, specifically the phrase “any debts, including judgment debts, incurred by FXCT … prior to or after the date of this letter in respect of FXCT’s customers”. For the reasons that follow, the primary judge’s construction of the Letter of Comfort was correct. The appeal should be dismissed.

Background to the Letter of Comfort

5. The factual background to the proceedings before the primary judge was not the subject of dispute, although FXCT and IGL emphasised different aspects of it. Unless otherwise indicated, references to paragraph numbers below are to the reasons of the primary judge.

6. The principal business of FXCT was the operation of a retail investment platform for the sale of derivative and foreign currency exchange products. FXCT carried on this business under an Australian financial services licence (AFSL): at [2].

7. On 5 October 2018, the Australian Securities and Investments Commission (ASIC) commenced an investigation into suspected contraventions by FXCT of provisions of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) relating principally to misleading and deceptive conduct and unconscionable and dishonest conduct: at [3].

8. On 12 March 2019, ASIC commenced proceedings in the Federal Court on an ex parte basis against FXCT and its director, Shlomi Yoshai (proceedings VID218/2019). By its originating process, ASIC sought freezing orders with respect to the property of FXCT, including to restrain FXCT from removing all or part of its property from Australia. ASIC also sought an order appointing a receiver to the company.

9. On 12 March 2019, being the day ASIC commenced the proceedings, Middleton J made the freezing orders ex parte. His Honour listed the matter for return on 18 March 2019: at [5].

10. On 17 March 2019, IGL executed the Letter of Comfort in the following terms:

“Letter of comfort

The purpose of this letter is for Invesus Group Limited (registration number 112170) to provide comfort to Forex Capital Trading Pty Limited ACN 119 086 270 (FXCT) and the director(s) of FXCT regarding its financial position.

Invesus Group Limited is aware of orders made by the Federal Court of Australia in proceedings VID218/2019, of investigation of FXCT by the Australian Securities and Investments Commission (ASIC) and of allegations that, if proved, will mean that FXCT and its director(s) may have to make consumer redress to certain FXCT customers. Without any admission whatsoever in relation to those allegations, this letter is intended to provide comfort that FXCT and its director(s) will be provided financial support from Invesus Group Limited so that in any event, including without limitation unsuccessful defence of any proceedings, they are able to satisfy any obligations arising from court proceedings or flowing from ASIC’s investigation and can pay any settlement amount or judgment sums required to be paid to customers of FXCT.

Invesus Group Limited irrevocably undertakes in favour of FXCT and any director of FXCT that with effect from the date of this letter, upon requests from time to time, it will provide to FXCT and its director(s), or procure from external sources, financial support to the extent FXCT or its director(s) require such financial support to meet any debts, including judgment debts, incurred by FXCT or its director(s) prior to or after the date of this letter in respect of FXCT’s customers.

This undertaking is for the benefit of FXCT and the directors of FXCT.

This document and any dispute arising out of or in connection with this document is governed by the laws of the State of New South Wales within the Commonwealth of Australia.

Invesus Group Limited submits to the non‑exclusive jurisdiction of the courts exercising jurisdiction in New South Wales in the Commonwealth of Australia, including the Federal Court of Australia, and any court that may hear appeals from any of those courts, for any proceedings in connection with this document, and waives any right it might have to claim that those courts are an inconvenient forum. Invesus Group Limited irrevocably consents to the registration of any judgment obtained in these courts in any proceedings in connection with the ASIC investigation currently underway and Federal Court proceedings VID218/2019 in a court of Gibraltar.

This undertaking terminates on 30 June 2022.”

(Emphasis in original.)

11. On 18 March 2019, Mr Alistair McKeough, the solicitor for FXCT, swore an affidavit in opposition to any extension of the freezing orders made on 12 March 2019. Mr McKeough gave evidence on information and belief regarding IGL’s financial position, as disclosed in the audited financial statements for the year ending 31 December 2017 and the draft figures for the financial year ending 31 December 2018. Mr McKeough annexed the Letter of Comfort and summarised its contents. He also took issue with aspects of the affidavit relied on by ASIC in support of the freezing orders (which was not in evidence before the primary judge), including as to amounts said to have been transferred between accounts of FXCT and/or internationally between 2 October 2017 and 31 January 2019.

12. Mr McKeough gave evidence regarding FXCT’s ongoing operations, including the number of FXCT’s employees and the nature of routine payments. He also gave the following evidence:

“I am informed by Shlomi Yoshai, and believe that, without admission, where not already resolved, the first defendant, under Mr Yoshai’s supervision, intends to investigate or further investigate the consumer complaints set out in the Farroukh Affidavit and deal with them on a case by case basis and will defend the claims referred to at paragraph 8 of that affidavit.”

13. On 19 March 2019, despite Mr McKeough’s affidavit, Middleton J extended the freezing orders. The orders were further extended on a number of occasions. No order was made to appoint a receiver: at [9].

14. On 15 July 2020, ASIC commenced proceedings in the Federal Court against FXCT and Mr Yoshai, seeking declarations and pecuniary penalties in respect of alleged contraventions of the ASIC Act and the Corporations Act (proceedings VID462/2020): at [10]. On 9 June 2020, cancellation of FXCT’s AFSL was gazetted, with the licence continuing for limited purposes until 31 July 2020: at [11].

15. FXCT and ASIC ultimately agreed that FXCT would pay a pecuniary penalty of $20 million. On 20 April 2021, by consent, Middleton J made the declarations and other orders that ASIC sought. His Honour delivered reasons on 28 May 2021: Australian Securities and Investments Commission v Forex Capital Trading Pty Limited, in the matter of Forex Capital Trading Pty Limited [2021] FCA 570.

16. The contraventions that FXCT admitted included specific instances involving eight identified customers. FXCT also admitted that it had engaged in a system of conduct or pattern of behaviour that amounted to unconscionable conduct in contravention of s 12CB of the ASIC Act. Middleton J stated at [132] of his Honour’s judgment:

“I am prepared to accept the unconscionable system put in place by Forex CT was representative of the conduct towards all clients (not just the eight clients that have been identified). But it was never pleaded by ASIC, or put to me in the written submissions, that there were multiple contraventions of or in relation to s 12CB(1) arising out of this system of conduct.”

17. On 28 April 2021, being the day before Middleton J made the orders in proceedings VID462/2020, FXCT and IGL entered into a convertible loan arrangement under which IGL agreed to provide funds to enable FXCT to meet its obligations in respect of the penalty, legal costs and/or any amounts imposed on it as a result of the proceedings. Pursuant to that agreement, IGL paid the $20 million penalty that Middleton J approved on behalf of FXCT: at [13].

Liquidation of FXCT and the expedited adjudication process

18. On 27 June 2021, the sole director of Forex Capital Trading Limited, FXCT’s immediate holding company and sole shareholder, passed a special resolution of FXCT that the company be wound up voluntarily. Daniel Woodhouse and Nathan Thomas of FTI Consulting were appointed as joint and several liquidators of FXCT: at [15].

19. On 20 September 2021, the liquidators wrote to IGL requiring “additional funding to undertake the liquidation on a solvent basis”. The amount that the liquidators required ($2,066,372 (including GST)) included $948,301 in claims that the liquidators had already received from former clients of FXCT. In their report to creditors dated 24 September 2021, the liquidators noted that there were 12 outstanding former client claims, totalling $1,120,832. The liquidators also stated that they had “proactively written” to all former clients who were potentially affected by the misconduct identified in Middleton J’s judgment.

20. In the reasons of the primary judge at [16], his Honour set out the following extract from an email that the liquidators sent to former customers of FXCT on 24 September 2021, inviting them to register their claims:

“We understand you are a former client of Forex CT. As a result of the findings made by the Court about Forex CT, you may potentially have a claim against Forex CT for, among other things, the loss and damage you have suffered as a client due to Forex CT’s ‘unconscionable system’.

If you traded with Forex CT and suffered a loss, then Forex CT may potentially owe you money — and we are collecting the details of all parties that may be owed money by Forex CT (i.e. the Company’s creditors), and the circumstances that may give rise to claims against the Company.”

21. IGL did not substantively respond to the liquidators’ letter of 20 September 2021 or to follow-up requests that the liquidators made: at [19]. On 12 November 2021, the liquidators applied to the Federal Court to have FXCT wound up in insolvency pursuant to s 459A of the Corporations Act. That order was made on 7 December 2021: at [19].

22. The liquidators prepared a report of their investigation into the affairs of FXCT and the potential claims of former customers for loss or damage arising out of the conduct of FXCT and its representatives between 1 January 2017 and 1 April 2019 (Investigation Report). The Investigation Report, dated 5 May 2022, set out the methodology that the liquidators adopted to select a representative sample of former customers and interrogate their claims against FXCT, with a view to evaluating those claims and, inferentially, the strength of all claims submitted. On the basis of their investigation, the liquidators believed that each and every former customer would be able to make out a claim against FXCT for misleading or deceptive conduct or unconscionable conduct, and that each customer’s loss or damage was caused by such conduct:

“111 As a result of the Investigations set out in this Investigation Report, the Liquidators are overwhelmingly satisfied that those Former Customers who suffered loss or damage as a resulting [sic] of trading with the Company (i.e. the Net Loss), would have suffered the loss or damage either directly or indirectly as a result of the wrongful and illegal actions of the Company. On that basis, the Liquidators are satisfied every Former Customer has a valid claim against the Company for that loss or damage.”

23. Also on 5 May 2022, the liquidators sent a notice to former customers informing them of the results of their investigation, as well as sending a letter to IGL informing it of their intention to apply to the Federal Court for orders with respect to their adjudication, in the liquidation, of claims from former customers of FXCT. On 9 May 2022, the liquidators made that application to the Federal Court (proceeding WAD83/2022).

24. Section 90-15(1) of Schedule 2 to the Corporations Act empowers the court to “make such orders as it thinks fit in relation to the external administration of a company”. As the primary judge summarised at [22], the effect of the orders that the liquidators of FXCT sought was to permit them:

“…to send letters to former customers of FXCT inviting them to submit proofs of debt in a form proposed by the liquidators for the net trading losses they suffered during the period 1 January 2017 to 1 April 2019 (the period during which the contravening conduct occurred) and to permit the liquidators to admit those proofs of debt for 85 percent of the amount claimed notwithstanding that the customers had not established the factual basis of their claims.”

25. FXCT served a copy of the originating process on IGL. IGL did not accept service, stating that it was not a party to the proceeding and would not be bound by any orders made. It also asserted, without elaboration, that the Federal Court did not have the power to make the orders sought: at [23].

26. On 17 May 2022, Banks-Smith J made the orders that the liquidators sought: Woodhouse (Liquidator) in the matter of Forex Capital Trading Pty Ltd (In Liq) [2022] FCA 600; (2022) 159 ACSR 669. As a result of the expedited adjudication process that her Honour approved, the liquidators admitted 1,728 proofs of debt from former customers of FXCT. The total amount of the proofs of debt was $51,347,208.38, but in accordance with the orders of Banks-Smith J the liquidators admitted those proofs of debt at 85 percent of the amount claimed, in the sum of $43,645,127.26: at [25].

27. On 22 June 2022, the liquidators sent a letter of demand to IGL for payment of that amount under the Letter of Comfort. On 29 June 2022, IGL provided the following response:

“Invesus Group Limited (‘Invesus’) denies that the Letter of comfort dated 17 March 2019 applies to the claim made in the 22 June 2022 demand. Among other things, and without limitation, Invesus denies the demand discloses any debt to which the letter of comfort would have responded.”

The proceedings in the court below

28. On 11 August 2022, FXCT commenced proceedings in the Equity Division against IGL. The primary judge summarised the central issue as “whether the amount … claimed by FXCT under the Letter of Comfort falls within the description ‘any debts, including judgment debts, incurred by FXCT prior to or after the date of this letter in respect of FXCT’s customers’”. Unless the sum claimed was of that character, “the Letter of Comfort imposes no obligation on IGL to provide or to procure from external sources financial support to meet it”: at [30].

29. The primary judge did not consider that the language of the Letter of Comfort or circumstances surrounding its creation provided much assistance on the central issue: at [31]. Nonetheless, his Honour made the following observations:

1. The timing of the Letter of Comfort and its subject-matter suggested that “its primary purpose was to enable FXCT to resist the interlocutory orders sought by ASIC, which included an order for the appointment of a receiver”: at [36].

2. The second paragraph of the Letter of Comfort indicated more specifically that its purpose was to ensure that FXCT and its directors “are able to satisfy any obligations arising from court proceedings or flowing from ASIC’s investigation”: at [31]. His Honour considered that the purpose of the Letter of Comfort was to ensure that FXCT would be able to meet the potential claims that it then faced if and when the claims resulted in crystallised liabilities: at [33].

3. The terms of IGL’s undertaking, in the third paragraph of the Letter of Comfort, to meet “any debts, including judgment debts”, assumed that there were “debts” for the purposes of the Letter of Comfort that were not judgment debts; and, having regard to its purpose, the word was not limited to obligations arising from court proceedings: at [31].

4. The undertaking was also intended to cover the settlement of claims arising from the ASIC investigation, which explained why it was drafted in a way that covered debts other than judgment debts and referred to obligations otherwise than as a result of court proceedings: at [31].

30. The primary position of both parties was that the answer to that question turned on the ordinary meaning of the word “debts”: at [39]. The primary judge observed in this regard that it was also common ground that “a debt was a liability to pay an ascertained amount or an amount that could be ascertained by arithmetic calculation or that was ‘fixed by any scale of charged or other positive data’”, quoting from Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 138 at 142 (Knox CJ and Starke J); [1923] HCA 21: at [39].

31. FXCT advanced two arguments as to the meaning of “debts”, although the primary judge observed that they were not always clearly separated in FXCT’s submissions (at [40]):

“The first was that the admission of the proofs of debt itself created debts owed by FXCT to the former customers whose debts were admitted. The second was that the liquidators’ conclusions on the existence and the amount of FXCT’s liability to former customers were binding on FXCT and IGL and were properly characterised as conclusions that FXCT owed debts to its former customers.”

Although FXCT maintains only the second of those arguments on the appeal, understanding the reasoning by which his Honour rejected the first is relevant to understanding his Honour’s rejection of the second.

32. The primary judge rejected the first argument on the basis that it failed “to give sufficient weight to the principles relating to proofs of debt under the Corporations Act”: at [45]. His Honour first described the primary task of a liquidator as being “to get in the assets of the company and to distribute them in accordance with the scheme set out in Division 6 of Part 5.6 of the Corporations Act”: at [46]. His Honour referred to a number of salient features of that scheme as follows:

“[47] The scheme proceeds on the basis that ‘recognition of a creditor (as distinct from a mere claimant to creditor status) will be determined by the adjudication of a proof of debt’: McMillan Investment Holdings Pty Ltd v Morgan [2023] FCAFC 9 at [100]. In adjudicating a proof of debt, the liquidator acts in a quasi-judicial capacity ‘according to standards no less than the standards of a court or judge’: ibid, referring to Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 (Tanning (HCA)) at 338-9 per Brennan and Dawson JJ. In accepting or rejecting a proof of debt, the liquidator is not acting as an agent of the company, but rather is undertaking a statutory task as an officer of the Court: Tanning (HCA) at 340-1.

[48] In administering the scheme, the liquidator is not determining the liabilities of the company. Rather, the liquidator is determining the rights of creditors or persons who claim to be creditors to participate in the scheme. As Barrett J explained in Re HIH Casualty and General Insurance Ltd [2005] NSWSC 240; 215 ALR 562 at [119]:

The process is one of administration of assets according to a statutory scheme, not one in which rights against the company itself are pursued or enforced. If that process is terminated, the creditors revert to their original rights.

See also Tanning Research Laboratories Inc v O’Brien (1987) 11 ACLR 778 at 791 per Cohen J (reversed on other grounds in O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601; appeal dismissed in Tanning (HCA)); Hoath v Connect Internet Services Pty Ltd [2006] NSWSC 158; 229 ALR 566 at [157] per White J (dealing with the position of a deed administrator).

[49] The Corporations Act gives a creditor a right of appeal to the Court against a decision of a liquidator to reject a proof of debt: see also Corporations Regulations 2001 (Cth) reg 5.6.54. But in that case, it is the liquidator and not the company that is the respondent to the appeal: see Re Jay-O-Bees Pty Ltd (in liq); Rosseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd (in liq) (2004) 50 ACSR 565 at [52-53] citing Jones v Brien (1994) 13 ACLC 99 per McLelland CJ in Eq at [99]. And if successful, the order of the Court is an order directing that the liquidator admit the proof of debt, not an order that the company is liable to pay a certain sum of money: Sturesteps v AG McGrath [2010] NSWSC 896 at [54] per Brereton J.”

33. His Honour concluded from that overview that when a liquidator admits a proof of debt, the liquidator “is deciding who is entitled to participate in the distribution of the assets of the company in accordance with the scheme set out in the Corporations Act”. The liquidator “is not creating a new liability of the company in substitution for an existing liability”; and the company’s underlying liabilities remain unaffected by the decision. Further, even if it could be said that admission of a proof of debt created some form of liability, it was “a liability of the liquidators to pay the creditor his or her share of the funds realised by the liquidators”. Any liability created by the admission of a proof of debt was not a liability of the company; and it was not a liability to pay the amount admitted. As his Honour stated, the amount to be paid “is not ascertained at the time the proof of debt is admitted and cannot be ascertained until all proofs are dealt with and all assets realised”: at [50].

34. The primary judge also rejected FXCT’s second contention, that the liquidators’ conclusions as to FXCT’s liabilities were binding on FXCT such that those potential liabilities amounted to a “debt” for the purposes of the Letter of Comfort. His Honour considered that if it was accepted that the liquidators’ decision concerning the existence and amount of FXCT’s liability was binding on the company, it would be sufficient to amount to a debt for the purposes of the Letter of Comfort even if the liability was not for a liquidated amount (IGL had relevantly submitted that unliquidated liabilities were not “debts”). As the Letter of Comfort was given to enable FXCT to meet ascertained liabilities “whatever their precise legal character”, it followed that “‘debts’ should be interpreted to cover any liability that has that quality”: at [60].

35. However, there were three difficulties with FXCT’s argument: at [61]. The first was that it involved characterising the act of admitting a proof of debt as a decision concerning the amount of the underlying liabilities of the company, which was not correct: at [62]. Although the amount for which a proof of debt is admitted will “normally” correspond to the amount for which the company is liable, “that will not always be so”, as the present case illustrated: at [62]. The second difficulty was that it was not clear how the decision of the liquidators became binding on FXCT, let alone IGL: at [64]. The third difficulty was that the submission was inconsistent with the decision of the Full Court of the Supreme Court of South Australia in Duke Group Ltd (in liq) v Arthur Young (Reg) (No 2) (1991) 4 ACSR 355 (“Duke Group FC”): at [71].

The appeal

36. FXCT submitted that his Honour adopted an unduly narrow construction of the Letter of Comfort that did not take sufficient account of the context in which it was executed or of “the need to avoid a commercially absurd and inconvenient result”. His Honour’s construction rendered IGL’s undertaking meaningless in the foreseeable circumstances which eventuated, frustrating its sensible commercial operation.

37. In advancing these criticisms, FXCT did not challenge the primary judge’s analysis of the provisions of the Corporations Act or his Honour’s characterisation of the statutory scheme. However, it submitted that his Honour was wrong so readily to dismiss the language of the Letter of Comfort and its commercial purpose as shedding little light on the answer to the question of construction. Contrary to the limited assistance that his Honour derived from those matters, FXCT submitted that they suggested that as broad a construction of the document as the language would bear was appropriate.

38. As the primary judge stated at [29], the Letter of Comfort is to be construed in accordance with the principles generally applicable to the construction of commercial contracts. However, by contrast with the cases that his Honour cited in support of that proposition, Zhu v Treasurer of New South Wales (2004) 218 CLR 530; [2004] HCA 56 at [82] and Intel Corporation v Unwired Group Ltd [2008] FCA 1927 at [32]-[33], the Letter of Comfort was not executed in the context of related agreements between the parties: cf Zhu at [81]; Intel Corporation at [10]. FXCT acknowledged that the unilateral nature of the Letter of Comfort required some qualification to the general principles, summarised in cases such as Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47]-[51], which are formulated by reference to “the parties”: see eg Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16] (Kiefel, Bell and Gordon JJ).

39. FXCT submitted that it was necessary to attend to the grammatical and legal meaning of the word “debt” in the commercial context in which it arose, including by reference to the purpose that the Letter of Comfort sought to achieve, noting that the word does not have a precise and inflexible denotation. On “a commercial construction” of the phrase “any debts” in the Letter of Comfort, FXCT submitted that it should extend “to any acceptance of liability of FXCT to a former customer in respect of a claim the subject of ASIC’s investigation in a specified amount, whether undertaken by FXCT or by a liquidator of FXCT”.

40. Turning to the terms of the Letter of Comfort, FXCT emphasised:

1. the broad purpose stated in the first paragraph, namely, “to provide comfort to [FXCT] and the director(s) of FXCT regarding its financial position”;

2. the reference in the second paragraph to IGL’s awareness of the Federal Court’s orders and the ASIC investigation, and the express contemplation that if the allegations were proved, FXCT and its directors may have to make consumer redress to certain customers;

3. the statement in that same paragraph of what the letter was intended to do, in terms of ensuring that FXCT and its directors could satisfy “any obligations arising from court proceedings or flowing from ASIC’s investigation”, and could pay “any settlement amount or judgment sums required to be paid to customers”;

4. the irrevocable undertaking, in the third paragraph, in favour of FXCT and any director;

5. the period of operation of the undertaking, commencing on the date of the letter and ending on 30 June 2022, some three years later; and

6. the operation of IGL’s undertaking, upon request and from time to time.

41. Accepting that the Letter of Comfort was unilateral, senior counsel for FXCT submitted that the context in which the Letter of Comfort was executed and its purpose as found by the primary judge (see [28] above), invited consideration of what IGL was reasonably conveying to the Federal Court. FXCT submitted that the commercial purpose of the instrument was, put bluntly, to give the Federal Court comfort that good claims of former customers would be paid.

42. FXCT pointed to the use of the words “any debts” in the third paragraph of the Letter of Comfort as telling against a narrow construction of “debts”, and to the inclusive description of the class of debts covered. Against the background in which the Letter of Comfort was executed — it being known at that time that FXCT was facing potentially significant unliquidated claims from former customers — FXCT submitted that the words extended to an acceptance of liability by FXCT to a former customer in respect of a claim that had a nexus to ASIC’s investigation in a specified amount, whether undertaken by FXCT or a liquidator. That construction gave the Letter of Comfort a meaningful operation in circumstances where the second paragraph of the Letter of Comfort acknowledged the prospect of having to make “consumer redress” to certain FXCT customers.

43. FXCT took the Court to a number of authorities to illustrate that the term “debts” was not so intractable and narrow as to exclude the admission by a liquidator of a proof of debt submitted by a former customer. It was the liquidators’ acceptance of proofs of debt at 85% of a former customer’s net loss, as part of the approved expedited adjudication process, that was said to “crystallise” FXCT’s liabilities to its former customers. FXCT submitted that there was little practical difference between the process that the liquidators undertook in determining the rights of creditors to participate in the scheme in Div 6 of Part 5.6 of the Corporations Act, and determining the company’s liabilities as such, at least in the case of an insolvent entity that was unlikely ever to emerge from insolvency.

44. It is necessary for this Court to construe the contractual text, having regard to context and purpose: Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370 at [129] (Leeming JA). In undertaking that task, courts “have no mandate to rewrite agreements, so as to depart from the language used by the parties, merely to give a provision an operation which, as it appears to the court, might make more commercial sense”: Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297; (2011) 15 BPR 29,545 at [18]. In H Lundbeck A/S v Sandoz Pty Ltd; CNS Pharma Pty Ltd v Sandoz Pty Ltd (2022) 276 CLR 170; [2022] HCA 4, Edelman J said in this regard at [104]:

“Whilst it will always be an important matter of context for the interpretation of a commercial agreement if an interpretation would be ‘commercial nonsense’, it will rarely assist for the interpretation of an agreement that the court considers that, from the perspective of one party, one or more clauses are not commercially wise or convenient. As Neuberger LJ said in Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [[2006] EWCA Civ 1732 at [22]]:

‘[T]he court must be careful before departing from the natural meaning of the provision in the contract merely because it may conflict with its notions of commercial common sense of what the parties may must or should have thought or intended. Judges are not always the most commercially-minded, let alone the most commercially experienced, of people, and should, I think, avoid arrogating to themselves overconfidently the role of arbiter of commercial reasonableness or likelihood.’”

45. Referring to the passage of Neuberger LJ and other authorities in TheJ&P Marlow (No 2) Pty Ltd v Hayes (2023) 112 NSWLR 29; [2023] NSWCA 117 at [76]-[80], Bell CJ specifically observed at [79] that an “attributed commercial purpose may not be used by a court to give to the words of a contract a meaning that they cannot reasonably bear”, citing Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520; [1986] HCA 32; see also at [98]-[99] (Meagher and Kirk JJA).

46. FXCT’s submissions on the appeal, and before the primary judge, emphasised context and purpose at the expense of the text of the Letter of Comfort. Omitting subordinate clauses, the undertaking that IGL gave in favour of FXCT and its directors in the third paragraph of the Letter of Comfort was:

“…to provide to FXCT and its director(s) … financial support to the extent that FXCT or its director(s) require such financial support … to meet any debts … incurred by FXCT or its director(s) prior to or after the date of this letter in respect of FXCT’s customers.”

47. The word “debt” is, as described by Gleeson CJ in Hawkins v Bank of China (1992) 26 NSWLR 562 at 572, not a word “of precise and inflexible denotation”. His Honour was there construing the phrase “incurs a debt” in s 556 of the Companies (NSW) Code. Expressing the view that the phrase should be “applied in a practical and commonsense fashion, consistent with the context and [in that case] with the statutory purposes”, his Honour considered that it was apt to describe “in an appropriate case, the undertaking of an engagement to pay a sum of money at a future time, even if the engagement is conditional and the amount involved uncertain”: at 572. FXCT also called attention to Ex parte Kemp; In re Fastnedge (1874) LR 9 Ch App 383 at 387, in which Mellish LJ observed that the statutory phrase in that case, “debts due to him”, was capable of a wide or narrow construction and was sometimes used “in bankruptcy proceedings to include all demands which can be proved against a bankrupt’s estate, although some of them may not be strictly debts at all”.

48. However, the words “any debts” do not appear in the Letter of Comfort in isolation. The “debts” to which IGL’s undertaking to provide financial support was directed were “any debts … incurred by FXCT or its director(s) … in respect of FXCT’s customers”. It is the case, as FXCT submitted, that the words “in respect of FXCT’s customers” import a relational requirement between the debt and former customers, which the proofs of debt at issue in the present case may satisfy. However, as IGL submitted, that relational requirement applies with respect to debts of a particular kind, namely, “debts incurred by”, relevantly, FXCT. The liquidators’ determination of the rights of FXCT’s former customers to participate in the distribution of the company’s assets did not amount to an ascertainment of FXCT’s liability to those former customers. For the reasons the primary judge gave, nothing was incurred by the company in consequence of the liquidators’ acceptance that there was a liability, or its admission to proof.

49. The meaning that his Honour ascribed to the operative words of the Letter of Comfort reflected the operation of the provisions in the Corporations Act with respect to the duties and functions of a liquidator, which the joint judgment summarised in Metal Manufactures Pty Ltd v Morton (2023) 275 CLR 100; [2023] HCA 1 at [5]-[10] (Kiefel CJ, Gordon, Edelman and Steward JJ). Without repeating that summary, or the primary judge’s summary of the import of those provisions, it suffices for present purposes to refer to Barrett J’s overview in Re HIH Casualty & General Insurance Ltd [2005] NSWSC 240; (2007) 190 FLR 398 at [119], which the primary judge extracted (in part) in his reasons at [48]:

“When winding up begins, creditors are denied the rights they would otherwise have to sue for their debts. They obtain instead a right to participate in a distribution in the winding up. The concept is elucidated in Motor Terms Co Pty Ltd v Liberty Insurance Ltd (1967) 116 CLR 177, particularly in the judgment of Kitto J at pp.180-181. It derives from the old law of bankruptcy: see Re Higginson & Dean; ex parte Attorney-General [1899] 1 QB 325 at p.333. Commencement of winding up marks the point at which a special regime of collection and administration of assets begins. The liquidator presides over that process. The persons interested in the estate administered by the liquidator are the creditors and the contributories. Each such group has a right to see the administration duly and properly conducted and to receive, in satisfaction of rights that existed against the company, the distribution required by the statutory provisions. The process is one of administration of assets according to a statutory scheme, not one in which rights against the company itself are pursued or enforced. If that process is terminated, the creditors revert to their original rights.”

50. In the face of a longstanding statutory regime the legal effect of which is well understood, FXCT’s submission was that the words “any debts … incurred by [FXCT] or its directors” should be taken reasonably to include any liability accepted by the liquidator. Even if insolvency was reasonably in contemplation at the time of execution of the Letter of Comfort, there is nothing in the text of the operative part of the Letter of Comfort that would support so expansive a construction; and indeed the very words on which FXCT relies tell against it. As the primary judge said at [68], it is not possible to say that the process by which a liquidator admits or rejects proofs of debt “involves a finding of liability on the part of the company that is binding as between the company and the creditor”.

51. By contrast, the construction for which FXCT contended involved an unconventional conflation of the legal effect of a liquidator’s admission of a proof of debt (or a claim) and acceptance of a liability by the company. So much is apparent, by way of example, from its written submissions, in which FXCT described the liquidators’ acceptance of proofs of debt in the expedited adjudication process as operating to crystallise “FXCT’s liabilities to its former customers” (emphasis added). However, the amounts for which customers were entitled to prove in the present case did not correspond to any liability that FXCT may have had, which the primary judge recognised at [62]. FXCT acknowledged as much in its written submissions, characterising the expedited adjudication process as setting “a floor on the amount that FXCT would be taken to owe each customer in the winding up” and leaving it open to former customers to claim a greater amount in due course.

52. FXCT submitted that in circumstances where judgment debts and amounts entered into by deed of settlement (neither of which were feasible methods to resolve claims in this case given the limited temporal operation of the Letter of Comfort) would undoubtedly be captured by the Letter of Comfort, it would be “an odd and unsatisfactory result” if the alternative process provided for by the Corporations Act, being the expedited adjudication process that Banks-Smith J approved (see [27] above), produced a different result. However, the result of the primary judge’s construction, that claims submitted and approved by the liquidators pursuant to the expedited adjudication process did not fall within the meaning of “any debts” in the Letter of Comfort, reflected the nature of that process and its legal effect.

53. Rather than assist FXCT, the inclusive description of “any debts” in the Letter of Comfort by reference to judgment debts and settlements supports the primary judge’s construction. As IGL submitted, in the case of a claim for damages, the right that is the subject of that claim merges in the judgment or order by which the claim is determined (AZC20 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2023) 278 CLR 512; [2023] HCA 26 at [34]), while a settlement will ordinarily involve release of a claim. Conversely, the liquidators’ determination of the claims of former customers pursuant to the approved adjudication process did not affect the independent existence of those claims. Rather, the right underlying each claim continued to exist unless and until discharged by the actual payment of a dividend in liquidation: Wight v Eckhardt Marine GmbH [2004] 1 AC 147; [2003] UKPC 37 at [27]; Re HIH Casualty & General Insurance Ltd at [119].

54. The textual matters to which I have just referred highlight the consequences of FXCT’s construction for IGL, as the issuer of the Letter of Comfort. As IGL submitted, there is nothing in the text of the Letter of Comfort to suggest that it was undertaking to be bound by a liquidators’ opinion about FXCT’s liabilities. It is in this context that the decision of Perry J in Duke Group Ltd (in liq) v Arthur Young (Reg) (No 4) (1991) 55 SASR 24, and the decision in Duke Group FC on the appeal, are of some significance. This authority was the third difficulty with FXCT’s construction that the primary judge identified in rejecting it.

55. The proceedings involved a claim by the plaintiff (a company in liquidation) in negligence and breach of contract for damages and other relief arising out of the preparation by the defendant of a report submitted to the plaintiff’s shareholders and considered at a general meeting of the company in June 1988. The transaction which the shareholders were invited to approve at that meeting was described by his Honour as a “reverse takeover” of the plaintiff, then known as Kia Ora Gold Corporation NL, by the Duke Group of companies. Since the implementation of the reverse takeover, the plaintiff had been placed in liquidation.

56. As Perry J noted at the outset of his Honour’s reasons at 25, the application his Honour was determining was made by the defendant to amend its defence, which the plaintiff opposed. One of the proposed amendments raised a plea that certain of the alleged liabilities of the plaintiff to creditors were not liabilities of the plaintiff. The plaintiff contended that the existence and quantum of its liability to those creditors was conclusively established “by the acceptance by the liquidator of the plaintiff of the proofs of debt of such creditors” and that it was not open to the defendant to plead otherwise (at 28).

57. In concluding that the plaintiff’s contention was not correct, Perry J accepted that when exercising the power to accept or reject a proof of debt, the liquidator is acting in a quasi-judicial capacity, in the sense that the liquidator “has a duty to act impartially” (at 30). His Honour also accepted that, subject to any successful challenge, the liquidator’s decision was conclusive for the purposes of the liquidation, with the options for challenge limited to two provisions of the Companies (South Australia) Code (at 30). However, in seeking to put in issue the existence or quantum of particular liabilities said to be liabilities of the plaintiff arising from the defendant’s negligence or breach of contract, the defendant “was not seeking to impugn any decision which may have been made in the course of the liquidation … as to the admission of the claims of particular creditors to proof” (at 31):

“The defendant’s concern rather is that, facing a claim at common law which is in part quantified by reference to various alleged liabilities of the plaintiff company, he seeks to challenge either the existence or quantum of particular liabilities against him, and in doing so put the plaintiff to proof of the various debts under challenge.”

58. Perry J accepted the defendant’s submission that the liquidator’s acceptance of a proof of debt did not have any effect “either upon the continued existence at common law of the debt or liability the subject of the proof, or upon the defendant’s right to challenge the existence or quantum of any alleged liability of the plaintiff in these proceedings” (at 32). In dismissing the appeal from his Honour’s decision in Duke Group FC at 397, Olsson J (Matheson J and Duggan J agreeing) concluded that there could be “little doubt that Perry J was correct in his conclusion that a winding up order does not cause a common law liability to be extinguished and merged in the liquidation in any relevant sense”. His Honour continued:

“It continues to exist in its own right; and, in proper cases, leave may be given to pursue common law litigation in relation to it. As between the creditor in question and a liquidator, the question of the method of determination of a disputed liability is, as McPherson J has pointed out [in Ogilvie-Grant v East liquidator of Gordon Grant and Grant Pty Ltd (1983) 7 ACLR 669] essentially a procedural consideration.

It follows as a matter of logic that, merely because a liquidator has admitted a proof of debt from a claimant’s creditor for the purposes of ratable distribution within the winding up administration, such action can scarcely foreclose a question arising in litigation as between a company in liquidation at the instance of the official liquidator and a third party (who may well not directly be involved in the winding up in any sense) whereby the existence or extent of any liability of the plaintiff company to the creditor in question is challenged; and which is relied upon for the purposes of assessment of damages. It would, indeed, be a strange situation if it were otherwise, and that the liquidator could, by his admission of proofs of debt, automatically quantify damages which he himself seeks to recover, via the company in liquidation, from a third party.”

59. For the reasons explained by both Perry J and Olsson J, FXCT’s submission in reply, that in so far as IGL’s undertaking in the Letter of Comfort is concerned the “quasi-judicial” adjudication of proofs is no different in principle from a settlement with, or judgment against, the company, is not correct. The legal effect of the outcome, in terms of the company incurring a liability, is qualitatively different. For the same reason, I do not accept its further submission that there is “little practical difference” between a judgment or settlement and admission of a proof of debt in the case of an insolvent company which is likely to be wound up. In so far as FXCT submitted that the impartial, good faith approach to the determination of liabilities was analogous to judgment and settlement processes, the analogy is inapt.

60. It follows, as IGL submitted, that even if the expedited adjudication process were to result in the ascertainment of FXCT’s liabilities, it did not do so in a manner that was binding on FXCT so as to fall within the scope of IGL’s undertaking in the Letter of Comfort.

61. Much of FXCT’s written and oral submissions were focused on what it contended was the uncommercial result for it of the construction of the Letter of Comfort at which the primary judge arrived. True it is that the outcome of the construction of the Letter of Comfort that the primary judge accepted is that the liquidators cannot rely on the Letter of Comfort for redress on behalf of former customers of FXCT, in circumstances where those claims might have been covered in the event of a judgment or settlement before its expiry. However, having regard to the authorities to which I have referred above, that outcome is not properly characterised as capricious, unreasonable, inconvenient or unjust. As Kirk JA observed in Zhong v Guan [2024] NSWCA 300 (Payne JA and Price AJA agreeing) at [34], “[a]rguments of absurdity or such like might readily be made but are not easily established”.

62. It follows that I would dismiss FXCT’s appeal.

Notice of contention

63. By its notice of contention, IGL sought to reagitate a number of arguments that the primary judge rejected, namely:

1. any determination by the liquidators concerning the existence and amount of FXCT's liability to a customer could not turn that liability into a “debt” for the purposes of the Letter of Comfort where the relevant liability was not a liability for a liquidated amount (as I have noted above, his Honour rejected this argument (at [60]));

2. alternatively, on its proper construction, the undertaking in the Letter of Comfort was confined to debts comprising settlement amounts or judgment sums arising in connection with the ASIC investigation underway at the time ASIC obtained freezing orders in the Federal Court (proceeding VID218/2019), and the liquidators’ acceptance of proofs of debt or claim pursuant to the expedited adjudication process approved by Banks-Smith J did not create any debts which met that description (his Honour rejected this argument at [31]); and

3. the Letter of Comfort had no operation if a request was made when FXCT was being wound up in insolvency (which his Honour rejected at [34]-[38]).

64. In light of my conclusions on FXCT’s appeal it is not necessary to consider and resolve these arguments.

Conclusion

65. I propose the following orders:

1. The appeal is dismissed.

2. The appellant is to pay the respondent’s costs of the appeal.

66. KIRK JA: I agree with Mitchelmore JA.

67. ADAMSON JA: I agree with Mitchelmore JA.

**********

Decision last updated: 14 April 2025