Great Investments Ltd v Warner

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FEDERAL COURT OF AUSTRALIA

Great Investments Ltd v Warner [2016] FCAFC 85

Appeal from:

Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 5) [2015] FCA 784; (2015) 108 ACSR 613

Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 6) [2015] FCA 1175
File number: NSD 1488 of 2015
Judges: JAGOT, EDELMAN AND MOSHINSKY JJ
Date of judgment: 14 June 2016
Catchwords:

CORPORATIONS – power of attorney – construction of general power of attorney – whether exclusion of liability for conflict of interest or direct or personal interest authorises transfer of company assets for director’s private purposes – whether recipients can rely upon assumptions in ss 128 and 129 of the Corporations Act 2001 (Cth)

EQUITY – unjust enrichment – constructive trust – receipt of company assets without authority – irrelevance of recipient’s knowledge to prima facie liability to make restitution 

EQUITY – defence of bona fide purchase – whether defence can operate where there is no receipt by third party - meaning of “value” – degree of notice required – whether respondents are purchasers for value – whether respondents have notice

CORPORATIONS – uncommercial transactions under s 588FB of the Corporations Act 2001 (Cth) - whether transfers pursuant to power of attorney were uncommercial transactions – whether, because company had ‘no choice’, the transfers were not uncommercial transactions – whether orders would be appropriate under s 588FF of Corporations Act
Legislation:

Corporations Act 2001 (Cth) ss 9, 127, 128, 129, 129(3), 129(4), 181(1)(a), 588FB, 588FC, 588FDA, 588FE, 588FF, 588FG

Powers of Attorney Act 2003 (NSW)

Companies and Securities Legislation (Miscellaneous Amendments) Bill 1983 (Cth)

Corporate Law Reform Bill 1992 (Cth)
Cases cited:

Ansell Ltd v Davies [2008] SASC 203; (2008) 67 ACSR 356

Attwood v Munnings (1827) 7 B & C 278; (1827) 108 ER 727

Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd [2013] NSWCA 459; (2013) 282 FLR 351

Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA [1992] 4 All ER 161

Barnes v Addy (1874) LR 9 Ch App 244

Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566

Blue Station Ltd v Kamyab [2007] EWCA Civ 1073

BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322

Bryant, Powis, and Bryant, Limited v La Banque du Peuple [1893] AC 170

Buzzle Operations Pty ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWSC 109; (2011) 81 NSWLR 47

Caratti v Mammoth Investments Pty Ltd [2016] WASCA 84

Cashflow Finance Pty Limited (in liq) v Westpac Banking Corporation [1999] NSWSC 671

Commissioners of Inland Revenue v Gribble [1913] 3 KB 212

Costello v Chief Constable of Derbyshire Constabulary [2001] EWCA Civ 381; [2001] 1 WLR 1437

Criterion Properties plc v Stratford UK Properties LLC [2004] UKHL 28; [2004] 1 WLR 1846

Cussen…

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Details
Case
[2016] FCAFC 85
Decision Date

CaseChat Overview and Summary

Great Investments Ltd and another appellant (the appellants) brought an appeal against a decision of the primary judge, who found that the appellants were liable to the respondents for the value of certain assets transferred from Bellpac, a company of which Mr Alfred Wong was a director. The respondents were either direct recipients of the assets or were successors in title to the direct recipients. The primary judge found that the transfer of the assets was not authorised by a power of attorney executed by Mr Wong and another director on behalf of Bellpac. The primary judge found that the appellants could not rely on a statutory estoppel to preclude Bellpac from denying that Mr Wong had authority, and that the appellants were not bona fide purchasers for value without notice. The primary judge also found that the liquidators of Bellpac were entitled to relief under s 588FF of the Corporations Act 2001 (Cth) if it were necessary to do so. The appellants argued that the general words in the power of attorney signed by Mr Wong and another director on behalf of Bellpac gave Mr Wong the power to transfer Bellpac assets for his own personal benefit and to the detriment of Bellpac. The primary judge rejected that submission. The appellants also argued that they could rely upon a statutory estoppel which precluded Bellpac from denying that Mr Wong had authority. The primary judge held that ss 128 and 129 of the Corporations Act did not assist the appellants. The appellants also argued that they had a defence of bona fide purchase for value without notice. The primary judge held that they did not provide value and they were not without notice. The primary judge also found that the liquidators of Bellpac were entitled to relief under s 588FF of the Corporations Act if it were necessary to do so. The appeal was dismissed and the appellants were ordered to pay the costs of the respondents.

Orders

Orders of the court

1. The appeal is dismissed.

2. The appellants pay the costs of the respondents, to be taxed if not agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The primary judge accepted that Mr Xu read the transfer forms carefully when he signed them ([106]). Mr Xu had accepted that when he signed the transfers he noticed that Mr Wong had signed under a power of attorney from Bellpac ([109]). The primary judge found that Mr Xu knew that Bellpac was the registered holder of the bonds and that he had read the transfer form carefully when he signed it and either saw, or ought reasonably to have seen, that Bellpac was the transferor ([256]). Mr Xu also knew that the transaction was being carried out to discharge Mr Wong’s personal debt to Mr Xu ([257]).The primary judge’s legal conclusions The primary judge considered two alternative ways in which the appellants were said to be liable. The first was strict liability, subject to defences, based upon a decision of the House of Lords and a decision of the High Court of Australia. The second was based upon principles of knowing receipt of property obtained in breach of fiduciary duty. The first basis of liability considered by the primary judge involved the decisions in Reckitt v Barnett, Pembroke and Slater, Ltd [1929] AC 176 and Tobin v Broadbent [1947] HCA 46; (1947) 75 CLR 378. In Reckitt v Barnett, Sir Harold Reckitt had given a power of attorney to a solicitor, Lord Terrington, who used it to draw cheques on Reckitt’s bank account. Lord Terrington wrote a cheque to the respondents to discharge his private debt. Reckitt’s claim was for a declaration and for damages for conversion of the cheque or alternatively for money had and received. All of their Lordships accepted that the respondents were liable if the cheque was paid without any authority. As Lord Warrington said (at 193):it seems to me quite plain that the respondents would be held both at law and in equity to be liable to repay the money in question to the appellant unless they could establish that Lord Terrington had either actual or apparent authority to pay his own debts with his principal’s money. All their Lordships held that on the proper construction of the power of attorney, Lord Terrington had no express or implied authority to use it to pay his own debts. And since the respondents knew that the cheque was drawn from Reckitt’s account, there could be “no holding out and no estoppel” (at 190 per Viscount Sumner). As Lord Hailsham explained, the case was “a simple case of receipt by the respondents of [Reckitt’s] money with the knowledge that it was [Reckitt’s] money in payment of Lord Terrington’s debt” (at 182). The second case relied upon by the primary judge was Tobin v Broadbent. In that case, Dr Tobin executed a power of attorney in favour of his stockbroker. The stockbroker fraudulently pledged non-negotiable share certificates belonging to Dr Tobin and his wife to the respondent in exchange for a loan. The respondent did not inspect the power of attorney and made no enquiry about the power of the stockbroker to pledge the certificates. Dr Tobin and his wife sought specific restitution of the share certificates or damages for conversion from the respondent. The High Court of Australia held that Dr Tobin and his wife were entitled to delivery up of the share certificates. All of their Honours focused on the question of authority. As Dixon J explained (at 400), there were four possibilities to be examined in order to determine the appeal: (i) that the stockbroker had actual authority, (ii) that the conduct of Dr Tobin and his wife had permitted the stockbroker to become the ostensible owner of the shares, (iii) that the stockbroker had ostensible authority, or (iv) that Dr Tobin and his wife were estopped from asserting that they were the owners of the shares. None of these defences was established.

Ratio Decidendi

Legal Principle Established

The appellants’ central submission before the primary judge, and on this appeal, was that the general words in the power of attorney signed by Mr Wong and another director on behalf of Bellpac, gave Mr Wong the power to transfer Bellpac assets for his own personal benefit and to the detriment of Bellpac. The primary judge rejected that submission. The appellants also argued that they could rely upon a statutory estoppel which precluded Bellpac from denying that Mr Wong had authority. The primary judge held that ss 128 and 129 of the Corporations Act 2001 (Cth) (Corporations Act) did not assist the appellants. The appellants also argued that they had a defence of bona fide purchase for value without notice. The primary judge held that they did not provide value and they were not without notice. The appellants also sought to resist an alternative case by the liquidators that the transactions were uncommercial and insolvent transactions entitling them to relief under s 588FF of the Corporations Act. The primary judge held that, if it were necessary to do so, he would have found that the liquidators were entitled to appropriate relief under s 588FF. The primary judge’s conclusions on each of these grounds should be upheld. We would dismiss the appeal.The findings of fact The primary judge dealt with the factual issues in detail in the first 148 paragraphs of his judgment. None of the findings of fact was challenged on this appeal, although some of the conclusions from those facts were contested. We are indebted to his Honour’s discussion of the facts which we summarise below. On 5 August 2008, Bellpac settled a dispute that it had with a company called Gujarat NRE Coking Coal Limited (Gujarat). As part of the settlement of that dispute, Gujarat issued to Bellpac $10 million (face value) of convertible bonds (in denominations of $50,000).The $4 million of Gujarat Bonds with which this appeal is not concerned This appeal is not concerned with $4 million of the $10 million face value bonds. Of the $4 million of bonds with which this appeal is not concerned, $2 million were transferred to various parties, including Mr Alfred Wong (Mr Wong), and ultimately to Mr Ken Hung (Mr Hung). The liquidators of Bellpac commenced proceedings in this Court in relation to the Hung bonds. In those proceedings, Emmett J held that Bellpac was entitled to a declaratory order that it was true owner of the Hung Bonds: see Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed)(in liq) (No 2) [2011] FCA 1123. Appeals from the decision of Emmett J were dismissed, and an application to the High Court for special leave was refused: see Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In liq) [2013] FCAFC 48; and Hung v Warner (in liq) [2013] HCATrans 280. Those proceedings concerning the $2 million of bonds also involved findings which relate to circumstances concerning the $6 million of bonds with which these proceedings are concerned. However, it was not in dispute before the primary judge, and his Honour found, that he was not bound by any of those findings. That is also the position on this appeal.