Hung and Anor v Anthony John Warner and Steven Kugel in their Capacities as Joint & Several Liquidators of Bellpac Pty Ltd (Receivers & Managers Appointed) (in Liquidation)

[2013] HCATrans 280

[2013] HCATrans 280

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S110 of 2013
  No S111 of 2013

B e t w e e n -

KEN YUK KEE HUNG

First Applicant

AUSTCORP INTERNATIONAL LIMITED ACN 003 132 090 (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

Second Applicant

and

ANTHONY JOHN WARNER AND STEVEN KUGEL IN THEIR CAPACITIES AS JOINT & SEVERAL LIQUIDATORS OF BELLPAC PTY LTD (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017

First Respondent

BELLPAC PTY LTD (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017

Second Respondent

ALFRED CHI WAI WONG

Third Respondent

DANNY KAM YUN AU-YEUNG

Fourth Respondent

SHAN PEI INVESTMENT LTD

Fifth Respondent

Applications for special leave to appeal

FRENCH CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 8 NOVEMBER 2013, AT 10.56 AM

Copyright in the High Court of Australia

____________________

MR B.W. RAYMENT, QC:   May it please, your Honours, I appear with my learned friend, MR J.E. LAZARUS, for the applicant.  (instructed by JT Law Pty Ltd t/as Tomaras Lawyers)

MR S.A.S. WELLS:   May it please the Court, I appear with my learned friend, MR N.M. KIRBY, for the first and second respondents.  (instructed by Breene & Breene Solicitors)

FRENCH CJ:   Yes, I note no appearance for the third and the fifth and a submitting appearance for the fourth.  Yes, Mr Rayment.

MR RAYMENT:   Your Honours, we press only the first of the two special leave applications before the Court.  We desire to submit that there was no presumption arising from the terms of issue of the bonds, that the respondent was the beneficial owner of the bonds and that there was no other reason why such a declaration and order as made below should have been made.  If the Court would be so good as to turn to page 24 of the application book, the primary case which was, as it were, found against us, appears in paragraph 55 of the learned trial judge’s judgment with which the Full Court agreed.  His Honour there determines that, just below line 40:

One effect of that provision –

being a term of the bonds –

is to raise a presumption that the registered holder of a bond is its owner at law and, assuming that there can be a separate beneficial interest in equity –

and there cannot be any doubt about that, we submit:

the owner of that beneficial interest.  That is to say, in the absence of something further, the fact that Bellpac is the registered holder of the convertible bonds in question gives rise to a presumption substantiating a prima facie case –

to that effect.  That was the basis upon which his Honour declared that the plaintiffs below were the beneficial owner of the convertible bonds and it did not depend, as his Honour construed the circumstances, on whether or not they had proved that my client had no right to the bonds.  It rather depended on proof that they were the beneficial owner stemming just from the terms of the bonds.  Those terms are then – they actually are conveniently set out in the Full Court’s judgment, page 114 of the application book, and your Honours see three of the conditions of the issue of the bonds are there set out:

Title to a Bond is vested absolutely in the person entered in the Register as the holder of the Bond (the Bondholder) and passes by transfer and registration.

That is all it relevantly said and there is a provision then for transfer by production of an instrument of transfer.  We submit that that term that your Honours see at page 114 is relevantly similar to the well‑known article that one finds in company articles protecting the company from notice of equitable interests and such as considered by this Court in Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 which your Honours will find in the joint authorities book at tab 3.

GAGELER J:   It may have been there, but I do not recall seeing this in your written submissions.

MR RAYMENT:   No, I do not think it is.  I did not settle those and this is how we seek to put the matter.  If your Honours would turn to the page numbered 89 at the top in the joint authorities book.  A discussion there begins of the kind of article to which I just referred.  In fact the article that was critical in Bluebottle is quoted in paragraph 59, if I could just go straight there:

“[w]hether or not it has notice of the rights or interests concerned, the company is not bound to recognise . . . any other right in respect of a Security, except an absolute right of ownership of the Security holder or as otherwise provided by this Constitution or by law”.

Now, their Honours looked at similar articles and referred to longstanding authority in England in paragraph 57 citing Lord Coleridge who discussed a similar article in England saying:

“It seems to me that, if we were to throw any doubt upon that rule –

the rule about taking no notice of equities -

we should make the carrying on of their business by joint stock companies extremely difficult, and might involve those companies in very serious questions, and the ultimate result would be anything but beneficial to the holders -

Their Honours then looked at the effect of such articles on third parties in paragraph 61 of the judgment on the next page and stressed that it does not – what it does not do, such an article, is effectively affect the position of third parties.

GAGELER J:   Mr Rayment, you are only pressing the first special leave application.  Is that right?

MR RAYMENT:   Yes, your Honour.

GAGELER J:   Could you relate these submissions to the grounds you propose to press?

MR RAYMENT:   Yes, ground 2, in effect, says towards its end, that the court below erred in applying a presumption - determining the instance of a presumption arising from the terms of issue of the bonds that the plaintiff was the beneficial owner of the bonds. 

GAGELER J:   That is your point?

MR RAYMENT:   That is our primary position. I need to deal with it first and then I want to attend to other issues that arise in the case including possibly section 23C.

FRENCH CJ:   We are dealing at the moment with S110.

MR RAYMENT:   Yes, your Honour, and we will not be dealing with the next one.

FRENCH CJ:   We are not worried about S111, okay.  The particular ground you are addressing is ground?

MR RAYMENT:   Ground 2.

FRENCH CJ:   Ground 2.  So we do not need to worry about ground 1 at page 155?  I just want to make sure that I am not – because ground 2, this is numbered as ground 2 in the other notice.

MR RAYMENT:   I am sorry, it is 1, I am sorry, looking at page 155, if your Honour is looking at the draft notice of appeal, it is ground 1.

FRENCH CJ:   It is ground 1, I thought so, yes, thank you.

MR RAYMENT:   I am sorry, I was thinking of the special leave application.

FRENCH CJ:   Yes.

MR RAYMENT:   I am sorry, if I can just go back to page 91.

FRENCH CJ:   We need to be clear on that because on one occasion, I think, we granted special leave by reference to the numbering in the application instead of the appeal and there was some dispute.

MR RAYMENT:   Actually, we had a look at this draft notice of appeal and if your Honours should be in our favour we have in mind to hand up something that is a bit better.  It will not go beyond what I am addressing.

FRENCH CJ:   Anyway, let us carry on with ground 1 in S110.

MR RAYMENT:   Your Honours, at paragraph 61 their Honours stressed what such an article as they were concerned with did not do, that is, it does not, in effect, interfere with the right of the registered holder to dispose of a beneficial interest in the shares.  They do not - it does not affect third parties, it protects the company but really because of doctrines of privity it cannot prohibit registered holders from having dealings or make ineffective dealings that registered parties might have. 

We submit it follows closely by parity of reasoning that it cannot produce a presumption as against a third party that the registered holder is the beneficial owner.  Therefore, if I could just return to paragraph 55 of Justice Emmett’s judgment page 24, we submit that the judgment fell into error, with respect, at that point, that is, finding that there was a basis for making this declaration stemming from the terms of issue of the bonds.

GAGELER J:   His Honour was only referring to a presumption of fact, was he not?

MR RAYMENT:   I am not, with respect, sure about that.  He was saying that there was a legal presumption arising from the terms of issue of the bonds.  In any event, fact or not, what it led to in this case was persons, being the present applicants, found to be bona fide purchasers for value without notice and that is expressly found in Justice Emmett’s judgment and not challenged, that is innocent of any previous dealings or any limitations on them.

GAGELER J:   Save that they did not take title, according to his Honour.

MR RAYMENT:   That is right but I am saying, in fact, innocent purchasers who gave consideration for it, the value, who had the bonds and the regular instrument of transfer of the bonds signed by Bellpac through Mr Wong under a power of attorney.  So they had a transfer, regular on its face, they had the bonds and that entitled them on the face of the terms of issue of the bonds to registration.  Yet, the court injuncted the registration and ordered delivery up of the transfer and the bonds and we submit because the court found there was a presumption arising from the terms of issue of the bonds.

GAGELER J:   But is that right?  Was there not a problem with whether or not their transaction to Shan Pei actually occurred?

MR RAYMENT:   The first step in the judgment – the structure of the judgment is, first step, his Honour finds there is a presumption in favour of the then plaintiff entitling it without more to declaratory relief as it sought.  Then his Honour also held that it was not for the plaintiff to negative anything without my clients having acquired title.  It rather was for us to – we bore the onus of proof, his Honour found, because of the presumption against us arising from the terms of issue of the bonds.  So then his Honour examined the positive case, which he now found we had to prove rather than the other side had to disprove, and was not satisfied by it.  That is the structure of the judgment.  Now, we need to come to 23C and the role that played in that finding. 

FRENCH CJ:   But you do not get to 23C if you do not get up on the other aspects?

MR RAYMENT:   Correct.  We submit both the Full Court and the learned judge got it wrong by assuming that there was a presumption, by holding that there was a presumption arising from the terms of issue of the bonds.  But for that, it would seem from the way in which the learned trial judge wrote his judgment he would not have made the declarations.  They were the primary basis upon which he acted. 

GAGELER J:   Mr Rayment, where should the trial judge have started?

MR RAYMENT:   He should have held that there was no such presumption and he should have required the plaintiff below to prove its case if it wished to, otherwise than – not made us prove a case.  In other words, he should have had an onus of proof throughout and he did not discharge it.  He does not discharge it by the judge failing to accept the credit of a witness called in support of what was thought to be a positive case in which we bore the onus.  He did not make a case, in our respectful submission, and the case should have been dismissed. 

I have referred to the fact that we were in a position to obtain registration but for the making of the orders and the orders stopped us from doing so.  They are the ones set out at page 96 of the application book.  Your Honours will have observed in Justice Emmett’s judgment at paragraphs 50 at application book 23, in substance his Honour held it was for my clients to make out a positive case, otherwise you would make the declaration having regard to the presumption.

FRENCH CJ:   Where did the Court of Appeal deal specifically with the presumption conclusion?

MR RAYMENT:   They dealt with it at paragraph 28 on page 123, in effect, agreeing with the trial judge about this matter.  Now, if I can turn to the other issues that arose.

FRENCH CJ:   So if one has to identify the point of law that you raise, it is really as to the construction of the presumption arising out of the provision.  So it may be a presumption of fact but it is the existence of a presumption that is the question of law that you raise?

MR RAYMENT:   Yes, your Honour.  Your Honours, this could arise again with a company share.  We put it on various limbs under section 35A.  We say but for this our clients would have been registered and they were found to be otherwise innocent. 

FRENCH CJ:   You say it is a matter of importance because although it is effective and to a particular provision, it is a provision which is in common form and not limited to this category of instrument.

MR RAYMENT:   Yes, with respect, your Honour.  Also, there are cases pending in the list about the rest of these bonds including some unregistered bonds ‑ ‑ ‑

FRENCH CJ:   There were 10 million altogether, I think, were there not?

MR RAYMENT:   Yes, there were, and two of them are exactly in the position that Mr Hung was in.

FRENCH CJ:   Two million other ones that we are talking about.

MR RAYMENT:   Yes, but there is another two still registered in Bellpac’s name.  There is an applicant for registration with a transfer signed by Mr Wong under a power of attorney who is one of the persons sued.  He is not mentioned in the other holders but he is there.

FRENCH CJ:   He transferred to some other holders, did he not, as I recall?  He took from Shan Pei – I do not want to distract you if it is not ‑ ‑ ‑

MR RAYMENT:   No, I was referring to a case of Mr Lee which appears to be on all fours with that of Mr Hung and it is pending in the Federal Court, my learned friend and I agree on that matter.  We have the documents but we need not trouble your Honours with them unless you wish.  Also, there are registered holders who will suffer from, at least, matters decided below in this case as well.

Your Honours, could I just go to the balance of, as it were, what happened before Justice Emmett and then the balance of what happened before the Full Court because it is necessary to refer to both things here.  Justice Emmett rejected, having regard to his assessment of witnesses and the contents of their evidence, the positive case on the assumption that my clients had the onus.  His Honour found, and it is in paragraph 99, that some documents in the case were consistent with the allegations that my client wished to pursue but he found that he could not give them weight and they were not conclusive. 

So, the documents we submit, in short, did not prove the case either way by themselves.  Paragraph 99 it is.  His Honour gives them little weight but if the other side had the onus they did not discharge any positive onus by those documents. 

GAGELER J:   Are you saying the case would have been decided differently if the onus of proof had been dealt with differently? 

MR RAYMENT:   Yes, your Honour.

GAGELER J:   Not could, but would have been decided?

MR RAYMENT:   Would have been and, indeed, his Honour proceeds on that basis.  His Honour Justice Emmett says, in effect, that having decided the presumption point - says expressly that, in effect, for the rest he will consider whether my clients have discharged the onus of proof of the positive case they make.  He says no, he is not persuaded of those matters and, therefore, makes the declarations, but not persuaded by my clients.

GAGELER J:   He found some fairly murky dealings along the way, did he not?

MR RAYMENT:   Yes. Now, could I just add this to it? Justice Emmett found, as it were, another reason why the allegations made by my clients could not be sustained which is section 23C which, if it arises here, is an independent reason why special leave might be granted. I am not saying it definitely would be but, we submit, the only way to make out the case that the Full Court sought to make, the second case for rejecting the appeal that the Full Court sought to make would be two ways, when his Honour has rejected evidence on what, we say, is the wrong evidentiary onus if there was a document which showed the contrary or if 23C affected the matter so as to produce the result in any event.

Now, Justice Emmett held the latter, that 23C did affect the matter.  The Full Court did not reach it.  We submit it is likely that the argument in this Court, because it is necessary to deal with the second way in which the Full Court put the matter, will reach it but I cannot put it higher than that.

GAGELER J:   It does not form part of your argument.

MR RAYMENT:   It does not help me, it can only hurt me.  As a matter of fact it is debatable precisely how it would arise.  It might arise from the

respondent’s side and then in reply and the like.  We submit it is likely that it does arise and once it does there is a question of construction, as your Honours would be aware, that has been around for many years, stemming from the headings of the division, the fact that the division is only about ‑ ‑ ‑

FRENCH CJ:   The real issue is whether it is able to be engaged.  There is a reasonable prospect of it being engaged.

MR RAYMENT:   Yes, yes. Only if, as it were, one was against me on the first point would you get to that question on grant. I see the colour of the light in front of me but could I just say this? Justice Menzies in a case we put in this list read section 23C and its West Australian equivalent which did not have the headings and came to the view that it did not extend to an interest in land. We have referred to that in the written outline or at least someone has.

FRENCH CJ:   Thank you, Mr Rayment.  Yes, Mr Wells.

MR WELLS:   Your Honours, can I start with the terms of the bonds which are set out on page 114 of the application book in the judgment of the Full Court which provide that:

Title to a Bond is vested absolutely in the person entered in the Register as the holder of the Bond (the Bondholder) and passes by transfer and registration.

As the Full Court held, at all times Bellpac remained listed in the register as the holder of the bonds and there was no issue about that at the trial before Justice Emmett or when the appeal was heard before the Full Court.  In the applicant’s defence filed in proceedings at first instance, the applicants asserted that the first applicant, Mr Ken Hung, was the beneficial owner of the convertible bonds with a face value of $2 million as a result of series of transactions. 

Those series of transactions are set out at page 116 of the application book in paragraph 9 of the Full Court’s reasons and your Honours will see them set out in (i) through to (v).  There was no issue at the trial that on about 5 August Gujarat issued the convertible bonds to Bellpac.  What the applicants then contended for and asserted was a series of transactions which ultimately gave Mr Ken Hung an official ownership of the bonds and the first of which is set out in (ii).  That is that:

on about 6 August 2008, Bellpac assigned its interest in the Convertible Bonds to Shan Pei –

On the same day:

Shan Pei assigned its interest in the Convertible Bonds to Alfred Wong –

and then subsequently Mr Wong assigned his interests to Austcorp and then a year later there was apparently asserted dealing from Austcorp to Mr Hung.  Now, the evidence in support of those transactions which were contended for by the applicants included evidence from Mr Wong who was a director of Bellpac at the time.  The gist of his evidence is set out at page 129 of the application book where the Full Court includes extracts from Justice Emmett’s judgment. 

The relevant paragraphs of Justice Emmett’s judgment are [69] and [71] which your Honours will see on page 129.  Paragraph [69] deals with the first transaction, that is, the transaction from Bellpac to Shan Pei.  His Honour said that:

Alfred Wong gave hearsay evidence of discussions between Danny Au‑Yeung and Eric Ng on the top of the assignment of the convertible bonds in consideration for a reduction of the Bellpac Indebtedness.  He said in an affidavit that, in late July or early August 2008, Danny Au‑Yeung told him that he had spoken to Eric Ng and Hollis Ho, and that they had agreed for Bellpac to transfer all of the convertible bonds to Shan Pei by way of partial payment, in the amount of $10,000,000, of Bellpac’s indebtedness to Shan Pei and the other GPC Creditors.

GAGELER J:   What his Honour said in substance is there is no documentary evidence of the transaction involving Shan Pei and I do not believe these witnesses who said it occurred. 

MR WELLS:   That is correct, your Honour.  Your Honour will see from that evidence that the critical persons involved in the alleged transaction were Danny Au‑Yeung, Mr Eric Ng and Hollis Ho.  Not only were there no documents supporting the transaction that was alleged, those witnesses were either not called or gave evidence that was contrary to the case that was being advanced by the applicants. 

Mr Danny Au-Yeung who was a director of Bellpac was not called by the applicants despite having prepared affidavits for them and those affidavits have not been served in the proceedings.  Not only that, his position at the end of the trial before Justice Emmett and during final addresses was to support the position of the liquidators, that is, that there was no such transaction as contended for by Mr Wong and the applicants. 

Eric Ng was not called and adverse inferences were drawn about that and Hollis Ho who did give evidence gave evidence that was contrary to the case that was being advanced by the applicants.  The gist of his evidence is set out in the judgment of the Full Court and that is at page 128 of the application book.  Your Honours will see in paragraph 41:

Hollis Ho was cross‑examined.  His evidence was that:

1he did not have a conversation in about August 2008 in which it was suggested that the $10 million convertible bonds (including the Bonds) would be transferred to Shan Pei . . . 

2in fact, as at August 2008, there was no debt owing by Bellpac to CCM;

3on 6 August 2009, he lodged a proof of debt on behalf of CCM with Bellpac on the basis that there had been no transfer or assignment of the Bellpac Indebtedness to Shan Pei.

Hollis Ho’s evidence did not support the appellants’ contention that Bellpac disposed of the Bonds for value.

Now, if one looks at that evidence it is clear, in my respectful submission, that leaving aside any questions of presumption, it is clear that there was no disposition of the equitable interest in the bonds as contended for by the applicants.  Contrary to what my learned friends submitted to your Honours, the question of presumption would not make any difference to the outcome in these proceedings.

GAGELER J:   Is that because the applicant’s title in equity would depend on the existence of this prior chain of title, in any event.

MR WELLS:   Absolutely, your Honour, yes, it would depend 100 per cent on the first assignment of the equitable interest to Shan Pei being valid and effectual.

FRENCH CJ:   There is just a chain of assignments, is there not, transfers of certificates and documents of transfer. 

MR WELLS:   Yes, your Honour and if the first one is not valid and effectual, then it follows ‑ ‑ ‑

FRENCH CJ:   It is as strong as the weakest link?

MR WELLS:   Exactly, yes, your Honour. On the question of the application of section 23C of the Conveyancing Act the applicants accepted

in the Full Court that unless they succeeded on the appeal in relation to onus the question did not arise and that similar position has been taken this morning before your Honours. For that reason, because special leave should be refused in relation to the onus question, in my respectful submission, it should also be refused in relation to the section 23C question.

Given that the decision of the Full Court on both of those matters does not disclose error which would warrant the grant of special leave and because the prospects of success on appeal are not such as to warrant the grant of special leave, particularly having regard to the evidence I just referred your Honours to, it is submitted that leave should be refused with costs. 

FRENCH CJ:   Yes.  Yes, Mr Rayment.

MR RAYMENT:   Your Honours, on this issue about what Mr Justice Emmett decided we submit it is quite clear that his Honour did not resolve any case adverse to the applicants by finding that a document said it, it could not be controverted.  His Honour received evidence for limited purposes, not as evidence of the facts of the various conversations relied upon.  None of that would have been probative if the onus was found to be where it should have been found to be, with our learned friends, in our submission.

GAGELER J:   If you were successful in the appeal, what would you be asking for?

MR RAYMENT:   The dismissal of the proceedings but the Full Court seems to say that because a judge has rejected a positive case, even if he did so on the wrong onus, that can be made the basis of the dismissal of an appeal and, in our submission, that is contrary to principle.  It has never been said in either of the cases about re‑hearings to which the Full Court refers.

In paragraph 47 of the Full Court’s judgment they say that there was no error involved in the analysis of Justice Emmett of the various transactions.  The fact is the starting point for that analysis, if we are right with the first point, is that the presumption, the onus of proof was put the wrong way with respect to all of that analysis.  His Honour does no more than say he is not persuaded at the end.  He does not say he is persuaded that not, if I may put it that way.  Your Honours, if it becomes material, I have got a better looking draft notice of appeal - if it becomes material.

FRENCH CJ:   Thanks, Mr Rayment. 

In our opinion, having regard to the state of the evidence in this case, the application insofar as it relates to the onus of proof does not have sufficient prospects of success to warrant a grant of special leave. That being so, there is an insufficient prospect of the construction of s 23C of the Conveyancing Act 1919 (NSW) arising to warrant the grant of special leave on that ground. Special leave will be refused with costs in both applications.

MR RAYMENT:   May it please the Court.

MR WELLS:   May it please the Court.

AT 11.29 AM THE MATTERS WERE CONCLUDED