FEDERAL COURT OF AUSTRALIA
Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 5) [2015] FCA 784
Citation: Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 5) [2015] FCA 784 Parties: ANTHONY JOHN WARNER AND STEVEN KUGEL IN THEIR CAPACITIES AS JOINT AND SEVERAL LIQUIDATORS OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 and BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 v ALFRED WONG, SHAN PEI INVESTMENT LIMITED, GOOD TEAM INVESTMENTS LIMITED, GREAT INVESTMENTS LIMITED, OSMOND TZE LEUNG KWOK, HONG XU, ZHI HONG, CHIAH CHEANG LEE, GUJARAT NRE COKING COAL LIMITED (FORMERLY KNOWN AS GUJARAT NRE MINERALS LIMITED), ALL SEASONS RESOURCES INC and VIEW PLAN ENTERPRISES LIMITED File number: NSD 1063 of 2012 Judge: GRIFFITHS J Date of judgment: 18 September 2015 Catchwords: CORPORATIONS – contested ownership of convertible bonds – where the third defendant, allegedly acting under a power of attorney granted by the second plaintiff, purportedly transferred the bonds to the defendants – where several of the defendants are recorded on the register of bondholders as owners of the relevant bonds
EQUITY – whether the principles in Reckitt and Tobin regarding transactions allegedly made under powers of attorney apply such that the plaintiffs are entitled to be restored as legal owners of the convertible bonds – whether the defendants’ registration on the register of bondholders is relevant – whether the defendants hold the bonds under a constructive trust in favour of the plaintiffs – whether ss 12 or 23C of the Conveyancing Act 1919 (NSW) apply – whether any of the relevant defendants was a bona fide purchaser for value without notice of the plaintiffs’ interest in the bonds
ESTOPPEL – whether the plaintiffs are estopped from denying that the relevant defendants are the legal/beneficial owners of the convertible bonds
CORPORATIONS – whether the alleged transfers of convertible bonds were voidable as uncommercial transactions under s 588FB of the Corporations Act 2001 (Cth) (‘Corporations Act’), insolvent transactions under s 588FC, or unreasonable director-related transactions under s 588FDA – whether the plaintiffs are entitled to relief under s 588FF of the Corporations Act – whether any of the defendants are entitled to rely on the defence in s 588FG(1)
EQUITY – whether the third defendant breached fiduciary duties owed to the plaintiffs in the event that the bonds were validly assigned – whether the third defendant is liable to pay damages commensurate with the face value of the bonds
Legislation: Conveyancing Act 1919 (NSW) s 12, 23C, 23C(1)(c)
Corporations Act 2001 (Cth) s 127(1)(a), 128, 129(3), 129(4), Pt 5.7B, 588FB, 588FC, 588FDA, 588FE, 588FF, 588FG
Federal Court Rules 2011 (Cth) r 2.28
Power of Attorney Act 2003 (NSW) s 8, 12
Cases cited: Attwood v Munnings 108 ER 727; (1827) 7 B & C 278
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Hung and Anor v Warner and Kugel in their Capacities as Joint & Several Liquidators of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] HCATrans 280
Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] FCAFC 48
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [1965] HCA 17; (1965) 113 CLR 265
Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1989) 170 CLR 146
Reckitt v Barnett, Pembroke and Slater, Ltd [1929] AC 176
Siahos v J P Morgan Trust Australia Limited [2009] NSWCA 20
Spina v Permanent Custodians Ltd [2008] NSWSC 561; (2008) 13 BPR 25,463
Sweeney v Howard [2007] NSWSC 852
Tobin v Broadbent [1947] HCA 46; (1947) 75 CLR 378
Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 3) [2012] FCA 819
Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123
Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 3) [2015] FCA 365
Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 4) [2015] FCA 369Date of hearing: 9 to 12 March 2015 Date of last submissions: 16 April 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 305 Counsel for the Plaintiffs: Mr N Cotman SC with Mr S A Wells Solicitor for the Plaintiffs: Breene & Breene, Solicitors Counsel for the Third, Fifth, Sixth, Eleventh and Thirteenth and Fourteenth Defendants: There was no appearance by the third, fifth, sixth, eleventh, thirteenth and fourteenth defendants Solicitor for the Seventh, Ninth and Tenth Defendants: Mr T Tzovaras of JT Law t/as Tomaras Lawyers Counsel for the Eighth Defendant: Mr G Stapleton Solicitor for the Eighth Defendant: Avantro Counsel for the Twelfth Defendant: The twelfth defendant submitted save as to costs
Table of Corrections 3 November 2015 In paragraph 39, “$0.5m” in Item 6 has been amended to “$1.5m”, and “$1.0m” in Item 9 has been amended to “$1.5m”. 3 November 2015 In paragraph 74 the following words have been deleted: “Mr Hong as the owner of”. 3 November 2015 In paragraph 147 the following words have been deleted: “and is the brother of Alfred Wong and Ivan Wong and Ms Kwok”. 3 November 2015 In paragraph 163, “100050” has been amended to “1000050”. 3 November 2015 In paragraph 169, “3000031-3000050” has been amended to “3000011-3000030”, and “4000021-4000050” has been amended to “4000031-4000050”. 3 November 2015 In paragraph 266, “3000031-3000050” has been amended to “3000011-3000030”, and “4000021-4000050” has been amended to “4000031-4000050”.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1063 of 2012
IN THE MATTER OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017
BETWEEN: ANTHONY JOHN WARNER AND STEVEN KUGEL IN THEIR CAPACITIES AS JOINT AND SEVERAL LIQUIDATORS OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017
First PlaintiffBELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017
Second PlaintiffAND: ALFRED WONG
Third DefendantSHAN PEI INVESTMENT LIMITED
Fifth DefendantGOOD TEAM INVESTMENTS LIMITED
Sixth DefendantGREAT INVESTMENTS LIMITED
Seventh DefendantOSMOND TZE LEUNG KWOK
Eighth DefendantHONG XU
Ninth DefendantZHI HONG
Tenth DefendantCHIAH CHEANG LEE
Eleventh DefendantGUJARAT NRE COKING COAL LIMITED (FORMERLY KNOWN AS GUJARAT NRE MINERALS LIMITED)
Twelfth DefendantALL SEASONS RESOURCES INC
Thirteenth DefendantVIEW PLAN ENTERPRISES LIMITED
Fourteenth Defendant
JUDGE:
GRIFFITHS J
DATE OF ORDER:
18 SEPTEMBER 2015
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Within 14 days the affected parties should seek to agree orders which give effect to these reasons, including as to costs.
2.If the affected parties are unable to agree orders, each should within that time file and serve a copy of their proposed orders, together with a brief outline of submissions not to exceed 5 pages in length in support of their preferred orders.
3.Any party who seeks a further oral hearing before final orders are determined should so indicate in their outline of submissions and briefly explain why that is necessary.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1063 of 2012
IN THE MATTER OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017
BETWEEN: ANTHONY JOHN WARNER AND STEVEN KUGEL IN THEIR CAPACITIES AS JOINT AND SEVERAL LIQUIDATORS OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017
First PlaintiffBELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017
Second PlaintiffAND: ALFRED WONG
Third DefendantSHAN PEI INVESTMENT LIMITED
Fifth DefendantGOOD TEAM INVESTMENTS LIMITED
Sixth DefendantGREAT INVESTMENTS LIMITED
Seventh DefendantOSMOND TZE LEUNG KWOK
Eighth DefendantHONG XU
Ninth DefendantZHI HONG
Tenth DefendantCHIAH CHEANG LEE
Eleventh DefendantGUJARAT NRE COKING COAL LIMITED (FORMERLY KNOWN AS GUJARAT NRE MINERALS LIMITED)
Twelfth DefendantALL SEASONS RESOURCES INC
Thirteenth DefendantVIEW PLAN ENTERPRISES LIMITED
Fourteenth Defendant
JUDGE:
GRIFFITHS J
DATE:
18 SEPTEMBER 2015
PLACE:
SYDNEY
TABLE OF CONTENTS
Introduction
[1]
The proceedings before Emmett J and the appeal to the Full Court
[19]
Further relevant aspects of the current proceedings
[36]
Gujarat’s register of bondholders
[39]
The plaintiffs’ evidence summarised
[41]
Mr Anthony Warner
[41]
Mr Warner’s first affidavit summarised
[42]
The power of attorney held by Mr Wong for Bellpac
[64]
Mr Warner’s second affidavit summarised
[68]
Cross-examination and re-examination of Mr Warner
[71]
The evidence of the defendants’ witnesses summarised
[75]
Mr Zhi Hong
[75]
Cross-examination of Mr Hong
[81]
Ms Yuna Zhang
[88]
Cross-examination of Ms Zhang
[90]
Mr Hong Xu
[93]
Cross-examination of Mr Xu
[100]
Ms Emily Kwok
[118]
Cross-examination of Ms Kwok
[125]
Dr Osmond Kwok
[132]
Cross-examination of Dr Kwok
[141]
Mr Jonathon Wong
[148]
Plaintiffs’ submissions summarised
[150]
Good Team
[155]
Great Investments and Mr Hong
[158]
Dr Kwok
[164]
Mr Xu
[167]
Mr Lee
[170]
The plaintiffs’ general contentions
[171]
Submissions of Great Investments, Mr Xu and Mr Hong summarised
[177]
Dr Kwok’s submissions summarised
[199]
No submissions by other relevant defendants
[205]
Consideration
[206]
The plaintiffs’ primary case
[207]
The plaintiffs’ alternative case
[208]
The plaintiffs’ further alternative case
[209]
The primary case
[211]
(a) Do the principles established by cases such as Reckitt and Tobin apply to the circumstances here, such that Bellpac is entitled to be restored as legal owner of the convertible bonds which were transferred to each of the relevant defendants?
[211]
(b) What is the relevance, if any, of the fact that, of the relevant defendants to whom Mr Wong transferred the convertible bonds, all but Mr Lee is currently recorded in Gujarat’s register of bondholders as the owner of the relevant bonds?
[240]
(c) Do each of the relevant defendants to whom Mr Wong transferred the convertible bonds acting as attorney for Bellpac hold those bonds under a constructive trust in favour of Bellpac?
[243]
Mr Hong and Great Investments
[255]
Mr Xu
[257]
Dr Kwok
[261]
Good Team Investments
[262]
Mr Lee
[267]
(d) Do either ss 12 or 23C of the Conveyancing Act apply in the circumstances here and, if so, what are the ramifications?
[272]
(e) Were any of the relevant defendants to whom the convertible bonds were transferred a bona fide purchaser for value without notice of Bellpac’s legal and/or equitable interest in the bonds?
[279]
(f) Are the plaintiffs estopped from denying that all or any of the relevant defendants are the legal and/or beneficial owners of the convertible bonds?
[282]
The alternative case
[283]
(a) If there has been an assignment of a legal and/or equitable interest in the convertible bonds to any of the relevant defendants, was the transaction underpinning such assignment in respect of each of the relevant defendants:
[283]
* an uncommercial transaction within the meaning of s 588FB of the Corporations Act and voidable;
[283]
* an insolvent transaction within the mean of s 588FC of the Corporations Act and voidable under either ss 588FE(2) or (3); and/or
[283]
* an unreasonable director-related transaction within the meaning of s 588FDA of the Corporations Act and voidable under s 588FE(4)?
[283]
(b) Are the plaintiffs entitled to relief under s 588FF of the Corporations Act or does s 588FG(1) apply?
[301]
The further alternative case
[305]
Conclusion
[306]
REASONS FOR JUDGMENT
Introduction
These proceedings concern the ownership of convertible bonds in Gujarat NRE Coking Coal Limited (previously known as Gujarat NRE Minerals Ltd and currently known as Wollongong Coal Limited) (Gujarat), which were initially issued to Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (Bellpac) on or about 5 August 2008.
Anthony Warner and Steven Kugel were appointed the voluntary administrators of Bellpac Pty Limited (In Liquidation) on 30 July 2009 pursuant to s 436A of the Corporations Act 2001 (Cth) (the Corporations Act). Subsequently, on 3 September 2009, Mr Warner and Mr Kugel were appointed joint and several liquidators of Bellpac pursuant to a resolution of creditors under s 439C of the Corporations Act.
In 2010, Bellpac, through the then liquidators, commenced proceedings in relation to convertible bonds with a face value of $2 million which were purportedly transferred to Shan Pei Investment Limited (Shan Pei), then to Mr Alfred Wong (Mr Wong), then to Austcorp International Limited (Austcorp) and, ultimately, to Mr Ken Hung (Mr Hung). It is convenient to refer to those particular convertible bonds as the Hung Bonds. The Hung Bonds were part of convertible bonds with a total face value of $10 million. On 30 September 2011, Emmett J delivered judgment and found that Bellpac was the true owner of the Hung Bonds. I will return to discuss Emmett J’s judgment in greater detail later. Suffice to say at this point that Emmett J concluded that Bellpac was entitled to a declaratory order that it was the true owner of the Hung Bonds. This was primarily because its ownership of the bonds was recorded on the register maintained by Gujarat and his Honour found that the evidence before him was insufficient to support a finding that there had been an effective assignment of beneficial ownership of the $10 million of convertible bonds (including the Hung Bonds) from either Bellpac to Shan Pei or from Shan Pei to Mr Wong. In obiter dicta, Emmett J also indicated that, even if such assignment had occurred, he was disposed to find that the assignment to Mr Wong was an uncommercial transaction within the meaning of s 588FB of the Corporations Act and also an unreasonable director-related transaction within the meaning of s 588FDA of that Act (see Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123 (Warner v Hung (No 2) at [177] and [179]).
On 6 August 2012, Emmett J published another decision in which his Honour dismissed an application by Mr Hung and Austcorp to have the proceedings against them dismissed for want of proper joinder as defendants of other holders of the balance of the bonds, amounting to $8 million (see Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 3) [2012] FCA 819).
The Full Court dismissed appeals brought by Mr Hung and Austcorp against Emmett J’s decisions (see Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] FCAFC 48).
An application to the High Court by Mr Hung and Austcorp for special leave to appeal was refused (Hung and Anor v Warner and Kugel in their Capacities as Joint & Several Liquidators of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] HCATrans 280).
The defendants in the current proceedings are as follows. The first defendant is Mr Hung. The second defendant is Austcorp. The fourth defendant is Mr Danny Au-Yeung (who together with Mr Wong was a director of Bellpac). It should be noted, however, that the proceedings against these three defendants were discontinued on 1 April 2014.
The third defendant is Mr Alfred Wong, who appeared for himself. Mr Wong was an active participant in the proceedings before Emmett J. He gave evidence in those proceedings. Justice Emmett found him not to be an impressive witness.
Mr Wong played a different role in the current proceedings. On Friday, 6 March 2015 (i.e. three days before the hearing was to commence), and without having previously taken an active role in the proceeding, Mr Wong sent an unsolicited email to my associate. The email read:
I am the 3rd defendant of the above matter. I attach a copy of my Defence for your record which will be filed with the court today.
Please inform his Honour that regrettably I will not be able to attend the hearing commencing next Monday. Although I had every intention to attend in person at hearing to defend my case, due to urgent circumstances, I must fly to China today.
I would like to apply to his Honour to adjourn the matter to another date suitable to his Honour and all parties, so that I can defend my case properly.
According to the Court’s records, Mr Wong’s proposed defence was lodged electronically on Friday, 6 March 2015 at 10:53 am. The electronic acceptance of that document was, of course, subject to the Federal Court Rules 2011 (Cth) (FCRs). The Court had made directions as far back as 7 May 2013 for Mr Wong (and certain other defendants) to serve their defences by 17 May 2013. Some of the other defendants successfully applied for that time to be extended. Mr Wong never sought any extension of time. His defence was lodged electronically almost two years late.
Mr Wong’s application for an adjournment was refused on 9 March 2015 and ex tempore reasons were delivered (see Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 3) [2015] FCA 365).
As noted above, the hearing commenced on Monday, 9 March and ran for four days. Judgment was reserved on 12 March 2015. Mr Wong did not file any evidence, nor did he participate in the hearing. On Friday, 10 April 2015 (i.e. four weeks after judgment was reserved), Mr Wong sent another unsolicited email to my associate seeking leave to file and rely upon an attached five page written outline of submissions. In effect, his application was to reopen the hearing. The parties were given an opportunity to respond to Mr Wong’s correspondence. The various defendants who had actively participated in the proceedings did not oppose leave being granted, nor did they seek an opportunity to respond to Mr Wong’s submissions.
The plaintiffs strongly opposed the application and also opposed the Court permitting Mr Wong to rely upon his defence because it had been filed so late and without leave. The matter was relisted on 21 April 2015 to deal with Mr Wong’s application. Mr Wong failed to appear. Mr Cotman SC, together with Mr Wells, appeared for the plaintiffs. Mr Stapleton of counsel appeared for the eighth defendant, but did not seek to be heard. After hearing the plaintiffs’ oral submissions, which supplemented their written submissions dated 16 April 2015, the Court made an order under rule 2.28 of the FCRs that Mr Wong’s defence be removed from the Court file. Leave was also refused to allow Mr Wong to rely upon his belated closing written submissions. Reasons were delivered ex tempore (see Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 4) [2015] FCA 369).
Returning now to describe the other defendants in the proceedings, none of the fifth, sixth or eleventh defendants (Shan Pei, Good Team Investments Ltd (Good Team) and Mr Chiah Lee (Mr Lee) respectively) participated in the proceedings (i.e. filed evidence or made submissions), apart from Good Team and Mr Lee filing defences. Good Team and Mr Lee were represented by the same solicitors. Their defences were substantially similar, and essentially comprised a series of non-admissions of most of the claims made against them respectively in the statement of claim. Shan Pei did not enter an appearance. The evidence was left unclear as to whether the plaintiffs were ever able to serve any relevant documents on it.
The seventh, ninth and tenth defendants (Great Investments Ltd (Great Investments), Mr Hong Xu (Mr Xu) and Mr Zhi Hong (Mr Hong) respectively) were all represented by Mr Tzovaras, solicitor, from the law firm Tomaras Lawyers. Each of these defendants filed amended defences and affidavits and actively participated in the hearing.
The eighth defendant, Dr Osmond Kwok, was represented by Mr Stapleton of counsel. Dr Kwok is a medical practitioner who lives in Hong Kong. His wife is Mr Alfred Wong’s sister. Dr Kwok filed an amended defence and affidavits by himself and his wife. Dr Kwok actively participated in the proceedings.
The twelfth defendant was Gujarat. It filed a submitting notice and did not actively participate in the proceedings.
The plaintiffs did not seek any relief against the first defendant (Mr Hung), the second defendant (Austcorp), the fourth defendant (Mr Au-Yeung), the fifth defendant (Shan Pei), the thirteenth defendant (All Seasons Resources Inc) or the fourteenth defendant (View Plan Enterprises Ltd).
The proceedings before Emmett J and the appeal to the Full Court
It is convenient to now say something more about the earlier proceedings relating to the Hung Bonds. As noted above, the Hung Bonds with a face value of $2 million which were allegedly transferred to Austcorp and Mr Hung were the subject of previous proceedings which were heard by Emmett J in 2010 and 2011. Emmett J held that the purported assignment of the bonds from Bellpac to Shan Pei was ineffectual to pass any legal or equitable title in the bonds. His Honour concluded in Warner v Hung (No 2) at [116] and [119]:
There is no instrument of assignment of an interest in the convertible bonds from Bellpac to Shan Pei. Further, there was no admissible evidence as to the fact of any communication, either written or oral, between Bellpac and Shan Pei as to the assignment of convertible bonds from Bellpac to Shan Pei.
…
However, the entries in the books could not, of themselves, effect the reduction. It may be that Alfred Wong had a genuine belief that the convertible bonds had been assigned to Shan Pei in reduction of the Bellpac Indebtedness. Nevertheless, the fact that there was a relevant intention to assign the convertible bonds does not mean that the convertible bonds were effectively assigned. I am not persuaded that there was an effective assignment of the beneficial interest in the $10,000,000 of convertible bonds by Bellpac to Shan Pei on 6 August 2008.
The reference to the “Bellpac Indebtedness” is a reference to various of Bellpac’s debts, including a loan from LM Investment Management Limited (LM Investment). Austcorp and Mr Hung argued before Emmett J that, pursuant to an agreement between Compromise Creditors Management Pty Ltd (Compromise Creditors) and Shan Pei in September 2007, Shan Pei became exclusively entitled to the Bellpac Indebtedness.
In relation to the asserted anterior transactions between Shan Pei and Bellpac, which were said to support the subsequent assignments relating to the Hung Bonds, Emmett J concluded at [141]-[143]:
However, in the absence of any admissible evidence of juridical acts that are capable of constituting them, it is not possible to conclude that any of the Impugned Transactions involving Shan Pei occurred. In particular, there was no juridical act that was effective to vest in Shan Pei either a legal or an equitable interest in the Bellpac Indebtedness. Further, there is no evidence of any writing that would satisfy s 23C(1)(c) of the Conveyancing Act in respect of any of the Impugned Transactions involving Shan Pei.
Having regard to the matters specified in s 140(2) of the Evidence Act, I consider that the case advanced on behalf of Ken Hung and Austcorp is far from having been proved to the requisite standard. I am not actually persuaded that the Impugned Transactions involving Shan Pei took place. In the light of the available evidence, I consider that it is unlikely that they took place, or, to the extent that there was an attempt to effect the Impugned Transactions, that it is unlikely that the attempt was effective.
It follows that no consideration has been given by Shan Pei to Bellpac for the transfer or assignment of any interest in the convertible bonds. Accordingly, there was no transfer of any equitable interest in the convertible bonds by Bellpac. Alfred Wong therefore acquired no interest in the convertible bonds. Alfred Wong therefore could not transfer any interest in the convertible bonds to Austcorp. Austcorp therefore had no interest to transfer to Ken Hung. Accordingly, subject to a possible question of hearing from non-parties, the Liquidators and Bellpac are entitled to declarations and orders in the terms claimed in their amended originating process.
The reference by Emmett J to s 23C of the Conveyancing Act1919 (NSW) (Conveyancing Act) relates to an amended reply by Bellpac and the liquidators, which raised both ss 12 and 23C(1)(c) of that legislation. Section 12 dealt with legal title. It relevantly provided that any absolute assignment by writing under the hand of the assignor of any debt or other legal chose in action, of which express notice in writing has been given to the debtor or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, is and is deemed to have been effectual in law to pass and transfer the legal right to such debt or chose in action from the date of such notice.
Section 23C(1)(c) dealt with equitable interests. It relevantly provided that, subject to provisions of that legislation with respect to the creation of an interest in land by parol, a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same or by that person’s agent lawfully authorised in writing for that purpose. Emmett J found that the convertible bonds were a chose in action (see [54]). Bellpac and the liquidators argued that the relevant assignments of the convertible bonds from Bellpac to Shan Pei and from Shan Pei to Mr Wong, if they took place at all, were ineffective because of non-compliance with ss 12 and 23C of the Conveyancing Act. His Honour held that, since there was no compliance with s 12, there had been no effective assignment at law of Bellpac’s indebtedness (see [126]).
Noting, however, that s 12 was not a precondition to the validity of an assignment of an equitable interest in a chose in action, Emmett J then considered whether s 23C applied. His Honour noted at [127] that it was common ground that Bellpac retained legal title to the Hung Bonds, by reason of it being the registered holder of the bonds. Emmett J considered and rejected various arguments advanced by Mr Ken Hung and Austcorp as to why none of the transactions giving effect to the arrangements involving Shan Pei were rendered ineffective for want of compliance with s 23C. His Honour held that those requirements applied to all the relevant transactions and there was non-compliance with s 23C(1)(c), with the consequence that that provision would operate to render ineffective any of those arrangements which might otherwise be effective. In particular, his Honour found at [139] that s 23C(1)(c) would mean that “no consideration passed from Shan Pei to Bellpac for the assignment in equity of the convertible bonds, since Shan Pei could have acquired no exclusive entitlement, in equity or otherwise, to the Bellpac Indebtedness”.
Justice Emmett further held that the subsequent alleged transfers from Shan Pei to Mr Wong and then to Austcorp and Mr Hung were also ineffective to pass any title in the Hung Bonds. His Honour concluded at [159]:
Conclusion as to Subsequent Assignments
If Alfred Wong had acquired beneficial ownership of the $2,000,000 of convertible bonds, I would be satisfied that the evidence establishes that that beneficial ownership passed to Austcorp, and then from Austcorp to Ken Hung. However, I have concluded that Alfred Wong did not become the owner of the bonds, either legally or beneficially, because Shan Pei did not acquire any interest in them: nemo dat quod non habet.
As previously noted, Bellpac and the liquidators ran an alternative case before Emmett J that, if any of the relevant assignments of the Hung Bonds were effective, the assignment by Bellpac to Shan Pei was an insolvent transaction, an uncommercial transaction, an unreasonable director-related transaction, and also involved breaches of statutory and fiduciary duty on the parts of Mr Wong and Mr Au-Yeung. Bellpac and the liquidators contended that the transaction by which the Hung Bonds were assigned by Bellpac to Shan Pei, if it took place at all, was voidable under s 588FC of the Corporations Act (which deals with insolvent transactions). Emmett J indicated that he would be disposed to conclude that Bellpac was insolvent as at August 2008 on the basis that:
(a)Bellpac’s balance sheet as at June 2008 suggested that it did not have cash available to meet interest payments that continued to accrue in respect of the loan to it from LM Investment;
(b)even allowing for a reduction in the Bellpac indebtedness, a substantial majority of the Bellpac Indebtedness remained owing, in respect of which Bellpac was in default as August 2008; and
(c)there was no suggestion that Shan Pei or Compromise Creditors agreed that the time for repayment of the balance of the Bellpac Indebtedness was to be deferred (see [172]).
Justice Emmett was disposed to find that there was an insolvent transaction for the purposes of s 588FC and the transaction was also “uncommercial” within the meaning of s 588FB. His Honour concluded that, taking into account the totality of business relationship between the parties, what was intended to be effected under that relationship and how the transaction affected that intention, he would be disposed to view the arrangements involving Bellpac, Shan Pei and Mr Wong as a single transaction. Furthermore, noting the “obvious benefit derived by Alfred Wong, a director of Bellpac”, Emmett J expressed considerable reservations about the propriety of the transaction and noted that Mr Wong’s benefit could not be explained by normal commercial practice. Accordingly, Emmett J indicated at [177] that he was disposed to conclude that the tripartite transaction was an uncommercial transaction of Bellpac for the purposes of s 588FB of the Corporations Act.
After reiterating that, if the arrangements involving Bellpac, Shan Pei and Mr Wong were viewed as a single tripartite transaction, Emmett J stated that he was also disposed to conclude that the purported assignment of the convertible bonds by Bellpac on 6 August 2008 was an unreasonable director-related transaction of Bellpac for the purposes of s 588FDA of the Corporations Act (see [179]).
Accordingly, Emmett J indicated (in obiter at [180]) that he would have been disposed to uphold the alternative cases advanced by Bellpac and the liquidators with the consequence that, subject to the possible operation of s 588FG, the Court was empowered to make an order under s 588FF.
As to the alternative case brought by Bellpac and the liquidators based on alleged breaches of statutory and fiduciary duties owed by Mr Wong and Mr Au-Yeung as directors of Bellpac, Emmett J indicated that, upon the assumption that the relevant transactions should properly be characterised as a tripartite arrangement involving Bellpac, Shan Pei and Mr Wong, there were “strong grounds” for concluding that the arrangements involved such breaches at least on the part of Mr Wong, who was instrumental in proposing the arrangements (see [190]). This was because the clear effect of the arrangements was that Mr Wong was put in the position where he had assets having a face value of $10 million at his disposal for the purpose of discharging his own personal liabilities and he gave no more than an unsecured promise to pay the face value of the convertible bonds at some time in the future (see [190]).
In considering whether Mr Hung and Austcorp would have good faith defences under s 588FG in resisting an order under s 588FF, Emmett J indicated that he considered that neither Mr Hung nor Austcorp received a benefit from the transaction and that s 588FG would be an answer to an order being made under s 588FF. He added that he would also be disposed to find, assuming that Mr Hung and Austcorp did in fact receive a benefit, that benefit was received in good faith and in circumstances where there were no reasonable grounds for believing that Bellpac was insolvent (see [212]).
Justice Emmett then considered a separate argument advanced by Bellpac and the liquidators, namely that Shan Pei knowingly participated in the breaches of statutory and fiduciary duty by Bellpac’s directors and, therefore, received the convertible bonds as constructive trustee for Bellpac. They further argued that Mr Hung was on notice of inquiry as to the circumstances in which Mr Wong came to be the beneficial owner of convertible bonds after signing the transfer of the convertible bonds registered in the name of Bellpac in his capacity as attorney for Bellpac. They argued that Mr Hung’s own attorney (Edgar Hung) had actual knowledge of the constructive trust and misapplication of the trust property but refrained from making any inquiries, with the consequence that Mr Hung received a transfer of the convertible bonds subject to the constructive trust in Bellpac’s favour.
Justice Emmett stated that, even if there was evidence that Shan Pei had knowingly participated in the Bellpac directors’ breaches of statutory and fiduciary duty, he was disposed to find that Mr Hung and Austcorp were bona fide purchasers for value without notice and, accordingly, they were not bound by any constructive trust which had previously arisen in Bellpac’s favour (see [216]).
As noted at [5] above, the Full Court dismissed an appeal brought by Mr Hung and Austcorp against Emmett J’s judgments. In particular, the Full Court (Jacobson, Gordon and Robertson JJ) dismissed the appellants’ claims that Emmett J erred:
(a)in finding that the appellants bore the onus of establishing that Bellpac disposed of its beneficial ownership of the convertible bonds;
(b)in finding that the Bellpac parties had failed to discharge their onus of proving that Bellpac did not dispose of its interest in the convertible bonds for value; and
(c)in his application of the principle in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 (Jones v Dunkel).
The appellants also argued that Emmett J erred in holding that s 23C(1)(c) of the Conveyancing Act applied to equitable dispositions of property and was not limited to real property. The Full Court held that, in the light of its dismissal of the appellants’ other three grounds of appeal, it was unnecessary to rule on this issue.
Further relevant aspects of the current proceedings
As previously mentioned, the current proceedings concern the balance of the bonds with a face value of $8 million, $6 million of which were transferred by Mr Wong to his personal creditors (excluding those transferred to Austcorp and Mr Hung). Bellpac remains the listed holder of the remaining $2 million of bonds. None of these bonds was the subject of Emmett J’s decisions, which were all directed to the Hung Bonds. It is also to be noted that, in contrast with the position in the proceedings before Emmett J where neither Mr Hung or Austcorp were the registered owners of the convertible bonds, in the current proceedings, with one exception, each of the relevant defendants is currently recorded in Gujarat’s register of bondholders as owning the relevant convertible bonds. The only exception is in respect of Mr Lee, who claims to have been assigned $2 million of convertible bonds but is yet to be registered in the Gujarat bond register.
There is an important difference between the current proceedings and those heard by Emmett J. It relates to the fact that the issue which his Honour described as “the principal focus of the proceeding” before him, being whether “there was an effective assignment of the $10 million of convertible bonds from Bellpac to Shan Pei and then from Shan Pei to Alfred Wong” (at [40]), did not arise on the pleadings in the current proceeding. The plaintiffs repeatedly emphasised that their case involved no such proposition and none of the defences filed by the relevant defendants raised that matter. As will emerge below, in closing oral address, the solicitor for the seventh, ninth and tenth defendants appeared to trail his coat over the issue. In reply, junior counsel for the plaintiffs submitted that there was no allegation in any of the pleadings that there was any transfer of any equitable interest in the convertible bonds from Bellpac to Shan Pei and then to Mr Wong so as to give Mr Wong a right to assign them to the relevant defendants. I accept that submission. I also accept his further submission that if any such contention was made by any defendant, that defendant would carry the onus of proof. That was the view taken by Emmett J in Warner v Hung (No 2) and his Honour’s finding was upheld on appeal. Even if the relevant defendants were able to overcome the pleading objection (which in my view they cannot), I am not satisfied that they would have discharged their onus. In particular, as was also the case in the proceeding before Emmett J, I consider that the evidence before me does not establish on the balance of probabilities that there was any valid assignment from Bellpac to Shan Pei and thereafter to Alfred Wong. On this matter I would respectfully adopt the reasons of Emmett J.
It is convenient to also note at this point that separate proceedings between Great Investments (the seventh defendant in the proceedings in this Court) and Gujarat relating to the issue of the convertible bonds were commenced in the Supreme Court of New South Wales and were transferred to this Court on 1 March 2013. The transferred proceedings concern an application by Great Investments, the registered holder of convertible bonds in Gujarat with a face value of $1 million, to convert the bonds to shares or cash. The transferred proceedings were stayed pending the determination of these proceedings.
Gujarat’s register of bondholders
The register of bondholders maintained by Gujarat as at the hearing date recorded the following relevant information (some irrelevant information is not included):
SL No
Bond Series
Distinctive No
Face Value
Current Listed Holder
Date of Ownership
1
I series
1000001-1000010
$0.5m
Bellpac Pty Ltd
Since Issue
2
I series
1000011-1000050
$2.0m
Mr Osmond Tze Leung Kwok
1/05/2009
3
II series
2000001-2000010
$0.5m
Bellpac Pty Ltd
Since Issue
4
II series
2000011-2000030
$1.0m
Great Investments Limited
16/12/2008
5
II series
2000031-2000050
$1.0m
Mr Hong Xu
1/05/2009
6
III series
3000001-3000030
$1.5m
Bellpac Pty Limited
Since Issue
7
III series
3000031-3000050
$1.0m
Great Investments Limited
16/12/2008
8
IV series
4000001-4000020
$1.0m
Good Team Investments Limited
5/12/2008
9
IV series
4000021-4000050
$1.5m
Bellpac Pty Limited
Since Issue
TOTAL VALUE $10m
The plaintiffs’ evidence summarised
Mr Anthony Warner
Mr Anthony Warner swore two affidavits, the first dated 31 March 2014 and the second dated 5 March 2015. Although his evidence was not given in accordance with the Court’s Expert Witness Practice Note, with the Court’s leave, Mr Cotman SC asked Mr Warner various questions the answers to which satisfactorily established his expertise and qualified him to express an opinion on the solvency of Bellpac. Mr Warner explained the documentation which he reviewed in coming to the views expressed in [78] of his first affidavit and, in particular, his opinion that Bellpac was insolvent from at least December 2007 and was insolvent as at 23 July 2008.
Mr Warner’s first affidavit summarised
Mr Warner annexed to his first affidavit various documents which are relevant to the issue of the convertible bonds the subject of these proceedings.
On 21 March 2003, Bellpac acquired land, leases and other assets associated with a coal mine near Wollongong. The purchase was financed by several loans. One of the loans was made by LM Investment through its custodian (Permanent Trustee Australia Limited (Permanent Trustee)), which loan was secured by a first charge and mortgage over various of Bellpac’s assets, including the land and leases associated with the mine.
A company called Ace Bond Capital Limited (Ace Bond) also lent Bellpac $9 million pursuant to a loan agreement dated 21 March 2003. The loan was repayable by no later than 20 March 2005 and was secured by a fixed and floating charge over Bellpac’s assets and a mortgage over the land and mining leases constituting the mine. The charge was inferior to the security held by LM Investment.
On 29 September 2004, Ace Bond transferred its interests under the loan to various subsidiaries of Great Pacific Capital Limited (GPC), a publicly listed company, of which Mr Alfred Wong was a director. The transfer was accomplished by a deed of transfer and acknowledgment dated 29 September 2004 (the Deed of Transfer). Its effect was that Bellpac’s indebtedness was owed to the relevant GPC subsidiaries. Subsequently, the date for repayment was extended to 13 July 2008 and the amount of Bellpac’s indebtedness was increased to approximately $22.4 million.
In mid-2007, a deed of compromise (the Deed of Compromise) was executed by Compromise Creditors, Bellpac, GPC, various GPC subsidiaries and five other creditors of companies in the GPC group (the GPC Creditors). The Deed of Compromise stated that GPC and a subsidiary, GPC Finance, were indebted to the GPC Creditors and that the GPC Creditors had agreed to compromise their rights in relation to that indebtedness. One of the specified GPC Creditors was Shan Pei, whom it was said was owed a debt of $1,671,855.10. The total amount of the debts of the GPC Creditors amounted to $6,390,646.98.
The effect of the Deed of Compromise was to release and discharge GPC and GPC Finance from all liability with respect to debts owing to them; the various GPC subsidiaries assigned their interests in and to the Bellpac indebtedness to Compromise Creditors; and Bellpac acknowledged that that indebtedness, together with interest and other fees payable under the Deed of Loan, was owed to Compromise Creditors.
The Deed of Compromise stated that Compromise Creditors entered into it as trustee of the GPC Creditors Trust, constituted by a deed dated 16 July 2007 and made between Fuwin No 2 Pty Limited and Compromise Creditors.
The documentation also included materials relating to an extraordinary general meeting of GPC which was held on 9 November 2007. Two resolutions were passed at the meeting. The first was that GPC (for itself and certain of its subsidiaries) be authorised to complete and give effect to the Deed of Compromise. The second was that GPC be authorised to issue and allot approximately 29 million fully paid ordinary shares to Shan Pei to satisfy debts of $2,639,515 owed by GPC to Shan Pei.
The tendered documents also cast some light on the creation of the convertible bonds. It is evident that, in conjunction with a sale by Bellpac of certain assets associated with the mine to Gujarat, on 3 December 2004, Bellpac and Gujarat entered into a remediation licence deed, which subsequently gave rise to a dispute between them which was heard in both the Supreme Court of New South Wales and the Mining Warden’s Court of New South Wales. The dispute was settled insofar as Gujarat’s remediation obligations were concerned by a deed of settlement dated 12 September 2007. LM Investment, as chargeholder and mortgagee, refused to accept the terms of settlement. New terms of settlement were negotiated, which resulted in a restated settlement deed dated 23 July 2008 (the 2008 Settlement Deed). Gujarat agreed to pay $1 million in cash to or to the order of Bellpac and to issue in favour of Bellpac, and deliver to Bellpac, certificates in respect of convertible bonds evidencing a debt totalling $10 million. The delivery of the convertible bonds and the payment of the $1 million were in consideration of the surrender by Bellpac of rights to receive royalty payments from Gujarat.
On 5 August 2008, Gujarat issued $10 million of convertible bonds (in denominations of $50,000) to Bellpac pursuant to the 2008 Settlement Deed. The terms and conditions on which the convertible bonds were issued included a provision that title to a convertible bond was vested absolutely in the person entered in the bond register as the holder of the bond and would pass by transfer and registration. A convertible bond was to be freely transferrable. Application for the transfer of the bond was to be made by lodging a duly completed transfer form with Gujarat.
The terms and conditions also included a provision that the holder had the right to convert the bonds into fully paid ordinary shares in Gujarat at any time during the months of July and January, on or after 1 July 2011. The conversion price was to be calculated by reference to a formula which was set out in the terms and conditions. The shares issued to a bond holder upon conversion were to be held in escrow for six months, after which time Gujarat was to apply to have the shares listed. The convertible bonds matured on 1 July 2028 unless previously redeemed, converted or purchased and cancelled.
Upon issue of the $10 million of convertible bonds, Bellpac was registered in the Gujarat bond register as the holder of those bonds. On 6 August 2008, certificates in respect of all those convertible bonds were delivered by Gujarat to Bellpac’s office and were received by Mr Alfred Wong, who arranged for them to be handed to his brother Ivan Wong for safe custody.
In his first affidavit, Mr Warner referred to letters being sent on 11 November 2009 by the liquidators’ solicitors to each of Dr Kwok, Mr Xu, Great Investments and Good Team regarding the physical location of the certificates relating to the relevant convertible bonds. No response was received to any of those letters.
Mr Warner also stated that, in his capacity as liquidator, having reviewed Bellpac’s cash receipts journal and other books and records of Bellpac he was not aware of any document in Bellpac’s books and records or elsewhere which recorded the receipt by Bellpac of any consideration in respect of the relevant bonds.
Mr Warner deposed that he was of the opinion that:
(a)Bellpac was insolvent as at 23 July 2008;
(b)Bellpac was insolvent from at least December 2007 and probably earlier; and
(c)Bellpac’s state of insolvency continued up to his appointment as joint and several liquidator.
Mr Warner explained that these opinions were based on his review and the contents of the following materials (copies of which were attached to his first affidavit):
(a)seven reports to creditors/advices to creditors prepared and issued by him and his colleague as administrators and liquidators of Bellpac;
(b)all proofs of debt submitted by Bellpac’s creditors;
(c)financial reports for Bellpac for the period July 2006 to June 2009;
(d)various documents relating to Bellpac’s cash flow, including various loan agreements and related documents, as well as loan account statements;
(e)Bellpac’s income tax return for 2007 (while also noting that Bellpac did not submit tax returns for the financial years ending 2008 and 2009);
(f)copies of various statutory demands and letters of demand from Bellpac’s creditors;
(g)various internal correspondence between Bellpac and its former solicitors relating to its solvency; and
(h)conclusions reached by Mr Warner based on the materials referred to above as to Bellpac’s financial position, including the fact that Bellpac failed to repay various loans when they became due and payable in 2007 and 2008, the fact that various of Bellpac’s creditors were paid by third parties in 2008, the evidence which suggested that various third-parties held serious concerns regarding Bellpac’s solvency, as well as a letter dated 22 May 2008 from Bellpac to its then solicitors which suggested that Bellpac was unable to pay its debts as and when they fell due.
Mr Warner deposed that, having reviewed all of Bellpac’s books and records, he had not located any documents such as transfers or assignments in relation to the convertible bonds from Bellpac to Good Team, nor any evidence of any consideration being paid by that company to Bellpac in respect of all or any part of the convertible bonds held by it, apart from Mr Wong’s letter dated 30 January 2012 in which he said that he had transferred twenty of the Series IV bonds to Good Team, as well as the entry in Gujarat’s bond register which recorded Good Team as the current owner of convertible bonds with a face value of $1 million. Mr Warner drew attention to the fact that, in his letter dated 30 January 2012, Mr Wong said that he was unable at that time to locate any documents establishing a debtor/creditor relationship between Mr Wong and Good Team.
To similar effect, Mr Warner deposed that, having reviewed Bellpac’s books and records, he could not locate any documents which recorded the transfer or assignment of convertible bonds from Bellpac to either Great Investments or Mr Hong, nor any evidence of any consideration being paid to Bellpac by either of them in respect of the relevant convertible bonds. Mr Warner drew attention to the letter dated 30 January 2012 from Mr Wong in which he said that he had transferred various convertible bonds to Mr Hong, which convertible bonds with a face value of $2 million are recorded in Gujarat’s register as being owned by Great Investments. Mr Warner also drew attention to a document provided by Mr Wong as an enclosure to his letter dated 30 January 2012, which purported to be a loan agreement dated June 2008 with Mr Hong.
Mr Warner further deposed that, having reviewed Bellpac’s books and records, he was unable to locate any documents such as transfers or assignments of convertible bonds from Bellpac to Dr Kwok, nor any evidence of any consideration being paid by Dr Kwok to Bellpac in respect of Gujarat’s convertible bonds. He further noted, however, that in his letter dated 30 January 2012, Mr Wong said that he transferred convertible bonds with a face value of $2 million to Dr and Mrs Kwok and that Dr Kwok is recorded in the Gujarat bond register as the current owner of those convertible bonds. Furthermore, Mr Warner drew attention to the fact that, in his letter dated 30 January 2012, Mr Wong enclosed copies of two emails dated 26 April 2007 and 24 January 2008 respectively which purported to support the existence of a debtor/creditor relationship between Mr Wong and Dr and Mrs Kwok.
Mr Warner gave similar evidence in respect of the convertible bonds which are recorded in Gujarat’s bond register as being owned by Mr Xu. Mr Warner said that, having reviewed Bellpac’s books and records he had been unable to locate any documents such as transfers or assignments of any convertible bonds from Bellpac to Mr Xu, nor was there any evidence of any consideration being paid by Mr Xu to Bellpac in respect of the convertible bonds with a face value of $1 million, in respect of which he is recorded in the Gujarat bond register as the current owner.
Mr Warner also drew attention to the fact that, in his letter dated 30 January 2012, Mr Wong enclosed a copy of an agreement with Mr Xu in relation to the transfer of those convertible bonds, purportedly in support of the existence of a debtor/creditor relationship between them.
Finally, Mr Warner gave similar evidence in respect of the convertible bonds with a face value of $2 million which Mr Lee claims to own even though these bonds are recorded in the Gujarat bond register as being owned by Bellpac. Mr Warner deposed that, having reviewed Bellpac’s books and records, he was unable to locate any documents which recorded a transfer or assignment of the bonds from Bellpac to Mr Lee, nor was there any evidence of any consideration being paid by Mr Lee to Bellpac. Mr Warner noted that, in his letter dated 30 January 2012, Mr Wong said that he had transferred the relevant bonds to Mr Lee. Enclosed in that letter were copies of two emails dated 9 March and 15 November 2008 respectively which purported to support the existence of a debtor/creditor relationship between Mr Wong and Mr Lee.
The power of attorney held by Mr Wong for Bellpac
Mr Warner attached to his first affidavit a copy of a power of attorney dated 7 May 2008 by Bellpac in favour of Mr Wong. By that instrument, Bellpac appointed Mr Wong as its attorney and authorised Mr Wong inter alia to “execute under hand or under seal and deliver (conditionally or unconditionally) in a place specified in schedule 3, any of the documents described in schedule 4”. The description of the documents in Schedule 4 was:
Any document that (sic) which Grantor is party (including a document that is to be signed by the Grantor, by itself).
Under cl 4, Bellpac indemnified Mr Wong against all claims, damages, losses and expenses suffered or incurred as a result of anything done under the power of attorney. It may be noted that the power of attorney made no express reference to s 12 of the Powers of Attorney Act 2003 (NSW) (which replaced s 163B of the Conveyancing Act).
It is desirable to set out in full cl 6 of the power of attorney in view of the reliance placed upon it by the defendants:
6.An Attorney may exercise the powers conferred by this Power of Attorney or by law even though that Attorney may have a conflict of interests in exercising those powers or a direct or personal interest in the means or result of that exercise of those powers.
The plaintiffs tendered copies of the transfer forms and certificates in relation to the transfer of the relevant convertible notes from Bellpac to each of the relevant defendants (or their companies) apart from Mr Lee. Each of the transfer forms expressly stated that the transferor was Bellpac and each also recorded that the relevant form had been executed by “Alfred Wong as duly appointed attorney for Bellpac Pty Limited pursuant to Power of Attorney Registered Book 4549 No. 529”. In the case of the transfer form relating to Dr Kwok, it was recorded that Ivan Wong had executed the form on behalf of Dr Kwok “as duly appointed attorney for Osmond Tze Leung Kwok pursuant to Power of Attorney Registered Book 4057 No. 358”.
Mr Warner’s second affidavit summarised
In his second affidavit, Mr Warner deposed that Mr Kugel had ceased to be a joint liquidator of Bellpac on 26 September 2014. He further deposed that the convertible bonds with a total face value of $10 million were originally allotted by Gujarat to Bellpac on or around 5 August 2008, which is the date of their registration.
Mr Warner gave further evidence concerning a debt of $9,089,955.82, which is noted in Bellpac’s general ledger as being in existence as at 2 July 2007. He said that he had not been able to locate any documents in Bellpac’s books and records which indicate how if at all that stated debt related to the debt of $6,390,646.98, which is the total of the debts recorded on page 11 of the Deed of Compromise dated 16 July 2007. He noted that that amount is the same as the debt claimed by Compromise Creditors in its proof of debt lodged in the administration of Bellpac on 6 August 2009. Mr Warner added that he could find no record of any transaction or event occurring between Bellpac and Compromise Creditors to explain any increase in indebtedness beyond the amount recorded in the Deed of Compromise.
Mr Warner said that he could find in Bellpac’s books and records no record of any resolution authorising disposition of convertible bonds to, or any record of any disposition of such bonds, to any person or entity, including Shan Pei, Mr Wong or any other person in satisfaction of Mr Wong’s debts, nor any record of any transaction whereby Shan Pei became a creditor of Bellpac, whether by acquiring any debt of Compromise Creditors or otherwise. Further, he deposed that he could find no record of any transaction with payment by or consideration given by either Mr Wong or any other party for a transfer of the convertible bonds to any of the defendants in the proceedings, nor any record of any consent by Permanent Trustee or LM Investment to any transfer of the convertible bonds from Bellpac to any person or entity.
Cross-examination and re-examination of Mr Warner
Mr Warner was cross-examined by Mr Tzovaras for the seventh, ninth and tenth defendants. He was asked a series of questions relating to the balance sheets for Bellpac for 2006, 2007, 2008 and 2009, as well as some questions about the Deed of Compromise. The object of the cross-examination seemed to be to have Mr Warner accept that the $10 million figure which is referred to in the General Ledger could only be a reference to the convertible bonds. Mr Warner said that he was not in a position to say one way or another whether that is what the item referred to. He added that the material simply recorded Bellpac’s accounting treatment of the relevant transactions and said nothing about whether or not the transactions were authorised. I accept that evidence. I found Mr Warner to be a truthful and responsive witness.
Mr Warner was also cross-examined by Mr Stapleton. Mr Warner was asked a series of questions which were to the effect that, having reviewed all of Bellpac’s business records, he did not see any evidence which suggested that:
(a)Dr Kwok believed that anyone other than Mr Wong had an interest in the bonds;
(b)Mr Wong did not own the bonds;
(c)Mr Wong could not assign the bonds; or
(d)Bellpac might become insolvent.
Mr Warner accepted that there was no evidence to suggest that Dr Kwok should have been concerned that Bellpac might become insolvent, nor was there any evidence to contradict Dr Kwok’s evidence that Mr Wong owed the Kwoks a $2 million debt.
In re-examination, Mr Warner confirmed that, while there was a ledger entry referring to the $10 million, there was no asset account which recorded the bonds. Mr Warner said that the bonds seemed to have been treated in the accounts as income. He said that the only record of the transfer of the bonds was to Compromise Creditors and the entry recorded the $10 million amount as concerning a release of the royalties. Again he said that this did not indicate that the transaction was authorised. Mr Warner said that in the winding up Compromise Creditors sought to prove a debt of approximately $6 million, reflecting the Deed of Compromise and that there was nothing to suggest that it had received $10 million. He also said that if there had been some indication that that was the case he would have been very interested as a liquidator because it might have constituted a preference. I accept that evidence.
The evidence of the defendants’ witnesses summarised
Mr Zhi Hong
As noted above at [39], the Gujarat bond register records Great Investments as the owner of bonds described as Series II, no. S2000011-2000030 and Series III, no. S3000031-3000050, with a total face value of $2 million. The sole director of Great Investments, Ms Yuna Zhang, is Mr Hong’s wife. There is no evidence to support the submission made by Mr Hong’s solicitor in his outline of submissions dated 3 March 2015 at [1] that Mr Hong was a director of Great Investments. The register records the date of transfer of the bonds from Bellpac to Great Investments as 16 December 2008. The transferor on the transfer form is stated to be Bellpac and it is recorded that the transfers were executed by Alfred Wong as attorney for Bellpac. The transferee is identified as Great Investments and the transfers were signed by Ms Zhang.
Mr Hong swore an affidavit dated 4 March 2015 and was cross-examined.
Mr Hong deposed that he had known Mr Wong for over 15 years and that they had become friends. He said that, in early July 2007, after receiving a phone call from Mr Wong, he arranged for Mr Wong to receive a loan from him in the amount of approximately $1.1 million. He said that it was expected that the loan would only be for a short period but he then became concerned from about September 2007 that Mr Wong had not repaid him any money. He said that he spoke to Mr Wong several times about the matter and then wrote him a letter dated 11 March 2008. In that letter, he told Mr Wong that because Mr Wong had failed to meet any repayments, Mr Hong had no choice but to sell his home. He also advised Mr Wong that, because the loan went more than the expected two months, interest would be charged henceforth and retrospectively at the amount of $10,000 per month. Mr Hong complained in the letter that Mr Wong’s conduct had caused him a “huge problem” because he had to sell his apartment to complete a business contract with a third party.
Mr Hong deposed that he received no response from Mr Wong to the letter and that, while he believed that Mr Wong would ultimately repay the loan, he decided to have their arrangement formally recorded, including in respect of interest. He said that he and Mr Wong met in Sydney in early April 2008 and that they recorded an agreement in a document written in Chinese which was signed by both of them. Mr Hong also explained the circumstances surrounding he and Mr Wong signing a further loan agreement in June 2008, which he described as an “acknowledgement”.
Mr Hong gave evidence in relation to the transfer to him of the convertible bonds after Mr Wong told him that he would be unable to repay the loan for some time because of his financial position. Mr Wong told him that, instead, he could give Mr Hong bonds with a face value of $2 million from an ASX listed mining company. Mr Hong said that he reluctantly agreed to that proposal and told Mr Wong that if anything went “wrong” with the bonds and they dropped in value, Mr Wong would have to pay the difference. Mr Hong deposed that he subsequently received the signed transfers in respect of the bonds and had them registered in the name of Great Investments.
Mr Hong also gave evidence confirming that, although he was joined as a party in the proceedings before Emmett J, the plaintiffs discontinued the proceedings against him shortly before the hearing commenced. Mr Hong deposed that, prior to receiving a letter dated 11 November 2009 from Mr Breene, the solicitor acting for Mr Warner, he had no knowledge of the existence of Bellpac and Mr Wong never mentioned that company to him. He also deposed that when he received the transfer form for the convertible bonds he did not notice Bellpac’s name on the form. Moreover, he said that, prior to receiving Mr Breene’s letter, he had no knowledge of the liquidators’ claim that Bellpac was beneficially entitled to the bonds registered in the name of Great Investments.
Cross-examination of Mr Hong
Mr Hong was asked various questions relating to the $1.1 million loan which he said Mr Wong had obtained from him. He said he was telephoned by Mr Wong when Mr Wong was in China. Mr Wong asked him if he could lend him the money for a short period of time. Mr Hong stated that he used a friend who was in China at that time to get in contact with Mr Wong so that the money could be paid by that friend. Mr Hong said that there were no documents which recorded any of these arrangements and that he told his friend that he would take full responsibility for repaying the money which the friend loaned to Mr Wong on Mr Hong’s behalf.
When Mr Hong was asked how he had repaid his friend, Mr Hong said that he had made a series of payments by way of instalments. This was not done in Australia, but rather through a business which Mr Hong operated in China. He said that there were no records of the repayments. Mr Hong became rather vague in his recollections when he was pressed on this matter. He appeared to suggest that another of his friends was involved in repaying part of the money.
Mr Hong was then taken to the letter which he wrote to Mr Wong on 11 March 2008 when he became concerned that Mr Wong had not repaid any of the $1.1 million loan.
Mr Hong ultimately accepted that he was “a little bit nervous” at that time that he was not going to be repaid by Mr Wong given that eight or nine months had gone by and Mr Wong had not made any repayments. He said that he required Mr Wong to sign a lending agreement in early April 2008 and that Mr Wong had come to his office for that purpose. He said that the offer of the bonds was raised later that year by Mr Wong when Mr Wong told him that otherwise he might have to wait one or two years to get any money. He said that he asked Mr Wong about the bonds and the company to which they related and was told by Mr Wong that it was “a good company”. Mr Hong said that he was aware that it was a public company, so he accepted what Mr Wong told him.
When Mr Hong was pressed about whose name the bonds were in, he said that he thought they were either Mr Wong’s bonds or his company, Great Pacific. He said that there was no mention of the bonds actually being owned by Bellpac. He told Mr Wong that he would have to top up any shortfall if, when the bonds were converted, the debt was not fully cleared. Mr Wong explained that the difference to which he was referring to was the difference between the value of the bonds and the interest payments which Mr Wong was required to make under the loan agreement.
Mr Hong was then asked about receiving the transfers of the bond certificates. He said that his wife signed them initially, and they were then returned by Gujarat and had to be signed again. He became rather vague about the details saying that it all happened some time ago. He initially said that he may have looked at the transfers. Mr Hong’s evidence then became unconvincing when he accepted that he had looked at the bonds to see what the interest rate was, when the bonds could be converted, how many bonds were involved and what the conditions were, yet he initially denied that he noticed that they were in the name of Bellpac. Ultimately, however, when pressed, Mr Hong acknowledged that he noticed Bellpac’s name was on the transfer form. I accept that evidence. He said that he simply assumed that this was one of Mr Wong’s many companies. Mr Hong agreed that he made no inquiries about Bellpac. He said that he was not worried about where the money came from and that his only concern was to ensure that he got paid.
It is clear from the detailed evidence given by Mr Hong on this and other aspects of the transfers that he read the transfer documents with some care and saw that they were in the name of Bellpac and not Mr Wong or General Pacific.
Ms Yuna Zhang
Ms Zhang swore an affidavit dated 9 March 2015 and was cross-examined. She is the sole director of Great Investments. As noted above, Ms Zhang is Mr Hong’s wife.
Ms Zhang deposed to the circumstances surrounding her collection of the transfer form and bond certificates from an office in Angel Place. She said that she did not notice that it was the registered office of a publicly listed company. She said that she collected the material at her husband’s request and brought it home. She said that her husband told her to sign the transfer form and return the documents to Gujarat, which she did. She said that she recollected having to resign the documents because they were returned by Gujarat. She was asked to sign in the correct place. She said she did what her husband told her to do.
Cross-examination of Ms Zhang
Ms Zhang was asked whether she looked at the bond certificates and transfer form and, in particular, whether she noticed that the transferor was Bellpac and that the bonds were being transferred by it through its attorney, Mr Wong. Ms Zhang was quite vague in her answers to these questions, although it later emerged that she was aware of the fact that Mr Wong had signed the documents on behalf of Bellpac. She also said that she understood that there was some loan agreement between her husband and Mr Wong. When she was asked why in those circumstances the bonds were transferred to Great Investments because it was not involved in the loan, Ms Zhang said that she simply did what her husband asked her to do. She became quite nervous when she was asked questions which she considered might be embarrassing to her husband’s case.
When Ms Zhang was asked about her role in the litigation as sole director of Great Investments, it was apparent that she had no independent role and simply carried out her husband’s instructions, including the defence of the proceedings.
When Ms Zhang was asked whether she accepted that it would be wrong of Great Investments to keep the bonds if in fact they were not Mr Wong’s property but that of Bellpac, she paused but then admitted that she had seen Mr Wong’s signature on the transfer forms. Ms Zhang then added that she did not know whose property the bonds were and whether the owner was Mr Wong or Bellpac, but she believed that it was Mr Wong’s property because it was he who signed the forms. Her evidence on this topic was not consistent and appeared to have been influenced by a desire not to harm her husband’s interests.
Mr Hong Xu
The Gujarat register records Mr Xu as the owner of bonds described as Series II, no. 2000031-2000050, with a face value of $1 million. The date of transfer to Mr Xu is stated to be 1 May 2009. The transferor on the transfer form is Bellpac with the execution having been done by Mr Wong as attorney for Bellpac. Mr Xu is identified as the transferee. The bond certificates all identify Bellpac as the registered bondholder.
Mr Xu affirmed an affidavit dated 8 September 2014 and was cross-examined. He gave his evidence by videolink to China. He was assisted by an interpreter. Mr Xu deposed that he had known Mr Wong for around 13 years and that they were friends and business associates in China. He said that in about March 2007 he and Mr Wong entered into a joint venture to undertake a property development in Killara. They set up a company for that purpose called Auspac Projects (Killara) Pty Ltd (Auspac). He said that he had provided Auspac with a loan of $1.5 million on condition that Mr Wong was personally liable for Auspac’s repayment of the loan on completion of the joint venture. The joint venture terminated in September 2008 and he asked Mr Wong to repay the loan. They entered into a deed dated 19 September 2008, a copy of which was annexed to his affidavit. The recitals to the deed make reference to Mr Wong having made certain representations to Mr Xu which Mr Xu relied upon in agreeing to lend Auspac $1.5 million pursuant to a loan agreement dated 22 March 2007, which included an entitlement to be paid interest at the rate of 15 per cent per annum. Recital C to the 2008 deed stated:
Alfred Wong, without the consent of the Lender, effected withdrawals from the bank account of Auspac with St George Bank Limited, Account No. 0000552651602 (“the Bank Account”) with the result that the money that the Lender, at the request of Alfred Wong, deposited in the Bank Account was appropriated at the direction of Alfred Wong and for his benefit.
The deed noted that Mr Wong had paid Mr Xu the sum of $100,000 on 19 November 2007 in part repayment of the loan. The deed set out the terms and conditions on which Mr Wong would repay the balance of the loan. Mr Xu stated that he arranged for a caveat to be placed on Mr Wong’s Kambala property. He said that Mr Wong failed to make any repayments of the loan.
Mr Xu deposed that in about April 2009 Mr Wong told him that he was unable to repay the joint venture loan, however, he offered to transfer bonds issued by Gujarat for an aggregate value of $1 million in part payment of the joint venture loan, but only if Mr Xu withdrew the caveat.
Mr Xu said that because he was concerned about Mr Wong’s capacity to repay the loan, he decided to accept the bonds in part payment and to withdraw the caveat. An agreement dated 1 May 2009 was drafted and executed by both of them, a copy of which was annexed to Mr Xu’s affidavit. Clause 3.1 contained a warranty from Mr Wong that the transfer of the bonds was “valid, effective and binding on Alfred and the registered holder of the Bonds” (emphasis added). Other provisions of the agreement obliged Mr Wong to indemnify Mr Xu in the event that, on conversion of the bonds, the net proceeds were less than $2,140,000.
Mr Xu deposed that he signed the transfers, which he received from Mr Wong together with the relevant bond certificates, and gave the transfers back to Mr Wong who forwarded them, together with the bond certificates, to the Gujarat registry for registration. Registration then occurred. The bond certificates were held by Gujarat pending resolution of these proceedings.
Mr Xu deposed that, while he was originally joined as a defendant in the proceedings before Emmett J, the plaintiff discontinued the proceedings against him shortly before the hearing took place. He also deposed that, prior to receiving a letter from the liquidators’ solicitors (in November 2009), he had no knowledge of the existence of Bellpac and that neither Mr Wong nor anyone else ever mentioned that company to him prior to receiving that letter. Mr Xu said that he had no knowledge of the liquidators’ claim that Bellpac was beneficially entitled to the bonds.
Cross-examination of Mr Xu
Mr Xu’s cross-examination started with questions about the joint venture he had had with Mr Wong. He accepted the proposition that Mr Wong had “stolen” $1.5 million from Auspac and he affirmed that he wanted the money repaid. Mr Xu agreed that he found out later that Mr Wong had taken the money for his own purposes and, although he could not identify the precise date when he found out that the money had been taken, he said that it was during the period April 2007 to September 2008. He was taken to page 7 of his affidavit which records Alfred Wong having repaid $100,000 of the money on 19 November 2007.
Mr Xu accepted that in September 2008 he signed the first agreement with Mr Wong in which he agreed to sell his house in order to repay the money. He said that he got a lawyer to draw up the first agreement. He was then taken to the second agreement (dated 1 May 2009) and he confirmed that he also had his lawyer draw it up. He said he could not remember who the lawyer was, but it was a Caucasian lawyer who was involved in property sales. Mr Xu accepted that the second agreement dealt with the subject of the bonds. He said that Mr Wong explained to him that, because his house was heavily mortgaged, if it were sold there would be very little left after other creditors to pay back Mr Xu. When he was asked whether he instructed his lawyer what to put in the second agreement, Mr Xu said that he told him that he wanted Mr Wong to repay him. He said also that his lawyer had direct contact with Mr Wong about the contents of the agreement. He said that his lawyer explained to him what the agreement meant. He was asked whether Mr Wong told him that he owned the bonds. He said that he was told that Mr Wong had many bonds worth more than $2 million and he could pay $1.5 million worth to Mr Xu but, in the end, Mr Wong only transferred $1 million. When asked whether Mr Wong told him that he was the owner of the bonds, his answer was that “yes”, Mr Wong said he owned them. When Mr Xu was asked whether he claimed to be the registered owner of the bonds he said he did not know. When the question was asked again Mr Xu simply said that he was told that he was the owner and that he had no experience in this area.
It was then put to Mr Xu that he knew that Mr Wong was a dishonest man. Mr Xu accepted that proposition, but he then added, somewhat curiously, that Mr Wong was “a good person”.
Mr Xu was asked by reference to [10] of his affidavit as to when it was that Mr Wong provided him with the transfers and bond certificates after the second agreement was signed. Mr Xu said that he could not remember clearly. He then said that his wife took the documents to Wollongong for signature. He later explained that his wife took the signed transfer and bonds down to Gujarat in Wollongong to have them registered. He said that he was in China at the time and was relying on his wife to do many things.
It was put to Mr Xu that he had looked at the transfer form and bond certificates carefully to see what he could do with them. He agreed and said that he saw that there was $1 million worth of bonds. It was then put to him that the form said that the registered holder was Bellpac. Mr Xu said he could only remember adding up the value of the bonds and that he did not notice Bellpac’s name. I do not accept this evidence for reasons which will emerge shortly. He repeated that Mr Wong told him that they were his bonds and that he was transferring them to Mr Xu.
Mr Xu’s attention was then drawn to clause 3.1 of the second agreement which stated (emphasis added):
3.1Alfred warrants to Hung Xu that the transfer of the Bonds is valid, effective and binding on Alfred and the registered holder of the Bonds. Alfred further indemnifies and keeps indemnified Hong Xu from and against any liability or loss that may be incurred by him as a result of the transfer of the Bonds.
It is notable that this provision highlights that someone other than Mr Wong was the registered holder of the convertible bonds. Significantly, this strongly suggests that Mr Xu and his lawyer turned their minds to the fact that Mr Wong was not the registered holder and they were keen to provide that Mr Wong’s warranty bound both him and the registered holder of the bonds, i.e. Bellpac. Whether or not that warranty was effective in law to bind the registered holder of the relevant convertible bonds is not to the point.
Mr Xu confirmed that he wanted security against Mr Wong and that was why he signed the second agreement. He was also taken to various other provisions in that agreement whereby Mr Wong could buy the convertible notes back for $2.14 million plus interest. Mr Xu said that he did not really want the bonds – what he wanted was cash.
Mr Xu agreed that he had read the transfer forms carefully when he signed them. I accept that evidence.
Mr Xu was again asked as to when Mr Wong provided him with the transfer forms and certificates. He repeated that he could not remember but thought that it was not too long after he had signed the second agreement. Mr Xu reaffirmed that he read all the documents carefully.
Mr Xu’s attention was then drawn to [11] of his affidavit, where he said that he had returned the transfers and certificates to Mr Wong and it was he who passed them onto Gujarat for registration. It was put to him that this was inconsistent with his oral evidence that it was his wife who did this. Mr Xu became quite confused.
Both Mr Stapleton and Mr Tzovaras contended that there had been compliance with these provisions of the Conveyancing Act. Mr Stapleton argued that, where there was compliance with ss 12 and 23C, it is to be presumed that Dr Kwok became the true legal and beneficial owner of the bonds when they were registered in his name.
Section 12 of the Conveyancing Act provided:
12 Assignments of debts and choses in action
Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees.
(Emphasis added).
Section 23C of the Conveyancing Act provided:
23C Instruments required to be in writing
(1)Subject to the provisions of this Act with respect to the creation of interests in land by parol:
(a)no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of law,
(b)a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person’s will,
(c)a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing.
(2)This section does not affect the creation or operation of resulting, implied, or constructive trusts.
(Emphasis added).
It is significant that both ss 12 and 23C are subject to the creation or operation of a constructive trust.
For the reasons given above, I have found that each of the relevant defendants held the Bellpac bonds under a constructive trust in favour of Bellpac. Accordingly, the requirements and effect of ss 12 and 23C have no relevance in the circumstances here. It is therefore unnecessary to determine whether the requirements of those provisions were satisfied and, if they were, what consequences would flow.
In his defence, Mr Lee did not rely upon ss 12 and/or 23C of the Conveyancing Act. The evidence in respect of the dealings between Mr Alfred Wong and Mr Lee is severely limited. The critical fact is that Bellpac remains the registered holder of the bonds to which Mr Lee claims to have ownership. Mr Lee has not established any beneficial interest in those bonds. It is evident, however, that he has in his possession copies of the relevant bonds which are in the name of Bellpac. An appropriate order should be made directing him to return those bonds to their legal owner, Bellpac and requiring Gujarat to rectify the register.
(e) Were any of the relevant defendants to whom the convertible bonds were transferred a bona fide purchaser for value without notice of Bellpac’s legal and/or equitable interest in the bonds?
For the following reasons, none of the relevant defendants has established the necessary elements of this defence.
As noted above, the relevant defendants did not plead that there was any transaction that gave Alfred Wong a beneficial interest in the bonds which he was capable of assigning for the purposes of satisfying his personal debts. Mr Tzovaras’ belated attempt to raise such contention on behalf of his clients has been rejected (see [37] above). Therefore, the purported transfers which were executed by Mr Alfred Wong acting as Bellpac’s attorney must be viewed as involving a transaction between Bellpac and the relevant defendants. The fact that some of the relevant defendants believed that Alfred Wong had some interest in the bonds which entitled him to transfer them in the manner which he did cannot displace the fact that it was clear on the face of the transfer forms and the convertible bonds themselves that Alfred Wong was not the transferor, but Bellpac was. These defendants had either actual or constructive notice of Bellpac’s legal interest in the bonds yet, as noted above, they initiated no reasonable inquiry into how it was that Alfred Wong could treat Bellpac’s property as his own in order to settle his debts.
Additionally, I do not accept that the relevant defendants were bona fide purchasers for value. They paid no consideration to Bellpac in circumstances where the transaction documents reveal that Bellpac was the legal owner of the bonds. On one view consideration may have been paid to Mr Alfred Wong, but he was not the legal owner of the bonds nor was it established that he had any beneficial interest in them. Thus, any consideration received by him personally in respect of the transactions is irrelevant.
(f) Are the plaintiffs estopped from denying that all or any of the relevant defendants are the legal and/or beneficial owners of the convertible bonds?
The basis for the estoppel argument is summarised in [190] above. In my view, no estoppel arises which prevents the plaintiffs from denying that the relevant defendants who are registered as bondholders on the Gujarat register are the legal and beneficial owners of the relevant bonds. In particular, I do not accept the contention that there were no reasonable grounds to doubt Mr Alfred Wong’s authority as Bellpac’s attorney to execute and deliver the transfers. That is because each of the relevant defendants had actual or constructive knowledge or notice that the transfers were executed by Mr Wong using his power of attorney from Bellpac so as to deploy Bellpac’s property in payment of Mr Wong’s personal debts.
The alternative case
(a) If there has been an assignment of a legal and/or equitable interest in the convertible bonds to any of the relevant defendants, was the transaction underpinning such assignment in respect of each of the relevant defendants:
* an uncommercial transaction within the meaning of s 588FB of the Corporations Act and voidable;
* an insolvent transaction within the mean of s 588FC of the Corporations Act and voidable under either ss 588FE(2) or (3); and/or
* an unreasonable director-related transaction within the meaning of s 588FDA of the Corporations Act and voidable under s 588FE(4)?
In view of my acceptance of Bellpac’s primary case, it is strictly unnecessary to make findings in respect of this alterative case. Under Pt 5.7B of the Corporations Act, a liquidator may seek a wide range of relief from the Court in respect of inter alia an “uncommercial transaction”, and which is a “voidable transaction” for the purposes of the legislation. Relevantly s 588FE(3) provides that a company’s transaction is voidable if it is an insolvent transaction and uncommercial transaction of the company, and it was entered into during the two years ending on the “relation-back day”. Separate provisions in Pt 5.7B deal with voidable transactions which are “unreasonable director-related transactions”, which were entered into during the period of four years ending on the relation-back day. There is no contest that the transfers or other relevant matters the subject of this proceeding took place within the prescribed periods.
By way of introduction, it might also be noted that the relief which might otherwise be available in respect of an uncommercial transaction or an unreasonable director-related transaction may not be available if another party can demonstrate under s 588FG that:
(a)they became a party to the transaction in good faith;
(b)they lacked objective reasonable grounds for suspecting that the company was insolvent or would become insolvent; and
(c)they provided valuable consideration or changed position in reliance on the transaction.
The relevant statutory provisions should now be set out.
Section 588FB of the Corporations Act, which deals with uncommercial transactions, provides:
588FB Uncommercial transactions
(1)A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(a)the benefits (if any) to the company of entering into the transaction; and
(b)the detriment to the company of entering into the transaction; and
(c)the respective benefits to other parties to the transaction of entering into it; and
(d)any other relevant matter.
(2)A transaction may be an uncommercial transaction of a company because of subsection (1):
(a)whether or not a creditor of the company is a party to the transaction; and
(b)even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
Section 588FC of the Corporations Act deals with insolvent transactions. It provides:
588FC Insolvent transactions
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a)any of the following happens at a time when the company is insolvent:
(i)the transaction is entered into; or
(ii)an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b)the company becomes insolvent because of, or because of matters including:
(i)entering into the transaction; or
(ii)a person doing an act, or making an omission, for the purpose of giving effect to the transaction.
Section 588FDA of the Corporations Act deals with unreasonable director-related transactions. It provides:
588FDA Unreasonable director-related transactions
(1)A transaction of a company is an unreasonable director-related transaction of the company if, and only if:
(a) the transaction is:
(i)a payment made by the company; or
(ii)a conveyance, transfer or other disposition by the company of property of the company; or
(iii)the issue of securities by the company; or
(iv)the incurring by the company of an obligation to make such a payment, disposition or issue; and
(b) the payment, disposition or issue is, or is to be, made to:
(i)a director of the company; or
(ii)a close associate of a director of the company; or
(iii)a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and
(c)it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(i)the benefits (if any) to the company of entering into the transaction; and
(ii)the detriment to the company of entering into the transaction; and
(iii)the respective benefits to other parties to the transaction of entering into it; and
(iv)any other relevant matter.
The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.
Note: Subparagraph (a)(iv) – This would include, for example, granting options over shares in the company.
(2) To avoid doubt, if:
(a) the transaction is a payment, disposition or issue; and
(b)the transaction is entered into for the purpose of meeting an obligation the company has incurred;
the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred).
(3)A transaction may be an unreasonable director-related transaction because of subsection (1):
(a)whether or not a creditor of the company is a party to the transaction; and
(b)even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
Section 588FE deals with voidable transactions. It relevantly provides:
588FE Voidable transactions
…
(2) The transaction is voidable if:
(a) it is an insolvent transaction of the company; and
(b)it was entered into, or an act was done for the purpose of giving effect to it:
(i)during the 6 months ending on the relation-back day; or
(ii)after that day but on or before the day when the winding up began.
…
(3) The transaction is voidable if:
(a)it is an insolvent transaction, and also an uncommercial transaction, of the company; and
(b)it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day.
…
(6A) The transaction is voidable if:
(a)it is an unreasonable director-related transaction of the company; and
(b)it was entered into, or an act was done for the purposes of giving effect to it:
(i)during the 4 years ending on the relation-back day; or
(ii)after that day but on or before the day when the winding up began.
The power of the Court to make orders in respect of a voidable transaction is set out in s 588FF. The orders which may be made include an order directing a person to transfer to the company property that the company has transferred under a voidable transaction (see s 588FF(1)(b)). In the case of a transaction which is voidable solely because it is an unreasonable director-related transaction, the Court is empowered to make an order under s 588FF(1) only for the purposes of recovering for the benefit of the creditors of the company the difference between the total value of the benefits provided by the company under the transaction and the value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in s 588FDA(1)(c) (see s 588FF(4)).
Section 588FG of the Corporations Act deals with circumstances in which orders cannot be made by the Court under s 588FF in respect of certain persons. It relevantly provides:
588FG Transaction not voidable as against certain persons
(1)A court is not to make under section 588FF an order materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that:
(a)the person received no benefit because of the transaction; or
(b)in relation to each benefit that the person received because of the transaction:
(i) the person received the benefit in good faith; and
(ii) at the time when the person received the benefit:
(A)the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
(B)a reasonable person in the person’s circumstances would have had no such grounds for so suspecting.
…
(Emphasis added).
The first issue is whether the plaintiffs have established that Bellpac was insolvent at the relevant times when Mr Wong purported to transfer the convertible bonds to each of the relevant defendants.
As stated above, Mr Warner opined that Bellpac was insolvent as at 23 July 2008 and had been insolvent from at least December 2007 and that its insolvency continued up to the appointment of the liquidators. The basis for those opinions is summarised in [57] above. Having regard to that evidence, which I accept, I am satisfied that Bellpac was insolvent from at least December 2007.
It might also be noted that Emmett J concluded, on the basis of the evidence before him in Warner v Hung (No 2), that Bellpac was insolvent as at August 2008 (see [26] above). In reaching that conclusion, his Honour placed particular reliance on Bellpac’s balance sheet as at June 2008, which suggested that it did not have cash available to meet interest payments which continued to accrue in respect of the loan from LM Investment. Furthermore, Emmett J drew attention to the fact that a substantial majority of what his Honour described as “the Bellpac Indebtedness” remained owing notwithstanding the reduction in that indebtedness, and that Bellpac was in default of the remaining Bellpac Indebtedness as at August 2008. I respectfully adopt that reasoning.
Mr Warner’s opinion regarding Bellpac’s insolvency also took into account additional matters, as outlined in [57] above.
Having regard to all these matters, I find that Bellpac was insolvent from at least December 2007 onwards, including at the time the relevant transactions occurred. It might be noted that none of the relevant defendants seriously contested that issue. Mr Tzovaras acknowledged that Mr Warner relied on a number of matters in opining that Bellpac was insolvent from that time, but he said nothing more than that those matters, despite their number, were “insufficient to establish insolvency at the requisite standard of proof”. I disagree.
Mr Stapleton did not contest Mr Warner’s evidence and opinion and was content to rely on his submission that neither Dr nor Mrs Kwok had any basis for suspecting that Bellpac was insolvent in circumstances where neither of them was even aware of the existence of the company at the time of the relevant transactions.
I consider that the plaintiffs have also established that the transfer of the bonds to the relevant defendants was uncommercial within the meaning of s 588FB. That is because a reasonable person in Bellpac’s circumstances would not have entered into a transaction by which the company’s convertible bonds were assigned to the relevant defendants, in circumstances where:
(a)Bellpac received no benefits from the transactions;
(b)the company was divested of bonds with a face value of $6 million and plainly suffered detriment from the transactions; and
(c)other parties, namely Alfred Wong and the relevant defendants, derived some benefit from the transactions.
None of the relevant defendants contended that the transactions were not “uncommercial” within the meaning of s 588FB. Indeed, as noted above at [188], Mr Tzovaras candidly acknowledged that he had “some difficulties” in making submissions that the transactions were not uncommercial. In my view, that acknowledgement was correctly made.
Having regard to the findings that the transactions were both insolvent transactions under s 588FC as well as uncommercial transactions under s 588FB, it is unnecessary to also determine whether they constituted unreasonable director-related transactions under s 588FDA.
(b) Are the plaintiffs entitled to relief under s 588FF of the Corporations Act or does s 588FG(1) apply?
Having regard to the findings above, the critical issue is whether relief should be granted under s 588FF, which turns on whether the requirements of s 588FG are satisfied.
As the plaintiffs pointed out, there is a fundamental difficulty with the relevant defendants bringing themselves within s 588FG(1) because that provision has no application to a person who is a party to the relevant transaction. In my view the relevant transactions for this purpose are those between Bellpac as transferor (through its attorney Mr Alfred Wong) and each of the relevant defendants as transferee. That characterisation of the transaction is consistent with the relevant documentation. I do not accept Mr Stapleton’s submission that the relevant transaction is that between Alfred Wong and, in the case of his client, Dr Kwok. That is sufficient to conclude that s 588FG(1) has no application in respect of any of the relevant defendants.
In any event, I would also find that other relevant requirements in s 588FG(1) are not satisfied here. In particular, contrary to s 588FG(1)(b)(i), each of the transfer transactions did not involve the transferee receiving a benefit in good faith because, as has been repeatedly emphasised, it was clear on the face of the transfer forms and bond certificates that Alfred Wong was not the transferor and that he was using his power of attorney to have Bellpac’s property. That provides another reason why the defence under s 588FG(1) is inapplicable here. For that defence to be available the relevant defendants need to establish that the requirements of both s 588FG(1)(b)(i) and (ii) are satisfied. As the first of those provisions has not been established it is moot whether the relevant defendants could establish that they satisfied the requirements of the second of those provisions.
Accordingly, for these reasons, if it were necessary to do so, I would have found that the plaintiffs are entitled to appropriate relief under s 588FF of the Corporations Act.
The further alternative case
On the assumption that the Court were to find that Bellpac’s interest in the convertible bonds was validly assigned to the relevant defendants and the Court declined to order that the bonds be transferred back to Bellpac, did Mr Wong breach his fiduciary and statutory duties owed to Bellpac and is he liable to pay damages commensurate with the face value of the relevant convertible bonds?
The plaintiffs only sought relief from Mr Wong in the event that the Court found that there had been a valid assignment of Bellpac’s interest in the bonds to the relevant defendants and the bonds were not transferred back to Bellpac. The plaintiffs have succeeded in their primary case and appropriate relief will be granted accordingly. Accordingly, it is unnecessary to make any findings or related orders in respect of the plaintiffs’ further alternative case which relates to Mr Alfred Wong personally.
Conclusion
For the reasons given above the plaintiffs have succeeded in their primary case. Within the next fourteen days, the affected parties should seek to agree orders which give effect to these reasons, including as to costs (noting that no party sought to contest the proposition raised by the Court at the end of the hearing that costs should follow the event). If the parties are unable to agree orders, each should within that time file and serve a copy of their proposed orders, together with a brief outline of submissions (not to exceed five pages) in support of their preferred orders. It may be possible for the Court to determine final orders on the papers, however, any party who seeks a further oral hearing should say so in their outline of submissions and briefly explain why it considers that is necessary.
I certify that the preceding three hundred and five (305) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths. Associate:
Dated: 18 September 2015
- AGLC
- Warner v Wong, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liq) (No 5) [2015] FCA 784
- Case
- [2015] FCA 784
- Decision Date
CaseChat Overview and Summary
Justice Emmett held that the transfers of the bonds were ineffective to pass title. The court found that Shan Pei did not acquire any interest in the bonds, thus Alfred Wong could not transfer ownership. The court further held that even if Wong had acquired beneficial ownership, it would have passed to Austcorp and then to Ken Hung, but concluded that Wong did not become the owner of the bonds. The court was also inclined to find that the assignment by Bellpac to Shan Pei was an insolvent transaction, an uncommercial transaction, an unreasonable director-related transaction, and involved breaches of statutory and fiduciary duties. Justice Emmett found that Bellpac was insolvent at the time of the assignment and that the transaction was uncommercial, benefiting Alfred Wong, a director of Bellpac, in an unexplained manner. The court was also disposed to find the transaction unreasonable under the Corporations Act.
In conclusion, Justice Emmett found that Bellpac was the true owner of the bonds, as its ownership was recorded on the register maintained by Gujarat. The court found the evidence insufficient to support an effective assignment of the bonds from Bellpac to Shan Pei or from Shan Pei to Alfred Wong. The court also indicated that even if an assignment had occurred, it was likely to be an uncommercial and unreasonable transaction under the Corporations Act. The court ordered the parties to agree on final orders within 14 days, including those regarding costs. If they were unable to agree, they were to file and serve their proposed orders and outline of submissions. Any party seeking a further oral hearing was to indicate the necessity and reason in their submissions.
Orders
Orders of the court
1. Within 14 days the affected parties should seek to agree orders which give effect to these reasons, including as to costs.
2. If the affected parties are unable to agree orders, each should within that time file and serve a copy of their proposed orders, together with a brief outline of submissions not to exceed 5 pages in length in support of their preferred orders.
3. Any party who seeks a further oral hearing before final orders are determined should so indicate in their outline of submissions and briefly explain why that is necessary.
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
Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
Anthony Warner and Steven Kugel were appointed the voluntary administrators of Bellpac Pty Limited (In Liquidation) on 30 July 2009 pursuant to s 436A of the Corporations Act 2001 (Cth) (the Corporations Act). Subsequently, on 3 September 2009, Mr Warner and Mr Kugel were appointed joint and several liquidators of Bellpac pursuant to a resolution of creditors under s 439C of the Corporations Act. In 2010, Bellpac, through the then liquidators, commenced proceedings in relation to convertible bonds with a face value of $2 million which were purportedly transferred to Shan Pei Investment Limited (Shan Pei), then to Mr Alfred Wong (Mr Wong), then to Austcorp International Limited (Austcorp) and, ultimately, to Mr Ken Hung (Mr Hung). It is convenient to refer to those particular convertible bonds as the Hung Bonds. The Hung Bonds were part of convertible bonds with a total face value of $10 million. On 30 September 2011, Emmett J delivered judgment and found that Bellpac was the true owner of the Hung Bonds. I will return to discuss Emmett J’s judgment in greater detail later. Suffice to say at this point that Emmett J concluded that Bellpac was entitled to a declaratory order that it was the true owner of the Hung Bonds. This was primarily because its ownership of the bonds was recorded on the register maintained by Gujarat and his Honour found that the evidence before him was insufficient to support a finding that there had been an effective assignment of beneficial ownership of the $10 million of convertible bonds (including the Hung Bonds) from either Bellpac to Shan Pei or from Shan Pei to Mr Wong. In obiter dicta, Emmett J also indicated that, even if such assignment had occurred, he was disposed to find that the assignment to Mr Wong was an uncommercial transaction within the meaning of s 588FB of the Corporations Act and also an unreasonable director-related transaction within the meaning of s 588FDA of that Act (see Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123 (Warner v Hung (No 2) at [177] and [179]). On 6 August 2012, Emmett J published another decision in which his Honour dismissed an application by Mr Hung and Austcorp to have the proceedings against them dismissed for want of proper joinder as defendants of other holders of the balance of the bonds, amounting to $8 million (see Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 3) [2012] FCA 819). The Full Court dismissed appeals brought by Mr Hung and Austcorp against Emmett J’s decisions (see Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] FCAFC 48). An application to the High Court by Mr Hung and Austcorp for special leave to appeal was refused (Hung and Anor v Warner and Kugel in their Capacities as Joint & Several Liquidators of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] HCATrans 280).