Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd

REASONS FOR JUDGMENT 1 There is a difference of opinion regarding the purpose of imposing an automatic stay on proceedings against a company in liquidation. In England a stay is seen as the means by which creditors are compelled to come in and prove their claims in the winding up and so receive a rateable distribution of the company's assets: Re International Pulp and Paper Company [1876] 3 Ch Div 594, 598; Re Dynamic Corporation of America [1973] 1 WLR 63, 66. Otherwise the winding up would result in a scramble for assets. In Australia the stay is justified on the basis that it prevents a multiplicity of actions against the company which would be expensive, time consuming and, sometimes, unnecessary: Ogilvie-Grant v East (1983) 7 ACLR 669, 671-2; Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550, 554-5; cf Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646, 649-50. Whatever be the correct rationale, the circumstances in the case at bar make it appropriate to allow both the action commenced by Beconwood Securities Pty Ltd and Beconwood Ltd (together "Beconwood") against Opes Prime Stockbroking Ltd (in liquidation) (receivers and managers appointed) ("Opes"), which began before Opes' liquidation, and the proposed cross-claim by Australia and New Zealand Banking Group Ltd ("ANZ") against Opes to proceed. 2 Beconwood's claim against Opes is complex. For present purposes a brief description will suffice. Beconwood asserts that it has an equitable interest in certain shares which were lodged with Opes as collateral under a margin lending facility. The shares were transferred by Opes (or a related company) to ANZ. Beconwood contends that ANZ took the shares with notice (actual or constructive) of Beconwood's interest in them. It seeks to recover the shares, or the proceeds resulting from their sale, from ANZ. 3 Beconwood principally grounds its claim in contract; the contract being what it described as a margin lending facility. The facility is said to operate as a mortgage with Opes taking legal title to the shares by way of security and Beconwood retaining an equity of redemption. Importantly, Beconwood contends that if the terms of the facility do not record that the facility is to operate as a mortgage of the shares, it ought to be rectified by the addition of terms that would establish its character as a mortgage with a corresponding right to redeem. This, Beconwood says, represents the common intention of the contracting parties. As an alternative to its common law rectification claim, Beconwood relies upon several statutes that empower a court to redraft a contract. The provisions are s 87 of the Trade Practices Act 1974 (Cth), s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) and s 1101B of the Corporations Act 2001 (Cth). For the purposes of the statutory claims, Beconwood seeks relief based on certain allegedly misleading representations made by Opes that induced Beconwood to enter into the facility. 4 Beconwood makes other claims against Opes. They include the following. There is a claim that it has an equitable charge over the shares that has priority over ANZ's interest, which is based on the margin lending facility agreement. Beconwood contends that Opes is estopped from contending that Beconwood does not have an equitable interest in the shares as a result of representations made by Opes, the representations being: (a) Beconwood would retain beneficial ownership of all shares lodged under the margin lending facility; (b) all shares lodged would be held by Opes' custodian (ANZ Nominees); (c) the transaction could be reversed at any time; and (d) any clauses in the margin lending facility agreement inconsistent with Beconwood's beneficial ownership in the shares were not terms of the margin lending facility agreement. Next, Beconwood claims that Opes' transfer of the shares are vitiated by mistake on the basis that Beconwood lodged shares with Opes in the belief that it would retain beneficial ownership in them. Beconwood also claims that Opes contravened ss 942B and 953B of the Corporations Act on the basis that a document entitled Financial Services Guide provided to Beconwood was misleading and deceptive. The FSG stated that Beconwood would retain beneficial and economic ownership of the stock, the transaction could be reversed at any time and all securities and cash lodged as collateral would be held and settled with the custodian. 5 ANZ proposes to bring a cross-claim against Opes contending that it is entitled to indemnity in the event Beconwood is successful in any claims against the bank. 6 According to the evidence, Opes is hopelessly insolvent. But Beconwood does not bring the action against Opes for the purpose of proving in its liquidation. It brings the claim against Opes as a springboard for its action against ANZ. The problem, however, is that relief by way of rectification that Beconwood seeks cannot be granted in the absence of Opes. It is well settled that a court will not order the rectification of a contract in the absence of the parties to that contract: Rigg v Standard Bank of Australia Ltd (1896) 22 VLR 419, 430-1 (rectification of a charge could not be ordered in the absence of the contracting parties who "are necessary parties to the action"); Zdrojkowski v Pacholczak (1959) WN (NSW) 503, 509 ("If all necessary parties have been joined, then the original vendors …. might well have been entitled to have the transfers rectified"); Craddock Brothers v Hunt [1923] 2 Ch 136, 153 ("[I]t is quite clear that the contract cannot be rectified in this action at the instance of the plaintiffs and in the absence of the vendors"). The same rule should apply to an action for rectification pursuant to statute. 7 On the question of leave, where the plaintiff is claiming his own property from a company in liquidation, leave to proceed is granted as a matter of course: Re David Lloyd & Co (1877) 6 Ch D 339. This case is different. Beconwood does not seek to recover its property from Opes. Rather, as I have explained, it seeks relief in relation to its agreement with Opes as a step to establishing its case against ANZ. That is a sufficient reason to grant leave under s 440D of the Corporations Act 2001 (Cth). Perhaps, on one view, Beconwood could make good its claim against ANZ without rectification (under common law or statute) of the facility agreement. But Beconwood does not want to put all its eggs in one basket. And, in my view, it would be unjust for the court to require it to do so. Beconwood should be allowed to pursue the totality of its claims against ANZ, including those claims that depend upon it obtaining relief against Opes. 8 Once it is accepted that Beconwood should be given leave to proceed with its rectification claims, there is no reason to limit the grant of leave to those claims. For the most part the facts that Beconwood will need to establish for its rectification claim will overlap with the facts to be proven in relation to its other causes of action. There is no purpose in leaving those other claims unresolved. 9 The liquidators point out that they have no funds to fight the action and have been told that the receivers, who were appointed by ANZ to take possession of Opes' assets, do not intend to conduct Opes' defence. Hence they say that, for all practical purposes, the action against Opes will be undefended and that may result in prejudice to the other creditors. 10 In some instances this may be a sufficient reason to refuse a claimant leave to proceed with an action against a company in liquidation. But it is not a sufficient reason in this case. First of all, the inability of the liquidators to fund the defence should not stand as a bar to Beconwood's claim against ANZ. Secondly, and in any event, ANZ's defence of the claim against it will require it to put arguments that Opes would rely on if it were defending the claim. For example, ANZ will contend that the agreement between Beconwood and Opes did not leave Beconwood with an equitable interest over the shares. It will also argue that Beconwood was not relevantly misled. These are the principal arguments that Opes would put if it took an active part in the trial. 11 For the foregoing reasons there will be orders granting leave to proceed to each of Beconwood and ANZ. The costs will be in the cause. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.