b Analysis
261 It is common ground that the Court "should not sanction the release of funds to persons who have no legal entitlement to them": Australian Securities and Investments Commission v Edwards [2009] QSC 360 and Australian Securities and Investments Commission v Idylic Solutions Ltd (2009) 76 ACSR 129.
262 Efax submitted that it, not Sonray, was entitled to be registered as the owner of the BHP Shares on the basis that they were ordered on Efax's behalf at the instance of Sonray as Efax's agent. Thus Efax submitted that the Court should not direct the Liquidators to deal with the BHP Shares because Sonray has no legal or equitable interest in the BHP Shares. Put another way, Efax submitted that its entitlement to the BHP Shares did not arise in the administration as it was entitled to be registered as owner of the BHP Shares.
263 On the other hand, the Liquidators submitted that Efax was not entitled to be registered as owner of the BHP Shares because there was no identifiable or allocated property in which to trace and, without registration, Efax does not have and could not have legal title to the BHP Shares. For the reasons that follow, I reject the Liquidators' submissions.
264 First, Sonray was authorised to act on behalf of Efax in relation to the trading of financial products and acted as its agent when it purchased the BHP Shares: see [250] above and NMFM Property Pty Ltd v Citibank Ltd (No 10) (2000) 107 FCR 270 at [522]. That Sonray was authorised to act, and did act, as Efax's agent when it purchased the BHP Shares is apparent from the express terms of the Sonray Agreement and Disclosure Document between Sonray and Efax dated 23 July 2009: see [250] above.
265 Sonray not only acted as agent but it did so with Saxo's knowledge: see [15]-[31] and [250] above. For present purposes, I am prepared to assume that Saxo did not know the identity of the principal. However, the fact a principal existed and that Sonray was at all times acting for or on behalf of a principal, was disclosed to Saxo: see cf Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 at 150.
266 The effect of the purchase by Sonray through Saxo was that Efax acquired beneficial title in the BHP Shares because that was what Sonray (as agent) was authorised to do and what Sonray (as agent) did do. Only Sonray, the agent, asserted any rights over the BHP Shares in competition with Efax. Given the legal relationship between the parties, Sonray has no right or title to those shares.
267 Saxo did not purchase shares for Sonray on executing the order placed by Sonray. Indeed, the custodian ultimately sought the name in which the shares were to be registered: see [255]-[256] above. Both Sonray and Saxo knew they were acting for Efax or a Sonray Client. The identification of the order and the transaction by Saxo was by an account number for a Sonray Client. Even if Saxo did not know Efax's identity, that does not alter the analysis. Saxo knew Sonray was acting on behalf of a client in placing the order. An unidentified principal is not the same as an undisclosed principal: Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232.
268 In my view, Saxo carried out Sonray's instructions in executing the orders so that Sonray, and no other, was Efax's agent to purchase. There was nothing preventing the agent (Sonray) engaging a third party to undertake certain tasks. That does not alter the conclusion that the purchaser was Efax. If there was any relationship between Saxo and Sonray in relation to the BHP Shares it was one of debtor and creditor. Saxo made the purchase using its own money, or that of UBS, and "on credit" at the instance of Sonray: see [15]-[30] and [255] above. Saxo does not contend that Sonray is indebted to it in relation to the BHP Shares.
269 Given the nature of the relationship between Sonray and Saxo and the fact that no claim is made by Saxo against Sonray, no question of any right of indemnity or any debt obligation to Saxo arises.
270 What then about the position between Efax and Sonray? Under the Client Agreement, Efax was obliged to pay the two sums into the ANZ AUD Segregated Accounts in January 2010. Sonray held those moneys subject to the statutory trusts imposed under the Corporations Regulations and as Efax's agent under a common law duty to make restitution of those moneys in the event that Efax required their return: Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662. That remained the position up to and until the order was placed for the BHP Shares. Once Efax placed the orders, it became obliged to pay Sonray or its agent the cost of the shares and any necessary commission or other incidentals. This sum was, to use the terms in subclause 9(b) of the Client Agreement, "an amount outstanding by the Client to Sonray or Sonray's agent in a transaction effected on the Client's behalf". Therefore, from the moment the first order was placed, Sonray became entitled under subclause 9(b) of the Client Agreement to appropriate the consideration for that order from the moneys received from Efax.
271 When Sonray debited Efax's account with the sum of AUD 1,004,357.10 on 16 April 2010, its obligation to account to Efax for the moneys deposited in January 2010 was reduced by that amount. Put another way, that entry in Sonray's accounts constituted a legitimate appropriation by Sonray (under subclause 9(b) of the Client Agreement) of the consideration for the first order. The position in relation to the subsequent orders of the BHP Shares is the same.
272 By carrying out its obligation to order the BHP Shares and settle or cause the settlement of those orders, Sonray discharged its obligation to account to Efax for the moneys deposited in January 2010 out of the Segregated Account or from its own assets. Sonray's debits to Efax's account on 16, 22 and 29 April 2010 with the amounts due on each order reflected that it had carried out the instructions of its principal, Efax.
273 The only step to complete the instructions that was not completed was to cause the BHP Shares to be registered in Efax's name by remitting the directions form at the request of Efax. Sonray discharged all of its other obligations under the Client Agreement and Efax discharged its obligations to pay for the BHP Shares.
274 The Liquidators' submission that the BHP Shares were held in a pool by custodian Citicorp and were not identifiable to any particular Sonray Client, in the case of Efax, is incorrect legally and factually. It is incorrect because Sonray purchased the BHP shares as Efax's agent and, moreover, Sonray's business records identify that the purchase of these BHP Shares by Sonray were referable only to Efax. Further, as noted earlier, no one except Sonray contests Efax's title to the shares. Sonray's claim contradicts a fundamental principle of agency that an agent is estopped from seeking to deny his principal's title in property acquired or held as agent: Lyell v Kennedy (1889) 14 App Cas 437 and Ward v Carttar (1865) LR 1 Eq 29.
275 Three other matters should be noted. First, Sonray, as Efax's agent, has in its possession the document to enable Efax to be registered as the owner of the BHP Shares. As Counsel for Efax submitted, that document is not an asset in the administration. It is a document provided by a principal to an agent to enable the agent to complete its instructions. Sonray should comply with Efax's instructions and effect the registration.
276 Secondly, the proposition that Sonray has a better title to the BHP Shares than Efax and Efax is left with a mere claim as a contributor of funds to the assets of Sonray is also incorrect legally and factually. Sonray did not purchase the BHP Shares in its own right. It purchased the BHP Shares on Efax's instructions. Moreover, any converse suggestion would be contrary to s 991B of the Corporations Act. Under s 991B(2), if a client instructs a financial services licensee (such as Sonray) to buy or sell financial products and the licensee has not complied with the instruction, then the financial services licensee is prohibited from entering into a transaction of purchase or sale of financial products of that class. It would be an absurd result if the Court was to sanction an illegal act.
277 Finally, such a contention is contrary to established principles of agency law. An agent is not necessarily a trustee. It is a fiduciary: Parker v McKenna (1874) LR 10 Ch App 96; Cave v McKenzie (1877) 46 LJ Ch 564 at 567; Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339; Peninsular & Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189; Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342 at 350. Where property is sold by the intervention of an agent but legal title remains temporarily with the vendor, in equity the title vests in the principal, not the agent. Even where actual title has passed to the agent, he holds it as a trustee who is bound to follow the directions of his principal with respect to the property: Owners Strata Plan No 43551 v Walter Construction Group Ltd (2004) 62 NSWLR 169 at [46]; Zen Foundation One P/L & Ors v Sippy Downs Group P/L & Ors [2009] QSC 334 at [80]-[81].
278 Indeed, when an agent has authority to receive and pay over moneys received on behalf of his principal, the principal will be deemed to have received and paid those moneys: Petersen v Moloney (1951) 84 CLR 91. In answer to this principle of agency law, the Liquidators relied upon cl 4(ix) of the Client Agreement (see [250] above) which stated "any benefit or right obtained by Sonray upon registration of an exchange traded or over-the-counter financial products with a clearing house is personal to Sonray and such benefit or right shall not pass to the Client". The Liquidators submitted that clause constituted an acknowledgement by Efax that it had no personal equitable interest in any of the shares held by Sonray. I reject that submission. The subject of the clause is a benefit or right obtained by Sonray. If, as I have found, Saxo was the purchasing agent, Sonray obtained no benefit or right in the BHP Shares. If, as I have found, Sonray was the agent to the purchase, any right was acquired for the principal Efax and, therefore, there is not a benefit or right "obtained by Sonray" on which the clause operates. Even if there were a benefit or right vested in Sonray, the clause would not operate to alter the fact that Sonray held that right as a bare trustee. As Counsel for Efax submitted, given the nature of the relationship between the parties, the preferable construction of cl 4(ix) is that it is dealing with any collateral benefits that Sonray may enjoy, such as commissions or rebates.
279 Before leaving Efax, it is necessary to address one of the Liquidators' submissions - that Efax did not acquire legal title to the BHP Shares because it was necessary for Efax to be registered as the holder of the shares. As Efax submitted, the submission that legal title to the shares was only obtained upon registration is wrong. Torrens land is the almost the only form of property in Australia where registration is the act that confers title: Breskvar v Wall (1971) 126 CLR 376 at 385.
280 Shares are not in the same category. Sections 168 and 169 in Ch 2C of the Corporations Act require a company to keep a register of its shareholders' names and addresses and details of shares held by individual shareholders. Section 176 of the Corporations Act provides that in the absence of evidence to the contrary, a register kept under Ch 2C is proof of the matters shown in the register. Section 176 is an evidentiary provision. It stands in stark contrast with Pt III of the Transfer of Land Act 1958 (Vic), which establishes a system of title by registration: see especially s 42, which provides that the estate of a registered proprietor is paramount. No equivalent provision is found in the Corporations Act.
281 Indeed, in Pt 7.11 of the Corporations Act, s 1070A provides that a share is personal property transferrable as provided by the company's constitution or the operating rules of a prescribed CS (clearing and settlement) facility if they are applicable. A CS (clearing and settlement) facility includes the ASX. Rule [4040] of the operating rules of the ASX states:
Subject to [4041], upon matching in a Trading Platform of Trading Messages in accordance with these Rules, a contract is formed between the Trading Participants whose Trading Messages are matched:
a in the case of Cash Market Transactions, for the sale and acquisition of the relevant Cash Market Products at the price and volume matched and subject to these Rules;
…
(Emphasis added.)
282 "Trading Participant" is defined to mean "a Market Participant which has a Trading Permission in respect of one or more Products". "Market Participant" does not extend to Efax or Sonray but it is effectively confined to members of the Exchange, such as UBS. The Operating Rules do not specify when legal title is transferred. Title is transferred in accordance with the terms of trade between the Market Participant and the client of the Market Participant. In the present, case, the Market Participant (UBS) purchased the shares for its client (Saxo) which, in turn, had purchased the BHP Shares as agent for Sonray. Title was transferred to Saxo (as agent for its principal) either at contract or upon settlement. Both had occurred here. Legal title was acquired at the instance of Efax by its agent - Sonray.
283 Shares are personal property. In fact, the contract was formed between two Market Participants, one of whom is UBS Securities and the other of whom is the vendor's broker. UBS obtained legal title for its principal (Saxo) by force of s 1070A of the Corporations Act and the ASX Operating Rules. It did so by settlement as agent of, or on behalf of Saxo, who was agent of Sonray who, in turn, was agent of Efax.
284 Contrary to the Liquidators' contention, Efax's position did not involve a tracing exercise. Efax claimed title as purchaser through its agent, whom it had paid, or caused to be paid.
285 At the end of the hearing, a Settlement Deed between Sonray and Saxo was tendered in evidence (Saxo Settlement Deed). Under the Saxo Settlement Deed, Saxo and HLB Mann Judd agreed to pay Sonray $18,500,000 as a settlement sum (the Settlement Sum). No payment was made to Saxo. Also, Saxo waived any right it had to prove in Sonray's liquidation and waived any right to the "Shares": cl 8. "Shares" was defined in Sch 4 to the Saxo Settlement Deed. The Shares included the BHP Shares. Saxo also agreed to transfer the "Shares" to Sonray: cl 3.4. Sonray holds the Shares not in its own right but as agent for Efax. It does not and cannot hold them on any other basis.