Lift Capital Partners Pty Ltd v Merrill Lynch International

Lift Capital Partners Pty Ltd v Merrill Lynch International - [2009] NSWSC 7 - NSWSC 2009 case summary — Zoe

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Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) [2000] FCA 2; (2000) 96 FCR 491 Baker v Biddle [1923] HCA 26; (1923) 33 CLR 188 Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 594; (2008) 66 ACSR 116 Berkeley v Hardy (1826) 5 B & C 355; 108 ER 132 Bevham Investments Pty Ltd v Belgot Pty Ltd [1982] HCA 45; (1982) 149 CLR 494 Cackett v Keswick [1902] 2 Ch 456 Chapman Bros v Verco Bros Ltd [1933] HCA 23; (1933) 49 CLR 306 Charmelyn Enterprises Pty Ltd v Klonis (1981) 2 BPR 9,527 Citicorp Investment Bank (Singapore) Ltd v Wee Ah Kee [1997] 2 SLR 759 Comptroller-General of Customs v Woodlands Enterprises Pty Ltd [1996] 1 QdR 589 Duncuft v Albrecht (1841) 12 Sim 189; 59 ER 1104 Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (1998) 71 SASR 161 Fairclough v Swan Brewery Co Ltd [1912] AC 565 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 G and C Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25 Ganga Dhar v Shankar Lal (1958) 45 AIR 770 Jennings v Ward (1705) 2 Vern 520; 23 ER 935 Jones v Morgan [2001] EWCA Civ 995 Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 371; (2007) 62 ACSR 522 Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 Marshall v Allsop [1946] ALR 378 (BC4600021) CASES CITED : Mushinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 MYT Engineering Pty Ltd v Mulcon Pty Ltd [1999] HCA 24; (1999) 195 CLR 636 Pomal Kanji Govindji v Vrajlal Karsandas Purohit (1989) 76 AIR 436 Powell v London & Provincial Bank [1893] 2 Ch 555 R v Inhabitants of Longnor (1833) 4 B & Ad 647; 110 ER 599 Re Modular Design Group Pty Ltd (1994) 35 NSWLR 96 Re Seymour; Fielding v Seymour [1913] 1 Ch 475 Re Timberworld Pty Ltd (unreported, TASSC, 15 May 1991 BC9100132) Samuel v Jarrah Timber and Wood Paving Corporation Ltd [1904] AC 323 Shrivdev Singh v Sucha Singh (2000) AIR (1st Supp) 1935 Southwell v Roberts [1940] HCA 23; (1940) 63 CLR 581 Steiglitz v Egginton (1815) Holt 141; 171 ER 193 Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 Toohey v Gunther [1928] HCA 19; (1928) 41 CLR 181 Toomes v Conset (1745) 3 Atk 261; 26 ER 952 Vernon v Bethell (1762) 2 Eden 110; 28 ER 838 Viro v The Queen [1978] HCA 9; (1978) 141 CLR 88 Warnborough Ltd v Garmite Ltd [2003] EWCA Civ 1544 Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 Wily v Endeavour Healthcare Services Pty Ltd (No 5) [2003] NSWSC 61; (2003) 11 BPR 21,081 Wily v Endeavour Healthcare Services Pty Ltd (2003) NSWCA 321; (2003) 12 BPR 22,447 Xenos v Wickham (1867) LR 2 HL 296

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2661/08 LIFT CAPITAL PARTNERS PTY LIMITED (IN LIQ) & ORS v MERRILL LYNCH INTERNATIONAL & ORS JUDGMENT Background 1 This case concerns rights to certain shares that became the subject of transactions to which Lift Capital Partners Pty Ltd ("Lift Capital") and its associated company Lift Capital Nominees No 1 Pty Ltd ("Lift Nominees") were parties. 2 Lift Capital and Lift Nominees are now subject to creditors voluntary winding up as a sequel to administration under Part 5.3A of the Corporations Act 2001 (Cth). Administrators were appointed on 10 April 2008. 3 Lift Capital carried on a margin lending business. It lent money to its clients upon the security of shares traded on the stock market of Australian Securities Exchange ("ASX"). The funds Lift Capital needed in order to be able to make loans were borrowed by it. It borrowed initially from Merrill Lynch Equities (Australia) Ltd ("MLEA") and, at a later stage, from Merrill Lynch International ("MLI") and Merrill Lynch International (Australia) Ltd ("MLIA"). The shares taken as security by Lift Capital from its own borrowers were used in connection with Lift Capital's borrowings from the Merrill Lynch entities. 4 These proceedings relate to parcels of ASX listed shares owned separately by the third defendant, the fourth defendant, the fifth defendant, the sixth defendant and the seventh defendant.. It will be convenient to refer to these parties together as the "client defendants". There will be no need to distinguish among them except in one respect: part of the case Lift Capital seeks to make is not pressed against the seventh defendant ("Pogliani and Eden"). This is because, as will be seen, the agreement to which the seventh defendant became party differed in some respect from the agreements entered into by the other client defendants. 5 The central question is whether, in the circumstances now existing, the several client defendants just mentioned continue to have proprietary interests in the respective parcels of shares made available by them as security to Lift Capital.

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14 Clause 10.4(a) is in these terms: "The Mortgagor must not, without the Lender's express prior consent: (a) sell, part with possession or otherwise deal with any interest in the Mortgaged Property." 15 Under clause 19.1, "… consent in connection with the Agreement must be in writing unless otherwise specified". 16 Clause 10.15 says: "The mortgage in this clause 10: (a) is a continuing security for all of the Facility Amount Outstanding. It continues until it is finally discharged by us. It will not be considered satisfied or discharged by anything which happens in the meantime and which might otherwise affect the mortgage at law or in equity; and (b) is a principal obligation and should not be treated as ancillary or collateral to any other Security Interest nor should it be prejudicially affected by any other Security Interest that the Lender may hold; and (c) will not apply to the Relevant Loan Securities during any period in which they are lent in accordance with clause 17.2. Instead, the mortgage in respect of the Relevant Loan Securities is released and operates as a fixed and floating charge, over all present and future rights of Nominees under any lending agreement entered into pursuant to clause 17.2. Upon return of the Relevant Loan Securities to the Lender or Nominees, clause 10 will apply." 17 Clause 17.2, referred to in clause 10.15(c), provides: "The Lender or Nominees is authorised to transfer Relevant Loan Securities held by Nominees to any person under a custodial, financing, lending (on terms compliant with section 26BC of the Income Tax Assessment Act, 1936) or hedging arrangement, without giving you notice or requesting your consent. You are not entitled to the benefit of any commission or benefit that arises from such an arrangement." 18 Clause 17.3 is in these terms: "If the Lender or Nominees have any right, interest in or entitlement to any Relevant Loan Security or New Right as a result of clauses 17.1 or 17.2 above, the Lender or Nominees:

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(a) holds that right, interest or entitlement and any deposit derived from it on its own behalf, and not for you or on your behalf; (b) can deal with that right, interest or entitlement and any profits derived from it according to the Lender's discretion (including without limitation by way of a securities loan); and (c) is under no duty to account to you in relation to that right, interest or entitlement or any deposits derived from it." The parties' contentions 19 Lift Capital contends that there existed, at all material times, a contract between Lift Nominees and each of the client defendants, separate from the facility agreement and associated mortgage between Lift Capital and the client defendant arising from Lift Capital's acceptance of the client's application. That separate contract is described as the "Client AMSLA" ("AMSLA" stands for "Australian Master Securities Lending Agreement" and generally refers to an agreement in standard form: see Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 594; (2008) 66 ACSR 116 at [13]). The Client AMSLA is expressed to be a deed. 20 It is common ground that, pursuant to each client defendant's facility agreement, shares owned by the client defendant were mortgaged to Lift Capital. Lift Capital contends, but the client defendants deny, that each client defendant's mortgaged shares were later transferred by the client defendant, by an attorney (being an officer of Lift Capital), to Lift Nominees under the Client AMSLA. 21 Lift Capital further contends that Lift Nominees, having acquired the client defendant's shares in this way, then transferred them to Lift Capital pursuant to yet another agreement, being an agreement dated 8 June 2005 known as the "Lift AMSLA". 22 Lift Capital then says that, under an agreement between itself and one or other of the Merrill Lynch entities, it transferred the shares so received by it to a Merrill Lynch entity in connection with and in support of Lift Capital's borrowings from Merrill Lynch entities.

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23 The client defendants say that they never became parties to the Lift AMSLA. Lift Capital's response is that, if that is so (which it denies), there was still a valid and effectual transfer by Lift Capital to a relevant Merrill Lynch entity of the mortgaged shares of each client defendant (except Pogliani and Eden, whose circumstances are accepted as different). The alternative basis on which Lift Capital Says that there was a valid and effectual transfer is that the transfer was under a lending arrangement in accordance with clause 17.2 of the facility agreement, so that clause 10.15(c) caused the transferred shares to be released from the mortgage. The relevant client defendants do not accept that clauses 17.2 and 10.15(c) were effective to allow Lift Capital to make the transfers of their mortgaged shares that it purported to make. 24 The arrangements between Lift Capital and the Merrill Lynch entities were terminated by the Merrill Lynch entities immediately after the commencement of the Part 5.3A administration of Lift Capital and Lift Nominees on 10 April 2008. The Merrill Lynch entities thereafter sold sufficient shares to extinguish the debt owed by Lift Capital. Some shares remain in the hands of the Merrill Lynch entities. They do not claim any proprietary or other interest in these shares. The contest, as to ownership, is therefore between Lift Capital and the client defendants. 25 The client defendants say that they have continued to have a proprietary interest in the shares mortgaged by them to Lift Capital ever since the mortgage was created and that nothing has happened to deprive them of that interest. Some of them have discharged their indebtedness to Lift Capital and say that they are therefore entitled to have their shares back, freed from the mortgage. Others still owe money to Lift Capital and take the attitude that the shares mortgaged by them continue to be the subject of the mortgage to Lift Capital in such a way that they will be entitled to have them back, freed from the mortgage, when they eventually pay what is owed by them. 26 The position taken by Lift Capital is that none of the client defendants any longer has a proprietary interest in the mortgaged shares. The contention is, in essence, that each client defendant has, through actions taken, in a direct sense, by Lift Capital or Lift Nominees or an officer of one of those companies, transferred away the client defendant's interest.

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The power of attorney created by each client defendant 35 According to the first basis on which Lift Capital advances its case, a central question is whether each client defendant, by virtue of the acts of an attorney, became bound by the Client AMSLA. It is essential that Lift Capital prove that each client defendant became so bound. 36 The relevant signing of the Client AMSLA was that of Mr Nakat, a director of Lift Capital and Lift Nominees, on or about 8 June 2005. He signed the Client AMSLA purportedly as the attorney of "each client identified by Lift Capital Nominees No 1 Pty Limited from time to time in the Annexure". 37 The authority of Mr Nakat to act as an agent or attorney of a particular client defendant is said to have come from Section 10 of the application form signed by the client defendant when establishing its relationship with Lift Capital. An alternative submission based on a supposed power of attorney created by clause 24 of the facility terms and conditions was not pressed: the Client AMSLA was, as I have said, expressed to be a deed but the clause 24 authority was not itself created by deed, as would have been necessary if it were to be used to commit the principal to a deed: see, for example, Steiglitz v Egginton (1815) Holt 141; 171 ER 193, Berkeley v Hardy (1826) 5 B & C 355; 108 ER 132, R v Inhabitants of Longnor (1833) 4 B & Ad 647; 110 ER 599, Powell v London & Provincial Bank [1893] 2 Ch 555 and, more recently, MYT Engineering Pty Ltd v Mulcon Pty Ltd [1999] HCA 24; (1999) 195 CLR 636 at [9]. 38 Section 10 of the application form was as follows: "This section of the Application Booklet comprises a deed, made by you on the day specified at the end of the Application Booklet. Each person described in the Application Booklet as the borrower ('you') and/or as the guarantor ('you') for valuable consideration irrevocably appoints Lift Capital Partners Pty Limited and each of its related bodies corporate (as defined in the Corporations Act) and each of their respective directors, secretaries and officers (attorneys) jointly and each of them severally as its true and lawful attorneys. An attorney may appoint sub-attorneys. The attorneys may do in your name everything necessary or expedient to: a) do all such things required to sign and deliver on your behalf all of the documents in respect of the facility, including the mortgage; b) do all such things that are required for the conversion of any of your approved securities to the CHESS system or to Nominees; and c) if you are a company, to complete, sign and date any Australian Securities & Investments Commission form required to register the mortgage contained in the Agreement at the Australian Securities & Investments Commission; and d) date and complete any blanks which may be left in any documents; and e) do anything which you can do or are obliged to do as owner of the mortgaged property (including completing blanks in any of those documents, executing agreements, signing any off market transfer, authorising, instructing or requesting the amendment of your details as necessary, authorising and instructing a person to accept directions in respect of the mortgaged property) or do anything which you can do in respect of the transactions contemplated by those documents; and f) do all things necessary to sign and deliver on your behalf all of the documents needed to enter into a new facility."

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40 Lift Capital maintains that Mr Nakat, a person within the class of persons specified in Section 10, became the attorney of each client defendant when the client defendant executed and submitted the application form. The client defendants do not seek to say otherwise; nor, apparently do they seek to say that Mr Nakat's authority as each client defendant's attorney was not created by deed. What they do say is that Mr Nakat's authority as attorney did not extent to his committing the client defendants to the Client AMSLA and that, in any event, the actions he took were not effective to cause them to become parties to and bound by the Client AMSLA. The scope of the attorney's authority 41 The argument about the scope of Mr Nakat's authority under the Section 10 power of attorney turns upon the proper construction of Section 10. In approaching that matter, it is necessary to refer also to part of Section 9 which contains "declarations" by the client. One of these states that the client understands that "if your application is approved, you have appointed an attorney (pursuant to the power of attorney) to sign any document associated with the Facility Agreement on your behalf." 42 The reference in brackets to "the power of attorney" does not seem to be amplified or explained by Section 9 itself but appears about three centimetres above the heading "Section 10 - Power of Attorney" at the start of Section 10. The ordinary reader would, in my view, understand the quoted part of Section 9 to be referring to a power of attorney in the terms set out in the immediately following Section 10. 43 There is thus within the document itself a recognition that the purpose of the power of attorney is related to "any document associated with the Facility Agreement". That is reinforced by Section 10 itself which, in its paragraphs (a) to (d), is concerned with completion or effectuation of the "facility" and the "Agreement" - clearly, in my view, the facility applied for by means of the application form in the facility application booklet and the facility agreement resulting from acceptance of the client's application. In paragraph (f) also there is a reference to "the documents needed to enter into a new facility" so that again a purpose connected with the facility sought is evidenced. 44 Paragraph (e), according to its terms, empowers the attorney to "do anything" that the client "can do … as owner of the mortgaged property" including certain enumerated things. On its face and taken in isolation, that language would empower the attorney to give away the client's property to a passer-by or to sell it for a purely nominal consideration to a stranger, with the donee or purchaser acquiring title from the client by virtue of the act of the attorney. An owner of property can, as a matter of power, squander, waste or abandon it. 45 Lift Capital does not, however, submit that the scope of the authority is as wide as this. It acknowledges that there must be some connection between an act of the attorney and the transaction contemplated by the facility application booklet. This acknowledgement on the part of Lift Capital is made clear by its reliance, in this part of the case, on clause 10.4(a) of the terms and conditions in the product disclosure statement. Clause 10.4(a) is set out at paragraph [14] above. Lift Capital characterises clause 10.4(a) as a provision allowing the client to sell, part with possession of or otherwise deal with an interest in the mortgaged property provided that Lift Capital's express consent is obtained. This, it is said, more than amply covers entering into a securities lending agreement such as the Client AMSLA. 46 I do not accept that submission. Lift Capital accepts, as I think it must, that the scope of the power of attorney is confined so that the authority can be exercised only in some way that is related to the parties' transaction. But clause 10.4(a), which imposes a contractual restraint upon the client with respect to dealings with the mortgaged property in the absence of Lift Capital's express prior consent, does not make it an aspect or incident of the transaction that the client may deal with the property with Lift Capital's consent. Much less does it make it an aspect or incident of the transaction that Lift Capital, the lender and mortgagee, may cause to be conveyed away the mortgaged property in which subsists the right of redemption of the client as borrower and mortgagor. Rather, the clause is an acknowledgement that dealings with that property by the client to which Lift Capital consents are outside and not affected by the transaction. 47 I am not satisfied that the scope of the authority created by the Section 10 power of attorney was such as to comprehend action by the attorney to make the relevant client defendant a party to the Client AMSLA and to subject the client defendant's mortgaged property to the Client AMSLA. To do so was not a part of or incidental to the parties' transaction for the proper and more effectual consummation of which the Section 10 power of attorney was given. Structure of the Client AMSLA

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48 If, contrary to the conclusion just expressed, the scope of the authority created by the Section 10 power of attorney was sufficient to allow Mr Nakat to commit each client defendant to the Client AMSLA, there is a question whether the action he in fact took as attorney was effective to produce that result. There are several aspects to this. First, it is necessary to refer to features of the Client AMSLA. 49 The Client AMSLA is dated 8 June 2005. The parties to it are described as follows: " Between: LIFT Capital Nominees No 1 Pty Limited of Level 14, 15-19 Bent Street, Sydney (NSW) incorporated in NSW ('Borrower') And Each client identified by the Borrower from time to time in the Annexure to this Deed ('Lender' or 'Client')" 50 The last page of the document is as follows: "EXECUTION PAGE Signed sealed and delivered by Lift Capital Nominees No 1 Pty Ltd by a director and secretary/director (Sgd) R Bucci (Sgd) Joe Nakat Signature of secretary /director Signature of director ROBERT BUCCI JOSEPH NAKAT Name of secretary /director Name of director (please print) (please print) Signed sealed and delivered for and on behalf of each Client identified by Lift Capital Nominees No 1 Pty Limited from time to time in the Annexure by a duly appointed attorney in the presence of: (Sgd) R Boyd Sgd Joe Nakat Signature of witness Signature of attorney (I have no notice of revocation of the power of attorney under which I sign this document) RENEE BOYD JOSEPH NAKAT Name of witness (please print) Name of attorney (please print)" Is there an annexure? 51 Having regard to the description of the second party and of the capacity in which Mr Nakat signed, one would expect to find some page or part of the document containing the Client AMSLA that is headed "annexure" or purports to be an annexure or attachment. There is no such page or part. Nor is there any page or part of the document as a whole that contains the name or any other particular of a person (or each of several persons) either at all or so as to suggest that the person (or each person) has been "identified … in" the page or part by Lift Nominees. Within the four corners of the document, therefore, no one is seen to be the party of the second part designated "Lender" or "Client". 52 It is the contention of Lift Capital, however, that the "annexure" is, in reality, a separately created and separately existing record in electronic form as existing from time to time. That raises the question whether some such separately created and separately existing record is capable of being an "annexure" referred to in a document. 53 The fact that a document said to be an "annexure" is not physically joined as one of the pages of an agreement need not be fatal to the conclusion that it is the agreement's "annexure". In Re Timberworld Pty Ltd (unreported, TASSC, 15 May 1991 BC9100132), Cox J considered a planning ordinance which was expressed to apply to the land in "the plan(s) annexed to this ordinance which show by colours and markings the various uses to which the land in that area may be put". A plan said to be the plan thus referred to was not in fact attached in any way to the ordinance. Cox J held that while the ordinary meaning of "annex" is "to physically bind or join them together with a staple, cord, pin or other device", the word is capable of referring to a document which, although not physically joined to another, can be seen from the content and intent of that other to be incorporated by reference in it. 54 I proceed, therefore, on the basis that absence of any physically joined sheet or sheets containing the content envisaged by the agreement's reference to the "annexure" is not fatal to a conclusion that some such "annexure" exists; and that the "annexure" to the agreement may be some separately existing record that can be seen, upon a reading of its own terms and those of the agreement together, to be what the signatories to the agreement intended to identify when they made reference to the "annexure". 55 Two versions of a paper representation of the separately existing electronic record propounded by Lift Capital as the "annexure" are in evidence. Each consists largely of material arranged in columns under seven headings. The headings (with numbers added in square brackets to aid later references in these reasons) are: [1] "A/C No" - Clearly enough, "account number".

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[7] "Lodge/Return" - Showing, in each case, "LD" or "RE" (presumably "Lodge" or "Return", whatever each may signify)." 56 At the start of the record, above the column headings, the following is printed: "This is a confirmation under the Master Securities Lending Agreement between Lift Capital Nominees No 1 Pty Limited ('LCPN') and each client identified by 'LCPN' from time to time as dated 7th June 2005 (the 'Agreement'). Capitalised terms in this confirmation are defined in the Agreement." 57 According to its description of itself, therefore, the record that Lift Capital puts forward as the "annexure" referred to in the Client AMSLA is really "a confirmation under" the Client AMSLA (no point is taken about the discrepancy in dates: although the Client AMSLA is dated 8 June 2005 and the heading set out above refers to an agreement dated 7 June 2005 agreement, the parties apparently accept that the heading refers to the Client AMSLA). 58 Given that the record in question professes to be a "confirmation under" the Client AMSLA, it is relevant to note the following definition of "Confirmation" in clause 26 of the Client AMSLA: "'Confirmation' means the Borrowing Request, as it may be amended pursuant to clause 2.2, or other confirming evidence exchanged between the Parties confirming the terms of a transaction." 59 The definition of "Borrowing Request" is: "'Borrowing Request' means a request which may be oral or in writing in such form as is agreed between the Parties (a written example of which comprises Schedule 2 to this Agreement) by the Borrower to the Lender pursuant to clause 2.1 specifying, as necessary: (a) the description, title and amount of the Securities required by the Borrower; (b) the description (if other than Australian currency) and amount of any Collateral to be provided; (c) the proposed Settlement Date; (d) the duration of such loan (if other than indefinite); (e) the mode and place of delivery, which shall, where relevant, include the bank, agent, clearing or settlement system and account to which delivery of the Securities and any Collateral is to be made; (f) the Margin in respect of the transaction (if different from that stated in Schedule 1 or Schedule 3, as appropriate); and (g) the Fee." 60 Having regard to the definition of "Confirmation" (including, in particular, its cross-reference to "Borrowing Request"), the several aspects of the definition of "Borrowing Request" and the description appearing at the start of the electronic record, it seems to me clear that the record is, as it purports to be, a Confirmation under the Client AMSLA or, perhaps, a record of particulars extracted from several such Confirmations. The material in Columns [3] and [4] of the record is material contemplated by paragraph (a) or paragraph (b) (or both) of the definition of "Borrowing Request". The material in Column [2] is consistent with the aspect of the definition of "Borrowing Request" that contemplates that it will relate to a client. The material in Column [5] is of the kind contemplated by paragraph (c) of the definition. 61 The status of the electronic record as a Confirmation under the Client AMSLA must mean that it is not a record an entry that plays a part in a person's becoming a party to the Client AMSLA. A "Confirmation" is, according to the definition in clause 26, something "exchanged between the Parties confirming the terms of a transaction" (the "Parties" being, according to another clause 26 definition, the "Lender" and the "Borrower"). There can accordingly be no Confirmation unless and until Lift Nominees as Borrower and someone who is already a Lender have, as existing parties to the Client AMSLA, "exchanged" the document that is the Confirmation. That document itself cannot be the means by which a person who is not a Lender is recognised as or becomes a Lender. It is, of its nature, something generated after the person has become a Lender. 62 There is also the point that the record put forward by Lift Capital as the "annexure" contains a significant quantity of material that is foreign to the purpose to be served by the "annexure". The sole purpose of the "annexure" is to identify each Lender (". . . identified by the Borrower from time to time in the Annexure to this Deed"). The Client AMSLA is an agreement under which multiple transactions may be entered into in relation to any of the multiple Lenders. The only identification required in respect of a particular Lender, therefore, is the Lender's name and anything else necessary to make it clear who the Lender is (such as an address). Name and address may therefore be taken to be the envisaged content of the "annexure". The record put forward by Lift Capital contains names (but not addresses). It also contains much information that goes beyond identification of persons and involves identification of transactions. In addition, the record contains multiple references to each of several persons. One person's name appears 22 times. This reinforces the conclusion that the purpose of the record is not that of identifying persons as parties to the agreement. 63 My conclusion, based on the documentary evidence, is that the electronic record put forward by Lift Capital as being the "annexure" referred to in the description of the second party to the Client AMSLA is not the record contemplated or comprehended by the reference to the "annexure" in that description.

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64 That conclusion is strengthened and confirmed by the evidence of Ms Boyd, an officer of Lift Capital. Ms Boyd was responsible for the ongoing maintenance of the electronic record that Lift Capital puts forward as the "annexure". She made it clear in cross-examination that the purpose for which she made entries was to record the transfer of securities between Lift Capital and Merrill Lynch. She also said, referring to clients, that the record "lists their security holdings"; and: "This document is how I maintained the lodgement and return of securities." 65 This, Ms Boyd explained, was her only purpose in creating the record. While Ms Boyd professed an understanding that the record she maintained was the "annexure" referred to in the Client AMSLA, her evidence about the purpose for which it was kept and the significance of the entries shows that it was not the means by which the joining or accession of persons as parties to the agreement was either achieved or recorded. 66 Because Lift Capital has failed to prove the existence and content of the "annexure" referred to in the Client AMSLA, it has failed to establish that any client defendant was at any time bound as "Lender" or "Client" party to the Client AMSLA. The timing problem 67 There is, in any event, another matter fatal to any conclusion that a client defendant became bound as a party to the Client AMSLA by reason of actions of Mr Nakat as the client defendant's attorney. 68 When, on or about 8 June 2005, Mr Nakat signed the "Execution Page" of the Client AMSLA ostensibly "for and on behalf of each Client identified by Lift Capital Nominees No 1 Pty Limited from time to time in the Annexure", he was not the attorney of any of the client defendants under any Section 10 power of attorney. Each of the client defendants signed an application forming part of the application booklet (and did so, it seems to be accepted, in such circumstances as to cause the signed application form to be a deed). But none did so until months - if not years - after 8 June 2005. None had had any dealings at all with Lift Capital as of that date. 69 This, to my mind, makes it impossible to find that Mr Nakat's signing of the Client AMSLA on or about 8 June 2005 was a signing capable of causing any client defendant to be a party to and bound by the Client AMSLA deed. 70 Under s 38 of the Conveyancing Act 1919, a deed must be "signed as well as sealed" and "attested by at least one witness not being a party to the deed"; and a deed that is so signed and attested is deemed to be sealed. Signing and attestation are thus of themselves sufficient to satisfy the requirements for signing, sealing and attestation. The required signing is, obviously enough, signing by the person who intends to become bound by and party to the deed, although it cannot be doubted that, subject to the rule mentioned at paragraph [37] above (that is, that the authority of an agent to execute a deed must itself derive from a deed), the principle qui facit per alium facit per se applies so that signing may be by an agent invested by the person with the requisite authority (see also s 43 of the Powers of Attorney Act 2003). 71 On 8 June 2005, Mr Nakat held no authority from any of the client defendants. When, on or about that day, he signed the Client AMSLA ostensibly as the attorney of each of certain unnamed "Clients", he did not, as a factual matter, sign it as the attorney of any of the client defendants. It is not suggested that Mr Nacket signed the Client AMSLA again at some subsequent time after he had come to possess the authority that arose upon each client defendant's creating a Section 10 power of attorney. There is therefore no basis for finding that the signing (and, by reason of accompanying attestation, deemed sealing) necessary to cause a client defendant to be a party to the Client AMSLA ever occurred. 72 It was submitted on behalf of Lift Capital that there was a delivery of the Client AMSLA by (or, at least, on behalf of) each client defendant by means of action taken by an officer of Lift Capital as the attorney of each client defendant after the creation of the relevant Section 10 power of attorney (and, therefore, at a point substantially after the signing of the Client AMSLA on or about 8 June 2005). The relevant action was, it is said, the addition of the client's name to the "annexure" - something that, on my findings above, has not been established in any event.

[47]

75 Unless a deed has been signed and sealed (or deemed sealed), it cannot be delivered; and unless it has been delivered upon or after being signed and sealed (or deemed sealed), it is not binding or operative: see, for example, Xenos v Wickham (1867) LR 2 HL 296 per Blackburn J at 312, per Lord Cranworth at 323. The signing and sealing (or deemed sealing) by a party that precedes the party's delivery may be by an attorney appointed by deed. In this case, there was never any signing of the Client AMSLA by any client defendant either directly or through Mr Nakat as attorney. No Section 10 power of attorney had been given by any client defendant when Mr Nakat signed the Client AMSLA. It follows that any action a Lift Capital officer took for a client defendant after the subsequent conferral of the authority created by the Section 10 power of attorney could not possibly have amounted to delivery of the Client AMSLA by that client defendant. Decision on the first part of Lift Capital's case 76 Lift Capital has failed to make good the propositions set out at paragraph [28] above. It has therefore failed to establish that the Client AMSLA became binding on any client defendant and that the Client AMSLA had, as against and in relation to any client defendant, any operation that caused property of the client defendant to pass from the ownership of the client defendant into the ownership of Lift Nominees. 77 It is therefore necessary to address the alternative basis on which Lift Capital puts its case as set out at paragraph [29] above. Clause 17.2 of the facility agreement 78 In advancing its alternative case (which, as I have said, applies to all client defendants other than Pogliani and Eden), Lift Capital relies on that part of clause 17.2 of the terms and conditions in the product disclosure statement that is concerned with "transfer [of] Relevant Loan Securities held by Nominees to any person under a . . . lending (on terms compliant with section 26BC of the Income Tax Assessment Act 1936) . . . arrangement . . ." (see paragraph [17] above).

[51]

Section 26BC of the Income Tax Assessment Act 1936 (Cth) 82 Only if a "lending" is on terms "compliant with" s 26BC of the Income Tax Assessment Act 1936 (Cth) is it a "lending" within clause 17.2, so that a transfer "under" the "lending" may be effected with authority of the client defendant derived from that clause. 83 The essence of s 26BC can be seen from s 26BC(3)(a): "This section applies where: (a) under a written agreement of the kind known as a securities lending arrangement, being an agreement that was entered into after 9 May 1990: (i) at a particular time (in this section called the original disposal time ), a taxpayer (in this section called the lender ) disposed of an eligible security (in this section called the borrowed security ) to another taxpayer (in this section called the borrower ); and (ii) at a later time (in this section called the re-acquisition time ), being less than 12 months after the original disposal time, the lender: (A) re-acquired the borrowed security (which re-acquired security is in this section called the replacement security ) from the borrower; or (B) acquired an identical security (which acquired security is in this section also called the replacement security ) from the borrower;" 84 The concept here is that one person "disposes" of securities to another person and later either "re-acquires" those securities from that other person or "acquires" identical securities from that other person. In either case, there is an initial transfer of ownership by the "lender" to the "borrower" and a subsequent transfer of ownership (of either the same or identical securities) by the "borrower" to the "lender". In the context of the securities market operated by ASX, however, the situation must always be one in which the second stage involves transfer of identical securities rather than the same securities. This is because, under the CHESS system of securities trading and registration, shares are fungible and therefore not capable of being separately identified. With a commodity in bulk, there can be nothing in the nature of a bailment of part of the whole: Chapman Bros v Verco Bros Ltd [1933] HCA 23; (1933) 49 CLR 306 at CLR 316 per Starke J; Comptroller-General of Customs v Woodlands Enterprises Pty Ltd [1996] 1 QdR 589 per McPherson JA. Likewise, there can be nothing in the nature of a deposit or delivery of ASX listed shares in such a way as to give rise to an expectation that those shares will be returned. 85 In the case of ASX listed shares, therefore, a lending arrangement "compliant with" s 26BC of the Income Tax Assessment Act must always entail, as its "repayment" or "restoration" element, a contractual promise by the "borrower" to transfer to the "lender" securities identical with those initially transferred by the "lender" to the "borrower", as distinct from the very shares initially transferred. As a general principle, equity will not decree specific performance of a promise to transfer shares traded on a freely accessible market. The reason is that given by Shadwell VC in Duncuft v Albrecht (1841) 12 Sim 189 at 199; 59 ER 1104 at 1108: the commodity "is always to be had by any person who chooses to apply for it in the market". Damages are therefore an adequate remedy. It may be different where the shares represent a strategic stake or in some other way have characteristics displacing the availability that the market provides: see, for example, Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 371; (2007) 62 ACSR 522 at [65]. But absent any such special circumstance, the remedy of the victim of a breach of the promise to transfer lies in damages only; and the absence of any right to specific performance means that that equity recognises no proprietary right or interest on the part of that victim. 86 A "lending . . . arrangement" in respect of ASX listed shares "compliant with" s 26BC of the Income Tax Assessment Act therefore entails the consequences, first, that the "lender" ceases to own the shares subjected to the arrangement and, second, that that "lender" receives in return a contractual promise of future transfer of identical or equivalent shares to the "lender", being a promise breach of which will give rise to a right to recover damages. But that "lender" does not acquire, upon the making of the "loan", any proprietary right or interest in any shares owned or held by the "borrower".

[96]

143 The statements in fact made in the 2005 Lift PDS included the following: "A LIFT facility brings together all the administration, transactional and reporting aspects of your investments and loans under the one facility as your portfolio would be held by LIFT Capital on your behalf. This means you always retain ownership in respect of, and entitlements arising from, the investment including dividends and franking credits"; and "Much like mortgaging property under a property loan, your investment portfolio is held as security for the Share Loan. The amount you are permitted to borrow from time to time is a function of the lending ratio of the individual investments in your portfolio applied to the market value of those investments, subject to your LIFT facility credit limit." 144 Similarly, in the Super Lift PDS it was said under a heading "Investment Ownership" that "you retain beneficial title in your investments"; also: "As the holder of the Beneficial interest in Approved Securities, you receive all the benefits and rights associated with direct ownership of the Approved Securities including entitlement to dividends, franking credits and corporation actions." 145 Lift Capital made no attempt to explain to potential clients through the product disclosure statements that a client's mortgaged shares might, at the will of Lift Capital and without notice to the client (either before or after the event), be subjected to a securities lending arrangement so that the client's interest in those shares was taken away. On the contrary, the prospective client was led by the product disclosure statements to the natural and normal expectation that the shares made available as security would be held intact for the duration of the loan and restored to the mortgagor when the debt had been paid, with the client's interest as mortgagor continuing throughout. There were clear and unambiguous assurances that the client's shares would be held as security and that the client's ownership interest in them would be ongoing.

At a glance

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Judgment (117 paragraphs)

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