Melewar Steel Ventures Ltd v Opes Prime Stockbroking Ltd; Terpu v Opes Prime... [2009] NSWSC 22 | Case summary

2149/08 MELEWAR STEEL VENTURES LIMITED v OPES PRIME STOCKBROKING LIMITED & 4 ORS 2204/08 JOHN SOTIRIOUS TERPU & ANOR v OPES PRIME STOCKBROKING LIMITED & 2 ORS JUDGMENT 1 I am dealing with a proposed further amended statement of claim sought to be filed by Melewar Steel Ventures Ltd in proceedings 2149/08 and a proposed further amended statement of claim sought to be filed by Mr Terpu and Valleybrook Investments Pty Ltd in proceedings 2204/08. The first defendant, in each case, is Opes Prime Stockbroking Ltd ("Opes"). The second and third defendants in each case are Australia and New Zealand Banking Group Ltd and ANZ Nominees Ltd. I shall refer to them together as "ANZ". There are two additional defendants in the Melewar matter, one of them (the fifth defendant) being Merrill Lynch International (Australia) Ltd ("Merrill"). 2 ANZ and Merrill say that leave to file the further amended statement of claim in the Melewar proceedings should be refused. ANZ alone takes the same stance in relation to the Terpu and Valleybrook matter. The parties argued the matter on the basis that the test to be applied is that referred to by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, that is, whether the case sought to be pursued is so obviously untenable that it cannot possibly succeed or is manifestly groundless or so manifestly faulty that it does not admit of argument. 3 To avoid doubt, I should record that the draft of the further amended statement of claim to which these reasons relate is, in the case of Melewar, the draft which is the annexure A to the affidavit of Van Moulis sworn on 15 September 2008 and filed in proceedings 2149/08 and, in the case of Terpu and Valleybrook, the draft which is the annexure A to the affidavit of the same deponent of the same date filed in proceedings 2204/08. 4 The basic allegations in each proceeding are the same. In the course of argument, attention was paid virtually exclusively to the Melewar matter on the basis that the result there will also apply to the Terpu and Valleybrook proceeding. I shall adopt the same approach. 5 The allegations in the Melewar proceeding can be understood by reference to the following propositions advanced in the proposed further amended statement of claim in the Melewar matter: 1. On or about 11 October 2007, Melewar entered into a facility agreement with Opes. 2. The facility agreement was partly written and partly oral. Insofar as it was written, it was contained in certain email correspondence between Melewar and Opes, a letter, the content of a website and a "global master securities lending agreement" ("GMSLA"). 3. There were express terms of the facility agreement that (a) Melewar would retain the beneficial ownership of any shares transferred, deposited or "lent" by it to Opes or anyone nominated by Opes to hold the shares; (b) all shares transferred by Melewar would be held by Opes Prime's custodian, ANZ Nominees, on behalf of Melewar; (c) upon repayment of moneys advanced by Opes and Melewar, Opes would redeliver any of the shares transferred, deposited or "lent"; (d) there would be a loan to value ratio ("LvR") of 50%; (e) Opes would not deal with the shares inconsistently with Melewar's beneficial ownership of them; (f) any claims of the GMSLA which were inconsistent with Melewar retaining beneficial ownership of the shares transferred would not apply. 4. The GMSLA between Melewar and Opes was, in effect, an umbrella agreement under which "loans" of securities might be made by one of the parties to the other from time to time. Clause 2.3 stated that notwithstanding use of the words "borrow", "lend", "redeliver" and "collateral" in the GMSLA, title to securities "borrowed" and "lent" would pass from one party to the other but with the party receiving title being obliged to deliver equivalent securities. By clause 4.2, all such transfers of title are to be "with full title guarantee, free from all liens, charges and encumbrances". 5. Any clause of the GMSLA, including clauses 2.3 and 4.2, inconsistent with the express terms of the facility agreement stated above was agreed not to apply as between Opes and Melewar. 6. Pursuant to the facility agreement, Melewar deposited 32 million shares in Gindalbie Metals Ltd with Opes in specified parcels between October 2007 and January 2008 and was advanced money pursuant to a cash drawdown facility by Opes. 7. Certain of the Gindalbie shares were later transferred or lent to, or became subject to the control of ANZ or Merrill or both without the knowledge and consent of Melewar. 8. On or about 27 March 2008, Melewar deposited a further 3,087,009 shares in Gindalbie with Opes which later transferred the shares to Green Frog which continues to hold them. No consideration was provided to Melewar by Opes, Green Frog or anyone else when it deposited the further shares. 6 From that point, the proposed further amended statement of claim seeks to advance several causes of action against Opes, in essence: (a) that, in breach of the facility agreement, Opes has failed to redeem or re-deliver to Melewar all or any of the shares; (b) that, by reason of the terms of the facility agreement, Opes held the shares as express trustee or constructive trustee for Melewar and committed a breach of trust when it transferred the shares to other persons; (c) alternatively, that Melewar transferred the shares to Opes solely as security for cash advances, so that the facility agreement operates in substance and effect as a mortgage and Melewar had an equity of redemption; (d) alternatively, if the GMSLA was the operative agreement between Melewar and Opes: (i) Opes made representations to Melewar that the facility was a margin lending facility pursuant to which Melewar would retain beneficial ownership of all shares deposited by it with Opes as security for cash advances provided and that, at the direction of Opes, shares deposited by Melewar with ANZ Nominees were held by ANZ Nominees on behalf of Melewar; (ii) those representations were false; (iii) Opes did not at any time before March 2008 take steps to inform Melewar of the true position (so that there occurred "the Opes Prime Silence"); (iv) Melewar, when it entered into the GMSLA, mistakenly apprehended that it was a term of the GMSLA that there would be no change in beneficial ownership of shares transferred to ANZ Nominees and that those shares would be held by ANZ Nominees on behalf of Melewar (also that there was no term inconsistent with this); (v) there was accordingly a serious mistake by Melewar about the fundamental terms of the GMSLA which was induced by the representations and silence of Opes; (vi) Opes, by various means, did not correct Melewar's misapprehension and deliberately sought to ensure that Melewar continued to labour under it; (vii) Melewar is entitled to have the GMSLA rescinded and a declaration that Opes held the shares on constructive trust for Melewar, plus an order for restoration of the shares held by any of the defendants and equitable compensation. (e) that Melewar was induced by Opes' misrepresentations and silence to enter into the GMSLA without being aware of its true nature and effect, so that the same consequences as are mentioned at (vii) above should follow; (f) that, by making certain statements purportedly in accordance with s 672B of the Corporations Act 2001 (Cth), Opes made a declaration of trust in favour of Melewar so that there should be a declaration and orders accordingly; (g) that Opes is estopped by the misrepresentations and silence from denying that Melewar remained beneficially entitled to the shares; (h) that Opes owed fiduciary duties to Melewar, breach of which entitles Melewar to the relief claimed; (i) that, for the reasons stated, Opes engaged in misleading or deceptive conduct in contravention of statute by reason of which Melewar suffered loss and damage. 7 From that point, Melewar pleads causes of action against the ANZ parties and Merrill. First, it is alleged that in making responses to Gindalbie under s 672B of the Corporations Act, ANZ Nominees made misrepresentations and that ANZ Nominees failed to make notifications it should have made under s 671B; and that Melewar thereby suffered loss or damage within s 672F or s 671C as applicable. 8 Second, Melewar says that the making of notifications by ANZ Nominees under s 672B and 671B, as well as notifications of the latter kind by Merrill, involved statutory misconduct under one or more of s 1041H of the Corporations Act, s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and s 52 of the Trade Practices Act 1974 (Cth). 9 Third, it is alleged that each of ANZ and Merrill was knowingly concerned in a breach of trust committed by Opes as against Melewar and received trust property knowing it to have been transferred in breach of trust. 10 Fourth, there are various claims of accessorial involvement of ANZ and Merrill in statutory misconduct by Opes. 11 Central to Melewar's claims is the fundamental proposition that at the time ANZ or Merrill took title to the shares, Melewar was either the beneficial owner or enjoyed an equitable interest. ANZ and Merrill maintain that that proposition is incorrect. 12 ANZ and Merrill attack first the allegation that the express contractual terms outlined at item 3 of paragraph [5] above formed part of the contract between Opes and Melewar and the allegation that terms of the GMSLA yielded to those express terms as stated at item 5 paragraph [5] above. The submission ANZ and Merrill make is that the GMSLA was the governing agreement and the entire agreement. They say that it is inconceivable that the parties had an agreement to the effect that the documents they were about to sign would apply in certain respects only. 13 Melewar says in response that the written terms within the four corners of the document must be understood in context and that other documents created or used at the time are elements of that context. Melewar refers to a separate document conveying an offer of equity finance to Melewar. That document is in terms making it plain that it refers to the particular transaction. There are references to a loan to valuation ratio and to shares in Gindalbie being "pledged". These are indications of a secured loan transaction. In addition, these are matters not found within the GMSLA and it must be at least arguable that the terms of the offer of equity finance document played a part in the creation and content of the parties' contract. 14 So too with another separate document referred to by Melewar, being the financial services guide published by Opes in relation to transactions of the type in question. That document contains provisions about where beneficial ownership of securities is to reside. Moreover, the application form within the guide contains a statement that signing of the form will lead to the establishment of an account "on the terms set out in this FSG". 15 There are, to my mind, questions of fact about the extent, if any, to which the content of documents other than the GMSLA (and, in particular, the content of the offer of equity finance document and the content of the financial services guide) was accepted by the parties as part of their contract. As was pointed out by Melewar in relation to the financial services guide, promissory content of an antecedent "selling document" may come to form part of a contract for sale: Ross v Allis-Chalmers Australia Pty Ltd (1981) 55 ALJR 8. 16 I need to refer briefly but separately to a distinct set of pre-contract documents, being emails in the period 3 October 2007 to 11 October 2007. It is said by ANZ and Merrill that these had no contractual significance because they must have been overtaken by the formal documents ultimately signed. Again, I am of the opinion that there are questions of fact that are properly raised. 17 In summary regarding the allegation of the five express contractual terms outlined at item 3 of paragraph [5] above, it has not been shown that the breach of contract case sought to be pursued by Melewar (see item (a) of paragraph [6] above) fails the General Steel test. 18 This is sufficient to dispose also of the claim by ANZ and Merrill that the case based on breach of an express trust or constructive trust existing by reason of the terms of the facility agreement (see item (b) of paragraph [6] above). That claim is so bound up with the contract claim that the conclusion that the breach of contract claim should be allowed to proceed carries with it the conclusion that the breach of trust claim should also be allowed to proceed. 19 ANZ next attacks Melewar's alternative claim that the shares in Gindalbie were transferred to Opes by way of security and that the facility agreement operated in substance and effect as a mortgage (see item (c) at paragraph [6] above). Again, the central issue is as to the content of the parties' contract. I have already referred to documents that may be capable of giving rise to ultimate findings to the effect that the true nature of the transaction was such as to entail security only, as distinct from outright transfer. This part of the pleading is not objectionable. It is, I think, beside the point that, in Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 594; (2008) 66 ACSR 116, Finkelstein J held that a similar transaction did not entail a security. It is a matter of discovering the true effect of the transactions to which this case relates and of construing the particular documents in the light of the prevailing circumstances. 20 ANZ and Merrill next attack the parts of the pleading by which Melewar claims that it entered into the GMSLA under a serious mistake about its content, being a mistake induced by representations and silence of Opes (see items (d) and (e) of paragraph [6] above). 21 There was debate before me about whether, in circumstances of the kind Melewar alleges, a constructive trust arises as the factual elements fall into place or only when "imposed" as a result of the court's findings, a matter referred to, in a very similar context, by Finkelstein J in Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920. For the reasons his Honour there stated (particularly at [20]), it is not appropriate to attempt to resolve that issue on the present motion. The better course, in a general sense, would be to let the claim stand and develop in the usual way. 22 There are, however, two particular matters requiring attention. 23 The first comes from the need for Melewar to prove that ANZ had actual or constructive notice of Opes' conduct (by representations and silence), with the result that such notice must be alleged in the pleading. This element is lacking and, unless and until it is supplied, the claims based on mistake should not be allowed to proceed. 24 The second point is that the allegation that Opes deliberately sought to ensure that Melewar continued to labour under the misapprehension induces by Opes' conduct. There is a need, under rule 15.3 of the Uniform Civil Procedure Rules 2005 for the pleading to give particulars of this. Unless and until such particulars are given, the claims based on mistake should not be allowed to proceed. 25 The claim referred to in item (f) at paragraph [6] above proceeds on the basis that statements made by Opes in response to a requirement arising through s 672A of the Corporations Act amounted to a declaration of trust in favour of Melewar in respect of the shares the subject of the statements. The statements were as follows: "We refer to your letter dated 7 January 2008, regarding disclosure of the ownership of [Gindalbie] shares held in ANZ Nominees for the account of [Opes Prime]. As at the 8th of January 2008, [Opes Prime] was the legal owner of 19,181,000 shares in [Gindalbie]. All the shares were held under the terms of an Australian Securities Lending Agreement ('AMSLA') signed with the following for the following number of shares. Under the terms of AMSLA, whilst [Opes Prime] has legal ownership of the shares it has neither the beneficial nor economic ownership of the stock. As such subject to the terms of the AMSLA, these holders below have full authority with relation to the acquisition and disposal of shares; the exercise of voting and other rights, and any other matters relating to the shares." 26 These statements were made by Opes to Gindalbie, being the person who, being empowered by s 672A to do so, sought information from Opes. The obligation of Opes to respond arose from s 672B. By the response, Opes reported what it considered to be an existing situation. 27 This is fatal to the proposition that the statements made in conformity amounted to a declaration of trust. By declaring a trust, the owner of property does something that causes some new beneficial interest to come into existence. A statement or representation about a pre-existing ownership position does not and cannot have that effect. 28 For this reason alone - coupled with the fact that someone reporting a pre-existing position in obedience to a statutory requirement cannot possibly be regarded as thereby showing an intention to create a trust - this part of the pleading cannot be allowed to proceed. I respectfully adopt, in this regard, what is said in paragraph [25] of Finkelstein J's judgment in Imobilari Pty Ltd v Opes Prime Stockbroking Ltd (above). 29 I consider next item (h) at paragraph [6] above and the claims based on alleged breach of fiduciary duty. Several objections are taken to this part of the pleading. It is sufficient to deal with what I accept is a fundamental problem. 30 It is pleaded, in substance, that Opes undertook to act for Melewar in obtaining a loan on the security of the shares but, at the same time, had an interest in ensuring that the shares were unencumbered so that it could pass title to third parties. The obligation and the interest were, it is said, in conflict with one another and there was a duty to refrain from subjecting the shares to the GMSLA without the informed consent of Melewar. 31 The duty is couched in terms of a fiduciary duty but, as ANZ and Merrill point out, no foundation is laid in the form of a factual matrix from which a fiduciary duty is said to arise. The existence of conflicting obligation and interest is of itself insufficient. Fiduciary expectations must first be attracted; and they can only be attracted by some added factual components. As Gaudron J and McHugh J said in Breen v Williams [1996] HCA 57; (1996) 186 CLR 7l: "In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests." 32 What is lacking here is the pleading of a factual basis for contending that Opes had come under an obligation to act in the interests of Melewar and therefore to subjugate its own interests as it selflessly promoted and pursued those of Melewar. Although Melewar referred in submissions to Daly v The Sydney Stock Exchange Ltd [1985] HCA 25; (1985) 160 CLR 371, the relationship in the present case is removed from that which was there held to be of a fiduciary character. 33 This part of the pleading is accordingly objectionable as it stands and cannot be allowed to proceed. 34 In relation to item (i) at paragraph [6] above, (statutory misconduct in the form of misleading or deceptive conduct), Melewar purports to rely on a range of statutory provisions. The point is taken against it that one of these - s 52 of the Trade Practices Act 1974 (Cth) - cannot possibly apply because of s 51AF of that Act. That section says that Part V does not apply to the supply, or possible supply, of services that are "financial services" defined, by s 4, as having the same meaning as in Division 2 of Part 2 of the Australian Securities and Investments Commission Act 2001 (Cth). 35 The submission of Melewar (which I accept) is that the boundary is not necessarily clear and that there is nothing objectionable in pleading, in the alternative, the several similar statutory causes of action. 36 I consider next the direct claims against ANZ and Merrill alleging misrepresentation (including by silence) in what was done by way of compliance with notification requirements under s 671B and 672B of the Corporations Act. The only real complaint there is raised by Merrill. It says that the allegation that it failed to comply is insufficient and incomplete because the circumstances from which the obligation to comply arose are not identified. The response by Melewar is that Merrill knows what the circumstances are and it is not necessary for them to be pleaded. 37 I accept Merrill's submission on this point. The disclosure obligations turn upon the existence of a "relevant interest" in shares. The "relevant interest" concept is elaborately defined in s 608 and s 609, with various levels of deeming and various exceptions. It behoves anyone alleging the existence of a relevant interest to explain succinctly and precisely just how the statutory provisions operate in the particularly identified factual context to produce the relevant interest. And where, as here, the allegation is that a relevant interest arose at a particular time, the existence of the relevant circumstances at that time must be pleaded. 38 The pleading is deficient in this respect and cannot be allowed to proceed unless and until suitably supplemented. 39 There next arises for consideration the parts of the Melewar pleading that advance "knowing receipt" claims under the first limb of Barnes v Addy (1874) LR 9 Ch App 244. 40 In relation to each of ANZ and Merrill separately, it is pleaded that it received shares transferred to it (or the proceeds of sale of shares) subject to "notice or constructive notice of the prior interests of Melewar". The objection levelled at this part of the pleading is that it does not identify the level of knowledge alleged against it or how the rules about corporate knowledge attribution apply in the circumstances. 41 There is a difficulty here in that, as Finkelstein J observed in the Imobilari case (above) at [27], referring to the High Court's decision in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89: "Precisely what constitutes knowledge for the purposes of a Barnes v Addy knowing receipt claim has not been explicitly settled by the High Court …" 42 The pleading considered by Finkelstein J in Imobilari apparently contained an allegation identical with that with which I am here concerned, namely, that the banks had "notice or constructive notice" of the interests in question. Furthermore, it appears from paragraph [32] of the judgment that the particulars given in support of the allegation were, in substance, the same as those in paragraph 86 of the document before me. His Honour found that the plaintiff in the case had not pleaded facts sufficient to establish the requisite level of knowledge. At best, the allegations would have established that the banks had knowledge of circumstances that would have put an honest and reasonable person on inquiry or, putting that another way, that they were negligent in failing to keep aware of what Opes was up to. 43 This, in terms of knowledge or notice, is the fifth of the categories discussed in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA [1991] 1 WLR 509. But that fifth category was rejected in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (above) at [177] - [178] as relevant to the second limb of Barnes v Addy as it applies in Australia. It must also be rejected as relevant to the first limb. 44 Accordingly, I take the same attitude as Finkelstein J to that part of the case sought to be advanced against ANZ and Merrill. The allegation of relevant knowledge or notice is deficient and the pleading cannot be allowed to proceed while that aspect remains as it is. 45 ANZ and Merrill raise a second objection to this part of Melewar's claim. Recipient liability is alleged to flow from a breach of trust - the trust being, in this case, the alleged constructive trust as to which there was the debate referred to at paragraph [21] above. ANZ and Merill make the point that, since a constructive trust of the relevant type is "imposed" when the court makes its decision, someone taking the relevant property at an earlier time cannot do so with any form of knowledge or notice of the trust. As I have said, it is not appropriate to attempt to resolve on this motion the question of the time at which the relevant type of constructive trust arises. 46 In relation to the factual elements of the knowing receipt claim, the point is made (and, in my view, validly made) that there must be identification of the matters of which ANZ and Merrill are said to have had actual notice, of the natural persons who had that notice and of the time at which notice was obtained. The pleading is deficient in this respect. 47 I deal penultimately with the case of knowing involvement of ANZ and Merrill in the alleged misleading or deceptive conduct of Opes. A case of that kind must be based on actual knowledge of the essential facts that constitute the statutory contravention: Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661. Constructive knowledge is not enough. The facts Melewar relies on are those relied on in relation to the Barnes v Addy claim. Melewar therefore again proceeds on the basis of circumstances that would have put an honest and reasonable person on inquiry. This is not a sound basis and the claim cannot be allowed to proceed in its current form. 48 The final matter to be considered is the estoppel claims advanced by Melewar against ANZ and Merrill in identical terms at the end of the proposed further amended statement of claim. The essential allegation is that each of ANZ and Merrill made and adopted an assumption that it was not beneficially entitled to the relevant shares and conducted itself consistently with that assumption, so that it would be "unjust" to allow it to depart from the assumption made by it. 49 The objection here, which I consider valid, is that there is no such thing as estoppel by unilateral and unassisted assumption. It may be unconscionable for someone to act inconsistently with an assumption that he has caused someone else to adopt. That is a quite different thing. The form of estoppel sought to be pleaded here is not an available form of estoppel. 50 Because of the several deficiencies and difficulties to which I refer, leave for Melewar to file the proposed further amended statement of claim in proceedings 2149/08 will be refused. There will be a like outcome in respect of the proposed further amended statement of claim sought to be filed by Terpu and Valleybrook in proceedings 2204/08. 51 In addition, the plaintiffs should pay the costs of the defendants in relation to the motion for leave. 52 The parties will be directed to file short minutes of orders giving effect to this decision and also dealing appropriately with the pleadings already filed. **********

Melewar Steel Ventures Ltd v Opes Prime Stockbroking Ltd; Terpu v Opes Prime Stockbroking Ltd

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Judgment (11 paragraphs)

Legislation Cited (3)

Cases Cited (13)