Phisci Pty Ltd v Green Frog Nominees Pty Ltd

REASONS FOR JUDGMENT 1 The plaintiff, Phisci Pty Ltd, brings this action to recover a parcel of 1,230,593 shares in the capital of Restaurant Brands New Zealand (RBNZ). The shares are presently held in the name of the first defendant, Green Frog Nominees Pty Ltd (in liquidation). Phisci asserts it is the beneficial owner of the shares. The second defendant, Opes Prime Stockbroking Pty Ltd (receiver and manager appointed) (in liquidation) (OPS), also claims to be the beneficial owner. On 15 December 2008 I granted Phisci leave to proceed with its action against OPS for purposes of determining the ownership of the shares and issues of liability: leave was required by reason of s 500(2) of the Corporations Act 2001 (Cth). I also ordered that if the receivers and managers of OPS retire or are removed from office, Phisci must not without further leave proceed with the action. What follows are my reasons for making those orders. 2 The background to the dispute may be descried briefly. Phisci engaged Opes Prime Paradigm Pty Ltd (OPP), a company that is related to OPS, to act on its behalf in relation to the acquisition of the shares in RBNZ. Phisci's intention was to purchase the shares partly with its own funds and partly with borrowed money. It claims that OPS agreed to lend it the money it needed on the basis that the shares would be put up as security. For its part, OPS says that its agreement with Phisci contains terms to the effect that Phisci would have no interest in the shares. 3 When Phisci commenced the action Green Frog was not in liquidation, but OPS had been placed into administration. Section 440D of the Corporations Actprovides for a stay of proceedings against the property of a company in administration in the absence of the administrator's consent or leave of the court. The cases say the section applies to property claimed by a company in administration even if its title is in dispute and even if the property is held by a third party: see Cope v Home [2002] NSWSC 777. For that reason Phisci applied for (and was in due course granted) leave to continue the proceeding against Green Frog. 4 Green Frog was subsequently placed into liquidation. On Phisci's application, it was granted leave to proceed with its action against Green Frog. The liquidators of Green Frog did not oppose that course. They indicated that they would take no part in the action but that nonetheless the claim would be defended by OPS through the receivers. It was, in any event, appropriate to grant leave because Green Frog is a necessary party to the action, it being the legal owner of the shares. Leave was granted on the usual condition that Phisci does not, without further leave, enforce any judgment for the payment of money. 5 The second meeting of the creditors of OPS was held on 15 October 2008. The creditors resolved that OPS be wound up. One consequence of the winding up was the need to obtain leave to proceed with the claim. Phisci sought that leave on the basis that if the receivers retire or are removed from office Phisci would not proceed with the claim. 6 The policy that lies behind s 500 is discussed in many cases, including O D Transport (Australia) Pty Ltd (In Liquidation) v O D Transport Pty Ltd (1997) 80 FCR 290, 293-294. One purpose for the section is that "without the relevant restriction [i.e. the requirement to obtain leave], a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well in some cases as unnecessary": Ogilvie-Grant v East (1983)7 ACLR 669, 672. The structure of the Corporations Act is that a money claimant should generally lodge a proof of debt with the liquidator unless he can demonstrate some good reason why a departure from that procedure is justified: Hewlett Packard Australia Pty Ltd v Siltek Holdings Pty Ltd [2005] NSWSC 672 at [6]. "The question whether a claimant should be permitted to proceed by action, or should be required to submit his proof of debt … is therefore reduced largely to one of choosing between alternative forms of procedure": Ogilvie-Grant at 672. 7 Different considerations arise when a party is seeking to recover his own property from a company that is in liquidation. In that event a court will readily grant the plaintiff leave to proceed. For example, where a mortgagee wishes to enforce his security by taking action to recover mortgaged property leave is normally granted: O D Transport at 294; see also Robins Haigh McNeill Pty Ltd v Nichols-Cumming Advertising Australia Pty Ltd (in liq) [2001] VSC 427 at [39]; Hewlett Packard Australia at [7]. 8 This exception to the general rule suggests that Phisci's claim to recover what it asserts are its shares should be allowed to proceed. An order to that effect was not opposed by the liquidators who did not contest there is a real dispute between the parties about the ownership of the shares. Although of only marginal relevance, I note that as the receivers will run the defence to Phisci claims: the order granting leave places no burden on the liquidators. 9 It is necessary to explain why leave to proceed was confined to issues of liability. Phisci pleads several causes of action to found its claim for the RBNZ shares. Its primary claim is that it purchased the shares pursuant to a line of credit agreement, the terms of which were partly formed by representations made by OPS, OPP and Green Frog. OPS denies this assertion, claiming that Phisci entered into a securities lending agreement (SLA) under which beneficial ownership in the shares was transferred to OPS: for a discussion about SLAs see Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Limited (2008) 246 ALR 361. If it is found that the shares were transferred to OPS under the SLA, then Phisci contends that the terms of the SLA should be rectified to include the terms of the line of credit agreement. There is also an indirect proprietary claim. Phisci alleges that OPS, OPP and Green Frog made misleading representations in breach of s 52 of the Trade Practices Act 1974 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth). By way of remedy, Phisci seeks an order that the SLA be varied under s 87 of the Trade Practice Act or s 12GM of the ASIC Act to recognise its proprietary interest over the RBNZ shares. Then there is a non-proprietary claim by which Phisci seeks damages for the misleading conduct under s 82 of the Trade Practices Act or s 12GF of the ASIC Act. Last, there is a claim that Phisci was induced into entering the SLA in reliance upon the representations and that OPS and Green Frog are estopped from asserting that terms of their agreement differ from the line of credit agreement. 10 The facts that Phisci will attempt to prove to establish each cause of action are substantially the same. It was therefore appropriate that all the facts (and the corresponding legal issues) be determined at one time. 11 On the other hand, it was not appropriate to deal with issues of quantum. For one thing, those issues are of no interest to the receivers. It will fall upon the liquidators to deal with that part of the claim. This gives rise to a problem. OPS is not entitled to separate representation on separate issues without leave, and that leave is rarely granted. In any event, at present the liquidators have no funds and are not in a position to contest quantum. In that circumstance, it would be prejudicial to the interests of creditors to allow the quantum claim to go ahead untested. When and how damages (if any are proven) should be assessed can be resolved on another day. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.