Primary Securities Ltd as Trustee of the Baker Partners Founders Fund v... [2025] FCA 80 | Case summary

Primary Securities Ltd as Trustee of the Baker Partners Founders Fund v... [2025] FCA 80 | Case summary | Zoe

[17]

JACKSON J: 1 A dispute has arisen as to whether the Court has jurisdiction in this proceeding (WAD 31 of 2022). The applicant, Primary Securities Ltd (PSL) maintains that it does; the third and sixth respondents, whom I will call the Warburton parties, contend that it does not. 2 The issue arises because if the claims presently made in WAD 31 are considered in isolation, they have no federal aspect. They are, in essence, claims for knowing receipt of trust property. 3 PSL contends that the claims must not be considered in isolation. Rather, they are related to as many as three other disputes which do invoke federal jurisdiction, all of which form part of the same 'matter', in the sense of a justiciable controversy. One of those disputes was raised in WAD 31, the two others in different proceedings. According to PSL, the federal aspects of those other disputes mean that this Court has jurisdiction over the whole matter, including the (non-federal) claims presently made in WAD 31. In order to understand this, it will be necessary to describe all the claims and proceedings. It will also be necessary to describe the somewhat protracted procedural history that has led the current proceeding to be constituted in the way that it has. 4 The procedural history of the jurisdictional issue is itself somewhat protracted. On 6 May 2024 the parties were granted leave to file written submissions on jurisdiction. After several extensions, the respondents joined issue on the point by filing their initial submissions on 17 June 2024. The issue went to a hearing on 19 July 2024. However, by orders made on 21 August 2024 the parties in a related proceeding, WAD 318 of 2023, were referred to mediation. The discussions had the potential to settle both WAD 318 and this proceeding. But, while WAD 318 did settle by consent on 20 November 2024, WAD 31 did not. It has therefore become necessary to determine the question of jurisdiction. 5 Also, at the end of August 2024, before WAD 318 settled, PSL filed a cross-claim in that proceeding which raised one of the other disputes that are mentioned above. The parties were therefore given an opportunity to file further written submissions about the significance of that cross-claim to the Court's jurisdiction, which they did. 6 For the reasons that follow, I have concluded that the Court does have jurisdiction to determine the claims against the respondents in this proceeding, WAD 31.

[18]

Principles relevant to the jurisdiction of the Federal Court 7 To frame the relevance of the description of the various proceedings and the issues raised in them given below, it is convenient to state the well-established principles that apply in this situation. 8 The Federal Court is not a court of general jurisdiction; rather, it only has such jurisdiction as is conferred on it by the Commonwealth Parliament in accordance with the Constitution: see Wang v Secretary, Department of Employment & Workplace Relations [2006] FCA 898 at [47]-[49] (Heerey J); Crown Estates (Sales) Pty Ltd v Commissioner of Taxation [2016] FCA 335 at [6] (Logan J). 9 Central to the conferral of jurisdiction on the Court is the concept of a 'matter'. Section 76 and s 77 of the Constitution together empower the Parliament to make laws defining the jurisdiction of federal courts in relation to certain kinds of 'matters' as there described. Legislation that confers jurisdiction on the Court tends to use that term too. With a presently immaterial exception, s 39B(1A)(c) of the Judiciary Act 1903 (Cth) confers original jurisdiction on the Court 'in any matter … arising under any laws made by the Parliament'. Also relevant is s 1337B(1) of the Corporations Act 2001 (Cth), which confers jurisdiction 'with respect to civil matters arising under the Corporations legislation' (which includes the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)): see definition in s 9 of the Corporations Act. 10 A matter is a justiciable controversy comprised of the substratum of facts and claims that amount to the dispute or controversy between the parties: see Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 at 512 (Mason J); Fencott v Muller (1983) 152 CLR 570 at 603-608; Rana v Google Inc [2017] FCAFC 156; (2017) 254 FCR 1 at [17] (Allsop CJ, Besanko and White JJ). 11 Importantly here, 'Where federal and non-federal claims comprise the same justiciable controversy, a court exercising federal jurisdiction will have jurisdiction to resolve the entire matter in the exercise of its federal jurisdiction': Rana at [17]. Hence the question arises here whether the claims made in WAD 31 form part of the same matter as other, federal claims. 12 The principles for determining the scope of a matter are summarised in the following frequently cited passage from Re Wakim; Ex parte McNally (1999) 198 CLR 511 at [139]-[140] (Gummow and Hayne JJ): The central task is to identify the justiciable controversy. In civil proceedings that will ordinarily require close attention to the pleadings (if any) and to the factual basis of each claim. In Fencott [at 608] it was said that 'in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter.' The references to 'impression' and 'practical judgment' cannot be understood, however, as stating a test that is to be applied. Considerations of impression and practical judgment are relevant because the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete. Necessarily, then, the question will have to be decided on limited information. But the question is not at large. What is a single controversy 'depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships' [Fencott at 608]. There is but a single matter if different claims arise out of 'common transactions and facts' or 'a common substratum of facts' [Philip Morris at 512], notwithstanding that the facts upon which the claims depend 'do not wholly coincide' [Fencott at 607]. So, too, there is but one matter where different claims are so related that the determination of one is essential to the determination of the other [Philip Morris at 512], as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose or necessitate its determination. Conversely, claims which are 'completely disparate' [Felton v Mulligan (1971) 124 CLR 367 at 373], 'completely separate and distinct' [Philip Morris at 521] or 'distinct and unrelated' [Moorgate Tobacco Co Ltd v Philip Morris Ltd (1980) 145 CLR 457 at 482] are not part of the same matter. 13 In Philip Morris at 474 Barwick CJ said that determining whether two matters are in substance disparate and independent: … does not involve any close confinement of the federal jurisdiction by too narrow a view of what is relevantly the matter. The emphasis on the disparate and independent nature of what is not part of or within the matter should ensure that no narrow view is taken of the parameters of the matter. 14 And in Rana at [29], the Full Court explained that: … there is no requirement for a complete overlapping of the underlying substratum of facts, allegations and claims for relief between the different parts of the matter, or, to use old terminology, the federal issue and the accrued claim. If there is common substance, a substantial overlapping of the underlying facts and allegations in the federal claim and the non-federal claim out of which the different claims arise, that will suffice. It will always be a matter of practical judgment. There is an evaluative element to that judgement: see CGU Insurance Limited v Blakeley [2016] HCA 2; (2016) 259 CLR 339 at [30]-[31] (French CJ, Kiefel, Bell and Keane JJ). 15 It is, of course, often in a pleading that federal jurisdiction is invoked, and this may occur in a statement of claim, or a cross-claim, or in a defence: see James Allsop, 'An Introduction to the Jurisdiction of the Federal Court of Australia' [2007] Federal Judicial Scholarship 15: 1- 36, 26 [2] and the authorities cited there. But as important as the pleadings often are, the issues raised by them will not necessarily mark out the parameters of the matter: Philip Morris at 473. 16 Nor is a matter synonymous with a legal proceeding: Crouch v Commissioner for Railways (Queensland) (1985) 159 CLR 22 at 37. Rather, it is identifiable independently of the proceedings which are brought for its determination and it encompasses all claims made within the scope of the controversy: Fencott at 603. Nor is it confined to the cause of action that is asserted, in the sense of the particular legal basis for relief which is sought by a party; it is very much a question of substance and not of form: Philip Morris at 473. 17 Thus, in Hooper v Kirella Pty Ltd [1999] FCA 1584; (1999) 96 FCR 1 at [54], the Full Court said that 'the fact that separate proceedings are commenced against separate parties, is not necessarily inconsistent with the existence of a single controversy or matter, if the various proceedings arise out of the one set of events and raise related issues'. Since the existence of a matter is independent of the existence of a legal proceeding, a matter may arise even when no one has instituted a legal proceeding. Only a claim with the necessary federal elements is required: Hooper at [55] (emphasis in original). For example, even a proposed pleading will be sufficient to give rise to a federal matter attracting the jurisdiction of the Court: see Polar Aviation Pty Ltd v Civil Aviation Safety Authority [2010] FCA 367 at [34]. 18 Finally, federal jurisdiction will persist, even if the issue that attracted it is determined or otherwise resolved. In Rana at [21] the Court said (most citations removed): Upon the existence of federal jurisdiction, the matter remains within federal jurisdiction regardless of how the federal issue or issues within it are ultimately resolved. It remains federal even if the federal claim is struck out. Nor does dismissal of the federal claim mean that a court exercising federal jurisdiction somehow loses jurisdiction over the balance of the matter. The same is true if the federal claim is effectively abandoned. Indeed, a matter remains in federal jurisdiction even if a party is added and no federal claim is made against that party, provided it is all part of the same matter, the same controversy. The position is summarised in Macteldir Pty Ltd v Dimovski (2005) 226 ALR 773 at [36] as follows: It is a fundamental tenet of federal jurisdiction that once a federal claim is made, even a bad one, and even one that is abandoned, or struck out, the whole matter in which that claim is made is, and remains, federal jurisdiction …

[20]

A commercial arbitration 20 There is a commercial arbitration which is the first relevant proceeding to have been commenced. That occurred in May 2020. It is still on foot, albeit in abeyance. 21 PSL is the sole claimant (and respondent by counterclaim) and the respondents are one Leon Warburton and a company said to have been controlled by him, Warburton Investment Management Pty Ltd (WIM). Another company said to have been controlled by Mr Warburton, Baker Partners Holdings Pty Ltd (BPHL), lodged a counterclaim. 22 The issues in the arbitration appear from a statement of claim from June 2020 and a defence and counterclaim from August 2020. The statement of claim is relevantly summarised as follows (to be clear, I am only describing allegations that are made - some of them remain in issue in WAD 31): (1) On 1 March 2019, PSL became trustee of a fund known as the Warburton Global Macro Fund (Trust Fund). Soon after that, on 21 March 2019, PSL appointed WIM to act as investment manager of the Trust Fund under a written investment management agreement. (2) From on or about 1 May 2019, WIM was also investment manager of an entity formed in the Cayman Islands, initially also known as the 'Warburton Global Macro Fund' but soon after changing its name to 'Warburton Global Macro Offshore Fund' (Cayman Fund). (3) An Australian company, L R Warburton Pty Ltd (LRW), was incorporated on 13 June 2019. Mr Warburton was the sole director and shareholder. (4) Between about 1 May 2019 and 1 July 2019, Mr Warburton and WIM advised and directed PSL as trustee of the Trust Fund to invest all of the Trust Fund's assets, being A$8,445,394.56, in the Cayman Fund. In July 2019, PSL did so by subscribing for 'AUD Seed Shares' in the Cayman Fund. (5) On or about 1 August 2019, PSL changed the name of the Trust Fund from 'Warburton Global Macro Fund' to 'Baker Partners Founders Fund'. (6) On 4 October 2019, BPHL was incorporated (in Australia) with Mr Warburton as sole director and, initially, with his company LRW as sole shareholder. Subsequently in October 2019 and November 2019, Mr Warburton personally, WIM, employees of WIM, and entities associated with Mr Warburton's family became shareholders in BPHL. (7) Mr Warburton caused the Cayman Fund: (a) on 1 November 2019, to subscribe for 40,000,000 shares in BPHL for a subscription price of A$8,000; and (b) on 4 November 2019, to pay Mr Warburton A$4,000,000 for shares in BPHL that he held, for which he had subscribed at a total price of A$8,000. It is convenient to define these alleged transactions as the BPHL acquisition. (8) PSL was entitled to redeem its seed shares in the Cayman Fund, in return for assets. PSL requested redemption of the seed shares on 12 November 2019. On 22 November 2019, the Cayman Fund distributed to PSL in specie the shares in BPHL which it had acquired in the BPHL acquisition. On 17 December 2019, the Cayman Fund paid PSL A$4,410,470.69 in cash by way of distribution of its remaining assets. (9) WIM is pleaded to have owed statutory, contractual and fiduciary duties. The statutory duties are duties under s 12CA of the ASIC Act not to engage in misleading or deceptive conduct in relation to financial products or services; and under s 12CB of the ASIC Act not to engage in unconscionable conduct in relation to the supply of a financial product or other financial service. The contractual and fiduciary duties were owed to PSL (and the unit holders in the Trust Fund). (10) Mr Warburton is pleaded to have owed similar statutory duties (under the same provisions of the ASIC Act) and similar fiduciary duties to PSL (and the unit holders in the Trust Fund). (11) The shares in BPHL that WIM and Mr Warburton caused PSL to acquire from Mr Warburton for A$4,000,000 were worth at least A$3,889,590 less than that. The precise value of the shares does not matter; elsewhere in the statement of claim they are said to have been essentially worthless. (12) That gross undervalue is said to have involved WIM and Mr Warburton breaching their respective contractual and fiduciary duties to PSL, along with s 12CA and s 12CB of the ASIC Act. (13) PSL suffered loss and damage as a result of those breaches of duty and of the ASIC Act. Importantly, the loss pleaded is the loss of the benefit of A$4,000,000 which PSL incurred because the Cayman Fund paid those funds to Mr Warburton for worthless shares in BPHL. (14) Therefore, under certain arbitration clauses, PSL claims an award of A$4,000,000 against both WIM and Mr Warburton. 23 WIM and Mr Warburton contest the allegations of breach of statutory, contractual and fiduciary duties and the loss that is said to have resulted. As said, they have put on a defence and BPHL has made a counterclaim. The counterclaim is not relevant, but the defence is. While it is not necessary to describe it in any detail, a particular set of allegations set out a course of dealings, of which the following form a part: (1) On 26 April 2019, the Cayman Fund entered into an agreement to lend WIM US$3,000,000 to fund initial offer costs and ongoing operational costs for which WIM was responsible (Manager Loan). (2) On or about 3 July 2019, WIM drew down US$2,900,000 on the Manager Loan. (3) Between July 2019 and November 2019, Mr Warburton and PSL engaged in discussions, the outcome of which was a plan to restructure the Trust Fund and the Cayman Fund. This included that the Cayman Fund would be closed, and its assets redeemed to the Trust Fund. It also included repaying the Manager Loan. (4) On 4 November 2019, the proceeds of the sale of Mr Warburton's shares in BPHL, that is, the A$4,000,000, was used to repay the Manager Loan. Mr Warburton provided those funds to WIM for that purpose. It is said that PSL approved of and consented to these transactions. 24 LRW and Mr Warburton rely on their pleas as to the wider course of dealings as part of their grounds for denying any breach of the ASIC Act or contractual or statutory duties. 25 In October 2021, PSL obtained judicial advice from this Court under the Trustees Act 1962 (WA) that it would be justified in refraining from prosecuting the arbitral proceeding, essentially because the asset position of the respondents in the arbitration meant that recovery of any award was unlikely (WIM is now in liquidation): see Primary Securities Ltd (Trustee), in the matter of Baker Partners Founders Fund [2021] FCA 1247. At the jurisdiction hearing for WAD 31, counsel for PSL indicated that the arbitration nevertheless remains on foot, and counsel for the Warburton parties did not take issue with that.

[21]

WAD 31 as originally constituted 26 PSL commenced this proceeding, WAD 31, by originating application filed on 14 February 2022. PSL was and is the only applicant. At the time of commencement, the only respondent was an insurer, Munich Re Syndicate Singapore Private Limited. 27 In the originating application, PSL sought a declaration that Munich Re was liable to indemnify it in respect of loss that was the subject of an insurance claim made in a letter from PSL's solicitors to Munich Re dated 10 June 2022. PSL also sought a declaration that it was entitled to interest pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) on any amount for which Munich Re was liable under the insurance policy in respect of the claim. 28 The scope of the dispute, as it then was, appeared further from the original concise statement PSL filed on 14 February 2022 and the concise statement in response that Munich Re filed on 30 March 2022. 29 The claim as outlined in the original concise statement concerned the same transactions that are the subject of PSL's claim in the arbitration, that is, the BPHL acquisition. The concise statement thus referred to PSL in its capacity as trustee of the Trust Fund, WIM as investment manager of the Cayman Fund, Mr Warburton's control of WIM, WIM's direction for the Trust Fund to invest A$8,445,394.56 in the Cayman Fund, and the subsequent redemption of that investment by PSL. The BPHL acquisition was alleged. This was pleaded to have involved, in substance, Mr Warburton misappropriating A$4,000,000 for his own benefit. Again, it was pleaded that the shares in BPHL were worthless. In November 2019 the Cayman Fund distributed to PSL the worthless shares in BPHL that it held, and subsequently paid PSL A$4,410,470.69. 30 The allegation that was said to have founded the liability of Munich Re as insurer was that PSL suffered loss as a result of Mr Warburton's conduct, being the total of the funds that he caused the Cayman Fund to spend in the BPHL acquisition, namely A$4,008,000. These funds were alleged to have been held on an express trust for PSL as a result of the redemption of the seed shares in the Cayman Fund. It is alleged that under the relevant insurance policy, PSL was entitled to be indemnified by Munich Re in respect of that loss. 31 There was also a plea that Mr Warburton sought to conceal his misconduct by representing falsely to PSL that the Cayman Fund held approximately A$4,300,000 in cash and A$8,000,000 worth of shares in BPHL, and that the Cayman Fund had paid A$4,008,000 to BPHL for a total of 8,000,000 shares purchased in two capital raisings. But nothing was pleaded to follow from that allegation, and no breach of the ASIC Act or any cognate legislation such as the Australian Consumer Law (set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth)) (ACL) was alleged. 32 Munich Re's concise statement in response said: (1) PSL, for itself but not as trustee of the Trust Fund, was the insured under the relevant policy, which included 'Comprehensive Crime' cover, and had a deductible of A$100,000 for each such claim. (2) Munich Re was not, however, liable to indemnify PSL for the loss that it claimed. The policy provided indemnity for 'direct loss' sustained by the insured 'resulting directly' from, relevantly, 'any theft, fraud or unlawful taking of Property by a Third Party'. (3) The Cayman Fund did not suffer the losses of A$4,000,000 and A$8,000 from the BPHL acquisition. Rather, any loss it suffered resulted from the US$3,000,000 Manager Loan. (4) Munich Re accepted that the BPHL acquisition occurred, essentially as pleaded. But immediately after it, WIM paid the Cayman Fund US$2,816,902.98 (A$4,079,748.25). Mr Warburton reported this to PSL as WIM paying the loan owed to the Cayman Fund. (5) So according to Munich Re, 'the Cayman Fund immediately got back more than it paid out on 4 November 2019 and incurred no loss from the transactions on that day' (concise statement in response, para 9.5). Any loss that the Cayman Fund suffered derived from WIM's failure to repay the US$2,900,000 advance that the Cayman Fund had made to WIM pursuant to the Manager Loan. But as far as the transactions on 4 November 2019 were concerned, the Cayman Fund finished the day with more funds than it had started with. (6) Further (para 12, italics in original): There was no theft, fraud or unlawful taking of Property on or about 4 November 2019 because the transactions at that time were effectively a round robin in which the funds the Cayman Fund (controlled by [Mr Warburton]) distributed to Warburton on 4 November 2019 were repaid by WIM (controlled by [Mr Warburton]) on that day. (7) Other arguments about the construction and application of the insurance policy were also put. It is not necessary to describe them. 33 PSL filed a concise statement in reply on 14 April 2022 , which generally joined issue with the allegations in Munich Re's concise statement. 34 Despite the claim for interest under s 57 of the Insurance Contracts Act raised in the originating application, that claim was not pleaded in PSL's concise statement and was not disputed in Munich Re's concise statement.

[23]

The controversy between PSL and the remaining respondents 38 The scope of the controversy with the remaining respondents can now be described. On 10 March 2023, PSL gave effect to the orders of Feutrill J made on that day by filing what was effectively a substituted concise statement. It contained no allegations against Munich Re, but made different allegations against the remaining respondents. On 10 March 2023, PSL also filed an amended originating application which sought different relief against the remaining respondents. 39 After directions made in early 2024, PSL filed an amended version of the substituted concise statement, which removed the two respondents whose claims had been dismissed. It is a document filed on 22 May 2024 styled 'Further Amended Concise Statement' (FACS). 40 Other than the removal of those respondents, there is only one potentially relevant difference between the FACS and the previous version of the concise statement that is worth mentioning. That previous version contained an allegation that Mr Warburton and WIM made certain false representations and that PSL suffered loss in reliance on them. But there was no plea that in making the representations, WIM or Mr Warburton breached any specific provision of the ASIC Act or any cognate legislation such as the ACL, and it was not clear what followed from those allegations. There was only a broad claim which alleged breaches of the ACL in the 'primary legal grounds for the relief sought' section of the concise statement. 41 Putting that aside, in summary the FACS alleges the following: (1) The existence and roles of PSL, Mr Warburton and WIM, the Trust Fund and the Cayman Fund are all established. It is pleaded that WIM and Mr Warburton owed essentially fiduciary duties to PSL (no duty arising under the Corporations legislation is pleaded). Established too are the existence and status of the remaining respondents, essentially as set out above. (2) The Manager Loan from the Cayman Fund to WIM is also pleaded, as well as its stated purpose for WIM to defray initial offer costs and ongoing operational costs in respect of the Cayman Fund. (3) The investment of A$8,445,394.56 of the Trust Fund's assets in the Cayman Fund at WIM's direction is pleaded. (4) It is then pleaded that on 15 July 2019, Mr Warburton caused the Cayman Fund to pay to WIM A$3,500,000 pursuant to the loan agreement. (5) Then, also in July 2019, payments were made by WIM which had the effect of causing A$3,429,000 of those funds to be transferred to Mr Warburton and A$100,000 to the third respondent, Michlange (it may be that WIM received funds from other sources as well but it is not necessary to make any finding for present purposes). Mr Warburton is alleged to have held those funds on trust for PSL by reason of the principles in Blackv Freedman & Co (1910) 12 CLR 105, that is, essentially because it was stolen money. (6) Then, in a series of transactions also in July 2019, Mr Warburton disbursed the funds in breach of trust. A$300,000 went to Ms Andre, A$234,000 to Michlange, A$720,000 to Ms Goncalves and A$1,425,000 to Ms Warburton. Each of those respondents is said to have received the funds as constructive trustee for PSL. It is convenient to define these alleged unlawful transactions and those described in the previous sub-paragraph as the loan funds dispersal. (7) It is further alleged that each of the remaining respondents knew 'or had reason to know' or 'had constructive knowledge' that the funds had been paid in breach of trust (in the case of Michlange, this includes the A$100,000 that was paid by WIM directly). (8) Conduct is then pleaded as having taken place over July 2019 to December 2019, which a heading characterises as an attempt 'to conceal WIM's and Mr Warburton's wrongful and dishonest conduct'. This is comprised of Mr Warburton's actions in telling PSL that he had decided to close the Cayman Fund and directing PSL to redeem the seed shares, in procuring the Cayman Fund to make an in specie distribution to PSL of the worthless BPHL shares, and in procuring it to pay A$4,410,470.69 to PSL. (9) It is alleged that PSL has suffered loss of A$2,779,000 plus interest and costs. I infer from the amount that this is the portion of the loan funds dispersal that was paid to the remaining respondents. 42 On the basis of these allegations, PSL claims declarations that each of the remaining respondents hold the funds paid to them on trust for PSL, as well as claims that they account for the funds, or pay them to PSL, or pay damages or equitable compensation. 43 No defence has yet been filed, but from correspondence and from submissions made at the hearing on 19 July 2024, it was clear, and common ground, that the Court should proceed on the basis that the remaining respondents will join issue with PSL on the allegations in the FACS and on its entitlement to relief.

[24]

WAD 318 44 The third relevant proceeding was commenced in the Supreme Court of Western Australia. LRW was the plaintiff and PSL the defendant. On 14 November 2023 the Supreme Court ordered that it be transferred to this Court. 45 The claim by LRW, as set out in a further amended statement of claim dated 4 August 2023, was based on 150,000 units that it holds in a trust called the Baker Partners Master Fund (a different trust to the others that have been mentioned so far). PSL is the trustee of the Master Fund. In February 2021, LRW sought to redeem its units in the Master Fund, but was informed that PSL had suspended redemption, terminated the Master Fund, and transferred A$150,000 (apparently the funds that LRW had used to subscribe for the units) to its solicitors' trust account. LRW disputes that PSL was entitled to do this and seeks a declaration that PSL is obliged to pay the A$150,000 as a result of the redemption of the units, and orders requiring it to give effect to the redemption. 46 For the most part, PSL's defence does not dispute the factual allegations. It pleads that it gave as reasons for suspending the redemption that there was a presumption that those funds belonged to the Trust Fund (that is, the Baker Partners Founders Fund which is the fund on whose behalf PSL is prosecuting WAD 31), and also to comply with anti-money laundering obligations. 47 The defence then sets out, allegedly valid bases on which to suspend redemptions, one of which was to comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). 48 There is a reply which generally takes issue with the validity of the asserted bases, and avers that the determination to suspend redemptions was not honestly or reasonably made. 49 Finally, as has been said, on 28 August 2024 PSL filed a cross-claim (after the matter was transferred to this Court). The cross-claim is against LRW and its basis is similar to that of the claims against the remaining respondents. It is alleged, essentially, that the A$150,000 which LRW used to subscribe for units in the Master Fund came from WIM's drawdown of the Manager Loan, via payments of the majority of the drawn down funds by WIM to Mr Warburton. In other words, it was part of the loan funds dispersal. Mr Warburton thus obtained the funds wrongfully in breach of his and WIM's fiduciary obligations to PSL. LRW (of which Mr Warburton was allegedly the sole director and shareholder) knew of the breach or had reason to know it. It is said that LRW is constructive trustee of the funds for PSL by reason of the principles in Black v Freedman & Co. 50 PSL also made allegations similar to those made in the other proceedings concerning the BPHL acquisition. But it is not clear how those allegations supported the relief sought in the cross-claim. 51 In any event, that relief was: (a) declarations that LRW received and held the funds sourced from the Manager Loan which it received from Mr Warburton on trust for PSL in its capacity as trustee of the Trust Fund and holds the 150,000 units in the Master Fund on trust for PSL; (b) an order that LRW's 150,000 units in the Master Fund be transferred to PSL; (c) alternatively, an order that LRW is liable to account to PSL as constructive trustee in respect of the funds it received from Mr Warburton; (d) alternatively, an order that LRW pay A$150,000 to PSL; (e) alternatively, damages and/or equitable compensation; and (f) interest and costs. 52 As has been said, WAD 318 settled in 2024, and on 21 November 2024 orders dismissing the claim and the cross-claim were made by consent.

[26]

Are the claims against Munich Re and the remaining respondents in the same matter? 56 PSL appears mainly to rely on the claim as previously made against Munich Re in WAD 31. It says that this claim did attract federal jurisdiction. In oral submissions, counsel for PSL agreed that this was because of PSL's claim against Munich Re for payment of interest under s 57 of the Insurance Contracts Act. The Warburton parties do not dispute that there was jurisdiction in the claim against Munich Re. But they say that it was not part of the same matter as the claim against the remaining respondents. 57 PSL points to the following factual and legal overlaps between the two claims: (a) both are or were based on the relationship between PSL on the one hand and WIM and Mr Warburton on the other, and the duties that the latter owed to the former, including under the investment management agreement mentioned above; and (b) both involve losses said to have been suffered by reason of WIM and Mr Warburton's conduct in relation to the Cayman Fund, being improper dealings with the funds that PSL paid to that fund in return for the seed shares. 58 The Warburton parties, however, submit that these commonalities are insufficient to make all the claims part of the same matter. The transactions impugned in the claim against Munich Re (the BPHL acquisition) are not the same as the transactions impugned in the present claims (the loan funds dispersal). The allegations against the remaining respondents do not concern the BPHL acquisition. PSL seeks to meet this by accusing the Warburton parties of equating 'cause of action' with 'matter'. 59 In further submissions, the Warburton parties also rely on the fact that the loan funds dispersal was complete before the end of July 2019, but the BPHL acquisition occurred in November 2019. This means, they submit, that the determination of the claim against Munich Re in relation to the BPHL acquisition cannot be essential to the determination of the claim against the remaining respondents arising from the loan funds dispersal. 60 PSL further submits that there is a causative link between the dealings that founded the claim against the remaining respondents, namely the loan funds dispersal, and the dealings that founded the claim against Munich Re, namely the BPHL acquisition. That is because, PSL says, Mr Warburton engineered the BPHL acquisition in order to solve the problem that he could not close the Cayman Fund without repaying the Manager Loan. 61 As appears from the description of the pleadings in the arbitration, it is open to conclude that by selling the BPHL shares to the Cayman Fund, Mr Warburton obtained funds to repay the Manager Loan, which all happened on 4 November 2019. He was then able to close the Cayman Fund by distributing the BPHL shares to PSL in specie and paying it the fund's remaining cash. So, PSL says, the need to engineer the BPHL acquisition only arose because the Manager Loan could not be repaid, and that in turn was because of the loan funds dispersal. 62 The Warburton parties dispute that this link between the claim against Munich Re and the claim against the remaining respondents is sufficient to make them all part of the same matter. They point out that Mr Warburton's subjective motivation in procuring the BPHL acquisition was not in issue in the claim against Munich Re, and so was not part of the justiciable controversy or matter that encompassed that claim. 63 PSL further submits that if the claims against Munich Re, the remaining respondents, and LRW were to be determined by different courts, there would be a real risk of conflicting findings, giving as an example the common issues of the nature and extent of the duties owed to PSL by WIM and Mr Warburton. In the same vein, PSL submits that any recoveries against the remaining respondents may need to be paid to Munich Re (due to a provision of the settlement agreement between them: see Primary Securities Ltd as Trustee of the Baker Partners Founders Fund v Warburton [2024] FCA 382 at [42]). And it submits that, in any event, its recovery from Munich Re may have to be taken into account in assessing what can be recovered from the remaining respondents, relying on the same previous decision at [44]. In oral submissions, counsel for PSL also embraced as a further point of overlap the proposition that, since the policy with Munich Re was one of indemnity for a loss, any recovery from the remaining respondents would have reduced that loss. 64 The Warburton parties respond to this by submitting that this is not how the claims are pleaded. The claim against Munich Re was based on the loss arising from the BPHL acquisition; the claims against the remaining respondents are based on the losses arising from the loan funds dispersal. According to the Warburton parties, they are different losses. 65 The Warburton parties also take a point about the timing of the Munich Re claim and that of the claims against the remaining respondents. They submit that the claim against Munich Re settled, including by way of consent orders signed on 9 March 2023 and orders made by the Court on 10 March 2023, and the claim against the remaining respondents was commenced on 10 March 2023. There was thus no coexistence or overlap in time between the matter that concerned Munich Re and the matter that concerns the remaining respondents. 66 PSL meets this by relying on Primary Securities Ltd v Saker [2010] FCA 1471; (2010) 191 FCR 277 at [32] (Gilmour J), applying Australian Industry Group v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2002] FCAFC 386; (2002) 125 FCR 529 (AIG), as authority for the proposition that it is only when a right of appeal from orders determining a proceeding expires that the matter so determined expires. There was thus sufficient temporal overlap between the claim against Munich Re and the claims against the remaining respondents for them both to be part of the same matter. PSL also relies on the principle, set out above, that the disposal of a claim attracting federal jurisdiction does not deprive the Court of jurisdiction in relation to the wider matter.

[28]

Are the claims in WAD 318 and WAD 31 part of the same matter? 70 PSL also submits that the present claims form part of the same matter as the controversy in WAD 318. It is common ground that this Court has jurisdiction to determine WAD 318 by reason of the allegation in PSL's defence that it suspended redemptions in the Master Fund in order to comply with its obligations under the Commonwealth anti-money laundering legislation. 71 In its further submissions filed after filing the cross-claim in WAD 318, PSL enlarged its reliance on the subject matter of that proceeding to maintain that the transactions and facts that gave rise to the cross-claim are the same as the transactions and facts that give rise to the claims against the remaining respondents in WAD 31. 72 The Warburton parties respond by submitting that this is defining the matter raised in WAD 318 too widely, essentially by describing it as the justiciable controversy between PSL and Mr Warburton and his associated companies in respect of funds that PSL lost in relation to investments that it made with his associated companies. 73 The Warburton parties submit that the proper characterisation of the matter underlying the claim and cross-claim in WAD 318 is: 'The whole of the justiciable controversy between PSL and [LRW] as to whether the funds used by [LRW] to purchase units in the Master Fund are funds properly belonging to PSL'. The determination of the claim in WAD 318 is not essential to the determination of the claim against the remaining respondents in WAD 31 because the former turns on whether LRW was a knowing recipient of the relevant funds, and the latter turns on whether the remaining respondents were the knowing recipients of different funds. Mr Warburton's position as the controller of LRW and the person said to have procured the alleged misappropriation of funds makes the inquiry about knowledge in WAD 318 very different to the one in WAD 31. Also, the controversy about the purchase of units in the Master Fund using allegedly misappropriated funds is an important aspect of WAD 318 but absent from WAD 31.

[29]

The claims against Munich Re and the remaining respondents may not be in the same matter 74 The parties were correct to proceed on the basis that this Court had jurisdiction to determine the claim against Munich Re in WAD 31. A claim for interest under the Insurance Contracts Act can found the Court's jurisdiction to resolve a dispute between an insurer and insured over indemnity under a policy of insurance, even though the primary aspect of such claims is grounded in the common law of contract: see Koolan Iron Ore Pty Ltd v Infrassure Ltd (No 2) [2023] FCA 1654 at [56]. Since the dispute over interest is linked to the success of the substantive claim (see Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857 at [4]-[7]) it can be taken that there was a dispute about the interest claimed in the originating application, even though it was unpleaded. 75 Nevertheless, I am presently unpersuaded that the claim against Munich Re and the claim against the remaining respondents form part of the same matter, even though they formed part of the same proceeding (WAD 31). That is because, as a matter of substance rather than form, the first claim was settled before the latter claim was commenced. It is true that federal jurisdiction will persist even after the federal aspect of a matter has been terminated, but the AIG case (at [83]) confirms that if settlement of the justiciable controversy as a whole occurs, the whole matter will come to an end. 76 PSL sought to overcome this by relying (in effect) on observations in AIG that the matter will persist after the determination of the proceeding for so long as a right of appeal exists. But it is difficult to see how that can apply (in substance and not in form) when the orders are made by consent because the WAD 318 has settled. In my view it is likely that the controversy between PSL and Munich Re, whatever its scope, ended when the matter settled. Nor is it an answer of substance to say that the Court stated the order joining the new respondents immediately before the order dismissing the claim against Munich Re (or above it, on the page). 77 Were it not for that temporal obstacle, I would have been minded to accept that there was sufficient factual commonality and interdependence between the claim against Munich Re and the claims against the remaining respondents for them to form part of the same matter. That is not, however, on the basis of PSL's primary submission, to the effect that the common factor of duties owed by WIM and Mr Warburton to PSL means that the claims based on the loan funds dispersal and the BPHL acquisition respectively are part of the same matter. There is much to be said for the Warburton parties' submissions that they are different transactions. And I do not accept that the asserted causal connection - Mr Warburton engineered the BPHL acquisition to solve the problem presented by the Manager Loan - provides any relevant link sufficient to constitute them part of the same matter. No allegation of that causal connection was made in WAD 31, so if the proceeding is considered in isolation, the asserted causal connection forms no part of the justiciable controversy. 78 Rather, in my view two additional factors support the view that the claim against Munich Re and the claims against the remaining respondents form part of the same matter. The first is that in its concise statement in defence, Munich Re alleged that the Manager Loan was the true cause of PSL's loss (see [31] above). If those allegations had gone to trial, it would have been necessary to examine the circumstances of the Manager Loan, so that it was a significant part of the factual substratum of the claim. 79 The second factor is the prospect of double recovery. The claims against the remaining respondents and against Munich Re all include allegations that PSL has suffered loss as a result of the diminution of the value of its interest in the Cayman Fund, because of the funds that the Cayman Fund was induced to pay out. It is true that the loss was not pleaded quite that way in either the original concise statement against Munich Re or in the current FACS. But while the pleadings are important to identifying the substance of the controversy, they are not determinative, and nor are the precise causes of action asserted: Philip Morris at 473-474. 80 That being so, it is fundamental that the total alleged diminution in the value of PSL's interest in the Cayman Fund cannot be more than the difference between the amount it outlaid when it subscribed for the seed shares and the amount it received when the Cayman Fund was closed. If further amounts are recovered from the remaining respondents, the loss claimable against Munich Re would thereby have been reduced. This shows that the two claims are interdependent. And that interdependence is illustrated and reinforced by Munich Re's allegations that the true loss that PSL experienced was a result of the Manager Loan. 81 I do not, however, consider that the misleading conduct allegations made in PSL's amended concise statement filed on 10 March 2023 against the remaining respondents attracted federal jurisdiction to this proceeding. The allegations had no consequence for the pleading or the substance of the claim. They were superfluous and as a matter of substance did not form part of the justiciable controversy raised in WAD 31. 82 I have expressed the above views in a somewhat tentative form, however, because it is not necessary to determine the issue of jurisdiction on the basis of them. That is because, as about to be explained, I do consider that there is relevant commonality between the claims against the remaining respondents on the one hand, and each of the claims made in the arbitration and in WAD 318 on the other hand. The federal issues in each of the latter proceedings are part of the same matter as WAD 31. Those other proceedings therefore provide a sounder basis to find that the Court has jurisdiction than the claim against Munich Re in WAD 31.

[30]

The arbitration and the claims against the remaining respondents are part of the same matter 83 The arbitration remains on foot, so the lack of temporal overlap which afflicts PSL's reliance on the claim against Munich Re does not arise. 84 Nor is there any difficulty posed by the fact that the federal issues arise in a contractual commercial arbitration and not a proceeding commenced in this or any other court. The principles summarised at [15]-[16] above confirm that. There was at all material times a claim, albeit one made in an arbitration, and at all times there has been a justiciable controversy. If that controversy has a federal aspect and it forms part of the same matter as the controversy in WAD 31, the Court will have jurisdiction in WAD 31. 85 Also, there is no doubt that the arbitration does involve a federal claim, by reason of the allegations against WIM and Mr Warburton of alleged breaches of the ASIC Act. The question is whether those claims are part of the same matter as the present claims against the remaining respondents. 86 The claims made against WIM and Mr Warburton in the arbitration rest on the same circumstances that founded the claim against Munich Re in WAD 31. The substratum of facts common to all those matters has already been described. PSL paid funds to the Cayman Fund by way of subscribing for the seed shares. It is alleged that Mr Warburton and WIM owed PSL fiduciary duties. It is further alleged that these were breached, albeit in two different sets of transactions. The first in time, the loan funds dispersal, is the present subject of WAD 31 and the Manager Loan was also raised in the defence in the arbitration. The second, the BHPL acquisition, is the subject of the arbitration. It is the latter which involves a federal claim, because it was said to have resulted in the breaches of the ASIC Act. 87 I have already said that I do not consider that this common substratum of facts, considered in isolation, is sufficient to amount to a single matter. But the interdependence between the two sets of transactions is confirmed by allegations made by WIM and Mr Warburton in the arbitration, and by the issue of double recovery. 88 The relevant allegations are described at [22] above. They are to the effect that the transactions in BPHL shares were part of an agreed course of conduct to repay the Manager Loan and close the Cayman Fund. And these are not superfluous; they form part of the basis on which WIM and Mr Warburton deny liability, including for breaches of the ASIC Act. The circumstances of the Manager Loan therefore form part of the factual substratum of the issues in the arbitration. While the things said about the Manager Loan are themselves probably uncontroversial, if the arbitration were to proceed to a hearing it is likely that it would be necessary to examine the circumstances which, PSL maintains, made it impossible for WIM to repay the Manager Loan other than through the BPHL acquisition. 89 As for double recovery, particulars in the statement of claim in the arbitration describe PSL's loss as loss of 'the benefit of the $4,000,000 paid by the Cayman Fund to Mr Warburton for Mr Warburton's $8,000 [BPHL] shares'. The loss now claimed in WAD 31 is the loss of funds said to have been paid out to the remaining respondents, the source of which was, once again, funds paid by the Cayman Fund. As already described in connection with the claim against Munich Re, in the hands of PSL the losses claimed all sound in a diminution in the value of its investment in the Cayman Fund. While it is not appropriate to express any firm view at this stage in the proceeding, it appears to me to be reasonably arguable that the maximum claimed loss of that kind is indeed the difference between the amount subscribed for the seed shares, and the cash received back when the Cayman Fund was closed, a net sum of A$4,034,923.87. So, any recovery from the remaining respondents in WAD 31 may reduce the loss claimable against WIM and Mr Warburton in the arbitration to a figure below A$4,000,000. 90 As said, the Warburton parties sought to meet this point by saying that this is not how the loss was pleaded in WAD 31. The A$2,779,000 claimed in total against the remaining respondents must be calculated on the basis of the sums said to have been paid out to them by WIM and Mr Warburton. It was not framed as a diminution in the value of PSL's interest in the Cayman Fund. 91 That is true. But I repeat: while the pleadings are important to determining the scope of the matter, they are not determinative, and nor are the precise causes of action pleaded. In substance, as I have explained, the losses claimed by PSL against the remaining respondents in WAD 31 all appear to flow from the diminution in the value of PSL's interest in the Cayman Fund. 92 It is also true that more direct in personam claims are made against the remaining respondents, under what appears to be the principles in Barnes v Addy (1894) LR 9 Ch App 244. But the existence of the claims to damages and equitable compensation is sufficient to raise the possibility of double recovery, and so to make the arbitration and WAD 31 interdependent in a significant way. 93 In the words used in Wakim (at [140]), the 'different claims are so related that the determination of one is essential to the determination of the other' because there are, in effect 'alternative claims for the same damage'. The two claims are not 'completely disparate', 'completely separate and distinct' or 'distinct and unrelated': Wakim at [140]. That, together with the broader commonality of underlying facts described above, and the allegations about the Manager Loan made in the defence in the arbitration, mean that as a question of impression and practical judgment, the federal claims made in the arbitration, and the claims now made in WAD 31, form part of the same matter. The ASIC Act claims mean that, in the words of s 1337B of the Corporations Act, it is a civil matter arising under the Corporations legislation. This Court has jurisdiction over the whole matter (and has had since WAD 31 was commenced).

[31]

WAD 318 and WAD 31 are part of the same matter 94 The cross-claim in WAD 318 provides an independent basis to conclude that the Court has jurisdiction in WAD 31. 95 The parties are correct to accept that PSL's reliance in its defence on the Anti-Money Laundering and Counter-Terrorism Financing Act clothed WAD 318 with federal jurisdiction. For it meant that the defence thus raised owed its existence to a law made by the Commonwealth Parliament so that, for the purposes of s 39B(1A)(c) of the Judiciary Act, the matter of which it formed a part arose under a law made by the Parliament: see R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett v Opitz (1945) 70 CLR 141 at 154. 96 Also, consistently with the principles outlined above, the Warburton parties do not make anything of the fact that WAD 318 has settled. If the federal issue raised in it was sufficient to clothe the matter in federal jurisdiction, the matter remains so clothed even if one aspect of it (the disputes in WAD 318) have been settled. And the necessary temporal overlap between the respective claims was there. That assumes, of course, that the federal issue is in the same matter as WAD 31, which is the question at hand. 97 It may be that before the cross-claim was raised in WAD 318, they were not part of the same matter. Neither the statement of claim nor the defence filed in the Supreme Court makes any reference to the Cayman Fund or the transactions concerning it that are impugned in the other proceedings. But the cross-claim changed that. As described above, it directly invoked the allegedly unlawful payments by WIM to Mr Warburton of the funds obtained by way of the Manager Loan, part of which funds Mr Warburton allegedly paid to LRW and part of which he allegedly paid to the remaining respondents. The payment to LRW was said to be the source of the funds used by LRW to subscribe for units in the Master Fund. There was thus substantial commonality between the substratum of facts in the cross-claim and the substratum in WAD 318, engaging the federal aspect of PSL's defence. And there was also substantial commonality between the cross-claim and the substratum of WAD 31. They both concern the loan funds dispersal. Again, as a matter of impression and practical judgment, they were all part of the same matter. They cannot be said to be completely separate, distinct, disparate or unrelated. 98 As I have said, the Warburton parties seek to avoid this conclusion by submitting that the proper characterisation of the matter underlying WAD 318 is: 'The whole of the justiciable controversy between PSL and [LRW] as to whether the funds used by [LRW] to purchase units in the Master Fund are funds properly belonging to PSL'. But I do not consider that resolving the present issue requires the Court to encapsulate the matter in any such brief description. While Wakim (at [139]) confirms that the 'central task is to identify the justiciable controversy', it does not follow that this is to be done by defining the controversy in a single brisk sentence. It will always be possible to do that at a level of generality high enough to capture all the federal and non-federal claims that are in issue; or to describe a claim with such specificity that it appears separate. That these things can be done does not assist. Rather, what must be done is to make the necessary evaluative practical judgment, by reference to the considerations outlined in Wakim at [140]. 99 As I have also said, the Warburton parties also submit, in effect, that there is no interdependence between the cross-claim against LRW and the claims against the remaining respondents because they are each based on different payments to different respondents where the circumstances going to their knowledge of the source of the funds will differ. But that is to take too narrow a view, where no narrow view should be taken: Philip Morris at 474. The cross-claim is to the effect that, like the remaining respondents, LRW knowingly received a portion of funds that were misappropriated by Mr Warburton (at least). It is all said to be part of the loan funds dispersal. To apply the words used in Rana (at [29]), 'there is common substance' and 'a substantial overlapping of the underlying facts and allegations in the federal claim and the non-federal claim out of which the different claims arise'. The additional factor of the Master Fund in WAD 138 does not change that.

Primary Securities Ltd as Trustee of the Baker Partners Founders Fund v Warburton

At a glance

Court

Decision date

Before

Source

Judgment (32 paragraphs)

Parties

Legislation Cited (7)

Cases Cited (26)