(a) Do the principles established by cases such as Reckitt and Tobin apply to the circumstances here, such that Bellpac is entitled to be restored as legal owner of the convertible bonds which were transferred to each of the relevant defendants?
210 In view of the plaintiffs' prominent reliance on the decisions in Reckitt and Tobin, it is desirable to look closely at those decisions with a view, in particular, to determining whether or not the principles they establish apply here.
211 In Reckitt, Sir Harold Reckitt gave a power of attorney to Lord Terrington (a solicitor) to manage his affairs while he was abroad and, for that purpose, to serve and execute all documents which might be necessary or such as Lord Terrington might think fit. After Sir Harold's bank queried whether the power of attorney authorised Lord Terrington to draw cheques, Sir Harold confirmed by letter that he intended that it do so. Lord Terrington drew a cheque upon Sir Harold's bank, which was payable to the respondents, and signed the cheque as Sir Harold's attorney in circumstances where the respondents knew that he was doing so in payment of a debt of his own and not that of Sir Harold. The respondents accepted the cheque without inquiry. When Sir Harold learned of Lord Terrington's actions, he sued the respondents to recover the amount of the cheque as damages for conversion or as money had and received.
212 In reversing the decision of the Court of Appeal and in upholding Russell J's dissenting decision, the House of Lords held that:
(a) the power of attorney, as amplified by the letter, conferred no authority on Lord Terrington to use Sir Harold's money for the purpose of paying Lord Terrington's personal debts; and
(b) in the absence of actual authority, the respondents, having noticed that Sir Harold's money was being applied for Lord Terrington's private purposes, were not entitled to retain the proceeds of the cheque.
213 The House of Lords held that Lord Terrington had acted outside his authority even though, under the terms of the power of attorney, his authority insofar as cheques were concerned was without restriction. Viscount Sumner explained at 189:
Assuming that the express power to draw carries with it an implied power to issue cheques, when drawn, still what is unrestricted is only the drawing of cheques and the subsequent issue must be subject, as the general power itself is, to the exercise of the power being for the purposes of the principal. It is unreasonable so to interpret the words that, although he can only use the power of attorney for the principal's benefit, he can under the letter, by drawing enough cheques on the appellant's account, transfer all the principal's property into his own pocket or apply it to his own use. We know that in fact nothing of this sort could have been meant by the parties to the power, for such self-sacrificing trust would be beyond the limits even of romance and it would be wrong to attach to words, which at most are ambiguous, a meaning which bears no relation to the realities of life.
214 Tobin involved a similar misuse of a power of attorney which had been granted by Dr Tobin to his stockbroker, Mr Hodgetts. Relevantly, the power of attorney authorised Mr Hodgetts to do all or any of the acts, deeds and things specified in the Schedule. The Schedule included the power to sell all or any of Dr Tobin's stocks or shares.
215 While Dr Tobin was overseas, Mr Hodgetts pledged certain of Dr Tobin's share certificates with the defendant, another stockbroker, as part of a security for an advance made by the defendant to Mr Hodgetts and in circumstances where Dr Tobin was not in any way indebted to Mr Hodgetts. The share certificates were endorsed with transfers in blank signed by Mr Hodgetts as attorney for Dr Tobin and were further endorsed as saying that the power of attorney had been produced to the companies in which the shares were held. The defendant did not inspect the power of attorney and made no inquiry into Mr Hodgetts' authority to pledge the shares. Dr Tobin sought the return of the share certificates.
216 The High Court held that the power of attorney conferred no actual authority on Mr Hodgetts to borrow on his own account by pledging shares which were Dr Tobin's property and, further, that Mr Hodgetts had no ostensible authority to deal with Dr Tobin's share certificates in this manner.
217 The following observations of Dixon J at 401 might be noted (which partly relied on what was held by Russell J in dissent in the Court of Appeal and upheld by the House of Lords in Reckitt):
Prima facie, a power, however widely its general words may be expressed, should not be construed as authorizing the attorney to deal with the property of his principal for the attorney's own benefit. Something more specific and quite unambiguous is needed to justify an interpretation… "An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property".
218 On the issue of the attorney's ostensible authority, Dixon J made the following observations at 406:
Now the scrip in the present case is not negotiable. It is true that it is in a form by which title can, in effect, be transferred by delivery. But the vital distinction is that the scrip assumed that form only by the use by Hodgetts of his authority under his power of attorney. On the face of the scrip their condition as indicia of title transferable by delivery depended entirely on the authority taken by his client. His possession of these documents, therefore, justified no assumption that his client had authorized him to deal with them. That depended on his actual authority as attorney under power. Moreover, at the time of the loan from the defendant the plaintiffs were not indebted to Hodgetts and the latter had no authority of any sort to pledge or mortgage the scrip even for a limited interest or amount or for a special purpose. The scrip was in his hands only for safe custody and to enable him to sell if he saw fit or was so instructed.
219 The relief which was granted in Tobin included an order that the share certificates be returned to their rightful owner and, alternatively, an award of damages in the amount of the value of the shares.
220 I consider that the principles established in Reckitt and Tobin are applicable here. Subject to a consideration of the terms of cl 6 of the power of attorney granted by Bellpac to Mr Alfred Wong (see further below), Mr Wong had no authority to use Bellpac's convertible bonds to pay off his own personal debts. Furthermore, it was or ought reasonably to have been apparent to each of the relevant defendants from the terms of the transfer forms and the convertible bonds themselves that Bellpac was the legal owner, yet no reasonable inquiries were made as to Mr Wong's right to use Bellpac's property to pay his personal debts. These matters were sufficient to put the relevant defendants on notice of the need to make reasonable inquiries as to Mr Wong's entitlement to transfer the bonds to the transferees irrespective of what the transferees were told by Alfred Wong about his ability to deal with the bonds to pay his personal debts. None of the relevant defendants has established that Mr Wong had a beneficial interest in the bonds.
221 I accept the plaintiffs' submissions that the relevant facts in Reckitt are indistinguishable from here and, in particular:
(a) just as Lord Terrington drew a cheque upon Sir Harold's bank to liquidate Lord Terrington's private debt, so Alfred Wong used his power of attorney to transfer Bellpac's bonds to liquidate his private debts;
(b) just as the bank knew that Lord Terrington was using his power of attorney from Sir Harold to liquidate his private debt, so all the relevant defendants here had knowledge that Alfred Wong was transferring Bellpac's bonds to each of them in respect of his private debts; and
(c) just as the form of the cheque gave the bank notice that the money was not Lord Terrington's, the form of the transfer together with the terms of the bonds made clear that the bonds were not Alfred Wong's, but Bellpac's.
222 Several submissions were advanced on behalf of Dr Kwok, and separately on behalf of Great Investments, Mr Xu and Mr Hong (some of which have been considered and rejected above), with a view to distinguishing Reckitt and Tobin. None of those submissions is persuasive.
223 First, Mr Stapleton contended on behalf of Dr Kwok that, unlike the position in both Reckitt and Tobin, the circumstances here did not give rise to any actual or constructive notice. Reliance was placed on the evidence of both Dr and Mrs Kwok that they believed what they were told by Alfred Wong that the bonds were his and neither had any knowledge of the existence of Bellpac or its interest in the bonds at the relevant time. The difficulty with this contention is that, even if that evidence is accepted (and I see no reason why it should not be accepted), it does not avoid the fact that Dr Kwok's attorney, Mr Ivan Wong, saw (or, alternatively, ought reasonably to have seen) the terms of the transfer form and the convertible bonds themselves. Those documents revealed that Alfred Wong executed the transfer form as attorney for Bellpac and that Bellpac was the registered holder of the bonds. It can also be inferred that Ivan Wong was aware that the bonds were being transferred to Dr Kwok in payment of the outstanding loans which Alfred Wong had taken from the Kwoks. As noted in [119] above, Ivan Wong was aware of the existence of those loans. It is reasonable also to infer that he was told by either Dr Kwok or, more likely, Mrs Kwok that Alfred Wong was transferring the bonds to Dr Kwok in respect of those loans. Those inferences may more confidently be drawn in circumstances where Ivan Wong was available to give evidence but was not called by Dr Kwok. I consider that it is more probable than not that Mrs Kwok and not Dr Kwok gave instructions to Ivan Wong to attend to the execution of the transfer form and registration of the bonds and that in the course of their discussions she mentioned to Ivan Wong that these matters related to Alfred Wong's repayment of his outstanding loans with the Kwok family. As noted above, Ivan Wong was aware of those loans not the least because he had corresponded with his sister about them.
224 In my view, these matters were sufficient to put Ivan Wong on notice of the need for reasonable inquiries to be made concerning Alfred Wong's entitlement to use Bellpac's assets to pay his personal debts. As Ivan Wong's principal, Dr Kwok is to be attributed with the notice which Ivan Wong had. As previously noted, it was open to Dr Kwok to call his brother-in-law, Ivan Wong, to give evidence in Dr Kwok's case but he did not do so notwithstanding that Ivan Wong was available to give evidence if required. In my view, it can be assumed that Ivan Wong would not have given evidence in contradiction to the inferences and findings made above concerning his involvement in the transaction.
225 The application in these circumstances of the principle in Jones v Dunkel is not avoided by the fact that both Dr Kwok and Mrs Kwok themselves gave evidence. Neither of them was physically involved in the processes which took place in Sydney which must have involved Ivan Wong reviewing the transfer form and the bonds, executing the transfer form and attending to registration. Only Ivan Wong, as attorney and agent for Dr Kwok, could give evidence as to whether or not he saw that Alfred Wong had signed the transfer form as attorney for Bellpac and that the bonds were not in Alfred Wong's name, but Bellpac's. Mr Stapleton sought to downplay, if not avoid all together, Ivan Wong's notice concerning these matters by contending that he had simply and faithfully carried out the terms of his instruction as attorney, which was to execute the transfer. But, as Dr Kwok himself frankly and correctly acknowledged in his evidence, which I accept, he expected Ivan Wong to do everything that he would have done if he were personally present in Sydney to sign the transfer. Plainly, that would include carefully reviewing the transfer form and the terms of the relevant convertible bonds, which would put any reasonable person on notice of the fact that the bonds were in Bellpac's name and Alfred Wong had executed the transfer form as attorney for that company and not in his own right. This fact gave rise to a requirement that reasonable inquiries be made, which did not occur here.
226 The second contended basis for distinguishing Reckitt and Tobin, which was advanced by both Mr Stapleton and Mr Tzovaras, relied on the terms of cl 6 of Alfred Wong's power of attorney. It was submitted that, on its proper construction, this clause meant that Alfred Wong had actual authority to do what he did because it empowered him to use his power of attorney for Bellpac notwithstanding that he had a conflict of interest or had a direct personal interest in the result of the transfer of the bonds. For the following reasons, I reject these contentions.
227 The general principle that an attorney is not empowered to deal with the principal's property for the attorney's own benefit is subject to an express provision to the contrary in the formal power of attorney. A strict construction of powers of attorney is generally appropriate (see, for example, Attwood v Munnings 108 ER 727; (1827) 7 B & C 278; Tobin at 390-391 per Latham CJ; Spina v Permanent Custodians Ltd [2008] NSWSC 561; (2008) 13 BPR 25,463 at [108] per Hammerschlag J (reversed on appeal in [2009] NSWCA 206; (2009) 14 BPR 26,923, but not on this issue) and, see generally, G E Dal Pont, Powers of Attorney, 2nd Edition (2015) LexisNexis Butterworths at [6.25] and [6.36].
228 Some of these principles of general law are now encapsulated and restated in s 12 of the Powers of Attorney Act 2003 (NSW):
12 Prescribed power of attorney does not generally confer authority to confer benefits on attorneys
(1) A prescribed power of attorney does not authorise an attorney to execute an assurance or other document, or to do any other act, as a result of which a benefit would be conferred on the attorney unless the instrument creating the power expressly authorises the conferral of the benefit.
Note: This subsection restates a rule of the general law. Accordingly, whether the conferral of a benefit on an attorney is expressly authorised by a prescribed power of attorney is to be determined by reference to the general principles and rules of the common law and equity concerning the interpretation of powers of attorney.
(2) Without limiting subsection (1), a prescribed power of attorney that includes the prescribed expression for the purposes of this subsection set out in Schedule 3 authorises an attorney to confer on the attorney the kinds of benefits that are specified by that Schedule for that expression.
229 The power of attorney given by Bellpac to Mr Wong, was not a "prescribed power of attorney" within the meaning of that Act (see s 8). Thus, the general common law principles apply.
230 Clause 6 of the power of attorney granted by Bellpac to Mr Wong is set out in [66] above. I do not accept the submission that, properly construed, this clause meant that Mr Wong had actual authority to transfer Bellpac's convertible bonds to his personal creditors. It is one thing to say that the provision authorised Mr Wong to exercise a power granted by the power of attorney even though he may have a conflict of interest in its exercise or a direct or personal interest in the outcome. It is quite another thing to say that the provision should be construed so as to authorise the attorney to exercise a power so as to divest the donor of its asset without any benefit to the donor and for the exclusive personal benefit of the attorney. Justice Dixon's observations in Tobin (see [218] above) are directly in point. Clause 6 should not be construed as authorising Mr Wong to deal with Bellpac's property as though it was his own.
231 The issue also arises as to whether each of the relevant defendants was entitled to rely on Mr Wong having ostensible authority to bind Bellpac by executing the transfers in the exercise of his power of attorney. As noted above, the transfers were executed by Mr Wong with express reference to that power of attorney, and the registration details of the power of attorney were provided. The applicable principles are reflected in the following extract from Dal Pont, supra at [9.31] (citations omitted):
There are occasions in the case law where, even without the opportunity to view the power of attorney itself, it has been held that the third party should be treated as having had notice that the attorney's actions were unauthorised. The most common scenario where this has occurred is where the attorney purported to effect a dealing that was for the attorney's own benefit, and so prima facie in breach of fiduciary duty (unless authorised expressly by the power). It has been judicially observed, to this end, that:
…a third party who enters into a transaction which is, apparently in the interest of the agent exclusively, without reference to the principal or the authorising document to ascertain the transaction's legitimacy, cannot appeal to the law of agency for protection.
Whether the above statement of principle should be confined to transactions 'exclusively' for the benefit of the attorney may be queried. A third party arguably takes a risk where the transaction is primarily for the attorney's benefit too. Ultimately it may depend on the facts of each case, which would be influenced by the sensible precautions, and the sophistication and experience of the third party in dealings of this kind.
232 In Sweeney v Howard [2007] NSWSC 852 at [56], Windeyer J made the following relevant observations:
It is to be remembered that a third party who reasonably relies on the wording of the power of attorney or the representations of the principal is still protected by the doctrine of ostensible authority. However, a third party who enters into a transaction which is, apparently in the interest of the agent exclusively, without reference to the principal or the authorising document to ascertain the transaction's legitimacy, cannot appeal to the law of agency for protection.
(Emphasis added).
233 His Honour's statements of principle were expressly approved by the Court of Appeal of New South Wales in Siahos v J P Morgan Trust Australia Limited [2009] NSWCA 20 at [27] per Macfarlan JA (Giles and McColl JJA agreeing). At [28] Macfarlan JA added the following qualification:
I would add a caveat as to whether it is necessary that the third party be on notice that the transaction is apparently in the interests of the agent "exclusively". Consideration of the position that would obtain if the act was seen to be partly for the benefit of the attorney and partly for that of the donor is not necessary in the present case.
234 I respectfully agree with those statements.
235 Mr Stapleton relied on the fact that the power of attorney had been drafted by a law firm and was also signed by two Bellpac directors, which, he submitted, meant that the document was binding on Bellpac as provided in s 127(1)(a) of the Corporations Act. This further meant, so it was submitted, that Ivan Wong would have been entitled to make various assumptions under ss 128 and 129 of the Corporations Act. Mr Stapleton then submitted that these matters were relevant to the question of what Ivan Wong ought to have done when he reviewed the transfer form and the bond certificates, noting that Ivan Wong was not a solicitor. He submitted that, having regard to these matters, Ivan Wong would have been justified in believing that the power of attorney was valid and authorised Alfred Wong to do what he did. Accordingly, Mr Stapleton submitted that even if Ivan Wong had made reasonable inquiries he would not have acted any differently to how he actually did.
236 Mr Stapleton contended that Ivan Wong was entitled to make the following assumptions:
(a) that Alfred Wong had been duly appointed as Bellpac's attorney (s 129(3)(a));
(b) that Alfred Wong had authority to exercise and perform the powers customarily exercised or performed by such an agent of the company (s 129(3)(b)); and
(c) that Alfred Wong properly performed the duties which he owed to Bellpac as its attorney (s 129(4)).
237 For the following reasons I reject these submissions. Section 128(1) of the Corporations Act provides that a person is entitled to make the assumptions in s 129 in relation to the person's dealings with a company. Section 128(2) provides that a person is entitled to make those same assumptions in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. In either case the company is not entitled to assert in proceedings in relation to such dealings that any of the assumptions is incorrect.
238 Mr Stapleton's contentions beg the question as to what were the duties which Mr Alfred Wong owed to Bellpac as its attorney. The implicit assumption in his contentions is that, on its proper construction, cl 6 of the power of attorney authorised Alfred Wong to use Bellpac's property for his personal debts. That assumption is incorrect, for the reasons given above. That provision, properly construed, did not have the effect of giving Alfred Wong carte blanche to do whatever he wished with Bellpac's property and, in particular, to use that property for purely personal reasons which had nothing to do with the company's affairs. Sections 127 to 129 of the Corporations Act do not operate to modify or amend the proper construction of cl 6 of the power of attorney. Or to put the matter another way, the limited scope of cl 6 cannot be circumvented by resort to ss 127 to 129 in isolation from the need properly to construe that provision in order to ascertain the nature and scope of the duties which it created for Alfred Wong as Bellpac's attorney.